8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Aug 21, 2015)

Filed August 21, 2015For Securities:EXPD

Summary

This SEC filing from Expeditors International of Washington Inc. (EXPD), dated August 21, 2015, provides answers to selected inquiries received through August 13, 2015, concerning industry trends, operational performance, and geopolitical impacts. Key topics addressed include the company's stance on domestic truck brokerage capabilities amidst industry consolidation, the sustainability of airfreight net revenue margins, and insights into the impact of the West Coast port disruptions. Expeditors reaffirms its commitment to its current business model, highlighting its ability to offer integrated logistics solutions while adapting to customer needs for segmented services. The company also elaborates on its market share growth strategy, emphasizing service quality and profitable expansion over sheer size. The filing also touches upon the potential impact of China's currency devaluation on trade volumes, stating that while a weaker Yuan theoretically boosts export competitiveness, end-consumer purchasing decisions are influenced by a broader set of factors beyond price. Regarding strategic development, Expeditors outlines its approach to service expansion, favoring organic growth and targeted acquisitions that enhance core competencies over large, potentially disruptive mergers. The company's exposure to China is quantified, with China (including Hong Kong) being a significant contributor to its revenue, net revenue, assets, and equity, second only to the United States.

Key Highlights

  • 1Expeditors maintains its focus on core freight forwarding services and does not see a strategic disadvantage in not fully adopting domestic US truck brokerage, despite industry consolidation.
  • 2Airfreight yields in the first half of 2015 were bolstered by falling underlying airfreight rates and lower fuel prices, but the company expects these yields to revert closer to historical norms as market conditions adjust.
  • 3The company acknowledges some benefit from the West Coast port disruptions in Q1 and Q2 2015 but cannot precisely quantify the upside.
  • 4Market share growth is attributed primarily to Expeditors' strong service levels and execution, with a strategic focus on profitable business growth in targeted markets and customers.
  • 5Expeditors is not making predictions on the upcoming peak season demand, citing the need for better understanding of demand dynamics rather than just capacity.
  • 6A devaluation of the Chinese Yuan is viewed as a potential catalyst for increased exports from China, but the ultimate impact on Expeditors depends on end-consumer purchasing power and decisions.
  • 7Expeditors pursues service expansion through internal development and selective, smaller acquisitions rather than large, 'big and splashy' M&A to avoid integration risks and maintain focus on staff and customers.

Frequently Asked Questions

Expeditors views these industry developments as not significantly changing their strategic outlook. They will continue to invest in their domestic time-definite services through their Transcon service and have not observed an increased customer demand for them to offer truck brokerage capabilities. They emphasize their ability to offer full door-to-door solutions or to segment services as per customer needs and do not feel disadvantaged by not acquiring truck brokerage businesses.

The company notes that airfreight yields were largely driven by opportunities to secure spot market pricing without reducing customer rates. While historically purchase and sell prices tend to track each other, and both customers and carriers adjust to market conditions, Expeditors does not predict future yield sustainability. They expect gross costs to be influenced by supply/demand and potential peak season impacts.

Expeditors continuously evaluates new and additional services. They believe they currently offer all core services and focus on improving and expanding these. While open to acquisitions for new services (citing the PacBridge Shipping example for ocean services), they avoid 'big and splashy' deals, preferring smaller acquisitions or internal development (like Transcon services) that minimize integration risks and allow management to focus on staff and customers.

Theoretically, a devalued Yuan makes Chinese goods cheaper for international buyers, which could lead to increased exports out of China. Expeditors, being a major mover of goods from China, believes its exports from China could grow, contingent on importers' confidence in selling these lower-cost products to end consumers. The actual impact on imports into China is less clear, as Chinese consumer purchasing decisions are influenced by factors beyond just currency value.