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

Good morning to most of you, maybe good afternoon to some of you if you're joining us from Europe. Appreciate you jumping on today. So you are joining for Expeditors mission-critical AOGs across aviation and aerospace supply chain's webinar. So we appreciate you joining. My name is Samantha Hurst. If you've not joined one of our webinars before, I typically serve as host on these and really work in the background just to make sure that you have the best experience possible. So if you have any problems with today's webinar, feel free to e-mail me directly through the confirmation e-mail you would have received when you signed up for today's event. Now I'm going to go over a little bit of housekeeping before we introduce our speakers, and then we'll get right into today's content. I will say just one thing I thought was kind of interesting, Jim, when we were going through the practice session for this that I know we're maybe boring you with all of this aerospace aviation talk. And I said, not really, I grew up in Huntsville, Alabama with a grandfather that worked on mini space missions. So I know that this is actually very interesting to me. And I imagine probably very interesting to all of you, including some who aren't directly in the aviation and aerospace industries, but we hope you find all of today's content really. So if you are hearing my voice twice and annoying echo, I apologize, make sure that you are not accidentally joined in 2 different places on your devices that can sometimes happen. We don't want you to have to hear an echo of me or the speakers. And then if you have questions, otherwise, we're going to encourage you to drop those into the Q&A box. So if you have anything specific hyper specific, though, to your industry or your business, you want to talk to an expert afterwards. We will cut back to you if we can answer your question on today's webinar. And then one of the questions we always get is how do I receive the slot. So one of the best ways to do that is to fill out our feedback survey. So you'll get that from us within about an hour or 2 of today's webinar wrapping up. That will come to you via e-mail from myself and it's just a couple of quick questions. And then once you fill that out, you will get a link and thank you message that will direct you straight to the recording and the presentation from today's event. And then finally, if you would like to subscribe to future webinar invites, you can scan this QR code right here or click a link that we're going to drop in the chat here shortly and that will guide you to actually get subscribed to all of those future invites as well as global market updates that we send out. All right. So now I have to go over just a quick disclaimer go over this at all of our webinars, all of the people that are speaking to you today are absolutely experts in logistics and aerospace, aviation industry, but we're not lawyers. We also can't give you legal or business adviser or financial advice about how to go about the things we're going to talk about today, but we can give you advice from the logistics side of things and what we know from their experience working in these types supply chain. So that's just our quick disclaimer to make sure everyone understands that this is all informational and educational purpose content. Okay. So now I will introduce our experts. And we have with us Jim Cangiano. He's our Global Director of Aviation and Aerospace. Oscar Stiles is our Regional Manager of Aviation and Aerospace for the Americas and Chris Greenham is our Senior Director for Critical Logistics Services. I got a little tongue tied on those titles there. But now I'm going to pass it over to Oscar, and he's going to get started with all of our content.

Thank you, Samantha. Good morning, good afternoon, everybody. So just real quick high level. We wanted to just give you an idea of what the agenda was going to be like today. So what I'm going to be covering is kind of a growing demand and some of the backlogs that we all hear about. And really what this is doing is it's just giving you a good kind of global overarching theme of what we see in the marketplace at large. And from there, Jim is going to take over. He's going to talk about changing industry and the needs. And then Chris Greenham is going to get into a little bit more about how to respond with critical logistics. I'll also mention very briefly before we start that I'm going to be showing you just some charts and some other tables. This is all from publicly available sources. We will have that information, again, when Samantha shares the presentation with everyone if they're looking for it. But generally, this is all coming from either IATA. It's coming from Boeing, it's coming directly from Airbus. So there's nothing like proprietary Expeditors here. It's all just publicly available information. But we think it's important because it still tells a good story that most of the time, we don't necessarily see because on our day-to-day, we're so focused on what it is that we're doing with our own little cog in the wheel of aerospace. And so the first thing we want to start off with is that there is strong demand and there's projected to be strong demand for the next 20 years. These are estimates of what GDP growth is going to be like for the next 20 years. And really, if you're kind of wondering why GDP growth is a big thing. As GDP increases, especially in countries like India and China, we've heard before about the growing middle class. What that means is that more people will be traveling for leisure purposes, I guess, and so this is looking at how GDP is growing compared to the number of yearly trips per capita that are going to be happening. And so while the U.S. and the EU were remaining mostly static over the next 20 years, just because there's already so much travel that is coming from those 2 geographies. You can see how much India and how much China Brazil, some of these other countries, how much they're growing, right? And if more people are flying, there's just going to be more demand on airplanes. So what does that demand look like? This is from Airbus. This is what they showed the global fleet to be like in 2025. And again, this is -- again, because it's Airbus, and this is looking at it through the lens of commercial aviation. So 1,700 aircraft in the fleet in 2025. And Airbus is predicting that, that fleet is going to grow by almost 20,000 aircraft, right, to 37,000 in the next 20 years. But it's important to note, and it might -- most of you may already know this or suspect to this, right? It's not just growing by that 18,000 aircraft because in the next 20 years, it's expected that over 15,000 aircraft in the current fleet are also being replaced. And so what that really looks like as this chart shows is that there's almost 34,000 new aircraft deliveries happening and in the next 20 years, it's only expected at least the order on Airbus, it's only expected that 3,000 planes that are currently in service today will still be flying in the next 20 years. Well, let's look at it a slightly different way about the complexity of what the supply chain is looking like. This was kind of a shock to me almost is very interesting, at least. This is strictly looking at A321 cabin configuration, so narrow-body aircraft, regional aircraft or regional planes. This is not your larger widebody aircraft flying the larger international longer routes. I mean, it's historically been a 1 to 2 cabin configuration. But you can see, 10 years ago, you started to see a third have it class with certain airlines. And as of this year, there are now 4 cabin classes on several of these airlines flying narrow-body aircraft. And then just it seems almost like -- it's interesting to say the least, right, but you can see as we have more cabin classes coming on, on even narrow-body aircraft, it's just increasing the complexity of these manufacture lines. It's not just low-cost carrier configurations of 240 seats on one of these single-aisle aircraft now you're looking at 4 different cabin classes for these things. So that's more seat components, laboratory components, the overhead bins could be different in size, just depending on where within the cabin the galleys that they're fitting for all of these multiple classes on narrowbody, again, it's just quite interesting and that complexity is only going to continue to grow within the next 20 years as the industry also continues to grow. This is very similar to what I just said, but it's from Boeing's perspective, just because we want to be sure we want to just talk about either Airbus or Boeing. This is Boeing's outlook on things. And you can see it's very similar. Their estimates of what the 2025 fleet look pretty close to how Airbus is showing it. Boeing is predicting much stronger growth over the next 20 years. from just under 40,000 to now 50,000 aircraft in the fleet within the next 20 years. The average annual revenue growth is also exceeding what Airbus is even predicting. An interesting thing to note on Boeing's slide is they even have the services outlook. So this would be spares programs. This could be MRO work that they're predicting, they're estimating the thousands of additional new personnel and the billions of dollars that will be spent on the services side of things that happen after new aircraft are delivered to their airlines. And I mean, the rest of this something you can kind of see, single-aisle still completely dominates what the airline -- the aircraft manufacturer deliveries are. Single-aisle is the largest growing kind of size of aircraft that's out there. Now some of you, you probably may not necessarily be interested in commercial aviation. And so I wanted to show this as well, this is global military aircraft deliveries. And with certain events that are happening globally right now. We know that there's a lot of focus on drones, a lot of focused on unmanned aircraft. But as you can see, the darkest line, the darkest area that's on the bottom of the graph still represents piloted fighter aircraft. The next one about that is rotary wing, piloted rotary wing aircraft. And and as military spending continues to go up, there is still strong demand coming for piloted systems, so fighter aircraft, bone aircraft, helicopters, those are all continuing to grow as well as military spending globally continues to increase. And also for our general aviation people that are here. You can see that there's still, for the next 20 years, strong demand for fixed wing distend you can see there's growth for fixed-wing turbine how much of that is starting to grow. Rotorcraft is starting to grow experimental and other, what might be these new flying cars from companies that have -- offer these single sea electric vertical take-off landing aircraft to the larger air taxi companies that we hear about in the news, that is all increasing as well as part of general aviation. And so here, we have these 3 distinct sectors of what I like to call aerospace, and they're all growing and the projections for the next 20 years is nothing but growth. And it's -- there's different things that are driving this growth, right? Passenger growth, fleet expansion, the commercial side, military spending goes up, modernization programs on the defense side. General aviation, corporate travel continues to increase, right? There's larger demand for business jets. Turbine fixed wing was one of the larger growing segments of general aviation. And so I mean, it all kind of sounds great, which is the golden days of aerospace, right? It's like we're all just growing over here. But it's interesting to note that the challenges that we're finding, the challenges that we all run into day-to-day has nothing to do with demand. It has to do with capacity because if you're a manufacturer of landing gear or aerostructures or maybe Onyx or turbines and piston-driven motors, your companies are constantly in this balancing act of are we going to be providing to military? Or are we going to be providing to general aviation to commercial aviation? And then beyond that, it's are we producing spares for the aftermarket, which is growing? Or are we producing 4 new production lines that are out there, right? Because the reality is there's just not enough capacity. There's not enough manufacturing lines across all of our companies to be able to satisfy these demand needs that are out there in the market. And so let's start kind of going back a little bit in time and seeing everyone hears about this aircraft backlog and how it's created the supply chain problem. And these 2 charts from IATA, kind of show it in a very stark way, starting back, we obviously see the big dip that was the pandemic, right? New aircraft deliveries dropped quite substantially because the whole world for the most part shut down. I think we all remember that it was very interesting times. It's also very interesting that even though new aircraft deliveries slowed down significantly, sales didn't, right? Salespeople are still being salespeople. They're still out there pounding the pavement and selling new aircraft. And that's when it really started to exacerbate this backlog situation. I'd like to point out, though, and it's not to pick on any one, but it's interesting to know the backlog actually started the year prior in 2019. There were some specific events that occurred that year. that caused Boeing to have to start stopping or slowing down their new aircraft deliveries in 2019. And while they may have been able to recover from that quickly, the fact that the pandemic happened immediately after, I mean, you can see how the deliveries just dropped off. And ever since then, the industry has just been trying to play catch up. And the truth is that they have not been able to -- the other chart is now talking about the age of aircraft. What is the average age of the fleet that's out there. And you can see just before the pandemic, I mean things were looking great. It matches up with the aircraft delivery rate on the left-hand side chart. New aircraft are being delivered at a rate that we hadn't seen before and the average age of the global fleet was going down, down, down. And then again, 2019 happened, then the pandemic happen. And suddenly, you see this massive spike where as of 2024, and it's only gotten worse in many respects. The average age of the aircraft in the fleet is older than it's ever been in our history, right? Aircraft that were predicted to have 10, maybe 12-year life cycles are stretching out into 15 years. And there's a lot of implications that go along with that. Newer aircraft that are coming out in the last 10 years with newer engines or promising fuel efficiency gains. And because those aircraft can't be delivered, airlines are that had budgeted for these fuel efficiency gains. Now we're suddenly in a position where they're having to continue to spend on fuel with their less efficient engines, they're less efficient air frames and it's just keeping the costs up, right? And I'll let make this comment in some of the customers that I visited with. It's like we thought that at this point in life, we would all have flying cars. We would all have Nikes that lace themselves and airfare would be super cheap. And the reality is because a lot of what these market conditions are causing, airfare hasn't really gotten any cheaper for us. In some respects, sure. But low-cost carriers are not quite as viable as they used to be, and everyone now is starting to act like a normal commercial air carrier. And so just to kind of show you what this looks like. This is through the end of May of 2026. This is showing, again, the deliveries, the orders and the total backlog that has accumulated so far for both Airbus and Boeing. And as the deliveries continue to go and it's great that different organizations is FAA are continuing to increase the number of deliveries that these manufacturers are able to make their sales -- their orders are still completely outstripping what their delivery rate is. And as you can see right there, the estimated backlog towards the end of May for Airbus is just over 9,000 aircraft. And for Boeing, it was just under 7,000. So it's quite substantial. And the truth is, is that backlog continues to grow because I mean, about a week goes by, but we don't see that some airline in some country has just placed a new order for another 100 aircraft, right? I'll point out that there's other regional aircraft manufacturers not listed here that are very much in the same boat. So it's just -- it is a very large problem that's happening. And as this backlog continues, as the fleet gets older, it's causing these aircraft, these airframes they have more flight hours on them than were originally anticipated and budgeted for when the aircraft were delivered 10 years ago, 12 years ago, and they were budgeted for 15 years ago. And what this causes is now you have more engine shop visits. If any of you are in the MRO sector. If any of you are in the -- on the engine side of things, I mean, you know what this is like. You know the challenges of trying to make sure that these engines now are hitting their induction dates and finding space at an MRO to be able to get an engine and is quite challenging. And if you're in the actual MRO, you're going to be seeing engines from all over the world where before it might have been a little more regional for you. So engine shop visits are really just driving up this higher MRO demand and it's causing a lot of part shortages and parts delays. And again, a comment that I made earlier. A lot of you tier suppliers out there, you're having to make the decision am I going to satisfy. I'm going to use my production capabilities to satisfy the part shortages that exist in the aftermarket, where I'm going to be satisfied by contracts with the OEMs to produce for new aircraft deliveries. And because we don't have the capacity out there, it's just increasing the backlog, which increases the age of the fleet, which increases the flight out, and we're just kind of in this cycle, right, that seems that there's not really any way to get out of it or to fix it. And so what we found, and it's a very interesting thing is that the engine MRO is the pressure point here, right? Through global MRO spend. It's estimated to $96 billion to $100 billion just in spend. It's looking like it's going to be continuing to grow at a rate of about 5% every year for the next 10 years. And the interesting thing is of all of the MRO spend, almost half of it is dedicated to engines. It's the most cost of MRO for any airline. And the entirety of everything else, components, airframes line maintenance, all of that makes up the other 50% and it's such that, as you can see, this is only looking at CFM, right? So there's a lot of different engines out there on the market. But just looking at CFM Leap you can see how this was noticed kind of early on in the pandemic that third-party MROs realized that this is going to be a problem, and they started investing in facilities and you can see now that third-party MROs are doing more of the CFM LEAP work than CFM themselves are doing. And it's just a very interesting dynamic. It's not something that historically at least, we've seen within aerospace. Historically, any of the MRO work was kind of guarded and done by the OEMs by the original manufacturers themselves. And now because there's just so much work, there's so much demand. Third parties are much more involved in that. And kind of looking at it at a different way. And again, this is just narrow-body engine shop visits. So these are the probably 7 most common engine types that you'll find on narrow-body aircraft. And you can see, again, it's the same thing as the average age of the fleet, the largest number of engines in the fleet going back 10 years, was a lot of the older models, right? The CFM56 is the 2500s, Pratt & Whitney is 1100G. And that's been going. And about 2020, 2021, a lot of those were supposed to be retired and the new LEAPs were supposed to really come in and start to take over for that. Pratt & Whitney GTF Engine is supposed to really come in and take over for that. And you're seeing that because the fleet cut older, that didn't really happen. I mean the number of CFM56s that are still out there in service is still quite high. And I know a lot of the activity that we see for moving engines is tied to CFM56. So it's just this interesting dynamic now where before it used to be like we need people to fly more so that our industry could continue to grow. And now there's so many people end up waiting to fly and the growth is only going to be managed by how quickly the industry can turn around engine MRO work. So very different like a paradigm shift within aerospace, right? It's a large change. And as aerospace changes, everyone else that's tied to aerospace in one way or other is also having to change. And so here's what I'll leave you, and I'm going to turn it over to Jim, and he's going to talk a little bit about what changes have to occur.

Thanks, Oscar. Appreciate it. Wow, that was a lot of data to be shared in 25 or so minutes, a lot coming at us. But very, very telling and important information. Kind of looking back and as we prognosticate and look forward. It's not -- as Oscar said, we take the information that's available to us in the public domain. The second part of the webinar here, we want to talk a little bit about what we did as a company. And in seeing the kind of reading the tea leaves that are out there and collecting all of this data, what does it mean? And really, it's the headline in this slide, which is we said, hey, we need to change as well. But what does that mean? Is it a step change? Is it a massive change? What does that mean for us? And so I'll talk a little bit about that. The quote that you see there on top everything that Oscar just talked about that we see near term or medium term, this is a quote from IATA just within the last couple of months despite signs of improvement in the supply chain, this is not going to normalize until 2031 to 2034. My goodness, this is going to be going on for a long, long time. So these 3 questions, as we looked at this and we -- again, we saw this coming from a couple of years ago. How could we adapt to help our partners. Would the company choose to invest in aviation and aerospace solutions, those of you that know expeditors know that we work in many different industries. We have our vertical industry structure that we have our focus industries, but my goodness, we work and we're very appreciative and honored to work with so many customers in so many different industries. It gives us such a broad base of knowledge to choose from. And then if we did invest, what would we propose? What does that look like? And that's our team in the aviation vertical that would go through that. So Oscar, if you go to the next one? So what we didn't want to do is we didn't want to change our routes. And expeditors for 5-plus years now. We've got an operating model. We've got a model that we use that's our core. And as we went and looked and said, okay, our global network, we have 300-plus offices, deep local experience. Each one of those offices is an individual office with their own financials and their own people and really a local knowledge that was key to expediters, keeping that local knowledge. Our service providers, I mean, as a nonasset-based provider, our service providers are our lifeblood and relationships and having good strong relationships with our service providers, we knew we didn't want to change that. Expeditors and aviation fit well because of our compliance. That was something that we really wanted to -- that was not going to change. Again, that's our core, almost like safety is the core of aviation and probably the core of many or all of your companies compliances for us as well. And then T&I. So when we say T&I, that's transition and implementation, basically the handoff from the sales process to account management. It's almost kind of preparing for the wedding and then the marriage. So T&I is our transition and implementation. We had strong discipline there. So again, as we looked at what Oscar just described and what was coming, we said that's our core, and that's really what we want to keep. So what happened? A couple of years ago, and after, if you go to the next slide, a couple of years ago, we went to our senior leadership, the aviation vertical team in concert with some others. And we tried to answer these questions and speak with them about what was coming about framing up kind of where we were and what we saw coming. And did we want to do this? And our executive leadership team said absolutely. There's a few changes that we needed to make, recognizing what was coming, speed. And every other synonym for the word speed that we could use rapid. We knew that speed and quoting, routing and delivery was going to be key. I think we don't do that now, of course, we do, but there's always the balance as a logistics company and working with our partners of cost and speed. We know that. So recognizing that speed in this world, if we were going to look at really enhancing our AOG solution and critical logistics solutions that embracing that speed and what that meant. So when a part is finished, it had to go, whether that's for someone who manufactures new components, whether that's a spare part, in this world, we needed to do that. And again, we did this quite a bit all day every day, but we took a hard look at our processes. And then the second one is really -- again, where our executive leadership came in -- we didn't have to invest here, but the company chose to do that. So we said, "Hey, yes, with the things that we do, we want to -- or things that we do well. We think that fits the industry so let's invest. " So we brought in some folks. We really focused on training our people throughout the network, even more, say, deeper dive training. So the company absolutely did invest. And then if so, what would we propose. So that was up to us to go to our leadership and say, "Hey, this is what we proposed. And again, just like I'm sure your organizations, we had some very clear tenants, those 4 kind of pillars that I showed were core to what we do." So what we did was enhanced our model. We didn't change our model. Expeditors again, has been in business for 45-plus years, but we did carve out a small section in what we would classify as a more centralized operation, but this complements our model. It doesn't replace it. in any way, shape or form. So Chris is now going to walk you through a little bit of what that means in a little more detail than I described. But hopefully, that was a good bridge from what Oscar talked about with what was coming to kind of our thought process around it, and we hope that it helps you as you frame up your thought process around what needs to change. So Chris, I'll hand it to you to talk a little bit more about what we did.

Thanks, Jim. Thanks, Oscar. So again, kind of shifting gears now, kind of what is important for a CLS program overall. So again, this is not just expeditors but any CLS program that you're actually looking for. And again, just -- as Jim said, we recognize the need in the industry and there's always been a recognition that AOG requires definitely special services. But really, the need has never been greater based on that changing environment. So -- and the recognition is, again, Express services fall short, these fixed cutoffs, these hub consoles, CF delays. This is no longer acceptable. I mean AOG really is a separate program within itself. And then the second point here is that urgency is not -- again, urgency it needs to be part of a larger program. And traditionally, it has not been. So you can't handle urgencies at hack. You definitely need that centralized booking, that centralized management for these very specialized high-touch type shipments. And then as Jim had mentioned, again, customers ask for more. So they need to be able to reach -- you need to be able to reach your service provider, you're for at any hour need proactive updates, you need accountable owners throughout the shipment life cycle and so on. And so that was definitely recognized and next slide Oscar. And so in addition to the -- so Jim had talked about, again, some of the foundational elements that are important for CLS programs. In addition to those, really CLS programs have evolved to be better suited for the changing environment, that Oscar had outlined. And these are kind of the 3 additional elements that are really critical when you're looking for a CLS type program or an AOG type program. So the first one really is CLS regional hubs. And so we recognize that it's important to reliable on the network, the network district, local offices, but there has to be those regional hubs and ideally, those regional hubs are centered around kind of the aviation center of gravity. So there's a lot of shipments that actually happen within the hub itself as well as extended throughout that particular region. And that hub drives accountability, oversight proactive management. So very important that when you're looking for a CLS type of provider that they do have some regionalization going on in addition to those local districts. The second kind of critical element here is in Office 24/7. And it's recognized that just having somebody on call the cell phone next to their bed side, that's not enough. We need staff desks, not on-call rotations as well as an extended network of 24/7 providers. and escalation pass not only between the hubs, but also between your service provider -- I mean your AOG provider and their service providers as well. So again, very important to understand what those escalation paths are and that both origin region and destination regions are basically pushing and pulling that shipment all the way through. And then the final component here and Jim will touch upon this through the training piece is really having specialized teams. So having aviation or critical logistics specialists doing that work every day. trained and each customer has a specific onboarding process as it relates to critical logistics as well as the customer SOPs. And the country LPs are very important because it's just recognize each customer has different requirements and making sure that they are onboarded into a seals program is very important to keep that high level of premium services. So again, these are kind of the 3 high-level components that you should be looking for in a CLS program in an AOG program when you're looking for providers. Next slide. Here's Expeditors hubs. And again, this is what we have done. So we would expect that any provider, any AOG or CLS provider that you're doing have something similar set up. So 6 regional hubs, each hub is responsible for their whole region, not just for the freight in their backyard and then supported by the larger office network. And it's these 2 things working hand in hand. Regional oversight, regional accountability, but still having boots on the ground in a local office, which really is meant to meet basically a formula for the best success. And so again, we recognize that other AG other CLS providers may have different nuances of this, but I think that this is really a critical component that you should be looking for when setting up you when deciding your service provider program for AOG CLS. Next slide. In addition to those 3 major components, here are some finer nuances of what every CLS shipment needs. And so again, strict KPIs. So this is important that it's not only the acknowledgment and the booking, it's also the turnaround and it's really that proactive live updating of every subsequent milestone all the way through to delivery. And so again, that touches up on a second point, that proactive management of it where ships each regional hub, again, is that push model. So at Origin regional hub, pushing that out. destination hub, pulling that in. Each shipment is very proactively managed, each KPI is very proactively managed. So as those KPIs are approaching, it's very important to have that oversight office ensuring that, that event will be happening timely to avoid any unnecessary delays. The third point here is rapid quotes. So we recognize that not all AOGs are actually quoted as part of an that many providers require spot quotes. And so again, being able to turn around very quickly within about 45 minutes or so is really critical as part of the booking process as part of that shipment actually moving through the network. So please be looking for that as a component when you're looking for providers. The fourth component here flagged is critical. So again, I think this is pretty obvious, but we have to make sure that everybody in the hubs, everybody in the network understands when a shipment is flagged as AOG are critical when we call it CLS or critical logistics services. It's very important that the network understands the premium nature of that particular service. And so it's never mixed in with just general freight. It's never treated similar to what a general shipment has treated. Fifth point here, 24/7 escalation. So again, very important that the hubs are running 24/7 as well as we have escalation processes with our service providers, with our local districts as well as with government agencies and whatnot. So it's very important that the hubs understand the working hours of government agencies as well as if they're special provisions for after-hour services. And so again, it's that high level of expertise throughout the network, I think, is a very important component to actually see that. And then finally, customer SOP. So I mentioned this a little bit earlier, but every customer is set up and it should be introduced specifically to the CLS program. So when you were talking to providers around critical logistics services, just make sure that they have a good onboarding process, a good SOP type process. All right. Next slide. Great. So again, I label this one beyond standard freight because again, there's other aspects of CLS, right? So it's not only just -- we have the next flight out. So I think that's pretty obvious on premium service levels with carriers. So it's very important that we're adhering to that. But there's also just beyond freight itself. So we have hand carry options. And so that's very important. That's recognized that we are able to do hand carries and have broad coverage for hand carries as well as understanding the special requirements for hand carry. Sometimes boxes cannot be opened. So again, having those prearrangements for how that hand carry is going to be processed is very important. And also have charter aircraft in addition to hand carry. And so that could be a dedicated aircraft and having a provider that can actually have a good relationship with service providers to be able to go get those charters in place very quickly. It's a pretty important component. Already mentioned about 24/7 ground providers. Again, as a non-asset-based carrier, it's very important that these providers are organized upfront. And then as we onboard customers, if there's oversized needs and whatnot, that we are accounting for those special customer requirements when it comes to the pickup and the delivery portions of this because that often is a very, very critical part of an AOG type shipment. Service recovery, so in each of the hubs or each one of the people involved and the need to be able to understand that when we're proactively managing these shipments, if it does look like that something is going to be a miss that they are immediately on it and escalating accordingly and then have a full recovery plan to be able to get that freight back on track. And then the final component of a good AOG CLS program is visibility and exception to a live shipment status and definitely be looking for providers that have the opportunity to put GPS sensor monitoring on the freight. And those GPS sensor monitoring are very important to be able to create geofences to be able to create exceptional delays. If you have special cargo, for example, that can -- where the cartons cannot be open, those sensors can actually go inside those cartons, and you could have light and dust monitoring as well as all of the other parameters that would be expected to go along with a particular sensor. So just realize that, that complementing these CLS AOG shipments with GPS tracking can be very effective to help reduce service delays as well as increase the ability to monitor on those particular shipments. As your next one. We couldn't not talk about compliance. So compliance, obviously, is a very important factor. And a lot of this goes back into some of those foundational components that Jim had mentioned. We do a lot of this with all of our freight. But when it comes to AOG and CLS type services, it's even more important because a solid compliance program will minimize any type of delays that could actually occur from the compliance side of things. And so again, this goes back to the customer. I think this is the third time I've mentioned it, so that's obviously very important. And then the standard controls of chain of custody is very important that you are betting your providers to make sure that they have the proper controls in place. DG and IATA, not only for your providers, ability to be certified, but also the service providers may have higher level of things like DG certification when it comes to being able to do pickups and affecting those transports directly to the carriers without it going through your server provider warehouse, vendor governance. So again, all the service provider program governance, so please make sure that you're checking with your providers to make sure that they have a highly qualified program because those service providers are an extension of their service then security and trade as well as training and certification are all very important parts, all very important parts of a certified program. Oscar, do you want to go to the next slide? Two more slides on my side here. So this is the process. And again, very, very, very high level. There's much finer nuances to this. But it's important that when you are looking for CLS providers that you understand, what does the booking look like? Can you make a booking with any one of their hubs, is a centralized booking? Can it be done via e-mail? Can it be done via phone? Can it be done the EDI and so on. And then the confirmation piece of this, and between the booking and the confirmation, those KPIs listed below are very important. And again, this is what Expeditors as 15 minutes to acknowledge request, 45 minutes to quote route and confirm the booking. But again, I would expect other providers to provide very similar -- very similar KPIs and it's important to hold them to those expectations. And then the collection piece of it, again, 24/7. We mentioned that a few times for pickup in tenders and specialized cargo overside, weekends, holidays, again, these are all very important. And then the freight lies. So again, very important to have proactive management as well as your providers should be updating you in the way that you want to be updated, whether that's a pre-alert an e-mail, whether that's a phone call. Again, it's very important. We -- the provider adheres to how you would want to be communicated. And then the final delivery of it. And then every step of these other -- of the subsequent milestones needs to be very proactively and live basically touched upon live. Then just acknowledging here that Frankly speaking, AUG CLS type service processes, they're not as efficient as normal. These are high touch and they're not as efficient as normal freight, and that is as designed. So these are very purposeful, high-touch we absolutely trade efficiency for expediency for urgency to be able to make sure that we are absolutely minimizing service failures, whenever possible. And you should be looking for that in any provider. And the next slide, Oscar. And then finally, what we do for Aviation for all those non-aviation customers that have joined us Again, it's absolutely extendable to other industries. And so again, you have high-tech care, health care, high fashion, automotive and these foundational elements that we kind of mentioned as well as evolution of the CLS program are extendable to these other industries. Now some of these other industries may have different nuances for how they're handled. They may have different center of gravity and whatnot, but the basic components of the CLS service is extendable beyond just aviation into lots of other industries, and there's just 4 here that we indicated. And Oscar, do you want to wrap up? Next slide.

Thanks, Chris. So just some of the key takeaways, right, for the future of EOG, what are successful companies doing? As we've mentioned, right, the backlog is not going away soon. And I had a customer once kind of articulated this way, that they keep every year, every few months, they keep preparing and hearing in the news about what the next big disruption is that they have to plan for. And what he said was -- when he was able to see the information, the data from this point of view is like the next big disruption that happened back in 2019 and everything that we've been fighting is just been like a symptomatic problem of that. So instead of focusing on whatever the current news is like how do we contribute to the larger disruption and how do we contribute to make sure that we're prepared for that and helping to fix that from our side. AOG is effect of life, right? And as Chris pointed out, it's no longer good enough for companies to transactionally or in an ad hoc manner, react to -- as -- and similarly, for service providers, free forwarders and the like, it's no longer good enough for us to have like ad hoc ways of executing on AOGs. So what are you doing? How are you making sure that you have a process for that in place as a company instead of just constantly reacting to those centers when they come up because as has mentioned, this is always -- this is going to be here, like AOGs we would love for AOG to not exist so that I'm not stuck at a gate, waiting for the tire to get changed in an aircraft, the next time I need to fly, but it's just the reality of life now. And so the main thing is for years, aerospace really focused on kind of following the automotive model, the whole Kaizen, the lean model, right, just in time and it was about like how can we have the most -- the quickest, the most agile, the most reactive supply chain. And the way that these disruptions have affected aerospace. It's becoming clear that the most successful supply chains. The most successful companies operating good supply chains have resilient supply chains, not just reactive supply chains. So it's not how can you react to the market disruptions. It's how can you set up your supply chain to survive every disruption that comes up and not be negatively impacted to such a large extent as may be occurring right now. So hopefully, you found this information helpful. Hopefully, you found it informative. I believe we have some questions. Samantha, are you going to read into some of those?

Yes, absolutely. So I wanted to mention one of the questions we got in the registration process, and you guys hinted at this a little bit. But one of the questions was, can you talk about the preparedness like common preparedness gap that you all see organizations commonly overlook. And I think, like Chris hinted at knowing who your provider is or the compliance pieces that we talked about. So can you guys reiterate some of those, like what are some of those common gaps that you see?

Yes, sorry, I'm getting off. Yes, I would say the -- again, the biggest one really is just to -- the onboarding piece, I think, is very important for us to be able to understand your business, the providers business and the nuances of that business because even though we -- even though there's broad coverage, 300 offices, 6 CLS hubs and whatnot, there's always going to be special nuances with oversized freight emergencies, freight going into different -- difficult compliance-related destinations and by having a good onboarding process, it allows us to be able to understand the government agencies that they're going to be involved, any service providers that special -- that need to be specially alerted and whatnot and then be able to kind of walk that process all the way through. So I think that within itself is a very critical component for success of an AOG program.

So then kind of piggybacking off of that a little bit, Oscar, I'm going to pitch this one over to you. We had someone in the Q&A box asked about the complications of compliance, especially when the airline is not domiciled in that particular country where we have an AOD situation. So can you talk a little bit about how we work with customers who have those complicated pieces of the supply chain for and what we can do to assess?

Sure. So I'll start off by saying that I don't believe Jim, Chris or I are the customs and compliance experts, especially in the global compliance space. But I will say, John, that from that perspective, we do have companies that we've worked with in the past that will act as importer of record or export of record for customers. In the case where there is no legal representation in a country where an aircraft might be in -- there are -- every country's rules about that are also different. So depending on how the part is getting there, if it's being flown in on another aircraft of that same company, it could be a call bad. There are flyaway kits. There are other schemes that allow for as to be done where a customs entry like, I suppose, could be filed to just say that this is a part coming in, it's not going into commerce. It's just going to be used to prepare this aircraft and then immediately leave. But certainly, it's something that we can follow up with you on and have more detailed discussions preferably with one of our compliance experts on the line as well.