8-K/ARegulation FD

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

Filed December 4, 2020For Securities:EXPD

Summary

This 8-K/A filing from Expeditors International of Washington Inc. (EXPD), filed on December 4, 2020, addresses investor inquiries concerning their performance and strategy amidst the COVID-19 pandemic. The company highlights its ability to maintain strong gross margins in its ocean segment, attributing this to enhanced service offerings and premium options designed to mitigate disruptions and improve transit times, even amidst high freight rates. Expeditors also discusses its commitment to investing in its employees through a "no layoff" policy, drawing parallels to its approach during the 2008-2009 recession, emphasizing that employees are critical to future success and operational efficiency. The company reiterates its historical capital allocation strategy, prioritizing internal investment, dividend payments, and share repurchases, while also detailing efforts to enhance digital solutions and expand platforms like Koho for better customer service. Finally, Expeditors anticipates increased customer focus on supply chain resiliency and acknowledges the ongoing structural impact of COVID-19 on the airfreight market.

Key Highlights

  • 1Expeditors has maintained historically high gross margins in its ocean segment (~27%) despite volatile and elevated freight rates, by expanding service offerings and utilizing premium ocean services.
  • 2The company has implemented a "no layoff" policy, mirroring its strategy during the 2008-2009 recession, to retain talent and ensure future operational capacity.
  • 3Expeditors continues to prioritize capital allocation towards internal investments, such as digital platforms (e.g., Koho), dividend payments, and share repurchases.
  • 4The company acknowledges the structural impact of COVID-19 on the airfreight market due to reduced passenger belly capacity but believes it can navigate capacity constraints through a mix of traditional arrangements and charters.
  • 5Customers are expected to focus on supply chain resiliency, prompting a review of manufacturing diversity, inventory strategies, shipping modes, and transportation partners.
  • 6Expeditors is exploring the expansion of its Koho platform beyond LTL shipments and has integrated Fleet Logistics capabilities to enhance the online booking and procurement experience.
  • 7The company is prepared to handle specialized shipments such as vaccines, leveraging its Health Care vertical expertise for temperature-controlled and dangerous goods logistics.

Frequently Asked Questions

Expeditors has maintained strong gross margins by enhancing its service offerings to minimize disruptions, such as expedited door deliveries and transload/cross-dock services. They also provide premium ocean services to improve transit times and container availability for customers, which allows them to navigate the high rate environment effectively.

Expeditors has implemented a "no layoff" policy, similar to its approach during the 2008-2009 recession. The company believes investing in its employees is crucial for future success and plans to redeploy personnel to meet customer needs and strategic projects. Headcount will be added as sustainable volume growth is observed.

Expeditors plans to deploy cash by investing in the company first (e.g., digital platforms like Koho, technology development), continuing to pay semi-annual dividends (which have increased for 27 consecutive years), and repurchasing shares in the open market when market conditions are favorable.

Expeditors believes larger customers might use new direct booking platforms, but their ocean customers prefer choice and flexibility offered by the NVOCC model. Expeditors has sophisticated booking platforms that allow customization and efficiencies, catering to customers who value multiple carrier options and avoiding manual processes.