Expeditors warns of airfreight rate volatility as profits hit new highs

08 / 11 / 2018

US freight forwarder Expeditors has warned of increasing volatility in airfreight rates as it reports record profits for the third quarter of the year.

The company saw third-quarter revenues increase by 16% year on year to $2.1bn, while earnings before interest and tax were up 9.4% on a year earlier to $208m and net earnings reached $163m, up 35.2%.

Looking at its airfreight business, volumes were up by 1% year on year during the quarter while revenues increased by 16% on the back of increased rates from carriers, resulting from supply and demand imbalances on certain lanes.

The company added that while some customers were turning to ocean freight, the need for faster supply chains was pushing the airfreight market.

This, along with carrier capacity controls, new product launches and changing trade policies could contribute to increased volatility in airfreight rates.

“Customers remain focused on improving supply-chain efficiency, reducing overall logistics costs by negotiating lower rates and utilising ocean freight whenever possible,” the company said.

“At the same time, customers are increasingly utilising airfreight to improve speed to market. We expect these trends to continue in conjunction with carriers' efforts to manage available capacity and the evolution of consumer purchasing behaviour, such as online shopping.

“These conditions could be affected by new product launches and customer responses to governmental trade policies during periods that have historically experienced higher demand.

“These conditions, should they continue to occur, could create a higher degree of volatility in volumes and, ultimately, buy and sell rates.”

Senior vice president and chief financial officer Bradley Powell said that the improvement in profitability was down to efficiency gains and also changes to its tax rate.

Powell noted that the company’s effective tax rate for the three months was 21.8%, compared to 36.7% a year ago.

In addition to the lower US federal tax rate that resulted from the 2017 Tax Act, the effective tax rate in the most recent quarter benefited from certain discrete adjustments as a result of recent interpretations related to the 2017 Tax Act amounts and a state income tax refund.

Revenue improvements came on the back of volume wins, said president and chief executive Jeffrey Musser, while he also pointed out that capacity constraints had affected the market.

“We generated record third quarter profitability, with the highest net revenue and operating income in our history, as we continued to win new business and grow volumes with existing customers in an unpredictable rate environment,” said Musser.

“Capacity in both the air and ocean markets remained tight in many lanes. Carriers continued to take advantage of the supply and demand imbalance and sought opportunities to increase pricing in an effort to improve profitability.

“That presented a challenge, particularly in ocean, requiring that we work our strong relationships to secure space for our customers, while remaining disciplined on pricing.

“Rates have been particularly volatile, but we have managed through similar cycles throughout our history and are adept at making adjustments to deliver quality growth over the long term.”

 

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