Although Expeditors International of Washington pre-warned last week that the company would miss earnings estimates, the actual report still came as a surprise and stands as a testament that the freight forwarding market is facing troubling times – declining demand, high rates, increasing oil prices and declining yields.
For the first quarter, Expeditors’ revenue declined 3% to $1.4bn; net revenues declined 2% to $446mn and operating income declined 15% to $125m.
In its pre-warning, CEO, Pete Rose noted "We've been saying for over six months now that things in the global economy just didn't seem to us to be as encouraging as a lot of the pundits were projecting. Our preliminary data seems to reveal a trend where existing customers, particularly airfreight customers, are shipping at lower volumes than we experienced during the 2011 first quarter.”
Indeed, Airfreight constitutes the majority of the company’s revenue however; airfreight revenue declined almost 9% to $638m and tonnage declined 9% for the quarter – declines of 15% in January and 13% in March and an increase of 3% in February.
Ocean freight fared little better –although revenue declined 1.3% to $434m, tonnage increased 1% thanks to a 15% increase in February.
All but one geographic region reported declines in revenue. Expeditors’ largest region by revenue, Asia Pacific, reported the steepest decline in revenue, down over 5% to $737m. The slowdown in Asian exports coupled with the economic woes in Europe resulted in disappointing earnings for this region.
The Other North America region proved a bright spot as revenue increased almost 13% to $52m probably due to an increase in NAFTA trade and the petroleum industry.
Also included in first quarter earnings was the full accrual of the $5.5m fine levied by the European Union in its investigation of the freight forwarding market. Expeditors International of Washington has made public its disagreement of this fine. To add further insult to injury, the US Department of Justice recently issued a subpoena to the company in regards to the “export of goods by unaffiliated third parties to a country under US trade embargo.”
With another possible fine hanging over its head, Expeditors plans to become more aggressive in containing costs and expanding both its customer base and its reach within its existing base.
The company as well as the market itself faces a challenging time. The current outlook does not look promising particularly as economic uncertainty continues to hover over Europe, Asia Pacific faces a slowdown in exports and oil prices remain high; however, there is optimism that the market will improve in the second half of the year.