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

Hello. Good afternoon, good morning to all of you who are joining us on the West Coast. We appreciate everyone who's joining today's webinar. This is Expeditors' focus on the air market update for the Americas. My name is Samantha Hurst, and I will be the host for today's webinar, and we'll just support in the background along with my colleague, [indiscernible]. So I'm going to talk just a little bit about some housekeeping items, and then I will pass it off to our speakers. So if we can go to the next slide, perfect. So for anyone who's not joined our webinars in the past, we just want to make sure you understand how things will flow today and how you can interact with today's content and speakers. We will have about 45 minutes of content throughout today's session, and then we will go into a Q&A session to follow. Now we encourage you, however, to submit your questions in the Q&A window that you'll see on the control panel throughout today's conversation, and we do have a couple of different members from our Air team as well as a surprise guest from our Onyx team who will be available to support on those questions. And then one of the main questions that we often get is, of course, how do I receive the slides and the recording of today's presentation. We do ask that you complete a short feedback survey, and that will be e-mailed to you by myself, typically within about an hour of today's session wrapping up. And then once you complete that survey, do watch because you will get a thank you message and right under that thank you message on the page is a link to the material landing page. And that's where you will find the recording and the presentation links as well as any additional resources we might provide. And then finally, if you want to get information about our future webinars, you're not currently subscribed to get those communications from us, you can scan this QR code, and that will take you to a page to subscribe to those webinar invites as well as our local and global market updates. So now just a brief disclaimer. We want to make sure everyone understands that the information we are providing today is, of course, part of the public domain, but we're not encouraging you to use this for any legal business or financial decisions. We do not guarantee that exactly what we say today will be what happens tomorrow because as we all know, the market is constantly changing. So please just keep that in mind as you use this information to be a guide, but not necessarily for legal purposes. Now I will introduce our speakers. So we have with us today, Joe Allegra, who is our Vice President for Air Cargo for the Americas; Rob Emrick, who's our Director of Air Product for North America. And as I mentioned, our surprise guest, we added one to the content lineup today. Fernanda Kroup, who's our Vice President and Head of Onyx Strategic Insights is joining us to tell us a little bit more about what we are expecting to see as far as geopolitics and the market going forward. So I believe I'm passing things off to Joe to get us started.

Terrific. Thanks, Sam. Hello, everybody, and thank you for investing in this next hour with us as we go through the dynamics of the air market and talk through some points that I hope are of interest to you. So we'll kind of just summarize upfront and then dive into the detail as we go through. We'll touch on capacity, specifically really looking at how the market expectations on August 1st and what has led up to August 1st as far as the trade negotiations and tariffs, talk about the available capacity out there today with freighters and then touch on the limited deliveries of new freighters and how we've seen some postponement of those deliveries and then a pretty slim order book. The reduction of capacity post May 2nd and how we've seen some aircraft retirements and maintenance, from an e-commerce perspective, de minimis and how that's impacted capacity and demand, both to the U.S. and to other markets now around the world, how that's led to both e-commerce players and freight forwarders canceling their black space agreements and really redefining their charter routes. And then a lot of time, we're going to highlight really how we're seeing some of that e-commerce get redistributed and deployed to new markets outside the U.S. and also how sourcing out of South Asia is really coming to play as we've seen less China demand. From a geopolitical and trade barrier perspective, Fernanda is really going to go deep on this, but we have seen hi-tech back to ship in the last 90 days with a pause, non-China, Hong Kong origins have really become -- shipping is normal, but demand is somewhat weaker, a lot of uncertainty post the 90-day pause. And then from a carrier perspective, their outlook, what we're seeing as far as where they're flying, their outlook towards trade barriers, reduction in e-commerce that they're moving, also how travel -- leisure travel is starting to reduce and again, back to the delivery and postponed order book of new freighters. So right into it, when we look at capacity first half of '25 versus '24, overall, you can see global capacity grew 4%, 4% on the transpacific, Asia, U.S., U.S., Asia, a very different story. Now this is both all capacity. So it's both freighter and passenger. Very different story Asia to Europe, where capacity grew 17% and 14% going back. And another conduit because of the no-fly zones and the war in Ukraine and Russia, we're seeing divergence from Asia into Middle East hubs also to deploy into Europe and not flying over those zones. Very different story though. Well, let me go back one second. On transatlantic, relatively flat, really not much to get excited about, slightly down Europe to U.S., slightly up Europe -- U.S. back to Europe. And we're seeing a little bit of a capacity increase going down to South America. That's somewhat of an e-commerce story there where we are seeing capacity going down into Latin America, where some of those e-commerce companies are now finding new markets in Latin America, in Mexico, and we'll talk about Europe as well. Different story, though, on the freighter side. So this is looking at just Q2 '25 over Q2 '24, and this is just freighter capacity. So even though it matches overall global capacity increase of about 4%, very, very different story when we look at transpacific. So freighter capacity is actually down 3% in both directions from Asia to Europe and Europe -- I'm sorry, Asia to U.S. and U.S. back to Asia. But look at the freighter deployment now into Europe, up 8% and from Europe back to Asia, 22%. And then that story about how some of that Asia business, mostly China, also utilizing Middle East hubs in Qatar, in United Arab Emirates and see that's up 25%. So that's when we look at the e-commerce story, and we're starting to see more of a shift because of the elimination of de minimis into the U.S. much more of the e-commerce now by those e-commerce players moving into Europe, moving into places like Latin America into Mexico and also intra-Asia. Now how about the mix between passenger and freighter. We're going to start with the left. When we look at total capacity increases for the first half of the year, 6% out of Asia Pacific, 4% out of Europe and Middle East, out of North America, very small 2% flat out of LatAm and then the rest of the world. But what's interesting here is when you look at the makeup of how much of that capacity is freighter versus passenger, right? So now kind of shift to the right side of the screen. Intra-Asia, almost 50-50. You've got enough wide-body that can take some of that capacity where you don't -- it's not fully freighter heavy. Intra-Europe, it's all freighter because that's all narrow-body passenger flights. And this is where it starts to get interesting. Asia to North America or U.S. heavily reliant on freighters in both directions. So 74% eastbound, 70% westbound. And that's really when you start looking at the lack of new freighters coming into market and it's probably where you'll see the biggest impact. Asia Pacific and Middle East, almost 50-50, Europe and Asia Pacific, again, a little bit more on the freighter reliance side. And this is where you see the biggest spread between passenger and freighters and it's Europe, North America. There's so much leisure travel, so much wide-body passenger flights. That really is the makeup of the transatlantic market, no big expectations on that to change. And then you can kind of see the others, Middle East, Asia Pacific, North America, Europe, Middle East, Europe, again, starting to get a little bit more balanced. Why is this important? Well, we kind of talk about -- and you've heard me mention on the opening slide, the declining expectations on delivery of new aircraft, right? And so when we look at what was initially ordered in September of 2024 and November of 2024 and then how that -- those expectations started to shift further and further out, you can see that the revision of the scheduled aircraft deliveries in those 4 periods now push even further into 2026. So what's this doing, and you can see it on the bottom, it's the average aircraft fleet or commercial age of the aircraft in years is starting to go up. And that means more maintenance, more downtime. There's some good news, though. The good news is after some years of really static orders with both Boeing and Airbus, in 2025, we finally saw some increased orders in the book. So Airbus added 73 orders in 2025 and Boeing 59 orders. Again, these are large freighter orders. Good news in that the order book has increased. Bad news still, though, that even though they're being ordered today, the expectation is that these planes won't get delivered into the market until 2027, late 2027 and then 2028. So we still aren't expecting much capacity as far as freighters to come into the market over the next 12 to 24 months. What about the demand side of things? Well, global trade surpassed 2019 by just over 2%. If you look at January to May this year over last year, we're up 6.7%. U.S. to Asia down, everywhere else green with the exception of some exports from Latin America into the South Pacific. So demand has been healthy for our first 5 months out of the year. And when you kind of look at what the forecast or expectation is, so we grew 6.6% in global air demand in first quarter. Q2 is looked to be right around 6.1%. And then this is where we start to see it slow the forecast and expectation from Accenture in this case is that it will probably start leveling off between 3% and 4% for the rest of the year. But what does that do to the rates and pricing? Somewhat wobbling in 2025. Rates have remained somewhat static. This is a global average index, so it doesn't really speak to any particular flow, somewhat down over the beginning of the year and slightly down over 2024. But I think the better news is when we look at specific flows. So when you look at transpacific eastbound, so Asia to the U.S., rates are actually down 30% over the same period in June over last year, still up over 2019, but a good story that down over last year. Asia to Europe, same, except 19% down. And then Europe to the U.S., down 14%. So good story to be had here. I think the expectation as we start to see shifts in capacity and freighter deployment in certain markets, I think with the e-commerce specifically that the U.S. may be a benefactor of that. And so when we look at the equilibrium between supply and demand, yellow line being the actual capacity available or the supply and the gray line being the demand or the actual kilos moved, we're kind of getting to the sweet spot where both supply and demand are relatively in line with each other. The only question remains is when you look at inventory to sales ratio, if inventory sales ratio is down, that means air freight, the purple line is growing, high demand for airfreight when lower inventories. If inventory levels are high, the red graph, purple line is down. So air demand is subsiding. And so here we go into 2025 and the market is really trying to react all the different trade announcements that are going on, whether front running and increased air freight or pull orders ahead of any tariff deadlines, even though they keep changing. And so now even though inventories are somewhat flat, I mean, they're not up or down. And I think where there may be some risk is for businesses is insufficient inventories for the rest of the year, if trade war with China continues and some of the other unknowns continue to take place. So maybe something to look at there on the inventory side, but air traffic and global air demand continues to be in good standing. So with that, I'm going to pass it over to Rob, and he will talk a little bit more in depth about Asia Pacific and what's going on there.

Yes, Joe, thank you. Thank you for teaming up. I've got some great speaking points here to sort of walk everyone through in a little bit more detail, specifically what's going on in the Asia Pacific trade because the Asia Pacific trade is probably the major driver and the rest of the market is sort of dependent on everything that happens in Asia since it's really the headhold trade in terms of demand and really dictates how the carriers are going to behave and react with their networks and with their capacity planning. So if I -- there we go. So if we sort of look at this at a high level and take a little bit of a step back, there are certain countries out there that have been major benefactors of China Plus One and really the ongoing shift away from China post pandemic, okay? Countries like Taiwan, Indonesia, Malaysia, Vietnam, Thailand, okay, all because of more preferential trade agreements, ultimately cheaper labor, lower-cost manufacturing, there's been just so much that has shifted there. But each of those markets is dynamic in its own way simply because of the industries that they serve, okay? So if we look at Taiwan, for example, it's driven very heavily by tech and supporting the AI industry. The same with Malaysia, for example. You look at other markets like Vietnam, and we'll talk a little bit more about that in a few moments, also supporting the tech industry out of North Vietnam, whereas textiles may be more supported out of South Vietnam, okay? So there are different industries that have moved a little bit more predominantly to some countries, but a large shift has taken place into South Asia, which we're going to touch on in some more detail on some following slides. But there are other important things that are going on specific to the Asia Pacific trade that has impacted everything, okay? One of them being namely e-commerce. And second is really the reciprocal tariffs, which I know Fernanda is probably going to speak in greater detail about. But with e-commerce, at one point last year, it was said that there was 100 747s worth of e-commerce flying around the globe each and every day, okay? And with the end of de minimis exemptions into the U.S. market as of May 2, that number has shrunken considerably. It's estimated to be about 50 freighters worth of e-commerce flying around the globe each and every day with the U.S. being a tremendous consumer of that. But these large e-comm players have some big obstacles to overcome, such as creating fiscal representation and import compliance programs and just distribution networks throughout the United States. Shein figured it out. They figured it out early on, whereas Temu has not yet, right? So Shein is still shipping considerably into the U.S. market, where Temu has really subsided, okay? And so there are still significant e-commerce volumes out there, but it is roughly half of what it was around a year ago. And I mentioned this because really the carriers behaviorally are going to chase e-comm around wherever it happens to move in the globe because ultimately, that's where the demand is and it's guaranteed demand for their flights, okay? The e-cigarettes actually shipping out of China into the U.S. was picking up considerable capacity as well. But because of all the stringent FDA regulations, we've seen some reduced volume there. So carriers have certainly adjusted their capacity as a result of that. But ultimately, with all this sort of coming together, okay, there's been a lot of downsizing of China U.S. capacity and that capacity has ultimately shifted to other markets, okay? Now I always like to take a look at sort of a longer-term view, not just going forward, but sort of looking back. And there are important dates that we have to consider that have really created this evolution throughout 2025. In a typical calendar year, you always have sort of 2 main inflection points, so to speak, okay? You have your Chinese New Year holiday, which usually adjusts, but typically takes place around late February, okay? Then you have your traditional peak season, which typically takes place around end of August into early September and carries through the rest of the year. Well, if you take a look at this time line grid here, okay? At the time of the Lunar New Year holiday, there was a 26% reduction in supply out there in the market. This is pretty typical, right? It's typical because as airlines, specifically Asian-based airlines, anticipate lower demand around the Lunar New Year holiday, they will cut capacity. They will cancel flights, okay? This is something that they do each and every year. But now if you fast forward a little bit and you start to anticipate what the Trump administration was putting out there in terms of the May 2nd de minimis exemption, well, volume started to pick up, right, leading into that. And you also had the April 25th initial tariff deadlines, right? So you see supply started to ramp up in anticipation, right, that there was going to be heavier shipping through those periods, whether it be on the e-commerce side or any other industry, okay? And then once the U.S. revoked the de minimis for the low-value e-comm, you can see that there was a 21% reduction in supply, okay? So the carriers reacted very quickly and acted in a very nimble way within their networks to adjust to that. Now ever since May 2nd, there have been looming deadlines and changing deadlines and negotiated deadlines in terms of 90-day pauses over the last 24 hours. It seems like there's going to be another extension on China-U.S. tariff deadlines as well. So it is somewhat of a moving target, but it seems like we have leveled out at around a 10% decline in supply out there in the market as a result of everything that's taken place so far this year. Now the big question is, well, if that capacity is not coming into the U.S., well, where is it going, okay? And if we look at these first top left graph, okay, what this reflects is essentially the capacity by both wide-body and freighter capacity. And you can see freighter capacity dominates the market, into the U.S., out of Hong Kong and China. And you can see that, that's down about 13% as a whole. On the bottom graph, you see a 22% increase into the European Union. So it's very evident here that what the carriers are doing is moving the capacity out of the U.S. trade and into the European trade, okay? Because there's more favorable trade agreements going on with the EU as well as the fact that EU is much friendlier to e-commerce than the U.S. is right now. And the graph off to the right will reflect sort of the individual countries that are the benefactors of that. You can see that Germany has widened the gap and has grown in a pretty significant way in terms of capacity going into that marketplace. And this is both on the pure freighter side as well as on the charter operator side. And then you throw the integrators in there as well, and you can see that they're just ultimately following the demand that takes place in the marketplace, okay? Now it's not entirely going to Europe, okay? What some of this capacity has done, is shifted into Southeast Asia. So same graph reflecting, might -- the 13% decline in the U.S. market, but about a 50% increase, okay, going from the ASEAN market into the U.S. Now there's a very, very small percentage of overall ASEAN outbound capacity that serves the transatlantic market -- I'm sorry, transpacific market directly. Most of this capacity will travel through a North Asia hub, okay? But where we have seen the increases have been specifically out of a market like Vietnam and as well as Singapore, okay? Now if we look at this from a demand perspective, you have to sort of match up the 2. And these numbers not only reflect just the general industries out there, they don't even reflect the low-value e-commerce just simply because the way the data is registered in the marketplace. But what this is really demonstrating to you is out of the China and Hong Kong market from the period of 2019 versus the first quarter of 2025, you can see from China and Hong Kong into the ASEAN market, it's pretty flat at 13% then and about 16% now. But from China and Hong Kong into Europe, it grew at around 12 percentage points, whereas from that same market into the U.S., it declined at around 17%, okay? So pretty dramatic decline into the U.S. that was made up by an increase into Europe, okay? Now if we look at more specifically the ASEAN market, inbound and outbound, okay, you can see that intra-Asia, okay, transacting between ASEAN into China and Hong Kong was at 38% in 2019, and that declined to around 26% in first quarter of this year. And it actually grew from 34% up to 46% into the U.S. marketplace. So it just sort of gives you the correlation of the marketplaces and where the demand is going because ultimately, that's where the supply is going to go. The carriers will ultimately follow the demand. Now if we take a look at just sort of a few mockups of how capacity and demand could change between now and 2026, we look at it a few different ways, okay? And really, you have to look at where the majority of the capacity exists, specifically from China into the U.S. and into Europe. And then ultimately, where this ultimately can shift as a result of all these changing trade policies and shifting demand levels. And as China pivots to the EU and pivots to the ASEAN markets, well, the growth will continue to take place there while the capacity and the demand is going to eventually shrink into the U.S. marketplaces, okay? And the carriers are going to continue to cut the capacity going across the pacific that serves the U.S. market directly. And that brings stabilization to rates. And the one thing we have to think about is that as capacity starts to decline, demand starts to decline and rates may start to decline on the transpacific eastbound, well, there is a possibility that the transpacific westbound rates could go up because the carriers ultimately need to balance out their revenue on their flights going in both directions. Now if we look at it through another lens, okay? You can see here that there's more carriers adjusting hub allocations rather than completely repositioning their flights, okay? So they may just use shorter-haul flights intra-Asia that connect into longer-haul flights out of North Asia across the Pacific or into Europe. So this is a possibility as well. And then we can't neglect all the demand that continues to take place in and out of India from China as well because the India continues to be a growth market so carriers will look to continue repositioning capacity there as well. And then ultimately, if the U.S. and China do not reach an agreement -- an amicable agreement, so to speak, and the demand and the capacity continues to be removed from that marketplace, well, that's going to be very, very slim, and it's going to be more favored into the European Union and into the ASEAN market as everything continues to shift around. So this will obviously move as trade policies continue to shift and as deadlines continue to linger. Now one of the markets that has experienced some tremendous growth is Vietnam, and they have become the largest exporter to the U.S. They grew by 55% in the first 5 months of this year versus 2024. A lot of that has to do with the tech sector, specifically computer storage like anything cloud-related or laptops, accessories. So really a tremendous amount of growth that's taking place in Vietnam as more and more manufacturing shifts out of China out of Hong Kong into this marketplace. But the reality of it is that the infrastructure needs a lot of work to keep up with all of the growth, both airport infrastructure as well as road infrastructure. And there's a lot of investment right within the ASEAN region as well as foreign investment taking place within Vietnam, specifically to bolster all the growth to keep up with the demand in that marketplace. I show you a simple example here of Hanoi because Hanoi in the north is the largest airport in Vietnam. And so they're targeting Hanoi between now and 2030 for some significant upgrades and road infrastructure upgrades to go in or out of that airport to keep up with all of this growth that we continue to see in that marketplace. So a lot more to come, a lot of exciting things on the horizon. I think from here, I'm going to turn it over to Fernanda to give more of a geopolitical and economic perspective through her lens. And let me stop sharing. Okay, so your's...

All right. Thanks Rob. Let me see if I can -- all right. Thank you, Rob, for this. So I'm going to be talking a little bit about the macroeconomic aspects moving forward as well as the trade aspects and the geopolitical aspects and highlighting the impact that those can have on the air market moving forward. So I think the first thing to think about and at Onyx, we've been seeing this for a while now is that there's just a lot of cost pressure coming from everywhere. And the big question here is how is the consumer going to react, right? And how that is going to have a knock-on effect on demand, right, and therefore, on the air market, right? So there's lots of uncertainties here, but it does seem much more likely than not that costs will increase and that the consumer will feel the pinch, right? P&G came out today talking about how they're already seeing a lot of pressure on consumers. This week, we're going to see a lot of macroeconomic data coming out on the job market, on GDP. So lots of things coming up. It's also the August 1st deadline for trade negotiations and the reciprocals, and I'll share a little bit about how we're seeing this moving forward. Now on the economic side, our -- just recapping here a little bit of how we're seeing this. We are projecting, all things being equal, a slowdown in GDP in the world in advanced economies, in developing economies this year, in the U.S. economy, though not a recession, a little bit of a slowdown in China, and a little bit of flat growth in the EU, right? A lot of this coming from tariffs, right, and the rise in the effective rates. We did see a lot of weakness in H1, right? Some of it for the U.S. was due to the fact that imports increased considerably, people trying to take advantage of tariffs before the reciprocals, but now a little bit of a recovery. But we are likely to see a pinch from the increase in prices moving forward and the knock-on effects on demand. Now the Chinese economy is pushing against multiple headwinds, a lot of it related to the property sector still and still requiring continuing stimulus. Question here is, is that a structural solution or not? It is not. And so how is the Chinese consumer going to react to this? And then in Europe, a little bit sluggish here, a lot of knock-on effects as well from -- it is highly dependent on exports. Slowdown in China is not good news for Europe as well as in the U.S. And so a lot of knock-on effects here. Now some pressure on U.S. inflation, we're already seeing for this year, perhaps a little bit subdued because of so much inventory prepositioning that has happened in the first half of this year. We do expect perhaps not this week necessarily, but coming up a marginal decrease in rates in the U.S., but a real decrease in Europe. That delta between U.S. rates and European rates is a bit unprecedented. It may long-term offer a lot of opportunity to the European economies because of lower rates and lower inflation, but we shall see. But a lot of it because there's so much uncertainty, CapEx is subdued and therefore, lots of questions there in terms of investments in Europe. At the same time, Rob was talking about Vietnam, where costs of producing in sort of nearshoring or friendshoring countries like Vietnam, like Mexico are increasing considerably. So that adds to the pressure from rates. We know that every company is contending with this. A lot of pressure on sourcing and procurement folks to make sure the costs are kept down, but there's only so much that one can do. Now these economies are a bit overheat. This is likely to shift. Once we have a better idea of the effective tariff rates, right? And what's going to happen in those negotiations, there will be winners and losers, right? And it's hard to tell. It's not just at a country level, but also at a product level. And so will the additional tariffs erase any cost competitiveness that these countries might have, for example. There will be a lot of shifting sense here. But at the same time, that is much more on the longer term. I mean, if you're committed to Vietnam, you are, right, it takes years to build a factory anywhere else. And so lots of cost pressure here. I think we're seeing -- sorry, Joe, I think we're seeing your screen. Thank you. All right. Now moving forward here, we're seeing a lot of investment shifting though. And that points to a different makeup of supply chains, right? We went through a period of friendshoring and nearshoring. And now it's sort of opening up, right? Still lots of questions about where you're going to see the best tariffs, what is the best network that you can have, where should you put your factories, your plants, what is the best geographic footprint that any company can have, but lots of bets being made right now. We're seeing European investors, for example, diversifying widely. So if you look at this horizontally, where you see #1 there, it is investments coming out of advanced European economies into the world, then China also diversifying and a lot of it coming out of the Middle East, right? Here, it's a percentage change. You can see how like you might have a lower base and therefore, the growth is exacerbated. But lots of investments, Middle East on to Middle East and Africa, but also in China, which seems to be almost counterintuitive if you think about the fact that most of the -- most companies are diversifying away from China and from the U.S., that -- and I think this dovetails nicely with what we saw from Rob and from Joe that global trade is already reflecting that diversification. So it opens up a lot of possibilities for air, right, and for carriers from the EU into different regions here, you see somewhat sluggish growth, but from China to ASEAN to MERCOSUR, GCC, you see there, it's the Gulf, right? So think UAE, Saudi Arabia, India and the same is true from ASEAN, elsewhere and then even from India as well. So there's a lot of diversification and a lot of rearranging of networks happening, and that should open up interesting dynamics in lanes away from transatlantic by itself. Now in terms of -- so we're seeing a lot of movement in response to the politics of the day already. Where is geopolitics going, right? Starting with trade. We all know that there are kind of like 4 looming issues here really. Are we going to see a rollover on August 1st? We do have some investigations going on, Section 232, especially semiconductors, [indiscernible], the renegotiation of the USMCA, which coincides with the negotiations with Canada and Mexico. And then are we going to see new trade agreements for the U.S. with the absolute priority of containing China. That is where the administration is right now. Now we do believe that there will be a rollover. I mean, it feels a little bit impossible that you're going to conclude all of those agreements, right, in about 3 days or -- so with that in mind, what is the strategy that's emerging, right? We do have a Tier 1 of countries with some announced agreements already, where trade and security go hand in hand. And so common investment and export controls, this idea of putting together a coalition of like-minded countries. The issue here is that in a lot of those countries, domestic politics became anti-U.S. in many ways. That is true of Canada. That is true of Australia, to some degree, even in EU member states. Brazil, that's not on the list, same is true. And so any concessions to the U.S. come with a political price. That being said, we believe that there will be further agreements coming up. We already have U.K. We already have the EU announced, right? We already have, to some degree, Vietnam as well, moving on to Tier 2, right? Here is mostly trade containing China, but here, really, it's about transshipment. And what is in for these countries, right? It's the security guarantee that the U.S. can provide. These countries in Southeast Asia, ASEAN walk a tight rope between trying to not be too aligned with China for security concerns and then not too aligned with the U.S. because China is for some, the first, for others, the second largest trade partner. And they also depend on Chinese investment. And so -- and then an arm's length with an unclear time line is China. We don't see yet a scope for a comprehensive agreement that can actually diffuse tensions, quite the contrary. We believe that these tensions are going to continue in the medium run with deadlines being pushed and some accommodation because there's so much codependency between the 2 economies and the 2 economies are very fragile right now. And so this period of uncertainty is likely to continue. If I show you a little bit of where we are with these agreements, the U.K. agreement is the only one that really appears to be complete. The EU and Japan, for example, are still kind of statements of intentions. We haven't seen anything on paper. These agreements also need to go through domestic channels and ratifications, unclear what process will be followed in the U.S. In the EU, typically, member states need to ratify. And France and Germany have already criticized the agreements that came out. Unclear on Indonesia, Vietnam and the Philippines. And so there's still a lot to be -- to come out of this. Some concessions from the U.S. that have a lot of impact on air, right? Semiconductors, for example. And so some provisions also whose enforcement isn't clear. So for example, transshipments. So containing trade diversion from China via Vietnam into the U.S., how does one even enforce this, right? It's notoriously hard to enforce. May lead to congestion and delays. So lots of questions still. We are -- because of this, we believe that the uncertainty will continue for quite some time still. My apologies. And so coming out of this, even with the agreements that have been announced already, cost pressure is likely mounting, right? And that speaks to that macroeconomic picture that I was talking about and the impact on the consumers and therefore, on demand. There's a lot of walking back. You see on the left-hand side, what is current, what has been agreed and what was threatened. China way above at 140%. It's -- what has been agreed is still high, right? So effective tariff rates have not yet caught up to what has been announced, but they will eventually. So with what we have today that has been announced adding the EU, we're at about 17.5%, which is the highest U.S. average rate in about 100 years. And that has to have impact on inflation, right? There's only so much that companies can control in terms of costs before passing this on to the consumer. And then -- but on the other hand, the silver lining is that partners are wary of both China and the U.S., countries have actually enacted a lot of antidumping measures, for example, on Chinese exports. That is a reaction to this fear of Chinese exports that were bound to the U.S. now suddenly coming to them and what they can do to domestic industry. We're already seeing that in air data, for example, but they also want that investment. So they want to go upstream, right? And they're also attempting to diversify. So Canada and the EU, EU and Japan, EU and MERCOSUR, that one a bit less likely because of agriculture and pushback within Europe, but something unprecedented like EU collaboration with CPTPP, and even Japan and South Korea. So the fabric of global trade and therefore, the fabric of the air market is bound to change. Just a little bit on geopolitical shocks here and where we see, right? So if we take what we just talked about, different companies are looking at this in different ways. What we hear is some are staying the course. They believe this to be temporary. They're able to do the cost control, right? The question for them is really price-sensitive demand. Some are self-containing -- are going for self-contained regions, right? They believe that tariffs are permanent. It's not just the U.S. Also in the first bucket on stay the course, lots of companies don't have a lot of flexibility in their geographic footprint where the network. And then some are going for the middle, cordoning off the U.S. market, but then betting on increased trade and connections between different regions, for example, between Europe, in Asia, between Europe and others, Middle East and others. But here, there's a question, right? So this is where the economics are going in response to tariffs, right, and where -- what companies are looking at. So back to the days of China plus 1, then Vietnam plus 1, now we're looking at plus 3, 4, 5. But if we think about where the geopolitics are going, there's a huge challenge here. So we have these geopolitical fault lines that I often talk about. We're seeing a lot of escalation. Russia, Ukraine, we do not see a ceasefire politically feasible. There might be something temporary or something on paper, but really, this is politically a war for survival for both sides, including Putin, himself. No Russian leader has ever survived losing a war. Anything other than actually enacting even just part of Ukraine is a defeat for Russia. South China Sea escalating. This is critical for supply chains. We -- South China Sea and China Taiwan are intimately connected. One is an enabler of the other. And so control of the South China Sea and military escalation in the South China Sea is already happening. There's a question whether what's going to happen before 2027, which is where -- when most analysts agree the really dangerous period begins, right, in terms of military capabilities. And then Israel-Hamas and the Middle East still on an escalation path. This is all pointing towards geopolitical dynamics pushing against globalized supply chains, right, and pushing more towards intra-regional trade. Now -- and it's that particular issue, right, this issue of political alignment, right? Are you going to have 3 blocks? Are you going to have 4 blocks, right? This is where geopolitics really pushes for self-contained regions. It won't be the same for every supply chain, but it is political pressure against very extended supply chain. So if your company is one of those, there's going to be a lot of pressure to reconsider, right? And costs go up as a result. I'm going to stop right now. I know there might be some questions there. Samantha, this is what I have for today. Really appreciate the opportunity, and happy to answer any questions alongside Joe and Rob.

Absolutely, Fernanda, thank you so much. We appreciate all the insights you've added to today's conversation. Rob or Joe, anything else that you guys would like to add? We -- as people are putting questions into the Q&A box. And again, if you are joining today as an attendee, remember, there is a Q&A box on your control panel where you might drop those questions if you have any for any of our 3 speakers.

Yes. Thanks, Sam. Nothing else for me. Hopefully, there was interest in our content, and we'll be glad to take any questions if there are any.

Perfect. While we wait for anyone who might drop some in the box. I think I do see one. Just a comment. Thank you so much. Someone just commented [indiscernible] that we had a great webinar. I always appreciate the feedback that you guys do provide. While we wait to see if anyone else has any further questions, I believe we do have a slide just to show everyone our other upcoming events. If you guys don't mind, whoever is controlling, yes, jumping ahead. So I'll just mention to you all that are in attendance now. We do have our August event slated and ready to go. So we have a U.S. customs market update or you can find out what has been hashed out by August 1 on August 6. We'll have another U.S. customs market update on August 20. We continue to do those twice a month right now. And then we will focus on the ocean market on the 27th. So you can scan those QR codes, and it will take you to the information -- excuse me, the registration page for each of those events. So a couple of questions have come in as we've gone through the content. We did have a question about the -- is the increase in capacity out of Asia due to the implementation of de minimis regulation in the U.S.?

Yes. So I think the opposite has actually happened, right? So as the de minimis went away and that benefit went away for a lot of the e-commerce platforms into the U.S., capacity has actually shifted away from the U.S. to other markets. And so as we've tried to highlight in some of the slides, we've seen an increase in capacity to Europe, which a lot of the e-commerce platforms have pivoted to versus the U.S. And so freighter capacity to the U.S. is actually down.

So do you guys see that actually impacting capacity, like you said, going in another direction? Someone asked, and I'm not sure I fully understand the question, but something related to is the U.S. to, I believe, Asia Pacific, a new trade line we see increasing.

Yes. So the return flight. So if we've got less capacity from Asia coming to the U.S., then ultimately, there will be less capacity from the U.S. going back to Asia. And I think one of the things maybe we didn't touch on, if these trade deals truly do benefit our exports. If we've got beneficial treatment, if you will, of U.S. products and no duties or tariffs in other importing countries of U.S. products, we may actually see our U.S. export demand go up, while at the same time, capacity is coming down. And at that point, we're going to start seeing some pressure on higher rates from the U.S. outbound to Asia. So we don't see increased demand necessarily bringing additional capacity to the U.S. on our exports. But if that were to happen, the rates would have to be significantly higher than we're seeing in today's market.

Still a bit of a guessing game of what's going to happen next as all of this sort of shakes out?

Yes.

Absolutely. Well, I believe I did touch on the last 2 questions we had in there, and we're getting really close to the top of the hour here. So we will wrap up. Do appreciate, as always, anyone who has joined today. I just know that, again, you will get a copy of the presentation and access to today's recording once you complete the feedback survey, which as I mentioned, you will receive in just about an hour. So thank you all for joining. Fernanda, Rob, Joe, thank you all for all the insights you brought today. We appreciate it.

Thank you, Sam. Thanks everybody.

Bye.