8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Aug 16, 2016)

Filed August 16, 2016For Securities:EXPD

Summary

This 8-K filing from Expeditors International of Washington Inc. (EXPD) provides insights into the company's operational strategies and market outlook as of August 16, 2016. The report highlights the company's ongoing focus on efficiency, driven by automation and refined processes, while acknowledging the critical role of human expertise in navigating the complexities of international freight forwarding. Expeditors emphasizes its commitment to continuous improvement in productivity metrics and managing competitive industry pressures. The filing also addresses potential risks, including trade protectionism and technological disruption, asserting the company's preparedness and adaptive capabilities. Key financial discussions revolve around revenue metrics and the impact of external factors such as lower fuel prices and the prior year's West Coast port disruptions. Despite a challenging global economic environment and increased capacity in air freight, Expeditors reiterates its strategy of focusing on profitable growth and expanding market share through strong customer relationships and investments in people and technology. The company is in the execution phase of its strategic assessment, aiming for long-term sustained success.

Key Highlights

  • 1Expeditors utilizes a combination of automation and human expertise to drive efficiency and effectiveness in its complex international freight forwarding operations.
  • 2The company is committed to continuous, albeit modest, efficiency gains through ongoing process refinement and technology integration, such as EDI connections.
  • 3The international freight forwarding market remains intensely competitive, but Expeditors believes it has significant room for growth given its less than 5% market share in most areas.
  • 4Expeditors views potential trade protectionism and technological disruption as manageable risks, emphasizing its adaptability and historical success in navigating complex regulatory and technological landscapes.
  • 5Lower fuel prices have led to reduced fuel surcharges and base rates, decreasing gross revenues but having a minimal impact on net revenue as they are treated as pass-through items.
  • 6The company's strategic assessment is in the execution phase, with ongoing monitoring and adjustments to its long-term strategy.
  • 7Expeditors is seeing emerging trends like e-commerce, fast fashion, and demand for varied service levels, and is investing in people and technology to meet evolving customer needs.

Frequently Asked Questions

Expeditors views automation as integral to its operations, relying on systems for every shipment processed to drive efficiencies. While technology enhances human capabilities, the company acknowledges that the complexity of international transportation still demands human interaction. Regarding net revenue per employee, Expeditors expects gradual, modest improvements over time, achieved through continuous refinement of processes and leveraging technology like EDI, but notes that investments in people and resources are also necessary to implement initiatives.

Expeditors considers the freight forwarding environment to be intensely competitive and expects it to remain so. The company believes it has a significant opportunity for growth due to its relatively small market share. Regarding risks, Expeditors sees itself as a technology leader, unlikely to be caught off guard by new technologies. They view trade protectionism as a recurring issue, particularly in election years, but believe that complexity often increases trade, creating opportunities for their services. The company is confident in its ability to navigate these challenges and adapt to evolving trade dynamics.

The decrease in fuel prices has led carriers to reduce or eliminate fuel surcharges and adjust base rates. This has resulted in lower gross revenues for Expeditors as they pass these changes on to customers. However, the company states that this shift has a minimal impact on their net revenue because fuel surcharges are treated as a pass-through cost; reductions in carrier payments are offset by similar reductions in customer charges.

Expeditors acknowledges that the U.S. West Coast port slowdowns in 2015 created unusual comparisons, including a shift of some traffic from ocean to air freight, which boosted air freight business temporarily. This makes direct year-over-year comparisons in 2016 challenging. The company's approach is to focus on navigating market anomalies and swings to generate profitable growth, and they leave it to investors to decide on appropriate measurement methods, such as looking at two-year average growth rates.