Air and ocean freight forwarding and 3PL Expeditors (NASDAQ:EXPD) today reported record quarterly net revenue—revenue after the cost of purchased transportation—and operating income in the third quarter, as the company maneuvered as adroitly as possible amid a rapidly tightening market for air and sea capacity.
Quarter over quarter, the Seattle-based company posted a 10 percent gain in net revenues to $661 million on a 16 percent gain in gross revenue to $2.1 billion. Operating income increased 9 percent to $203 million. Airfreight tonnage rose 1 percent, while ocean container volumes rose 8 percent.
Like other non asset-based users of air and sea transport, Expeditors grappled in the quarter with capacity hikes that, in many cases, hit faster than its ability to boost prices to its customers. In a statement accompanying the results, Expeditors CEO Jeffrey S. Musser called the rate environment “particularly volatile” and “unpredictable,” especially in the ocean segment.
“Capacity in both the air and ocean markets remained tight in many lanes,” Musser said.
Ocean freight pricing has tightened up as carriers have consolidated into alliances in an effort to reconcile capacity. Carriers are also looking to focus less on pricing and more on building value-added logistics services that can command a premium price. Maersk Line, the largest carrier by capacity in the world, is in the midst of a multi-year plan to transform into an integrated logistics specialist that can leverage its ocean network. French carrier CMA CGM recently acquired all of Dutch 3PL Ceva Logistics that it didn’t already own for the purposes of achieving the same objective.
Like many companies in the quarter, Expeditors benefited from a significantly lower tax rate as a result of the 2017 tax code. The company’s effective tax rate for the three months was 21.8 percent, compared to 36.7 percent a year ago. It did not translate that reduction into actual savings in its statement.
The company eschews the traditional webcast with analysts in favor of e-mailed questions, a select few of which are answered in the company’s next 8-K filing, which is due Nov. 29
Musser did not respond to a request for additional comment on several issues, not the least of which is if Expeditors, considered a proxy for U.S. import activity on transpacific trade lanes, is seeing inventory pull through ahead of expanded and higher U.S. tariffs on Chinese imports threatened to hit on Jan. 1 unless the two sides strike a trade deal before then. President Trump and Chinese leader Xi Jinping are expected to talk trade and other issues at the G20 summit in Buenos Aires Nov 30 and Dec. 1.
In a note today to investors, Bascome Majors, transport analyst for Susquehanna Financial Group, an investment firm, said Expeditors should post strong fourth-quarter results given the amount of lead time the company and its customers have had to prepare for a scenario of higher tariffs potentially covering the value of all U.S. imports from China. The question entering the first half of 2019 is how the company will manage through a potential inventory overhang and a continuing environment of elevated pricing from its carriers, Majors wrote.
