2012 ends on a glimmer of optimism for Expeditors

2012 ended on a glimmer of optimism in an otherwise disappointing year for Expeditors International. Total revenue for the fourth quarter increased 2% to $1.5bn, however net revenues declined 4% to $458m. For the year, total revenue declined 3% to $5.9bn and net revenue declined 4% to $1.8bn.

According to the company’s CEO, Pete Rose, airfreight tonnage spiked late in the fourth quarter resulting in carriers quickly imposing rate increases. Expeditors was not able to respond quick enough to adjust its sell rates. Still, for the quarter, airfreight tonnage increased 5%, while total air freight revenues declined slightly by 0.7% to $700.8m. For the year, air freight revenues declined 9.5% to $2.6bn.

Ocean freight tonnage continued its negative trend in the quarter, declining 6%. Revenues, however, increased 7% for the quarter to $472.3m and 5% for the year to $1.9bn. In addition, customs brokerage & other revenue increased 1.3% in the fourth quarter to $359.9m and 1.9% for the year to $1.4bn.

For the year, all reporting geographies reported declines in total revenue except for ‘Other North America’ which recorded a 5.5% annual increase to $54.4m. This is probably due to the increase in cross-border trade among the US, Canada and Mexico. The Europe and Africa segment had the biggest revenue decline for the year at 8.4% to $220.3m, which is probably due to the challenging economic climate Europe experienced.

For the fourth quarter, Other North America, Latin America and Asia Pacific noted increases in revenue of 5.7%, 3.3% and 5.3%, respectively.

Pete Rose noted that for 2013, the company has developed a strategy it believes will help it to retain existing customers, while attracting new business. Included in this strategy is refining its pricing structure to ensure the company is focused on market share expansion through more timely and efficient rate quotation; continuing with its successful customer-facing network engineering offerings that assist in customer supply chain optimisation initiatives; and finally emphasis on customer service.

Expeditors’ earnings illustrate the troubles the freight forwarding market experienced throughout the year. Tradelane shifts, declines and shifts in demand, increased competition and reduced capacity highlight some of the market issues.  Financially, Expeditors still remains heavily exposed to the airfreight market, despite its attempts to balance its portfolio more evenly. In 2011, airfreight revenue was responsible for 47% of total revenue, whereas in 2012 it was responsible for 43.5%. The shift to ocean freight was evident as it made up 33% of total revenue, a 2.5% increase from 2011.

Geographically, Expeditors remains too exposed to the Asia Pacific region which is responsible for over 50% of the company’s total revenue. As manufacturing relocates closer to customers, this exposure will weigh negatively on the company’s revenues, unless it expands further in the intra-Asia trade.

However, there was some cause for optimism at the start of 2013 for Expeditors, as well as other freight forwarders, as air cargo volumes were particularly strong from Asia leading up to the Chinese New Year. But the rest of the year may not be quite as positive.