Expeditors International

Expeditors International's second-quarter gross revenue surged 32% on strong airfreight tonnage and customs brokerage growth, coupled with spiking fuel surcharges. Operating profitability posted a solid improvement as well.

Why it matters: Net revenue (gross revenue less capacity costs) grew 21%, with a significant boost from soaring airfreight activity and rates, driven by strong demand from technology end markets, especially artificial intelligence hyperscalers, and recovering e-commerce activity out of North Asia. These factors were partly offset by gross margin (percentage) compressed due to spiking rates paid to carriers. Ocean freight volumes came in roughly flat year over year, versus declines posted in previous quarters, as demand appears to be recovering. We suspect that's partly due to improving US retail-sector inventory restocking, some of which is likely tariff-related import front-loading. Net operating margin (EBIT/net revenue) improved a solid 460 basis points, to 32.2% with significant help from strong net revenue growth. We also suspect productivity gains from ongoing IT-related investments played a role.

The bottom line: We expect to boost our fair value estimate by 5%-7% due to raising our medium-term net revenue and net operating margin forecasts. Note that we are assuming airfreight segment top-line trends normalize downward in 2027, as demand and pricing tend to be variable. Following a surge over the past several quarters, the shares are overvalued relative to our long-term free cash flow forecasts.

BLANK PAGE

Following second-quarter results, we are raising our fair value estimate to $135 per share from $126, reflecting higher medium-term net revenue and net operating margin forecasts. Note that we are assuming airfreight segment top-line trends normalize downward in 2027, as demand and pricing tend to be variable.

Expeditors' gross revenue jumped in 2024, as air and ocean demand surged amid strong e-commerce end-market growth and as shippers pulled forward peak-season freight ahead of potential labor disruptions at US East Coast ports. Shippers also pulled forward imports ahead of US tariffs. Growth tailwinds from the import pull-forward persisted into first-half 2025 but dissipated in the second half. Additionally, underlying freight demand from many industrial and retail end markets (including restocking activity) remained soft throughout the year due to the overhang from US tariffs. The elimination of the US de minimis exemption for low-value US imports was also an unfavorable development. As a result, ocean revenue plummeted in the second half as demand and pricing trends turned negative on very tough comps. These factors also pressured airfreight trends, but the sector enjoyed a strong offset from a jump in demand from tech-related end markets tied to heavy data center infrastructure investment.

Overall, Expeditors' gross revenue growth eased in 2025 but remained positive (up 4%) on lingering airfreight volume gains and robust customs brokerage demand (shippers needed help navigating elevated trade complexity). Net revenue came in higher (near 7%), thanks to gross margin (net revenue/gross revenue) expansion on the ocean freight business linked to falling buy rates for ocean capacity. Total net operating margin (EBIT/net revenue) fell to 28.7% due to tough comps and elevated technology investment aimed at back-office productivity and pricing optimization.

This year, Expeditors' airfreight division is seeing a volume and pricing resurgence driven by strong demand from technology end markets, especially AI hyperscalers, and recovering e-commerce activity out of North Asia. We also expect the industrial sector's recovery to gradually bolster ocean demand, which has been grappling with tough comps and excess capacity this year.

For 2026, we are modeling 13% gross revenue growth (10% for net revenue) on strong airfreight trends and spiking fuel surcharge pass-through revenue. On the profitability front, we look for solid net operating margin improvement to 31.5%, driven by leverage from net revenue growth and IT-driven productivity gains.

Revenue will likely moderate in 2027 amid tough comps, and we model a slight 2% decline in gross revenue, along with 1% net revenue growth, which should benefit from higher gross margins as buy-rates for capacity ease. We also assume the total net operating margin normalizes slightly to around 30% before improving again to 30.5% in 2028.

Further out in our forecast horizon, we assume Expeditors can post 5%-6% average net revenue growth over the freight cycle, as benefits from the network effect continue to support modest share gains from smaller, less-sophisticated forwarders. We bake in a midcycle operating margin near 30.0%. Our 2%-3% long-term average volume growth assumption (for air and ocean freight) assumes a combination of market share gains and modest growth in global trade.

Moats are common throughout the asset-light third-party logistics, or 3PL, space. Barriers to entry are lower than those found in the integrated small-parcel shipping industry or among the Class I railroads, which often build moats via cost-based scale economies. That said, global air and ocean forwarder Expeditors International is a tremendous beneficiary of the network effect, which is the source of our wide moat rating. We think its global footprint and vast network of shippers and carriers create a robust value proposition to shippers that’s very difficult to replicate.

Expeditors' customer base of thousands of shippers creates significant buying power. An immense base of customers translates into superior buying scale, which enables Expeditors to negotiate attractive rates with carriers and more easily secure cargo space. As a result, it can usually procure air and ocean capacity more efficiently and at lower rates than small and midsize shippers can secure on their own (directly with carriers). The firm's broad relationships with air and ocean carriers also benefit shippers. Flexible capacity access is an increasingly sought-after attribute for shippers because of the threat of logistics-related disruption—long supply chains and tight inventory management among shippers make interruption more likely when faced with capacity shortages, intermittent port delays, and shifting import/export regulations. A deep carrier network can be a key differentiator during the peak season, for example, when air and ocean capacity tends to be most limited. Expeditors' business model benefited tremendously from historic pandemic-driven transportation supply chain constraints (including extremely limited air and ocean capacity) from mid-2020 through mid-2022, as the firm gained material market share, in part because of its vast capacity access. This same dynamic has occurred in past freight upcycles.

As the company opens new offices according to demand, existing offices become more valuable because there are more locations with which to arrange trade. Additional offices also spread corporate costs and IT spending over more revenue-producing locations. In this way, a new entrant would have to endure substantial losses until it gained sufficient scale, particularly given the need for substantial IT infrastructure investment.

But such compounding cannot continue indefinitely. Ignoring spikes driven by unusually robust demand in 2020-21 and again in 2024, as well as normalization in 2025, Expeditors' margins and capital returns probably won’t see outsize increases over the medium term. While the firm periodically will refine the size and location of offices to adjust for demand fluctuations, its global network is largely established. Even so, global forwarding remains a fragmented industry with thousands of providers, and it's difficult for smaller, less capable competitors to infringe on Expeditors' economic moat.

While there is significant competition among the large global forwarders with scale, the overall market is still fragmented, with the largest 10 providers constituting less than 50% of the industry in recent years. Outside this group, there are thousands of small international forwarders based in the United States and Europe. This suggests there is runway left for market share gains from smaller, less capable providers, given rising shipper demand for robust local market knowledge, end-market expertise, and broad capacity relationships (an especially valuable attribute during the peak shipping season or other period of tight supply). In fact, there is evidence of gradual market consolidation, as the top forwarders have boosted their share of the market from about 40% in 2006, according to data from Transport Intelligence.

During the past five years, Expeditors posted average returns on invested capital of 39%, well ahead of its approximate 9% cost of capital. We think this reflects an ability to effectively defend market positioning despite gradually intensifying competition. Given the breadth and depth of its carrier and customer relationships, as well as incremental market share gains and modest growth in the broader 3PL industry, we believe Expeditors will continue generating attractive economic profit.

Expeditors has a long history of impressive execution and industry-leading profitability throughout the business cycle. Its non-asset-based operating model has generated average returns on capital near 40% over the past decade.

Expeditors' global IT platform is seamless, integrated, and uniform, and the firm has historically focused on organic growth, providing for best-in-class operating margins.

Over the years, Expeditors has boosted its presence on key freight lanes touching Europe.

US tariffs (along with a potential oil price shock) pose near-term macroeconomic risk for Expeditors' retail and industrial end markets.

A spike in nearshoring among US manufacturers could create headwinds for long-term global trade growth.

Significant new vessel orders could create loose ocean freight industry capacity in the year ahead, limiting pricing gains for carriers and forwarders.