The earnings of Expeditors International were a perfect summation of the state of international freight in the second quarter: Whether it was on the water or in the air, the numbers were less than a year ago — by a large margin.

And while Expeditors does not disclose enough granular tonnage data to make a sequential comparison between the first and second quarters, most data points that can be compared also were down from the first three months of the year. 

Expeditors (NASDAQ: EXPD), which does not hold an earnings call with analysts, recorded across-the-board declines in tonnage for both airfreight and ocean freight. Airfreight tonnage measured in kilos was down 15% for the quarter, with the decline worsening over the three months: down 6% in April, 16% in May and 22% in June. 

On the water, there was slight sequential improvement as the quarter advanced, though the overall decline was 13%. The decline in April was 15%, 13% in May and 12% in June.

Revenue was down 51% from the second quarter of 2022, declining to $2.23 billion from $4.6 billion a year ago. Sequentially, revenue was also down, falling 13.6% from the first-quarter figure of $2.59 billion. Revenue at Expeditors in the second quarter was down more than 50% from the recent high-water mark of $4.66 billion in the first quarter of 2022.

While the weak freight market may have cratered revenue, it also resulted in a significantly lower cost of transportation. That category, which does include some other expenses, dropped 59% in the second quarter to $1.41 billion from $3.4 billion a year earlier. Sequentially, the cost of transportation in the first quarter was $1.72 billion, for a quarter-to-quarter decline of 17.4%.

Despite the fact that costs fell faster than revenues sequentially, earnings per share at Expeditors in the second quarter at $1.30 per share was less than first-quarter earnings of $1.45. The second-quarter earnings were 43% less than the corresponding figure of $2.27 a year earlier.

In moving freight via air and ocean, Expeditors during the pandemic faced some of the tightest markets for securing capacity. But in his comments released with the earnings, President and CEO Jeff Musser said those capacity issues are all in the rearview mirror.

“There is now ample and, in some cases, excess capacity in both air and ocean freight, as global supply chain congestion of recent years has effectively disappeared,” Musser said. 

Rates in the freight market are above pre-pandemic levels, Musser said, but are declining. So are volumes. Tonnage has “continued to decline at the same time that air capacity has scaled up and ocean capacity is readily available. Pricing is becoming a more critical determining factor to shippers the further away we get from the severe supply chain disruptions brought on by the pandemic, which impacted revenues this quarter, primarily in our air and ocean businesses.”

Expeditors stock has been on a strong run recently, hitting a 52-week high of $128.04 on July 31. In the last year it is up about 16.8%. In trading Tuesday, Expeditors stock was down $4.66 to $120.15, a drop of 3.73%.

Musser said the increase in passenger air traffic has meant an increase in airfreight capacity as well, with airlines bringing “new and idled aircraft back to service, which is couple with persistent higher utilization of freighter capacity compared to pre-pandemic levels.”

Ocean freight rates have “continued to fall significantly for the third consecutive quarter as capacity exceeded demand despite carrier efforts to rationalize the availability of space.”

Full-time employees at Expeditors stood at 19,053 at the end of the second quarter, down from 20,302 at the close of 2022 and 20,096 a year ago. 

There may be further declines in employee numbers ahead. “We will continue to thoughtfully manage down our headcount and exert other efforts to align our costs with these lower levels of demand,” Musser said. “In many ways, current conditions are very much the reverse of what we experienced in the early days of the pandemic, as the current marketplace shifts to a lower gear on increased capacity and falling rates and demand. We do not see those conditions changing meaningfully before the end of the current year.”

Expeditors is a dividend aristocrat, defined as a company that has annually increased dividends for 25 consecutive years. It did increase its current dividend by 8 cents per share per year in May, guaranteeing its status in the exclusive club for another year. There are approximately 65 to 67 dividend aristocrats, according to various estimates. C.H. Robinson is the only other logistics-focused dividend aristocrat. 

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