8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Jun 23, 2005)

Filed June 23, 2005For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) filed an 8-K on June 23, 2005, responding to selected inquiries received up to June 15, 2005. The filing addresses the company's policy on public disclosures, clarifying that material information is first released via SEC filings like this 8-K to ensure equal access for all investors. The company also provided insights into market dynamics, including carrier capacity management in ocean freight and its potential impact on yields. Additionally, EXPD discussed its approach to capital deployment, its tax strategy as a U.S.-based company, and operational performance trends in air and ocean freight for Q1 and May 2005. Key themes include the careful management of capacity by carriers, which has implications for future freight rates and Expeditors' yield potential. The company reiterated its non-asset-based logistics model, emphasizing a focus on operating cost reductions rather than return on capital analysis for incremental investments. Expeditors also detailed its tax policy, highlighting the decision to accept U.S. taxation as a cost of doing business to enable free movement of cash globally. The report also touched on industry trends like extended credit terms and discussed recent volume performance, noting a divergence between strong ocean freight growth and flat airfreight tonnage.

Key Highlights

  • 1Expeditors adheres to Regulation FD by disclosing material information first through written SEC filings (like this 8-K) to ensure simultaneous and equal access for all investors.
  • 2The company acknowledges the theoretical unsustainability of current carrier capacity deployment strategies in ocean freight, suggesting a potential future "tipping point" for capacity gluts and reduced pricing power.
  • 3Expeditors' business strategy is not capital-constrained; it focuses on operating cost reductions and maximizing profits from any market situation rather than relying on anticipated market shifts or a 'jackpot' scenario.
  • 4In Q1 2005, airfreight tonnage grew 6% and ocean freight volume grew 28%. In May 2005, airfreight was flat (0.4% growth) while ocean freight grew 15% year-over-year, with a noted shift of some traditional airfreight to ocean.
  • 5Expeditors' effective tax rate is higher than some peers because it accepts U.S. taxation as a cost of doing business to ensure free movement of cash globally, rather than permanently reinvesting foreign earnings offshore.
  • 6The company believes some competitors are offering more generous credit terms, but Expeditors actively manages receivables to avoid risking liquidity and future profits, differentiating between profitable services and cash advances.
  • 7Expeditors is confident in its ability to consistently take market share, despite an industry-wide slowdown in airfreight growth, attributing strong ocean freight performance to this strategy.

Frequently Asked Questions

Expeditors' policy is to answer all questions involving material information for the first time via written SEC filings (such as 8-Ks) to comply with Regulation FD and ensure all investors have equal opportunity to digest significant information simultaneously. While they may schedule appointments or answer phone calls, oral responses will generally be a rehash of previously filed written information. Questions requiring new material disclosures are requested to be submitted in writing.

Expeditors observes that ocean carriers are becoming more efficient at deploying capacity, which theoretically should lead to a market glut and reduced pricing power at some point. However, the timing of this 'tipping point' is uncertain. Expeditors' strategy is to maximize profits from current market conditions rather than predicate its business on carrier capacity dynamics. They also note that asset-based players in the air market appear to be coordinating capacity deployment effectively.

As a U.S.-based company, Expeditors' policy is to accept U.S. taxation as an unavoidable cost of doing business to allow for the free movement of cash worldwide. Unlike competitors who might permanently reinvest foreign earnings offshore to defer U.S. taxes, Expeditors does not permanently invest earnings anywhere. This enables global redeployment of cash for dividends, stock repurchases, and operational investments without additional tax expense upon repatriation.

In Q1 2005, airfreight tonnage grew 6% and ocean freight volume grew 28%. In May 2005, airfreight was flat (0.4% growth) year-over-year, while ocean freight grew 15%. This indicates a notable shift of some traditional airfreight to ocean during March-May 2005. As of mid-June 2005, business growth continued, with May performing better than April on an operating income basis. The company is anticipating a strong finish to the second quarter, dependent on the final two weeks of June.