8-KRegulation FD

EXPEDITORS INTERNATIONAL OF WASHINGTON INC 8-K Report, Regulation FD Disclosure (Dec 4, 2020)

Filed December 4, 2020For Securities:EXPD

Summary

This SEC filing is an 8-K report from Expeditors International of Washington Inc. (EXPD) filed on December 4, 2020, detailing responses to selected inquiries received through November 6, 2020. The report addresses key operational and strategic questions posed by investors regarding the company's performance during the third quarter of 2020 amidst the COVID-19 pandemic and its anticipated future impacts. Key discussions revolve around Expeditors' ability to maintain strong gross margins in its ocean segment despite volatile rates, driven by enhanced service offerings and premium solutions. The company also elaborates on strategies for operational leverage, investment in employees under a 'no lay-off' policy, and capital deployment, emphasizing historical practices of investing in the business, increasing dividends, and share repurchases. Furthermore, the filing touches upon the evolving landscape of technology in freight forwarding, the potential structural impact of COVID-19 on the airfreight market, and preparedness for future vaccine distribution.

Key Highlights

  • 1Expeditors maintained historically high gross margins in its ocean segment during Q3 2020, attributing this to enhanced service offerings like expedited door deliveries and premium ocean services amidst high rate volatility.
  • 2The company's 'no lay-off' policy for employees, implemented during downturns like the 2008-2009 recession and again in early 2020, is reiterated as a strategy to retain talent and be ready for future business recovery, with redeployment of staff for process improvement and strategic projects.
  • 3Expeditors views technological advancements, including carrier efforts to disintermediate forwarders with electronic platforms, as less impactful on its ocean strategy due to customer preference for choice and flexibility offered by the NVOCC model.
  • 4The company expects to deploy capital historically: investing in the business (e.g., digital platforms like Koho), continuing semi-annual dividend payments, and considering open market share repurchases.
  • 5Expeditors anticipates a continued demand for expedited ocean freight (LCL) services, building on its unique, controlled LCL product, as an alternative to airfreight.
  • 6The company acknowledges the COVID-19 pandemic has structurally impacted the airfreight market due to reduced passenger flights, but is uncertain whether this is a temporary or long-term change, relying on a combination of traditional arrangements and charters for capacity.
  • 7Expeditors' Health Care vertical is equipped to handle temperature-controlled and dangerous goods shipments, including vaccines, and sees opportunities in vaccine distribution from raw materials to final delivery, potentially utilizing charter flights and its Transcon product.

Frequently Asked Questions

Expeditors attributes its strong ocean gross margins to enhanced service offerings and premium solutions that help customers minimize disruptions, improve transit times, and secure container availability. This includes utilizing related services like expedited door deliveries and transload/crossdock services, as well as offering premium ocean services.

The company has maintained a 'no lay-off' policy for employees, similar to its approach in 2008-2009, to retain talent and ensure readiness for business recovery. Employees are redeployed to analyze and improve operational processes and work on strategic projects. Expeditors' District Managers are closely managing shipment counts and volumes to optimize staffing, and the company is identifying areas for modest operational efficiency improvements expected in 2021.

Expeditors believes its ocean customers prefer the choice and flexibility offered by the NVOCC model over direct contracts with carriers. While larger customers might utilize new carrier tools, many, especially small and medium-sized shippers, will continue to require the engagement and multiple carrier options that Expeditors provides through its sophisticated booking platforms.

Expeditors intends to deploy capital in its historical manner: first, by investing in the company itself, including technology and digital solutions. Second, it plans to continue its practice of increasing semi-annual dividend payments to shareholders. Finally, the company will review global working capital needs and market conditions to determine opportunities for open market share repurchases.