8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Dec 17, 2014)

Filed December 17, 2014For Securities:EXPD

Summary

Expeditors International of Washington Inc. (EXPD) filed an 8-K on December 17, 2014, addressing several key investor inquiries. The report clarifies historical airfreight pricing trends, noting that while rates were relatively stable nominally for decades, significant inflation has occurred. The company emphasizes that pricing is now more complex, influenced by fuel prices, airline capacity deployment, and global demand, and would not make the same statement about pricing stability today as they did in 2006. The filing also discusses the significant increase in minimum scale requirements for new entrants in the non-asset-based freight forwarding market, making it substantially more challenging to start a company like Expeditors today compared to its inception. Expeditors highlights its success in serving the Small and Medium-sized Enterprise (SME) market, attributing it to a strong culture, efficient and flexible systems, and a focus on customer service, rather than solely relying on technology, differentiating itself from competitors focused on larger clients.

Key Highlights

  • 1Airfreight pricing has become more volatile and complex, influenced by fuel costs, capacity, and demand, diverging from historical nominal stability.
  • 2Starting a non-asset-based freight forwarding company with significant capital ($10M+) is far more difficult today than in the past due to increased scale, technology, and customer service expectations.
  • 3Expeditors maintains that its success in the SME market is driven by culture and adaptable processes, not just technology, and this focus benefits their approach to larger clients as well.
  • 4The company does not believe it has lost significant market share over the last 10 years, citing revenue growth from $3.3 billion to $6.1 billion and ratable share growth in key lanes.
  • 5Expeditors views IT implementations by competitors as a normal course of industry evolution rather than a significant inflection point, relying on its inherent agility and leanness.
  • 6While year-over-year volume increases in air freight are strong, margin pressures persist as carriers raise rates faster than they can be passed to customers.
  • 7Expeditors has seen spectacular and profitable share gains in Europe/Africa air freight, driven by strategic business development and network synergies.

Frequently Asked Questions

Historically, airfreight pricing was relatively stable nominally, with inflation significantly outpacing rate increases. However, since the mid-2000s, pricing has become more complex and volatile, driven by three main factors: changes in underlying fuel prices, airline capacity deployment, and evolving global airfreight demand. The company would not make the same statement about pricing stability today as it did in 2006 due to these significant shifts.

No, it is significantly more difficult today. Factors such as system requirements, industry consolidation, substantial technology investments, and escalated customer service expectations have dramatically increased the minimum scale requirements. The company estimates that $300K would be insufficient, and even $10 million might not be enough to replicate its initial footprint and objectives in today's market compared to 35 years ago.

Expeditors believes it's easier to scale from an SME focus to larger clients than vice versa. Their success in the SME segment is attributed to a strong company culture, efficient and flexible systems that can accommodate diverse needs, and a consistent focus on customer service. They emphasize that technology is an enabler but not the sole differentiator; a well-defined strategy, employee training, and a customer-centric mindset are critical. This approach also benefits their service to larger clients.

Expeditors does not believe it has lost significant market share over the last 10 years, especially when defining lanes broadly (e.g., China to North America). They have experienced substantial revenue growth and believe they have grown share ratably in key lanes like Asia to North America and Asia to Latin America, and have also expanded in European markets. While some markets may not have grown as much as expected, they feel they have held their ground overall.