SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995; CERTAIN CAUTIONARY STATEMENTS



Certain portions of this report on Form 10-Q including the sections entitled
"Overview," "Novel Coronavirus (COVID-19)," "Expeditors' Culture and Strategy,"
"International Trade and Competition," "Seasonality," "Critical Accounting
Estimates," "Results of Operations," "Income tax expense," "Currency and Other
Risk Factors" and "Liquidity and Capital Resources" contain forward-looking
statements. Words such as "will likely result," "expects", "are expected to,"
"would expect," "would not expect," "will continue," "is anticipated,"
"estimate," "project," "plan," "believe," "probable," "reasonably possible,"
"may," "could," "should," "intends," "foreseeable future" and variations of such
words and similar expressions are intended to identify such forward-looking
statements. In addition, any statements that refer to projections of future
financial performance, our anticipated growth and trends in the Company's
businesses, the anticipated impact and duration of COVID-19, and other
characterizations of future events or circumstances are forward-looking
statements. Management believes that these forward-looking statements are
reasonable as and when made. However, caution should be taken not to place undue
reliance on any such forward-looking statements because such statements speak
only as of the date when made. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law. In addition,
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from our historical experience
and our present expectations or projections. These statements must be considered
in connection with the discussion of the important factors that could cause
actual results to differ materially from the forward-looking statements. In
addition to risk factors identified in Part II, Item 1A, Risk Factors of this
report, attention should be given to the factors identified and discussed in the
Company's annual report on Form 10-K filed on February 21, 2020.

Overview

Expeditors International of Washington, Inc. (herein referred to as
"Expeditors," the "Company," "we," "us," "our") provides a full suite of global
logistics services. Our services include air and ocean freight consolidation and
forwarding, customs brokerage, warehousing and distribution, purchase order
management, vendor consolidation, time-definite transportation services,
temperature-controlled transit, cargo insurance, specialized cargo monitoring
and tracking, and other logistics solutions. We do not compete for overnight
courier or small parcel business. As a non-asset based carrier, we do not own or
operate transportation assets.

We derive our revenues by entering into agreements that are generally comprised
of a single performance obligation, which is that freight is shipped for and
received by our customer. Each performance obligation is comprised of one or
more of the Company's services. We typically satisfy our performance obligations
as services are rendered over time. A typical shipment would include services
rendered at origin, such as pick-up and delivery to port, freight services from
origin to destination port and destination services, such as customs clearance
and final delivery. Our three principal services are the revenue categories
presented in our financial statements: 1) airfreight services, 2) ocean freight
and ocean services, and 3) customs brokerage and other services. The most
significant drivers of changes in gross revenues and related transportation
expenses are volume, sell rates and buy rates. Volume has a similar effect on
the change in both gross revenues and related transportation expenses in each of
our three primary sources of revenue.

We generate the major portion of our air and ocean freight revenues by
purchasing transportation services on a wholesale basis from direct
(asset-based) carriers and then reselling those services to our customers on a
retail basis. The rate billed to our customers (the sell rate) is recognized as
revenues and the rate we pay to the carrier (the buy rate) is recognized in
operating expenses as the directly related cost of transportation and other
expenses. By consolidating shipments from multiple customers and concentrating
our buying power, we are able to negotiate favorable buy rates from the direct
carriers, while at the same time offering lower sell rates than customers would
otherwise be able to negotiate themselves.

In most cases, we act as an indirect carrier. When acting as an indirect
carrier, we issue a House Airway Bill (HAWB), a House Ocean Bill of Lading
(HOBL) or a House Seaway Bill to customers as the contract of carriage. In turn,
when the freight is physically tendered to a direct carrier, we receive a
contract of carriage known as a Master Airway Bill for airfreight shipments and
a Master Ocean Bill of Lading for ocean shipments.

Customs brokerage and other services involve providing services at destination, such as helping customers clear shipments through customs by preparing and filing required documentation, calculating and providing for payment of duties and other taxes on behalf of customers as well as arranging for any required inspections by governmental agencies, and import services such as arranging for delivery. These are complicated functions requiring technical knowledge of customs rules and regulations in the multitude of countries in which we have offices. We also provide other value added services at destination, such as warehousing and distribution, time-definitive transportation services and consulting.



In these transactions, we evaluate whether it is appropriate to record the gross
or net amount as revenue. Generally, revenue is recorded on a gross basis when
we are primarily responsible for fulfilling the promise to provide the services,
when we assume risk of loss, when we have discretion in setting the prices for
the services to the customers, and we have the ability to direct the use of the
services provided by the third party. When revenue is recorded on a net basis,
the

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amounts earned are determined using a fixed fee, a per unit of activity fee or a
combination thereof. For revenues earned in other capacities, for instance, when
we do not issue a HAWB, a HOBL or a House Seaway Bill or otherwise act solely as
an agent for the shipper, only the commissions and fees earned for such services
are included in revenues. In these transactions, we are not a principal and
report only commissions and fees earned in revenue.

We manage our company along five geographic areas of responsibility: Americas;
North Asia; South Asia; Europe; and Middle East, Africa and India (MAIR). Each
area is divided into sub-regions that are composed of operating units with
individual profit and loss responsibility. Our business involves shipments
between operating units and typically touches more than one geographic area. The
nature of the international logistics business necessitates a high degree of
communication and cooperation among operating units. Because of this
inter-relationship between operating units, it is very difficult to examine any
one geographic area and draw meaningful conclusions as to its contribution to
our overall success on a stand-alone basis.

Our operating units share revenue using the same arms-length pricing
methodologies that we use when our offices transact business with independent
agents. Certain costs are allocated among the segments based on the relative
value of the underlying services, which can include allocation based on actual
costs incurred or estimated cost plus a profit margin. Our strategy closely
links compensation with operating unit profitability, which includes shared
revenues and allocated costs. Therefore, individual success is closely linked to
cooperation with other operating units within our network. The mix of services
varies by segment based primarily on the import or export orientation of local
operations in each of our regions.

Novel Coronavirus (COVID-19)



The COVID-19 pandemic has significantly affected our business operations in the
nine months ended September 30, 2020, and we expect these disruptive conditions
to continue into 2021. At this time, the main elements of its impact on our
business are summarized below:

• Governments have designated our operations as essential business in all

regions where we operate because of our important role in supply chains

operations worldwide. As such, our districts continue to serve our

customers while operating within the regulations established in those

countries.

• We activated our global business continuity plan in the first quarter and

are continuing to operate under this plan. Our business continuity plan

includes measures to protect and safeguard the health of our employees and

service providers, such as sanitization of our facilities, providing

protective equipment to employees, restricting travel and requiring all

employees to work remotely if they are able to. Our plan includes measures

to minimize adverse impacts to our operations and those of our customers'

businesses. We have identified areas of the supply chain process that can

be supported remotely and through automation, and those which require

physical operations and handling. We continue to monitor the continuously

changing situation and adjust our actions, as needed, based on

recommendations from governments and local and national health

authorities. In the second and third quarters of 2020, we implemented and

deployed a global recovery plan regionally following local regulations.


        Our recovery plan is intended to allow employees to gradually and safely
        move back into offices when health risks subside and governments around
        the world lift restrictions. Our districts around the world are at

different phases of the recovery plan depending on local conditions.

• Travel restrictions, government mandated lockdowns and additional

precautionary measures resulted in business and supply chain disruption,

and limited operations in China in the first quarter of 2020, and

worldwide starting in March 2020 resulting in sharp decreases in

international trade. We have also seen a shift in the goods we handle with

a substantial portion of shipments comprising of technology products to

support social distancing and working remotely, and to a lesser degree,

medical equipment and supplies. In contrast, we have seen significant

declines in shipments from our customers in the aerospace, automotive, oil

and energy and certain portions of the retail sectors. With the exception

of airfreight exports out of North Asia, declines in freight volumes have


        negatively impacted our results of operations in the nine months ended
        September 30, 2020.

• These disruptions are threatening the financial stability of our service

providers and our ability to efficiently route customer freight. Reduced

passenger flight schedules and cancellations have significantly impacted


        available belly space, limiting our ability to utilize space under our
        existing capacity agreements with carriers and requiring us to buy space
        in a tight airfreight market and utilize chartered planes. In the second

and third quarter of 2020, the limited airfreight space capacity, combined


        with high global demand for shipping Personal Protective Equipment (PPE),
        medical equipment and supplies and technology products created such an

imbalance that buy rates increased to unprecedented levels, in particular

on exports out of North Asia. Most ocean carriers continue to manage their

capacity according to market demand. These freight market conditions

create pricing volatility that further challenges Expeditors' ability to

maintain historical unitary profitability.

• Many of our customers are experiencing disruptions in their revenue and

cash flow, including an increased number of bankruptcies, prompting these

customers to attempt to renegotiate contractual terms and increasing our


        accounts receivable collection risk. We have continued to apply our
        established credit control procedures


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        and collection monitoring that have historically been effective in
        limiting credit losses. These conditions could result in the loss of
        business and additional bad debt allowances in the future if our
        customers' ability to pay further deteriorates.




These conditions are expected to continue into 2021. We are unable to predict
how these uncertainties and any future disruptions, such as the urgent
distribution of COVID-19 vaccines, will affect our future operations or
financial results. A prolonged recession in the global economy and slowdown in
trade would negatively affect our operations in the future.

Expeditors' Culture and Strategy



From the inception of our company, management has believed that the elements
required for a successful global service organization can only be assured
through recruiting, training, and ultimately retaining superior personnel. We
believe that our greatest challenge is now and always has been perpetuating a
consistent global corporate culture, which demands:

• Total dedication to providing superior customer service;

• Compliance with our policies and procedures and government regulations;




  • Aggressive marketing of all of our service offerings;


    •   A positive, safe work environment that is inclusive and free from
        discrimination and harassment;


  • Ongoing development of key employees and management personnel;

• Creation of unlimited advancement opportunities for employees dedicated to

hard work, personal growth and continuous improvement;

• Individual commitment to the identification and mentoring of successors


        for every key position so that when change occurs, a qualified and
        well-trained internal candidate is ready to step forward; and

• Continuous identification, design and implementation of system solutions

and differentiated service offerings, both technological and otherwise, to

meet and exceed the needs of our customers while simultaneously delivering

tools to make our employees more efficient and effective.




We reinforce these values with a compensation system that rewards employees for
profitably managing the things they can control. This compensation system has
been in place since we became a publicly traded company. There is no limit to
how much a key manager can be compensated for success. We believe in a "real
world" environment where the employees of our operating units are held
accountable for the profit implications of their decisions. If these decisions
result in operating losses, management generally must make up these losses with
future operating profits, in the aggregate, before any cash incentive
compensation can be earned. Executive management, in limited circumstances,
makes exceptions at the branch operating unit level. At the same time, our
policies, processes and relevant training focus on such things as cargo
management, risk mitigation, compliance, accounts receivable collection, cash
flow and credit soundness in an attempt to help managers avoid the kinds of
errors that might end a career.

We believe that our unique culture is a critical component to our continued
success. We strongly believe that it is nearly impossible to predict events
that, individually or in the aggregate, could have a positive or a negative
impact on our future operations. As a result, management's focus is on building
and maintaining a global corporate culture and an environment where well-trained
employees and managers are prepared to identify and react to changes as they
develop and thereby help us adapt and thrive as major trends emerge.

Our business growth strategy emphasizes a focus on the right markets and, within
each market, on the right customers that lead to profitable business growth.
Expeditors' teams are aligned on the specific markets; on the targeted accounts
within those markets; and on ways that we can continue to differentiate
ourselves from our competitors.

Our ability to provide services to customers is highly dependent on good working
relationships with a variety of entities including airlines, ocean carriers,
ground transportation providers and governmental agencies. The significance of
maintaining acceptable working relationships with these entities has gained
increased importance as a result of the effect of the pandemic, ongoing concern
over terrorism, security, changes in governmental regulation and oversight of
international trade. A good reputation helps to develop practical working
understandings that will assist in meeting security requirements while
minimizing potential international trade obstacles, especially as governments
rapidly promulgate new regulations in reaction to the pandemic and increase
oversight and enforcement of new and existing laws. We consider our current
working relationships with these entities to be satisfactory.

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Our business is also highly dependent on the financial stability and operational
capabilities of the carriers we utilize. Carriers are highly leveraged with debt
and many are incurring operating losses. As a result, carriers are facing
liquidity challenges exacerbated by the pandemic and are seeking relief under
various government support programs. This environment requires that we be
selective in determining which carriers to utilize. Further changes in the
financial stability, operating capabilities and capacity of asset-based
carriers, capacity allotments available from carriers, governmental regulations,
and/or trade accords could adversely affect our business in unpredictable ways.

As a knowledge-based global provider of logistics services, we have often
concluded over the course of our history that it is better to grow organically
rather than by acquisition. However, when we have made acquisitions, it has
generally been to obtain technology, geographic coverage or specialized industry
expertise that could be leveraged to benefit our entire network. In May 2020, we
acquired a less-than-truckload digital online shipping platform which aligns
with our focus on enhancing our digital solutions.

International Trade and Competition



We operate in over 60 countries in the competitive global logistics industry and
our activities are closely tied to the global economy. The global economy
entered into a recession as a result of the pandemic and related precautionary
measures including government mandated lockdowns, shutdown of manufacturing and
operations for non-essential businesses and travel restrictions. International
trade is influenced by many factors, including economic and political conditions
in the United States and abroad, currency exchange rates, laws and policies
relating to tariffs, trade restrictions, foreign investments and taxation.
Periodically, governments consider a variety of changes to tariffs and trade
restrictions and accords. Currently, the United States and China have
significantly increased tariffs on certain imports and are engaged in trade
negotiations and changes to export regulations and tariffs. The United Kingdom
and the European Union are negotiating the terms of the United Kingdom's exit
from the European Union and trade relations when the transition period ends on
December 31, 2020. We cannot predict the outcome of these proposals or
negotiations, or the effects they will have on our business. As governments
implement higher tariffs on imports, manufacturers may accelerate, to the extent
possible, shipments to avoid higher tariffs and, over time, may shift
manufacturing to other countries. Doing business in foreign locations also
subjects us to a variety of risks and considerations not normally encountered by
domestic enterprises. In addition to being influenced by governmental policies
and inter-governmental disputes concerning international trade, our business may
also be negatively affected by political developments and changes in government
personnel or policies in the United States and other countries, as well as
economic turbulence, political unrest and security concerns in the nations and
on the trade shipping lanes in which we conduct business and the future impact
that these events may have on international trade, oil prices and security
costs.

The global logistics services industry is intensely competitive and is expected
to remain so for the foreseeable future. Our pricing and terms continue to be
pressured by uncertainty in global trade and economic conditions, concerns over
airfreight capacity availability, volatile airfreight pricing, disruptions in
port services, political unrest and fluctuating currency exchange rates. We
expect these operating and competitive conditions to continue. Air carriers are
experiencing significant cash flow challenges as a result of travel restrictions
resulting in cancellation of flights. Uncertainty over recovery of demand for
passenger air travel, in particular business travel, compared to pre-pandemic
levels may impact air carriers' operations and financial stability long term.
Many ocean carriers have incurred substantial operating losses in recent years,
and are highly leveraged with debt. These financial challenges have resulted in
multiple carrier acquisitions and carrier alliance formations. Additionally,
carriers continue to take delivery of new and larger ships, which may increase
capacity. Carriers also face new regulatory requirements that became effective
in 2020 requiring reductions in the sulfur in marine fuel, which are increasing
their operating and capital costs. When the market experiences seasonal peaks or
any sort of disruption, the carriers often increase their pricing suddenly. This
carrier behavior creates pricing volatility that could impact Expeditors'
ability to maintain historical unitary profitability.

There is uncertainty as to how new regulatory requirements and volatility in oil
prices will continue to impact future buy rates. Because fuel is an integral
part of carriers' costs and impacts both our buy rates and sell rates, we would
expect our revenues and costs to be impacted as carriers adjust rates for the
effect of changing fuel prices. To the extent that future fuel prices increase
and we are unable to pass through the increases to our customers, this could
adversely affect our operating income.

The global economic and trade environments remain uncertain, including the
impacts of the pandemic. We cannot predict the impact of future changes in
global trade on our operating results, freight volumes, pricing, changes in
consumer demand, carrier stability and capacity, customers' abilities to pay or
on changes in competitors' behavior. Additionally, we cannot predict the direct
or indirect impact that further changes in consumer purchasing behavior, such as
online shopping, could have on our business. In response to governments
implementing higher tariffs on imports as well as responses to pandemics'
disruptions, some customers have begun shifting manufacturing to other countries
which could negatively impact us.

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Seasonality



Historically, our operating results have been subject to seasonal demand trends
with the first quarter being the weakest and the third and fourth quarters being
the strongest; however, there is no assurance this seasonal trend will occur in
the future or to what degree it will be impacted in 2020 by the global pandemic.
This historical pattern has been the result of, or influenced by, numerous
factors, including weather patterns, national holidays, consumer demand, new
product launches, economic conditions, pandemics, governmental policies and
inter-governmental disputes and a myriad of other similar and subtle forces. In
addition, this historical quarterly trend has been influenced by the growth and
diversification of our international network and service offerings.

A significant portion of our revenues is derived from customers in the retail
and technology industries whose shipping patterns are tied closely to consumer
demand, and from customers in industries whose shipping patterns are dependent
upon just-in-time production schedules. Therefore, the timing of our revenues
are, to a large degree, impacted by factors out of our control, such as a sudden
change in consumer demand for retail goods, changes in trade tariffs, product
launches and/or manufacturing production delays. Additionally, many customers
ship a significant portion of their goods at or near the end of a quarter and,
therefore, we may not learn of a shortfall in revenues until late in a quarter.

To the extent that a shortfall in revenues or earnings was not expected by
securities analysts or investors, any such shortfall from levels predicted by
securities analysts or investors could have an immediate and adverse effect on
the trading price of our stock. We cannot accurately forecast many of these
factors, nor can we estimate accurately the relative influence of any particular
factor and, as a result, there can be no assurance that historical patterns will
continue in future periods.

Critical Accounting Estimates



The preparation of consolidated financial statements in accordance with
accounting principles generally accepted in the United States requires us to
make estimates and judgments. We base our estimates on historical experience and
on assumptions that we believe are reasonable. Our critical accounting estimates
are discussed in Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of our annual report on
Form 10-K for the year ended December 31, 2019, filed on February 21, 2020.
There have been no material changes to the critical accounting estimates
previously disclosed in that report.

Results of Operations

The following table shows the revenues, the directly related cost of transportation and other expenses for our principal services and our overhead expenses for the three and nine months ended September 30, 2020 and 2019, including the respective percentage changes comparing 2020 and 2019.


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The table and the accompanying discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes thereto in this quarterly report.





                                        Three months ended September 30,            Nine months ended September 30,
                                                                  Percentage                                   Percentage
(in thousands)                         2020           2019          change        2020            2019           change
Airfreight services:
Revenues                            $ 1,093,550     $ 715,450        53%       $ 3,237,179     $ 2,171,928        49%
Expenses                                833,689       522,868         59         2,450,931       1,574,717         56
Ocean freight services and ocean
  services:
Revenues                                612,858       585,374         5          1,597,997       1,697,824        (6)
Expenses                                455,072       424,215         7          1,185,154       1,234,845        (4)
Customs brokerage and other
  services:
Revenues                                758,389       774,031        (2)         2,112,117       2,260,733        (7)
Expenses                                441,657       453,416        (3)         1,212,102       1,330,758        (9)
Overhead expenses:
Salaries and related costs              373,613       356,331         5          1,110,760       1,069,592         4
Other                                   108,821       111,475        (2)           329,720         334,221        (1)
Total overhead expenses                 482,434       467,806         3          1,440,480       1,403,813         3
Operating income                        251,945       206,550         22           658,626         586,352         12
Other income, net                         2,484         7,396        (66)           14,031          23,945        (41)
Earnings before income taxes            254,429       213,946         19           672,657         610,297         10
Income tax expense                       62,710        53,319         18           173,968         156,029         11
Net earnings                            191,719       160,627         19           498,689         454,268         10
Less net earnings attributable to
  the noncontrolling interest               412           406         1              1,169           1,199        (3)

Net earnings attributable to


  shareholders                      $   191,307     $ 160,221        19%       $   497,520     $   453,069        10%




Airfreight services:

In the second quarter and continuing in the third quarter of 2020, airfreight
services experienced unprecedented events in response to the global pandemic. As
a result of travel restrictions and lower passenger demand, airlines
significantly reduced flight schedules which limited available belly space for
cargo at a time where global demand for time-sensitive delivery of essential
PPE, medical supplies and technology equipment remained high. This has caused
extreme imbalances between carrier capacity and demand, principally on exports
out of North Asia. In order to execute and meet the transportation needs of our
customers we heavily utilized charter flights and purchased capacity in advance
and on the spot market, which resulted in historically high average buy and sell
rates.

Airfreight services revenues increased 53% and 49% during the three and nine
months ended September 30, 2020, respectively, as compared with the same periods
for 2019, primarily due to 70% and 69% increases in average sell rates offset by
5% and 8% declines in tonnage. Sell rates increased in all regions with the
largest impacts in North Asia and South Asia. Tonnage declined in all regions
except North Asia. North Asia airfreight services revenue represented 23% and
14% of the total Company consolidated revenues for the nine months ended
September 30, 2020 and 2019, respectively.

Airfreight services expenses increased 59% and 56% during the three and nine
months ended September 30, 2020, respectively, as compared with the same periods
for 2019, principally as a result of a 73% and 71% increase in average buy
rates. Buy rates increased in all regions with the largest impacts in North Asia
and South Asia. While still historically high, sequentially buy rates have come
down in the third quarter of 2020 as compared to the second quarter of 2020.

The decrease in airfreight tonnage was primarily due to the global pandemic. As
a result of the pandemic, governments around the world have implemented travel
restrictions and suspended non-essential services. This has caused supply chain
disruptions for our domestic and international customers, which correspondingly
decreased our airfreight volumes. South Asia, North America and Europe had
decreases in tonnage of 28%, 6% and 16% for the three months ended September 30,
2020 and 29%, 8% and 11% for the nine months ended September 30, 2020. North
Asia had increases in tonnage of 14% and 7%, in the three months and nine months
ended September 30, 2020, respectively.

These conditions created a high degree of volatility in volumes, buy rates and
sell rates. We are unable to predict how these uncertainties and any future
disruptions, such as the urgent distribution of COVID-19 vaccines, will affect
our future operations or financial results.

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Ocean freight and ocean services:



Ocean freight consolidation, direct ocean forwarding and order management are
the three basic services that constitute and are collectively referred to as
ocean freight and ocean services. Ocean freight and ocean services revenues and
expenses increased 5% and 7%, respectively, for the three months ended September
30, 2020 as compared to the same period in 2019. Ocean freight and ocean
services revenues and expenses decreased 6% and 4%, respectively, for the nine
months ended September 30, 2020 as compared with the same period in 2019. The
largest component of our ocean freight and ocean services revenue was derived
from ocean freight consolidation, which represented 64% and 65% of ocean freight
and ocean services revenue for the nine months ended September 30, 2020 and
2019, respectively.



Ocean freight consolidation revenues and expenses increased 7% and 8%,
respectively, for the three months ended September 30, 2020 as compared with the
same period in 2019, primarily due to a 13% increase in sell rates and buy
rates, offset by a 5% decrease in containers shipped. Ocean freight
consolidation revenues and expenses decreased 8% and 6%, respectively, for the
nine months ended September 30, 2020 as compared with the same period in 2019,
due to a 9% decline in containers shipped, partially offset by a 4% and 5%
increase in sell rates and buy rates, respectively. Additionally, for the nine
months ended September 30, 2020, the changes in freight consolidation revenues
and directly related expenses include a revised presentation of destination
services that started in the second quarter of 2019, which decreased revenues
and directly related operating expenses in ocean freight consolidation but did
not change consolidated operating income.



Direct ocean freight forwarding revenues and expenses increased 3% and 9%,
respectively, for the three months ended September 30, 2020, principally due to
higher volumes and changes in customer mix primarily in North Asia and Europe,
as well as due to higher costs. Direct ocean freight forwarding revenues and
expenses increased 4% and 11%, respectively, for the nine months ended
September 30, 2020, principally due to higher volumes and changes in customer
mix primarily in North America and Europe, partially offset by a decrease in
volumes in North Asia. Order management revenues and expenses for the three
months ended September 30, 2020 were consistent with the same period in 2019.
Order management revenues and expenses decreased 9% and 8%, respectively, for
the nine months ended September 30, 2020, primarily due to lower volumes mostly
from the retail industry.



North Asia ocean freight and ocean services revenues and directly related
expenses increased 11% and 13%, respectively, for the three months ended
September 30, 2020, primarily due to an increase in sell rates and buy rates.
North Asia ocean freight and ocean services revenues and directly related
expenses decreased 11% and 10%, respectively, for the nine months ended
September 30, 2020, as compared with the same period in 2019, primarily due to a
decrease in container volume in the first half of 2020. The largest decline in
container volumes during the nine months ended September 30, 2020 were in North
Asia, which started in 2019 and continued through the first half of 2020.



Most ocean carriers continued to manage their capacity according to market
demand. We expect that pricing volatility will continue as customers solicit
bids, react to governmental trade policies and adjust to the slowdown of the
global economy from the pandemic, while carriers continue to adapt to changes in
capacity and market demand and merge or create alliances with other carriers.
Carriers also face new regulatory requirements that became effective in 2020 to
reduce the use of sulfur in marine fuel, which are increasing their operating
and capital costs, which could result in higher costs for us. These conditions
could result in lower operating income.

Customs brokerage and other services:



Customs brokerage and other services revenues decreased 2% and 7% and expenses
decreased 3% and 9% for the three and nine months ended September 30, 2020,
respectively, as compared with the same periods in 2019, primarily due to
decreases in shipments from existing customers. Slowdowns due to the pandemic
related closures affected volumes, particularly in aerospace, automotive, oil
and energy and certain portions of the retail sectors. Customers continue to
value our brokerage services due to changing tariffs and increasing complexity
in the declaration process. Customers seek knowledgeable customs brokers with
sophisticated computerized capabilities critical to an overall logistics
management program that are necessary to rapidly respond to changes in the
regulatory and security environment.

North America revenues decreased 4% and 9% and directly related expenses
decreased 6% and 13% for the three and nine months ended September 30, 2020,
respectively, as compared with the same periods for 2019, primarily as a result
of lower volumes in customs brokerage.

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Overhead expenses:



Salaries and related costs increased by 5% and 4% for the three and nine months
ended September 30, 2020, respectively, as compared with the same periods in
2019, principally due to increases in commissions and bonuses earned from higher
revenues and operating income.

Historically, the relatively consistent relationship between salaries and
operating income has been the result of a compensation philosophy that has been
maintained since the inception of our company: offer a modest base salary and
the opportunity to share in a fixed and determinable percentage of the operating
profit of the business unit controlled by each key employee. Using this
compensation model, changes in individual incentive compensation occur in
proportion to changes in our operating income, creating an alignment between
branch and corporate performance and shareholder interests.

Our management compensation programs have always been incentive-based and
performance driven. Bonuses to field management for the nine months ended
September 30, 2020 were up 15% when compared to the same period in 2019. Bonuses
under the executive incentive compensation plan were up 5% when compared to the
same period in 2019, primarily due to an increase in operating income offset by
a reduction made to senior executive management bonus allocations, as well as
unused bonus allocations available for future investments in the development of
key personnel.

Because our management incentive compensation programs are also cumulative,
generally no management bonuses can be paid unless the relevant business unit
is, from inception, cumulatively profitable. Any operating losses must be offset
in their entirety by operating profits before management is eligible for a
bonus. Executive management, in limited circumstances, makes exceptions at the
branch operating unit level. Since the most significant portion of management
compensation comes from the incentive bonus programs, we believe that this
cumulative feature is a disincentive to excessive risk taking by our managers.
The outcome of any higher risk transactions, such as overriding established
credit limits, would be known in a relatively short time frame. Management
believes that when the potential and certain impact on the bonus is fully
considered in light of the short operating cycle of our services, the potential
for short-term gains that could be generated by engaging in risky business
practices is sufficiently mitigated to discourage excessive and inappropriate
risk taking. Management believes that both the stability and the long-term
growth in revenues, operating income and net earnings are a result of the
incentives inherent in our compensation programs.

Other overhead expenses decreased 2% and 1% for the three and nine months ended
September 30, 2020, respectively, as compared with the same periods in 2019. The
decrease in expenses was due to a significant decrease in travel and
entertainment expense offset by increases in bad debt expense, local tax expense
and depreciation expense. We will continue to make important investments in
people, processes and technology, as well as to invest in our strategic efforts
to explore new areas for profitable growth.



Income tax expense:



Our consolidated effective income tax rate was 24.6% and 25.9% for the three and
nine months ended September 30, 2020, respectively, as compared to 24.9% and
25.6% for the same periods in 2019. The effect of higher average tax rates of
our international subsidiaries, when compared to U.S. federal and state tax
rates, were partially offset by U.S. foreign tax credits and U.S. income tax
deductions for Foreign-derived intangible income (FDII). The third quarter of
2020 effective tax rate benefited from increased tax deductions related to
share-based compensation when compared to the same period in 2019, while the
third quarter of 2019 rate benefited from discrete adjustments primarily for
additional guidance related to the calculation of FDII.

Some elements of the recorded impacts of the 2017 Tax Act could be impacted by
further legislative action as well as additional interpretations and guidance
issued by the IRS or Treasury. See Note 3 to the condensed consolidated
financial statements for additional information.

Currency and Other Risk Factors



The nature of our worldwide operations necessitates dealing with a multitude of
currencies other than the U.S. dollar. This results in our being exposed to the
inherent risks of volatile international currency markets and governmental
interference. Some of the countries where we maintain offices and/or agency
relationships have strict currency control regulations, which influence our
ability to hedge foreign currency exposure. We try to compensate for these
exposures by accelerating international currency settlements among our offices
and agents. We may enter into foreign currency hedging transactions where there
are regulatory or commercial limitations on our ability to move money freely
around the world or the short-term financial outlook in any country is such that
hedging is the most time-sensitive way to mitigate short-term exchange losses.
Any such hedging activity during the three and nine months ended September 30,
2020 and 2019 was insignificant. We had no foreign currency derivatives
outstanding at September 30, 2020 and December 31, 2019. During

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both the three and nine months ended September 30, 2020, net foreign currency
losses were approximately $9 million. During the three and nine months ended
September 30, 2019, net foreign currency losses were approximately $1 million
and $5 million, respectively.

International air and ocean freight forwarding and customs brokerage are
intensely competitive and are expected to remain so for the foreseeable future.
There are a large number of entities competing in the international logistics
industry, including new technology-based competitors entering the industry, many
of which have significantly more resources than us; however, our primary
competition is confined to a relatively small number of companies within this
group. Expeditors must compete against both the niche players and larger
entities. The industry continues to experience consolidations into larger firms
striving for stronger and more complete multinational and multi-service
networks. However, regional and local brokers and forwarders remain a
competitive force.

The primary competitive factors in the international logistics industry continue
to be price and quality of service, including reliability, responsiveness,
expertise, convenience, and scope of operations. We emphasize quality customer
service and believe that our prices are competitive with those of others in the
industry. Customers regularly solicit bids from competitors in order to improve
service, pricing and contractual terms such as seeking longer payment terms,
higher or unlimited liability limits and performance penalties. Increased
competition and competitors' acceptance of expanded contractual terms could
result in reduced revenues, reduced operating income, higher operating costs,
higher claims or loss of market share, any of which would damage our results of
operations and financial condition.

Larger customers utilize more sophisticated and efficient procedures for the
management of their logistics supply chains by embracing strategies such as
just-in-time inventory management. We believe that this trend has resulted in
customers using fewer service providers with greater technological capacity and
more consistent global coverage. Accordingly, sophisticated computerized
customer service capabilities and a stable worldwide network have become
significant factors in attracting and retaining customers. Developing and
maintaining these systems and a worldwide network has added a considerable
indirect cost to the services provided to customers. Smaller and middle-tier
competitors, in general, do not have the resources available to develop
customized systems and a worldwide network.

Liquidity and Capital Resources



Our principal source of liquidity is cash and cash equivalents and cash
generated from operating activities. Net cash provided by operating activities
for the three and nine months ended September 30, 2020 was $162 million and $513
million as compared with $161 million and $607 million for the same periods in
2019. The $1 million increase for the three months ended September 30, 2020 was
primarily due to higher airfreight and ocean revenues offset by changes in
working capital. The decrease of $94 million for the nine months ended
September 30, 2020 was primarily due to changes in working capital, primarily as
a result of increases in accounts receivable from higher airfreight revenues
during the second and third quarter of 2020 when compared to the same periods in
2019. At September 30, 2020, working capital was $1,913 million, including cash
and cash equivalents of $1,466 million. Other than our recorded lease
liabilities, we had no long-term obligations or debt at September 30, 2020.
Management believes that our current cash position and operating cash flows will
be sufficient to meet our capital and liquidity requirements for at least the
next 12 months and thereafter for the foreseeable future.

As a customs broker, we make significant cash advances for a select group of our
credit-worthy customers. These cash advances are for customer obligations such
as the payment of duties and taxes to customs authorities in various countries
throughout the world. Increases in duty rates could result in increases in the
amounts we advance on behalf of our customers. Cash advances are a "pass
through" and are not recorded as a component of revenue and expense. The
billings of such advances to customers are accounted for as a direct increase in
accounts receivable from the customer and a corresponding increase in accounts
payable to governmental customs authorities. As a result of these "pass through"
billings, the conventional Days Sales Outstanding or DSO calculation does not
directly measure collection efficiency. For customers that meet certain
criteria, we have agreed to extend payment terms beyond our customary terms.
Management believes that it has established effective credit control procedures,
and historically has experienced relatively insignificant collection problems.

Our business historically has been subject to seasonal fluctuations and this is
expected to continue in the future. Cash flows fluctuate as a result of this
seasonality. Historically, the first quarter shows an excess of customer
collections over customer billings. This results in positive cash flow. The
increased activity associated with periods of higher demand (typically
commencing late second or early third quarter and continuing well into the
fourth quarter) causes an excess of customer billings over customer collections.
This cyclical growth in customer receivables consumes available cash.

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Cash used in investing activities for the three and nine months ended
September 30, 2020 was $8 million and $36 million as compared with $15 million
and $36 million in the same periods of 2019, primarily for capital expenditures.
Capital expenditures in the three and nine months ended September 30, 2020 was
primarily related to continuing investments in building and leasehold
improvements and technology and facilities equipment. Capital expenditures in
the nine months ended September 30, 2020 also included our purchase of a
less-than-truckload digital online shipping platform. Total anticipated capital
expenditures in 2020 are currently estimated to be $50 million. This includes
routine capital expenditures and investments in technology.

Cash from financing activities during the three months ended September 30, 2020
was $121 million as compared with cash used in financing activities of $1
million in the same period in 2019. Cash used in financing activities during the
nine months ended September 30, 2020 was $238 million as compared with $269
million for the same period in 2019. During the three months ended September 30,
2020, we did not repurchase any common stock. During the three months ended
September 30, 2019, we used cash to repurchase 0.9 million shares of common
stock. During the nine months ended September 30, 2020, we used cash to
repurchase 4.4 million shares of common stock compared to 4.1 million in the
same period in 2019. We use the proceeds from stock option exercises, employee
stock purchases and available cash to repurchase our common stock on the open
market to limit the growth in outstanding shares.

We follow established guidelines relating to credit quality, diversification and
maturities of our investments to preserve principal and maintain liquidity.
Historically, our investment portfolio has not been adversely impacted by
disruptions occurring in the credit markets. However, there can be no assurance
that our investment portfolio will not be adversely affected in the future.

We cannot predict what further impact growing uncertainties in the global economy, political uncertainty nor the COVID-19 pandemic may have on our operating results, freight volumes, pricing, amounts advanced on behalf of our customers, changes in consumer demand, carrier stability and capacity, customers' abilities to pay or on changes in competitors' behavior.



We maintain international unsecured bank lines of credit. At September 30, 2020,
we were contingently liable for $72 million from standby letters of credit and
guarantees. The standby letters of credit and guarantees relate to obligations
of our foreign subsidiaries for credit extended in the ordinary course of
business by direct carriers, primarily airlines, and for duty and tax deferrals
available from governmental entities responsible for customs and value-added-tax
(VAT) taxation. The total underlying amounts due and payable for transportation
and governmental excises are properly recorded as obligations in the accounting
records of the respective foreign subsidiaries, and there would be no need to
record additional expense in the unlikely event the parent company is required
to perform.

As of September 30, 2020, our contractual obligations are as follows:





                                                                   Payments due by period
                                                    Less than        1 - 3         3 - 5         After
In thousands                            Total         1 year         years         years        5 years
Contractual Obligations:
Operating leases, including imputed
interest                              $ 499,331         86,689       147,136       101,332       164,174
Unconditional purchase obligations      117,101        117,101             -             -             -
Technology, equipment and
construction purchase
  obligations                            37,924         23,067        14,677            87            93

Total contractual cash obligations $ 654,356 226,857 161,813 101,419 164,267






We typically enter into short-term unconditional purchase obligations with
asset-based providers reserving space on a guaranteed basis. The pricing of
these obligations varies to some degree with market conditions. We only enter
into agreements that management believes we can fulfill. In the regular course
of business, we also enter into agreements with service providers to maintain or
operate equipment, facilities or software that can be longer than one year. We
also regularly have contractual obligations for specific projects related to
improvements of our owned or leased facilities and information technology
infrastructure.

Our foreign subsidiaries regularly remit dividends to the U.S. parent company
after evaluating their working capital requirements and funds necessary to
finance local capital expenditures. In some cases, our ability to repatriate
funds from foreign operations may be subject to foreign exchange controls. At
September 30, 2020, cash and cash equivalent balances of $567 million were held
by our non-United States subsidiaries, of which $13 million was held in banks in
the United States. Earnings of our foreign subsidiaries are not considered to be
indefinitely reinvested outside of the United States.

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