Expeditors International of Washington, Inc. (EXPD) Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining our Expeditors Global Air Market Update. We are right at 2:00 here on the East Coast, so we will get started and go over some housekeeping items before we introduce our speakers and get going with the content. So first of all, my name is Samantha Hurst. I'm one of our Americas marketing and bid managers, and I will support as host for this event in the background in case you have any technical difficulties. In the meantime, I will start off by just letting you know if you've not joined us before, we welcome you to our events. We have regular webinars, at least twice monthly from the Americas level and then also regional webinars that are hosted as well. These typically include about 45 minutes of content and then a Q&A session at the end. We do encourage you as we go through the content to drop your questions into the Q&A box that will help us keep track of those. As we go through the content, we will try to make sure that we cover those questions. And if we do not, of course, we will address them during the Q&A session. That also includes a couple of questions that we did get during the registration process. Our speakers are aware of those and will do their best to answer those questions. One of the first questions we get, typically multiple times throughout these events is how do I receive the slides. So we are not recording today. We will provide these webinar slides, the content slides. After we send you a short survey. We really appreciate your feedback on these events, and it helps us to make sure that they are of value to anyone who's attending. So within about an hour of the webinar wrapping up, I will send you be an e-mail a survey that we ask that to fill out. And it will then open up a landing page where you can download the slides of the presentation and keep for your reference. So finally, how do you receive information about future webinars, maybe this is the first one you've attended. We do encourage you to scan this QR code here in the bottom right-hand corner of your screen. That will help you go to a page where you can subscribe to get invites for all of our webinars as well as information on local and global market updates. So now as I see our numbers start to climb, we will go on to introduce our speakers and then hand it over. So with us today, we have Joe Allegra. He's our Vice President of Air Cargo for the Americas. We also have Diego Estrin, he's our Director of Air Cargo for Latin America; and Diego Viro, he's our Director for North America or export gateways. So I'm going to turn this over to Joe, who's going to start with our content today. Thank you, Joe.

Excellent. Thanks, Samantha, and welcome, everybody. I truly appreciate you investing in the next hour with us as we touch on the nuances that are going on with global airfreight. So we'll start broadly talk about supply and demand, focus a little bit more on Asia airfreight and how trade shifts and e-commerce are impacting those markets. I'll turn it over to Diego Vero, who will talk about our U.S. exports, changes within the transatlantic freighter capacity. Some flows into South Asia and what we're seeing there. And certainly, touching on some of the disruptions in the released. And then finally, we'll end and with Diego Estrin who will touch on both the Latin America and Mexico markets. And finish off with some Q&A. So let's go at it. You're going to see this slide throughout the presentation. We love our stoplight indicators, green, our orange and red. We use this really to kind of identify the markets where we're seeing high demand and where that's exceeded capacity or where we're starting to see that climb up and then where it's all green. So for sake of my portion of this, I'm going to kind of focus on not only the global capacity and supply, but then drill down into North and South Asia a little bit more. So quickly, just touching on global supply and demand. Based on August 2024 year-over-year numbers, supply was up 8.2% when we talk about supply in reference to this presentation, it means capacity. It's the amount of space that the airlines have in the market. And then the demand, obviously, pretty self-explanatory and where we're seeing that demand. So the gap in between these 2 is not necessarily a good thing. And this is what we are seeing driving freight costs up and ultimately, challenging supply chains and getting cargo to their rightful destination. The right side shows the demand side of it. So that 12.4% that we're up, it drills down and isolates the individual flows. So as you can see, single digits when you look at North America, Europe or Asia, North America. And as we climb into the double digits, those are more represented by Middle East Europe flows as well as Europe, Asia and within Asia. So that was kind of the global number, but let's focus a little bit more now on the individual flows. So overall, if we take a snapshot of the month of September, so from the 2nd to the 29th, global capacity was up 9%, still comparing that to 2019 base year. As you can see, that's driven primarily by major Asia Pacific trade lanes. So Asia Pacific to North America, up 30%. And North America back to Asia, up 24%. TransAtlantic, on the other hand, continues to lag global growth, relatively flat. If you look at that, where we had some additional capacity in the summer season for leisure travel, that has pretty much all gone away, and we're seeing the winter schedules now with October and November. And then on the bottom, when you kind of look at, well, how is that capacity divided across those 3 sectors of passenger wide-body aircraft, the freighters and then the integrators. So over 2019, passenger belly capacity is still down 8%. I'll talk a little bit more about where that exists and why that may not be as obvious. But what we did see as we came into the second and third quarter is passenger belly capacity now exceeds globally airline freighter capacity, right? They had 42% of global capacity is attributed to wide-body passenger flights where airline freighters are 38%. On the growth story, airlines freighters are really driving the capacity growth with 6% versus the previous 4 weeks and 25% over 2019. And then from an integrator perspective, flat throughout the year, but certainly, over 2019, they were up 33%. They have coming off of COVID stayed relatively flat as far as their share of the capacity market. Let's drill down a little bit more. So when we look at that wide-body billing capacity, right, that I referenced on the earlier slide, it's a very different story when we start looking at where are these flights originating from. When you look at the rest of the world, Wide-body belly capacity in Q4 is estimated to be about 1% over 2019 and 2% over 2023. But when you look at ex Asia Pacific, not including China, it's still down 10% over 2019. Although good story is that it's up 9% over last year. China is really where the story lies. And when we look at over 2019, still down 14% even though it's up 20% over last year. And the reason there is still the tensions, trade tensions between the U.S. and China, it's landing rights, the amount of passenger demand as well, amount of Chinese visitors coming to the U.S. and vice versa. And so when we take out that wide-body capacity that really compared to 2019 is still down 14% that's where then we start looking at because typically, belly capacity comes at a discount to freighter capacity. Right? At least on the Asia outbound rates. And so without those passenger flights coming back, that's what's added to some of the price pressures and the rate pressures that we're still seeing out of China. If you look on the right side, over 2023, passenger belly globally is up 53% and then integrated 10% and airline freight of 14%. Now to the demand side. If we look at global demand, we really saw our trade growth in both Q2 and Q3 versus last year. On the other hand, Transatlantic air trade has shown a noticeable decline compared to the other trades. And then India, in a story of itself, their exports actually grew to the U.S. about 25%. So very high demand out of India in 2024 versus 2023. What is driving that? When we look at the demand out of Asia, e-commerce continues to push China and Hong Kong demand up, which ultimately also pushes yields up or rates up and those remain elevated versus last year. That is expected to continue in Q4 as general airfreight and e-commerce compete for space. When we look at the monthly average yields by trade lane, you can see Transpacific, they're up 23%, August over 2023. And 69% over 2019. Asia, Europe, also big numbers, 21% over 2023 and 61%. And as mentioned, you can see where Transatlantic westbound rates are flat to slightly lower based on, again, the demand side. Okay. Let's talk about demand a little bit more. So we talked about how demand is outstripping capacity. When you look at Asia Pacific outbound specifically, right, where we want to kind of focus on Asia outbound, a little bit of a different story, North Asia and South Asia, but both if you look at those demand graphs to the left, up over 2023 and 2022. Going across the countries, you see China, Taiwan, Vietnam, Indonesia, all up over 2022, continuing to rise, I've seen the same with Thailand, Singapore and a lesser extent out of Malaysia, but all of this is really due to production shifts. The China plus one strategy on the sourcing side, has really forced a lot of manufacturers to take their manufacturing from China down to South Asia. That compounded with shipping disruptions that we're seeing around the Red Sea. And then again, e-commerce, which you're going to continue to hear about throughout this presentation and expectations is that's going to grow another 8% to 9% in Q4. Now interesting, if you kind of look at the bottom, the migration of the types of commodities and verticals that we've seen move away from China to these markets in South Asia and India. So if you look at China high-tech from 2024 versus 2019 is down from 32.5% down to 23.3%. So, where did that all go? Let's look across to Vietnam, Malaysia, India, Taiwan, Singapore, you can see high tech is up in almost all of those markets in Vietnam from 27 to 34.5. In Malaysia from 37 to 41. India, the new kid on the block when it comes to contract manufacturing and high tech and different types of commodities outside of just fashion and retail, they're up, and that story will continue. As well as then Taiwan, and then Singapore as well just a little bit. But so when we talk about these shifts, and we talk about what's driving these capacity constraints in South Asia? This is it right here. I think this slide kind of is a tell all to why we are in a situation we're in. From a supply side, I wanted to just, again, throw this up, we've talked about supply, but you can kind of see in the green is the freighter capacity and in the gray is the passenger wide-body capacity. So you can see that we're almost at parity to 2019, right, overall out of Asia Pacific. When you look at China, we're up, but you can see the disparity between the green and the gray. But we're up because of all the new freighter capacity that's being deployed to support e-commerce in that market. So even though High-Tech is down out of China, does it mean that demand is down out of China because what's replacing that and consuming all of that capacity is e-commerce. And so you can see where the gray is still less than 2019. The 2024 passenger capacity is still less than 2019 passenger capacity, okay? We are seeing some recovery underway, but at least for markets out of China, Australia and Thailand, it is lagging. When we look at why the freighter capacity out of China is growing, again, it's based on freighter deployment. We've got airlines that are chasing those yields, those higher rates. And ultimately, that's where we're seeing a lot of the capacity being consumed. We're also seeing limited freighter capacity in other areas of South Asia as a result of that because that e-commerce has also flowed over to South Asia, and it's consuming capacity, believe it or not, coming out of the South Asia markets coming out of Thailand and Vietnam and Malaysia and Singapore. And then overall, the supply growth is not at pace with the demand levels in many of these markets that we've highlighted -- are highlighted in previous slides. From an airline perspective, I wanted to share with you what's going on with some of the airlines. Overall, we're seeing high price competition and margin compression globally. This isn't necessarily just out of Asia. But that has a lot to do with the margin compression with the operating expenditures between war and flight disruptions, airlines are getting less payload on those flights because the amount of fuel they have to put on them and higher operating expenses. There continues to be volatility with oil and foreign exchange, which is impacting them. These are the themes that we're hearing from our airline partners and then from another operating expense standpoint, also insurance premiums have been on the rise for the airline industry and impacting their bottom lines. They're also experiencing supply chain [blows], delays and quality issues and getting parts issues with engines that are impacting a lot of the airlines. That means more maintenance, it means delaying of certain maintenance cycles, and that has operating expense issues to them. And their ability to bring more aircraft into rotation. Inflation on the airport and handling and material side, and then certainly, we have read throughout the year various labor tensions with cabin crews and pilots across multiple different airlines in different regions that are impacting their bottom line. Again, we will share this. I won't go through these 5 different carriers and basically, what their capacity increases and operating expenses are. I'll let you go ahead and read through those, but these are some of the largest globally, and we thought it was relevant to share that with you. And then from an actual delivery schedule, so if we look at new planes and back in November of '23, the order book and how many airplanes, new airplanes -- airlines have ordered. Those have been revised. If we look at now May '24 of those -- those delivery order books, they're down 11%, and they've been pushed forward as well. So that's one of the reasons that also we're not seeing any new crafts coming to -- new aircrafts come into the market, new freighters or new wide-bodies to help on the capacity side. We are hoping by the second half of 2025, we'll start to see some of those delayed deliveries from this year, which would hopefully then bring in about an 11% increase on the number of total deliveries. Specific out of APAC, on the left, again, just out of Asia Pacific, the disparity is even bigger between supply and demand, 7% versus 16%. And from an air freight rate index, you can see where the price points have really been impacted by that. So certainly, Middle East and South Asia, when we talk about Middle East, that's really primarily India, to a lesser extent, Bangladesh. You can see there, Asia Pacific and then out of Africa. All the other points out of North America, out of Europe and out of Central and South America, not the same type of pressure that we're seeing on price points and rates. And then just some capacity scenarios. So Ceteris paribus, meaning with all other conditions remaining the same, the supply-demand gap is expected to continue in Q4. There will be a gradual pace of recovery, but with the expected deliveries being pushed out until second half of '25, that will have an impact on it. When we look at what we're calling strain ties, what's going on with Asia, U.S., the outbound capacity. So the number one correlates to the #1 down on the bottom box, you can see wide-body passenger capacity out of China. And how it compares this year versus 2019. So look at 2019 on the bottom, the United States versus 2024. And really, that's where we see the major inflection point of why we're not seeing more passenger flights. And then risk aversion, when we look at the conflict zone the no-fly zones, there are payload reductions. On the bottom, you can kind of see the routes that Asian airlines have to take to avoid the conflict zone over the Middle East. And so that they have to reduce their cargo on those flights to take on more fuel, increases their operating expenses. We see continuing widening of the aerospace closures as that conflict grows into other neighboring countries. And we also see the effect on air travel demand as well. And then finally, confrontation. When we look at Russia-Ukraine impact there has been a loss of capacity because of this. There was a major freighter operator Russian-based freighter operator Airbridge that you can see in 2019, the amount of freighter capacity that was available out of Asia that would be going through Russia or their hub in Moscow, compared to 2024. So that loss of capacity access, that loss of connectivity has certainly affected the capacity out of Asia. And we're also seeing a much slower recovery in the case of North Asia to Europe as well because of, again, diverted routes and inability to utilize that capacity that used to be there pre-sanctions and pre conflict. And now I will wrap up with some closing comments. Guidance-wise, we'll continue to see geopolitical headwinds that take center stage for the rest of this year. Certainly, some elections might make that even more challenging. From a demand perspective, I think the continued transition in trade flows and the composition and makeup of where goods are being manufactured, will continue to be front and center. And then from a supply side, we'll need to try and conquer the bottlenecks where they exist and hopefully able to get airlines to gradually redistribute their flights on their network to not only chase e-commerce, but also be able to support the rest of general cargo and cargo types. Alternative solutions that might exist today, they're temporary trade-offs. So if we are seeing whether it's from C-Air or some particularly charter activity, we don't see that as sustainable and consistent. I think they're fairly temporary. From our side, we're going to focus on what we can control. Going into our 2025, 2026 capacity agreement purchasing cycle, we've got to try and incorporate more certainty and flexibility into that planning with our carrier partners. What does that mean? We may not -- depending where the price points come, we may not sign for as much or the airlines may not want to sign for us much if they continue to see that there's higher yielding e-commerce business out there to fill those freighters. When we -- on the right top side, we look at the systemic factors and then the certainty of it and the duration, production shift into South Asia, again, e-commerce, it's highly certain for the rest of this year and first half of 2025. Somewhat for the second half of 2025. E-commerce kind of read that again between most certain and uncertain trade war escalation, fragile economy, conflict in the Ukraine and Middle East, along with the geopolitics in Asia -- East Asia, whether that's Taiwan, China or North Korea. Those are highly uncertain. We don't know what's going to happen there. And then although we've dodged the bullet with port disruptions at least for this year, but that's going to be a conversation again in January when the 2 sides try to meet to negotiate the rest of the conditions, which seemed to be all or mostly associated with port automation and the union is not wanting that. And I think from our side, if we look at those alternative solutions that we were talking about conventional airlift routings or your CDSOA freight -- that continues to be the baseline. That's what gives variability in transit time, scalability in price. Charter's block space and agreements, those are short of transit time, scalability is limited because of the amount of availability of those planes and the price points are high. We don't see as many alternative air deferred-type routings, although where they do exist or an Air [indiscernible], trades time is going to be lower, scalability limited price point, in some cases, lower, in many cases, very variable and then on to the multimodal and ocean side. The last -- past indices or indicators that I'll share with you, when we look at purchasing manager index out of China and then the IHS market data, which is the old S&P Global Index, you can see South Asia is becoming dangerously red. And that is then further exasperated by the price of an ocean container as we see that from January to August continue to climb. So escalations in those shipping costs ultimately could elevate the attractiveness of airfreight and we'll see ourselves in a similar, although be it not even situation as we did in COVID. So with that, I will turn it over to Diego Viro, who will talk about our U.S. export updates. Diego, it's all yours.

Thanks, Joe. Hi, everyone. So I wanted to start with the matrix -- No. I think, Joe, just to position this topic, Joe did a great job. He talked a lot in detail about the inbound to the U.S., which you can see has a lot of bread. For the next few minutes, we're going to be focusing on that top line, which is exports from North America. Okay. I wanted to take a minute to really explain that this is a regional indicator. Okay? So for example, there could be -- when you look at North America to Europe or North America to the Middle East, India and Africa, even though we flagged the region as normal, without major challenges. There could be a unique dynamic. There could be a unique challenge to specific lane that will cover that today. But we feel the region as a whole is green. Okay. So you can see that there's 1 region that we flagged this yellow -- orange that we have -- we're experiencing extremely high demand. Now the shift, the manufacturing shift to Singapore to Malaysia, whether it's semiconductors, high-tech, electronics in general. That's in a market that we -- on the exports from the U.S., we're really seeing a very high demand. Okay? Within South Asia, another region that critical region that we're seeing some challenges in South Pacific, Australia specific. Now I included some talking points. Now even though the flights to Australia and New Zealand, they've always been payload restricted because of the nature of the fight, but recently, in the past couple of weeks, we've had a couple of different variables. The first one being a 2-week holiday vacation, school holiday in Australia, which really increased the demand on passenger and with the increased passenger it comes extremely high demand on luggage as well. In addition to that, out of Houston, and this impacts the broader Texas area, the Runway 15 L has been closed, limiting even more the payload to some of the flights out of that region to South Pacific, okay? It's been -- it was scheduled to be closed for 10, 12 days. I checked this morning, and the good news is that it's supposed to be back open tomorrow, actually, October 25. Okay. And the last but not least, I wanted to talk a little bit about e-commerce because every time we hear every time we talk about e-commerce, naturally our mind goes inbound from Asia to the U.S. And that's where the most volume actually resides. But to be fair, there's a significant amount of e-commerce going from the U.S. to Australia, that's also competing with general cargo. So those 2 markets, Malaysia, Singapore, South Pacific, they are in high demand of the U.S. The good news, though, the positive is that 2 of the challenges going into the South Pacific, both the school holidays and the runway in Houston, they are -- they were temporary and in theory, situation. I expect the next few weeks, the next few months for the market to be a little bit better going to Australia and Singapore. Okay. An example of a market that we flagged as red, even though there's one lane that could be challenged is Tel Aviv okay? This remains an active zone, military active zone, and it's very fluid. The market is changing very rapidly, okay? Just to give you a couple of examples. So Tel Aviv, there's general backlog. We see backlogs of 7 days or more out of the U.S. to Tel Aviv. There are very limited options Airline has passenger flights out of JFK, LA and Miami. The interesting thing about Tel Aviv though, is that JfK naturally has the most uplift. They have 4 or 5 daily flights depending on the time of the year. But when Miami and L.A., they have 5 or 6 flights a week. But even though JFK has the most capacity, they also have the highest demand. And the backlogs in JFK, in our opinion, can be even more challenging sometimes in Miami and L.A. So a little bit -- we've been creative with solutions, alternative using alternative airports, shipping to Tel Aviv, but it remains challenged overall, okay? And since we're talking about the Middle East, just a quick update, [indiscernible] among very limited options, very limited service, and we're seeing extended delays and the remaining airports like Abu Dhabi, Dubai, Kuwait, they're operating without major challenges. So moving on to TransAtlantic, one behavior that we saw as the airlines deployed as the airlines rolled out their winter schedule, one behavior that we witnessed was that multiple airlines decided to lower the footprint of freighters operating in the U.S, okay? Etihad did it months ago, Lufthansa did it in some ports, increased others and probably the biggest of them all, which is the one I'm going to focus on today is Qatar Airways. What you're looking at right now on the slide is a brief recap of before September 1 and after the winter schedule is deployed. And you can see, for example, Houston had 2 weekly flights and they still do, but they don't stop in Europe anymore. They go to Doha. Okay. Dallas have 3 weekly freighters, and they stopped service in Dallas. So you can say, in general, we lost 16 freighter frequencies a week. Okay? And if you use 100 tonnes per flight as an indicator, we're talking about 1.6 million kilos of main deck capacity that's no longer available in the U.S. No, that is significant. Just to put it into perspective, that's roughly 20% of the total capacity. In the next slide, you're going to see a breakdown of the change of [indiscernible] capacity in a post September 1 environment. The U.S. is roughly 19%, 20%, right? You can see some stations with like Dallas, 27% decline versus L.A. a little bit less 18%, but it's significant, and it has and it will continue to impact the market. This visual, I thought, really tells the story, okay? You can see the filters on the top right. This is a Qatar Capacity change. It's a great visual freighters only. And you can see the red dots, how the capacity has shifted away from North America, I should say, the Americas, because you can see Diego will talk a little bit more about South America in a minute. And you can see the green dots. The capacity has shifted from the Americas into intra-Asia, India and Europe, okay? So why is this happening, right? It's really, to be frank, the airlines are shifting the capacity because of the focus on e-commerce. E-commerce and high-demand lanes. Okay? What has expeditors done to address this? We leveraged and we -- the relationships that we have with our strategic partners, airlines and we repositioned all the allocations that we had with our existing partners. So I'm happy to tell you that the impact to excavators has been little to no impact, to be honest. Okay? So what to expect the outcome looking ahead? I truly believe that the increased demand on [indiscernible], transatlantic, [indiscernible] will remain. And I wrote down on the slide, we'll challenge historical trends. What do we mean by that? Historically, out of the U.S., lower [indiscernible] have been pretty much common rated. And we have seen early signs that for that market condition to be challenged, and we expect the pressure to -- not to change in the future. So we expect [indiscernible] and lower [indiscernible] to operate at different great levels into the future based on what we've seen in the last couple of months. So that's a quick update from North America. I wanted to talk about Tel Aviv give you a little bit of an update on the South Pacific market, why Australia has been so challenged -- challenging the last few weeks. I think the future is looking a little bit better from a capacity standpoint, the runway being back and give you a brief but relevant update on the [indiscernible], capacity change TransAtlantic. So thank you. And with that, I will turn it over to Diego.

Thank you, Diego, and hello, everybody. Let's talk a little bit about Lat Am, Latin America and Mexico. I'm going to start going to break down in different trail lines, and I'm going to start with North America and Latin America. And if we look at the graph on the left, we have 3 type of capacity, and we have an increase in the freighter capacity and increase in the integrators, a slight decrease on the wide-body belly, which is the passenger capacity. So to take that one out of the way, passenger flows between North America and Latin America is even higher than COVID levels. So that 1% reduction, it's mostly related to weather conditions. Most of the passenger capacity is still out of Miami and if you are familiar with Florida weather, a lot of the cancellations can be explained due to that. But we do see an increase in freighters and an increase in integrators. And that is a combination of the freighter commercial capacity and the charter capacity. So the demand has picked up significantly in this trade lane in the past couple of months. If we would have talked about this or in the conversations in the first half of the year, nobody was foreseeing such an increase in North America to -- especially North America to Latin America trade lanes. And e-commerce is no exception. It takes a big part of the capacity with very little capacity in Asia to Latin America. Most of the e-commerce out of Asia or China into Latin America is being routed to the U.S. So part of these numbers that you see here definitely belong to e-commerce, but we've also seen high tech picking up automotive picking up -- and so there's charters and there's commercial capacity. So same as John, Diego, I have the metrics on the right and very related to what Diego was saying about having to use 1 single color to reflect multiple countries. We still have North America and Latin America in green. I think that it's going to go into the orange very soon. But there are certain dynamics in certain countries where we do want to focus and where we're seeing most of the capacity constraints, which are Santiago, Chile, Buenos Aires and Brazil specifically, Viracopos, Manaus and also the GRU demand is really picking up, but there are also other factors playing in that trade lane. Brazil is going Brazil ports, some of the ports going through infrastructure changes or enhancements. We are seeing a container shortage. So part of the demand comes from ocean to air conversion. We're just going through an Amazon and we were drought in Manaus, and so that created a lot of ocean to our conversion, specifically bringing a lot of charter demand from Panama to Manaus because ocean cargo stopping in Panama, being transferred to charters from Panama to Manaus. And we're also seeing quite important congestion in GRU airport, but that's not created because of demand, but more -- has to do more with selling efficiencies in ground handlers and GRU airport operation, okay. So moving a little bit into Europe, very different scenario. And the number I want to point out here is the 14% almost 15% reduction in freighter capacity. And also very in line with what Diego mentioned, cancellations from Qatar, Lufthansa and Mariner or Air France KLM, where they simply remove the capacity, the freighters to go play on the Asia to Europe or Asia to U.S. market after higher yields with e-commerce. So this alone creates approximately 300 tons a week reduction in capacity between Europe and Latin America. The passenger capacity is starting to increase the wide-body belly capacity. It's growing airlines and are allocating more capacity, but it's never going to replace the level that's lost with the freighters going away. The only thing compensating a little bit is that the demand, Europe and Latin America is also down 6% for the past months. So just wanted to show this real quick, even though the data is January to July, the trend still continues to this date. So where is most of the e-commerce out of Asia going by far, Mexico gets the bigger chunk, but also Brazil, Chile and Colombia play a big part. So again, there's 3 ways that this capacity is moving. One is charters, dedicated flights are mainly purchased by the big e-commerce players. Then there's commercial capacity through the U.S. and a little bit of the passenger capacity through Europe, although to a much lesser extent. So if we go into the next slide and specifically look at Asia, Latin America, there's very little direct capacity. Most again, move through the U.S. But we're seeing a reduction on the dedicated charter flights. Part of these charter flights were in place since 2023 into 2024. Some of those were terminated because at the first 6 months of the year, there was no indication that the demand would peak that much. And then a lot of the charges that come down from Asia to Latin America come down to pick up Latin American exports and Latin America exports are mainly perishable cargo, right? We're talking about flowers, cherries, fish, meat, right? And -- we're about to get into a very heavy season of cherries exports out of Chile. So in previous years, there was a lot of charter capacity coming -- specifically coming down to pick up the cherries and take them back to China. We're still going to see that to a much lesser -- to a lesser extent because e-commerce is much more attractive for those charges from a yield standpoint than having to come down to Chile and then going back up to China. So most of the cargoes we're going to see being right through the U.S. As for Mexico, we foreclosing, again, strong e-commerce flow, but a reduction, at least for the first 6 months of the year, 12% reduction in exports out of Mexico. So what that creates is an imbalance, right? We have a lot of cargo coming into Mexico, but then there's capacity -- quite a lot of capacity available for exports, especially out of Mexico into Asia. If we talk about Mexico into Latin America or Mexico into U.S. very different story. Capacity is constrained, especially out of L.A. into Mexico and Guadalajara and also out of Mexico, Guadalajara into Latin America, where there's a lot of automotive business that are also suffering due to lack of capacity. The reduction from Europe also affected Mexico with Qatar and Lufthansa. We're also seeing congestion on Ocean ports. That creates ocean toward conversions, which also creates a capacity constraint. And then the airports or ground handling operations in Mexican airports with all the inbound cargo are suffering. So sometimes clearance time in Tel Aviv or Mexico, especially in Monterrey is very challenging. So in closing, what is the outlook for the next 6 months. And I would say probably the reminder also for next year, we're going to continue to see Latin America demand exceeding the capacity coming from the U.S. We're going to continue to see a gap that we're seeing between the spot market or the free market and the contract rates, the bigger the gap the higher rate levels that we should see. Chile, again, with a strong end of quarter and beginning of next year, creating a little bit of additional capacity for Chile. We don't foresee changes in the Europe to Lat Am. We still see e-commerce continue to be very strong. And we're going to see charters trying to supplement capacity but at a certain point, it's going to be disrupting the -- sorry, disrupting the commercial capacity in pursuit of higher yields. So with that said, I'm going to go back to Samantha for the Q&A session. Thank you.

Thank you, Diego. So we do have a couple of questions. The very first one that came in. Joe, I'm going to throw it back to you. We were asked if you could make a quick comment on the demand out of Japan to North America. They were curious regarding the current trends we're seeing. If Joe or...

Yes. Probably the only country I didn't highlight, so great question. we haven't heard of any major disruption, at least in our book of business. It's a big passenger wide-body demand market. So from that standpoint, we have a lot more passenger flights that are operating to and from Japan and especially when we talk about Tokyo, 2 specific airports, both Darida and Haneda and so to and from Japan, we haven't experienced any type of major challenges to speak of.

Thank you for covering that. So you mentioned wide-body capacity. Our next question is asking, and we may have covered this a little bit, but if you want to go more in depth. The next question is asking about capacity out of China to the U.S. West Coast, talking about e-commerce, dominating those capacity allocations, introducing additional difficulty for shippers to secure space. So do you see this as still being relevant? And if so, do we expect it to persist into next year?

It is absolutely relevant and again, front and center. When we pulled all of our largest airline partners operating out of Asia Pacific, and asked them how much of your capacity is being consumed by e-commerce, it ranges anywhere from 40% to 65% -- those are big numbers. So if you think about 1 of the largest airlines operating out of there, maybe Korean airlines and saying that between their freighters and their passenger flights, 40% to 65% of that space is being ensued by e-commerce, that has put in significant pressure on everything else, but pressure on rates, pressure on trying to get trades at time and capacity and cargo flowing and then to answer the latter part of that question, yes, that is absolutely expected to continue for the rest of this quarter in clips of about an 8% to 9% increase over last year, actually. And throughout at least the first half of next year. There's a lot of discussions, regulatory discussions with U.S. government and also European governments about the product that's coming in under 301 and tariff ruling and considered e-commerce. Now what that ends up looking like, what pressure any new administration in the U.S. might make to that is questionable. We're not sure what kind of impact it will have. But for sure, it's relevant for sure, it's going to continue for rest of this year and into next.