Expeditors International – Simply Synchronized
A third-party logistics provider, Expeditors International of Washington is a global logistics company satisfying the increasingly sophisticated needs of international trade. The Company’s primary services include air and ocean freight transportation and customs brokerage. The Company also provides additional services including order management, time-definite transportation, warehousing and distribution, cargo insurance, and customized logistics solutions.
The global logistics services industry is intensely competitive. The industry has recently undergone widespread consolidation with larger firms striving for stronger and more complete multinational and multi-service networks.
The primary factors on which Companies in the logistics services industry have traditionally competed are customer service and price. According to industry research reports, customer service metrics for a typical 3PL provider will include reliability, responsiveness, expertise, convenience, and scope of operations.
Expeditors’ motto is “You’d be surprised how far we’ll go for you.” In line with its motto, Expeditors has recently been able to win business away from its competitors due to the emphasis the Company places on quality customer service. More specifically, the Company creates value as an organization by ensuring that its employees are uniquely abled to assess and respond to each customer’s individual business needs.
The Company’s compensation structure is built on an unusually aggressive profit-sharing plan that reward employees for profitably managing the things they can control. Expeditors’ 13,700 employees in 63 countries relentlessly focus on generating profits, and regional managers are entrusted to distribute 20 percent of all net income a regional office generates to her employees. According to the Company’s public filings, its profit-sharing plan creates a “real world” environment through which individuals are not sheltered from the profit implications of their decisions. If these decisions result in operating losses, management must make up these losses with future operating profits before any cash incentive compensation can be earned.
Despite having regional headquarters set-up in London, Sao Paulo, Dubai and Shanghai, Expeditors believes that all company offices must be on a single integrated platform in order to deliver best-in-class supply chain management solutions. This notion has underpinned the Company’s decision to remain focused on organic growth despite a notable wave of merger and acquisition activity across the logistics service industry. While competitors have pursued acquisitions as a means of boosting growth, Expeditors seeks sustainable growth by attracts top-notch employees to offices which, according to its website, are “neat, organized and set up globally in accordance with our quality standards.”
Financial flexibility afford by asset-light distribution
Another notable element of the Company’s operating model is that as a true non-asset based global logistics provider, Expeditors does not purchase any transportation equipment of its own. Rather, Expeditors partners with key air, ocean and ground carriers to provide its solutions. Because the Company does not need to invest in heavy capital expenditures or worry about costs typically associated with fleet maintenance, Expeditors is able to price the majority of its services below its competitors.
The financial flexibility afforded by the Company’s asset-light nature also position the Company more favorably than its competitors during times of economic hardship. In fact, during the 2009 and 2010 slowdown, the Company adopted a “no-lay-off” policy that simple would not have been possible had the Company been heavily invested in property, plant and equipment.
Expeditors International of Washington is an example of a Company that is highly effective at driving alignment between its operating and business models. Customer service is at the forefront of everything the Company does. And by aligning the Company’s incentive structures, systems, and capital investments with a simple philosophy, the Company has been able to long set the standard for excellence in global logistics.
Sources include: Company Website; Company’s 10-K; www.seekingalpha.com; http://theloadstar.co.uk/expeditors-detours-acquisition-trail-focus-road-organic-growth; Macquarie Equity Research
Student comments on Expeditors International – Simply Synchronized
Thanks Steven, great post
You mention financial flexibility Expeditors has due to its asset light business model. I find this being quite unique among 3PLs, particularly ground carriers, as it leaves them rather inflexible when responding to customers’ individualized requests. It’s therefore very interesting to hear that company’s key differentiating factor is its focus on CX and ability to cater each customer’s individual business needs. Do you see them strengthening the business model by repositioning from asset-light to asset-heavy model? Also, I assume they do not provide the last mile delivery based on their asset-light business model. Given the explosion of e-commerce and importance of cracking the last mile delivery model – i.e. part of logistics that customers are most exposed to (in B2C operations at least) – do you see them incorporating this in their business model to drive further CX?
Thanks for the post, Steven. 3PL is an incredibly competitive environment with many companies that do not have exceptionally strong operating models so its great to see how this one is different. I am particularly struck by the compensation structure and asset-lite distribution model. I imagine adopting a profit-sharing model is quite unique among their public competitors. It does a wonderful job aligning incentives and maintaining a focus on profitable growth. Furthermore, utilizing partnerships with other providers with equipment should give them a relative cost advantage during down periods; however, I wonder how this affects the long-term profitability of the operation. It looks like the market is relatively neutral on the company (down from its $55 high in 2011 and up from its $34 low in 2012). How does this compare to its competitors and is there room for further upside?
Steven, thank you for writing about a very interesting business. I am wondering, though, how this businesses motto and their business model in general are that closely aligned with the operating model. “You’d be surprised how far we’ll go for you” seems like a great motto in theory but I’m still confused as to how that permeates through their day to day operating model. Thank you in advance for your guidance.