Expeditors International of Washington, Inc. ($EXPD)

All right. Welcome, everyone, to our webinar today on an Iran war update focusing on energy market volatility. My name is Olivia Tan, I'm one of the consultants of Onyx, and I will introduce our speakers for today's event very shortly. We offer a different webinar topic each month. This month, our team will be diving into the energy market impacts from the Iran war. As the Iran conflict drags on, disruptions to energy supply are feeding into higher energy costs, fuel cost and fuel surcharges. Join our Onyx analysts today as we dissect the energy landscape, focusing on potential pathways in the next few weeks and months. So before we begin with the content, a few administrative details to cover. We are recording this event, and we'll be offering it in a couple of other sessions this month. If you are watching on one of these additional sessions, you won't have live Q&A available, but we would like to hear from you. For Q&A, just submit your question, and we will review and get back to you accordingly. For the live session, we'll save some time at the end to address them. And for the other sessions, we'll review at the end of the event. To get a copy of the slides, look out for a survey sent after the webinar, and completing that will allow you to download these materials. Otherwise, we have about 45 minutes of content and discussion to share, and we'll start very soon. On to our LinkedIn and Vantage Point material, we encourage you to read our material as we publish on LinkedIn and also on our website on Vantage Point. You will find a mix of short posts and longer articles. I'm really hoping to elucidate on some of these supply chain trends. Use the QR code here to follow us. It's a great way to sign up and to get notified when we publish our next webinars. Okay. And on to Onyx. For those of you that are not familiar with us, Onyx is a division of Expeditors, and we help clients build more efficient, more resilient and more sustainable supply chains. We do this by focusing on geopolitical, regulatory, economic and operational disruptors, and we primarily work with you through advisory engagement and insights. These projects are tailored to individual client needs, either as one-off projects, or ongoing retainers. And to get a sense of the type of customers we serve, we have a few service lines. This can help visualize our service lines and the roles in which we assist in your company. We serve trade-in compliance, sourcing and manufacturing, transportation, logistics and distribution, as well as supply chain and strategy. Let us know if you have a project or a need and where our advisory expertise can assist. So with that, I am excited to introduce the speakers who will be speaking through our content today. We have Melissa Taylor. Melissa is Onyx's Director of Geopolitical Research. She oversees the delivery of geopolitical and policy analysis at Onyx, and her work in risk advisory has spanned over 15 years. And we have Nathan as well, which is with our supply chain design team. Nathan began his career at Expeditors in 2015 as a logistics engineer, and he's gained a solid foundation in supply chain design and transportation optimization. Nathan holds a master's degree in industrial engineering from the University of Washington. And lastly, we have our speaker, Adam. Adam has more than 20 years of experience as an economic adviser to global leaders across a range of industries. He has extensive experience in the U.S., in Europe and the Middle East and most recently worked at Chevron as the senior economist. All right. So with that, I'll hand it over to our first speaker.

Thanks, Olivia, and thanks, everyone, for joining today. As Olivia mentioned, we're going to give an update on our latest views on the implications and effects of the war on Iran, specifically on energy market volatility. I'll go through what I'm seeing in energy markets and then hand over to Nathan, who will talk about what's happening with transportation costs and how supply chain design team is helping clients navigate through that uncertainty and volatility in the market. And then Melissa will wrap up with her latest views on the outlook for the crisis in the Middle East. So with that, I want to just start with a really high-level view of kind of how we're seeing the energy market crisis kind of play out and where we see it going for the rest of this year and really over the medium to long term. And I kind of organized this into 3 main buckets. The first is what's happening immediately in the near term over the next, say, 3, 6 months and how major energy market disruptions are going to continue even in the best case. So best case would be end of the conflict like today, no more shots fired. Even in that situation, you're going to have several months of major disruptions to energy markets before they can kind of normalize. Then in the medium to long term, I think the key question really here is how markets perceive risk. And I'll get into some of the details here on what kinds of risks the market is trying to digest and what that means for energy prices over the long term. And then the third bucket is really around policy and how energy security is going to drive a lot of the government action that we see over the next couple of years with regards to improving infrastructure and making it more resilient. So with that, let's jump into the first kind of bucket here. And -- when we think about major market disruptions, obviously, we've had this huge spike in crude prices and transportation fuels. And as I mentioned, we think even in the best case is that this disruption continues for another 1 to 3 months in -- specifically in oil markets, natural gas markets will take a little bit longer to correct. But here, we're showing the difference between so-called dated [ Brents ] and then Brent futures, so physical versus paper oil, if you will. And this dislocation in the market showing that there is still an enormous amount of stress in obtaining physical barrels of oil on the spot market today. This is an unprecedented spread between physical and -- between dated and dated Brent and futures and signals that stress. Now how is that going to normalize over time depends on a number of factors. And really, I think when I think about how the rest of the next couple of months or the rest of this year is going to play out, there are a couple key signposts to be paying attention to. And you can kind of think of these in different sort of different time frames and waves over the next 6 months. The first thing to resolving the dislocation in the market, obviously, is a lasting ceasefire and credibility around that ceasefire. That would allow maritime flows to restore back to something close to normal, say, 80% of normal. We think, again, the best case scenario, that's going to be about 2 months for 80% of trade flow to resume through the Strait of Hormuz. More likely, it could even be 3 to 5 months before that happens. But let's focus on the best case for now. So 2 months for that to happen. Meanwhile, you've got to restore oil production and refining. So there's been infrastructure damage that -- some of it will take a couple of weeks to fix, some of it's going to take a couple of months to fix. And that includes ramping up production and refining activity in physical assets that have been shut down. Those take weeks, if not a month or more to kind of just get the normal production back up and running. So best case scenario, that's -- you're looking at 2 months, maybe 3 months before those activities kind of get back to prewar levels. More likely, 3 to 6 months before that happens. On the natural gas side, you're looking at 1 to 2 years, maybe even longer before natural gas production facilities, in particular, in Qatar, can be fixed and restored back to normal. So again, that's the best case. If everything kind of goes well, you're looking at multiple months for the -- on the short term, for short-term markets to be back to normal. Now how that affects freight rates and fuel surcharges is -- there's a high correlation here, obviously. We are not forecasting freight rates or forecasting fuel surcharges, though we do have kind of a fairly good understanding of how these markets tend to work. On the freight rate side, we've modeled out how geopolitical shocks impact freight rates. And typically, what we see is that in the lanes that are directly affected by the external shock, you tend to see a 100% to 200% initial spike in freight rates. And then it takes about 3 to 6 months for freight rates to normalize after the shock is over, and it all depends on the size and the duration of the shock, obviously. But generally, 3 to 6 months to normalize. And then for shocks as large as what we're seeing right now or, say, Russia and Ukraine or COVID, those kind of really big structural changes tend to mean that rates never really settle back to where they were before the crisis. They tend to be 10% to 20% higher than they were pre-shock. So that's something you can kind of ballpark -- get a ballpark idea for what your freight costs might be if you are using the lanes that have been affected by this war. On the fuel surcharge side, there's also a range of impacts, and they tend to also be nonlinear, right? So when jet fuel prices are kind of in a more normal range of, say, even $100 or more, the fuel surcharge tends to be about $0.02 to $0.05 per kilogram. And that's -- according to our modeling, that looks pretty steady across a range of jet fuel prices. And this is an additional fuel surcharge for every $10 increase in jet fuel. So -- but once jet fuel prices get above $150, $160 a barrel, you get this nonlinearity effect and kind of a step-wise ramping up of fuel surcharges to where we are today, which is, depending on the lane, we're seeing fuel surcharges of $0.15 to $0.20 per kilo. And -- that will come down eventually, but when fuel prices come down, there's generally a 6-week half-life on fuel surcharges on the back end. So eventually, fuel prices will come down. And then think of -- just take $0.20 for argument's sake. If we're at $0.20 per kilo right now, then 6 weeks later, it would be $0.10, 6 weeks later, it'd be $0.05 and so on. So you have a half-life kind of degradation of fuel surcharges over time, meaning there's a pretty long lag before you get back to normal. So that's on the short end of the spectrum. If we go to the next slide and think about what's happening kind of more medium to long term, if we look at the futures markets to get a picture of how the market is beginning -- is digesting the risk environment in the Middle East. And we've talked about what's happened on the short end in terms of, obviously, trade flows have been shut down. There's been infrastructure damage. So that's obviously why short-term prices have blown up in the past couple -- past month, and futures prices have expanded dramatically since February. Now -- but the key question I can think going forward is why does the market perceive there to be an ongoing premium on the price of oil and the price of jet fuel really over the next 6 or 7 years? And this gets to how the market perceives risk. If we rewind the clock really before this war, I would argue that risks in the Middle East were perceived as conditional, meaning the -- shutting down the Strait of Hormuz was almost unthinkable. And it seemed like a very extreme scenario that would only happen if the regime in Iran were faced with some kind of existential crisis. Well, it turns out we got that scenario, and the Strait of Hormuz was shut down. And the question going forward is, does the market now view that as a structural risk, as something Iran can kind of turn off and turn on at will? Or do we go back to a world where that is viewed as a conditional risk? Just based on the futures market, it looks like the market is anticipating this as a structural risk for at least, say, the next 5 or 6 years, right? And that's the -- and I think that explains the majority of the gap between futures prices as of February and futures prices as of today. That's on the Brent side. In addition to that, what we're seeing on the jet fuel side is a persistent -- now a very persistent gap in futures prices post-war versus pre-war. And another kind of interesting thing to layer on top of the jet fuel market is that some analysts and market participants are starting to wake up to the idea that we're going to have a -- on top of the current crisis, given -- around 2030, 2032, we're going to have a supply problem when it comes to complying with sustainable aviation fuel mandates. And so really, even in just the past week, that white line, the white line representing as of April 15, that has jumped up, I think, 5% or so just over the past week as analysts have kind of begin digesting the kind of long-term view on sustainable aviation fuel. Then if I can move on to one more slide before I hand over to Nathan, just talking about the long term and how governments are digesting all of this information and thinking about how they position energy policy going forward. A classic kind of framework for thinking about energy policy is this so-called energy trilemma between security environment and equity or equity/affordability. And generally, countries are trying to somehow balance these 3 tensions where -- for example, if you focus on energy security or environment, that may come at the cost of affordability or vice versa. Pre Russia-Ukraine, on the left-hand side, what we saw was really, the U.S. having access to cheap secure supply, but really lagging on environmental efforts relative to Europe. Europe focused on trying to balance, really balance this triangle, but arguably had a false sense of security. China was really using climate as a bridge to advance on all fronts. And then if we look kind of fast forward to before the Iran war, you saw a slightly different picture where security had diminished in the U.S. and Europe. China was executing its strategy with regards to climate to really kind of secure -- really to secure its own kind of domestic resources and build out dominance in global supply chains for renewable fuel, renewable energy. And so looking forward, what does this mean? I think it means that because of the diminished security amongst some of the larger economies in the world, we're going to be leaning into energy security policy being the dominant kind of goal for -- certainly for the U.S. and Europe, and I think a lot of the major players in the Middle East as well, where the U.S. really leans into fossil fuel dominance, pivots to infrastructure, thinking about how to improve infrastructure and grow it and maybe even increase domestic refining capacity. Europe, on the other hand, I think is going to be thinking about really moving much faster in its transition to use domestic sources, whether that's wind and solar, hydrogen, nuclear, even. It's done a lot to reduce dependence on Russian gas and pivot towards U.S. LNG, but it needs to even go further in securing domestic resources. And China, I think, really kind of is going to continue to kind of move in the direction of energy security through supply chain dominance on renewables and obviously, keeping the options open for coal and nuclear and things like that. So the bottom line here is we have the short-term disruptions in the markets. We're seeing this play out in terms of a structural shift, upward shift in energy, fuel prices going forward. And then also kind of laying the path for this next wave of global energy policy, which we believe is going to be focused on energy security. With that, I'll hand over to Nathan to talk more about how this is impacting transportation costs.

Thank you, Adam. So I'm going to dive a little bit deeper into the fuel [indiscernible] Adam mentioned earlier. So I work in a modeling team here in Onyx. And there are a couple of things we support [indiscernible] relates to helping supply chain managers and higher executives manage their supply chain costs, including transportation costs, and that includes giving visibility to what cost is going to be and finding ways to reduce costs. There's been a couple of struggles that our clients are facing associated with this Iran conflict related to the fuel cost volatility. The first lever of that struggle has to do with the [ rates ]. So this -- so if you look at that, the diesel fuel prices in the U.S. on the chart there, we see 34% to 40% increase over the past month. For some of our clients, there -- that leads to about a 100% increase, up to a 100% increase depending on the region and fuel surcharge. For air, we've seen a lot of air fuel surcharge adders over the past month. So in Asia, for example, we've seen air fuel surcharge adders of 30% to 100%. And for ocean, we're seeing carriers implement emergency bunker surcharges to account for increase in fuel. So it's a lot of increased cost in a very short amount of time. And the other issue with this struggle is the uncertainty associated with it, even if I know what fuel is today, what will it be in 3 months, 6 months, 1 year. And how do I plan for that? It's a difficult question to address, but we try to use modeling to help address some of that. Out above examples with clients that we have, one recently completed an airfreight RFQ, and they were expecting some cost savings in their airfreight before the conflict. And then fuel goes up, wipes out all of their airfreight savings and really affects their plans, their budgeting plans over the next year. Another client had an initial estimate of how the fuel increases would impact their airfreights. But after we did some deeper analysis, we discovered their initial estimates were too conservative. So there's a lot of uncertainty that clients are having to navigate here. You can go to the next slide, please. So when it comes to how we utilize modeling to help address some of this uncertainty, there's two things -- two ways we try to help. The first relates to giving visibility to the impact. So the first three steps I have on the chart there are related to giving visibility to what fuel is doing, how that's affecting costs and how it will affect cost in the future. And the fourth step there relates to mitigating some of the impacts of increased cost. So I'll go through these step by step. So for number one, when it comes to the [ median ] impact, we -- since we have a digital twin modeling for our clients, that means we always have a baseline model in hand -- on hand. We refresh it continuously. And so when the Iran conflict happened and we saw fuel surcharges increase, we were very quickly able to assess the immediate impact of those fuel and cost increase for the client specifically. For example, air -- a lot of times, air fuel surcharge policies are directly tied to Brent or WTI, depending on the region, maybe a jet fuel, the U.S. Gulf Coast, jet. And for domestic, fuel surcharge policies are oftentimes tied to the diesel indices. So as those go up, the fuel surcharge goes up and because we already have the model of the client's transportation network, we're able to assess the [ median ] impact of increase in fuel cost. The second step relates to some of the projections that Adam talked about earlier. So even if I know what my costs are going to do over the next month, given the current indices, I want to plan for the cost over the next quarter or the next 2 quarters or the next year. And that's a challenging question, right, because there's a lot of uncertainty. But we worked with Adam to create some high case and low case models for what the indices are going to do over the next year. And then since we have a range of possible scenarios, we can model each of those scenarios in our environment to give high -- high-case scenario and low case scenarios of how costs may be impacted. And that helps -- it doesn't tell you exactly what's going to happen, exactly how much you're going to spend, but it gives some bounds to the risk given the information we have based on historical patterns and/or the futures markets. So those first two steps are related to predicting the impact of cost. But another benefit of having a digital model is a continuous refresh. So we can actually measure the actual impact as the weeks and the months go by and compare that impact to our predictions, update the predictions if necessary and continue to refine the accuracy of the model and the predictions based on what actually happens. We view the predictions as a hypothesis. The continuous refresh, comparing to actual, it's kind of testing the hypothesis so that we can have more accurate estimation of the cost in the future. And the fourth step here. We can't really fix fuel surcharge, it's out of control -- out of our control. But we can -- there are other levers for transportation costs that we can impact. So for some of our clients, they're seeing big increases in transport costs. And the question is how do we mitigate some of those transport costs. So we're able to use our models to find opportunities in other areas for transportation to help mitigate some of the cost increase impact for fuel. For example, we can find consolidation opportunities to see how implementing holding periods, reducing shipment sizes, decreasing the cost per kilo can lead to transportation savings to mediate some of the cost increase associated with fuel. Or we can look at optimizing the correct -- the mode mix, whether it's parcel the LTL to full truck load [ weight breaks ] or look at optimizing the service level mix associated with the network to see if there's opportunities to reduce the amount of express being used in network, for example. So those are some of the ways we're using modeling to help guide clients to this uncertainty. I'll pass this over to Lisa now.

All right. Thank you. So I'm just going to go into a little bit of detail about what we're seeing in the current Iran crisis or what our current outlook is. Since we last updated you on our webinar, we have seen the United States and Iran enter into a ceasefire. And we've seen the United States in just the last few days, essentially say that the ceasefire negotiations failed and seek to impose a blockade. The success of that blockade reports seem to be kind of mixed. We're still seeing a few ships kind of get through, and we continue to wait to see exactly how successful that is on the U.S. part. But we do see the United States and Iran continuing to have discussions, whether that's back toward discussions or whether that's more direct discussions that are set to happen here in the next couple of days. So at this point, I think that we are about 7 weeks into a war that I forecasted as being about 5 weeks -- 4 to 5 weeks. And so obviously, this is a place for us to kind of step back and try to understand exactly where the pressures are and what we may have missed here. And so what we see is that, largely -- there's a difference in analysis, I think, in how we're viewing the impacts on the United States versus how President Trump is viewing the impacts on the United States. As Adam walked through, kind of our base case scenario really shows significant impacts. Even a best case of maybe 80% flows over the next 2 months. And looking out more realistically, we're looking at 3 to 5 months before we kind of reach that point. We see a longer-term impact on overall gasoline prices, overall impact on what does absolutely matter to the President, the American electorate. And so what we see is a relatively little immediacy in the impacts to the Trump administration. And we see a significant commitment to this question of a nuclear Iran. And so -- and we also see a significant commitment. I think that's been discussed widely that President Trump entered this term really talking about his legacy. I think he does care very much about how this plays out in -- for a host of reasons. Legacy is absolutely one of them. And so where basically we are is we see significant impacts that are going to last into the midterms, are going to impact the Republicans chances to hold the Senate. And ultimately -- and this is based on the words of Trump and his allies -- may put the presidency at risk. They are warning that there is risk to the Trump presidency should the Congress, both chambers Go to the Democrats. And so there's this very, very real risk to the Trump administration. And the question is, does the Trump administration see the same risk? And I think right now, we're seeing some pretty clear and consistent messaging that the Trump administration believes that, that risk will go away in time for the midterms, that President Trump will have a win under his belt and will also essentially be able to claim credit for much lower oil prices. And if this is the case, if that analysis is correct, then we may not see as much of an impact on the midterms as anticipated. But in general, our analysis -- many other analysis really points to the significant impact. And so the question becomes, does the Trump administration truly believe that position? And I would say is the Trump administration likely is feeling the pressure pretty significantly right now, but it's getting better at messaging its negotiating position. And so we still see a lot of pressure in terms of the economy and some of these immediate pressures on the President as being significant, still see that as really driving this confrontation. There's significant constraints on the U.S. and the length of time that it can allow this to go. It's in the U.S. interest to say we can let this go on forever and essentially challenge the Iranian position. We see Iran also as extremely constrained and unable to maintain its position long term. The Trump administration's imposition of a blockade really supports this viewpoint that the Iran is likely to face significant economic impacts over the short term just from a simple blockade. So we're essentially seeing the Trump administration test whether the Iranian economy can withstand much at all. It was already in an extremely difficult position. In January, we saw these significant protests that really reflected the difficulty that the Iranian economy was already facing and the great inflation that it was already facing. And so as we look ahead, I think what we have to ask is what the goals of the President are, the United States President and the goals of Iran. I think Iran, we have, in many ways, an existential crisis, but there are limits to what it can reasonably carry out with a struggling economy. For the United States, we have a true commitment, I believe, from the President to actually reach a nuclear agreement with Iran, but less interest, I think, in the Hormuz crisis. There's been a lot of indications in public reporting that show that the Trump administration is maybe less aware of some of the ways in which this has a long tail and will come back and affect the U.S. economy. And so we kind of see this as -- the Hormuz as a side issue for the Trump administration and expect the United States to continue to pressure until that cutoff time that only the Trump administration knows when they view this as truly impacting and risk putting the Trump administration at risk. So what this looks like is I would still point to a negotiated settlement in April as likely. So longer this goes on, the lengthier and more substantive and broader the impacts are going to be. So we do see -- I do continue to believe that this will be settled as quickly as possible, but the Trump administration has stuck to its goal much more than anticipated. So now as we look ahead, I do think it's important to remember, as Adam pointed out, that the consequences of this just simply stretch into the long term and -- for supply chains. But the sooner it is resolved, the less impact we see on the global energy system. And so one of the things that we do for our clients to try and assist them in thinking through some of these items. We do work with clients to help them understand and navigate what the probabilities are, what we see as the most likely and least likely outcomes from these situations. And we help them begin to think about not just the current unfolding crisis, but what future crises might look like and what loss of access to key materials or markets may look like. And we do that by helping them think through what are their geographic footprints, what does their network look like, how could they think about derisking. So the risk that they encounter in 1 location can be properly balanced in another location. We also help them keep tabs on market intelligence. So helping them foresee some rising costs and where that's not possible, where it's unpredictable, helping them to understand and mitigate that inflation. Looking for signals, early signals of shifts in tariff sanctions and other restrictions and keeping our clients abreast of what their competitors are doing through benchmarking. Some of that benchmarking can be sourcing cost benchmarking or shifts in footprints, helping clients begin to see how their own footprint and their own strategy lines up to the industry. We also help prepare for the more significant shock scenarios. So whether that's an unforeseen crisis, right? The -- we're watching how it plays out and providing up to the minute guidance on what we see as the likely outcome. What -- or assessing kind of the impacts on the network is where we really try to focus our efforts, try to help companies apply these really macro and very broad impacts and understand exactly how it's going to impact their supply chains. And we do that often in close cooperation with them. And then finally, in network optimization. So whether -- as Nathan was discussing before, really continuing to develop models that can help clients understand and predict what's going to happen to their supply chains in these types of significant scenarios. And with that, I think I'll invite Olivia back on and Adam and Nathan and see if we can answer some questions.

Yes. Thanks, Melissa. Maybe I'll kick one off. We're getting a lot of good -- a lot of good questions here from the audience. One in particular maybe Melissa I can take here is a question around -- so given the conflict involving Iran and its ripple effects across surrounding regions, what are the primary compliance and trade risks we should be considering beyond rising fuel costs? Are there any indicators this would result in changes to tariff sanctions, export controls, customs enforcement, et cetera? So I'm not sure I can speak to compliance in particular. I mean, from a macro perspective, one of the things that we are really thinking about in terms of ripple effects across the region is how businesses and investors view the Middle East going forward. Tech companies, in particular, are facing now, this kind of -- this new perception of risk in the region with data centers being targeted, tech companies kind of moving into the region, both from a -- on a supply side and a demand side and building out businesses there. So I think that's one of the key ripple effects that I see. And typically, when you have a war in an area, that foreign direct investment into that area completely pauses for at least a year. So I would expect there to be a long cooling-off period of investment into the region until this -- until we kind of understand what the new -- I hate the term -- with the new -- what's the new normal going to be in terms of risk perception in the region.

I would add that, in general, I think that this really reinforces this idea that countries need to protect their own production, right? So we're seeing a period where the United States has very quickly moved towards trying to protect key production, whether that's steel or semiconductors or energy. And it seems very likely that we're going to see a doubling down on that from other economies. We've already seen some movement in that direction. We are seeing, out of this conflict, a significant rift between the United States and Europe, for instance and do expect Europe to take some steps back from the United States in terms of working with the United States on some of these broader supply chain issues. Now I say that -- and Europe just signed -- or is working on a critical minerals agreement with the United States as we speak and is still continuing to work closely with the United States. But we do you see that there's some real risk of greater security focus in supply chains that create significant impacts on compliance teams. And Olivia, I might invite you to jump in as well. We have a host who also happens to be an excellent China analyst. So do you have any thoughts on that?

No, I think I largely sort of concur with what you and Adam has have spoken through. We are getting a couple of questions on the implication for other conflicts in the Asia Pacific. That is, I think, a complex topic that we probably would need a separate webinar on and more time on. So I won't cover it today. But I think with that as well, I think we have some questions in the chat that I probably would tee up for Adam, Melissa and Nathan. So we have a question on beyond direct fuel cost, what secondary or lagging impacts do you expect for logistics? So in particular, things like capacity shortages, carrier behavior, what kind of secondary impacts do you see beyond costs?

Yes, good question. I think -- I mean, I think we're seeing much more disruption in the air market right now. And that ocean, you guys can correct me if I'm wrong on that. But I think on carrier behavior, for air, I think it's really -- right now, we're seeing just a lot of cancellations because of fuel shortages. Not just high fuel costs, but physical shortage of fuel. So I think it's -- right -- the short-term thing to manage is cancellations and things that I hadn't really thought about as this war broke out, cancellations in places like where the origin is, say, in Europe, but it's going to Asia and there is a fear of not being able to get enough fuel for a return flight. So those kind of like kind of spillover effects into markets, into tangential markets, I think, is something to really kind of be paying attention to now.

Yes. I think we were -- we are already seeing a lot of capacity challenges, especially in Southeast Asia associated with that. Shifts to that China Plus One policies, that was already driving a lot of pressure on cost. And I can't speak to the conflict's impact on capacity, but you have amplified impacts on cost and associated with this conflict on top of the current capacity related impacts.

I think the biggest risk to capacity right now is, I mean, in ocean at least, and I believe in era, there was -- at the start of this year, a view of overcapacity to a degree and a lot of pressure on prices. I don't think that that's fundamentally shifted. And so we're having to look at these fuel cost impacts in these fuel surcharges. And in a lot of ways, this is likely to be pretty stressful for carriers, but not necessarily impact baseline capacity. I think that the exception to that, the thing that is very concerning is this idea of possible shortages of fuel. Now I think that that's going to be very location-specific, right? That's not something that I think at this point, we've seen. And Adam, please correct me if I'm wrong, but at this point, we've seen an indication of kind of a broad scale shortage of any kind. But if we look at places like Vietnam, we are seeing a restriction in flights. We are seeing a few very specific local instances where there just simply isn't enough fuel to meet all of the demands of society at large. And that, to be clear, would impact capacity. If we -- yes.

Yes, Absolutely. We are at time for today's webinar, but we still have a lot of questions in the Q&A box and also over registration. We really appreciate you being so forthcoming of your questions. We will get back to you via e-mail if you've left us a question. Please feel free to contact the Onyx team at any point as well if this is a conversation you would like to further. So with that, I thank everyone for your participation today and our speakers for your time. Thanks, all.