8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Mar 10, 2010)

Filed March 10, 2010For Securities:EXPD

Summary

Expeditors International of Washington, Inc. (EXPD) filed an 8-K on March 10, 2010, addressing various operational and market-related inquiries received up to March 3, 2010. The company highlighted its strategy of focusing on gaining market share rather than solely relying on market growth, emphasizing its ability to adapt to economic shifts and improve efficiency. While acknowledging the difficulty in precisely measuring market share, EXPD indicated growth in U.S. air export markets. The report also touched upon the company's view of global trade growth, expecting developing economies to recover first and anticipating a "Nike Swoosh" effect on economic activity. Management discussed their balanced approach to capital allocation, prioritizing reinvestment in the business, followed by dividends, and then share repurchases, even in a challenging 2009. The filing also provided insights into EXPD's operational performance, noting a significant divergence between airfreight tonnage growth and ocean freight container count decline in Q4 2009, largely attributed to capacity management by carriers and shifts in consumer behavior favoring airfreight for urgent holiday season needs. The company reiterated its core strategy of offering superior services across air freight, ocean freight, and customs brokerage, integrated through a common global platform. EXPD also clarified its stance on domestic activities, focusing on time-definite services and not pursuing truck brokerage. The report detailed headcount reductions, primarily in North America and Asia, during 2009, and addressed ongoing investigations into potential anti-competitive practices.

Key Highlights

  • 1Expeditors prioritizes gaining market share over relying on overall market growth, emphasizing adaptability and efficiency.
  • 2The company anticipates a "Nike Swoosh" economic recovery, with developing economies leading the way.
  • 3A strategic approach to capital allocation includes reinvestment, dividends, and share repurchases.
  • 4Significant divergence observed between Q4 2009 airfreight tonnage growth and ocean freight container count decline due to carrier capacity management.
  • 5Expeditors offers integrated supply chain services across air, ocean, and customs brokerage.
  • 6Headcount was reduced in 2009, primarily in North America and Asia, reflecting a challenging economic environment.
  • 7The company is responding to investigations regarding potential anti-competitive pricing practices by European and US authorities.

Frequently Asked Questions

Expeditors is not an economist and emphasizes not making precise forecasts. However, they believe future economic growth is predicated on stability and confidence. They anticipate developing economies will recover first due to their competitive labor and manufacturing advantages. Management agrees with the "Nike Swoosh" effect analogy, suggesting a sharp decline followed by a long, gentle upward slope over 3-4 years to return to pre-crash levels. They focus on matching global capabilities with opportunities and taking market share, rather than solely benefiting from market growth.

Expeditors considers its cash position a pleasant challenge. Their priorities for cash use are: 1) Invest in the business (capital expenditures, acquisitions), 2) Pay dividends, and 3) Buy back stock. In 2009, despite it being a tough year, they invested $39.7 million in the business, repurchased $84.5 million in stock, and paid $80.6 million in dividends. They engage in stock buybacks when short-term valuations present a disconnect greater than the benefit of holding cash.

The divergence was primarily due to the nature of the two transportation modes and carrier capacity management. Airfreight typically handles high-value, time-definite cargo, while ocean freight is less time-sensitive. Both air and ocean carriers had removed significant capacity in 2009. As demand surged for the holiday season, space became limited. Retailers, having under-ordered due to previous market trauma, opted for airfreight to meet unexpectedly strong demand, leading to a substantial increase in airfreight tonnage. Even a small shift of freight from ocean to air can significantly impact airfreight volumes and rates due to the difference in capacity per unit.

Expeditors' primary strategy is to gain market share, viewing it as more important than benefiting from overall market growth. They achieve this by both expanding their customer base and increasing business with existing customers. While acknowledging the difficulty in precisely measuring market share in the logistics industry, they use relative changes in tonnage compared to industry data as an indicator. They believe there is significant potential to take market share regardless of overall market growth.