Expeditors International of Washington (EXPD) 10-K risk factor changes: FY2017 vs FY2016

| Service Providers | | As a non-asset based provider of global logistics services, Expeditors depends on a variety of asset-based service providers, including air, ocean and ground freight carriers. The quality and profitability of our services depend upon effective selection, management and discipline of service providers. In recent years, many of our service providers have incurred significant operating losses and are highly leveraged with [removed: debt, and in 2016 one of the world's largest ocean carriers filed for bankruptcy.] [added: debt.] Additionally, several ocean carriers have consolidated, with the potential for more to occur in the future. Changes in the financial stability, operating capabilities and capacity of asset-based carriers and space allotment made available to Expeditors by asset-based carriers could affect us in unpredictable ways. Any combination of reduced carrier capacity, pricing volatility or more limited carrier transportation schedules could negatively impact our ability to maintain historical profitability. Expeditors' carriers are subject to increasingly stringent laws, which could directly or indirectly have a material adverse effect on our business. Future regulatory developments in the U.S. and abroad could adversely affect operations and increase operating costs in transportation industries, which in turn could increase our purchased transportation costs. If we are unable to pass such costs on to our customers, our business and results of operations could be materially adversely affected. |

| Key Personnel | | Identifying, training and retaining key employees is essential to continued growth and future profitability. Effective succession planning is an important element of our programs. Failure to ensure an effective transfer of knowledge and smooth transitions involving key employees could hinder our ability to execute on our business strategies and level of service. [removed: Senior management of Expeditors includes employees with long tenures, some of whom may elect to retire.] The loss of the services of one or more key personnel could have an adverse effect on our business. We must continue to develop and retain management personnel to address issues of succession planning. We believe that our compensation programs, which have been in place since we became a publicly traded entity, are [removed: one of] [added: among] the unique characteristics responsible for differentiating our performance from that of many of our competitors. Significant changes to compensation programs could affect our performance and ability to attract and retain key personnel. |

| Network Continuity and Cybersecurity | | As [removed: Expeditors and] [added: Expeditors,] our customers [added: and suppliers] continue to increase reliance on [removed: systems] [added: systems,] and as additional features are added, the risks also increase. Any significant disruptions to our global systems or the Internet for any reason, which could include equipment or network failures; co-location facility failures; power outages; sabotage; employee error or other actions; cyber-attacks or other security breaches; reliance on third party technology; geo-political activity or natural disasters; all of which could have a material negative effect on our results. This could include loss of revenue; business disruptions (such as the inability to timely process shipments); loss of property, including trade secrets and confidential information; legal claims and proceedings; reporting delays or errors; interference with regulatory reporting; significant remediation costs; an increase in costs to protect our systems and technology; or damage to our reputation. |

| Regulatory Environment | | Expeditors is affected by ever increasing regulations from a number of sources in the United States and in foreign locations in which we operate. Many of these regulations are complex and require varying degrees of interpretation, including those related to trade compliance, data privacy, [removed: employment] [added: employment, compensation] and [removed: competition laws] [added: competition,] and may result in unforeseen costs. In reaction to the continuing global terrorist threat, governments around the world are continuously enacting or updating security regulations. These regulations are multi-layered, increasingly technical in nature and characterized by a lack of harmonization of substantive requirements [removed: amongst] [added: among] various governmental authorities. Furthermore, the implementation of these regulations, including deadlines and substantive requirements, [removed: is] [added: can be] driven by [removed: political] [added: regulatory] urgencies rather than [removed: the industries’] [added: industry's] realistic ability to comply. Failure to consistently and timely comply with these regulations, or the failure, breach or compromise of our policies and procedures or those of our service providers or agents, may result in increased operating costs, damage to our reputation, restrictions on operations or fines and penalties. |

| 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. Nevertheless, many of these competitors have significantly more resources than Expeditors, and are actively pursuing acquisition opportunities and are developing new technologies to gain competitive advantages. Depending on the location of the shipper and the importer, we must compete against both the niche players, larger entities including carriers, and emerging technology companies. The primary competitive factors are price and quality of service. Many larger customers utilize the services of multiple logistics providers. Customers regularly solicit bids from competitors in order to improve [removed: service,] [added: service and to secure favorable] pricing and contractual terms such as [removed: seeking] longer payment terms, fixed-price arrangements, higher or unlimited liability limits and performance penalties. Increased competition and competitors' acceptance of expanded contractual terms could result in reduced revenues, reduced margins, higher operating costs or loss of market share, any of which would damage our results of [removed: operations] [added: operations, cash flows] and financial condition. |

| Taxes | | Expeditors is subject to many taxes in the United States and foreign jurisdictions. In many of these jurisdictions, the tax laws are very complex and are open to different interpretations and application. Tax authorities frequently implement new taxes and change their tax rates and rules, including interpretations of those rules. [added: In December 2017, the United States made significant changes to its tax laws, which added complexity and uncertainty in calculating corporate tax liabilities.] We are regularly under audit by tax [removed: authorities.] [added: authorities, including transfer pricing inquiries.] Although we believe our tax estimates are reasonable, the final determination of tax audits, including [removed: transfer pricing inquiries,] [added: any potential penalties and interest,] could be materially different from our tax provisions and accruals and negatively impact our financial results. |

[removed: |] 11.

| Economic Conditions | | The global economy and capital and credit markets continue to experience uncertainty and volatility. Unfavorable changes in economic conditions may result in lower freight volumes and adversely affect Expeditors' revenues and operating results, as experienced in 2009 and 2012. These conditions may adversely affect certain of our customers and [removed: services] [added: service] providers. Were that to occur, our revenues and net earnings could also be adversely affected. Should our customers’ ability to pay deteriorate, additional bad debts may be incurred. |

| Predictability of Results | | Expeditors is not aware of any accurate means of forecasting short-term customer requirements. However, long-term customer satisfaction depends upon our ability to meet these unpredictable short-term customer requirements. Personnel costs, our single largest expense, are always less flexible in the very near term as we must staff to meet uncertain demand. As a result, short-term operating results could be disproportionately affected. A significant portion of Expeditors' revenues [removed: are] [added: is] derived from customers in retail and technology industries whose shipping patterns are tied closely to consumer [removed: demand,] [added: 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, 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. Volatile market conditions can create situations where rate increases charged by carriers and other service providers are implemented with little or no advance notice. We often times cannot pass these rate increases on to our customers in the same time frame, if at all. As a result, our yields and margins can be negatively impacted, as [removed: experienced in 2012 and parts of 2013, 2014 and 2016,] [added: recently experienced,] particularly with ocean freight. |

| Catastrophic Events | | A disruption or failure of Expeditors' systems or operations in the event of a major earthquake, weather event, cyber-attack, terrorist attack, strike, civil unrest, pandemic or other catastrophic event could cause delays in providing services or performing other mission-critical functions. Our corporate [removed: headquarters,] [added: headquarters] and certain other critical business operations are in the Seattle, Washington area, which is near major earthquake faults. A catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems could harm our ability to conduct normal business operations and our operating results. |

[removed: |] 12.

| | | |

| | | |

13.

| 10.

Our services include air and ocean freight consolidation and forwarding, customs clearance, warehousing and distribution, purchase order management, vendor consolidation, time-definite transportation services, cargo [removed: insurance] [added: insurance, specialized cargo monitoring] and [added: tracking, and] other [added: customized] logistics solutions.

The difference between the rate billed to our customers (the sell rate) and the rate we pay to the carrier (the buy rate) is termed “net revenue” (a non-GAAP measure), “yield" or "margin." By consolidating shipments [added: 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.]

Each area is divided into [removed: sub-regions] [added: sub-regions,] which are composed of operating units with individual profit and loss responsibility.

Our business involves shipments between operating units and [removed: typically] [added: often] touches more than one geographic area.

The following chart shows net revenues by geographic areas of responsibility for the years ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014:][added: 2015:]

[removed: ][added: ]

North Asia is our largest export oriented region and accounted for 37% of revenues, 22% of net revenues and [removed: 34%] [added: 35%] of operating income for the year ended December 31, [removed: 2016.][added: 2017.]

We believe that our greatest challenge is now and always has been perpetuating a consistent global corporate [removed: culture] [added: culture,] which demands:

| • | Total [removed: dedication, first and foremost,] [added: dedication] to providing superior customer service; |

| • | Ongoing development of key employees and management [removed: personnel via formal and informal means;] [added: personnel;] |

| • | Individual commitment to the identification and mentoring of successors for every key position so that when [removed: inevitable] change occurs, a qualified and well-trained internal candidate is ready to step forward; and |

[removed: Over the last two years,] [added: Although] airline profitability has improved, [removed: although] many air carriers remain highly leveraged with debt.

[removed: Moreover, the ocean carrier industry has incurred substantial losses in recent years, many] [added: Many] carriers are highly leveraged with debt and certain carriers are facing significant liquidity challenges, such as those that led to the bankruptcy filing of a [removed: large ocean] [added: major] carrier that occurred in August 2016.

This [removed: situation] [added: environment] requires that we be selective in determining which carriers to utilize.

In addition to being influenced by governmental policies concerning international trade, our business may also be negatively affected by [removed: recent] 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 in which we conduct business and the future impact that these events may have on international trade and oil prices.

[removed: Consistent with continuing] [added: Our pricing and terms continue to be pressured by] uncertainty in global trade and economic conditions, concerns over volatile fuel costs, disruptions in port services, political unrest and fluctuating [added: currency exchange rates.]

[removed: |] 18.

Additionally, while [removed: the] overall global [removed: volumes have increased slightly over recent years, many] [added: demand has recently increased,] carriers continue to take delivery of new and larger ships, which [removed: has created excess] [added: creates additional] capacity.

[removed: Consequently, when] [added: When] the market experiences seasonal peaks or any sort of disruption, the carriers [removed: react by increasing] [added: often increase] their pricing [removed: as quickly as possible.][added: suddenly.]

The global economic environment and trade growth [added: have improved but] remain uncertain.

We cannot predict [removed: what] [added: the] impact [removed: this may have] [added: of future changes in global trade] on our operating results, freight volumes, pricing, changes in consumer demand, carrier stability and capacity, customers’ abilities [removed: to pay or on changes in competitors' behavior.]

Additionally, we cannot predict the direct or indirect impact that [added: further] changes in consumer purchasing behavior, such as [removed: on-line] [added: online] shopping, could have on our business.

| • | accounts receivable valuation; [added: and] |

| • | accrual of insurance liabilities for the portion of the related exposure [removed: which] [added: that] we have [removed: self-insured;] [added: self-insured.] |

| • | accrual of various tax [removed: liabilities;] [added: liabilities and contingencies;] |

| • | accrual of loss contingencies; [removed: and] |

These estimates, other than the accrual of loss [removed: contingencies,] [added: contingencies and] tax liabilities and [removed: calculation of stock-based compensation expense,] [added: contingencies,] are not highly uncertain and have not historically been subject to significant change.

The [removed: outcomes] [added: outcome] of [removed: government investigations,] [added: loss contingencies, including] legal proceedings and claims [added: and government investigations,] brought against us are subject to significant uncertainty.

An estimated loss from a [removed: contingency] [added: contingency,] such as a [removed: government investigation,] legal [removed: proceeding or] [added: proceeding,] claim [added: or government investigation,] is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated.

In determining whether a loss should be accrued, management evaluates several factors, including advice from outside legal counsel, in order to estimate the [removed: degree of probability] [added: likelihood] of an unfavorable outcome and to make a reasonable estimate of the amount of loss or range of reasonably possible loss.

As discussed in Note 1.F to the consolidated financial [removed: statements in this report,] [added: statements,] the earnings of our foreign subsidiaries are not considered to be indefinitely reinvested outside of the [removed: United States] [added: U.S.] and, accordingly, U.S. Federal and State income taxes [removed: are] [added: have historically been] provided for all undistributed earnings net of related foreign tax [removed: credits.][added: credits of our foreign subsidiaries.]

As a matter of course, Expeditors is audited by various taxing authorities, and sometimes these audits result in proposed assessments where the ultimate resolution could result in [added: significant] additional [removed: tax] [added: tax, penalties and interest] payments being required.

We establish liabilities when, despite our belief that the tax return positions are appropriate and consistent with tax law, we conclude that we may not be successful in realizing the tax [removed: benefit.][added: position.]

However, final determinations of tax [removed: liabilities] [added: liabilities, penalties and interest] could be materially different from estimates.

[removed: |] 19.

The following table shows the total net revenues (a non-GAAP measure calculated as revenues less directly related operating expenses attributable to our principal services) and our expenses for [added: 2017,] 2016, [removed: 2015,] and [removed: 2014] [added: 2015] expressed as percentages of net revenues.

[removed: |] 20.

| | | [removed: 2016] [added: 2017] | | | | | | | [removed: 2015] [added: 2016] | | | | | | | [removed: 2014] [added: 2015] | | | | | | |

| Revenues | | $ | [removed: 2,453,347] [added: 2,877,032] | | | | | | $ | [removed: 2,740,583] [added: 2,453,347] | | | | | | $ | [removed: 2,780,840] [added: 2,740,583] | | | | | |

| Expenses | | [removed: 1,752,167] [added: 2,126,761] | | | | | | | [removed: 1,987,690] [added: 1,752,167] | | | | | | | [removed: 2,103,777] [added: 1,987,690] | | | | | | |

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

We believe that our unique culture is a critical component to our continued success.

Moreover, the ocean carrier industry has incurred substantial losses in recent years.

These financial challenges have resulted in the 2016 bankruptcy of a major carrier, as well as multiple carrier acquisitions and carrier alliance formations.

to pay or on changes in competitors' behavior.

As discussed in further detail in Note 5 to the consolidated financial statements, on December 22, 2017 the U.S. enacted the Tax Cuts and Jobs Act (the 2017 Tax Act).

The 2017 Tax Act, which is also commonly referred to as “U.S. tax reform,” significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018 and creating a territorial tax system with a one-time mandatory tax on previously undistributed foreign earnings of non-U.S. subsidiaries.

Prospectively, excluding the impact of any discrete items, the provisions of the 2017 Tax Act are expected to reduce our effective tax rate compared to what the rate would have otherwise been in the absence of U.S. tax reform.

The ultimate impact on our effective tax rate will largely depend on the mix of pretax earnings that we generate in the U.S. as compared to the rest of the world.

2017 compared with 2016

Airfreight services revenues increased 17% in 2017, as compared with 2016.

This increase is attributed to tonnage growth across all segments and higher average sell rates, principally on exports out of North Asia and Europe.

We increased sell rates in response to higher buy rates caused by an overall increase in market demand.

Airfreight services expenses increased 21% in 2017 as compared with 2016, as a result of the 10% increase in tonnage and higher average buy rates due to tighter carrier capacity.

Average net revenue per kilo declined in most regions primarily due to competitive market conditions and tight carrier capacity.

Carriers in North Asia and South Asia increased pricing significantly as a result of higher demand relative to available capacity.

North America, North Asia and Europe net revenues increased 10%, 8% and 15%, respectively, due primarily to tonnage increases of 12%, 6% and 12%, respectively.

South Asia net revenues decreased 12%, despite a 12% increase in tonnage, primarily due to lower average sell rates and higher average buy rates.

Since late 2016, the global airfreight market has been experiencing imbalances between carrier capacity and demand in certain lanes, which is resulting in higher average buy rates.

Customers are increasingly utilizing airfreight to improve speed to market.

Ocean freight and ocean services expenses increased 12% in 2017 as compared with 2016, due to volume growth and higher average buy rates, resulting from overall market demand and carriers managing available capacity.

Direct ocean freight forwarding net revenues increased 6% due to higher volumes.

North America and South Asia net revenues both increased 1%, as higher volumes were largely offset by lower margins.

We expect that pricing volatility will continue as customers solicit bids and carriers adapt to changing market conditions, merge or create alliances with other carriers.

Customs brokerage and other services net revenues increased 9% in 2017, as compared with 2016, primarily as a result of an increase in customs brokerage and road freight volumes, particularly in North America and Europe.

Europe net revenues increased 12% due primarily to growth in import, road freight, and warehouse and distribution services.

Salaries and related costs increased to 55% of net revenues in 2017, as compared with 53% in 2016.

We continue to invest in additional technology and facilities, which resulted in higher rent and facilities expenses, technology-related fees and consulting costs.

These increases were offset by a $4 million gain on the sale of a property, lower claims, the favorable resolution of an indirect tax contingency of $6 million and the recovery of certain legal and related costs totaling $8 million in 2017 compared to $5 million in 2016.

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.

Other overhead expenses decreased to 15% of net revenues in 2017 from 16% in 2016.

Our consolidated effective income tax rate was 31.8% in 2017, as compared with 37.0% in 2016.

The change in the effective tax rate was principally due to recording the estimated impact of U.S. tax reform and to a lesser degree a result of a higher proportion of our total outstanding stock-based compensation expense being for non-qualified stock option grants and restricted stock units.

Total consolidated foreign income tax expense is composed of the income tax expense of our Non-US subsidiaries as well as income based withholding taxes paid by our Non-US subsidiaries on behalf its parent for intercompany payments, including the remittance of dividends.

For example our effective foreign tax rate increased from 30.9% in 2016 to 33.9% in 2017, principally due to withholding tax payments associated with dividend payments from our non-U.S. subsidiaries.

Prospectively, excluding the impact of discrete items recorded in a future reporting period and any changes recorded in 2018 to provisional 2017 income tax expense amounts as discussed in Note 5 to the consolidated financial statements, the provisions of the 2017 Tax Act are expected to reduce our annual effective tax rate to an estimated rate between 31% and 34%.

The ultimate impact on our effective tax rate will largely depend on the mix of pretax earnings that we generate in the U.S. as compared to the rest of the world and the other factors discussed above.

This $40 million decrease is primarily due to increases in accounts receivable, partially offset by higher earnings.

26.

| 16.

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.

| 17.

| | |

| --- | --- |

We believe that failure to perpetuate our unique culture on a self-sustained basis throughout our organization quite possibly provides a greater threat to our continued success than any external force, which likely would be largely beyond our control.

currency exchange rates, our pricing and terms continue to be pressured by customers, carriers and service providers.

These financial challenges have resulted in the 2016 bankruptcy of one of the larger carriers in the market, as well as multiple mergers and acquisitions, as the carriers pursue scale and market share in an effort to reduce operating costs and improve their financial results.

There is uncertainty as to how changes in oil prices will impact future buy rates.

Because fuel is an integral part of carriers' costs and impacts both our cargo space buy rates and sell rates to customers, we would expect our gross revenues and costs to be impacted as carriers adjust rates for the effect of changing fuel prices.

However, other than temporary impacts as buy and sell rates adjust to change, we would not expect an adverse effect on net revenues resulting from future movements in oil prices.

| • | accrual of costs related to ancillary services we provide; |

| • | calculation of stock-based compensation expense. |

As described in Note 1.H to the consolidated financial statements in this report, we account for stock-based compensation based on an estimate of the fair value of options granted to employees under our stock option and stock purchase rights plans.

This expense, as adjusted for expected forfeitures, is recorded on a straight-line basis over the vesting period.

Determining the appropriate option pricing model to use to estimate stock compensation expense requires judgment.

Any option pricing model requires assumptions that are subjective and these assumptions also require judgment.

Examples include assumptions about long-term stock price volatility, employee exercise patterns, pre-vesting option forfeitures, post-vesting option terminations, and future interest rates and dividend yields.

Historically, we have used the Black-Scholes model for estimating the fair value of stock options.

Management believes that the assumptions used are appropriate based upon our historical and currently expected future experience.

Looking to future events, management has been strongly influenced by historical patterns which may not be valid predictors of future developments and any future deviation may be material.

Our expected volatility assumptions are based on the historical volatility of our stock over a period of time commensurate to the expected life.

The expected life assumption is primarily based on historical employee exercise patterns and employee post-vesting termination behavior.

The risk-free interest rate for the expected term of the option is based on the corresponding yield curve in effect at the time of grant for U.S. Treasury bonds having the same term as the expected life of the option.

The expected dividend yield is based on our historical experience.

The forfeiture assumption used to calculate compensation expense is primarily based on historical pre-vesting employee forfeiture patterns.

The fair value of an option is more significantly impacted by changes in the expected volatility and expected life assumptions.

The pre-vesting forfeitures assumption is ultimately adjusted to the actual forfeiture rate.

Therefore, changes in the forfeitures assumption would not impact the total amount of expense ultimately recognized over the vesting period.

Different forfeiture assumptions would only impact the timing of expense recognition over the vesting period.

Estimated forfeitures are reassessed in subsequent periods and may change based on new facts and circumstances.

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standard Update (ASU) simplifying the accounting for stock compensation.

The ASU requires excess tax benefits and deficiencies to be recorded as an income tax expense or benefit in our consolidated statements of earnings when our stock options are exercised or canceled and for disqualifying dispositions of shares issued to employees under our employee stock purchase plan.

All tax-related cash flows are required to be reported as operating activities in our consolidated statement of cash flows.

We will adopt this ASU on a prospective basis beginning on January 1, 2017.

We have elected to continue to estimate forfeitures expected to occur in determining the amount of compensation cost to be recognized in each period.

We believe the adoption of this ASU will result in volatility in our effective tax rate and diluted earnings per share due to the recording of all of the tax effects of share-based payments in our consolidated statements of earnings.

The volatility in future periods will be dependent upon our stock price, stock option exercise and cancellation activity and the amount of disqualifying dispositions of shares purchased by our employees under our employee stock purchase plan.

Had the standard been effective in 2016 and 2015, it would have resulted in $2.7 million of additional tax expense and a $1.1 million tax benefit, respectively.

Our business often results in revenue billings issued in a country and currency [removed: which] [added: that] differs from that where the expenses related to the service are incurred.

[added: All other things being equal, an] average 10% weakening of the U.S. dollar, throughout the year ended December 31, [removed: 2016,] [added: 2017,] would have had the effect of raising operating income approximately [removed: $47] [added: $48] million.

Any such hedging activity throughout the year ended December 31, [removed: 2016,] [added: 2017,] was insignificant.

Net foreign currency [added: losses were approximately $13 million in 2017, and net currency] gains were approximately $8 million in both 2016 and [removed: 2015 and were $2 million in 2014.][added: 2015.]

We had no foreign currency derivatives outstanding at December 31, [removed: 2016] [added: 2017] and [removed: 2015.][added: 2016.]

As of December 31, [removed: 2016,] [added: 2017,] we had [removed: $11] [added: $17] million of net unsettled intercompany transactions.

At December 31, [removed: 2016,] [added: 2017,] we had [removed: cash,] cash [removed: equivalents] and [removed: short-term investments] [added: cash equivalents] of [removed: $974] [added: $1,051] million, of which [removed: $568] [added: $668] million was invested at various short-term market interest rates.

We had no long-term debt at December 31, [removed: 2016.][added: 2017.]

A hypothetical change in the interest rate of 10 basis points at December 31, [removed: 2016] [added: 2017] would not have a significant impact on our earnings.

In management’s opinion, there has been no material change in our interest rate risk exposure between [removed: 2016] [added: 2017] and [removed: 2015.][added: 2016.]

28.

All other things being equal, an

| 26.

We provide a broad range of customer solutions, such as order management, time-definite transportation, warehousing and distribution, temperature-controlled transit, cargo insurance, [added: specialized cargo monitoring] and [added: tracking, and other] customized logistics solutions.

In addition, our 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 [removed: what's] [added: what is] being shipped.

Air Freight Consolidation: as an [removed: air freight] [added: airfreight] consolidator, Expeditors purchases cargo space from airlines on a volume basis and resells that space to our customers at lower rates than what those customers could negotiate directly from the airlines on an individual shipment.

Air Freight Forwarding: as a freight forwarder, Expeditors receives and forwards individual, unconsolidated [removed: shipments as] [added: shipments, and arranges] the [removed: agent of] [added: transportation with] the airline that carries the shipment.

Ocean Freight Consolidation: as an ocean freight consolidator, Expeditors contracts with ocean shipping [removed: lines] [added: carriers] to obtain transportation for a fixed number of containers between various points during a specified time period at [removed: an agreed upon rate.][added: agreed-upon rates.]

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

The following charts show our [removed: 2016] [added: 2017] revenues and net revenues (a non-GAAP measure calculated as revenues less directly related operating expenses*) by service type:

[removed:  ][added:  ]

Today Expeditors has approximately [removed: 16,000] [added: 16,500] employees and provides a complete range of global logistics services to a diversified group of customers, both in terms of industry specialization and geographic location.

At January 31, [removed: 2017,] [added: 2018,] Expeditors, including its majority-owned subsidiaries, is organized functionally in geographic operating segments and operates district offices in the regions identified below.

We also maintain branch [removed: offices] [added: offices,] which are aligned with and dependent on one district office.

Additionally, we contract with independent agents to provide required services and have established [removed: 45] [added: 39] such relationships [removed: world-wide.][added: worldwide.]

[removed: Those operational] [added: In 2017, Expeditors continued executing key strategic] initiatives [added: that] are focused and aligned to achieve long-term earnings growth.

We [removed: are continuing our focus] [added: remain focused] on growth based on four key strategic initiatives:

Coughlin to the newly created position of Chief Strategy Officer, [removed: effective on February 28 and] reporting directly to President and Chief Executive Officer, Jeff Musser.

Mr. Coughlin's role is to [removed: establish] [added: develop] and oversee a core Strategy Group within Expeditors, comprised of current employees with a deep understanding of our products, services and technology, and external individuals with expertise in supply chain management, data and market analysis, and technology.

[added: While] Mr. Coughlin's team [removed: will be focused] [added: is responsible for all strategy development, the team's focus is] on exploring new avenues for innovation, differentiation and expansion.

We utilize a globally consistent infrastructure supporting both centralized and distributed technology strategies that incorporate [added: security,] disaster recovery and high availability.

Internally [removed: developing and] [added: developing,] maintaining [added: and enhancing] technology capabilities is in keeping with Expeditors' long-held belief that it not outsource core functions, with information systems being one of those core functions.

Nevertheless, despite our history of organic growth, we are not opposed to acquisitions and we will continue to identify and assess [removed: desirable] [added: potential] acquisitions.

[removed: Expeditors defines strategy, processes, technology and compliance that are] [added: That is further] supported and executed at all levels with dedicated account management [removed: personnel] [added: personnel,] coupled with regional and local expertise.

We believe that this regional and local expertise in supply chain solutions, tailored to the needs of our customers, [added: and] our emphasis on exceptional customer [removed: service] [added: service,] along with our incentive-based compensation program that rewards employees based on the performance of the operations they control, have been important elements of our success.

We believe this balanced approach between corporate, regional, and local expertise enables us to [removed: supply] [added: provide] solutions customized to the needs of our customers.

[removed: Expeditors] [added: Expeditors'] Services in Detail

Airfreight services accounted for approximately [removed: 40, 41] [added: 42, 40] and [removed: 42] [added: 41] percent of Expeditors' total revenues and 32, [removed: 34] [added: 32] and 34 percent of total net revenues in [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014,] [added: 2015,] respectively.

We estimate that our average airfreight consolidation weighs approximately [removed: 2,800] [added: 3,000] pounds and that a typical consolidation includes merchandise from several shippers.

Normally that shipment will then arrive at the destination distribution point within [removed: forty-eight] [added: 48] hours from the point of origin.

Our airfreight net revenues for a consolidated shipment include the differential between the rate that the airline charges Expeditors and the rate that we, in turn, charge our customers, in addition to commissions that the airline pays us and fees that we charge [added: our customers] for ancillary services.

Although airline profitability has [removed: improved over the last two years,] [added: improved,] many air carriers remain highly leveraged with debt.

[removed: 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] [added: Many] of [removed: shipments, and many] Expeditors' customers are focused on improving supply-chain efficiency, reducing overall logistics costs by negotiating lower rates and utilizing ocean freight whenever possible.

Ocean freight services accounted for approximately [removed: 32, 33] [added: 30, 32] and 33 percent of Expeditors' total revenues and [removed: 25,] [added: 24,] 25 and [removed: 23] [added: 25] percent of total net revenues in [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014,] [added: 2015,] respectively.

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 [removed: space utilization and minimize cost.]

These financial challenges have resulted in the 2016 bankruptcy of [removed: one of the larger carriers in the market,] [added: a major carrier,] as well as multiple [removed: mergers] [added: carrier acquisitions] and [removed: acquisitions,] [added: carrier alliance formations,] as the carriers pursue scale and market share in an effort to reduce operating costs and regain their financial footing.

Customs brokerage and other services accounted for approximately 28, [removed: 26] [added: 28] and [removed: 25] [added: 26] percent of Expeditors' total revenues and [removed: 43, 41 and] [added: 44,] 43 [added: and 41] percent of total net revenues in [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014,] [added: 2015,] respectively.

As a customs broker, we assist [removed: importers] in clearing shipments through customs by preparing [added: and transmitting] required [added: information and] documentation, calculating and providing for payment of duties and other taxes on behalf of the importer, arranging [removed: for any] required inspections by governmental agencies, and [removed: arranging for delivery.][added: providing delivery services.]

[removed: Expeditors' wholly-owned subsidiary,] Expeditors [removed: Tradewin, L.L.C.,] responds to customer driven-requests for trade compliance consulting [removed: services.][added: services, primarily through Tradewin.]

[removed: Many] [added: Some] of [removed: these] [added: our] competitors have significantly more resources than Expeditors.

Historically, our operating results have been subject to seasonal [added: demand] 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.

We do not anticipate making any material capital expenditures for environmental control purposes during [removed: 2017.][added: 2018.]

We have voluntarily disclosed our Scope 1 and Scope 2 emissions data to [removed: the Carbon Disclosure Project] [added: CDP] since 2010, and we are currently a member of both SmartWay and Transporte Limpio in North America.

2.

3.

| 3. | Leverage our long and deeply entrenched presence in China - as well as the reputation that we have with the strategic carriers servicing China - to build a stronger import presence. Our main focus remains on developing and integrating our customs systems, expertise and talent, and making investments that enhance and improve our import infrastructure and our ability to provide local delivery and support services in China. |

4.

Expeditors defines strategy, processes, technology and compliance at the corporate level, with input from our regional and district leadership.

5.

Carriers' financial results will continue to drive their asset acquisition and deployment strategies, which will impact airfreight pricing and capacity.

Certain customers are increasingly utilizing airfreight to improve speed to market.

We expect these trends to continue in conjunction with carriers' efforts to manage available capacity and the evolution of consumer purchasing behavior, such as online shopping.

Changes in available capacity, periods of high demand, or other market disruptions could impact our buy and sell rates and challenge our ability to maintain historical unitary profitability.

6.

space utilization and minimize cost.

We provide customs brokerage services in conjunction with transportation services or independently.

Expeditors supports regulatory compliance and visibility to the supply chain through process and system controls, technology and oversight by licensed and trained professionals.

7.

8.

Alger joined Expeditors in October 1981 and was promoted to District Manager in May 1982.

Mr. Rostan was promoted to Executive Vice President, Americas in July 2015.

9.

10.

| 1.

| 2.

In 2016, Expeditors continued executing key strategic initiatives that were developed in late 2014 by our executive team.

| 3. | Leverage our long and deeply entrenched presence in various Asian export markets - as well as the reputation that we have with the strategic carriers servicing those markets - to create a stronger Asian import presence, while concentrating and enhancing our export capabilities in key strategic lanes, particularly into and out of China and Southeast Asia. We expect this to create additional product growth opportunities in those markets, which have not historically been a particular focus for us. |

| 3.

When Expeditors acts as an agent for an airline handling an unconsolidated shipment, our net revenues are derived primarily from airline commissions and customer fees for ancillary services.

| 4.

Carriers continue to merge and consolidate operations and reduce available capacity to improve financial results.

The reduction in capacity allows asset-based carriers to raise rates in the face of declining or stable demand.

When fewer planes are flying, Expeditors has fewer shipping options from which to craft service offerings for our customers.

The combination of reduced capacity, higher rates and less frequent flights could challenge our ability to maintain historical unitary profitability.

In 2015, airfreight customers continued to seek reductions in rates related to lower fuel prices.

That trend persisted in 2016, along with carriers 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 Expeditors' buy and sell rates, we would expect our airfreight revenues and costs to be impacted as carriers adjust rates for the impact of changing fuel prices.

However, other than temporary impacts as buy and sell rates adjust to changes, we would not expect an adverse effect on airfreight net revenues resulting from any future movements in fuel prices.

Oil prices are 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.

However, other than temporary impacts as buy and sell rates adjust to changes, Expeditors would not expect an adverse effect on ocean freight net revenues resulting from future movements in oil prices.

| 5.

Changing regulations, the commodities being cleared and the time sensitive nature of the brokerage business require that we continuously enhance our systems to provide competitive service.

We provide customs clearance services in connection with many of the shipments we handle through our transportation services.

However, substantial customs brokerage revenues are derived from customers that elect to use a competitor for transportation services.

Conversely, shipments that we handle may be processed by another customs broker selected by the customer.

| 6.

| 7.

Rose as Chief Executive Officer effective March 1, 2014 and was elected by the Board of Directors as a director effective March 1, 2014.

| 8.

| 9.

As of December 31, [removed: 2016,] [added: 2017,] the amounts accrued for these claims, lawsuits, government investigations and other legal matters are not significant to our operations, cash flows or financial position.

For the fiscal year ended December 31, [removed: 2016][added: 2017]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated [removed: filer or] [added: filer,] a smaller reporting [added: company, or emerging growth] company.

See the definitions of “large accelerated filer,” “accelerated [removed: filer” and] [added: filer,”] “smaller reporting [removed: company”] [added: company,” and "emerging growth company"] in Rule 12b-2 of the Exchange Act.

The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant, based upon the closing price as of the last business day of the most recently completed second fiscal quarter ended June 30, [removed: 2016,] [added: 2017,] was approximately [removed: $8,814,080,920.][added: $10,086,694,774.]

At February 20, [removed: 2017,] [added: 2018,] the number of shares outstanding of registrant’s Common Stock was [removed: 180,120,731.][added: 176,541,563.]

Portions of the definitive proxy statement for the Registrant’s [removed: 2017] [added: 2018] Annual Meeting of Shareholders to be held on May [removed: 2, 2017] [added: 8, 2018] are incorporated by reference into Part III of this Form 10-K.

In accordance with the provisions of the Private Securities Litigation Reform Act of 1995, the Company is making readers aware that forward-looking statements, because they relate to future events, are by their very nature subject to many important risk factors [removed: which] [added: that] could cause actual results to differ materially from those contained in the forward-looking statements.

10-K 1 a201710-k.htm 10-K

| | | | | Emerging growth company | o |

| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | | | | | o |

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

Form 10-K

For the Fiscal Year Ended December 31, 2017

INDEX

| | | | |

| --- | --- | --- | --- |

| | | | |

| | | | Page |

| PART I | | | |

| | Item 1 | [Business](#s2EDEC28A57AB5A15AC85A935A1B064E3) | [2](#s2EDEC28A57AB5A15AC85A935A1B064E3) |

| | Item 1A | [Risk Factors](#sD35CDCCFB5A455669937364AF0AD5E78) | [11](#sD35CDCCFB5A455669937364AF0AD5E78) |

| | Item 1B | [Unresolved Staff Comments](#s8B456326B1E2564D8C582657DCA598CF) | [14](#s8B456326B1E2564D8C582657DCA598CF) |

| | Item 2 | [Properties](#s7AB3DE677BD154FD99011CEFC578D6CD) | [14](#s7AB3DE677BD154FD99011CEFC578D6CD) |

| | Item 3 | [Legal Proceedings](#s475CCE793AAF562E95A6B5E60B5A4D4E) | [15](#s475CCE793AAF562E95A6B5E60B5A4D4E) |

| | Item 4 | [Mine Safety Disclosures](#s5EC67B4EB82E54EF8EA217D101A63357) | [15](#s5EC67B4EB82E54EF8EA217D101A63357) |

| PART II | | | |

| | Item 5 | [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](#s97B039D1CCC858FAA3025351C31343D0) | [15](#s97B039D1CCC858FAA3025351C31343D0) |

| | Item 6 | [Selected Financial Data](#s26C7061C0C195889956A3FB459CF8092) | [17](#s26C7061C0C195889956A3FB459CF8092) |

| | Item 7 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](#s64F93A51CB4E5B9C9B721B24D6AC43BD) | [18](#s64F93A51CB4E5B9C9B721B24D6AC43BD) |

| | Item 7A | [Quantitative and Qualitative Disclosures about Market Risk](#sE875FBCEBC495CD680B478662339B6B0) | [28](#sE875FBCEBC495CD680B478662339B6B0) |

| | Item 8 | [Financial Statements and Supplementary Data](#s6C7BAE49EE31537AABF2448CC17CB39F) | [29](#s6C7BAE49EE31537AABF2448CC17CB39F) |

| | Item 9 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#sCB176DA16F6656EE85225E84D33ABF92) | [29](#sCB176DA16F6656EE85225E84D33ABF92) |

| | Item 9A | [Controls and Procedures](#s9A6200DA3D2F534F84EA0FAE3340DFA3) | [29](#s9A6200DA3D2F534F84EA0FAE3340DFA3) |

| | Item 9B | [Other Information](#s09044D6E0B0552CF955D636CD6622645) | [30](#s09044D6E0B0552CF955D636CD6622645) |

| PART III | | | |

| | Item 10 | [Directors, Executive Officers and Corporate Governance](#s7E1DB83F8AFF5679A8452AC571E5CAA7) | [30](#s7E1DB83F8AFF5679A8452AC571E5CAA7) |

| | Item 11 | [Executive Compensation](#s7E7C87966B00503CB66D32404CBDC960) | [30](#s7E7C87966B00503CB66D32404CBDC960) |

| | Item 12 | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#sDAF45D8F82B953F48B4C2F59E6165441) | [31](#sDAF45D8F82B953F48B4C2F59E6165441) |

| | Item 13 | [Certain Relationships and Related Transactions and Director Independence](#sCA23DD260DD6590D936E8E8DE5957CF6) | [31](#sCA23DD260DD6590D936E8E8DE5957CF6) |

| | Item 14 | [Principal Accounting Fees and Services](#sE7A57CDF82B65D7CA578AEABF42F51F5) | [31](#sE7A57CDF82B65D7CA578AEABF42F51F5) |

| PART IV | | | |

| | Item 15 | [Exhibits, Financial Statement Schedules](#s24D9710E82A75A25BA12BCEF58969E49) | [31](#s24D9710E82A75A25BA12BCEF58969E49) |

| | Item 16 | [Form 10-K Summary](#sFAD90717FAC35490AEFCA334E58635D9) | [34](#sFAD90717FAC35490AEFCA334E58635D9) |

| | | [Signatures](#s8F6B6183C5A0573FA1DC9C465D55C1D5) | [35](#s8F6B6183C5A0573FA1DC9C465D55C1D5) |

1.

10-K 1 a201610-k.htm 10-K

| [removed: Florida, Miami] [added: Netherlands, Amsterdam] | | Office and warehouse building |

We lease and maintain approximately [removed: 420] [added: 440] locations worldwide, of which approximately 90 are in the United States.

| Korea, Seoul | | Offices |

14.

| Korea, Seoul | | Office and warehouse |

| Netherlands, Amsterdam | | Land |

| 13.

| First | | $ | [removed: 49.56] [added: 57.35] | | | $ | [removed: 40.41] [added: 51.57] | | | First | | $ | [removed: 49.51] [added: 49.56] | | | $ | [removed: 42.17] [added: 40.41] | |

| Second | | $ | [removed: 50.63] [added: 57.75] | | | $ | [removed: 46.48] [added: 51.96] | | | Second | | $ | [removed: 49.11] [added: 50.63] | | | $ | [removed: 45.27] [added: 46.48] | |

| Third | | $ | [removed: 52.58] [added: 60.30] | | | $ | [removed: 48.41] [added: 54.32] | | | Third | | $ | [removed: 50.08] [added: 52.58] | | | $ | [removed: 43.92] [added: 48.41] | |

| Fourth | | $ | [removed: 56.37] [added: 66.01] | | | $ | [removed: 47.23] [added: 56.45] | | | Fourth | | $ | [removed: 51.80] [added: 56.37] | | | $ | [removed: 44.73] [added: 47.23] | |

There were [removed: 861] [added: 801] shareholders of record as of February 20, [removed: 2017.][added: 2018.]

In the fourth quarter of [removed: 2016,] [added: 2017,] we repurchased [removed: 621,240] [added: 778,977] shares of common stock under the Non-Discretionary Stock Repurchase Plan.

In the fourth quarter of [removed: 2016,] [added: 2017,] we repurchased [removed: 659,485] [added: 1,352,602] shares of common stock under the Discretionary Stock Repurchase Plan.

These discretionary repurchases included [removed: 159,485] [added: 355,765] shares that were made to limit the growth in the number of issued and outstanding shares resulting from stock option exercises and [removed: 500,000] [added: 996,837] shares to reduce the number of total shares outstanding.

The graph below compares Expeditors International of Washington, Inc.'s cumulative 5-Year total shareholder return on common stock with the cumulative total returns of the S&P 500 [removed: index] [added: index, the NASDAQ Transportation index,] and the NASDAQ [added: Industrial] Transportation [added: index (NQUSB2770T) as a replacement for the NASDAQ Transportation] index.

The graph assumes that the value of the investment in our common stock and in each of the indexes (including reinvestment of dividends) was $100 on [removed: 12/31/2011] [added: 12/31/2012] and tracks it through [removed: 12/31/2016.][added: 12/31/2017.]

[removed: and] the NASDAQ [added: Industrial] Transportation Index [added: and the]

[removed: ][added: ]

[removed: |] 15.

| 2017 | | | | | | | | | | 2016 | | | | | | | | |

| June 15, 2017 | $ | 0.42 | |

| December 15, 2017 | $ | 0.42 | |

| October 1-31, 2017 | | — | | | $ | — | | | — | | | 11,121,188 | |

| November 1-30, 2017 | | 574,000 | | | $ | 64.33 | | | 574,000 | | | 11,031,664 | |

| December 1-31, 2017 | | 1,557,579 | | | $ | 64.58 | | | 1,557,579 | | | 9,018,093 | |

| Total | | 2,131,579 | | | $ | 64.52 | | | 2,131,579 | | | 9,018,093 | |

The Company is making the modification to reference a specific transportation index and to source that data directly from NASDAQ.

Total return assumes reinvestment of dividends in each of the indices indicated.

NASDAQ Transportation Index.

| | | 12/12 | | | 12/13 | | | 12/14 | | | 12/15 | | | 12/16 | | | 12/17 | | |

| Expeditors International of Washington, Inc. | | $ | 100.00 | | $ | 113.52 | | $ | 116.07 | | $ | 119.12 | | $ | 142.10 | | $ | 176.08 | |

| Standard and Poor's 500 Index | | 100.00 | | | 132.39 | | | 150.51 | | | 152.59 | | | 170.84 | | | 208.14 | | |

| NASDAQ Transportation | | 100.00 | | | 133.76 | | | 187.65 | | | 162.30 | | | 193.79 | | | 248.92 | | |

| NASDAQ Industrial Transportation (NQUSB2770T) | | 100.00 | | | 141.60 | | | 171.91 | | | 132.47 | | | 171.17 | | | 218.34 | | |

16.

| 2016 | | | | | | | | | | 2015 | | | | | | | | |

| June 15, 2015 | $ | 0.36 | |

| December 15, 2015 | $ | 0.36 | |

| October 1-31, 2016 | | — | | | $ | — | | | — | | | 17,310,277 | |

| November 1-30, 2016 | | 320,106 | | | $ | 49.54 | | | 320,106 | | | 16,982,782 | |

| December 1-31, 2016 | | 960,619 | | | $ | 55.91 | | | 960,619 | | | 16,182,333 | |

| Total | | 1,280,725 | | | $ | 54.31 | | | 1,280,725 | | | 16,182,333 | |

| 14.

| | | 12/11 | | | 12/12 | | | 12/13 | | | 12/14 | | | 12/15 | | | 12/16 | | |

| Expeditors International of Washington, Inc. | | $ | 100.00 | | $ | 98.00 | | $ | 111.25 | | $ | 113.74 | | $ | 116.73 | | $ | 139.25 | |

| Standard and Poor's 500 Index | | 100.00 | | | 116.00 | | | 153.58 | | | 174.60 | | | 177.01 | | | 198.18 | | |

| NASDAQ Transportation | | 100.00 | | | 106.01 | | | 143.98 | | | 202.99 | | | 173.16 | | | 207.87 | | |

| | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | [removed: 2014] [added: 2015] | | | [removed: 2013] [added: 2014] | | | [removed: 2012] [added: 2013] | |

| Revenues | | $ | [added: 6,920,948 | | |] 6,098,037 | | | 6,616,632 | | | 6,564,721 | | | 6,080,257 | | [removed: | 5,992,215 | |]

| Net revenues1 | | $ | [added: 2,319,189 | | |] 2,164,036 | | | 2,187,777 | | | 1,981,427 | | | 1,882,853 | | [removed: | 1,835,370 | |]

| Net earnings attributable to shareholders | | $ | [added: 489,345 | | |] 430,807 | | | 457,223 | | | 376,888 | | | 348,526 | | [removed: | 333,360 | |]

| Diluted earnings attributable to shareholders per share | | $ | [added: 2.69 | | |] 2.36 | | | 2.40 | | | 1.92 | | | 1.68 | | [removed: | 1.57 | |]

| Basic earnings attributable to shareholders per share | | $ | [added: 2.73 | | |] 2.38 | | | 2.42 | | | 1.92 | | | 1.69 | | [removed: | 1.58 | |]

| Dividends declared and paid per common share | | $ | [added: 0.84 | | |] 0.80 | | | 0.72 | | | 0.64 | | | 0.60 | | [removed: | 0.56 | |]

| Cash used for dividends | | $ | [added: 150,495 | | |] 145,123 | | | 135,673 | | | 124,634 | | | 123,292 | | [removed: | 117,263 | |]

| Cash used for share repurchases | | $ | [added: 478,258 | | |] 337,658 | | | 629,991 | | | 550,781 | | | 261,936 | | [removed: | 302,414 | |]

| Working [removed: capital2] [added: capital] | | $ | [added: 1,448,333 | | |] 1,288,648 | | | 1,115,136 | | | 1,285,188 | | | 1,526,673 | | [removed: | 1,502,939 | |]

| Total [removed: assets2] [added: assets] | | $ | [added: 3,117,008 | | |] 2,790,871 | | | 2,565,577 | | | 2,870,626 | | | 2,996,416 | | [removed: | 2,942,023 | |]

| Shareholders’ equity | | $ | [added: 1,991,858 | | |] 1,844,638 | | | 1,691,993 | | | 1,868,408 | | | 2,084,783 | | [removed: | 2,027,699 | |]

| Weighted average diluted shares outstanding | | [removed: 182,704] [added: 181,666] | | | | [removed: 190,223] [added: 182,704] | | | [removed: 196,768] [added: 190,223] | | | [removed: 206,895] [added: 196,768] | | | [removed: 211,935] [added: 206,895] | |

| Weighted average basic shares outstanding | | [removed: 181,282] [added: 179,247] | | | | [removed: 188,941] [added: 181,282] | | | [removed: 196,147] [added: 188,941] | | | [removed: 205,995] [added: 196,147] | | | [removed: 210,423] [added: 205,995] | |

This Annual Report on Form 10-K for the fiscal year ended December 31, [removed: 2016] [added: 2017] contains “forward-looking statements,” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Statements including those preceded by, followed by or that include the words or phrases “will likely result”, “are expected to”, "would expect", "would not expect", “will continue”, “is anticipated”, “estimate”, “project”, [added: "provisional",] "plan", "believe", "probable", "reasonably possible", "may", "could", "should", "intends", "foreseeable future" or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Furthermore, reference is also made to other sections of this [removed: report] [added: report,] which include additional factors [removed: which] [added: that] could adversely impact Expeditors' business and financial performance.

Moreover, Expeditors operates in a very [removed: competitive] [added: competitive, complex] and rapidly changing global environment.

17.

2Adjusted for the reclassification of current deferred tax assets to a reduction of noncurrent deferred tax liabilities pursuant to the adoption of new accounting guidance in 2016.

| | | | [Reports of Independent Registered Public Accounting [removed: Firm](#sEC65C0DDEED150FEB68949136F46873D)] [added: Firm](#sB05E6A1157D55330B7A5A4BB05725F00)] | | F-1 and F-2 |

| | | | Balance Sheets as of December 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] | | F-3 |

| | | | [Statements of Earnings for the Years Ended December 31, [removed: 201](#s574C97DF7E5B553B8AA3C47C733CE200)6, 2015,] [added: 201](#s8CC13619EA1958D79E8268C5767CAEF4)7, 2016,] and [removed: 2014] [added: 2015] | | F-4 |

| | | | [Statements of Comprehensive Income for the Years Ended December 31, [removed: 201](#s420BD3DF0E1D501BB6F45085EA890783)6, 2015,] [added: 201](#s905842BE5E4C51938544E35A7424F325)7, 2016,] and [removed: 2014] [added: 2015] | | F-5 |

| | | | [Statements of Equity for the Years Ended December 31, [removed: 201](#s032D475E15605BA8A6A211B1AF611499)6, 2015,] [added: 201](#s51852A996F6F572CAA02E9083F5328E8)7, 2016,] and [removed: 2014] [added: 2015] | | F-6 and F-7 |

| | | | [Statements of Cash Flows for the Years Ended December 31, [removed: 201](#s729CF5D79AC05BF98A0D1D4FFC4D7CC5)6, 2015,] [added: 201](#s42A82A3A9B4D51C18DC96C2E65EB6FB2)7, 2016,] and [removed: 2014] [added: 2015] | | F-8 |

| | | | [Notes to Consolidated Financial [removed: Statements](#sF84D80C73CFC5146878F5C8ACAAEF8EF)] [added: Statements](#sBD46D45658A152B1B20EEE1D8D1CD7B8)] | | F-9 through [removed: F-19] [added: F-23] |

We are developing a new accounting [removed: system] [added: system,] which is being implemented on a worldwide basis over the next several years.

Management, including the Chief Executive Officer and Chief Financial Officer, conducted an assessment of the effectiveness of the Company's internal control over financial reporting, as of December 31, [removed: 2016,] [added: 2017,] based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on this assessment, management has concluded that, as of December 31, [removed: 2016,] [added: 2017,] our internal control over financial reporting was effective.

KPMG LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] which is included on page F-2.

In the next two fiscal years, we will adopt two significant new accounting standards related to revenue recognition and accounting for leases.

The adoption of these accounting standards will require changes to existing processes and systems that are an integral part of our internal controls and will require testing for operating effectiveness.

29.

| 27.

The information required by this item is set forth below or incorporated by reference to information under the caption “Proposal No. 1: Election of Directors” and to the information under the captions “Section 16(a) Beneficial Ownership Reporting Compliance” and “Board Operations" in Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May [removed: 2, 2017.][added: 8, 2018.]

The Code of Business Conduct is posted on Expeditors' website at [removed: http://www.investor.expeditors.com.][added: https://investor.expeditors.com.]

McCune, Alain Monié, Dan P.

McCune, Michael J.

Malone, Dan P.

The information required by this item is incorporated by reference to information under the captions “Director Compensation Program” and “Compensation Committee Report” in Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May [removed: 2, 2017.][added: 8, 2018.]

30.

The information required by this item is incorporated by reference to information under the captions “Shareholder Engagement and Stock Ownership Information” in Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May [removed: 2, 2017.][added: 8, 2018.]

The following table provides information as of December 31, [removed: 2016,] [added: 2017,] regarding compensation plans under which equity securities of Expeditors are authorized for issuance.

| Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights [added: (1)] | | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights [added: (2)] | | | | Number of Securities Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) [removed: (1)] [added: (3)] | |

| [removed: (1)] [added: (3)] | Includes [removed: 2,091,669] [added: 1,409,217] available for issuance under the employee stock purchase plans, [removed: 75,750] [added: 1,884,387] available for future grants of [removed: stock options] [added: equity awards under the Omnibus Incentive Plan] and [removed: 144,160] [added: 106,250] available for issuance of restricted [removed: stock.] [added: stock under the Director's Restricted Stock Plan.] |

| Equity Compensation Plans Approved by Security Holders | | 13,564,211 | | | $ | 44.36 | | | 3,399,854 | |

| Total | | 13,564,211 | | | $ | 44.36 | | | 3,399,854 | |

| (1) | Represents shares issuable upon exercise of outstanding stock options, vesting of outstanding restricted stock units under the Omnibus Incentive Plan and performance stock units that will vest if target levels are achieved. |

| | |

| --- | --- |

| (2) | The weighted average exercise price does not take into account the shares issuable upon vesting of outstanding restricted stock units, which have no exercise price. |

| | |

| --- | --- |

| 28.

| Equity Compensation Plans Approved by Security Holders | | 17,373,937 | | | $ | 44.25 | | | 2,311,579 | |

| Total | | 17,373,937 | | | $ | 44.25 | | | 2,311,579 | |

The information required by this item is incorporated by reference to information under the captions “Certain Relationships and Related Transactions” in Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May [removed: 2, 2017.][added: 8, 2018.]

The information required by this item is incorporated by reference to information under the caption “Relationship with Independent [added: Registered] Public [removed: Accountants”] [added: Accounting Firm”] in Expeditors' definitive Proxy Statement for its annual meeting of shareholders to be held on May [removed: 2, 2017.][added: 8, 2018.]

| | | [Reports of Independent Registered Public Accounting [removed: Firm](#sEC65C0DDEED150FEB68949136F46873D)] [added: Firm](#sB05E6A1157D55330B7A5A4BB05725F00)] | | F-1 and F-2 |

| | | [Consolidated Balance Sheets as of December 31, [removed: 2016] [added: 201](#s4DF75F6095695916BF5589B9CCB2BA02)7] and [removed: 2015](#sE7EB836CDEA057F48C50496000326B72)] [added: 2016] | | F-3 |

| | | [Consolidated Statements of Earnings for the Years Ended December 31, [removed: 2016, 2015] [added: 201](#s8CC13619EA1958D79E8268C5767CAEF4)7, 2016] and [removed: 2014](#s574C97DF7E5B553B8AA3C47C733CE200)] [added: 2015] | | F-4 |

| | | [Consolidated Statements of Comprehensive Income for the Years Ended December 31, [removed: 2016, 2015] [added: 201](#s905842BE5E4C51938544E35A7424F325)7, 2016] and [removed: 2014](#s420BD3DF0E1D501BB6F45085EA890783)] [added: 2015] | | F-5 |

| | | [Consolidated Statements of Equity for the Years Ended December 31, [removed: 2016, 2015] [added: 201](#s51852A996F6F572CAA02E9083F5328E8)7, 2016] and [removed: 2014](#s032D475E15605BA8A6A211B1AF611499)] [added: 2015] | | F-6 and F-7 |

| | | [Consolidated Statements of Cash Flows for the Years Ended December 31, [removed: 2016, 2015] [added: 201](#s42A82A3A9B4D51C18DC96C2E65EB6FB2)7, 2016] and [removed: 2014](#s729CF5D79AC05BF98A0D1D4FFC4D7CC5)] [added: 2015] | | F-8 |

| | | [Notes to Consolidated Financial [removed: Statements](#sF84D80C73CFC5146878F5C8ACAAEF8EF)] [added: Statements](#sBD46D45658A152B1B20EEE1D8D1CD7B8)] | | F-9 through [removed: F-19] [added: F-23] |

| [removed: (4)] [added: (8)] | Expeditors' [removed: Amended 1993 Directors’ Non-Qualified] [added: 2007] Stock Option Plan. See Exhibit [removed: 10.39.] [added: 10.49.] |

| [removed: (5)] [added: (11)] | Form of Stock Option Agreement used in connection with options granted under Expeditors' [removed: 1993 Directors’ Non-Qualified] [added: 2008] Stock Option Plan. See Exhibit [removed: 10.9.] [added: 10.52.] |

| [removed: (6)] [added: (4)] | Expeditors' 2008 Executive Incentive Compensation Plan. See Exhibit 10.35. |

| [removed: (7)] [added: (5)] | Expeditors' 2014 Directors’ Restricted Stock Plan. See Exhibit 10.36. |

| [removed: (8)] [added: (6)] | Expeditors' 2002 Employee Stock Purchase Plan. See Exhibit 10.42. |

| [removed: (9)] [added: (7)] | Expeditors' amendment to the 2002 Employee Stock Purchase Plan. See Exhibit 10.42.1 |

| (10) | Expeditors' [removed: 2006] [added: 2008] Stock Option Plan. See Exhibit [removed: 10.47.] [added: 10.51.] |

| [removed: (11)] [added: (9)] | Form of Stock Option Agreement used in connection with Incentive options granted under Expeditors' [removed: 2006] [added: 2007] Stock Option Plan. See Exhibit [removed: 10.48.] [added: 10.50.] |

| (12) | Expeditors' [removed: 2007] [added: 2009] Stock Option Plan. See Exhibit [removed: 10.49.] [added: 10.53.] |

| (13) | Form of Stock Option Agreement used in connection with [removed: Incentive] options granted under Expeditors' [removed: 2007] [added: 2009] Stock Option Plan. See Exhibit [removed: 10.50.] [added: 10.54.] |

| (14) | Expeditors' [removed: 2008] [added: 2010] Stock Option Plan. See Exhibit [removed: 10.51.] [added: 10.55.] |

| (15) | Form of Stock Option Agreement used in connection with options granted under [removed: Expeditors' 2008] [added: Expeditors’ 2010] Stock Option Plan. See Exhibit [removed: 10.52.] [added: 10.56.] |

| (16) | Expeditors' [removed: 2009] [added: 2011] Stock Option Plan. See Exhibit [removed: 10.53.] [added: 10.57.] |

| (17) | Form of Stock Option Agreement used in connection with options granted under Expeditors' [removed: 2009] [added: 2011] Stock Option Plan. See Exhibit [removed: 10.54.] [added: 10.58.] |

| (18) | Expeditors' [removed: 2010] [added: 2012] Stock Option Plan. See Exhibit [removed: 10.55.] [added: 10.59.] |

| (19) | Form of Stock Option Agreement used in connection with options granted under [removed: Expeditors’ 2010] [added: Expeditors' 2012] Stock Option Plan. See Exhibit [removed: 10.56.] [added: 10.60.] |

| (20) | Expeditors' [removed: 2011] [added: 2013] Stock Option Plan. See Exhibit [removed: 10.57.] [added: 10.61.] |

| (21) | Form of Stock Option Agreement used in connection with options granted under Expeditors' [removed: 2011] [added: 2013] Stock Option Plan. See Exhibit [removed: 10.58.] [added: 10.62.] |

| (22) | Expeditors' [removed: 2012] [added: 2014] Stock Option Plan. See Exhibit [removed: 10.59.] [added: 10.63.] |

| (23) | Form of Stock Option Agreement used in connection with options granted under [removed: Expeditors' 2012] [added: Expeditors; 2014] Stock Option Plan. See Exhibit [removed: 10.60.] [added: 10.64.] |

| (24) | Expeditors' [removed: 2013] [added: 2015] Stock Option Plan. See Exhibit [removed: 10.61.] [added: 10.65.] |

| (25) | Form of Stock Option Agreement used in connection with options granted under Expeditors' [removed: 2013] [added: 2015] Stock Option Plan. See Exhibit [removed: 10.62.] [added: 10.66.] |

| (26) | Expeditors' [removed: 2014] [added: 2016] Stock Option Plan. See Exhibit [removed: 10.63.] [added: 10.67.] |

| (27) | Form of Stock Option Agreement used in connection with options granted under [removed: Expeditors; 2014] [added: Expeditors' 2016] Stock Option Plan. See Exhibit [removed: 10.64.] [added: 10.68.] |

| [removed: (29)] [added: (30)] | Form of [removed: Stock Option] [added: Performance Share Award] Agreement used in connection with [removed: options] [added: performance share units] granted under Expeditors' [removed: 2015] [added: 2017 Omnibus Incentive] Stock [removed: Option] Plan. See Exhibit [removed: 10.66.] [added: 10.71] |

| [removed: (31)] [added: (29)] | Form of [added: Executive Restricted] Stock [removed: Option] [added: Unit Award] Agreement used in connection with [removed: options] [added: executive restricted stock units] granted under Expeditors' [removed: 2016] [added: 2017 Omnibus Incentive] Stock [removed: Option] Plan. See Exhibit [removed: 10.67.] [added: 10.70] |

| Exhibit Number | | [removed: |] Exhibit |

| [removed: 3.2 |] [added: [3.2](http://www.sec.gov/Archives/edgar/data/746515/000074651516000067/ex32-20160503bylawamendment.htm)] | | Expeditors' Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.2 to Form 8-K, filed on or about May 6, 2016.) |

| [removed: 10.9 |] [added: [10.52](http://www.sec.gov/Archives/edgar/data/746515/000119312509040947/dex1052.htm)] | | Form of Stock Option Agreement used in connection with options granted under Expeditors' [removed: 1993 Directors’ Non-Qualified] [added: 2008] Stock Option Plan. (Incorporated by reference to Exhibit [removed: 10.9] [added: 10.52] to Form [removed: 10-K,] [added: 10-K] filed on or about [removed: March 28, 1994.)] [added: February 27, 2009.)] |

| [removed: 10.23 |] [added: [10.23](http://www.sec.gov/Archives/edgar/data/746515/000074651515000004/a201410-kex1023.htm)] | | Form of Employment Agreement executed by Jeffrey S. Musser, Expeditors' President and Chief Executive Officer dated December 31, 2008. (Incorporated by reference to Exhibit 10.23 to Form 10-K, filed on or about February 26, 2015.) |

| [removed: 10.25 |] [added: [10.25](http://www.sec.gov/Archives/edgar/data/746515/000119312509040947/dex1025.htm)] | | Form of Employment Agreement executed by Expeditors' Chief Financial Officer dated December 31, 2008. (Incorporated by reference to Exhibit 10.25 to Form 10-K, filed on or about February 27, 2009.) |

| [removed: 10.27 |] [added: [10.27](http://www.sec.gov/Archives/edgar/data/746515/000074651515000034/a20152qex-1027.htm)] | | Form of Employment Agreement executed by Expeditors' President, Global Products. (Incorporated by reference to Exhibit 10.27 to Form 10-Q, filed on or about August 6, 2015.) |

| [removed: 10.35 |] [added: [10.35](http://www.sec.gov/Archives/edgar/data/746515/000104746908003213/a2183955zdef14a.htm#toc_he78401_1)] | | Expeditors' 2008 Executive Incentive Compensation Plan. (Incorporated by reference to Appendix C of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 21, 2008.) |

| (28) | Expeditors' 2017 Omnibus Incentive Plan. See Exhibit 10.69 |

| | | |

| --- | --- | --- |

| | | |

| | | |

| [3.1](https://www.sec.gov/Archives/edgar/data/746515/000074651518000004/a201710-kex31.htm) | | Expeditors' Restated Articles of Incorporation and the Articles of Amendment as amended |

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32.

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33.

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| --- | --- | --- |

| | |

| --- | --- |

| 29.

| (28) | Expeditors' 2015 Stock Option Plan. See Exhibit 10.65. |

| (30) | Expeditors' 2016 Stock Option Plan. See Exhibit 10.67. |

| | | | |

| --- | --- | --- | --- |

| 3.1 | | | Expeditors' Restated Articles of Incorporation and the Articles of Amendment thereto dated December 9, 1993. (Incorporated by reference to Exhibit 3.1 to Form 10-K, filed on or about March 31, 1995.) |

| 3.1.1 | | | Articles of Amendment to the Restated Articles of Incorporation dated November 12, 1996. (Incorporated by reference to Exhibit 3.1.1 to Form 10-K, filed on or about March 31, 1997.) |

| 3.1.2 | | | Articles of Amendment to the Restated Articles of Incorporation dated May 20, 1999. (Incorporated by reference to Exhibit 3.1.2 to Form 10-K, filed on or about March 28, 2003.) |

| 3.1.3 | | | Articles of Amendment to the Restated Articles of Incorporation dated June 12, 2002. (Incorporated by reference to Exhibit 3.1.3 to Form 10-K, filed on or about March 28, 2003.) |

| 3.1.4 | | | Articles of Amendment to the Restated Articles of Incorporation dated August 2, 2006. (Incorporated by reference to Exhibit 3.1.4 to Form 10-K, filed on or about February 27, 2013.) |

| 10.39.1 | | | Amendment to Amended 1993 Directors’ Non-Qualified Stock Option Plan (Incorporated by reference to Exhibit 10.39.1 to Form 10-Q filed on or about August 9, 2007.) |

| 30.

| 10.52 | | | Form of Stock Option Agreement used in connection with options granted under Expeditors' 2008 Stock Option Plan. (Incorporated by reference to Exhibit 10.52 to Form 10-K filed on or about February 27, 2009.) |

| 10.67 | | | Expeditors' 2016 Stock Option Plan. (Incorporated by reference to Appendix A of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 24, 2016.) |

| 10.68 | | | Form of Stock Option Agreement used in connection with options granted under Expeditors' 2016 Stock Option Plan. (Incorporated by reference to Appendix B of Expeditors' Notice of Annual Meeting of Shareholders and Proxy Statement pursuant to Regulation 14A filed on or about March 24, 2016.) |

| 21.1 | | | Subsidiaries of the registrant. |

Date: February 23, [removed: 2017][added: 2018]

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 23, [removed: 2017.][added: 2018.]

[removed: |] 34.

YEARS ENDED DECEMBER 31, [added: 2017,] 2016, [removed: 2015,] AND [removed: 2014][added: 2015]

[removed: The] [added: To the Stockholders and] Board of Directors [removed: and Stockholders]

We have audited the accompanying consolidated balance sheets of Expeditors International of Washington, Inc. and subsidiaries [added: (the Company)] as of December 31, [removed: 2016 and 2015,] [added: 2017] and [added: 2016,] the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the years in the three‑year period ended December 31, [removed: 2016.][added: 2017, and the related notes (collectively, the consolidated financial statements).]

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the [added: consolidated] financial statements are free of material [removed: misstatement.][added: misstatement, whether due to error or fraud.]

[removed: An audit includes] [added: Such procedures included] examining, on a test basis, evidence [removed: supporting] [added: regarding] the amounts and disclosures in the [added: consolidated] financial statements.

[removed: An audit] [added: Our audits] also [removed: includes assessing] [added: included evaluating] the accounting principles used and significant estimates made by management, as well as evaluating the overall [added: presentation of the consolidated] financial [removed: statement presentation.][added: statements.]

In our opinion, the consolidated financial statements [removed: referred to above] present fairly, in all material respects, the financial position of [removed: Expeditors International of Washington, Inc. and subsidiaries] [added: the Company] as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the years in the three‑year period ended December 31, [removed: 2016,] [added: 2017,] in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United [removed: States), Expeditors International of Washington, Inc.’s] [added: States) (PCAOB), the Company’s] internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway [removed: Commission (COSO),] [added: Commission,] and our report dated February 23, [removed: 2017] [added: 2018] expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

We have audited Expeditors International of Washington, Inc.’s [added: and subsidiaries' (the Company)] internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway [removed: Commission (COSO).][added: Commission.]

[removed: Expeditors International of Washington, Inc.’s] [added: The Company’s] management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial [removed: Reporting under Item 9A.][added: Reporting.]

We conducted our audit in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Our audit [added: of internal control over financial reporting] included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

In our opinion, [removed: Expeditors International of Washington, Inc.] [added: the Company] maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway [removed: Commission (COSO).][added: Commission.]

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United [removed: States),] [added: States) (PCAOB),] the consolidated balance sheets of [removed: Expeditors International of Washington, Inc. and subsidiaries] [added: the Company] as of December 31, [removed: 2016 and 2015,] [added: 2017] and [added: 2016,] the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, [removed: 2016,] [added: 2017,] and [added: the related notes (collectively, the consolidated financial statements), and] our report dated February 23, [removed: 2017] [added: 2018] expressed an unqualified opinion on those consolidated financial statements.

In [removed: thousands] [added: thousands,] except per share data

| December 31, | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | |

| Cash and cash equivalents [added: at beginning of year] | [removed: $] | 974,435 | | | [added: |] 807,796 | | [added: | 927,107 | |]

| Accounts receivable, less allowance for doubtful accounts of [removed: $9,247] [added: $12,858] in [removed: 2016] [added: 2017] and [removed: $7,820] [added: $9,247] in [removed: 2015] [added: 2016] | [removed: 1,190,130] [added: 1,414,741] | | | | [removed: 1,112,260] [added: 1,190,130] | |

| Other | [removed: 54,014] [added: 75,612] | | | | [removed: 56,453] [added: 54,014] | |

| Total current assets | [removed: 2,218,579] [added: 2,541,452] | | | | [removed: 1,976,509] [added: 2,218,579] | |

| Property and equipment, net | [removed: 536,572] [added: 525,203] | | | | [removed: 524,724] [added: 536,572] | |

| Other assets, net | [removed: 27,793] [added: 29,219] | | | | [removed: 56,417] [added: 27,793] | |

| Total assets | $ | [removed: 2,790,871] [added: 3,117,008] | | | [removed: 2,565,577] [added: 2,790,871] | |

| Accounts payable | $ | [removed: 726,571] [added: 866,305] | | | [removed: 645,304] [added: 726,571] | |

| Accrued expenses, primarily salaries and related costs | [removed: 185,502] [added: 206,320] | | | | [removed: 186,571] [added: 185,502] | |

| Federal, state and foreign income taxes | [removed: 17,858] [added: 20,494] | | | | [removed: 29,498] [added: 17,858] | |

| Total current liabilities | [removed: 929,931] [added: 1,093,119] | | | | [removed: 861,373] [added: 929,931] | |

| Deferred Federal and state income taxes, net | [removed: 13,727] [added: —] | | | | [removed: 9,528] [added: 13,727] | |

| [removed: issued] and [removed: outstanding] 179,857 shares at December 31, 2016 | [added: 1,764] | | | | [added: 1,799] | |

| Additional paid-in capital | [removed: 2,642] [added: 546] | | | | [removed: 31] [added: 2,642] | |

| Retained earnings | [removed: 1,944,789] [added: 2,063,512] | | | | [removed: 1,771,379] [added: 1,944,789] | |

| Accumulated other comprehensive loss | [removed: (104,592] [added: (73,964] | | ) | | [removed: (81,238] [added: (104,592] | ) |

| Total shareholders’ equity | [removed: 1,844,638] [added: 1,991,858] | | | | [removed: 1,691,993] [added: 1,844,638] | |

| Noncontrolling interest | [removed: 2,575] [added: 2,515] | | | | [removed: 2,683] [added: 2,575] | |

| Total equity | [removed: 1,847,213] [added: 1,994,373] | | | | [removed: 1,694,676] [added: 1,847,213] | |

| Total liabilities and equity | $ | [removed: 2,790,871] [added: 3,117,008] | | | [removed: 2,565,577] [added: 2,790,871] | |

35.

| /s/ Glenn M. Alger | | Director | |

| (Glenn M. Alger) | | | |

| /s/ Alain Monié | | Director | |

| (Alain Monié) | | | |

36.

Opinion on the Consolidated Financial Statements

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

| We have served as the Company's auditor since 1982. | | |

| February 23, 2018 | | |

F-1

To the Stockholders and Board of Directors

Opinion on Internal Control Over Financial Reporting

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Definition and Limitations of Internal Control Over Financial Reporting

| February 23, 2018 | | |

F-2

| Cash and cash equivalents | $ | 1,051,099 | | | 974,435 | |

| Deferred Federal and state income taxes, net | 13,207 | | | | — | |

| Noncurrent Federal income tax payable | 29,516 | | | | — | |

| issued and outstanding 176,374 shares at December 31, 2017 | | | | | | |

F-3.

F-4.

F-5.

In thousands, except per share data

| Balance at December 31, 2017 | 176,374 | | | $ | 1,764 | |

F-6.

| | | | | | | | | | | | | | | | | | | |

| Shares repurchased under provisions of stock repurchase plans | (258,049 | | ) | | (220,127 | ) | | — | | | (478,258 | ) | | — | | | (478,258 | ) |

| Net earnings | — | | | | 489,345 | | | — | | | 489,345 | | | 1,038 | | | 490,383 | |

| Other comprehensive income (loss) | — | | | | — | | | 30,628 | | | 30,628 | | | (194 | ) | | 30,434 | |

| Balance at December 31, 2017 | $ | 546 | | | 2,063,512 | | | (73,964 | ) | | 1,991,858 | | | 2,515 | | | 1,994,373 | |

F-7.

| Net earnings | | $ | 490,383 | | | 432,533 | | | 459,497 | |

| Depreciation and amortization | | 49,310 | | | | 46,796 | | | 46,012 | |

| Net cash from operating activities | | 488,639 | | | | 529,485 | | | 566,562 | |

| Proceeds from sale of property and equipment | | 84,405 | | | | 229 | | | 258 | |

| 32.

| 33.

| /s/ Michael J. Malone | | Director | |

| (Michael J. Malone) | | | |

| /s/ James Li Kou Wang | | Director | |

| (James Li Kou Wang) | | | |

| February 23, 2017 | | |

|F-1

|F-2

| and 182,067 shares at December 31, 2015 | 1,799 | | | | 1,821 | |

|F-3.

|F-4.

| Reclassification adjustments for foreign currency realized losses, net of tax of $61 in 2014 | | — | | | | — | | | 111 | |

|F-5.

| Balance at December 31, 2013 | 202,553 | | | $ | 2,025 | |

| Tax benefits from stock plans, net | — | | | — | | |

|F-6.

| Balance at December 31, 2013 | $ | 1,647 | | | 2,087,376 | | | (6,265 | ) | | 2,084,783 | | | 1,548 | | | 2,086,331 | |

| Shares repurchased under provisions of stock repurchase plans | (114,216 | | ) | | (436,434 | ) | | — | | | (550,781 | ) | | — | | | (550,781 | ) |

| Tax benefits from stock plans, net | 1,061 | | | | — | | | — | | | 1,061 | | | — | | | 1,061 | |

| Net earnings | — | | | | 376,888 | | | — | | | 376,888 | | | 2,572 | | | 379,460 | |

| Other comprehensive loss | — | | | | — | | | (31,552 | ) | | (31,552 | ) | | (417 | ) | | (31,969 | ) |

| Purchase of noncontrolling interest | 841 | | | | — | | | — | | | 841 | | | — | | | 841 | |

| Purchase of noncontrolling interest | 107 | | | | — | | | — | | | 107 | | | (110 | ) | | (3 | ) |

|F-7.

| Excess tax benefits from stock plans | | (386 | | ) | | (1,850 | ) | | (1,115 | ) |

| Net cash from operating activities | | 529,099 | | | | 564,712 | | | 394,966 | |

| Escrow deposit for land acquisition | | — | | | | — | | | (27,101 | ) |

| Other, net | | 6,157 | | | | (3,337 | ) | | (338 | ) |

| Excess tax benefits from stock plans | | 386 | | | | 1,850 | | | 1,115 | |

| Net cash from financing activities | | (298,417 | | ) | | (634,972 | ) | | (605,534 | ) |

| Cash and cash equivalents at beginning of year | | 807,796 | | | | 927,107 | | | 1,247,652 | |

|F-8.

Short-term investments have a maturity of greater than three months at the date of purchase.

| Buildings | 28 to 40 years |

|F-9.

In the fourth quarter of 2016, the Company adopted accounting guidance that retroactively changed the presentation of deferred tax assets and liabilities to be classified as non-current.

As a result, the Company retrospectively reclassified previously reported current deferred income tax assets totaling $16,861 at December 31, 2015 to a reduction of noncurrent deferred tax liabilities, presented as Deferred Federal and state income taxes, net on the Consolidated Balance Sheets.

Actual results could differ from those estimates.

The sale of the property is anticipated to occur in 2017 and the Company believes that the estimated selling price, less selling costs, will exceed the net book value of $80 million.