Expeditors International of Washington, Inc
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2017 ANNUAL REPORT ANNUAL 2017 EXPEDITORS EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. 2017 ANNUAL REPORT E X P E D I T O R S 2017 ANNUAL REPORT B O O T S O N T H E GROUND TO OUR SHAREHOLDERS Events in a single year can have an amazing impact on the We are examining various uses of artificial intelligence and supply chain and the companies that count on the supply one of its key components, machine learning. In fact, we use chain to perform mission critical tasks every day. In 2016, we machine learning in our operations today and very much faced a market of over-supply and slowing demand, whereas count on technologies such as these to drive higher levels of in 2017, the market changed rapidly with an under-supply of execution and efficiency. In 2017, we continued to invest in space and growing demand. technology and brought new services to the market, including Cargo Signal and Expeditors Carrier Allocation. Both of these In 2017, we studied the market, made appropriate plans services were developed by our core business and technology based on the detailed facts presented, and, most importantly, teams, and are powered by specialized technology that executed against our plans. By remaining resolute in our plans, incorporates best in class processes that improve the we continued to grow our business and, at the same time, we performance of our employees and that of our customers. improved our financial metrics from the first quarter through the fourth quarter of 2017. Our Chief Strategy Officer has built out our team, designed our methodology, analyzed market data and activity, and We are extremely proud to report that each of our core is now focused on proving out ideas that will add to our services grew and became more efficient in 2017. It is true future. We are exercising discipline in our approach and will that some of these services may not have grown with the invest in ideas that demonstrate the highest real promise pace of the market. This was a deliberate move based on our for future growth. view of the marketplace. Our tenured leadership at all levels demonstrated an ability to make quick decisions regarding As you think about our company going forward, we hope business that drives value to the organization, versus you walk away with an understanding that we are a market business that is not an appropriate fit in a time of supply and leader today and intend to remain so for years to come. There demand imbalance. is much talk about technology and its ability to disrupt. We are highly focused on technology but we also know that it We regularly talk about the importance of people, process, takes an incredible network of individuals and “boots on the and technology, how each of these areas differentiates ground” to make the supply chain perform at optimum levels us from our competitors, and how critical they are to the and solve challenges quickly. success of our organization. Equally important is our ability to execute all of our services worldwide on behalf of our As always, a big thank you is in order for our employees, customers. This year, our people, our “boots on the ground,” customers, service providers, and shareholders. There are made a world of difference in our ability to perform for our many companies that people can choose to work with, work customers in a very difficult market. We know our customers for, and invest in and we never take your trust lightly. count on us and we take that very seriously. Thank you for your on-going support and trust. Jeffrey S. Musser President & Chief Executive Officer, Director EXPEDITORS NETWORK Our systems and technology, along with our extensive network of Boots on the Ground, enable us to provide highly flexible supply chain services. We bring global perspective with local expertise in search of optimal routing and pricing solutions for our customers. over at in over 16,500 177 60 employees district offices countries Technology is at the foundation of everything EXPEDITORS we do. Our single, global technology platform enables greater speed, visibility, and analytics across our network, and allows seamless TECHNOLOGY introduction of new capabilities throughout our worldwide organization. Our constant focus on people, processes, and technology is a key differentiator that drives our success. 3 million+ trading partners in our digital network 100 million+ daily system events driving digitized operations 82%+ Order Management bookings driven online The world of high tech electronics manufacturing for a global consumer base is complex and ever-changing. As an example, recently a North African country published a new regulation that restricts the import of certain finished goods to promote local manufacturing. A global manufacturer of high- value electronics thus shifted their model from finished goods to component importation to North Africa. Doing so created a new challenge since the components contained lithium ion batteries that qualify as dangerous goods, with limitations to international carriage. The customer had also experienced repeated incidents of pilferage. Fortunately, we handle this sort of complexity all the time. Expeditors knew what to do and our people immediately set up a project team jointly with the customer, applying our internal expertise to assess the customer’s needs, and working our network to come up with the best routing solution. As is often the case, the most obvious routes weren’t necessarily the most advantageous. Having clearly identified the customer’s need for a route that accommodated dangerous goods requirements and also accounted for security, our people were able to design a new route that combined air, land and sea transit, with a dedicated security escort through a key part of the journey. The new bundled solution enabled the customer to securely and timely fulfill their market demand without raising their product price. Boots on the Ground means expertise, creative problem solving and hard work. Our experienced people are trained to provide the best solution to meet the needs of our customers. When one of our customers that distributes backyard play equipment needed a Christmas miracle to fulfill holiday orders, it was Expeditors’ Boots on the Ground that kicked into gear for a tale of holiday cheer. Shortly before Christmas, the customer realized that a batch of orders had not been entered into their system because of a sudden emergency that required rushing one of their customer service representatives to intensive care. Because of the dash to the hospital, the orders had not been received into our electronic system to trigger the shipment in time for Christmas installation. Realizing the tremendous disappointment this would cause for the 14 families expecting installation in time for Christmas, the shipper contacted us in a panic. In this case, because it was the holidays, our regular staffing was lighter than usual. The Expeditors district manager – along with a skeleton crew that sprang into action – spent a good part of Christmas Eve at the warehouse to ensure that the orders were shipped out, and that each order was routed to its final destination for installation in time for Christmas surprise and delight. Boots on the Ground means more than having the best technology and systems to move freight from origin to destination. Sometimes technology and systems aren’t enough, which is when we get a chance to show the strength of our company at its best. It was the dedication of our people and their attention to detail throughout that filled this story with the holiday spirit. And best of all: the customer service representative is doing just fine and was able to enjoy a healthy holiday season. In the midst of ramping up for the holidays, a large multi-service customer came to us in dire need: one of their other primary shipping providers had fallen prey to a cyberattack that shut down all of their systems for a duration unknown. +7% +5% +10% -1% +14% +10% +3% +3% +5% +11% +3% +25% -2% +6% How quickly could we step in and +9% take over all of their holiday shipping +14% in the affected region? We didn’t know the answer but were confident that we had the people and systems in place to make it happen. We quickly scrambled a crack team of Order Management and EDI experts, both headquarters- based and regional, and working together they were able to load more than 14,000 purchase orders to our own system, run quality control checks, and start processing shipments within days. As the impacted freight began moving through the pipeline, a number of our branch teams also stepped in to help manage the massive influx 13 14 15 16 17 13 14 15 16 17 13 14 15 16 17 1314 15 16 17 in volume and facilitate the import process, tracking each PO with its container until every last holiday shipment had arrived, cleared, and AIRFREIGHT OCEAN NET DILUTED TONNAGE CONTAINERS REVENUES EPS was delivered. Over a two-week period, we successfully handled more than 4,500 containers for the impacted customer. Boots on the Ground doesn’t always require us to accomplish a 90-day job in just 90 hours. It means having confidence to know we can handle whatever our customers throw at us. 2017 HIGHLIGHTS +7% +5% +10% -1% +14% +10% +3% +3% +5% +11% +3% +25% -2% +6% +9% +14% 13 14 15 16 17 13 14 15 16 17 13 14 15 16 17 1314 15 16 17 AIRFREIGHT OCEAN NET DILUTED TONNAGE CONTAINERS REVENUES EPS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.