A Logistics Dream Stock-Pick

I have a friend who works in supply chain management.  This friend is quite fond of himself and often assigns himself nicknames to support his ego.  After finishing a project recently, he proclaimed himself to be "The Logistics Nightmare."  While self-proclaimed nicknames can often be humorous, the business of logistics is no laughing matter.  In an increasingly complex global economy, improvement in economic performance can oftentimes be directly attributed to improvements in supply chain management and logistics, which leads me to the topic of this post:  a leading company in the logistics space.   


Expeditors International of Washington, Inc. (EXPD) has benefited over the last year from a global rebound in freight shipping, but has further room to run and is well-positioned over the long-term as a global leader in shipping logistics.  The company is characterized by a high quality management team, a strong balance sheet, high free cash flows, high return on invested capital, and a sustainable competitive advantage.

EXPD is involved in the business of providing global logistics services.  More specifically, EXPD consolidates and forwards air and ocean freight, acts as a customs broker, and provides additional services like distribution management, vendor consolidation, cargo insurance, and purchase order management, and customized logistics information.

In the air freight and ocean freight areas of the business, EXPD acts as a freight consolidator/forwarder by purchasing cargo space from airlines and ships on a volume basis and reselling this space to its customers at lower rates than the customers could obtain directly from the airlines or ships.  EXPD does not own an asset-intensive fleet of ships or planes, and is able to focus on the complex task of modern international shipping.  Clients benefit from EXPD’s ability to tap into lower shipping rates negotiated by a large-volume broker.  Air freight services account for approximately 1/3 of revenues, while ocean freight services account for approximately 1/4 of revenues.

Customs brokerage and other services account for the remaining 40% or so of revenues.  EXPD acts as a customs broker by helping importers to clear shipments through customs.  Specifically, it helps the importing firm by preparing documentation, calculating and assisting with duties payments, arranging inspections with governmental agencies, and arranging for delivery.  Clients benefit by not having to deal with these complex tasks.  Major customers include Cisco, Wal-Mart, Toyota, and Nike.  However, client concentration is low as no customer comprises more than 5% of revenues.

EXPD’s competitive advantage is derived from strong relationships with suppliers and buyers that have been developed over a long time period.  EXPD also benefits from its vast network, operating 255 sites on six continents.  Competitors seeking to copy the strategy will find it tough to replicate due to the necessity of high volume at each site in order to pay for the reach of the network.

Additionally, EXPD has a strong corporate culture and a high quality management team which has been able to implement the right incentive structure firmwide.  Every employee is treated like a salesperson, and is compensated based on the profitability of their regional office.

In terms of financials, EXPD has no long-term debt and holds a substantial cash cushion of $1 billion.  Return on invested capital has been greater than 30% over the past five years.  Market cap is around $11B currently.   

EXPD stock price has not been very volatile in the last year.  Due to this low volatility there have been few opportunities for entry at a cheap price, but I would suggest an entry at any price lower than $50 if possible.

In conclusion, investors with a long-term perspective should benefit from owning EXPD as part of a diversified portfolio.