Freight Forwarder At Home In Global Village
BY AMY REEVES <a href=www.investors.com>INVESTOR'S BUSINESS DAILY
The world seems like such a dangerous place these days, many people would rather stay home. But firms that depend on international trade don't have a choice in the matter.
"There's anthrax, ricin, Ebola, war, the uncertainty of the economy," said Peter Rose, chief executive of Expeditors International of Washington Inc. (EXPD) "And then the good news is - there isn't any."
Expeditors is a freight-forwarding company. It's like a travel agent for goods. It doesn't do shipping itself, but connects clients with the right shippers and smooths the way through customs and other hassles.
In troubled times like these, many companies need such firms, says analyst Jon Langenfeld of Robert Baird.
"Their ability (to grow) is going to be much better in times of change, where there's stress in the system," said Langenfeld, who has no financial relationship with Expeditors.
"That allowed companies like Expeditors to take advantage of that, and show the value of their services. Shippers are going to increasingly rely on their trusted logistics partners."
It helps that Expeditors is already one of the more trusted names in the business. Though the industry is fragmented, with no firm claiming more than single-digit market share, Expeditors is one of the top 10 in size. It's been around since 1979, and now has 167 offices all over the world.
Image: The World Over
Another factor that boosts Expeditors' trustworthiness? It's not for sale. Although the freight industry has been consolidating for years, Expeditors has steadfastly refused to either be bought or make any major purchases itself.
"That bodes well for customers, vendors and employees because it takes away a lot of uncertainty," Rose said. "People say 'never say never' and 'everything has its price.' It's not about the greed and the avarice here. It's about growing this place and leaving a legacy for the young people coming up."
Since Expeditors depends on the quality of its service to compete with rivals, the quality and loyalty of the work force is important to Rose. He says employees did a heroic job last fall, when the longshoreman's union went on strike and shut down ports on the West Coast for two weeks. It became a logistical nightmare, as cargo ships were stranded on the ocean for days.
Overall, the strike helped the business, since customers found they needed experts like Expeditors all the more. But it greatly strained some employees, especially in Asia.
"There were people in the Hong Kong and Shanghai offices who were literally sleeping at their desks," said Rose. "I mean, taking a short nap there and going right back to work. But through all that, we came out unscathed."
The hard work did not go unappreciated. The head of the Taiwan office bought gifts at Tiffany's for all the workers as a reward.
This focus on employees and refusal to be bought may seem out of sync with business today. But Langenfeld says Wall Street appreciates Expeditors' ethic.
"I think investors recognize the power of its internal growth, the discipline of its management and have rewarded it with a premium valuation," he said. "The results are there. If you look at some other companies that have gone the acquisition route, few have been successful."
The results are indeed there. In the fourth quarter, the firm made 33 cents a share, up 32% from the prior year. Revenue grew 41% to $691.2 million.
For the year, profit rose 16% to $1.03, on 22% revenue growth to $2.3 billion.
Rose says growth has been especially strong in China, which he calls a "hot" market. Now with 20 offices on the mainland, Expeditors is pushing from the usual export-heavy coastal cities into interior centers like Xian and Chengdu. Langenfeld projects export volume growth of at least 8% per year for the foreseeable future.
Another fast-growing market is more of a surprise: Latin America.
"It's quite an accomplishment with everything going on - the devaluation of the peso in Argentina, the internal strife in Venezuela. And the Brazilian economy wasn't all that good," said Rose. "Yet we came out of it rather well."
The firm has been having a little more trouble in Europe, which takes up about a quarter of the business. Although the financial performance has been solid, management felt it was losing out on potential business because workers didn't have enough of Expeditors' service-oriented culture. A series of regional meetings helped with the problem, Rose says.
"It was a revitalization," he said. "We were trying to get everybody on the same page. It was a reaffirmation of the culture, which we thought had been lacking."
Expeditors doesn't do a huge amount of business in the Middle East, but it's had to make some adjustments for the war. Air routes have been rerouted to avoid trouble spots. Not surprisingly, the Kuwait office has been pretty quiet. But Rose takes comfort in the fact that the same thing is happening to his competitors.
"We're doing no worse than anybody else," he said. "We just want to see it over with."
Analysts expect Expeditors to make $1.20 a share this year, up 17% from last year. Next year they see profit up another 17% to $1.40