EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. (NASDAQ:EXPD) Files An 8-K Regulation FD Disclosure
Item 7.01. Regulation FD Disclosure.
The following information is included in this document as a result
of Expeditors’ policy regarding public disclosure of corporate
information.
of Expeditors’ policy regarding public disclosure of corporate
information.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER SECURITIES
LITIGATION REFORM ACT OF 1995; CERTAIN CAUTIONARY STATEMENTS
LITIGATION REFORM ACT OF 1995; CERTAIN CAUTIONARY STATEMENTS
Certain portions of this document, including the answers to
questions 1, 4, 6, 7, 9, and 11 contain forward-looking
statements which are based on certain assumptions and
expectations of future events that are subject to risks and
uncertainties. Actual future results and trends may differ
materially from historical results or those projected in any
forward-looking statements depending on a variety of factors
including, but not limited to, changes in customer demand for
Expeditors’ services caused by a general economic slow-down,
inventory build-up, decreased consumer confidence, volatility in
equity markets, changes in energy prices, liquidity constraints,
political changes, changes in foreign currency rates, or the
creditworthiness of our customers and service providers.
questions 1, 4, 6, 7, 9, and 11 contain forward-looking
statements which are based on certain assumptions and
expectations of future events that are subject to risks and
uncertainties. Actual future results and trends may differ
materially from historical results or those projected in any
forward-looking statements depending on a variety of factors
including, but not limited to, changes in customer demand for
Expeditors’ services caused by a general economic slow-down,
inventory build-up, decreased consumer confidence, volatility in
equity markets, changes in energy prices, liquidity constraints,
political changes, changes in foreign currency rates, or the
creditworthiness of our customers and service providers.
SELECTED INQUIRIES RECEIVED THROUGH MAY 5, 2017
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1.
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Profitability per employee (-8% yoy) declined at a pace
faster than net revenue per employee (-2% yoy) during 1Q17. Volume growth also outpaced headcount growth. Do you attribute this productivity decline in profitability to the absorption of the growth in employee count along with the cyclical yield pressure, or do you believe that staffing level reductions are needed to drive improvement in profitability per employee metrics? |
Your question is a good one and highlights just a few of the
measurements we track monthly throughout our organization. We have
always focused on efficiency. We track our employees performance
based on financial measures, such as net revenue, expenses, and
profitability per person, as well as shipments and volumes per
person in each of our services. We believe that it is important to
look at all of these measures when assessing performance.
measurements we track monthly throughout our organization. We have
always focused on efficiency. We track our employees performance
based on financial measures, such as net revenue, expenses, and
profitability per person, as well as shipments and volumes per
person in each of our services. We believe that it is important to
look at all of these measures when assessing performance.
During Q1, we experienced significant increases in volume and
shipments in most of our services, with air tonnage up 16% and
ocean volumes up 7%, as well as increases in Transcon and customs
brokerage. While we grew headcount 5% over the same period, net
revenue and profitability per person decreased primarily as a
function of margin pressure, not because of a decline in
productivity. Volume and shipment growth outpaced the increase in
headcount. We believe over the long term that the current rate
volatility will subside and that we will return to more historical
pricing patterns.
shipments in most of our services, with air tonnage up 16% and
ocean volumes up 7%, as well as increases in Transcon and customs
brokerage. While we grew headcount 5% over the same period, net
revenue and profitability per person decreased primarily as a
function of margin pressure, not because of a decline in
productivity. Volume and shipment growth outpaced the increase in
headcount. We believe over the long term that the current rate
volatility will subside and that we will return to more historical
pricing patterns.
To be perfectly clear, we do not intend to cut headcount. We plan
to continue to invest in people, processes and technology for the
long-term growth and profitability of our company.
to continue to invest in people, processes and technology for the
long-term growth and profitability of our company.
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2.
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Do you view the emergence of blockchain technology in trade
finance/customs brokerage a threat or opportunity to the current margin profile of your Customs Brokerage franchise? |
Blockchain is one of many emerging technologies that may be a
useful tool in our business. However, we believe it is too early to
know how this technology could be integrated into or benefit our
operations, but we will continue to monitor its development and
applications.
useful tool in our business. However, we believe it is too early to
know how this technology could be integrated into or benefit our
operations, but we will continue to monitor its development and
applications.
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3.
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To what degree has the recent OF-related congestion (starting
with Hanjin, extending to the broader alliances, and now the Chinese port congestion) contributed to the strength in AF volumes? |
Very little. We have not seen any major conversions from ocean to
air.
air.
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4.
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Do you view retailer/carrier alliances similar to the one
recently struck between Alibaba and Maersk a part of a long-term disruptive trend within the traditional wholesale freight forwarding model? Or is it simply another form of an agency relationship between a carrier and a forwarder? |
We do not see this as anything new or different. We responded to a
similar question last quarter by noting that most of the
asset-based carriers have always had direct customer relationships,
and most have purposefully not made the significant investments
required to build an operation capable of serving all direct
customers. Of those that have tried over the years, most have
largely divested their direct operations, which is why our model
appeals to those carriers. They rely on us as an extension of their
sales force and to perform certain services in the supply chain. We
represent a lower-cost customer for those asset-based carriers.
similar question last quarter by noting that most of the
asset-based carriers have always had direct customer relationships,
and most have purposefully not made the significant investments
required to build an operation capable of serving all direct
customers. Of those that have tried over the years, most have
largely divested their direct operations, which is why our model
appeals to those carriers. They rely on us as an extension of their
sales force and to perform certain services in the supply chain. We
represent a lower-cost customer for those asset-based carriers.
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5.
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Can you talk about initial headway being made by Phil
Coughlin and his team? |
Phil Coughlin is one of our most senior executives, with deep
working knowledge of our markets, products, and customers. He was
only just promoted to Chief Strategy Officer on March 1, 2017 and
it is still too early to discuss any details of his work.
working knowledge of our markets, products, and customers. He was
only just promoted to Chief Strategy Officer on March 1, 2017 and
it is still too early to discuss any details of his work.
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6.
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Given the technology capabilities of EXPD, do you foresee a
point in time in the next year or two where increased volumes will not necessarily require a need for additional headcount? |
The short answer is no. We always expect to achieve greater
efficiencies over time, but not without people. Our network is
comprised of three critical elements: people at origin and
destination to service our customers and consolidate their freight;
technology to connect our services and data with customers and
service providers at all touch points in the supply chain; and
processes to improve our efficiencies, as well as those of our
customers and service providers. Over the past several years we
have introduced various improvements that have allowed us to take
on new customers and higher volumes without directly proportional
increases in headcount.
efficiencies over time, but not without people. Our network is
comprised of three critical elements: people at origin and
destination to service our customers and consolidate their freight;
technology to connect our services and data with customers and
service providers at all touch points in the supply chain; and
processes to improve our efficiencies, as well as those of our
customers and service providers. Over the past several years we
have introduced various improvements that have allowed us to take
on new customers and higher volumes without directly proportional
increases in headcount.
That said, as we have mentioned before, we are also always focused
on productivity and efficiency in general, separate and apart from
technology.
on productivity and efficiency in general, separate and apart from
technology.
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7.
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Productivity metrics like net revenue per employee and EBIT
per employee were down again in 1Q17. Should investors expect to see a reversal of those trends in 2017? |
See our responses to Questions 1 and 6 above.
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8.
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There was a significant increase in employees in both
Corporate and IT from the fourth quarter. Are there some large specific projects that the newly hired staff are focused on? |
Information Systems and corporate headcount increased by 73
employees from December 31, 2016 to March 31, 2017. The majority of
these new employees were added to support our strategic and
technology initiatives. These include enhancing our internally
developed, uniform and globally-connected technology platform to
drive logistics growth and to provide our customers with
comprehensive visibility and advanced analytics.
employees from December 31, 2016 to March 31, 2017. The majority of
these new employees were added to support our strategic and
technology initiatives. These include enhancing our internally
developed, uniform and globally-connected technology platform to
drive logistics growth and to provide our customers with
comprehensive visibility and advanced analytics.
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9.
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Can you please discuss the impact that the new ocean
alliances are having on the market? Was there a temporary benefit for the air freight market? |
We saw some congestion in the Shanghai port in April that is
already starting to improve. Outside of Shanghai, we have not yet
seen any other issues, and we have not seen any significant ocean
freight converted to air. The new alliance shifting has just
started over the past few weeks and will take some time to be fully
implemented. It is too soon to know if these changes will result in
any meaningful impact as a result of container repositioning or
issues related to terminals, truckers, or chassis pools. We are
watching it carefully but have not seen any major challenges so
far. See also our response to Question 3 above.
already starting to improve. Outside of Shanghai, we have not yet
seen any other issues, and we have not seen any significant ocean
freight converted to air. The new alliance shifting has just
started over the past few weeks and will take some time to be fully
implemented. It is too soon to know if these changes will result in
any meaningful impact as a result of container repositioning or
issues related to terminals, truckers, or chassis pools. We are
watching it carefully but have not seen any major challenges so
far. See also our response to Question 3 above.
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10.
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Which specific trade lanes and industry verticals, both air
and ocean, drove the growth in volumes in 1Q17? |
Most of our major trade lane volumes were up during the quarter,
with particular strength in retail and technology in both air and
ocean.
with particular strength in retail and technology in both air and
ocean.
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11.
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What kind of things are you hearing from your customers, if
any, as it relates to the global trade rhetoric coming out of Washington DC? |
There has been a fair amount of discussion related to potential
policy changes from the new U.S. administration. We also
regularly receive customer inquiries related to potential policy
changes in other foreign jurisdictions. Our customers are
concerned about the uncertainties regarding free trade
agreements, taxation, tariffs and foreign currency exchange
rates, as well as enforcement issues related to anti-dumping and
intellectual property.
policy changes from the new U.S. administration. We also
regularly receive customer inquiries related to potential policy
changes in other foreign jurisdictions. Our customers are
concerned about the uncertainties regarding free trade
agreements, taxation, tariffs and foreign currency exchange
rates, as well as enforcement issues related to anti-dumping and
intellectual property.
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. (NASDAQ:EXPD) Recent Trading Information
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. (NASDAQ:EXPD) closed its last trading session at with 894,851 shares trading hands.
