The market continues to be a confusing place for Expeditors International, the large Seattle based forwarder, with revenue and profits for 2016 falling despite continuing high demand.
Volumes for both air and sea freight were up 2.75-3% on a tonnage basis over the year, yet revenue fell by 8% year-on-year to $6.098bn and net revenue (gross profit) fell by 1% to $2.164bn. Operating income fell by 7% to $670m. The picture in the Q4 was slightly better with revenues up by 3% although operating profit was still lower year-on-year.
With rising demand, as measured in tonnage, and falling freight rates a forwarder such as Expeditors ought to be making increasing profits. For example, in December air freight volumes increased by 18% year-on-year which ought to give at least some room for stronger pricing.
The problems that the company is facing are ascribed to “volatility” by Expeditors President and CEO Jeffrey Musser. He comments that “rates remain highly unpredictable in the quarter as they were throughout 2016 again putting unusual pressure on our margins”. It appears that Expeditors is finding it difficult to co-ordinate the relationship between buying and selling at the best price. Indeed, Mr Musser tacitly admitted this stating that it was “improving processes to better address the rapid changes in buy and sell rates”.
Certainly parts of the Expeditors business have benefitted from the present environment. Customs brokerage saw good growth in revenue, however this does not seem to have compensated for the problems at air and sea forwarding. The ratio of revenue to net revenue/gross profit remains strong but that only asks further questions about operating profits.
Expeditors International has traditionally been one of the strongest companies in the sector, with an impressive business in the Pacific trade lanes. Its positioning in the Chinese market enabled it to become one of the world’s largest forwarders. It may benefit from the higher growth seen towards the end of the year although the tone from the company seems pessimistic about this. However, it appears to have found it difficult to adapt to new market conditions, which is all the more surprising as it is more focussed than many of its rivals.
Source: Transport Intelligence, February 23, 2017
Author: Thomas Cullen
