8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (May 22, 2018)

Filed May 22, 2018For Securities:EXPD

Summary

Expeditors International of Washington Inc. (EXPD) filed an 8-K on May 22, 2018, responding to selected inquiries received through May 11, 2018. The filing primarily addresses investor questions regarding operational impacts, technology, trade policy, and tax rates. Key takeaways indicate that Expeditors is not currently experiencing significant impacts from recent trade policy changes or tariffs on its cost of services, as additional costs would be passed to customers. The company also clarified its technology infrastructure, stating it does not rely on IBM RPG and is continuously evolving its global platform, while emphasizing that technology investments are aimed at gaining operating efficiencies rather than reducing headcount. Regarding airfreight, management noted ongoing global trade growth and capacity constraints, advising shippers to refine order projections and procurement strategies. The company also reiterated its 2018 effective tax rate guidance of 31% to 34%.

Key Highlights

  • 1Expeditors has not seen a meaningful impact on freight volumes or customer conversations due to recent political rhetoric and changes to trade policy as of May 11, 2018, but continues to monitor the situation.
  • 2Increased import duties or tariffs are not expected to impact Expeditors' cost of services unless they necessitate additional work, which would be passed on to customers.
  • 3The company's global IT systems do not rely on IBM RPG and are continuously being enhanced and adapted, with a focus on leveraging technology for operating efficiencies.
  • 4Expeditors continues to experience strong global trade growth in early 2018, but faces industry challenges in balancing airfreight supply with demand due to limited new capacity coming online.
  • 5Shippers are advised to refine future order projections and procurement strategies, including tonnage commitments, to help alleviate airfreight capacity constraints.
  • 6E-commerce is not considered a primary driver of Expeditors' airfreight business, and the company has not observed a significant shift of consumer goods from ocean to air freight.
  • 7Expeditors maintained its 2018 effective tax rate guidance of 31% to 34% of pretax earnings.

Frequently Asked Questions

As of May 11, 2018, Expeditors had not experienced any meaningful impact on freight volumes or customer discussions related to recent political rhetoric and trade policy changes. While increased import duties or tariffs could lead to additional work for the company, these costs are expected to be passed on to customers.

Expeditors clarified that its systems do not rely on older technologies like IBM RPG. The company is committed to evolving its global technology platform and is investing in new technologies and services. These investments are primarily aimed at achieving operating efficiencies and leveraging the workforce, rather than leading to headcount reductions.

Global trade growth is continuing into 2018, but airfreight capacity is a challenge due to limited additional belly and freighter capacity. Airlines are managing aircraft more prudently. Expeditors advises shippers to plan in advance by refining order projections and improving procurement strategies, including making tonnage commitments, to manage these constraints.

Expeditors' primary business driver is not traditional small package e-commerce shipments. While e-commerce continues to evolve with demands for faster transit times, Expeditors has not seen a significant shift of goods from ocean to air freight, particularly for consolidated and heavy-weight cargo.

Expeditors still expects its effective tax rate for 2018 to be in the range of 31% to 34% of pretax earnings. The long-term impact will depend on the geographical mix of future pretax earnings and further interpretations of the new tax laws.