ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 wholesale basis from direct (asset-based) carriers and then reselling those services to our customers on a retail basis. 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 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. 24. 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, 2021, 2020 and 2019: 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.F to the consolidated financial statements in this report), almost all freight revenues and related expenses are recorded at origin and shipment profits are split between origin and destination offices by recording a commission fee or profit share of revenue at the destination. North Asia is our largest export-oriented region and accounted for 39% of revenues, 44% of directly related cost of transportation and other expenses and 29% of operating income for the year ended December 31, 2021. North Asia's directly related cost of transportation and other expenses are higher than other segments due to the largely export nature of the operations in that region. 25. Highlights from 2021 In 2021, the COVID-19 pandemic and resulting disruptions on supply chains continued to significantly affect our business operations and financial results, and we expect these disruptive conditions to continue at least through the first half of 2022. The significant impacts are discussed under Item 1 Business and below within Results of operations. The COVID-19 pandemic may continue to impact our business operations and financial operating results, and there is uncertainty in the nature and degree of its continued effects over time. Refer to Risk Factors (Part I, Item 1A) for a discussion of these factors and other risks. • Revenues and directly related operating expenses increased 72% and 81%, respectively, from strong growth in all services propelled by high average rates and growth in volumes transacted. • Severe imbalances between carrier available capacity and customer demand resulted in record high average buy and sell rates resulting in higher revenues, operating expenses and need for working capital to support the growth. • Significant congestion at ocean ports and airport gateways from continued shortages in equipment, labor and warehousing space at destinations and disruptions from COVID-19 precautionary measures, resulted in longer transportation times and created challenging conditions to find availability to meet the growing customer demand. • Salaries and related expenses increased 34% as a result of higher incentive compensation from higher operating income. • Net earnings to shareholders increased 103% and we returned $710 million to shareholders in common stock repurchases and dividends. On February 20, 2022, we determined that our company was the subject of a targeted cyber-attack. Upon discovering the incident, we shut down most of our operating systems globally to manage the safety of our entire global systems environment. We had limited ability to conduct operations during this time, including but not limited to arranging for shipments of freight or managing customs and distribution activities for our customers’ shipments. The situation is evolving and while the Company has partially resumed operations, at this time the Company is unable to estimate when it will resume full operations. We are incurring expenses relating to the cyber-attack to investigate and remediate this matter and expect to continue to incur expenses of this nature in the future. The Company expects that the impact of the shutdown and the ongoing impacts of the cyber-attack will have a material adverse impact on its business, revenues, expenses, results of operations, cash flows and reputation. At this early stage, the Company is unable to estimate the ultimate direct and indirect financial impacts of this cyber-attack. 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 trade restrictions and accords. Currently, the United States and China have significantly increased tariffs on certain imports and are engaged in trade negotiations and changes to export regulations and tariffs. In 2020, the United Kingdom and the European Union negotiated the terms of the United Kingdom’s exit from the European Union (Brexit), which were effective on January 1, 2021. 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 higher tariffs on imports, manufacturers may accelerate, to the extent possible, shipments to avoid higher tariffs 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. 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 experiencing significant cash flow challenges as a result of travel restrictions resulting in cancellation of flights and have received government relief and incurred record operating losses in 2020 and 2021. Uncertainty over recovery of demand for passenger air travel, in particular business travel, compared to pre-pandemic levels may impact air carriers’ operations and financial stability long term. Prior to 2020, many ocean carriers incurred substantial operating losses and are highly leveraged with debt. These conditions have resulted in multiple carrier acquisitions and carrier alliance formations and certain carriers are expanding into onshore services. Carriers also face new regulatory requirements that became effective in 2020 requiring reductions in the sulfur in marine fuel, which are increasing their operating and capital costs. 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. 26. The global economic and trade environments remain uncertain , including the ongoing impacts of the pandemic . We cannot predict the impact of future changes in global trade on our operating results, freight volumes, pricing, inflation, changes in consumer demand, carrier stability and capacity, customers’ abilities to pay or on changes in competitors' behavior. 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. 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, such as a legal proceeding, claim, government investigation or audit, 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, 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. S ometimes 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. The total amount of our income and non-income tax contingencies may increase in 2022. In addition, changes in state, federal, and foreign tax laws 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 12 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 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, t he actual amount of any change could vary significantly depending on the ultimate timing and nature of its resolution. 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. The 2017 Tax Act significantly changed U.S. corporate income tax laws including, among other things, the creation of a territorial tax system. 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 27. 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 impact ed by any discrete items for events occurring in a future period or future changes in tax regulations and related interpretations. 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, 2021 compared to the year ended December 31, 2020. For a discussion of the year ended December 31, 2020 compared to the year ended December 31, 2019, 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, 2020 and see “Correction of immaterial error” note, below. The following table shows the revenues, the directly related cost of transportation and other expenses for our principal services and our overhead expenses for 2021, 2020 and 2019. 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. Percentage change In thousands 2021 2020 2019 2021 vs. 2020 Airfreight services: Revenues 1 $ 6,771,402 $ 4,274,026 $ 2,740,938 58% Expenses 1 5,067,380 3,168,808 1,955,054 60% Ocean freight and ocean services: Revenues 1 5,545,818 2,342,344 2,188,149 137% Expenses 1 4,364,160 1,751,850 1,584,240 149% Customs brokerage and other services: Revenues 1 4,206,297 2,968,023 3,013,330 42% Expenses 1 2,626,615 1,736,044 1,766,655 51% Overhead expenses: Salaries and related costs 2,062,351 1,538,104 1,422,315 34% Other 493,685 449,150 447,461 10% Total overhead expenses 2,556,036 1,987,254 1,869,776 29% Operating income 1,909,326 940,437 766,692 103% Other income, net 15,290 16,127 29,102 (5)% Earnings before income taxes 1,924,616 956,564 795,794 101% Income tax expense 505,771 258,350 203,778 96% Net earnings 1,418,845 698,214 592,016 103% Less net earnings attributable to the noncontrolling interest 3,353 2,074 1,621 62% Net earnings attributable to shareholders $ 1,415,492 $ 696,140 $ 590,395 103% 1 See Note 11 – Correction of Immaterial Errors to the consolidated financial statements included in Part II, Item 8 of this report. 28. Airfreight services: In 2020 and 2021, airfreight services experienced unprecedented events in response to the global pandemic. As a result of travel restrictions and lower passenger demand, airlines significantly reduced flight schedules which limited available belly space for cargo at a time where global demand remained high. Demand started growing in the second quarter of 2020 and continued to remain high throughout 2021, amplified by a strong economy and customers converting to air shipments due to disruptions in ocean transportation, creating additional competition for limited available capacity. These conditions have caused extreme imbalances between carrier capacity and demand, principally on exports out of North Asia and South Asia. In order to execute and meet the transportation needs of our customers we significantly increased utilization of chartered flights while still routinely purchasing capacity in advance and on the spot market. This resulted in sustained high average buy and sell rates. Freighters, charters and gateway infrastructure are operating at near maximum capacity, which is continuing the pressure on buy rates and limiting the ability to move additional volume. Airfreight services revenues and expenses increased 58% and 60%, respectively, in 2021, as compared with 2020, due to a 26% increase in tonnage and 28% and 29% increases in average sell and buy rates, respectively. Tonnage increased in all regions, with the largest increase coming from exports out of North America and North Asia, affected also by low levels of activity in the first half of 2020 in the United States and first quarter of 2020 in China as a result of pandemic-related closures. Average sell and buy rates increased in all regions and most significantly on exports out of North Asia and South Asia. During the fourth quarter of 2021, we experienced record high tonnage and continued high average sell rates and buy rates. Compared to the fourth quarter of 2020, airfreight services revenues and expenses increased 68% and 65%, respectively, due to 53% and 49% increases in average sell and buy rates, respectively, and a 13% increase in tonnage. When compared to the third quarter of 2021, demand for airfreight grew while capacity shortages persisted in particular on exports from North Asia. Airfreight services revenues and expenses increased 41% and 39%, respectively, from the third quarter of 2021 to the fourth quarter of 2021, principally due to 37% and 34% increases in average sell rates and buy rates, respectively, and a 5% increase in tonnage. 29. These conditions create a high degree of volatility in v olumes, average buy rates and sell rates and are expected to continue at least through the first half of 2022, as international passenger flight s are not expected to return to pre-pandemic levels , additional capacity from freighters is limited and disruptions in the ocean market continue to impact demand for airfreight . The continued historically high average buy and sell rates have significantly contributed to the growth in our revenues and expenses and financial results in 2021 . Should customer demand decrease and rates return to pre-pandemic levels , it will result in a significant decrease in our revenues, expenses and operating income compared to 2021 . These unprecedented operating conditions are not expected to be sustained long - term. We are unable to predict how these uncertainties and any other 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 increased 137% and 149%, respectively, in 2021, as compared with 2020.The largest component of our ocean freight and ocean services revenue is derived from ocean freight consolidation, which represented 82% and 66% of ocean freight and ocean services revenue in 2021 and 2020, respectively. Ocean freight consolidation revenues and expenses increased 194% and 191%, respectively, in 2021, as compared with 2020, primarily due to 151% and 148% increases in average sell and buy rates, respectively, and a 17% increase in containers shipped. Demand started increasing in the second half of 2020 and continued to increase through the end of 2021, due to backlogs in supply chains, low customer inventory levels, and high customer demand creating a severe imbalance between demand and capacity, in particular on exports from North Asia and South Asia. The deficiency in available capacity continues to be affected by unprecedented congestion at ports due to labor and equipment shortages and insufficient storage at destinations. These factors disrupted sailing schedules and resulted in record high average buy rates. When compared to the fourth quarter of 2020, average buy and sell rates increased 211% and 219%, respectively. When compared to the third quarter of 2021, average buy and sell rates increased 33% and 32%, respectively. These extremely challenging conditions are impacting the ability to secure necessary capacity from ocean carriers, as well as the time and resources required to process shipments and meet the sharply growing demands of customers. In 2021, containers shipped were up in all regions, with the largest increase from exports out of North Asia and South Asia. The increase in containers shipped were also the result of low levels of activity in China in the first quarter of 2020 and in North America in the first half of 2020 due to pandemic-related closures. In 2021, North Asia and South Asia ocean freight and ocean services revenues increased 213% and 295%, respectively, while directly related expenses increased 209% and 306%, respectively, primarily due to higher average sell and buy rates and increases in containers shipped. Direct ocean freight forwarding revenues and expenses increased 22% and 27%, respectively, in 2021, principally due to higher volumes and increased charges for ancillary services provided at ports. Order management revenues and expenses increased 31% and 38%, respectively, in 2021, due to higher volumes from new and existing customers and higher costs. Ocean carriers experienced significant increases in market demand in 2021, and we expect this demand to continue at least through the first half of 2022. However, these unprecedented operating conditions are not expected to be sustained long-term. Until port congestion, labor and equipment shortages subside, we believe there will be continued pressure on buy rates. We also expect that pricing volatility will continue as carriers adapt to changes in capacity, market demand and labor availability and customers react to governmental trade policies. The historically high average buy and sell rates in 2021 have significantly contributed to the growth in our revenues and expenses. Should customer demand or rates decrease from these record levels, or if we are unable to secure sufficient capacity from carriers, it will result in a significant decrease in our revenues, expenses and operating income compared to 2021. Customs brokerage and other services: Customs brokerage and other services revenues and expenses increased 42% and 51%, respectively, in 2021, as compared with 2020, primarily due to an increase in shipments from existing and new customers, an increase in demand for brokerage services, in part due to Brexit and import services. Revenues and expenses for import services increased significantly due to record high drayage, storage, delivery, demurrage, and detention costs incurred at destinations caused by port congestion, shortages in warehousing space and delays in retrieving and delivering cargo. Road freight, warehousing and distribution services revenues and expenses also increased as a result of growth in demand and higher trucking, storage and labor costs. Slowdowns due to the pandemic-related closures affected volumes, particularly in aerospace, automotive, oil and energy and certain portions of the retail sectors in 2020 creating a backlog in supply chains that resulted in higher demand for services in 2021. Customers continue to value our brokerage services due to changing tariffs and increasing complexity in the declaration process. Customers 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. North America revenues and directly related expenses increased 45% and 64%, respectively in 2021, as compared with 2020, primarily as a result of higher volumes in customs brokerage, higher charges on import services. Europe revenues and directly related expenses increased 46% and 43%, respectively in 2021, as compared with 2020, primarily due to an increase in demand for brokerage services, in part due to Brexit. 30. Overhead expenses: Salaries and related costs increased 34% in 2021, as compared with 2020, principally due to increases in commissions and bonuses earned from higher revenues and operating income and a 9% increase in headcount to support the growth in our operations. 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 2021 were up 80% when compared to the same period in 2020 primarily due a 103% increase in operating income offset by unused bonus allocations available for future investments in the development of key personnel. 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 10% in 2021, as compared with 2020. The increases in expenses are the result of certain operational expenses, renting additional space and technology-related costs to support the growth in our operations and higher local tax expenses partially offset by a decrease in travel and entertainment expenses due to travel restrictions. As travel restrictions ease in the future, we expect travel and entertainment expenses to increase. We will continue to make important investments in people, processes and technology, as well as to invest in our strategic efforts to explore new areas for profitable growth. In the first quarter of 2022, we are incurring incremental expenses relating to investigating and remediating the cyber-attack and expect to continue to incur such expenses, which will significantly increase our overhead expenses. Income tax expense: Our consolidated effective income tax rate was 26.3% in 2021, as compared to 27.0% in 2020. The earnings of our U.S. operations were proportionally higher than that of our international subsidiaries in 2021 which resulted in a benefit to our effective tax rate as average U.S. federal and state tax rates are lower than average tax rates of our international subsidiaries. In 2021 and 2020, we benefited from U.S. Federal tax credits totaling $27.9 million and $16.7 million, respectively principally because of withholding taxes related to our foreign operations, as well as U.S. income tax deductions for foreign-derived intangible income (FDII) of $22.6 million and $10 million, respectively. This was offset by lower benefit from tax deductions for share-based compensation in 2021, principally stock option exercises of our employees, as well as the impact of certain expenses that are no longer deductible under the 2017 Tax Act, including certain executive compensation in excess of amounts allowed. 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 incentive stock options and employee stock purchase plan shares cannot be anticipated and are therefore recognized if and when a disqualifying disposition occurs. 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 or loss. 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 elements of the recorded impacts of the 2017 Tax Act could be impacted by further legislative action as well as additional interpretations and guidance issued by the Internal Revenue Service or Treasury. 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 31. 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 2021 and 2020 was insignificant. We had no foreign currency derivatives outstanding at December 31, 2021 and 2020 . Net foreign currency losses were approximately $12 million and $25 million for 2021 and 2020 , respectively. Historically, our business has not been adversely affected by inflation. However, in 2021, many countries including the United States experienced higher inflation than in recent years. In 2021 and continuing into 2022, our business has experienced rising labor costs, significant service provider rate increases, higher rent and occupancy and other expenses. 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 year ended December 31, 2021 was $868 million, as compared with $655 million for 2020. This $213 million increase is primarily due to increased earnings, partially offset by changes in working capital, principally from excess customer billings over collections when compared to the same period in 2020 as a result of growth in activity and high sell rates in 2021. At December 31, 2021, working capital was $2,909 million, including cash and cash equivalents of $1,729 million. We had no long-term debt at December 31, 2021. 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 effects of the cyber-attack, 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. Our accounts receivable and consequently our customer credit exposure has also increased as a result of historically high freight rates. 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 or to what degree it will continue to be impacted in 2022 by the pandemic or the cyber-attack. Cash used in investing activities for the year ended December 31, 2021 was $37 million, as compared with $46 million in 2020. Capital expenditures were $36 million in 2021 compared to $48 million 2020. Total anticipated capital expenditures in 2022 are currently estimated to be $100 million. This includes routine capital expenditures, upgrades to computer equipment related to the cyber-attack and investments in technology. Cash used in financing activities for the year ended December 31, 2021 was $614 million as compared with $331 million in 2020. We have a Discretionary Stock Repurchase Plan under which management is allowed to repurchase shares to reduce the issued and outstanding stock to 160 million shares of common stock. 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 issued and outstanding shares. During 2021 and 2020, we used cash to repurchase 4.4 million shares of common stock at an average price of $117.54 per share and 4.6 million shares of common stock at an average price of $72.26 per share, respectively. In addition, during 2021 and 2020, we paid cash dividends of $1.16 and $1.04 per share, respectively. 32. 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, political uncertainty nor the COVID-19 pandemic 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. The Company expects that the impact of the shutdown and the ongoing impacts of the cyber-attack will have a material adverse impact on its business, revenues, expenses, results of operations, cash flows and reputation. At this early stage, the Company is unable to estimate the ultimate direct and indirect financial impacts of this cyber-attack. 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, 2021, borrowings under these credit lines were not significant 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. 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 have lease arrangements primarily for office and warehouse space in all districts where we conduct business. At of December 31, 2021, we had fixed lease payment obligations of $531 million, with $97 million payable within 12 months. 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, 2021 totaled $300 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 repatriate funds from foreign operations may be subject to foreign exchange controls. At December 31, 2021, cash and cash equivalent balances of $923 million were held by our non-United States subsidiaries, of which $42 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, 2021, we did not have any material off-balance-sheet arrangements, as defined in Item 303(a)(2) of SEC Regulation S-K. ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks in the ordinary course of our business. These risks are primarily related to foreign exchange risk and changes in short-term interest rates. The potential impact of our exposure to these risks is presented below: Foreign Exchange Risk We conduct business in many different countries and currencies. Our business often results in billings issued in a country and currency that differs from that where the expenses related to the service are incurred. In the ordinary course of business, we create numerous intercompany transactions and may have receivables, payables and currencies that are not denominated in the local functional currency. This brings foreign exchange risk to our earnings. The principal foreign exchange risks to which Expeditors is exposed include Chinese Yuan, Euro, Mexican Peso, Canadian Dollar and British Pound. Foreign exchange rate sensitivity analysis can be quantified by estimating the impact on our earnings as a result of hypothetical changes in the value of the U.S. dollar, our functional currency, relative to the other currencies in which we transact business. All other things being equal, an average 10% weakening of the U.S. dollar, throughout the year ended December 31, 2021, would have had the effect of raising operating income by approximately $120 million . A n average 10% strengthening of the U.S. dollar, for the same period, would have the effect of reducing operating income by approximately $98 million. This analysis does not take into account changes in shipping patterns based upon this hypothetical currency fluctuation. For example, a weakening in the U.S. dollar would be expected to increase exports from the United States and decrease imports into the United States over some relevant period of time, but the exact effect of this change cannot be quantified without making speculative assumptions. We currently do not use derivative financial instruments to manage foreign currency risk and only enter into foreign currency hedging transactions in limited locations where regulatory or commercial limitations restrict our ability to move money freely. Any such hedging activity 33. throughout the year ended December 31, 2021 , was insignificant.  Net foreign currency losses were approximately $12 million and $25 million in 2 02 1 and 2020 , respectively . We had no foreign currency derivatives outstanding at December 31, 2021 and 2020 . We instead follow a policy of accelerating international currency settlements to manage foreign exchange risk relative to intercompany billings. As of December 31, 2021 , we had $237 million of net unsettled intercompany transactions. The majority of intercompany billings are resolved within 30 days. Interest Rate Risk At December 31, 2021, we had cash and cash equivalents of $1,729 million, of which $487 million was invested at various short-term market interest rates. We had no long-term debt at December 31, 2021. A hypothetical change in the interest rate of 10 basis points at December 31, 2021 would not have a significant impact on our earnings. In management’s opinion, there has been no material change in our interest rate risk exposure between 2021 and 2020. 34.