Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Safe Harbor for Forward-Looking Statements Under Private Securities Litigation Reform Act Of 1995; Certain Cautionary Statements
Certain portions of this report on Form 10-Q including the sections entitled "Overview," "Highlights from First Quarter 2023," "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," "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 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 March 1, 2023 and in Part II, Item 1A in this report. 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.
Overview
Expeditors International of Washington, Inc. (herein referred to as "Expeditors," the "Company," "we," "us," "our") provides a full suite of global logistics services. Our services include air and ocean freight consolidation and forwarding, customs brokerage, warehousing and distribution, purchase order management, vendor consolidation, time-definite transportation services, temperature-controlled transit, cargo insurance, specialized cargo monitoring and tracking, and other 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 Seaway Bill to customers as the contract of carriage. In turn, when the freight is physically tendered to a direct carrier, we receive a contract of carriage known as a Master Airway Bill for airfreight shipments and a Master Ocean Bill of Lading for ocean shipments.
Customs brokerage and other services involve providing services at destination, such as helping customers clear shipments through customs by preparing and filing required documentation, calculating, and providing for payment of duties and other taxes on behalf of customers as well as arranging for any required inspections by governmental agencies, and import services such as arranging for local pick up, storage and delivery at destination. 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.
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. In accordance with our revenue recognition policy (see Note 1. B to the condensed consolidated financial statements in this report).
Highlights from First Quarter 2023
The significant impacts are discussed within “Results of Operations” and the financial highlights below.
•Volumes transacted in most services were down due to softening customer demand from a slowdown in the global economy and international trade as customers’ inventory levels remain high.
•Average buy and sell rates have continued declining as available capacity for transportation exceeded demand.
•As a result of volume and rate trends above, revenues and expenses in airfreight and ocean services were significantly down compared to the first and fourth quarter 2022.
•As port congestion has cleared our customs brokerage and other services benefited from lower costs and a reduction in costs related to the cyber-attack incurred in the first quarter of 2022.
•Net earnings to shareholders decreased 35%.
•Cash from operations increased 32% to $546 million and we returned $214 million to shareholders in common stock repurchases.
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 a variety of changes to tariffs and impose trade restrictions and accords. Currently, the United States and China have increased concerns affecting certain imports and exports and have implemented additional tariffs. We cannot predict the outcome of changes in tariffs, or interpretations, and trade restrictions and accords and the effects they will have on our business. As governments implement restrictions on imports and exports, manufacturers may change sourcing patterns, to the extent possible, and, over time, may shift manufacturing to other countries. Doing business in foreign locations also subjects us to a variety of risks and considerations not normally encountered by domestic enterprises. In addition to being influenced by governmental policies and inter-governmental disputes concerning international trade, our business may also be negatively affected by political developments and changes in government personnel or policies in the United States and other countries, as well as economic turbulence, political unrest and security concerns in the nations and on the trade shipping lanes in which we conduct business and the future impact that these events may have on international trade, oil prices and security costs. We do not have employees, assets, or operations in Russia or Ukraine. While very limited, any shipment activity is conducted with independent agents in those countries in compliance with all applicable trade sanctions, laws and regulations.
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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. Many air carriers are recovering from significant cash flow challenges and incurred operating losses in 2020 and 2021 as a result of travel restrictions resulting from the cancellation of flights. Uncertainty over recovery of demand for trans-pacific passenger air travel, in particular business travel, compared to pre-pandemic levels may impact air carriers’ operations and financial stability long term. 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 the potential future impacts of a pandemic, higher inflation and oil prices, rising interest rates and the conflict in Ukraine. Starting in the second quarter of 2022 and continuing through the first quarter of 2023, we saw a slowdown in the global economy and a softening of customer demand resulting in declines in average buy and sell rates. As demand softened and pandemic restrictions subsided, port congestions cleared, shortages of labor and equipment eased resulting in excess carrier capacity over demand. These conditions could result in further declines in average sell and buy rates in 2023. We also expect that pricing volatility will continue as carriers adapt to lower demand, changing fuel prices 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 online shopping, could have on our business. In response to governments implementing higher tariffs on imports, as well as responses to the pandemic’s disruptions, some customers have begun shifting manufacturing to other countries which could negatively impact us.
Seasonality
Historically, our operating results have been subject to seasonal demand trends with the first quarter being the weakest and the third and fourth quarters being the strongest; however, there is no assurance that this seasonal trend will occur in the future or to what degree it will be impacted by a slowing economy. This historical pattern has been the result of, or influenced by, numerous factors, including weather patterns, national holidays, consumer demand, new product launches, just-in-time inventory models, economic conditions, pandemics, governmental policies and inter-governmental disputes and a myriad of other similar and subtle forces. In addition, this historical quarterly trend has been influenced by the growth and diversification of our international network and service offerings.
A significant portion of our revenues is derived from customers in the retail and technology industries whose shipping patterns are tied closely to consumer demand, and from customers in industries whose shipping patterns are dependent upon just-in-time production schedules. Therefore, the timing of our revenues 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, disruptions in supply-chains 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.
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Critical Accounting Estimates
The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and judgments. We base our estimates on historical experience and on assumptions that we believe are reasonable. Our critical accounting estimates are discussed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our annual report on Form 10-K for the year ended December 31, 2022, filed on March 1, 2023 to the critical accounting estimates previously disclosed in that report.
Results of Operations
The following table shows the revenues, the directly related cost of transportation and other expenses for our principal services and our overhead expenses for the three months ended March 31, 2023 and 2022, including the respective percentage changes comparing 2023 and 2022.
The table and the accompanying discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes thereto in this quarterly report.
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Three months ended March 31, |
(in thousands) |
|
2023 |
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|
2022 |
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|
Percentage change |
Airfreight services: |
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|
|
|
|
|
|
|
Revenues |
|
$ |
904,903 |
|
|
$ |
1,598,555 |
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|
(43)% |
Expenses |
|
|
666,022 |
|
|
|
1,142,546 |
|
|
(42) |
Ocean freight services and ocean services: |
|
|
|
|
|
|
|
|
Revenues |
|
|
697,307 |
|
|
|
1,976,246 |
|
|
(65) |
Expenses |
|
|
483,682 |
|
|
|
1,600,243 |
|
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(70) |
Customs brokerage and other services: |
|
|
|
|
|
|
|
|
Revenues |
|
|
990,379 |
|
|
|
1,089,497 |
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|
(9) |
Expenses |
|
|
569,398 |
|
|
|
773,322 |
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(26) |
Overhead expenses: |
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|
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|
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Salaries and related costs |
|
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449,848 |
|
|
|
538,940 |
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|
(17) |
Other |
|
|
147,670 |
|
|
|
147,487 |
|
|
— |
Total overhead expenses |
|
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597,518 |
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|
|
686,427 |
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(13) |
Operating income |
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275,969 |
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|
|
461,760 |
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(40) |
Other income, net |
|
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24,609 |
|
|
|
9,419 |
|
|
161 |
Earnings before income taxes |
|
|
300,578 |
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|
|
471,179 |
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(36) |
Income tax expense |
|
|
74,580 |
|
|
|
121,699 |
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|
(39) |
Net earnings |
|
|
225,998 |
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|
|
349,480 |
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(35) |
Less net (losses) earnings attributable to the noncontrolling interest |
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(13 |
) |
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3,371 |
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(100) |
Net earnings attributable to shareholders |
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$ |
226,011 |
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$ |
346,109 |
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(35)% |
Airfreight services:
Airfreight services revenues and expenses decreased 43% and 42%, respectively, during the three months ended March 31, 2023, as compared with the same period in 2022, due to 44% and 41% decreases in average sell and buy rates, respectively, and a 6% decrease in tonnage. Average sell rates decreased as a result of lower buy rates driven by declining market rates. Buy rates declined as supply chain congestion cleared, additional belly space capacity became available while demand continued to soften. Volumes were lower in 2023 as a result of softening demand and compared to strong volumes in the same period in 2022, in spite of being negatively affected by the downtime caused by the cyber-attack in 2022, from customers converting to air shipments due to ocean port congestion. Average sell and buy rates decreased in all regions with most significant decreases on exports out of North Asia and South Asia due to excess available capacity over demand. Compared to the fourth quarter 2022, airfreight services revenues and expenses declined 25% and 26%, respectively, due to lower average rates and volumes. As air carriers bring back additional flights, in some cases ahead of passenger demand, supply and demand imbalances may occur, resulting in pressure on rates.
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The historically high average buy and sell rates caused by the pandemic and unprecedented supply chain disruptions which contributed to the growth in our revenues, expenses and operating income in 2021 and 2022 have largely dissipated as supply chains operations normalized. Buy rates and sell rates have been declining since the second quarter of 2022 and are expected to further decline in 2023, which could result in further decrease in our revenues, expenses and operating income. We are unable to predict how these uncertainties and any future disruptions will affect our future operations or financial results.
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 decreased 65% and 70%, respectively for the three months ended March 31, 2023 as compared with the same period in 2022. The largest component of our ocean freight and ocean services revenue is derived from ocean freight consolidation, which represented 71% and 88% of ocean freight and ocean services revenue for the three months ended March 31, 2023 and 2022, respectively.
Ocean freight consolidation revenues and expenses decreased 72% and 75%, respectively for the three months ended March 31, 2023, as compared with the same period in 2022, primarily due to 62% and 66% decreases in average sell and buy rates, respectively, and a 26% decrease in containers shipped. Rising fuel prices, congestion at ports due to labor, truck and equipment shortages and disrupted sailing schedules resulted in continued high average buy rates in 2022. As demand softened, port congestion cleared and shortages of labor and equipment at ports eased, resulting in available capacity from carriers that exceeded demand in the first quarter of 2023. This resulted in a sharp decline in average buy rates starting in the fourth quarter of 2022 which continued in the first quarter of 2023. Compared to the fourth quarter 2022, ocean freight consolidation revenues and expenses declined 46% and 49%, respectively, due to lower average rates and volumes. Average sell rates declined to adjust to market conditions. Containers decreased as demand softened, inventories levels remained high and there are uncertainties in the global economy. We also experienced exceptionally high volumes in 2022 from customers transferring from direct carrier shipping due to lack of available capacity, in spite of being negatively affected by the downtime caused by cyber-attack in the first quarter of 2022.
North Asia ocean freight and ocean services revenues and expenses decreased 77% and 81%, respectively for the three months ended March 31, 2023, primarily due to 72% and 75% decreases in average sell and buy rates, respectively, and a 34% decrease in containers shipped. South Asia ocean freight and ocean services revenues and expenses decreased 77% and 81%, respectively for the three months ended March 31, 2023, primarily due to 74% and 77% decreases in average sell and buy rates, respectively, and a 27% decrease in containers shipped.
Direct ocean freight forwarding revenues increased 3%, while expenses decreased 6%, for the three months ended March 31, 2023, principally due to higher ancillary services revenues. As congestion at ports cleared, costs declined. Order management revenues and expenses decreased 41% and 50%, respectively for the three months ended March 31, 2023, due to decreases in volumes from customers as demand softened, retail inventories levels remained high and also due to lost customers caused by the cyber-attack. Our ability to provide order management services in the first quarter 2022 was significantly affected by limited system connectivity during the downtime caused by the cyber-attack.
The historically high average buy and sell rates caused by the pandemic and unprecedented supply chain disruptions which contributed to the growth in our revenues, expenses and operating income in 2021 and 2022 have significantly declined as supply chains operations normalized. Buy rates and sell rates started declining in the second half of 2022, decreased sharply beginning in the fourth quarter of 2022 and through the first quarter of 2023. As global economic conditions slow, we expect available capacity to exceed demand and continue downward pressure on sell and buy rates in 2023. While supply-chain congestion has cleared, uncertainty remains around labor at ocean ports and rail yards which could result in volatility in average buy and sell rates. We also expect that pricing volatility will continue as carriers adapt to volatility in fuel prices and customers react to governmental trade policies and other regulations, which could result in further decrease in our revenues, expenses and operating income.
Customs brokerage and other services:
Customs brokerage and other services revenues decreased 9% and expenses decreased 26% for the three months ended March 31, 2023, respectively, as compared with the same period in 2022, primarily due to declining shipments from a slowdown in the economy and the impact of the cyber-attack which resulted in lower revenues and additional expenses in the first quarter of 2022. Compared to the fourth quarter of 2022, customs brokerage and other services revenues and expenses declined 11% and 17%, respectively, primarily due to lower volumes.
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In the first quarter of 2022, as a result of our inability to timely process and move shipments though ports during the downtime caused by the cyber-attack, we directly incurred approximately $42 million in incremental demurrage charges that were not recoverable from the customers. Additionally, import services including charges at ports such as detention, drayage, terminal charges and delivery decreased significantly as congestion at ports cleared compared to high levels in the first quarter of 2022. We expect import services revenues and expenses will decline further in the remainder of 2023.
Road freight, warehousing and distribution services declined also due to lower volumes and decreased trucking, storage and labor costs. While customers continue to value our brokerage services due to changing tariffs and increasing complexity in the declaration process, some customers opt to using multiple customs brokerage service providers to reduce their risk. 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. Additionally, as international trade slows, volumes shipped and pricing could further negatively impact our revenues and expenses.
North America revenues decreased 14% and directly related expenses decreased 34% for the three months ended March 31, 2023, respectively, as compared with the same period in 2022, primarily as a result of declining shipments and significant decrease in detention, drayage, terminal charges and delivery charges including $35 million in incremental demurrage charges related to the downtime caused by the cyber-attack incurred in the first quarter 2022.
Overhead expenses:
Salaries and related costs decreased 17% for the three months ended March 31, 2023 as compared with the same period in 2022, principally due to decreases in commissions and bonuses earned from lower revenues and operating income.
Historically, the relatively consistent relationship between salaries and operating income has been the result of a compensation philosophy that has been maintained since the inception of our company: offer a modest base salary and the opportunity to share in a fixed and determinable percentage of the operating profit of the business unit controlled by each key employee. Using this compensation model, changes in individual incentive compensation occur in proportion to changes in our operating income, creating an alignment between branch and corporate performance and shareholder interests.
Our management compensation programs have always been incentive-based and performance driven. Total bonuses to field and executive management for the three months ended March 31, 2023, decreased 45% when compared to the same period in 2022, due to the decrease 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 revenues, operating income and net earnings are a result of the incentives inherent in our compensation programs.
Other overhead expenses remained flat for the three months ended March 31, 2023, as compared with the same period in 2022 as higher expenses were offset by decreases from costs incurred in 2022 as a result of the cyber-attack. During the three months-ended March 31, 2022 we incurred $20 million of incremental costs in relation with the cyber-attack. This decrease was offset by increases in certain operational expenses from renting additional space, traveling costs, bad debt, increases from investment in technology related costs to support our operations. So long as the economic environment remains uncertain and the congestion in the supply chain experienced in the last two years clears, we will be focused on aligning headcount and our overhead expenses commensurate with our transactional volumes. We expect to continue to enhance the effectiveness and security of our systems and deploy additional protection technologies and processes 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 explore new areas for profitable growth.
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Income tax expense:
The Company’s consolidated effective income tax rate was 24.8% for the three months ended March 31, 2023, as compared to 25.8% to the comparable period in 2022. For the three month periods ended March 31, 2023 and 2022 there was no BEAT expense and GILTI expense was insignificant. Both periods benefited from U.S. income tax deductions for FDII. For the quarter ended March 31, 2023, the Company benefited from higher U.S. Federal tax credits, principally because of withholding taxes related to the Company’s foreign operations compared to the same period in 2022. The impact of the 15% corporate alternative minimum tax based on financial statement income (BMT), which became effective in 2023 in the U.S., under the Inflation Reduction Act for the quarter ended March 31, 2023, was insignificant.
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. We try to compensate for these exposures by accelerating international currency settlements among our offices and agents. We may enter into foreign currency hedging transactions where there are regulatory or commercial limitations on our ability to move money freely around the world or the short-term financial outlook in any country is such that hedging is the most time-sensitive way to mitigate short-term exchange losses. Any such hedging activity during the three months ended March 31, 2023 and 2022 was insignificant. We had no foreign currency derivatives outstanding at March 31, 2023 and December 31, 2022. For the three months ended March 31, 2023, net foreign currency losses were approximately $3 million compared to $2 million net gains in the same period in 2022.
Historically, our business has not been adversely affected by inflation. However, starting in 2021 and continuing in 2022 and 2023, many countries including the United States experienced higher inflation than in recent years. In 2022, our business experienced rising labor costs, significant service provider rate increases, higher rent and occupancy and other expenses. While in the second half of 2022 buy rates for freight transportation capacity started declining, purchase prices for other services and labor costs have continued to increase through the first quarter 2023. 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 customer demand. 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 new regulatory requirements and volatility in oil prices will continue to impact future buy rates. Because fuel is an integral part of carriers' costs and impacts both our buy rates and sell rates, we would expect our revenues and costs to be impacted as carriers adjust rates for the effect of changing fuel prices. To the extent that future fuel prices increase and we are unable to pass through the 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 three months ended March 31, 2023 was $546 million as compared with $414 million for the same period in 2022. The increase of $132 million for the three months ended March 31, 2023, was primarily due to the collection of accounts receivable. At March 31, 2023, working capital was $2,497 million, including cash and cash equivalents of $2,351 million. Other than our recorded lease liabilities, we had no long-term obligations or debt at March 31, 2023. 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.
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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 or to what degree it will continue to be impacted in 2023 by the softening of the global economy.
Cash used in investing activities for the three months ended March 31, 2023 was $10 million as compared with $14 million for the same period in 2022, primarily for capital expenditures. Capital expenditures in the three months ended March 31, 2023 were primarily related to continuing investments in building and leasehold improvements and technology and facilities equipment. Total anticipated capital expenditures in 2023 are currently estimated to be $100 million. This includes routine capital expenditures, leasehold and building improvements and investments in technology.
Cash used in financing activities during the three months ended March 31, 2023 was $227 million as compared with cash provided by financing activities of $18 million for the same period in 2022. We use the proceeds from stock option exercises and available cash to repurchase our common stock on the open market to reduce, or limit the growth of outstanding shares. During the three months ended March 31, 2023, we used cash to repurchase 2.0 million shares of common stock compared to none during the same period in 2022.
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, rising interest rates, and political uncertainty, 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 March 31, 2023, borrowings under these credit lines were $44 million and we were contingently liable for $67 million from standby letters of credit and guarantees. The standby letters of credit and guarantees relate to obligations of our foreign subsidiaries for credit extended in the ordinary course of business by direct carriers, primarily airlines, and for duty and tax deferrals available from governmental entities responsible for customs and value-added-tax (VAT) taxation. The total underlying amounts due and payable for transportation and governmental excises are properly recorded as obligations in the accounting records of the respective foreign subsidiaries, and there would be no need to record additional expense in the unlikely event the parent company is required to perform.
Our foreign subsidiaries regularly remit dividends to the U.S. parent company after evaluating their working capital requirements and funds necessary to finance local capital expenditures. In some cases, our ability to repatriate funds from foreign operations may be subject to foreign exchange controls. At March 31, 2023, cash and cash equivalent balances of $795 million were held by our non-United States subsidiaries, of which $8 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.