EXPD

Expeditors International of Washington: 

Expeditors International of Washington Benjamin Andrew 23 October 2006 McIntire Investment Institute

Background Information: 

Background Information International company concentrated in global logistics services Headquartered in Seattle, Expeditors employs 10,600 employees throughout 226 global locations Air Delivery & Freight Services Sector

Locations:: 

Locations:

Breakdown: 

Breakdown Logistics capabilities – begin in planning stage of freight transportation and continue through delivery Segments included in this Service Structure Air Freight Ocean Freight Customs Brokerage

Brief Financial Overview: 

Brief Financial Overview Total Assets of $1.7 billion Operating Revenues of $305 million Net Income of $220 million Earnings Avg. Growth Rate (5 yrs): 21% Net Income: 2001 - $98 million 2003 – $122 million 2005 - $218 million

Thesis Points: 

Thesis Points 1) Third-Party Logistics (3PL) 2) Information Systems 3) Market Share

3PL Model, Thesis 1: 

3PL Model, Thesis 1 Logistics companies that provide management of transportation and distribution services 3PL market has grown at compound annual rate of 15% over nine years Why? Challenges for shippers: capacity constraints, pricing power of asset-based carriers, increased transportation costs as percent of total Must maintain efficiency in shipment But how?

3PL (cont’d), Expeditors’ C.A.: 

3PL (cont’d), Expeditors’ C.A. Focused (Freight Management) vs. Diversified (Contract Logistics) Focused: earnings consistency, higher growth, higher return on capital (EXPD 23% vs. Competitors 13%) Established international prescience caters to globalization of demand/supply chains Non-asset based model acts as a buffer if the economy slows

VAR for Thesis 1: 

VAR for Thesis 1 Expeditors’ attractive performance/compensation structure Pay tied to Operating Income, without a cap Percentage of individual branch profits provided to manager for distribution Unique within the industry: Attracts, retains, and motivates personnel Reinforces entrepreneurial culture Ryan Hutchinson, Senior Equity Analyst @ WR Hambrecht & Co.

Information Systems, Thesis 2: 

Information Systems, Thesis 2 Increased sophistication of logistics networks, evolving security issues, and regulatory requirements EXPD invested early in its IT systems:

Information Systems (cont’d): 

Information Systems (cont’d) Exp.o – Expeditors’ “web-based track and trace system” Flexible queries that enable clients to pinpoint shipments and view customs details Tradeflow – assists importers/exporters in managing international trade Tariff data, regulation laws, landed cost calculations, customs searches VendorReferrals – helps eliminate import/export discrepancy issues Aids clients in efficient movement of goods

VAR for Thesis 2: 

VAR for Thesis 2 Expeditors’ early start has allowed for organic growth in the company Not only have the systems, but have soundly integrated them internationally Attempted consolidation within the industry in order to catch up Provides Expeditors with short-term competitive advantage and long-term competitive platform Jon Langenfeld, CFA, Senior Research Analyst @ Robert W. Baird

Market Share, Thesis 3: 

Market Share, Thesis 3 Market Growth: Growing demand for global brands, increasing # of multinational firms, diminishing trade barriers all equate to increasing international trade. Effectively complicating supply chains and increasing need for 3PLs

Market Share (cont’d): 

Market Share (cont’d) Market Share: Integrated global network allows ample room for growth in untapped markets Far East-to-Europe, second largest trade lane almost untouched by Expeditors Recent restructuring in Europe will enable growth China (VAR – Jon Langenfeld, Robert W. Baird) 1985 – Expeditors was one of first to obtain class “A” license Now one of largest forwarders in Asia-Pacific region Market share gain estimate: 2% annually

Thesis 3: 

Thesis 3 Market Growth + Increasing Market Share = Investment Opportunity “International 3PL operations grow from a combination of end-market growth and market share gains.”

Risks: 

Risks 1) Dependence on Asset-Based Carriers 2) Foreign Markets and International Trade 3) Diversification of Competitors

Dependence on Asset-Based Carriers: 

Dependence on Asset-Based Carriers Expeditors controls the quality and reliability of transportation only indirectly through its selection of carriers Counterpoint: with solidified carrier relations, this issue has never emerged +10% growth annually since 1984, with exception of 2 yrs

Foreign Markets and International Trade: 

Foreign Markets and International Trade Must manage risks associated with laws, regulations, currencies, and political/economic instability across the globe Indirectly – if any of these risks impede international trade, company’s operating results could be affected Counterpoint: While many competitors contracted throughout global slowdown in 2001/2002, Expeditors grew Earnings increase of 17% and 16% respectively

Diversification of Competitors: 

Diversification of Competitors Several of its larger competitors offer both freight and contract logistic services Expeditors couldn’t respond to an increase in demand for warehousing Counterpoint: Expeditors’ rationale – lower ROC and higher risk in contract logistics

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