EUR 850.00 For Business Accounts Only

Morningstar | Global Trade Will Moderate in 2019, but Expeditors' Solid Execution to Persist

Expeditors International ranks among the top 10 global freight forwarders in a highly fragmented industry, and its record of impressive financial performance leads the pack. The company 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 sizable 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' non-asset-based model generates high returns on capital, with help from its wide economic moat rooted in the network effect. Aside from the impact of recessionary international airfreight conditions throughout 2012 and the first half of 2013, Expeditors enjoys a long history of notable net revenue expansion (8% 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. 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 strong 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. Given the firm's wide-moat positioning, we expect Expeditors to continue gradually taking market share from smaller, less-capable third-party logistics providers (on average over the cycle) as demand for sophisticated supply-chain technology and access to reliable capacity expands. The company will need to continue investing heavily in its IT infrastructure and sales organization to succeed, but Expeditors will very likely remain among the most profitable providers.