Item 1. BUSINESS

Overview

Expeditors International of Washington, Inc. ("Expeditors” or “the Company") provides a full suite of global logistics services, offering customers a seamless international network of people and integrated information systems to support the movement and strategic positioning of goods. As a third party logistics provider, Expeditors purchases cargo space from carriers (including airlines and ocean shipping lines) on a volume basis and resells that space to its customers. The Company does not compete for overnight courier or small parcel business and it does not own aircraft or steamships.

The Company provides a broad range of customer solutions, such as order management, time-definite transportation, warehousing and distribution, temperature-controlled transit, cargo insurance, and customized logistics solutions. In addition, the Company's Project Cargo unit handles special project shipments that move via a single method or combination of air, ocean, and/or ground transportation and generally require a high level of specialized attention because of the unusual size or nature of what's being shipped.

Expeditors' primary services include:

•	Airfreight Services

•	Ocean Freight and Ocean Services

•	Customs Brokerage and Other Services

Airfreight Services: Within airfreight, Expeditors typically acts either as a freight consolidator or as an agent for the airline that carries the shipment. Whether acting as a consolidator or agent, Expeditors offers its customers routing expertise, familiarity with local business practices, knowledge of export and import documentation and procedures, the ability to arrange for ancillary services and assistance with space availability in periods of peak demand.

Solutions within Airfreight Services include:

Air Freight Consolidation: as an air freight consolidator, Expeditors purchases cargo space from airlines on a volume basis and resells that space to its customers at lower rates than what those customers could negotiate directly from the airlines on an individual shipment. Expeditors determines the routing, consolidates shipments bound for a particular airport distribution point, and then selects the airline for transportation to the distribution point, where either the Company or one of its agents then arranges for the consolidated lot to be broken down into its component shipments and for the transportation of each individual shipment to its final destination.

Air Freight Forwarding: as a freight forwarder, Expeditors receives and forwards individual, unconsolidated shipments as the agent of the airline that carries the shipment.

Ocean Freight and Ocean Services: Within ocean freight services, Expeditors offers three basic services: ocean freight consolidation, direct ocean forwarding, and order management:

Ocean Freight Consolidation: as an ocean freight consolidator, Expeditors contracts with ocean shipping lines to obtain transportation for a fixed number of containers between various points during a specified time period at an agreed rate. The Company handles both full container loads as well as Less-than Container Load (LCL) freight, charging lower rates than what is available directly from the shipping lines. The Company also generates fees for ancillary services such as shipping and customs documentation, packing, crating, insurance services, negotiation of letters of credit, and the preparation of documentation to comply with local export laws.

Direct Ocean Forwarding: when a customer contracts directly with the steamship line, Expeditors acts as that customer’s agent and may receive a commission from the steamship line in addition to handling fees from the customer.

Order Management: the Company provides a range of order management services, collecting fees from the shipper in addition to generating fees for meeting specific customer needs. Through Expeditors’ order management, the Company consolidates cargo from many suppliers in a particular origin into the fewest possible number of containers, putting more product in larger and fewer containers to maximize space and minimize cost.

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Customs Brokerage and Other Services: Expeditors offers a range of custom solutions, including:

Customs Brokerage Services: as a customs broker, Expeditors helps importers clear shipments through customs by preparing required documentation, calculating and paying duties and other taxes on behalf of the importer, arranging for any required inspections by governmental agencies, and arranging for delivery.

Transcon: through its Transcon unit, Expeditors offers multi-modal shipping services via air and/or ocean combined with ground transport. Such services can also include specialty handling services, such as so-called “white glove” attention for shipments that require special handling.

Warehousing and Distribution Services: Expeditors’ distribution and warehousing services include distribution center management, inventory management, order fulfillment, returns programs and order level services.

Revenues and Net Revenues

The following charts show the Company's 2015 revenues and net revenues (a non-GAAP measure calculated as revenues less directly related operating expenses) by service type:

The Expeditors Network

Beginning in 1981, the Company’s primary business focus was on airfreight shipments from Asia to the United States and related customs brokerage and other services. In the mid-1980’s, Expeditors began to expand its service capabilities in airfreight, ocean freight and distribution services. Today the Company has over 15,000 employees that provide a complete range of global logistics services to a diversified group of customers, both in terms of industry specialization and geographic location. As opportunities for profitable growth arise, the Company plans to create new offices. While Expeditors has historically expanded through organic growth, the Company has also been open to growth through acquisition of, or establishing joint ventures with, existing agents or others within the industry.

At January 31, 2016, Expeditors, including its majority-owned subsidiaries, is organized functionally in geographic operating segments and operates full service offices in the regions identified below. Full service offices have also been established in locations where the Company maintains unilateral control over assets and operations and where the existence of the parent-subsidiary relationship is maintained by means other than record ownership of voting stock.

The Company operates 185 full service offices in the following geographic areas of responsibility:

•	Americas (73)

•	North Asia (23)

•	South Asia (17)

•	Europe (50)

•	Middle East, Africa and India (22)

The Company also maintains sales and satellite offices which are aligned with and dependent on one or more full service offices. Additionally, the Company contracts with independent agents to provide required services and has established 46 such relationships world-wide.

For information concerning the amount of revenues, net revenues, operating income, identifiable assets, capital expenditures, depreciation and amortization and equity attributable to the geographic areas in which the Company conducts its business, see Note 10 to the consolidated financial statements.

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Strategic Initiatives

In 2015, Expeditors implemented key strategic initiatives that were developed in late 2014 by the Company’s executive team. Those operational initiatives are focused and aligned to achieve long-term earnings per share growth.

The strategic plan is to grow business by focusing 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 of its focused priorities; on the targeted accounts within those markets; and on ways that the Company can continue to differentiate itself from its competitors.

The Company continues to be focused on growth based on four key strategic initiatives:

1.	Ensure that every operating unit's base-line growth strategies for air, ocean and customs services grow at the rate of each unit's (i.e. district or region) relevant market growth rate (the Company’s Transcon and Distribution services are expected to maintain higher growth rates).

2.	Align and integrate the Company’s European-Asian Pacific and European-North Americas interests to the same degree that its Asian Pacific and Americas interests have historically been aligned. This alignment is expected to result in additional growth in these markets beyond the base-line growth expectations.

3.

Leverage the Company’s long and deeply entrenched presence in various Asian export markets - as well as the reputation that Expeditors has with the strategic carriers servicing those markets - to create a stronger Asian import presence, while concentrating and enhancing export capabilities in key strategic lanes, particularly into and out of China and Southeast Asia. This is expected to create additional product growth opportunities in those markets, which have not historically been a particular focus for the Company.

4.	Expand market share growth and position in North America, traditionally Expeditors’ most strategic market.

In addition, the Company also has implemented four “enabling” initiatives, which, while also strategic in scope, are highly tactical in support of the main four strategic initiatives:

A.	Align information technology (IT) resources to support global strategy.

B.	Refine risk management functions to effectively manage barriers to address customers' evolving requests related to terms and conditions.

C.	Develop and align global procurement strategies to optimize and leverage total cost of ownership in support of global strategic initiatives.

D.

Create an acquisition strategy that will identify and assess desirable acquisitions within a framework supported by Expeditors traditional acquisition methodologies and philosophies. Historically the Company has made acquisitions to obtain technology and specialized industry expertise that it did not have and that could be leveraged to benefit the entire network. The Company also has selectively acquired agents and, on occasion, key service providers.

Globally Consistent Information Systems Built Specifically for Logistics

Expeditors has long believed it a competitive advantage to maintain a globally consistent IT system designed and built by logistics professionals for logistics professionals. The Company’s IT systems were built on a foundation that dictated consistency and uniformity across the Expeditors global network for scalability. The Company’s systems were designed on a decentralized basis, so that an interruption in one office or location would likely not debilitate the abilities of the entire network, or even a significant sub-part of the network.

Expeditors’ IT systems were designed, coded, tested and implemented by the collaborative efforts of the Company’s own logistics industry professionals and own staff. Building and maintaining internal system capabilities is in keeping with Expeditors' long-held belief that the Company not outsource its core functions, with information systems being one of those core functions.

Expeditors is not dependent on third parties for upgrades or modifications to its systems, whether to address Company needs or those of its customers, even as the Company is constantly engaged in enhancing and improving its systems. Expeditors also believes that having a single, uniform, globally-connected system providing comprehensive visibility creates great efficiency and great value, particularly in this era when the value of data, and the ability to provide timely visibility to that data in a consistent and reliable format, is increasingly important.

Organic Versus Acquired Growth

As a knowledge-based global provider of logistics services, Expeditors has often concluded over the course of its history that it is better to grow organically rather than by acquisition. The Company’s two primary strategies for expansion are to open offices in response to client requests, and to expand through joint-ventures with agents. When the Company has made acquisitions, it has generally been to obtain technology, geographic coverage and specialized industry expertise that it was lacking, and that could be leveraged to benefit the Company’s entire network. Nevertheless, despite its history of organic growth, Expeditors is not opposed to acquisitions and will continue to identify and assess desirable acquisitions.

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Tailored Solutions and Targeted Marketing

As a non-asset based organization, Expeditors has considerable flexibility in managing its customers' supply chains. Because of its relationships with local suppliers and global air and ocean partners, Expeditors is able to provide each of its customers with routing and pricing expertise. The Company’s logistics solutions are tailored to each of its customer’s individual business needs, from order inception through order delivery. Although the domestic importer typically chooses a logistics company and services for what’s being shipped, the foreign shipper may also be involved in the selection process. Accordingly, Expeditors targets its marketing to reach both domestic importers and their overseas suppliers.

Because Expeditors is in the business of optimizing its customers’ supply chains, the Company focuses its marketing to reach professionals in logistics, international and domestic transportation, customs, compliance and purchasing departments of existing and potential customers. The district manager of each office is responsible for marketing, sales coordination, and operations in the area in which he or she is located. All employees are responsible for customer service and retention.

Leveraging Global, Regional and Local Expertise

Expeditors staffs its offices largely with managers and other key personnel who are citizens of the nations in which they operate and who have extensive experience in global logistics. Marketing and customer service staffs are responsible for marketing and selling Expeditors’ services directly to customers and prospects who may select or influence the selection of logistics service providers and for ensuring that customers receive timely and efficient service. The Company believes that this regional expertise in supplying solutions customized to the needs of its customers, its emphasis on coordinating the origin and destination of customer service and marketing activities, and its incentive-based compensation program that rewards employees based on the performance of the operations they control have been important elements of the Company’s success.

What Expeditors Ships

The goods that Expeditors handles are generally a function of the products that dominate international trade between any particular origin and destination. Shipments of computers and components, electronic and consumer goods, medical equipment, pharmaceutical products, retail goods, automotive parts, aviation parts, industrial equipment and oil and energy equipment comprise a significant percentage of Company business. The typical import customer includes retailers and distributors of consumer electronics, department store chains, clothing and shoe wholesalers, and high-tech, industrial and automotive manufacturers. Expeditors also has established industry vertical teams throughout its network to focus on aviation and aerospace, healthcare, oil and energy, and retail and fashion. Historically, no single customer has accounted for five percent or more of Company net revenues.

Expeditors Services in Detail

The following describes in more detail the operations of each of Expeditors’ services:

Airfreight Services

Airfreight services accounted for approximately 41 percent of total Company revenues and 34 percent of total net revenues in each of the last three years. When performing airfreight services, Expeditors typically acts either as a freight consolidator or as an agent for the airline that carries the shipment. When acting as a freight consolidator, Expeditors purchases cargo space from airlines on a volume basis and resells that space to its customers at lower rates than they could obtain directly from airlines on an individual shipment. Expeditors issues a House Airway Bill (HAWB) to its customers as the contract of carriage and separately receives a Master Airway Bill from the airline when the freight is physically tendered. When moving shipments between points where the nature or volume of business does not facilitate consolidation, Expeditors receives and forwards individual shipments as the agent of the airline which carries the shipment. Whether acting as a consolidator or agent, Expeditors offers its customers knowledge of optimum routing, familiarity with local business practices, knowledge of export and import documentation and procedures, the ability to arrange for ancillary services, and assistance with space availability in periods of peak demand.

In its airfreight operations, Expeditors receives shipments from its customers, determines the routing, consolidates shipments bound for a particular airport distribution point, and selects the airline for transportation to the distribution point. At the distribution point, Expeditors or its agent arranges for the consolidated lot to be broken down into its component shipments and for the transportation of the individual shipments to their final destinations.

The Company estimates that its average airfreight consolidation weighs approximately 2,800 pounds and that a typical consolidation includes merchandise from several shippers. Because shipment by air is relatively expensive compared with ocean transportation, air shipments are generally characterized by a high value-to-weight ratio, the need for rapid delivery, or both.

At the origin, the Company typically delivers shipments from one of its warehouses to the airline after consolidating the freight into containers or onto pallets. Normally that shipment will then arrive at the destination distribution point within forty-eight hours from the point of origin. During peak shipment periods, cargo space available from the scheduled air carriers can be limited and backlogs of freight shipments may occur. When these conditions exist, Expeditors may charter aircrafts to meet customer demand.

Expeditors consolidates individual shipments based on weight and volume characteristics in cost-effective combinations. Typically, as the weight or volume of a shipment increases, the cost per pound/kilo or cubic inch/centimeter charged by the Company decreases. The rates charged by airlines also generally decrease as the weight or volume of the shipment increases. As a result, by aggregating shipments and presenting them to an airline as a single shipment, Expeditors is able to obtain a lower rate per pound/kilo or cubic inch/centimeter than what is charged for an individual shipment, while generally offering the customer a lower rate than could be obtained from the airline for an unconsolidated shipment.

Expeditors’ airfreight net revenues for a consolidated shipment include the differential between the rate that the airline charges the Company and the rate that Expeditors, in turn, charges to its customers, commissions paid to the Company by the airline carrying the freight and fees for ancillary services. Such ancillary services Expeditors provides include preparation of shipping and customs documentation, packing, crating, insurance services, negotiation of letters of credit, and the preparation of documentation to comply with local export laws. When Expeditors acts as an agent for an airline handling an unconsolidated shipment, its net revenues are primarily derived from commissions paid by the airline and fees for ancillary services paid by the customer.

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Expeditors' management believes that owning aircraft would subject the Company to undue business risks, including large capital outlays, increased fixed operating expenses, volatile fuel prices, problems of fully utilizing aircraft and competition with its service providers - the airlines. Because Expeditors relies on commercial airlines to transport its shipments, its business may be adversely affected by changes in carrier financial stability, policies and practices such as pricing, payment terms, scheduling, capacity and frequency of service.

Although airline profitability has improved over the last two years, many air carriers remain highly leveraged with debt. Carriers continue to merge and consolidate operations and reduce available capacity to improve financial results. Some airlines have significantly reduced their reliance on cargo-only aircraft to service their airfreight customers, as high technology consumer products companies continue to decrease the size and weight of shipments, and many of the Company's customers, focus on improving supply-chain efficiency, seek to reduce overall logistics costs by negotiating lower rates and utilizie ocean freight whenever possible. The reduction in capacity allows asset-based carriers to raise rates in the face of declining or stable demand. When fewer planes are flying, the Company has fewer shipping options from which to craft service offerings for its customers. The combination of reduced capacity, higher rates and less frequent flights could challenge the Company’s ability to maintain historical unitary profitability.

Declines in fuel prices did not significantly impact airfreight buy and sell rates in 2014. However, in 2015 airfreight customers began to seek reductions in rates related to lower fuel prices and currently carriers are incorporating the lower fuel rates into their pricing structures. There continues to be uncertainty as to how future buy rates will be impacted by continuing volatility in fuel prices due to a number of factors. Because fuel is an integral part of carriers' costs and impacts the Company's buy and sell rates, Expeditors would expect its airfreight revenues and costs to be impacted as carriers adjust rates for the impact of changing fuel prices. The Company would not expect an adverse effect on airfreight net revenues resulting from any changes in fuel prices.

Ocean Freight and Ocean Services

Ocean freight services accounted for approximately 33 percent of the Company's total revenues and 25 percent of total net revenues in each of the past three years. The Company operates Expeditors International Ocean, Inc. (EIO), an Ocean Transportation Intermediary, sometimes referred to as a Non-Vessel Operating Common Carrier (NVOCC) which specializes in ocean freight services in most major trade lanes in the world. EIO also provides service, on a smaller scale, to and from any location where the Company has an office or agent. Ocean freight services are comprised of three basic services: ocean freight consolidation (EIO), direct ocean forwarding and order management.

Ocean freight consolidation: As an NVOCC, EIO contracts with ocean shipping lines to obtain transportation for a fixed number of containers between various points during a specified time period at an agreed rate. EIO provides full container load services to companies that need flexibility and access to vessel capacity that they may not necessarily achieve by dealing directly with the shipping lines. Additionally, EIO supports customers that prefer to supplement their carrier strategy with an NVOCC. EIO also leverages the Expeditors global gateway network for the movement of LCL freight for customers needing to ship smaller consignments via ocean. The Company issues a House Ocean Bill (HOBL) or a House Seaway Bill to customers as the contract of carriage and receives a separate Master Ocean Bill of Lading (MOBL) when freight is physically tendered. Revenues from fees charged to customers for ancillary services that the Company may provide include the preparation of shipping and customs documentation, packing, crating, insurance services, negotiation of letters of credit, and the preparation of documentation to comply with local export laws.

Direct ocean forwarding: When the customer contracts directly with the steamship line, the Company acts as an agent of the customer and derives its revenues from commissions paid by the steamship line and handling fees paid by the customer. In such arrangements, the Company does not issue an HOBL or House Seaway Bill. Rather, the carrier issues a MOBL directly to the customer who employs the Company to create documentation, manage shipment information and arrange various services to facilitate the shipment of goods. The MOBL shows the customer as the shipper.

Order management: Order management provides services that manage origin consolidation, supplier performance, carrier allocation, carrier performance, container management, document management, destination management and PO/SKU visibility through a web-based application. Customers have the ability to monitor and report against near real-time status of purchase orders from the date of creation through final delivery. Item quantities, required ship dates, commodity descriptions, estimated vs. actual ex-factory dates, container utilization, and document visibility are many of the managed functions that are visible and reportable via the web. Order management is available for various modes of transportation, including ocean, air, truck and rail. Order management revenues are derived from services provided to the shipper, as well as management fees associated with managing purchase order execution against customer specific rules. One basic function of order management involves arranging cargo from many suppliers in a particular origin and “consolidating” these shipments into the fewest possible number of containers to maximize space utilization and minimize cost. Through origin consolidation, customers can reduce the number of containers shipped by putting more product in larger and fewer containers.

Ocean carriers incurred substantial operating losses in recent years, and many are highly leveraged with debt. While the overall global volumes have increased slightly over recent years, many carriers continue to take delivery of new ships, which creates excess capacity. This excess capacity causes most carriers to redeploy ships and modify sailing schedules to improve financial results. The potential combination of reduced sailing schedules and pricing volatility could impact the Company’s ability to maintain historical unitary profitability.

Recent declines in oil prices have been reflected in both the buy and sell rates for ocean freight via a surcharge known as the Bunker Adjustment Factor. This surcharge in the industry fluctuates with the cost of the bunker fuel and is added to base ocean freight charges. The Company would not expect an adverse effect on ocean freight net revenues resulting from changes in oil prices.

Customs Brokerage and Other Services

Customs brokerage and other services accounted for approximately 26 percent of the Company's total revenues and 41 percent of total net revenues in each of the past three years. As a customs broker, Expeditors assists importers to clear shipments through customs by preparing required documentation, calculating and providing for payment of duties and other taxes on behalf of the importer, arranging for any required inspections by governmental agencies, and arranging for delivery. Changing regulations, the commodities being cleared and the time sensitive nature of the brokerage business require the Company to continue to make enhancements to its systems in order to provide competitive service. Expeditors provides customs clearance services in connection with many of the shipments it handles in its transportation services. However, substantial customs brokerage revenues are derived from customers that elect to use a competitor for transportation services. Conversely, shipments handled by the Company may be processed by another customs broker selected by the customer.

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Expeditors also provides other value added services at destination, such as warehousing and distribution, time-definite transportation services (Transcon) and consulting services, none of which are currently individually significant to the Company’s total revenues and net revenues. Expeditors' distribution and warehousing services include distribution center management, inventory management, order fulfillment, returns programs and order level services. Transcon is a multi-modal product, which offers time-definite, intra-continental transportation solutions, often by ground and other specialty handling services. The Company’s wholly-owned subsidiary, Expeditors Tradewin, L.L.C., responds to customer driven requests for customs consulting services. Fees for these non-transactional services are based upon hourly billing rates and bids for mutually agreed projects.

Competition

The global logistics services industry is intensely competitive and is expected to remain so for the foreseeable future. There are a large number of companies competing in one or more segments of the industry, but the number of firms with a global network that offer a full complement of logistics services is more limited. Further, there are new technology-based competitors entering the industry. Many of these competitors have significantly more resources than Expeditors. Depending on the location of the shipper and the importer, 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 competitors still maintain a strong market presence in certain areas.

The primary competitive factors in the global logistics services industry continue to be price and quality of service, including reliability, responsiveness, expertise, convenience, and scope of operations. Expeditors emphasizes quality customer service and believes that its prices are competitive with the prices of others in the industry. Larger customers utilize the services of multiple logistics providers and implement more sophisticated and efficient procedures for the management of their logistics supply chains by embracing strategies such as just-in-time inventory management. Accordingly, timely and accurate information integrated into customer service capabilities are a significant factor in attracting and retaining customers. This information integrated into customer service capabilities includes customized Electronic Data Interchange (EDI), on-line freight tracing and tracking applications and customized reporting. Customized EDI applications allow the transfer of key information between customers’, service providers' and Expeditors' systems. Freight tracing and tracking applications provide customers with near real-time visibility to the location, transit time and estimated delivery time of inventory in transit.

Expeditors' management believes that the ability to develop and deliver innovative solutions to meet its customers’ increasingly sophisticated information requirements is a critical factor in its ongoing success. The Company devotes a significant amount of resources towards the maintenance and enhancement of systems that currently meet these customer demands. Management believes that the Company’s existing systems are competitive with the systems currently in use by other logistics services companies with which it competes.

Unlike many of its competitors, who have tended to grow by merger and acquisition, Expeditors operates the same transportation and accounting computer software, running on a common hardware platform, in all of its full-service locations. Small and middle-tier competitors, in general, do not have the resources available to develop these customized systems. Historically, growth through aggressive acquisition has proven to be a challenge for many of the Company’s competitors and typically involves the purchase of significant “goodwill.” As a result, Expeditors has pursued a strategy emphasizing organic growth supplemented by certain strategic acquisitions.

The Company’s ability to attract, retain, and motivate highly qualified personnel with experience in global logistics services is an essential, if not the most important, element of its ability to compete in the industry. To this end, the Company has adopted incentive compensation programs that make percentages of an operating unit's net revenues or profits available to managers for distribution among key personnel. Expeditors believes that these incentive compensation programs, combined with its experienced personnel and its ability to coordinate global marketing efforts, provide a distinct competitive advantage.

Currency and Dependence on Service Providers

The nature of the Company’s worldwide operations necessitates that it transacts in a multitude of currencies other than the U.S. dollar. This exposes Expeditors to the inherent risks of volatile international currency markets and governmental interference. Some of the countries where Expeditors maintains offices and/or agency relationships have strict currency control regulations that influence the Company’s ability to hedge foreign currency exposure. The Company tries to compensate for these exposures by accelerating international currency settlements among its offices or agents.

In addition, the Company’s ability to provide services to its customers is highly dependent on good working relationships with a variety of entities, including airlines, ocean steamship lines, ground transportation providers and governmental agencies. Expeditors considers its current working relationships with these entities to be satisfactory. However, changes in the financial stability and operating capabilities and capacity of asset-based carriers, space allotments available from carriers, governmental regulation or deregulation efforts, modernization of the regulations governing customs brokerage, and/or changes in governmental restrictions, quota restrictions or trade accords could affect Expeditors' business in unpredictable ways.

Seasonality

Historically, the Company’s operating results have been subject to seasonal trends, with the first quarter being the weakest and the third and fourth quarters being the strongest; however, there is no assurance that this seasonal trend will occur in the future. This pattern has been the result of, or influenced by, numerous factors, including weather patterns, national holidays, consumer demand, new product launches, economic conditions and a myriad of other similar and subtle forces. The Company cannot accurately forecast many of these factors, nor can Expeditors 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.

Environmental

In the United States, the Company is subject to Federal, state and local provisions regulating the discharge of materials and emissions into the environment or otherwise for the protection of the environment. Similar laws apply in many other jurisdictions in which the Company operates. Although current operations have not been significantly affected by compliance with these environmental laws, governments, service providers and customers are becoming increasingly sensitive to environmental issues, and the Company cannot predict what impact future environmental regulations may have on its business. The Company does not anticipate making any material capital expenditures for environmental control purposes during 2016.

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Employees

At December 31, 2015, the Company employed 15,397 people as follows:

•	North America 5,655

•	Europe 2,685

•	North Asia 2,464

•	South Asia 1,323

•	Middle East, Africa and India 1,417

•	Latin America 796

•	Information Systems 741

•	Corporate 316.

The Company is not a party to any collective bargaining agreement and considers its relations with its employees to be satisfactory.

In order to retain the services of highly qualified, experienced, and motivated employees, the Company places considerable emphasis on its non-equity incentive compensation programs.

Other Information

Expeditors International of Washington was incorporated in the State of Washington in May 1979. The Company's executive offices are located at 1015 Third Avenue, 12thFloor, Seattle, Washington, and its telephone number is (206) 674-3400.

The Company’s Internet address is http://www.expeditors.com. Expeditors makes available free of charge through its Internet website the Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC). The information contained on or accessible through the Company's website is not a part of this Annual Report on Form 10-K.

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Executive Officers of the Registrant

The following table sets forth the names, ages, and positions of current executive officers of the Company.

Name		Age		Position
Jeffrey S. Musser		50		President, Chief Executive Officer and Director
Philip M. Coughlin		55		President, Global Geographies and Operations
Daniel R. Wall		47		President, Global Products
Eugene K. Alger		55		President, Global Services
Bradley S. Powell		55		Senior Vice President and Chief Financial Officer
Christopher J. McClincy		41		Senior Vice President and Chief Information Officer
Benjamin G. Clark		47		Senior Vice President, General Counsel and Corporate Secretary

Jeffrey S. Musser joined the Company in February 1983 and was promoted to District Manager in October 1989. Mr. Musser was elected to Regional Vice President in September 1999, Senior Vice President-Chief Information Officer in January 2005 and to Executive Vice President and Chief Information Officer in May 2009. On December 19, 2013, Mr. Musser was appointed as President and Chief Executive Officer succeeding Peter J. Rose as Chief Executive Officer effective March 1, 2014 and was elected by the Board of Directors as a director effective March 1, 2014.

Philip M. Coughlin joined the Company in October 1985 and was promoted to District Manager in August 1986. Mr. Coughlin was elected Regional Manager in January 1991, Regional Vice President in January 1992, Senior Vice President of North America in September 1999 and to Executive Vice President-North America in March 2008. In June 2014, Mr. Coughlin was promoted to President, Global Geographies and Operations.

Daniel R. Wall joined the Company in March 1987, and was promoted to District Manager in May 1992 and Global Director-Account Management in March 2002. Mr. Wall was elected Vice President-ECMS in January 2004 and Senior Vice President-Ocean Services in September 2004. In June 2015, Mr. Wall was appointed as President, Global Products.

Eugene K. Alger joined the Company in October 1981 and was promoted to District Manager in May 1982, Mr. Alger was elected Regional Vice President in January 1992, Senior Vice President of North America in September 1999 and to Executive Vice President-North America in March 2008. In June 2014, Mr. Alger was promoted to Executive Vice President-Global Services. In August 2015, Mr. Alger was promoted to President, Global Services.

Bradley S. Powell joined the Company as Chief Financial Officer in October 2008 and was elected Senior Vice President and Chief Financial Officer in February 2012. Prior to joining the Company, Mr. Powell served as President and Chief Financial Officer of Eden Bioscience Corporation, a publicly-traded biotechnology company, from December 2006 to September 2008 and as Vice President and Chief Financial Officer from July 1998 to December 2006.

Christopher J. McClincy joined the Company in July 1998 and was promoted to Vice President-Information Services in April 2009. In February 2014, Mr. McClincy was promoted to Senior Vice President and Chief Information Officer.

Benjamin G. Clark joined the Company in February 2015 as Senior Vice President and General Counsel and was appointed Corporate Secretary in May 2015. Preceding Expeditors, Mr. Clark served as Executive Vice President and General Counsel of the Dematic Group, a global provider of intelligent intralogistics and materials handling solutions. Prior to his experience with Dematic, Mr. Clark spent four years as the Vice President and Deputy General Counsel for the publicly traded Celanese Corporation, a global technologies and specialty materials company. From 2002 to 2009 Mr. Clark worked for Honeywell International, Inc., where he held progressively responsible roles concluding as the Vice President and General Counsel, Aerospace Global Operations.

Regulation and Security

With respect to activities in the air transportation industry in the United States, the Company is subject to regulation by the Transportation Security Administration (TSA) of the Department of Homeland Security as an indirect air carrier. All United States indirect air carriers are required to maintain prescribed security procedures and are subject to periodic audits by TSA. Expeditors' overseas offices and agents are licensed as airfreight forwarders in their respective countries of operation. Expeditors is licensed in each of its offices, or in the case of its newer offices, the Company has applied for a license as an airfreight forwarder from the International Air Transport Association (IATA). IATA is a voluntary association of airlines and air transport related entities that prescribes certain operating procedures for airfreight forwarders acting as agents for its members. The majority of the Company’s airfreight forwarding business is conducted with airlines that are IATA members.

Expeditors is licensed as an Ocean Transportation Intermediary (OTI) (sometimes referred to as an NVOCC) by the Federal Maritime Commission (FMC). The FMC has established certain qualifications for shipping agents, including certain surety bonding requirements. The FMC is also responsible for the economic regulation of OTI/NVOCC activity originating or terminating in the United States. To comply with these economic regulations, vessel operators and NVOCCs, such as EIO, are required to file tariffs electronically which establish the rates to be charged for the movement of specified commodities into and out of the United States. The FMC has the power to enforce these regulations by assessing penalties.

Expeditors is licensed as a customs broker by the Customs and Border Protection (CBP) agency of the Department of Homeland Security nationally and in each U.S. customs district in which the Company does business. All United States customs brokers are required to maintain prescribed records and are subject to periodic audits by CBP. In 2016, CBP is upgrading its system to the Automated Commercial Environment (ACE). Expeditors is in the process of upgrading its systems to comply with the new ACE requirements; however, there can be no assurance that there will not be resulting delays or disruptions. In other jurisdictions in which the Company performs customs clearance services, the Company is licensed by the appropriate governmental authority where such license is required to perform these services. The Company participates in various governmental supply chain security programs, such as the Customs-Trade Partnership Against Terrorism (C-TPAT) in the United States, and additional security initiatives, such as Authorized Economic Operator (AEO) programs, in various other countries.

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The Company does not believe that current United States and foreign governmental regulations impose significant economic restraint upon its business operations. In general, the Company conducts its business activities in each country through a wholly or majority-owned subsidiary corporation that is organized and existing under the laws of that country. However, the regulations of foreign governments can impose barriers to Expeditors' ability to provide the full range of its business activities in a wholly or majority United States-owned subsidiary. For example, foreign ownership of a customs brokerage business is prohibited in some jurisdictions and less frequently the ownership of the licenses required for freight forwarding and/or freight consolidation is restricted to local entities. When Expeditors encounters this sort of governmental restriction, the Company works to establish a legal structure that meets the requirements of the local regulations while also providing the substantive operating and economic advantages that would be available in the absence of such regulation. This can be accomplished by creating a joint venture or exclusive agency relationship with a qualified local entity that holds the required license.

The continuing global threats from terrorism, wars and governments’ overriding concern for the safety of passengers and citizens who import and/or export goods into and out of their respective countries has resulted in a proliferation of cargo security and other regulations over the past several years. Many of these regulations are complex and require varying degrees of interpretation. While these regulations have already created a marked difference in the security and other arrangements required to move shipments around the globe, regulations are expected to become more stringent in the future. As governments look for ways to minimize the exposure of their citizens to potential terror-related incidents, Expeditors and its competitors in the transportation business may be required to incorporate security and other procedures within their scope of services to a far greater degree than has been required in the past. The Company believes that increased security and other requirements may involve further investments in technology and more sophisticated screening procedures being applied to cargo, customers, vendors and employees. Expeditors' position is that any increased cost of compliance with security regulations will be passed through to those who are beneficiaries of the Company's services.

Cargo Liability

When acting as an airfreight consolidator, Expeditors assumes a carrier’s liability for lost or damaged shipments. This legal liability is typically limited by contract to the lower of the transaction value or the released value (19 Special Drawing Rights per kilo unless the customer declares a higher value and pays a surcharge), except in the absence of an appropriate airway bill or if the loss or damage is caused by willful misconduct. The airline that the Company utilizes to make the actual shipment is generally liable to the Company in the same manner and to the same extent. When acting solely as the agent of the airline or shipper, Expeditors does not assume any contractual liability for loss or damage to shipments tendered to the airline.

When acting as an ocean freight consolidator, Expeditors assumes a carrier’s liability for lost or damaged shipments. This liability is typically limited by contract to the lower of the transaction value or the released value ($500 per package or customary freight unit unless the customer declares a higher value and pays a surcharge). The steamship line that the Company utilizes to make the actual shipment is generally liable to the Company in the same manner and to the same extent. The Company does not assume liability for lost or damaged shipments in its ocean freight forwarding and customs clearance operations.

When providing ground transportation services as a carrier, Expeditors assumes a carrier’s liability for lost or damaged shipments. This liability is typically limited by contract to the lower of the transaction value or the released value (generally $0.50 per pound, although the released value can vary from country to country) unless the customer declares a higher value and pays a surcharge. The ground carrier that the Company utilizes to make the actual shipment is generally liable to Expeditors in the same manner and to the same extent.

When providing warehousing and distribution services, the Company limits its legal liability by contract and tariff to an amount generally equal to the lower of fair value or $0.50 per pound with a maximum of $50 per “lot” — which is defined as the smallest unit that the warehouse is required to track.

In certain circumstances, the Company will assume additional limited liability. Expeditors maintains cargo legal liability insurance covering claims for losses attributable to missing or damaged shipments for which the Company is legally liable. Expeditors also maintains insurance coverage for the property of others that is stored in its warehouse facilities. This insurance coverage is provided by a Vermont, U.S.-based insurance entity wholly-owned by Expeditors. The coverage is fronted and reinsured by a global insurance company. The total risk retained by Expeditors in 2015 was $5 million. In addition, the Company is licensed as an insurance broker through its subsidiary, Expeditors Cargo Insurance Brokers, Inc. and places insurance coverage for other customers.

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