8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Aug 31, 2018)

Filed August 31, 2018For Securities:EXPD

Summary

This 8-K filing from Expeditors International of Washington Inc. (EXPD) on August 31, 2018, addresses investor inquiries regarding business performance and industry trends. Key themes include the potential impact of tariffs on global trade and EXPD's preparedness, detailed performance within the ocean and air freight segments, and the company's strategic approach to growth, technology, and talent management. Despite concerns about tariffs potentially slowing global trade, EXPD believes its global network and services position it to handle shifts in manufacturing locations. The company reported solid overall growth in its ocean segment, driven by forwarding and order management services, though ocean freight consolidation net revenues saw a decline due to reduced net revenue per container. The air freight market remains tight, particularly for exports out of Asia, with capacity growth primarily from passenger aircraft not always aligning with cargo demand. EXPD reiterates its commitment to investing in talent and technology while maintaining a disciplined approach to resource allocation.

Key Highlights

  • 1Expeditors believes its global network is well-positioned to handle shifts in manufacturing locations due to tariffs, emphasizing consistency of services regardless of origin.
  • 2Overall ocean segment net revenues increased by 2%, with strong performance in ocean forwarding and order management services offsetting a decline in ocean freight consolidation.
  • 3Ocean freight consolidation net revenues decreased primarily due to a 7% reduction in net revenue per container, despite a 1% volume increase.
  • 4The air freight market shows continued global demand growth above 4%, with freighter capacity remaining tight, especially for exports from Asia to Europe and the U.S.
  • 5Expeditors intends to continue investing in people, facilities, and technology, with headcount increases closely tracking additional volume and focused on branch operations.
  • 6The company expects its effective tax rate for the second half of 2018 to remain between 31% and 34%.
  • 7Expeditors sees increasing importance in logistics and supply chain management, positioning its full-service global enterprise favorably for future success, aided by ongoing technological adoption.

Frequently Asked Questions

Expeditors believes its global network and consistent services across offices allow it to adapt to potential shifts in manufacturing locations driven by tariffs. The company is prepared to handle business in current or new manufacturing countries, as shippers may look for lower-cost locations, and Expeditors' established infrastructure and services can support these transitions without adding complexity.

While ocean freight consolidation net revenues saw a 5% decline due to a 7% decrease in net revenue per container, this was more than offset by strong performance in ocean forwarding and order management services, resulting in a 2% overall increase in ocean segment net revenues. Competitive market conditions led to average sell rates declining faster than buy rates.

Air freight margins are influenced by the pace at which carriers can change rates in response to demand. While overall capacity growth appears to be exceeding demand, freighter capacity remains tight on key trade lanes. Expeditors focuses on managing margins by closely matching buy rates with sell rates and notes that consolidation of cargo and the mix of volumetric versus dense cargo also play significant roles.

Expeditors plans to continue investing in people, facilities, and technology to meet customer service expectations and enhance operational efficiencies. Investments in headcount are closely aligned with volume growth, with a focus on branch operations. The company emphasizes a deliberate approach to resource commitment and aims for profitable growth.