EXPEDITORS INTERNATIONAL OF WASHINGTON INC (EXPD) FY 2024 MD&A

ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

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

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

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

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

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

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We manage our company along five geographic areas of responsibility: Americas; North Asia; South Asia; Europe; and Middle East, Africa and India (MAIR). Each area is divided into sub-regions that are composed of operating units with individual profit and loss responsibility. Our business involves shipments between operating units and typically touches more than one geographic area. The nature of the international logistics business necessitates a high degree of communication and cooperation among operating units. Because of this inter-relationship between operating units, it is very difficult to examine any one geographic area and draw meaningful conclusions as to its contribution to our overall success on a stand-alone basis. The following chart shows revenues by geographic areas of responsibility for the years ended December 31, 2024, 2023 and 2022:

Our operating units share revenue using the same arms-length pricing methodologies that we use when our offices transact business with independent agents. Certain costs are allocated among the segments based on the relative value of the underlying services, which can include allocation based on actual costs incurred or estimated cost plus a profit margin. Our strategy closely links compensation with operating unit profitability, which includes shared revenues and allocated costs. Therefore, individual success is closely linked to cooperation with other operating units within our network. The mix of services varies by segment based primarily on the import or export orientation of local operations in each of our regions. North Asia is our largest export-oriented region and accounted for 28% of revenues, 33% of directly related cost of transportation and other expenses and 23% of operating income for the year ended December 31, 2024.

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Summary of 2024

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Strong demand for ocean transportation combined with longer transit times and capacity issues caused by the disruptions in the Red Sea resulted in significant increases in overall average buy rates and sell rates.

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Demand for airfreight out of Asia was high due in part to direct e-commerce business demand on airfreight capacity and increased demand in the technology sector. This resulted in growth in volumes and overall increases in buy and sell rates.

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Ocean containers shipped increased 7%, airfreight tonnage was up 12% and volumes transacted for customs brokerage and other services grew as well, compared to a slow 2023.

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Cash from operations was $723 million, down from $1,053 million in 2023. This decrease in cash from operations was driven by a significant investment in working capital to finance our growth in the second half of 2024.

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We returned $1,059 million to shareholders through common stock repurchases and dividends.

Industry trends, trade conditions and competition

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. Periodically, governments consider various changes to tariffs and impose trade restrictions and accords. The United States has imposed increased tariffs on China, and is considering imposing increased tariffs on imports from Canada, Mexico, and other countries. These measures will likely face retaliatory tariffs from these countries. The potential for further tariff increases and trade restrictions remains high, creating an unpredictable environment for international trade. Additionally, changes to import and export regulations may impact the flow of trade. We cannot predict how changes in tariffs, trade restrictions, and accords will affect our business. As governments impose import and export restrictions, shippers may adjust their sourcing patterns and potentially shift manufacturing to other countries over time. Doing business in foreign locations also subjects us to a variety of risks and considerations not normally encountered by domestic enterprises. In addition to being influenced by governmental policies and inter-governmental disputes concerning international trade, our business may also be negatively affected by political developments and changes in government personnel or policies in the United States and other countries, as well as economic turbulence, political unrest and security concerns in the nations and on the trade shipping lanes in which we conduct business and the future impact that these events may have on international trade, oil prices and security costs. 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. We have a branch and employees in Lebanon but no significant assets.

Our ability to provide services to our customers is highly dependent on good working relationships with a variety of entities, including airlines; ocean carrier lines and ground transportation providers, as well as governmental agencies. We select and engage with best-in-class, compliance-focused, efficiently run, growth-oriented partners, based upon defined value elements and are intentional in our relationship and performance management activity, reinforcing success by awarding service providers who consistently achieve at the highest levels with additional business. We consider our current working relationships with these entities to be satisfactory. However, changes in the financial stability and operating capabilities and capacity of asset-based carriers, capacity allotments available from carriers, governmental regulation or deregulation efforts, modernization of the regulations governing customs brokerage, and/or changes in governmental restrictions, quota restrictions or trade accords could affect our business in unpredictable ways. When the market experiences seasonal peaks or any sort of disruption, the carriers often increase their pricing suddenly. This carrier behavior creates pricing volatility that could impact Expeditors' ability to maintain historical unitary profitability.

The global economic and trade environments remain uncertain, including inflation remaining higher than historical levels, volatility in oil prices, high interest rates and the conflicts in the Middle East and Ukraine. In the second and the third quarter of 2024, we saw capacity constraints on exports out of Asia resulting in increases in average buy and sell rates. However, if demand softens or safe passage through the Red Sea resumes, then additional ocean transportation capacity will become available. These conditions could result in declines in average sell and buy rates. We also expect that pricing volatility will continue as carriers adapt to changes in demand, changing fuel prices, security risks and react to governmental trade policies and other regulations. Additionally, we cannot predict the direct or indirect impact that further changes in and purchasing behavior, such as the evolution of international direct e-commerce platforms, could have on our business. Some customers are relocating their manufacturing to other countries to mitigate the impact of higher tariffs on imports, reduce supply chain risks, and address disruptions caused by pandemics and geopolitical issues. These changes could negatively affect our business.

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Critical Accounting Estimates

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). Preparing our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities 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.

These estimates, other than the accrual of loss contingencies and tax liabilities and contingencies, are not highly uncertain and have not historically been subject to significant change. Management believes that the methods utilized in all of these areas are non-aggressive in approach and consistent in application, and that there are limited, if any, alternative accounting principles or methods which could be applied to these transactions. While the use of estimates means that actual future results may be different from those contemplated by the estimates, management believes that alternative principles and methods used for making such estimates would not produce materially different results than those reported.

The outcome of loss contingencies, including legal proceedings and claims and government investigations, brought against us are subject to significant uncertainty. An estimated loss from a contingency, including a legal or tax proceeding, claim, government investigation or audit, or a customer claim, is recorded 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. Disclosure of a loss contingency is made if there is at least a reasonable possibility that a significant loss has been incurred. In determining whether a loss should be recorded, management evaluates several factors, including advice from outside legal counsel and qualified tax advisors, in order to estimate the likelihood of an unfavorable outcome and to make a reasonable estimate of the amount of loss or range of reasonably possible loss. Changes in these factors could have a material impact on our financial position, results of operations and operating cash flows for any particular quarter or year.

Accounting for income taxes involves significant estimates and judgments. We are subject to taxation in various states and in many foreign jurisdictions including the People’s Republic of China, including Hong Kong, Taiwan, Vietnam, India, Mexico, Canada, Netherlands and the United Kingdom. Management believes that our tax positions, including intercompany transfer pricing policies, are reasonable and are consistent with established transfer pricing methodologies and norms. We are under, or may be subject to, audit or examination and assessments by the relevant authorities in respect of these particular jurisdictions primarily for 2009 and thereafter. Sometimes audits and examinations result in proposed assessments where the ultimate resolution could result in significant additional 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 position. In evaluating a tax position, we determine whether it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position and in consultation with qualified tax advisors.

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The total amount of our income and non-income tax contingencies may increase in 2025. In addition, changes in state, federal, and foreign tax laws including transfer pricing and changes in interpretations of these laws may increase our existing tax contingencies. The timing of the resolution of 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 may undergo further audits and examinations by various tax authorities, and it is also possible that we may reach resolution related to income tax and non-income tax examinations in one or more jurisdictions. These assessments or settlements could result in changes to our contingencies related to positions on tax filings in future years and may increase the amount of tax expense we recognize as well as the potential for penalties and interest being incurred. Our estimate of any ultimate tax liability contains assumptions based on our experience, judgments about potential actions by taxing jurisdictions as well as judgments about the likely outcome of issues that have been raised by the taxing jurisdiction. Though we believe the estimates and assumptions used to support the evaluation of our tax positions are reasonable, the actual amount of any change could vary significantly depending on the ultimate timing and nature of its resolution. We cannot currently provide an estimate of the range of possible outcomes.

As discussed in Note 1.G to the consolidated financial statements, earnings of our foreign subsidiaries are not considered to be indefinitely reinvested outside of the United States. U.S. corporate income tax laws and regulations include a territorial tax framework and provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes on foreign income are imposed on the excess of a deemed return on tangible assets of certain foreign subsidiaries, Base Erosion and Anti-Abuse Tax (BEAT) under which taxes are imposed on certain base eroding payments to affiliated foreign companies as well as U.S. income tax deductions for Foreign-derived intangible income (FDII). Our effective tax rate is significantly impacted by the mix of pretax earnings that we generate in the U.S. as compared to countries in the rest of the world, and the tax rates in effect in those locations relative to the pre-tax earnings generated in those countries and jurisdictions. We believe it is reasonably possible that many countries and jurisdictions will increase their tax rates or otherwise implement tax reforms that would be expected to increase the total tax expense that we will incur in those locations. Our effective tax rate will continue to be impacted by any discrete items for events occurring in a future period or future changes in tax regulations and related interpretations.

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Results of Operations

This section of this Form 10-K generally discusses year-to-year comparisons between the results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023. For a discussion of the year ended December 31, 2023 compared to the year ended December 31, 2022, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023.

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, 2023 and 2022. 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.

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Airfreight services:

Airfreight services revenues and expenses increased 13% and 16%, respectively, in 2024, as compared with 2023, due to a 12% increase in tonnage and 2% and 5% increase in average sell and buy rates, respectively. Tonnage increased in all regions, with the largest increase coming from exports out of South Asia and North Asia. Average sell rates increased in South Asia, North Asia and MAIR as a result of higher 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 demand driven by the technology sector compared to a soft 2023.

South Asia revenues and expenses increased 66% and 82%, respectively, in 2024 as compared with 2023 due to a 40% increase in tonnage and significant increases in average sell and buy rates. This was driven by elevated demand for airfreight as a result of manufacturing relocations into the region and shippers shifting to airfreight due to the conflicts in the Middle East. North Asia revenues and expenses increased 16% and 17%, respectively, in 2024 as compared with 2023 due to a 9% 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. Average sell and buy rates decreased on exports out of North America and Europe due to excess available capacity relative to soft demand.

Seasonal changes in demand, impact from disruptions in the ocean market due to security and port congestion concerns and variable demand for airfreight capacity from direct e-commerce business cause volatility in average buy rates on certain lanes. Additionally, continued uncertainty in the economy, geopolitical concerns, as well as potential inter-governmental trade disputes and tariff changes could negatively affect demand for airfreight services which could reduce our volumes and average sell rates. These conditions could result in decreases in our revenues, expenses and operating income. We are unable to predict how these uncertainties and any future disruptions will affect our operations or financial results prospectively.

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Ocean freight and ocean services:

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

In 2024 ocean freight consolidation revenues and expenses increased by 46% and 58% respectively, as compared with 2023, primarily due to 38% and 48% increases in average sell and buy rates, respectively, and a 7% increase in containers shipped. Average buy rates per container increased due to strong demand and longer transit times, congestion and capacity issues caused by the disruptions in the Red Sea. Importers front loaded shipments creating a peak in demand starting in June 2024 in anticipation of potential US East and Gulf Coast ports disruptions, concerns over tariffs and factoring in longer transit times. These conditions boosted volumes and caused sharp increases in buy rates in 2024. We expect the rate declines that started in the fourth quarter of 2024 to continue into at least the first half of 2025 as demand softens and capacity increases as additional vessels are delivered.

Containers shipped were higher in most regions, most significantly on exports out of North Asia and South Asia. North Asia ocean services revenues and expenses increased 66% and 79%, respectively, due to a 7% increase in containers shipped and higher average rates. South Asia ocean services revenues and expenses increased 85% and 109%, respectively, due to a 19% increase in containers shipped and higher average rates due to the factors above.

North America and Europe ocean freight and ocean services revenues decreased 6% and 13%, respectively, and expenses decreased 16% and 15%, respectively, in 2024, compared to 2023. Decreases were primarily due to lower average sell and buy rates and declines in containers shipped partially offset by higher revenues on import shipments.

Order management revenues increased 29% and expenses increased 32% in 2024, due to higher volumes from new and existing customers. Direct ocean freight forwarding revenues decreased 2% while expenses remained flat in 2024, principally due to lower volumes and rates for ancillary services.

Global economic conditions and trade policies remain uncertain. Further, carriers are adding new vessels which will increase capacity. In addition, if safe passage through the Red Sea resumes, additional capacity will become available due to shorter transit times. These conditions could depress sell and buy rates. We expect that pricing volatility will continue as carriers adapt to fluctuations in fuel prices, new regulations, security risks and manage available capacity. As customers seek lower pricing and react to governmental trade policies and other regulations, this could result in decreases in our revenues and operating income.

Customs brokerage and other services:

Customs brokerage and other services revenues and expenses increased 2% and 1%, respectively, in 2024 as compared with 2023, primarily due to increases in customs clearances, import services and road freight from higher shipment volumes, principally in Europe and MAIR offset by decreases in warehousing and distribution primarily in North America.

Import services, including charges at ports such as detention, drayage, terminal charges and delivery, decreased significantly in the first quarter 2024 due to residual effects from the supply chain congestion. Road freight, warehousing and distribution services also declined in the first quarter of 2024 due to lower volumes and decreased trucking, storage and labor costs. With the exception of detention and demurrage, these services rebounded in the second half of 2024.

Europe and MAIR revenues increased 5% and 15%, respectively, and expenses increased 2% and 15%, respectively, in 2024 as compared with 2023, primarily as a result of higher shipment volumes.

While customers continue to value our brokerage services due to changing tariffs and increasing complexity in the declaration process, some customers are opting to use back up customs brokerage service providers as a risk reduction strategy. Customers continue to seek knowledgeable customs brokers with sophisticated computerized capabilities critical to an overall logistics management program that are necessary to rapidly respond to changes in the regulatory and security environment. Should international trade slow, volumes shipped and pricing could negatively impact our revenues and expenses.

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Overhead expenses:

Salaries and related costs increased 4% in 2024, as compared with 2023, principally due to increases in commissions and bonuses earned from higher revenues and operating income. Base salaries and benefits and headcount both increased 2% in 2024.

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

Our management compensation programs have always been incentive-based and performance driven. Bonuses to field and executive management in 2024 increased 7% when compared to 2023 primarily due to a 11% increase in operating income.

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

Other overhead expenses increased 1% in 2024, as compared with 2023. The increase in 2024 is primarily due to higher rental and occupancy expenses, travel, and technology related expenses partially offset by a $24 million decrease in expenses related to indirect tax and other contingencies and lower depreciation expense.

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, we expect to increase spending on: cybersecurity; internal controls over our technology and systems; upgrading our IT infrastructure; and deploying new and enhanced solutions. We will also 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 income, net:

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

Income tax expense:

Our consolidated effective income tax rate was 25.9% in both 2024 and 2023. In 2024 and 2023, we benefited from U.S. Federal tax credits totaling $32.5 million and $24.1 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 million and $16.2 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%, as well as certain expenses that are no longer deductible under the 2017 Tax Act, including certain executive compensation in excess of amounts allowed.

Our effective tax rate is subject to variation and the effective tax rate may be more or less volatile based on the amounts of pre-tax income. For example, the impact of discrete items and non-deductible expenses on the effective rate is greater when pre-tax income is lower. Total consolidated foreign income tax expense is composed of the income tax expense of our non-U.S. subsidiaries as well as income based withholding taxes paid by our non-U.S. subsidiaries on behalf of its parent for intercompany payments, including the remittance of dividends, some of which do not qualify for tax credits under U.S. income tax laws and regulations. The tax benefit associated with non-qualified stock option and restricted stock unit grants is recorded when the related compensation expense is recorded (excess tax benefits are recorded upon the exercise of non-qualified stock options and vesting of restricted stock units and performance share units), while the tax benefit received for employee stock purchase plan shares cannot be anticipated and are therefore recognized if and when a disqualifying disposition occurs.

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Some elements of the recorded impacts of enacted tax laws and regulation could be impacted by further legislative action as well as additional interpretations and guidance issued by the Internal Revenue Service or Treasury in the U.S. and by similar governmental bodies in jurisdictions outside of the U.S. See Note 7 to the consolidated financial statements for additional information.

Currency and Other Risk Factors

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 where there are regulatory or commercial limitations on our ability to move money freely around the world or the short-term financial outlook in any country is such that hedging is the most time-sensitive way to mitigate short-term exchange losses. We had no foreign currency derivatives outstanding at years ended December 31, 2024 and 2023. Net foreign currency gains were approximately $12 million in 2024, and net foreign currency losses were approximately $15 million in 2023.

Historically, our business has not been adversely affected by inflation. Beginning in 2021 and continuing through 2024, 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 costs resulting from increases in interest rates.

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

Liquidity and Capital Resources

Our principal source of liquidity is cash and cash equivalents and cash generated from operating activities. Net cash provided by operating activities for the year ended December 31, 2024 was $723 million, as compared with $1,053 million for 2023. This $330 million decrease is primarily due to changes in working capital as we made investments to finance our business growth in the second half of 2024. At December 31, 2024, working capital was $1,593 million, including cash and cash equivalents of $1,148 million. Other than our recorded lease liabilities, we had no long-term obligations or debt at December 31, 2024. 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.

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

Our business historically has been subject to seasonal fluctuations, and this is expected to continue in the future. Cash flows fluctuate as a result of this seasonality. Historically, the first quarter shows an excess of customer collections over customer billings. This results in positive cash flow. The increased activity associated with periods of higher demand (typically commencing late second or early third quarter and continuing well into the fourth quarter) causes an excess of customer billings over customer collections. This cyclical growth in customer receivables consumes available cash. However, there is no assurance that this seasonal trend will occur in the future.

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Cash used in investing activities for the year ended December 31, 2024 was $41 million, as compared with $39 million in 2023. Capital expenditures were $40 million in 2024 compared to $39 million in 2023. Capital expenditures in 2024 were primarily related to continuing investments in building and leasehold improvements and technology and facilities equipment. Total anticipated capital expenditures in 2025 are currently estimated to be $50 million. This includes routine capital expenditures, leasehold and building improvements and investments in technology.

Cash used in financing activities for the year ended December 31, 2024 was $1,025 million as compared with $1,537 million in 2023. 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, down from 140 million at December 31, 2023, as authorized by the Board of Directors in February 2024. We used 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 2024 and 2023, we used cash to repurchase 7.1 million shares of common stock at an average price of $119.47 per share and 12.1 million shares of common stock at an average price of $114.68 per share, respectively. In addition, during 2024 and 2023, we paid cash dividends of $1.46 and $1.38 per share, respectively.

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

We cannot predict what further impact ongoing uncertainties in the global economy, inflation, future interest rates, and political conflicts and uncertainties may have on our operating results, freight volumes, pricing, amounts advanced on behalf of our customers, changes in consumer demand, carrier stability and capacity, customers’ abilities to pay or changes in competitors' behavior.

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 December 31, 2024, borrowings under these credit lines were $31 million and we were contingently liable for $68 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.

We typically enter into unconditional purchase obligations with asset-based providers (generally short-term in nature) reserving space on a guaranteed basis. The pricing of these obligations varies to some degree with market conditions. We only enter into agreements that management believes we can fulfill. In the regular course of business, we also enter into agreements with service providers to maintain or operate equipment, facilities or software that can be longer than one year. We also regularly have contractual obligations for specific projects related to improvements of our owned or leased facilities and information technology infrastructure. Purchase obligations outstanding as of December 31, 2024 totaled $160 million.

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 timely repatriate funds from foreign operations may be subject to foreign exchange controls. At December 31, 2024, cash and cash equivalent balances of $509 million were held by our non-United States subsidiaries, of which $3 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.

As of December 31, 2024, we did not have any material off-balance-sheet arrangements, as defined in Item 303(a)(2) of SEC Regulation S-K.

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