EXPD 10-K & 10-Q changes, risk factors and insider trading

changes in and application of international and domestic customs, trade and security regulations;

Expeditors relies heavily and must compete based upon the flexibility and sophistication of the technologiestechnologies, including AI, utilized in performing our core businesses. Future results depend on our success in developing competitive and reliable systems to address the needs of our customers and suppliers. Development and maintenance of these systems must be accomplished in a cost-effective manner and support the use of secure protocols, including integration and availability of third-party technology. We are continually improving and enhancing our systems and processes, including meaningful upgrades to core operating and accounting systems and remediation of internal control deficiencies.systems. These efforts are inherently complex and, if not managed properly, could lead to disruptions in our operations or our ability to remain competitive.

As our employees, our customers and suppliers continue to increase reliance on systems, and as additional features are added, the risks also increase. Any significant disruptions or unapproved third-party access to our global systems or the internet for any reason, which could include equipment or network failures; co-location facility failures; power outages; sabotage; government interference, 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. Significant disruptions to, or unapproved third‑party access into our networks and systems could materially harm our business and financial results by interrupting critical operations and degrading systems continuity. Potential disruption vectors include equipment or network failures, co‑location facility outages, power interruptions, sabotage, government interference, employee error, cyber‑attacks or other security breaches, dependencies on third‑party technologies, geopolitical events, and natural disasters, any of which could sever connectivity to our global systems or the internet and impede execution of core processes. In such circumstances, we may be compelled to shut down systems to protect the environment, as we did during a cyber-attack in February 2022, we were the subject of a targeted cyber-attack. Upon discovering the incident, we shut down most of our operating systems globallyleading to manage the safety of our overall global systems environment. This shutdown and any such future events are likely to result in loss oflost revenue; shipment‑processing delays and other business disruptions (such as the inability to timely process shipments)interruptions; and significant remediation costs.and Thisincremental cyber-attack,security orcosts; anyheightened future cyber-attack could also result in increased vulnerabilityexposure to attempts of fraud,fraud; legal claims and proceedings (including potential breach ‑of ‑contract claims,assertions); reporting delays or errors;errors, including interference with regulatory reporting; an increase in costs to protect our systems and technology; or damage to our reputation.regulators. A future cyber-attack may also result in the destruction or exfiltration of our data as well as that of our customers and service providers.

We face material risks associated with the handling, transporting, and storing of customer inventory including some products classified as hazardous materials, dangerous goodsgoods, and/or high value commodities.products.

Under some of our agreements, we maintain and transport the inventory of our customers, some of which may beis classified as hazardous materials, dangerous goods or is high value in nature. Our failure to properly handle and safeguard such inventory exposes us to potential material claims and expenses as well as harm to our business and reputation.

A significant portion of Expeditors' revenues is derived from customers in retail and technology industries whose shipping patterns are tied closely to consumer demand, as well as the scaling of AI infrastructure, and from customers in industries whose shipping patterns are dependent upon just-in-time production schedules. Therefore, the timing of our revenues is, to a large degree, impacted by factors out of our control, such as a sudden change in consumer demand for retail goods, changes in trade tariffs, product launches and/or manufacturing production delays. Additionally, many customers ship a significant portion of their goods at or near the end of a quarter, and therefore, we may not learn of a shortfall in revenues until late in a quarter. To the extent that a shortfall in revenues or earnings was not expected by securities analysts or investors, any such shortfall from levels predicted by securities analysts or investors could have an immediate and adverse effect on the trading price of our stock. We cannot accurately forecast many of these factors, nor can we estimate accurately the relative influence of any particular factor and, as a result, there can be no assurance that historical patterns will continue in future periods.

Expeditors is subject to income and non-income taxation in the United States (Federal, state and local) as well as many foreign tax jurisdictions including the People’s Republic of China, including Hong Kong, Taiwan, Vietnam, India, Mexico, Canada, Netherlands and the United Kingdom. In many of these jurisdictions, the tax laws are very complex and are open to different interpretations and application.applications. TaxGovernmental authorities frequently implement new taxestax laws, including the One, Big, Beautiful Bill Act (Public Law 119-21), (the 2025 Tax Act), enacted in July of 2025 in the U.S., and change their tax rates and rules, including interpretations of those rules. The Organization for Economic Cooperation and Development (OECD) reached agreement among various countries to implement a minimum 15% tax rate on certain multinational enterprises, commonly referred to as Pillar Two. Many countries continue to announce changes in their tax laws and regulations based on the Pillar Two proposals. We are continuing to evaluate the impact of these proposed and enacted legislative changes as new guidance becomes available. Some of these legislative changes could impact our effective tax rate and tax liabilities.liabilities, Givenbut thewe numerous proposed tax law changes and the uncertainty regarding such proposed legislative changes,expect the impact of Pillar Two cannotto be determinedinsignificant because we pay tax at thisa time.rate of over 15% in the great majority of countries in which we do business.

The timing of the resolution of income and non-income tax examinations can be highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities, may differ significantly from the amounts recorded. It is reasonably possible that within the next twelve months we will undergo further audits and examinations by various tax authorities and possibly may reach resolution related to income tax examinations covering one or more jurisdictions and years. In recent years, the United States and other foreign governments have made significant changes to tax laws, and more changes are anticipated in future periods. Often, those changes are subject to the issuance of new regulations and interpretations, which adds complexity and uncertainty in calculating tax liabilities.

We are regularly under auditaudited by tax authorities, including transfer pricing inquiries. The Indian tax authority (ITA) has asserted that additional tax applies principally related to transfer pricing and transactions between and amongst the Company and its Indian subsidiary and the applicability tothat, an Indian service tax applicableapplies to ocean and air imports and exports. We believe that ITA’s positions are without merit, and we arehave thus far been successful in defending our position vigorously in Indian courts. IfHowever, if these matters are adversely resolved, we would recognize significant additional tax expense including interest and penalties. Although we believe our tax estimates are reasonable, the final determination of tax audits, including any potential penalties and interest, could be materially different from our tax provisions and accruals and negatively impact our financial results. We cannot currently provide an estimate of the range of possible outcomes.

We may be impacted by a global health emergency, similar to the scale of what we experienced during the COVID-19 pandemic. Significant global health emergencies may prompt governments around the world to mandate lockdowns and implement other restrictions that can have a direct impact on international trade. Such government restrictions may contribute to shortages of both labor and capacity and increase costs that impact our operations. Any significant global health emergency on the scale of the COVID- 19 pandemic could negatively affect our business and our financial results. Such a disruptionsdisruption could also have the effect of heightening many of the other risks described above.

Summary of 2025 versus 2024

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principlesU.S. generally accepted inaccounting the United Statesprinciples (U.S. GAAP). Preparing our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilitiesliabilities, revenues and expenses. A summary of our significant accounting policies can be found in Note 1 to the consolidated financial statements in this report. Management believes that the nature of our business is such that there are few complex challenges in accounting for operations. While judgments and estimates are a necessary component of any system of accounting, the use of estimates is limited primarily to accrual of loss contingencies, accrual of various tax liabilities and contingencies, accrual of insurance liabilities for the portion of the related exposure that we have self-insured, and accounts receivable valuation.

The following table shows the revenues, the directly related cost of transportation and other expenses for our principal services and our overhead expenses for 2024,2025, 20232024 and 2022.2023. The table, chart and the accompanying discussion and analysis should be read in conjunction with the consolidated financial statements and related notes thereto in Part II, Item 8 of this report.

Airfreight services revenues and expenses both increased 13% and 16%, respectively,9% in 2024,2025, as compared with 2023,2024, due to a 12%6% increase in tonnage and 2% and 5%3% increaseincreases in average sell and buy rates, respectively. Tonnage increased in all regions, with the largest increaseincreases coming from exports out of South Asia and North Asia.Asia due to strong demand in the first half of 2025 in anticipation of higher tariffs going into effect and demand from technology customers in the second half of the year. Average sell rates increased most significantly in South Asia, North Asia and MAIREurope asdue ato resultshifts in demand and limited capacity in those regions during part of higherthe buy rates while they decreased in North America and Europe as a result of lower buy rates. Tonnage increased in all regions as a result of increased market demandyear, driven by thetariff-related technologytrade sector compared to a soft 2023.impacts.

South Asia revenues and expenses increased 66%20% and 82%,21%, respectively, in 20242025 as compared with 20232024 due to a 40%15% increase in tonnage and significant increases inhigher average sell and buy rates. ThisDemand wasin drivenSouth byAsia elevatedremained demand for airfreightstrong as a result of manufacturing relocations into the region and shippers shifting to airfreight due to the conflicts in thethat Middle East.region. North Asia revenues and expenses increased 16%11% and 17%,12%, respectively, in 20242025 as compared with 20232024 due to a 9%10% increase in tonnage driven by demand in technology sectors and higher average sell and buy rates driven by high demand from international direct e-commerce.e-commerce Averagein sellthe first quarter and increased market demand, in part from technology customers investing in artificial intelligence infrastructure. While the elimination of low-value de minimis exemption on shipments from China to the U.S. resulted in a decrease in demand for airfreight in the second half of 2025, the expected downward pressure on average buy rates decreasedwas onlargely exportsmitigated outby ofcarriers Northredistributing Americacapacity to other lanes and Europehigh duedemand tofrom excessthe availabletechnology capacity relative to soft demand.sector.

Ocean freight consolidation, direct ocean forwarding, and order management are the three basic services that constitute and are collectively referred to as ocean freight and ocean services. Ocean freight and ocean services revenues and expenses increaseddecreased 33%11% and 44%,14%, respectively, in 2024,2025, as compared with 2023.2024. The largest component of our ocean freight and ocean services revenue is derived from ocean freight consolidation, which represented 71%66% and 65%71% of ocean freight and ocean services revenue in 20242025 and 2023,2024, respectively.

North America and EuropeAsia ocean freight and ocean services revenues decreased 6% and 13%, respectively, and expenses decreased 16%23% and 15%,26%, respectively, in 2024,2025, compared to 2023. Decreases were2024 primarily due to lower21% and 23% decreases in average sell and buy ratesrates, respectively, and declines6% decrease in containers shippedshipped. partiallyThis offsetwas bymainly higherdue revenuesto oncustomers importrelocating shipments.sourcing out of China to other regions and softening of the retail sector.

Order management revenues increased 29% and expenses increased 32%5% and 4%, respectively, in 2024,2025, due to higher volumes from new and existing customers. Direct ocean freight forwarding revenues decreased 2% whileand expenses remainedincreased flat4% inand 2024,5%, principallyrespectively, due to lowerhigher forwarding volumes and rates forincreased ancillary services.services, mostly in the United States and South Asia.

Customs brokerage and other services revenues and expenses increased 2%13% and 1%,14%, respectively, in 20242025 as compared with 2023,2024, primarily due to increasesdouble-digit growth rates in customs clearances, import services andservices, road freight and warehousing and distribution from higher shipment volumes, principally infrom Europeshipments into North America and MAIR offset by decreases in warehousing and distribution primarily in North America.Europe.

EuropeNorth America and MAIREurope revenues increased 5%14% and 15%,13%, respectively, and expenses increased 2%14% and 15%, respectively, in 20242025 as compared with 2023,2024, primarily as a result of higher shipment volumes.

Our management compensation programs have always been incentive-based and performance driven. Bonuses to field and executive management in 20242025 increased 7%5% when compared to 20232024 primarily due to a 11% increasegrowth in operating income.income at individual business units.

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

Other overhead expenses increased 1%15% in 2024,2025, as compared with 2023.2024. The increase in 20242025 is primarily due to higher rental and occupancy expenses, travel, and technology related expenses partiallyas offsetwell byas aconsulting, $24and milliontravel, decrease in expenses related toand indirect tax and other contingencies and lower depreciation expense.taxes.

So long as the economic environment remains uncertain, we will be focused on aligning operational headcount and our overhead expenses commensurate with our transactional volumes. In 2025, weWe expect to increasecontinue spendingto on:enhance cybersecurity;security and internal controls over our technology and systems; upgrading our IT infrastructure; and deployingplan newto anddeploy enhancedadditional solutions.solutions which will result in increased expenses in the future. We will also continue to make important investments in people, processes and technology, as well as to invest in our strategic efforts to exploredrive new areas for profitableorganic growth.

The decrease in other income and expense is primarily the result of lower interest income due to lowera investeddecline balances.in interest rates.

Our consolidated effective income tax rate was 25.8% and 25.9% in both 20242025 and 2023.2024. In 20242025 and 2023,2024, we benefited from U.S. Federal tax credits totaling $32.5$31.0 million and $24.1$32.5 million, respectively principally because of withholding taxes related to our foreign operations, as well as U.S. income tax benefits for FDII of $21.6$21.1 million and $16.2$21.6 million, respectively. These amounts were offset by the effect of higher foreign tax rates of the Company's international subsidiaries, when compared to the U.S. Federal income tax rate of 21%,21%. We have not incurred any significant expenses for any period presented for either the 15% corporate alternative minimum tax (CAMT) nor for the global minimum tax regime (also known as wellPillar as certain expenses that are no longer deductible under the 2017 Tax Act, including certain executive compensation in excess of amounts allowed.Two).

Some elements of the recorded impactsElements of enacted tax laws and regulationregulations could be impacted by further legislative action as well as additional interpretations and guidance issued by the Internal Revenue Service or Treasurythe inU.S. Department of the U.S.Treasury and by similar governmental bodies in jurisdictions outside of the U.S. SeeSuch Notechanges 7could toimpact the consolidatedestimates financialof statementsthe foramounts additionalthe information.Company has recorded.

The nature of our worldwide operations necessitates transacting in a multitude of currencies other than the U.S. dollar. That exposes us to the inherent risks of volatile international currency markets and governmental interference. Some of the countries where we maintain offices and/or have agency relationships maintain strict currency control regulations that influence our ability to hedge foreign currency exposure. Historically, derivative financial instruments have not been used to manage foreign currency risk. In lieu of the use of foreign currency derivatives we instead try to compensate for these exposures by accelerating international currency settlements among our offices and agents. In the future, we may enter into foreign currency hedging transactions whereto theremanage our foreign currency risk. There are also regulatory or commercial limitations on our ability to move money freely aroundwhich thecould worldbe impacted by inter-governmental disputes or thenew short-termtrade financial outlook in any country is such that hedging is the most time-sensitive way to mitigate short-term exchange losses.restrictions. We had no foreign currency derivatives outstanding at years ended December 31, 20242025 and 2023.2024. Net foreign currency transactional losses were approximately $28 million in 2025, and net foreign currency transactional gains were approximately $12 million in 2024,2024. andThe net impact of foreign currencyexchange lossesrate werefluctuation approximatelyon $15the translation of our foreign operations, as included in other comprehensive income, was an income of $49 million in 2023.2025 and a loss of $41 million in 2024, net of taxes.

Historically, our business has not been adversely affected by inflation. Beginning in 2021 and continuing through 2024,2025, many countries including the United States experienced increasing levels of inflation. As a result, our business continues to experience rising labor costs, service provider rate increases, higher rent and occupancy and other expenses. While buy rates for freight transportation capacity started declining in the second half of 2022, purchase prices for labor and other expenditures have continued to increase. Due to the high degree of competition in the marketplace we may not be able to increase our prices to our customers to offset this inflationary pressure, which could lead to an erosion in our margins and operating income in the future. Conversely, raising our prices to keep pace with inflationary pressure may result in a decrease in volume and customer demand for our services. As we are not required to purchase or maintain extensive property and equipment and have not otherwise incurred substantial interest rate-sensitive indebtedness, we currently have limited direct exposure to increased costsinterest expense resulting from increases in interest rates.

Certain portions of this report on Form 10-Q including the sections entitled "Overview," "Summary of FirstSecond Quarter 2026," "Industry Trends, Trade Conditions and Competition," "Seasonality," "Critical Accounting Estimates," "Results of Operations," "Income tax expense," "Currency and Other Risk Factors" and "Liquidity and Capital Resources" contain forward-looking statements. Words such as "will likely result," "expects", "are expected to," "would expect," "would not expect," "will continue," "is anticipated," "estimate," "project," "provisional," "plan," "believe," "probable," "reasonably possible," "may," "could," "should," "would," "intends," "foreseeable future" or similar expressions are intended to identify such forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, any statements that refer to projections of future financial performance, our anticipated growth and trends in the Company's businesses, signs of a slowing economy and drop in demand, future supply chain and transportation disruptions and other characterizations of disruptive events or circumstances are forward-looking statements. In addition, forward-looking statements are subject to certain risks and uncertainties, including risks associated with the impact of tariffs or other government actions on global trade volumes and economies, and tax audits and other contingencies that could cause actual results to differ materially from our historical experience and our present expectations or projections. These statements must be considered in connection with the discussion of the important factors that could cause actual results to differ materially from the forward-looking statements. Attention should be given to the risk factors identified and discussed in Part I, Item 1A in the Company’s annual report on Form 10-K filed on February 25, 2026. Management believes that these forward-looking statements are reasonable as of this filing date and we do not assume any obligations to update these statements except as required by law.

Summary of FirstSecond Quarter 2026

The significant impacts as compared to second quarter of 2025 are discussed within “Results of Operations” and summarized below.

Revenues increased 4%32% asdue to strong performance and volumes in most services was partially offset by a significant drop in ocean freight services.

CustomsAirfreight services revenues increased 57% and customs brokerage and other services revenues increased 17% and airfreight services revenues increased 14%.27%.

Airfreight services, road freight and warehousing and distribution services (included with customs brokerage and other services) all benefited from continued strong demand from our technology customers investing in artificial intelligence (AI) infrastructure.

Operating income increased 11%41% and net earnings to shareholders increased 13%,45%, as compared to the firstsecond quarter of 2025.

Cash from operating activities was $309 million, down from $343$179 million infor both the firstsecond quarter of 2026 and 2025.

We returned $288$461 million to shareholders through common stock repurchases.repurchases and dividends.

We operate in over 60 countries in the competitive global logistics industry and our activities are closely tied to the global economy. International trade is influenced by many factors, including economic and political conditions in the United States and abroad, currency exchange rates, laws and policies relating to tariffs, trade restrictions, foreign investment and taxation. Governments periodically consider changes to tariffs and impose trade restrictions and accords. Starting in the first quarter of 2025, the United States Government undertook a substantial global trade rebalancing effort resulting in significantly higher tariffs on imports. Throughout 2025 additional tariffs on imports into the United States for certain sectors and many countries became effective. There are currently threatened or actual retaliatory tariffs and trade actions from several countries, including China.China and Canada. On February 20, 2026, the United States Supreme Court issued a ruling on certain tariffs imposed in the United States under the International Emergency Economic Powers Act (IEEPA). The ruling invalidates manythe of theIEEPA tariffs imposed on imports to the United States in 2025, however it does not invalidate sectoral tariffs onsuch steel,as aluminummetals, auto parts, timber, lumber, and their derivative products. The decision also allows for potential refunds; and, starting in April 2026 U.S. Customs and Border Protection startedimplemented deployingprocedures processesfor importers and their brokers to filesubmit refundsrefund requests. WeIn areaddition, currently assessing the impact this rulingongoing and thepotential relatedfuture refundtrade process, as well as resulting tariff changes, will have on our customs brokerage services,actions, including post-entry activity. The decision could also spur new sectoral tariffs in the United Statessector-based and introducecountry additionalspecific and broader action-based measures continue to create uncertainty with respect to current and future U.S. trade policy and impact global trade flows. New U.S. tariffs have been broadly imposed across a variety of countries in July 2026. We cannot predict how other countries will respond to these tariffs or how changes in tariffs and trade restrictions will affect our business. Additionally, the constant changes in trade and customs brokerage regulations sincecontinue theto beginning of 2025 are addingadd complexity to the customs declarations process, making compliance with regulations increasingly challenging.

Doing business in foreign locations also subjects us to a variety of risks and considerations not normally encountered by domestic enterprises. In addition to being influenced by governmental policies and inter-governmental disputes concerning international trade, our business may also be negatively affected by political developments and changes in government personnel or policies in the United States and other countries, as well as economic turbulence, conflicts, political unrest and security concerns in the nations and on the trade shipping routes in which we conduct business. Starting in late February 2026 the operations of our offices in Qatar, Bahrain, Kuwait, Lebanon, Oman, Saudi Arabia and United Arab Emirates were disrupted by the conflict with Iran and the closure of the Strait of Hormuz. The conflict has affected available airfreight capacity beyond the Middle East, prevented cargo ships from navigating through the Persian GulfGulf, and delayed expectedsubstantial resumption of traffic through the Suez Canal. The impact on capacity and oil prices resulted in air and ocean carriers implementing surcharges and fuel related increases starting in March 2026. The financial impact on our MAIR region operations in the first quarterhalf of 2026 is not material and is mitigated by our ability to adjust the routing of our customers' shipments. The future impact that these events may have on international trade, oil prices and security costs is uncertain. We do not have employees, assets, or operations in Russia, Ukraine, Israel, the Gaza Strip or the West Bank. While limited, any shipment activity is conducted with independent agents in those countries in compliance with all applicable trade sanctions, laws and regulations.

The global economic and trade environments remain highly uncertain; including inflation remaining high, increases in oil prices, and the conflicts in the Middle East and Ukraine. In the first quarter of 2025, we saw high demand on exports out of Asia and continued to see high demand on exports out of South Asia in the second quarter 2025, resulting in high average sell and buy rates where demand exceeded carrier capacity. In the first quarter of 2026 we saw excess available capacity compared to demand for ocean freight which continued to put pressure on ocean sell and buy rates.rates whereas in the second quarter that imbalance lessened on exports out of Asia. Additional ocean and air transportation capacity will become available as demand softens due to uncertainty in geopolitical, economic conditions and trade regulations. These conditions have resulted in pricing volatility that we expect to continue as carriers adapt to changes in demand, changing fuel prices, available capacity, security risks and reactreacting to governmental trade policies and other regulations. Additionally, we cannot predict the direct or indirect impact that further changes in purchasing behavior, such as the evolution of international direct e-commerce platforms, could have on our business. Some customers are relocating manufacturing to other countries to mitigate the impact of higher tariffs on imports, reduce their supply chain risks, address disruptions caused by pandemics and geopolitical issues. These changes could negatively affect our business.

The following table shows the revenues, directly related cost of transportation and other expenses for our principal services and our overheadsalaries and other expenses for the three and six months ended MarchJune 31,30, 2026 and 2025, including the respective percentage changes comparing 2026 and 2025.

Airfreight services revenues and expenses increased 14%57% and 19%,62%, respectively, during the three months ended MarchJune 31,30, 2026, as compared withto the same periodperiods in 2025, due to 9%44% and 14%45% increases in average sell and buy rates, respectively, and a 5%14% increase in tonnage. Airfreight services revenues and expenses increased 36% and 41%, respectively, during the six months ended June 30, 2026, as compared to the same periods in 2025, due to 28% and 31% increases in average sell and buy rates, respectively, and a 10% increase in tonnage. Tonnage improved in 2026 as a result of increased market demand by the technology sector compared to the first quarterhalf of 2025.

Tonnage increased primarily on exports from North Asia,Asia and South Asia and MAIR during the three and six months ended MarchJune 31,30, 2026, as compared withto the same periodperiods in 2025, as demand from technology customers remained strong while being partially offset by lower volumes from North America and Europe.strong.

Average sell rates increased during the three and six months ended MarchJune 31,30, 20262026, as compared to the same periodperiods in 2025 on exports out of North Asia and EuropeSouth Asia as higher carrier buy rates from the fourth quarter of 2025 were passed on to customers starting in the first quarter of 2026. Average buy rates increased during the three and six months ended MarchJune 31,30, 2026 compared withto the same periodperiods in 2025, most significantly on exports out of North Asia, South Asia and Europe as demand from technology customers remained strong. During the latter part of March and continuing in the first few weeks of the second quarter growth in sell rates has outpaced growth in buy rates amid capacity constraints caused bystrong, the conflict in the Middle East.East constrained available capacity and jet fuel prices soared.

Ocean freight and ocean services consists of three basic services: ocean freight consolidation, order management and direct ocean forwarding. Ocean freight and ocean services revenues and expense decreasedincreased 23%5% and 28%,10%, respectively, for the three months ended MarchJune 31,30, 2026, as compared withto the same period in 2025. Ocean freight and ocean services revenues and expenses both decreased 10%, respectively, for the six months ended June 30, 2026, as compared to the same period in 2025. The largest component of our ocean freight and ocean services revenue is derived from ocean freight consolidation, which represented 60%62% and 71%69% of ocean freight and ocean services revenue for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively.

Ocean freight consolidation revenues and expenseexpenses decreased 35%18% and 37%,16%, respectively, for the threesix months ended MarchJune 31,30, 2026, as compared withto the same period in 2025, primarily due to 33%17% and 32%14% decreases in average sell and buy rates and a 4%2% decrease in containers shipped. Containers shipped decreased most significantly on exports out of North Asia which was partially offset by increases in South Asia. The declines in average buy rates and sell rates are due to continued available capacity exceeding demand.demand, Sell and buy ratesespecially in the first quarter of 2026 were comparable to the fourth quarter of 2025.2026.

Order management revenues and expenses increased 13%,21%, and 12%,17%, respectively, for the three and six months ended MarchJune 31,30, 2026,and expenses increased 23%, and 17%, respectively, for the three and six months ended June 30, 2026, respectively, as compared to the same period in 2025 due to higher volumes from new and existing customers.customers, Directcoupled oceanwith freightcontinued forwardingcustomer revenues and expenses remained relatively flat for the three months ended March 31, 2026, as compared to the same periodexpansion in 2025.South Asia.

The global economic and trade environment are increasingly volatile with uncertainty in trade tariffs and inter-governmental disputes. Recent geopolitical tensions, most notably the Iran conflict and the closure of the Strait of Hormuz, have introduced additional risks. Further, carriers are expected to add new vessels in 2026 and 2027. While some volumes are shifting to other routes and as customers look to mitigate their exposure to U.S./China-specific tariffs, it is too early to know what the overall long-term impact on volumes might be. If safeAs passage through the Red Sea resumes, additional capacity willmay become available due to shorter transit times. These conditions could further depressaffect sell and buy rates and cause decreases in our revenues and operating income, depending on how carriers adapt to conditions and manage available capacity.

Customs brokerage and other services revenues increased 17%27% and 22% and expenses increased 13%31% and 22% for the three and six months ended MarchJune 31,30, 2026, respectively, as compared withto the same periodperiods in 2025. These changes are primarily due to increases in the number and complexity of customs clearances, road freight and warehousing and distribution. The continued complexity in customs brokerage due to the dynamic trade environment has resulted in higher fees and growing demand for our brokerage services from customers across many business sectors. Our road freight and warehousing and distribution services continued to be sustained by demand from the technology sector,customers and their investment in AI infrastructure, leading to higher shipment volumes,volumes and revenues from specialized services with higher rates, principally in North America and Europe.

North America revenues increased 18%33% and 26% and expenses increased 13%42% and 28% for the three and six months ended MarchJune 31,30, 2026, respectively, as compared withto the same period in 2025. Europe revenues increased 20%14% and 17% and expenses increased 16%,11% and 14%, respectively, for the three and six months ended MarchJune 31,30, 2026, as compared withto the same period in 2025.

Customers value our customs brokerage services due to an increasingly dynamic and complex trade environment, and its impact on the declaration process.process, Theywhich often leads to the adoption of additional transportation and distribution services. Customers seek knowledgeable customs brokers with operational capacity and sophisticated systems capabilities critical to an overall logistics management program that are necessary to rapidly respond to changes in the regulatory and security environment. Should international trade slow or there is substantial removal of tariffs, our revenues and operating income could be negatively impacted.

OverheadSalaries and other expenses:

Salaries and related costs increased 9%22% and 15% for the three and six months ended MarchJune 31,30, 20262026, respectively, as compared withto the same periodperiods in 2025, principally due to a 6%4% increase in headcount, increases in base salaries andsalaries, higher incentive compensation from improved operating results.results and termination costs incurred for the Global Technology restructuring.

Our management compensation programs have always been incentive-based and performance driven. Total bonuses to field and executive management increased 21% for the threesix months ended MarchJune 31,30, 2026, increased 4%, when compared to the same period in 2025, primarily due to higher operating income.

Other overhead expenses increaseddecreased 7%10% and 2%, respectively, for the three and six months ended MarchJune 31,30, 2026, as compared withto the same periodperiods in 2025. This increasedecrease is primarily due to the recognition of a $16 million gain on the sale of a property in the second quarter 2026 and reduction in indirect taxes, offset by higher technology related expenses, higherand rent and occupancy expenses, and higher claims expense.expenses.

The nature of our worldwide operations necessitates transacting in a multitude of currencies other than the U.S. dollar. That exposes us to the inherent risks of volatile international currency markets and governmental interference. Some of the countries where we maintain offices and/or have agency relationships maintain strict currency control regulations that influence our ability to hedge foreign currency exposure. Historically, derivative financial instruments have not been used to manage foreign currency risk. In lieu of the use of foreign currency derivatives we instead try to compensate for these exposures by accelerating international currency settlements among our offices and agents. In the future, we may enter into foreign currency hedging transactions to manage our foreign currency risk. There are also regulatory or commercial limitations on our ability to move money freely, which could be impacted by inter-governmental disputes or new trade restrictions. We had no foreign currency derivatives outstanding at MarchJune 31,30, 2026 and December 31, 2025. For the three and six months ended MarchJune 31,30, 2026, net foreign currency transactional gainslosses were approximately $2$8 million and $6 million compared to net foreign currency losses of approximately $5$12 million and $17 million in the same periodperiods in 2025. The net impact of foreign exchange rate fluctuation on the translation of our foreign operations, as included in other comprehensive income, was aincome of $4 million and loss of $12 million and an income of $13$8 million, net of taxes, in the three months and six months ended MarchJune 31,30, 2026, respectively, and income of $33 million and $47 million, net of taxes, in the three and six months ended June 30, 2025, respectively.

Historically, our business has not been adversely affected by inflation. Beginning in 2021 and continuing through 2025, many countries including the United States experienced elevated levels of inflation. As a result, our business continues to experience rising labor costs, service provider rate increases, higher rent and occupancy and other expenses. Due to the high degree of competition in the marketplacemarketplace, we may not be able to increase our prices to our customers to offset this inflationary pressure, which could lead to an erosion in our margins and operating income in the future. Conversely, raising our prices to keep pace with inflationary pressure may result in a decrease in volume and customer demand for our services. As we are not required to purchase or maintain extensive property and equipment and have not otherwise incurred substantial interest rate-sensitive indebtedness, we currently have limited direct exposure to increased interest expense resulting from increases in interest rates.

Our principal source of liquidity is cash and cash equivalents and cash generated from operating activities. Net cash provided by operating activities for the three and six months ended MarchJune 31,30, 2026 was $309$179 million and $488 million as compared withto $343$179 million and $522 million for the same periodperiods in 2025. TheNet cash provided by operating activities in the three months ended June 30, 2026 was comparable to the same period in 2025 while the decrease of $34 million for the threesix months ended MarchJune 31,30, 2026, respectively, was primarily due to changes in working capital due to increasegrowth in revenue activity in the lattersecond partquarter of the quarter.2026. At MarchJune 31,30, 2026, working capital was $1,611$1,448 million, including cash and cash equivalents of $1,316$1,031 million. Other than our recorded lease liabilities, we had no long-term obligations or debt at MarchJune 31,30, 2026. Management believes that our current cash position and operating cash flows will be sufficient to meet our capital and liquidity requirements for at least the next 12 months and thereafter for the foreseeable future, including meeting any contingent liabilities related to standby letters of credit and other obligations.

Cash usedprovided inby investing activities for the three months ended MarchJune 31,30, 2026 was $12$9 million compared to $16 million in cash used by investing activities for the same period in 2025 due to the recognition of proceeds from the sale of a property. Cash used in investing activities for the six months ended June 30, 2026 was $3 million as compared withto $13$29 million for the same period in 2025, primarilyfor the same reason as for capitalthe expenditures.three months. Capital expenditures in the three and six months ended MarchJune 31,30, 2026 were primarily related to continuing investments in building and leasehold improvements and technology and facilities equipment. Total anticipated capital expenditures in 2026 are currently estimated to be approximately $80$60 million. This includes investments in technology infrastructure, leasehold and building improvements and routine capital expenditures.

Cash used in financing activities during the three and six months ended MarchJune 31,30, 2026 was $290$474 million and $764 million as compared withto $166$340 million and $506 million, respectively, for the same periodperiods in 2025. We have a Discretionary Stock Repurchase Plan under which management is allowed to repurchase shares to reduce the issued and outstanding stock to 130 million shares of common stock. A new repurchase program has been adopted as authorized by the Board of Directors in February 2026, as described in Part II, Item 2 of this report. We use the proceeds from stock option exercises, employee stock purchases and available cash to repurchase our common stock on the open market to reduce outstanding shares. During the three and six months ended MarchJune 31,30, 2026, we used cash to repurchase 2.02.3 million and 4.3 million shares of common stock at an average price of $145.90$151.50 and $148.87 per share compared to 1.52.0 million and 3.5 million shares of common stock at an average price of $117.29$112.05 and $114.31, respectively, during the same periodperiods in 2025.

We maintain international unsecured bank lines of credit for short-term working capital purposes. A few of these credit lines are supported by standby letters of credit issued by a United States bank or guarantees issued by the Company to the foreign banks issuing the credit line. At MarchJune 31,30, 2026, borrowings under these credit lines were $33$32 million and we were contingently liable for $80$81 million from standby letters of credit and guarantees. The standby letters of credit and guarantees primarily relate to obligations of our foreign subsidiaries for credit extended in the ordinary course of business by direct carriers, primarily airlines, and for duty and tax deferrals available from governmental entities responsible for customs and value-added-tax (VAT) taxation. The total underlying amounts due and payable for transportation and governmental excises are properly recorded as obligations in the accounting records of the respective foreign subsidiaries, and there would be no need to record additional expense in the unlikely event the parent company is required to perform.

Our foreign subsidiaries regularly remit dividends to the U.S. parent company after evaluating their working capital requirements and funds necessary to finance local capital expenditures. In some cases, our ability to repatriate funds from foreign operations may be subject to foreign exchange controls or could be impacted by inter-governmental disputes or new trade restrictions. At MarchJune 31,30, 2026, cash and cash equivalent balances of $518$598 million were held by our non-United States subsidiaries, of which $1$7 million was held in banks in the United States. Earnings of our foreign subsidiaries are not considered to be indefinitely reinvested outside of the United States.