8-KOther Events

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report (Sep 24, 2003)

Filed September 24, 2003For Securities:EXPD

Summary

This 8-K filing from Expeditors International of Washington, Inc. (EXPD) dated September 23, 2003, addresses investor inquiries primarily concerning regulatory issues in the ocean shipping industry and operational performance. A significant portion of the document details the historical context and current regulatory debate surrounding whether non-asset based ocean shippers (NVOCCs) should be permitted to negotiate confidential service contracts, similar to asset-based carriers. Expeditors expresses a desire for a more deregulated environment where all NVOCCs are treated equally, arguing that current regulations, particularly the requirement for publicly filed tariffs, hinder their competitive position compared to asset-based competitors who can engage in private contracts. Operationally, the company notes that ocean volumes exceeded expectations in the third quarter of 2003, while airfreight volumes fell short of projections, accompanied by compressed margins. This is attributed, in part, to a mode shift from air to ocean freight in 2002 that created an unusually strong airfreight market then, making year-over-year comparisons challenging. Expeditors also commented on seasonal rate increases, its ongoing expansion in China, and the potential for stricter customs regulations to serve as a competitive advantage.

Key Highlights

  • 1Expeditors is actively involved in discussions and regulatory filings concerning the Shipping Act of 1984 and the potential for non-asset based ocean shippers (NVOCCs) to enter confidential service contracts.
  • 2The company believes that current regulations requiring publicly filed tariffs disadvantage NVOCCs compared to asset-based carriers who can negotiate private contracts.
  • 3Expeditors advocates for equal treatment of all NVOCCs in a deregulated environment.
  • 4Ocean freight volumes for Q3 2003 exceeded management expectations.
  • 5Airfreight volumes for Q3 2003 fell short of expectations by approximately 10%, with compressed margins also reported.
  • 6The weaker airfreight performance is partly explained by a significant mode shift from air to ocean in 2002, creating an artificially strong airfreight market then.
  • 7The company is continuing its expansion efforts in China by establishing satellite offices inland.
  • 8Expeditors anticipates that stricter customs and border protection rules could become a competitive advantage for technologically advanced forwarders.

Frequently Asked Questions

Historically, asset-based ocean carriers were granted antitrust immunity in exchange for providing non-discriminatory service through filed tariffs. Over time, deregulation allowed asset-based carriers to enter into service contracts, initially requiring public disclosure and later allowing confidential rates. Non-asset based NVOCCs, however, were not included in these reforms, leading to a disparity where they must still file public tariffs while asset-based carriers can offer confidential contracts. Expeditors argues this is a result of historical political influences and regulatory distinctions.

Expeditors believes operating in a fully deregulated environment would benefit their business. They argue that the current system, requiring public tariff filings for NVOCCs while asset-based players can use secret deals, puts them at a disadvantage. The lack of confidential contract options hinders their competitive position and adds to compliance costs. While they do not quantify the exact material benefit, they express a strong belief that it would improve their business.

In the third quarter of 2003, airfreight volumes were lower than expected, and margins were compressed. This is partly due to a comparison against an unusually strong airfreight period in 2002, which saw a mode shift from ocean to air. While Expeditors acknowledges the softness, they are focused on managing the current market conditions. The company experienced a significant shift back from air to ocean freight in 2003 as supply chains rationalized, and demand has not yet fully recovered to offset this change and the higher historical base from 2002.

Expeditors observes a subtle and fragile economic 'turning' with cautious customer outlooks, particularly in the high-tech sector. While they note a soft North American economy, they emphasize that last year's strong airfreight numbers were driven more by market conditions (capacity, mode shifts) than the overall economy. In 2003, despite a soft economy, they have gained ocean market share, and while there's been a shift from air to ocean, this has had a limited impact on overall ocean volumes.