The Misfits: Expeditors International of Washington (EXPD)

A shining example of finding extraordinary value looking beyond the most well-known companies in an industry.

Sailing Ships, Konstantinos Volanakis, 1886-1890, oil on canvas (National Gallery of Athens), via Tilemahos Efthimiadis

We all gravitate toward the familiar when faced with large or complex challenges. This mental shortcut was described as the familiarity heuristic in Daniel Kahneman’s and Amos Tversky’s famous psychology studies. We can recall things better if we have previous associations with them, and we tend to view the familiar more positively than the unfamiliar, even though the unfamiliar may be the better choice.

Logistics and shipping is one of the most complex businesses one could imagine. It takes a special kind of business to understand what it takes to move goods around the world in the most timely and cost-effective means possible. We, as individual investors, may not have an intimate knowledge of the industry and its intricacies. But, I think we can all acknowledge that it is an essential industry, and the ones that do it well have durable business models.

So, when most investors consider transportation and logistics investments, they gravitate toward the familiar: UPS (NYSE: UPS) and FedEx (NYSE: FDX). They are ubiquitous players in the industry, and most of us frequently see their delivery trucks.

I certainly wouldn’t judge anyone too harshly for thinking these are great businesses. However, I believe this familiarity bias toward the most consumer-facing transportation and delivery companies means investors are missing some of the better firms in the logistics industry. For example, since 1992, when FedEx went public, Expeditors International of Washington (NASDAQ: EXPD) generated a 5x return to FedEx. Expeditors International has similarly outpaced UPS 8.5x since its IPO in 1999.

The story of UPS, FedEx, and Expeditors International isn’t just the familiarity heuristic in action; it’s also a study of durable business models translating to shareholder returns.

Let’s dig into this freight and cargo forwarding company to understand how one type of competitive advantage can be more conducive to shareholder returns than others.

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