Amidst year long plummeting sea and air freight volumes, global freight forwarder Expeditors reported operating income for the full year 2023 down 48% y-o-y to US $940m on revenues that fell by 46% to $9,300m. Announcing further job cuts, its CEO Jeffrey S Musser said, “If I had to use one word to describe the fourth quarter and all of 2023 it would be ‘uncertainty’.
Q4 air volumes fell by 3% y-o-y and sea volumes fell by 10%, leading to a 28% and 54% drop in revenues for the respective segments in the quarter. Recovery of consumer markets was counterbalanced by conflict in the Middle East that impacted the means in which goods were transported from East to West. Musser continued, “While ocean and air markets have been recovering from the massive disruptions brought on by the pandemic, we continue to face further uncertainties due to the conflicts in the Middle East and Red Sea.’
Modal shifts hit forwarders
At the beginning of the month, a survey by Transport Intelligence showed that in the face of the problems in the Red Sea, shippers have shifted their goods from sea transport to air, rail and land. Our Director John Manners Bell reported, “Almost two thirds of shippers taking part in the survey said that they had switched a proportion of their shipments away from sea freight services. Of the various modal shift options available, the switch from sea to air was the most common choice (17.2%). But the shift towards multi-modal solutions (air/sea combination and sea/land combination) was also significant – almost 20% in aggregate. This is due to the cost and time advantages of using a combination of air/sea and sea/land compared to a full shift to air.” Such switching will have added to the uncertainties faced by forwarders.
“Further,” added Musser, “ Volumes and capacity have remained uncertain due to additional capacity being brought into the marketplace while shippers have shippers have cautiously sought to avoid over extending their inventory levels.” This led to a situation where, he explained, “Rates, which has fallen fairly significantly from the pandemic period, stabilised in ocean and in the case of air, increased in the fourth quarter of 2023.”
More job cuts on the way
Inflation and staff costs are also impacting the bottom line and the company has undertaken a raft of redundancies in the last year with more to set to come in Q1 of 2024. CFO Bradley S Powell continued, “Even though [employee] compensation is 20% lower than the same period a year ago, just about everything else is more expensive… We continue to be focused on further aligning headcount and overhead expenses with lower levels of transactions and volumes.”
With the cyclical nature of the global freight forwarding market, too deep cutting of employee numbers could impact Expeditors’ ability to recover when volumes inevitably normalise. Powell concluded, “We recognise the need to be prepared when tonnage and volumes eventually trend upward in a rate environment that is less volatile.”
Such rate environment volatility is the core to the puzzle for the company at the moment. Where the economies of North America and Europe are showing signs of recovery, these are early days just yet, and as the CEO of Expeditors said, the watchword for now is ‘uncertainty’.
Author: Richard Shrubb
Source: Ti Insights
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