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

Hello. Good morning to everyone. Thank you so much for joining us today. I am going to say a little bit of cheers to our friends on the West Coast. And as some of you have said these 8 a.m. webinars are a bit tough to get started in the morning. So I hope you've got a cup of caffeine or if you've stayed up and you're on the East Coast if you stayed up watching a lot of World Cup soccer, like my family has, hopefully, you've got some caffeine too. So today, we are going to talk about the Ocean market -- well, the Ocean market -- I'm stumbling there. We're going to talk about the Ocean market update, what's happening with things going on in our industry and hopefully give you a bit of an update on all the changes that we have been seeing happening in that market. And my name is Samantha Hurst. You are likely to have gotten several e-mails from me reminding you about this webinar and getting you registered. If you have any technical difficulties, you may respond back to those e-mails, and I'll do my best to support you in the background today. I'm going to talk first just a little bit about a quick disclaimer. If you've not joined one of our webinars before, these events are meant to be, of course, educational. They're not intended to give you any kind of financial advice, legal advice, et cetera. We are offering you what we understand to be happening based on the things we see in our day-to-day operations as well as what we've seen out in the news and many things you've read yourself, but we're trying to get a little bit of context to what you're probably seeing in the headlines. So please just understand that's the purpose of today purely for education basis and not necessarily to base any specific business decisions. Now as far as how things will flow today, we have about 45 minutes of content as usual with Q&A to follow. Now you are encouraged to drop your questions in the Q&A box throughout today's webinar. We do have a team of experts who I'll introduce here in a moment that will be supporting with those questions. We do ask though if you have a question that's just hyper specific to your business or your industry, understand we may not be capable of answering that in today's webinar, but we are interested in trying to support you regardless, and we'll at least get someone back in touch with you here in the next week. One of the questions we get on every one of these webinars is how do I receive the slides and the recordings. We're obviously flattered that you guys want to hopefully go back over this material, maybe even share it with people within your internal organization, and you are absolutely welcome to do that. We just ask that you fill out a quick survey that will allow us to understand how we did today and what other topics you would like to see in the near future. Now that survey will come to you via e-mail from myself within about an hour or 2 of today's webinar wrapping up. Have no fear, if you do not receive that survey, we know some of you do not because of your firewall security protections in your e-mail, we will get the content to you, typically send that out regardless via e-mail within about 24 hours. So if you would like, you can also scan this QR code, and that will help you subscribe to any of our future invites for our events as well as get our market updates via e-mail. So now without further ado, let me introduce our speakers. So we have a great group as usual from our Ocean team. They've always been great supporters of our webinars. In fact, they really are the team that kicks things off with Expeditors webinars many years ago. So Scott Kelly is our Vice President of Ocean Services for the Americas. We have Blaine Steger, who's our Director of Ocean Business Development. We have Stephanie Mantz, who's one of our tradelane managers; and John who's also a tradelane manager. Now I don't want to fail to mention the people that we actually also have working in the background at support today. They won't be jumping on to directly speak, but they can answer questions. We have Denise Rogers, who's our Director of Ocean Services for Canada; Lorena Rosani, who's our Regional Manager of Ocean for Mexico; and Gaby Romero, who's our Tradelane Manager for Latin America. So now I'm going to hand it over to Scott to get started with our content. Thank you.

Okay. Good morning, everyone. So we're going to talk a lot about what's driving the market today and why we're seeing, what we're seeing. But when we look at the environment and we look at the shipping world and what's happening, the 5 key pillars are always what's driving behavior and driving the capacity and driving the investment and driving the -- of course, the rate levels that are follow So when we look at the 5 pillars, we've got capacity, how much volume is there relative to the marketplace, what does the demand look like? Is it positive, negative, flat, cost, financial performance and outside factors? And right now, we're at a crossroads. When we look at the capacity, it's somewhat balanced with demand, okay? The demand is up, but it's not robust, but it is up, okay? And the capacity that's come in -- has consumed all that additional business. But between those two things, there's some of these outside factors here that -- like the Suez Canal, which is consuming some of the -- a lot of the capacity that's going around Africa, okay? It takes 2 to 3 more ships to run a service now from Asia to Europe. And so we're seeing a lot of that excess capacity that people are expecting to see this year get consumed up or sucked up in those trade lanes. And of course, costs -- fuel cost, we also would happen with fuel in May and June and July. We expect that to come back down. So that's affecting the carrier's behavior. And big one here is financial performance. So the first quarter was not good for the asset owners. And they're responding by really managing the steel, where does the ship go, what ships go where? And they are managing it very, very tightly. And so we're seeing now capacity squeezes in places like Asia to the United States, West Coast and East Coast. Asia to Mexico, very tight. Asia to Brazil and South America, very, very tight. And so because of that, the rates have responded and the carriers are responding very quickly to drive up the cost for the customers in the rates. And lastly, the outside factors, as we talked about, Ukraine was one thing, but what's going on in the Strait of Hormuz and relative to fuel capacity and cost has been significant. And we talk about that customers are like, how much business actually goes into the Persian Gulf, it's not significant. It's a small market. But the fuel costs are the #1 cost for the carriers have gone up dramatically. And now they're starting to come back down, and we'll start to see those excess fuel -- excessive fuel costs and bunker costs from back down to reasonable levels to think in the next couple of months. So -- with that, I'm going to hand it over to Blaine who's going to go into depth on some of these fundamentals also with me, sorry. So with the supply and demand cycle, we happen to be in that bottom right-hand corner where -- you see where the carriers rates fall, carriers, reduce capacity until demand increases, then there's a capacity short and then they drive up the rates. And then when they drive up the rates, you all go to the shipyards at the same time, build ships and the ships come into the market and drive down the rates a little bit. And then there's a capacity surplus and the rates fall. So the cycle that we see in the business used to be about a 5-year cycle. Now we're seeing it. It's really a 15-month cycle, much faster than it ever was before. And that's why we see the volatility in the rates that we've seen in the last 6 years. So that cycle is spend much faster than it used to, okay? I'll hand it over to Blaine.

Thank you, Scott. So continuing in that vein with what's going on with the global capacity and the fleet. So on the first slide there, the fleet continues to grow and what's on the order book is projected to be 1/3 growth over the next 5 or 6 years. That has slowed down in recent years as carriers worry about geopolitical events between the U.S. and China and how ship taxes and the trades to and from the North American marketplace could be tax, but also as demand has curtailed following the pandemic. And what you see here on this slide is total capacity and global throughput growth so container growth in the gray bar, how the carriers have grown the fleet year-over-year in the black line and then where demand has sort of fallen a annualized capacity growth in the red line. And what we see is capacity grew dramatically coming out of the COVID years as they reinvested that money peaking over 10% in 2024, whereas the actual used capacity and fleet demand is down at 4.5%. So there's a mismatch there. As those lines have gotten closer together, it's reinforced that volatility within the rates and caused the marketplace to be congested and to really become tight, not just on the headhaul trades, but globally even on some of the smaller markets. Another major factor in what's going on with supply is consolidation in the marketplace. And coming out of the global recession in 2010, we saw this process begin as carriers begin to merge at a country level and then really sort of peaked with the bankruptcy of Hanjin, their exit from the market and the 8% capacity flip that caused in 2017. What we're left with now is these 10 global carriers controlling upwards of 88% of all of the capacity. And you can see MSC is the largest carrier in the world continues to grow their fleet. CMA with what they have on the order books, we'll go to the #2 spot and then Mars Costco and Hapag will follow. One interesting note in the marketplace, Hapag-Lloyd is in an agreement to purchase a large majority of lines, which would further bolster their position probably grow their market share by 7% to 8% globally, really put them firmly in that fifth spot. And why this is important to you, the shipper is? This creates less choice. This also gives the carriers more control over the market where they put their capacity and how that maneuvers your ability to get space and have consistency of service and rates. It's a lot like the domestic airline industry in the U.S. where you see it consolidate down and you have a few large players controlling the majority of markets and then surrounding group of niche regional providers. Another major factor impacting capacity is there has been very few deletions. And there are not a lot of places left in the world where you can cut up ships. It is very environmentally destructive in terms of the amount of fiberglass and microplastics that end up in the ocean. The scrap steel is in lower demand than it has been in previous years, and so there's less value for the carriers to sunset those vessels as well as the worry that they will miss out on the next black swan event. And so you see a lot more older ships in rotation that leads itself to some of the problems we see in the market as things have to go in and out of repair yards more often. But it also just means capacity will continue to grow and likely outpace demand for the foreseeable future. And then on the other side of that, the idle fleet is extremely low with 2% of all those ships being in repair yards and a lot of that is for engine updates to meet environmental guidelines, new propellers, normal things, paint patch, things of that nature. And then less than 1% of the fleet is truly idle or out there available to be chartered. I would also tell you that tends to run smaller container ships, things that are less in demand for long-haul high rate trades. And then -- this is also really important because with that Suez Canal closure that Scott mentioned from 2024, right? There's not a lot of elasticity in the market. And so as we have these events and upticks in demand, whether it be a 5% upshot in demand on the Asia to Europe trade the largest in the world or the peak season we see now on the transpacific, there are less ships for carriers to push and pull causing the rates to go up faster and also causing them to come down faster on the back side. And then in times where we see it get stretched globally, we talk a lot about canceled sailings. And during the pandemic, this was a byproduct of congestion and the inability to get the ships where they needed to go following the pandemic, it was a way to measurably control the supply-demand ratio and keep rates from falling too low. And now we're in another marketplace where there is a lot of congestion. There's some ships trapped in the Strait of Hormuz and other things being positioned to overtake those. But most of the new capacity coming into the marketplace, some 38% of ship deliveries is going into the Asia-Europe trade, where longer transits around the Cape of good Hope and congestion in North Europe, particularly Rotterdam are causing a supply-demand imbalance causing ships to be out of loop and carriers needing extra vessels in those rotations. It is impacting all trades. We see it here on Asia to the West Coast. This is where there are the most sailings per week and also the most consistency within the percentage of blank sailings sort of rolling 10% to 15% average. The East Coast, the United States, less week over week, but more impactful to the market because there are less services. And so where you see these weeks that have a 12 or a 21% void rate that causes a cascading role pool that takes a number of weeks to digest. And the more full the market is, the longer that roll pool persists, the higher rates go, the worse the services. Asia and North Europe, same problem, less services, much larger ships in the 20,000 to 23,000 TEU range. And so when they have a blank sailing, it really starts to backlog ports in Asia and the Middle East and cause problems cascade forward and then eventually ends up with congestion in North Europe that also slows the exports bleeding over into the transatlantic market. See here that happened earlier in the year when Asia Europe spiked up. It has settled a little bit. And then, of course, the Mediterranean to the U.S., any string that was connected to parts of the Middle East conflict had some problems earlier in the year and as carriers have sorted that out and reshuffled their deployments, we see less of that in the recent weeks. And with that, I'm going to turn it over to John Antista, our trade manager for Americas imports, Asia, Middle East, India, sub-con, to talk about what we're seeing with demand trends.

Thank you, Blaine. So -- as mentioned, we are seeing a roller coaster, right? The first quarter of demand was a bit of a roller coaster being down 2% and 1.5% in January, Feb and March, but an increase in February. The anticipation is we're going to continue to see this roller coaster. At the moment right now, it's anticipated that we're going to be in a tight market at least through the end of August. And part of that is natural demand. Part of that is some of what you've heard previously in carriers manipulating services, maximizing the value of their vessels and really allocating vessels to certain areas of the world that really demand larger vessels. So -- moving on to the next slide. Yes. When we look at year-over-year containerized growth, if we're looking at Asia to North America, it's down. That's our largest trade. It's down, but kind of a mixed bag here, right? What we're seeing at the moment is it was always anticipated that it was going to be a lighter first half of the year, with a bounce back heading into the second half. And right now, all indications based on the market is moving that way, where whether it be shippers are trying to push more cargo out in the event to minimize any type of tariff issues or looking to get cargo out ahead of the looming potential of Chinese vessel tax that was kicked down to August -- I'm sorry, October of this year. So there's a lot of variables involved. But at the moment, what we're seeing is hot market, where it's very tight. Vessels are moving at near capacity, which is great. That means the economy is getting better, people are buying more. But the first half of the year, kind of went as expected, where it was going to be a little bit of a down market granted. The situation in the Middle East was definitely a curveball for all of us. but we are still anticipating that we are going to be in this tight market, at least through August with a bounce back for the end of the year. When we look at industry, it's pretty impressive. It's almost all green where all industries were up with capital equipment leading the way. Tech leading the way. Consumer goods being down at least from March and relatively flat but slightly up 1% for the year. So again, it's going to be interesting to see how the rest of the year plays out, especially on that consumer goods, retail and fashion. Again, we anticipate we're going to see a little bit of a bounce back as we head into the second half of the year. When we look at region overall, for the most part, green for all of March aside from the Middle East and India subcon, no surprise there. Again, we are seeing the carriers manipulate the market, whether it be canceled services. Specifically, right now, what we're dealing with in India, where we've had major services canceled that would head to North America, whether we have services that's being changed where Latin America freight is now moving over to Europe, it's kind of a mixed bag right now. When we look at the transpacific market, we are dealing with certain carriers canceling services, enhancing services, certain blank -- blank of certain services. Specifically, when we speak to the India Subcon region, we did have two major services that were canceled, and that's really causing congestion within various points in India, where there's a backlog of cargo and the equipment is becoming scarce. And it's -- the carriers right now are taking it as an opportunity to maximize the value of their vessel there. They're limiting the amount of fixed rate contracted cargo and they're really taking on that FAK and wanting to capitalize on the situation. If you can go to the next slide. Please? Thank you. When we look at costs, we've seen, obviously, the height when we were back in May of 2025. And then as we've gotten into 2026, rates really started to come down. Now we're kind of even where we were in January. When we look at the Asia to U.S. trade, Asia to Europe, significant spikes there where we're back into where we were in May of 2025. Europe is -- Europe to the United States is significantly high. Now that's a number of variables across the board, right? A lot of it has to do with what's going on in the Middle East. A lot of it has to do with artificial manipulation of the market, like we mentioned with carriers shifting services, creating that imbalance, creating that schedule imbalance and then causing natural congestions due to that imbalance. So again, we are in this situation, we believe, at least until the end of August with carriers passing along peak seasons, certain GRIs on FAK freight. And again, we're in it at least until the end of August. When we look at cost for fuel, this is staggering, where you can tell right when the situation in the Middle East began. We are in this situation, and this caused a lot of carriers to treat fuel differently where they implemented emergency fuel surcharges. Some carriers decided to go to monthly bunker adjustments, which we were all familiar with the quarterly adjustments. And a lot of that was reactive to how high fuel went and continues to go. We are hopeful that, hopefully, the situation in the Street resolves itself and at some point, and we start to see some reductions in fuel, but for the foreseeable future, this is where we are. The situation of fuel increases provided exponential additional costs that were unforeseen to any of us, specifically for the carriers. And when we get to the financial piece of the slides, you'll notice that some of the carriers really did not fare well in the first half -- in the first quarter of the year. A lot of that has to do with the additional cost that they need to spend in a very short period of time. Some of those numbers are staggering. So the reaction to the market and fuel is strictly because of obviously the street, and we anticipate this is going to be the new norm for the foreseeable future. When we look at carrier financial performance, that tip on the mountain that you see right in the middle of your screen back in 2021, that's all your COVID years, right? And then as we started to come out of it, relatively normal market started to come about. And then you had the situation in the Suez Canal, which kind of threw everything upside down again, and carriers started to make money simply because rates were getting back to COVID levels. Now the market started to stabilize as we got into 2025 and start to get to the back end of 2025. But then the situation in the Strait of Hormuz went into effect and the carriers are not trying to go be that profitability line. So they've become experts in how to manipulate the market, whether it be avoid sailings, blank sailings, shifting capacity where it makes sense to trade where it makes sense and keeping rate levels up. But if you look at what I mentioned just a few moments ago, where carriers did not fare well, you see three carriers in particular that in Q1 of '26, they struggled. They went below that profitability line. And we know there's a strong emphasis for carriers not to go back to those years of 2018, even in Q4 of '23 where they were below that line. And if we were to go further back beyond 2017, being below that profitability line was more consistent than inconsistent. So again, the carriers have gotten become experts and how to make sure that they remain profitable. And the carriers will do what they need to, to make sure that they are allocating vessels where it makes sense to maximize the value of their vessels. So with that, I'm going to turn it over to Stephanie.

Hello, everyone. Good morning. So we talked a little bit about the supply and demand imbalance. We talked about fuel as disruption. So just a couple of other disruptions that we're watching on the horizon. We have first is weather, so -- and the Panama Canal. So Noah, which is a government agency that monitors whether they came out 2 weeks ago, and they -- you can see on the left that noticed that in El Nino has formed. So what does that mean exactly? Basically, what it means in a nutshell is there's water in the Pacific Ocean on the west -- on the eastern side, you can see the dark red here that becomes above a certain temperature for a prolonged period of time. And what that does is it creates some imbalances in the wind direction, temperature and can change up a lot of the weather patterns. And so if you remember from 2023, 2024, there was a drought in the Panama Canal, and they reduced the slots of vessels able to go through. It was, I think, down to [ 22 ] when normally it's about 38 to 40 spots a day. And so there were a lot of ships that were waiting outside the canal. And as you can see, too, looking at North America, this might result in a little bit of a warmer winter in the Pacific Northwest and a little bit weather when we look around the south here. This was a good infographic from the economist. You can also find it on LinkedIn. Just showing some of the impacts that in El Nino might have on South America as well. And so looking at the U.S. if it creates a lot of more rainfall, this could take more exports and agriculture. And then you look at the northern part of South America could create some droughts, heat waves throughout the latter half of the year. And so if you look at the bottom, this is a quote from Nora, there's a 63% chance of a very strong El Nino from November through January. And so if you saw in the news this morning, there's a heat wave going on in Europe, too, they're suffering some pretty high temperatures. And so this is definitely something that we're watching closely. More on the Panama Canal, they put out a notice late May that because of this high risk of an El Nino, they have -- the Canal Authority, they've been implementing some water savings measures throughout earlier this year and in 2025. Gatton Lake, which is the primary water source for the Panama Canal with speed the locks, they've tried to maintain it at a higher level, so that they could withstand a drought throughout the winter. So right now, there's no impact to the canal, but it is something that we're watching. And just a couple of days ago, the bottom right, just as a reminder, there were a couple of questions we got the last couple of weeks, the canal, they just did some maintenance to some of the locks. And so I think it was from June 6 to the 15th, they had just reduced the amount of transit going through the locks. But right now, it's back to normal and operating as normal. Yes. This hasn't had too much press the last couple of weeks. But just as a reminder, earlier in the year, there was the CK Hutchison Hong Kong subsidiary, they had -- there was a couple of geopolitical events going on where the Panama Canal or the Panamanian government, they note the contracts that they had with CK Hutchison and get it back to MSC and Maersk to operate the canal or to ports, I'm sorry. And so something that -- we haven't seen too much press in lately, but there were quite a bit of Panamanian 5 vessels being detained in Chinese ports. So if you look -- earlier on in the year, February, March, April, we saw about up to 130, 140 Panamanian 5 vessels detained in Chinese ports and the Chinese government said that they were doing inspections on these vessels and detain them. And there are a lot of Panamanian 5 vessels about 15% globally. So this did have a little bit of an impact, but not received too much press on it lately. The Strait of Hormuz just continues to be a contested area. If you see all the red triangles are all the tanker vessels or vessels that are carrying hazardous cargo. And the green vessels are -- the green triangles are all the container [indiscernible] little areas where all the ships are bunched up and if you look, you see there's a lot of vessel bunching on the right side near -- and then also on the left side, near Dubai per vessels that haven't gone through the street. Over the weekend, U.S. Central demand, they put out in Notice that, I think about 55 ships passed through the street because the Street was considered open again. And then come Sunday, when Iran put out a notice that the Street was closed again only about a dozen went through. So this continues to be an area of -- a contested area. And like Blaine mentioned, some of this has absorbed some capacity, created a little bit of congestion and obviously, fuel is the #1 factor because a lot of tankers and you will come out of the Persian We'll go to the next slide. Talking about congestion as well, just looking globally at congestion. If you look at China -- Hong Kong and Japan, the dwell time is about a week on exports. And so like John mentioned, the Transpacific Eastbound market is very elevated right now, and it's -- the ships are running full. And so we see a little bit of a delay here about a week. And then if we go to the next slide, just also looking in Singapore, Vietnam and Southeast Asia, also about 3 to 5 days here as well Europe also, they continue to have a little bit of congestion also about a week of dwell time. And as Blaine mentioned, the Asia-Europe trade, where vessels of over 15,000 TEUs come in. And so if there's one vessel that's behind this can cause some delays. Also the rail lines in Germany have seen a little bit of congestion. About a couple of weeks ago, there was a fire on one of the rail lines and that caused a little bit of a slowdown. So all over Germany, they're seeing a little bit a slowdown on the rail and some of that impacting the terminals. But give or take about 3 to 5 days of the time. And then overall bottom line that all of this is going to impact schedule reliability. And so COVID was a little bit of an outlier if you look to the left-hand side of the red line. 2021 is pretty low, about 30% and all the other years are somewhere about 60% or so. And so we've got the global average delay for the vessels is about 5 days. So we continue to see all those disruptions impact scheduled provide... This is a schedule reliability by trading. So if we focus on North America, if you can see on the left-hand side, the Transatlantic westbound all the way at the bottom, the black line, that schedule reliability has improved quite a bit because it has kind of -- the rate levels have come up to healthier levels and the carriers have added a little bit more capacity to that trading. Before that, you could see it was covering about 40%, 50%. And the Ocean Alliance had removed some capacity on that lane. And so now the carriers have stabilized capacity quite a bit. If you look at another one, North America to Lat Am, doing very well, 86% and over 80% pretty much across the board in the past year. So I mean, that schedule liability has been really good. Asia to the North America West Coast, it's improving as the rate levels go up and the market strengthens on that trade. You start to see schedule reliability improved. So that's about 73% now. And that's been sort of where it's been all year, see a little bit earlier in the year, about 60%, 65%. But -- yes, this is something that we continue to watch. And with that, I am going to hand it back over to Scott to close this out for today. Thank you for your time.

Thanks, everybody. So -- just kind of wrapping all this activity that we see going on around the world, it really forms our strategy, right? So our strategy is an extensive carrier network. We have contracts with every carrier that has a ship on the water in every alliance. So our network is very large. We've got options for our customers as rotations change and as vessel sizes change constantly, which we're seeing in smaller markets. All the services that we have on both ends of the Ocean services are integrated as well, everything from customs brokerage to order management, purchase order management to origin customs brokerage. Carrier allocation, delivery management, a cross-stock and warehousing. And of course, the capacity flexibility that we've got because we buy so much, we have the ability to shift to the left of the right, depending on which vessel rotation is best for the customer. And of course, we're committed to having boots on the ground in every major market with an office with experts in that office in your local market. So with that, I want to thank you very much for your time, and we're all here for questions if you've got Q&A. And I'll leave that to Samantha to manage.

Absolutely. Thank you, Scott. Thank you, James. So if you all would just remember, you can drop your questions into the Q&A box. I know we did have a couple of questions come through the registration process. One of those, I believe, John, kind of touched on a little earlier focused on kind of an estimated time line on when CRIs and PSS should start to dwindle out. So I believe we covered that, John, correct me if I'm wrong, looking at potentially August for those to start calming down?

That is correct. That is correct. We'll be in and until at least the end of August, and it all depends on what happens with the trade and obviously, geopolitical issues, for sure.

What's interesting is we've seen changes with all of that almost every time we turn around -- Sorry, go ahead.

Yes. It's become our new norm, which seems like since the day COVID hit geopolitical well, we can even go further back when we talk about the tariffs back in, I believe it was 2016, '17-ish. I mean since then, we're almost -- I mean we're 9 years into these geopolitical situations that are directly having an impact on how carriers do business, how we do business, how importers, exporters do business. So it's here until, it's not.

Speaking of one of those regular changes we've seen, someone did ask just now in the Q&A box about the tax on Chinese owned ships. We know that was delayed. They're asking, do we -- can we clarify when that was delayed until? And what impact do we think if any, that will have on pricing at some point?

Yes. So that is delayed until October, not to say that it's going to go in effect in October, but the discussions are going to be ongoing in terms of how the government is going to treat that regulation. And what that would mean and Blaine or Scott can correct me if I'm wrong here, is essentially, if it's a Chinese built vessel, Chinese-flagged vessel coming into the United States, there would be a per container tax on -- or surcharge rather on that container on each container, just to be clear.

Thank you for addressing that. We had another question just asking if we can touch on shipments from India to the U.S. again? And what are those current delivery times?

Yes. So from an on-time performance perspective, we're still watching that shape up. And as carriers transition from routings in January, February that has returned to Canal back to going around the Cape of -- good Hope, we've seen those transit times I guess, re elongate back to the plus 7 to 10 days they were throughout 2025. The shifts that we touched on earlier in the market from a capacity management standpoint, and then from the demand side, when John was speaking, where structural changes. So every carrier in that segment operates the vessel string independently, there are some VSAs, but they're not alliance driven, and we saw MSC remove one string from the market and enhance another. So they took a vessel out. They upsized the other rotation added some additional ports. That does allow them to kind of offer the same amount of weekly capacity. But hide the ships. And then CMA took a loop, which touched the South East Coast of India and Colombo, Bangladesh, that was a pendulum loop. So Asia to the West Coast, back to Asia through the Middle East to the U.S. East Coast and split that up. And so two services moved out on enhanced. You have a net reduction of 10%, 12% capacity week-over-week and so that's driving additional demand -- supply demand imbalance in that market. And then I'll just take this next one. Because of the recent data center and infrastructure expansion in the U.S., do we see a correlation in import volume and an increased exacerbating the capacity issue? Yes. And where most of that, what I'll call the hyperscale space has been dominated by airfreight and domestic truck for the last few years as these customers expand and build out the data centers, more of that volume begins to touch the ocean, whether that's power generation, solar backup. The chillers required to air condition and water cool ease facilities, all of that moves to ocean. We also talked about in the demand portion how much CapEx was up. And at least from a U.S. marketplace, most of that CapEx expenditure is in and around the data center space, those large projects move in short periods of time. There are two of those going on in the marketplace right now. We know from Central China to the U.S. Gulf that are going to exacerbate some of the capacity issues through the third quarter. And we expect that as those projects and that race to be dominant in the AI space grows that more and more of that will touch the ocean freight as people look to control costs.

It looks like we have a few more that have come in, in the Q&A box. I see we have one that's talking about Section 122 exploration, our carriers and BCOs prepared for that tariff cliff. What front-loading volume have you seen fold in ahead of it? Can we speak to that a bit.

Yes. What we've seen recently is probably less of a front load and more of an inventory correction through the first quarter of the year, sales to inventory ratios in the United States had fallen to right around 1.1, which is really low. And so there's a restock a foot. This is the traditional peak season. So it's hard to tell how much of that is tariff prep versus restock. And then the tariff things changed so dramatically that I'm not sure folks can plan far enough ahead. So where we saw people maybe get well out in front of the previous tariff lift because they were overdoing it. I think we're seeing a more metered approach from the import community now.

What about the U.S. West Coast to Middle East capacity and routing? Do we have someone that can talk a little bit about that? Again, that's U.S. West Coast to the Middle East.

Yes. So traditionally, those services would route out on Transpacific Westbound ships. They would go to either Singapore or potentially Columbo if there was a vessel calling that part of the world and then transship on vessels to the Middle East. Prior to the conflict, there was a lot of investment and growth in the Asia, the Middle East, India trade. We're starting to see ships be repositioned to that market now. But transit times have fallen off, they're very inconsistent, and we still see a lot of rerouting and adjustments needed in transit for certain destinations. And so from a capacity perspective, it really ebbs and flows with what's going on in the trans-Pacific market because they share the same ships outbound. And then from a transship connection standpoint, it ebbs and flows on what's going on with that Asia, Southeast India to Middle East market. And so you sort of have some competing things there that cause roles and delays. I would buffer a 2-week delay right now just based on what we're seeing with our limited volumes that are moving that way.

Thanks for taking -- Go ahead.

And then I see one of that has the general rate increase in Asia, the U.S.A. been finalized. I'm going to assume that means for July 1. What's going on in the market today because the carriers are chasing the rates where the demand is and repositioning ships to the hottest trades. It essentially creates a rolling rate increase filing. And so carriers have prefiled general rate adjustments every 15 days in their tariffs for the foreseeable future. And whenever demand curtails, we'll see that start to go the other direction.

We just had another drop in about indication of when the Strait of Hormuz is expected to fully reopen, any thoughts on that from the team?

I can answer that, my video a little bit I think until more insurance premiums go down. It's always been an area, if you remember in history, the tanker wars in the '80s. It's always been an area that has been contested like I said -- until the insurance scope -- insurance premiums go down, and it's safer uses to go through and the vessel crews to go through. I think that one is going to fully reopen because right now, we see a ton of ships going through and then, again, it's deemed growth and then not a lot of that going through.

Another question that we had come up through the registration process. And I know that we have Gabby on, so I was going to see -- Gabby, if you'd be able to address this one. We had some asking about getting freight out of Sao Paulo, Brazil. And why that might be so difficult? And they also referenced refers shortages in that area? So Gabby, I don't know if you show with us if you're able to maybe touch on that?

Yes. I can -- Yes. So I'm Lauren, I can support on that. Gabby is having some technical issues. So specific to the exports out of Brazil. Well, it's some lot of more common since recent years that there are some congestions affecting not only the inbound but as well as the outbound. This is also in line with some somewhat of infrastructures within Brazilian ports and also a high demand currently undergoing specifically Brazil into the U.S. and also Brazil into Mexico. So overall, I mean there are several factors affecting directly, specifically out of Brazil port and also some within Brazil itself.

Thank you so much, Lauren. I appreciate you jump again. A few more questions here, Blaine, in the chat, specifically regarding our TRIs, MCSS rounds. I think obviously, people have a lot of interest in the impact rates are having on the market when that is going to change. Any further detail we want to cover there?

I think this probably ties back to the amount of control that the global carriers have in the marketplace and the commodity that space has become, right? And so much like any other commodity market, what we see with fuel today. The cost will increase as long as that demand is there and customers are willing to pay those numbers. The GRIs are going to be filed every 15 days, somewhere between $1,000 and $2,000 and carriers proposed those. As bookings are made or slow down, they adjust that rate to, I guess, market tolerance. And the higher those spot market rates go, the more PSS is needed to incentivize that contract space. And so carriers propose what is essentially a trailing PSS that allows you to maintain that long-term space. And then we're even seeing a little bit of that premium start to work its way back into the market as demand exceeds capacity through July, that starts to roll back as the demand drops down. And so whatever bookings begin to slow, carriers will reduce rates to try and keep their ship full and that self-defeating cycle works its way around until rates hit a floor. And if you go back -- if we went back to that very first wheel, right, when the rates get to the point that they hit the floor, the carriers start to pull that capacity back out and you transition from the yellow to the black segment again, right? And so that cycle to Scott's point earlier, has gotten much faster. And so if the demand begins to really subside following what is traditional peak season, so looking at the month of September, you would start to see the rates come down through the fourth quarter and then potentially some sort of re-elevation cycle ahead of Chinese New Year.

And number fails, we always have to have that first question come in, and then everybody starts feeling more comfortable to pose their question as well. So a complicated market, so definitely no bad questions here. We thank you all for participating. A few things that we just want to remind you of as we close things out. And we do have webinars happening being supported by our regions as well as our Americas CEO on a regular basis. Typically, we've got about 2 of these happening a month. We've been very busy in the month of June. We've had 3 coming up very soon. We just scheduled if you are in the retail sector. We just scheduled a webinar July 1 for next week, ahead of the CPS e-filing requirements. So when you get your landing page, you will see the ability to register for that event if you are interested and you should also be getting invites from our team members coming out in just -- probably even as we speak. So I encourage you to join that if you have questions about -- and that new e-filing requirement is coming up July 8. So again, thank you all so much for joining us. If you do have questions, you didn't feel like got insert here, feel free to reach out to me, and I will be sure to connect you with one of our Expeditors' Ocean experts to make sure you get those questions answered. We look forward to seeing you on one of our next webinars. Have a great day.