Expeditors’ Air and Ocean Volumes Relinquishing Pandemic Gains, but Long-Term Growth Likely

Expeditors International EXPD ranks among the top 10 global freight forwarders in a highly fragmented industry, and its record of impressive financial performance leads the pack. The firm operates more than 250 offices on six continents, with a core focus on Asia-North America trade lanes, though it’s also been gradually expanding its presence on key intra-China and European freight lanes. As a global forwarder, the company contracts with airlines and ocean carriers for cargo space then fills that capacity with customers’ freight. A large customs brokerage operation (including warehousing and distribution services) complements air and ocean services, along with multimodal and final-mile delivery services in North America (Transcon). Expeditors’ asset-light model generates impressive returns on capital, with help from its wide economic moat, which is rooted in the network effect.

Despite gradually intensifying competition across the global forwarding landscape, Expeditors enjoys a history of notable net revenue expansion (high single digits over the past decade) and industry-leading profitability. This is partly because of its emphasis on organic growth, which allows for a cohesive network infrastructure and culture. In contrast, many of its global forwarding peers, like UTi Worldwide (now part of DSV), have grown via acquisition. We also think corporate culture is a core component of its performance record. Salesforce compensation is predominantly commission-based (with below-average base salaries), and managers’ bonuses are tied to branch net revenue growth and operating profit, making for an unusually strong profit-conscious setting.

Historically high air and ocean activity and pricing is normalizing in 2023, but longer term we expect Expeditors to continue taking market share from less capable global forwarders (on average over the cycle) as demand for sophisticated supply chain technology and access to reliable capacity expands. The firm will need to continue investing heavily in its IT infrastructure (especially in terms of transaction automation) and sales organization to succeed, but Expeditors ranks among the most profitable providers.