8-K/AOther Events

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K/A Report (Mar 29, 2004)

Filed March 29, 2004For Securities:EXPD

Summary

This 8-K/A filing from Expeditors International of Washington, Inc. (EXPD) serves as an amendment to a previous filing, primarily to correct an omission of the signature page. The core of this document consists of responses to frequently asked questions (FAQs) from investors, addressing various operational and strategic aspects of the company as of March 2004. Key themes include the growing importance of Shanghai as a logistics hub within China relative to Hong Kong, the company's perspective on competition from local logistics providers, and details about its unique, incentive-based compensation structure. Management also touches upon the impact of the weaker U.S. dollar on export volumes, the timing of Chinese New Year and its effect on quarterly comparisons, and industry trends. The company reiterates its commitment to its U.S. domicile and global logistics operations, emphasizing its non-asset based model and a focus on people and customer service.

Key Highlights

  • 1Expeditors acknowledges Shanghai's increasing importance as a logistics hub within China, potentially becoming its largest Asian office, while still valuing Hong Kong's role for Southern China.
  • 2The company views competition from local companies offering logistics and warehousing services on razor-thin margins as not a significant threat, attributing it to an overbuilt real estate market rather than viable logistics competition.
  • 3Expeditors clarifies its compensation philosophy, emphasizing a unique, incentive-based cash bonus structure where base salaries are intentionally low and bonuses are uncapped, directly linking employee compensation to business growth.
  • 4The company notes a seasonal pickup in U.S. export volumes due to the weaker U.S. dollar, but highlights that these are somewhat offset by large inbound volumes from Asia.
  • 5Expeditors explains its non-asset based model, where operational margins in air and ocean freight (10-15%) are generally higher than customs brokerage (lower), but brokerage is seen as critical for overall business growth.
  • 6The company explicitly states it does not have a Dividend Reinvestment Program.
  • 7Expeditors confirms that while moving its legal domicile to a more favorable tax environment could lower its non-U.S. earnings tax rate, it has no current plans to do so, citing the complexities of corporate inversions and a commitment to its U.S. base.

Frequently Asked Questions

Expeditors doesn't focus on precise market share comparisons but acknowledges Shanghai's significant growth as a commercial and export gateway due to China's economic reforms and manufacturing shifts. They anticipate Shanghai could become their largest Asian office in the coming years. While Hong Kong remains crucial for Southern China, the emergence of Shanghai is seen as supplementing overall capabilities and benefiting Expeditors, rather than undermining Hong Kong's importance.

Expeditors views this situation, particularly the presence of companies with empty warehouses operating on razor-thin margins, as more of a threat to real estate lessors than to their core logistics business. They argue that building a comprehensive international logistics service requires more than just storage space and that low margins indicate low barriers to entry, not sustainable competition for sophisticated logistics needs.

Expeditors emphasizes a unique, incentive-based cash compensation system. Base salaries are intentionally kept low and are not subject to regular increases. A significant portion of pre-tax profit is allocated to branch and executive bonuses, which are uncapped and paid out regularly. Cash compensation is not linked to stock options, and the introduction of stock option expensing under GAAP will directly reduce cash bonus pools, a factor already incorporated into their bonus calculations. They believe this structure aligns employee and shareholder interests effectively.

Expeditors generally sees somewhat higher operating margins in air and ocean freight services, typically in the magnitude of 10-15% per quarter. Customs brokerage operating margins are lower, but the company considers it a critical component that influences decisions for air and ocean freight services, making it essential for overall business expansion.