Expeditors Pricing Spineometer: 5 of 5 Vertebrae

Expeditors International of Washington, a third-party logistics services company, had a positive Q3 2024. Revenue rose 37% to $3.0 billion and earnings before interest and taxes rose 39% to $301 million over the same period last year.

A review of Expeditors’ 5 November 2024 earnings release and associated financial reports provided insight regarding the importance of pricing on performance. (No earnings call for the relevant quarter with Expeditors was identified for review.)

Expeditors operates three lines of business globally. These are customs brokerage, ocean freight services, and airfreight services. Each is roughly of equal portion with variation dependent on the year.

For airfreight and ocean freight services, Expeditors purchases cargo space on carriers, such as airlines, ocean shipping lines, and truck lines on a volume bases and resell it to customers. Expeditors’ reports that pricing is based on contract negotiations each year with their global carrier partners. Purchases based are based on customer needs and volume and pricing commitments to the careers. Fixed pricing arrangements are entered into for a portion of their forecasted commitments, while spot market pricing arrangements are typically negotiated at the regional and local levels.

In customs brokerage, Expeditors manages customs brokerage, order management, time-definite transport, warehousing and distribution, temperature controlled transit, cargo insurance, cargo tracking, and other logistics services. Each of these services would have their own prices which would vary by region as well.

Expeditors reports that many customers ship a significant portion of their goods at or near the end of a quarter which creates greater volatility and uncertainty.

Expeditors is highly impacted by shifts in global trade. Armed conflicts has eliminated business activity in Ukraine, Gaza, and Russia. Trade conflicts and tariff impositions such as those increasing tensions between the U.S. and China cause shipping patterns to wane and shift. Inflation and consumer demand impacts volumes overall.

These shifts in global trade are happening rapidly and more frequently in our current geopolitical environment as the new world order established after the fall of the Soviet Union is being challenged both within the western countries and without. Managing all these quickly changing market fluctuations and cost variations would require rapidly changing prices frequently.

This has not gone unnoticed by Expeditors. Jeffrey S. Musser, CEO of Expeditors, wrote in the earnings release, “Unpredictable events seem to occur with such increased regularity as to make us wonder if disruption is the new state of normal.”

So what issues could pricing professionals address at expeditors? Out of the 18,000 employees at Expeditors, simple industry benchmarks would suggest between 20 and 100 pricing professionals. Due to the complexity of their business and the rapidly changing trade environment, we would expect Expeditors to be at the upper end if not beyond the range of standard industrial business benchmarks.

1. Pricing of limited and perishable shipping space on ocean and airplanes has benefited from the deployment of yield management techniques by many of their industry cohorts and suppliers. In this method, different fare classes are closed dynamically to reserve capacity for last-minute, high willingness-to-pay customers.
2. Companies entering into longer-term contracts with major customers often resort to index-based pricing. For Expeditors, this might mean that a portion of the price varies dynamically based on an index price of the price of airfare or ocean cargo prices.
3. For customs brokerage services and warehousing and distribution services, prices would vary by cargo and destination.
4. Services such as cargo tracking may yet have a different form of pricing. Expeditors may be using Infrastructure as a Service (IaaS) pricing or some other complex set of add-ons, Good-Better-Best Versioning, and Price Bundling structures.
5. Other services, such as cargo insurance sales are likely to require simply cost-plus pricing.
6. With respect to sales negotiation, Expeditors faces potentially numerous requirements of providing salespeople globally with reasonable price guidance to manage negotiations with larger customers, both with respect to spot market sales and longer-term commitments.
7. As economic shifts have dramatic impacts on business, both costs and demand, Expeditors would likely benefit from having a few applied economists on staff to both anticipate and enable appropriate pricing and purchasing responses to economic disruptions.

Research into the investment by Expeditors in pricing yielded encouraging results.

1. Over 150 professionals identified pricing in their title at Expeditors. Their titles ranged from pricing analysts, coordinators, supervisors, and managers, to directors. No vice president of pricing could be identified. It appears that Expeditors employs an economist in their strategy group. Surprisingly considering the number of pricing professionals employed at Expeditors, our research did not identify any member of their executive team to have specifically been a pricing professional over the course of their career.
2. Pricing professionals at Expeditors were identifiable across the globe and in multiple cities.
3. Largely, pricing is delineated by business line, Ocean Freight, Airfreight, and Customs Brokerage.

Given the importance and capability of pricing at Expeditors as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of January 2025.

Expeditors Pricing Spineometer: 5 out of 5 Vertebrae.

We hold suspicions that Expeditors would benefit from a more advanced pricing capability. (1) Niche pricing specialists who understand the applicability and returns of different price structures could help Expeditors optimize their price structure for different services. (2) A Vice President of Pricing at Expeditors could improve the sharing of best practices across offices and lines of business. Yet, with the count of pricing professionals exceeding industry benchmarks, we will leave these considerations in their executive’s purview and rank the team among the best.

EXPD (Expeditors International of Washington, Inc.) was relatively unchanged around 120 between the day prior to their earnings release and one week later. FY 2023 revenue of $9.3 billion with a 10% operating margin and P/E ratio near 21.

For FY 2023, a 1% improvement in price would yield a 9.9% improvement in operating profits holding all else constant at Expeditors.