Expeditors exploits traditional strength of forwarders

Expeditors International delivered higher profits in the 3rd quarter despite near flat demand as it took advantage of lower freight rates.

An important part of Expeditors was the ability to buy freight at lower prices, with revenue falling by 3% year-on-year but ‘net revenue’ rising by 11%. Yet the profit performance was even better with operating profits up by 21% year-on-year.

And this is not a one-off. This performance was reflected over the nine-month period with revenue down 5% yet operating profit up 24%.

The clear implication is that the productivity of the asset base at Expeditors has improved its effectiveness, both through strict cost control but also by effecting better yield on its business. Indeed its operating profit margin over the quarter was over 33%, which Expeditors’ CFO, Bradley Powell described as the highest in five years.

However, even Expeditors is not immune from the wider trends in the market. Business was very subdued, although the forwarder was able to buck the market in air freight with a 3% increase in tonnage moved, ocean freight saw no growth.

In particular Expeditors struggled in the key Chinese and North Asia market, with revenues here reportedly down more than 3%. Its performance in Europe was also poor. The company ascribed much of the market softness to shippers running-down excess inventory in the face of less optimistic sentiment for Christmas demand.

Again, as with so many of its rivals, it is unclear if Expeditors can sustain profit growth in a market experiencing such poor underlying demand conditions. However it has been able to exploit the traditional strength of forwarders in a soft-market by buying at low prices and expanding its margin to compensate for slower sales. It is just puzzling why more forwarders have not been able to pursue a similar trajectory.