8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Aug 17, 2005)

Filed August 17, 2005For Securities:EXPD

Summary

This 8-K filing from Expeditors International of Washington Inc. (EXPD), dated August 16, 2005, provides responses to selected questions regarding their second quarter 2005 results and operational trends. The report highlights a temporary surge in airfreight demand in June 2005 due to shippers rushing to beat textile import quotas from China. While this diversion had a minor impact on overall airfreight tonnage growth, it contributed to diminished airfreight yields, although net profit per kilo remained stable. The company also provided updated estimates on the percentage of net revenue by import and export volume flows across its reporting divisions, noting significant shifts in the Middle East/Indian Subcontinent and Far East regions. Other key topics include commentary on the capacity environment, competitive pricing, and the impact of fuel surcharges on yields. Expeditors emphasized its non-asset-based model, allowing it to handle increased volume despite per-kilo yield pressures, especially with the ability to manage headcount efficiently. The company expressed caution regarding making specific predictions for the remainder of 2005, instead focusing on historical patterns and observations, such as the typical seasonal increase in airfreight rates during the third and fourth quarters. The filing also addressed the impact of currency fluctuations, a slight net foreign currency loss, and the restart of their discretionary share repurchase program to offset option dilution.

Key Highlights

  • 1Expeditors experienced a temporary diversion of ocean freight to airfreight in June 2005, primarily driven by textile import quotas from China. This contributed to diminished airfreight yields, though net profit per kilo remained stable.
  • 2Global airfreight tonnage growth in June 2005 was approximately 5.5% year-over-year, with ocean volumes showing a stronger increase of around 20%.
  • 3The company provided updated estimates for net revenue by import/export flows, showing shifts in the Middle East/Indian Subcontinent and Far East regions, attributed to increased imports and inter-Asia traffic.
  • 4Expeditors reported a net foreign currency loss of approximately $100,000 for the second quarter of 2005.
  • 5The restart of the discretionary share repurchase program was initiated to offset option dilution and maintain a constant number of outstanding shares.
  • 6The company noted that airfreight rates historically tend to increase in the third and fourth quarters, and as of mid-August 2005, saw no reason for this pattern not to hold.
  • 7Headcount increased by 11.7% year-over-year as of June 30, 2005, with significant growth in Latin America and Information Systems.

Frequently Asked Questions

The surge in airfreight demand in June 2005 was primarily due to shippers rushing to beat new 'safeguard' limitations (a WTO term for import restrictions) on certain goods from China, particularly textiles. This diversion from ocean to air was a temporary measure to ensure goods arrived before these limits were enforced.

While the diversion increased airfreight demand, it led to diminished airfreight yields. However, Expeditors reported that net profit per kilo was very close to the prior year's comparable period. The company's non-asset-based model allows it to handle increased volume, and even with a slight drop in net profit per kilo (about 1.3 cents), overall profitability was supported by a 5.5% increase in global tonnage.

Expeditors provided updated estimates for net revenue by import and export volume flows. Notable shifts include the Middle East and Indian Subcontinent moving to 30% Exports/70% Imports (from 55%/45%) and the Far East moving to 65% Exports/35% Imports (from 85%/15%). These changes are attributed to strong growth in imports into markets like India and Turkey, and increased inter-Asia traffic and imports into Japan, Korea, and China.

Expeditors stated they do not make predictions. However, they observed that airfreight rates historically tend to increase in the third and fourth quarters due to seasonally higher traffic volumes, and as of mid-August 2005, they saw no reason for this pattern to deviate.