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Expeditors International of Washington’s 2Q17 Earnings

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Part 3
Expeditors International of Washington’s 2Q17 Earnings PART 3 OF 7

Why EXPD’s Airfreight Segment’s Revenues Climbed in 2Q17

Airfreight revenues in 2Q17

In this article, we’ll discuss Expeditor International of Washington’s (EXPD) largest contributor to revenues—its Airfreight segment. As we discussed earlier, this vertical accounted for 40.2% of the company’s total revenues in 2Q17.

In 2Q17, EXPD’s Airfreight revenues rose 15.4% to $671.8 million from $582.1 million in 2Q16. However, its Airfreight segment’s net revenues declined 3% in 2Q17 compared with 2Q16.

Why EXPD’s Airfreight Segment’s Revenues Climbed in 2Q17

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Behind EXPD’s Airfreight revenues

Let’s look into the reasons behind EXPD’s Airfreight segment’s net revenue change in 2Q17. The company’s net revenues slumped due to a 17% fall in net revenue per kilo, which was favorably offset by 9% tonnage growth. An extremely competitive market brought down the Airfreight vertical’s average net revenue per kilo in most geographies.

Higher tonnage led to increased net revenues in North America (IYJ) and Europe in 2Q17. North Asia’s net revenues declined 9% despite an 8% rise in tonnage. North Asian carriers hiked their pricing substantially, resulting from an excess of demand over available capacity. However, EXPD experienced higher average buy rates, which outpaced its increases in average sell rates.

Although South Asia’s net revenues fell 27%, its tonnage rose 5%. Higher average buy rates along with tough competition resulted in reduced average sell rates.

Management outlook for EXPD’s Airfreight segment

The air freight (DAL) (LUV) (JBLU) market has been experiencing capacity and demand imbalance, which has pushed up the average buy rates worldwide. Expeditors International of Washington (EXPD) expects this trend to continue in 2H17. The company also believes that conditions could improve in the light of new product initiatives during times of high demand.

In 4Q17, EXPD expects lower Airfreight segment margins based on historical trends. This is mainly due to rise in seasonal volumes and higher buy rates by carriers. This should result in increased volatility in freight volumes and higher buy and sell rates.

In the next article, we’ll look at EXPD’s 2Q17 performance for its Ocean Freight and Ocean Services segment.

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