Dan Moore, I'm the Senior Transportation Analyst here at Baird. I'd like to welcome everyone to the panel discussion with C. H. Robinson. I have the pleasure of introducing David Bozeman and Damon Lee. Chuck's in the audience as well. I've got a lot of history with this company. My first introduction was in 1996, so I've lived a few lives, but had the pleasure of watching a lot of development at C. H. over the years. This past year, it has been a busy one, guys.
A little bit.
Right? It has been a busy one. With that in mind, maybe to just unpack some of the last year, and there's plenty, it's a target-rich environment, there's plenty of stuff to talk about. We started the year, a weak freight market, some evidence that the spot market was improving. I think as the year progressed, we saw a Supreme Court decision that I think radically shaped the market in a lot of different ways. Can you maybe just talk for a minute about how this year has progressed, really how you view this cycle relative to whatever a normal cycle is, if it's even fair to say that?
Well, happy to be here, Dan. Thanks. You do have a history with Robinson, and good to see everyone here. A lot of familiar faces in the audience. You're right, it has been a year, and it continues to be, but for us, it's been positive, and it's an opportunity as well. You talked about spot cost. Let's just go there first.
Sure.
You are right, we have seen a steady increase in spot, 38% increase in spot costs throughout the year. That is for a number of different reasons, with capacity coming out. We actually expect spot to be +30% year-over-year in fourth quarter as well. Even going into next year, probably a +10 in spot cost. This kind of continued increase in spot cost. Where I get really excited about Team Robinson is even with those spot costs, when we always talk, I always tell you have kind of Robinson today, Robinson yesterday. The team in really driving AGP at an increase of 38% spot costs, and keeping AGP kind of flat, that just would have never happened in kind of Robinson before. The team is really, really executing on our strong strategy to do that. You also talked about Montgomery.
A number of things happened, obviously, with that case, in which we obviously tried to bring some clarity within the industry. That did not break the way we wanted it, nor the way the industry wanted it. At the end of the day, Dan, as you know, that was just one defensive claim, that preemption. Most of the states did not have that anyway, coming out of the Montgomery case, that federal preemption. We have had to defend ourselves before that, and we do it very well. We defend ourselves very well in our docket, and we will continue to do that. Super happy about our vetting process, especially the last three and a half, four years. That continues to be very strong, a lot of confidence in how we are bringing carriers on, and how we are kind of driving this market.
We have a number of companies that have latched on to see what we are doing when it comes to fraud and a number of other things. Just a lot of positive things going on with Robinson, and I am sure we will talk about some of the other things that we have recently announced later on in this conversation, because it opens up extreme opportunity for shareholders, our employees, and others. So, feel really good about it.
I just had one thing, I think Dave covered it well, is been a lot of moving parts this year. The one thing that has not changed is our strategy. We have continued to outgrow our end markets in our NAST business. We have continued to drive demonstrable productivity. We have continued to expand operating margins. We have now reached and stabilized mid-cycle margins. All of that in a year with a lot of moving pieces, right? As Dave mentioned, I think the market gets a little numb to the spot rate increases now, but just to remind the audience, right, a traditional broker, historically, this type of spot rate environment would have been disastrous, right?
For us, we've actually grown earnings over 20% each one of the quarters that we've had over 30% spot rate increases, with an average cycle time of repricing our contractual book by close to three weeks. We are a different company. We are a different broker. We're a completely different company than we were historically. Regardless of what the market yields, we're going to continue to outperform. 14 consecutive quarters of market outgrowth for NAST, 12 consecutive quarters of exceeding consensus expectations. A year with a lot of moving pieces, but we continue to outperform.
We may have to extend this 20 minutes to get to all the questions I have. One area I wanted to start out of the gate is automation. I think whether you're an investor, whether you're an analyst, one prescient question that everyone would like context around is, where are you in your evolution around automation. It's not a light switch, it's a journey. You guys have picked a lot of low-hanging fruit over the last two plus years. There's still opportunity to be had, and I don't think that's lost on anyone, but I'd much rather have you frame it
Yeah
and add context around that so that people can walk away with some expectation and understanding of where you are.
No, I'm glad you said that because we do need to frame it. I actually think on this question, there's a number of people when you think about what we've done in our story that really don't understand or get it. I was looking at Chuck because Dan said low-hanging fruit and the entire Team Robinson know that's a hot button with me.
That is a trigger word for me.
It is a trigger word for me because it has not been just low-hanging fruit. This has been a succinct, purposeful, and very intentional strategy within our company to execute a system that we call that is symbionic, and it is three major points. This is our operating model that we have introduced that I think not only has transformed Robinson, but it really is impacting the industry if you look at it. It is going to continue to transform
Without a doubt
this industry.
Yeah.
I am happy to have that debate with anyone, but that is the conduit of having that operating model. That operating model has now unlocked our technology in a way that when someone asks Damon and I about headcount, we always answer the same way. We do not know. We do not have a KPI on headcount because that is backwards thinking. We are an input-based company now, and so we engineer our workflows that we are going to automate, and when we do that, headcount is but an output of resource that you need once you engineer the workflow. So, where are we on that? We are like super early. We put up 65% productivity since the end of 2022. That is true.
But we sit up here and we will tell you, it is still early days because there are hundreds of processes that still have to be, if you want to put it in air quotes, automated, but it is more than just automated. It is really engineered. We do value stream maps. We go and we look and we say, "Hey, from the order to cash process in C.H. Robinson," and again, I think this affects the industry as well, I know where we are going on this diamond point moment. That order to cash process, we optimize that entire flow. Not a portion of it. You have to optimize that entire flow, and that has really helped us.
That makes it a symbionic relationship with our people who are really good, that really drive this, our technology that is now unlocked, and there is a lot more to go after that, especially with agentic and a number of other things that we are doing. Then the operating model that drives pace and responsibility, visibility, and accountability. All of that tells you that this is why Damon can sit up here and we can say, "We are not going to stop and we do not ever start with macros because it does not matter what the macros are doing, what the environment is doing.
We are going to win on higher highs, higher lows." Now, when it actually shifts, and everyone in here knows this is housing, retail, and industrial, when that starts to go up and to the right, it is more of a demonstrable gap that we will put up because of the system we have put in.
It's bringing it to scale, right?
It's bringing it to scale.
Right.
That's going to be a scale that I think far surpasses the competition even more when you have an upmarket, which makes the acquisition of RXO even more exciting. That's how you have to put all of these pieces together, not just low-hanging fruit. Low-hanging fruit is in the first 60 days, the way I operate. This has been three and a half years.
Right. No, great context and appreciate that. I'm going to pivot and talk a little bit about, if we could, the operating environment, because I think the operating environment has changed. Shippers are thinking more critically about counterparty risk today. I think you're in a unique position to take advantage of that. I'll define it in my own terms, and you're welcome to
Yeah
correct where you see appropriate. If you are a large shipper today, whether it is Amazon or Target or Costco or Kohl's or Walmart, whoever it might be, the need to assess counterparty is maybe more critical than at any point in the past. And I had a conversation with a really, a very, very large retailer that everyone would know, their Director of Transportation. He said, "You know, Dan, I have had more conversations with legal in the last six months than I have the last 10 years." So, I think there is a top-down narrative for retail, particularly those that have internal brokerage arms. There is an argument to be made that those arms should no longer be held internally, that you shouldn't have an internal brokerage arm, that needs to get outside the corporate veil. Some people would agree with that, some people wouldn't.
I think that it depends on how you want to operate your business, but I think there are clear advantages to taking it outside the veil, and you are in a position to pick that business up. Small to mid-sized brokers, historically, I would argue, offered a really low rate in many cases, but didn't offer insurance. They may have allowed retailers and wholesalers and industrial companies to do things they might not have been able to otherwise do.
And I think we are in a market environment where there is consolidation now, the bottom up, because they don't have the fortress balance sheets. They don't have the insurance towers. They can't apply capital to really improving process, and moreover, they can't apply automation like you can across your business. So, to me, there is a very clear top-down and bottom-up consolidation theme. I would like you to unpack that however you would like to.
There is a lot there and a lot of vectors that you put in there, and that is good. But let's try to do it in somewhat of a brief way. I will start, and Damon can jump in. So a couple things that are like facts, because there is a lot of things being thrown around that are just not factual. And our dataset is not just a dataset that allows us to execute and win transactionally. It allows us to have intelligence and see a number of things that are going on.
And so in that dataset, it is a fact that because of the current environment, shippers are making a different choice. And some of that choice is, yesterday, I may have had a distribution strategy of 15 different brokers and things like that. The fact is they are shifting away from that and saying, "I don't need to do that.
I have got to bring this down into brokers that are going to be able to act as that cartilage between myself, right, and my loads going out there." Not just from a legal perspective, but also from an assurance perspective of getting loads there.
Right.
The fact that you have scale in order to do that. One that I am really proud of in C.H. Robinson that goes really under the radar is problem-solving, right? We do freight forwarding, we do brokerage as a price of admission, but we really solve high-scale problems logistically and globally for shippers at scale. That is not what a lot of small and medium brokers are in this business to do. That is what we do. We are seeing and we are getting the calls from shippers who say, "Hey, I am doing some consolidation." In one case, we had one going from 12 down to two. We are one of the two. We see that. I would also tell you that we are also the one leading the conversation in D.C. to put this kind of genie in a bottle that says, "This industry does not want immunity.
We want accountability." You have to have a standard, and you have to have a legislative solution to really apply some reasonable accountabilities within this industry. We are leading that fight for all, for the industry in driving that, and we will continue to do that. That is just a fact in driving that. That is super important. The last point I will tell you is another fact. Modern commerce does not work without a brokerage model. Everyone just needs to understand that. This was developed to move commerce. You have to have that. That is why you have gone from 6% to 30% penetration, 6% in 2005 and now 30%, and that is going to continue to go up and to the right. This is why you see assets have brokerage arms.
Now, to your point, that is being assessed, but you still have to have this model for us to have modern logistics and move commerce. We will be the company that does that, and we will continue to do that, but we will also try to drive that fight in D.C. to bring some reasonable standards and legislative solutions to what is going on. That is some unpack of a number of different things you had.
I will just add one thing, which is we have been very consistent since the Montgomery ruling, which is we said, look, we wanted to win. We felt like that was the right thing to do for the industry, the right thing to do for C.H. Robinson. It would bring stability and a standard. We always knew if we lost, there was probably positive economics to follow. That is exactly what we are seeing today, right? We knew the economics of being a small and medium-sized broker post-Montgomery were going to be less than advantageous, in most cases prohibitive. Certainly, there was going to be a flight to quality as well, just due to the liability related to post-Montgomery, right? We are seeing that every day as far as shippers choosing larger brokers versus small and medium-sized brokers.
The comment that was made earlier around the procurement arms of shippers now is talking more to legal than they probably have ever in their career. I would argue that risk management within most of these enterprise shippers are making the procurement choices now, right? They are the ones saying, "These are the brokers you can do business with," versus what you did yesterday or two years ago, right? As you can imagine, that flight to quality is going to benefit brokers like C. H. Robinson. It is going to benefit brokers like RXO, right? Between the two of us, we have the best insurance stacks in the brokerage industry, right? Bar none, right? As we said before, wanted to win Montgomery. We always knew there would be positive economics and a consolidation of this industry if we didn't.
Certainly, Lipe accelerated that, and we are seeing the windfalls of a flight to quality within brokerage.
I am glad you brought this up because it is an important question, and thank you for all that context. Wayfair and Amazon both filed an amicus brief on your behalf.
When you were in the midst of the Montgomery case.
Yep.
It strikes me that there is alignment of interest on the part of some very, very large players in the market.
Yes.
It would behoove the industry to try and get legislation sponsored that would clearly define negligent hiring.
So that all states could move up and under that definition. It would also behoove the industry to encourage legislation that created a standard for scoring carriers in terms of safety. What's the likelihood that we see legislation at some point in the next year with this new Congress, that's bipartisan, that simply defines what negligent hiring is in a way that's clear and allows everyone to operate under the same premise?
Well, listen, a lot of people here have gone to D.C. I mean, it's our legislative system that we have. Not the fastest, but I will tell you, I feel pretty positive about it. I personally have met with both sides, both Dems, both Republicans, and in solving this has to be bipartisan in doing that. I will also tell you that we don't get absolute nos, because it's the way you shape the issue. This issue is a combined both side issue. This is a Main Street issue. And the way we're putting that to them is you have 1.2 million truck drivers. So we have, call it 500,000 small carriers that have one to five trucks driving around on the highways. And that represents about 1.2 million different truck drivers that are in there. This is an employment issue. Those carriers are being impacted.
They are being impacted by Montgomery, not to mention the number of small-medium brokers that are not going to go out, that are already starting to go out. We know this. We see that. This is an employment issue, number one. Two, this is an affordability issue. Ultimately, increased insurance rates, a number of different things with less than on time and full, and a lot of things that go on the shelf, that all gets passed down to cost and shelves of products on the shelves. That is going to hit Main Street. This is an affordability issue. We lay that down. But then three, you cannot have business going around and adjudicating this in 50 states with multiple jurisdictions and just think that that is scalable and sustainable for most people. It is not.
You have Robinson up here who, we obviously have the scale and we will continue to do that, but for most in the industry, that is really, really tough. The last one, why you see an Amazon and a Wayfair is when you start looking at plaintiff's attorneys or trial attorneys and looking at this, and you know this, Dan, it is who is next up on the ring. You could potentially have shippers now that have liability that comes their way. That is something that, again, do we want to see all of this happening in courtrooms constantly around the country? I think that is what has made this very interesting on both sides of the aisle. We are going to keep driving that fight. I feel pretty positive about it, because ultimately, this is just one thing that kind of brings sensible accountability within the industry.
Right. Maybe to shift to RXO. I think on paper, the RXO, at least the RXO deal to us is very, the benefits of it are very clear. The opportunity to cost out and really leverage that platform across your own is very clear. I think some investors, rightly or wrongly, have questioned in a world where there should be tremendous organic growth opportunity, the way I have defined it at least, from the top down and from the bottom up, could you accomplish a lot of the same things organically without having to take on leverage?
Or, when you saw that, and maybe to pivot, when you were pursuing the deal, when you were considering the deal and the opportunities that it offered, clearly, you made the decision that those opportunities, those benefits far exceeded anything you could do organically. I think that is something investors want to better understand.
The thing we have said is, just look at the SG&A for RXO. It is a pretty big bucket. There is a lot of opportunity there for you. In your own words, how would you maybe add context around those issues?
Well, I'm going to have Damon dive into that on bringing the context to it. I just want to start by saying, Dan, we will sit here 12 months, 24 months from now, and you'll be asking me a different question on just the unlocked impact of this deal in a very different question, which will be a very positive thing. I can tell you that today. That's how strong I feel about this deal and what's going to happen, because it's right in front of our face.
That's great.
That makes Robinson almost the ideal investment. Not to pitch anyone here, but I'm just telling you. But go ahead.
Yeah, look, I think it's very simple. We're going to do both, right? At no point in time have we said that we're going to redivert investment from our organic to inorganic. Nope. The same investment we've been making in the organic to drive the demonstrable outgrowth and margin expansion and productivity that we've been driving, that's going to continue, right? There is no pause. There is no change to our strategy organically. We're going to continue to do what we've been doing for the last two and a half, three years. RXO gives us an opportunity to supercharge that strategy, right? I mean, we lay out this example all the time. Forget M&A for a second. If I was to say, "I can add almost $7 billion of profitable revenue to the Robinson books. I can do it in two years.
I have to lever up a little bit, but I'm going to completely delever that in two years. By the way, I'm going to generate $300 million in net synergies along the way." I think it's a good project. I think most everybody would go up and say, "Yeah, it's a really good project," right? I think the fact that it's done through acquisition is what gives everybody pause, right? We feel really good about it. Why do we feel really good about it? What we've been through the last three years with C. H. Robinson has been one big integration, right? We have reintegrated C. H. Robinson, right? The same processes, same mindsets, same strategy, same tools, same operating model, same technology that we've transformed C. H. Robinson with applies to RXO with an extremely high R-squared, right?
In fact, I don't know that you could find a better R-squared. We know exactly how they execute their business model, right? We know exactly how they go to market, right? They're a broker. We're a broker. They look a lot like Robinson did five to 10 years ago, right? So we know the playbook. We know what generates success. We know what generates productivity. We feel very comfortable with their book of business, our book of business, and having de minimis overlap between the two. We've done a lot of diligence there. To me, this is a once in kind of a generational opportunity to put two of the best franchises together, and generate demonstrable returns from doing that. As Dave said, now's the time to take the benefit of that, right?
Sure.
If you wait 18 - 24 months, it's going to be too late, right? Dave and I have had these conversations before. We remember having conversations with investors in 2024 and early 2025 saying, "This is what we're going to do, and this is the path we're going to go on." We had those same conversations a year later with investors saying, "Man, I wish I had listened to you guys 12 months ago." Well, now's the time to listen to us now, right? We know what the playbook is. We know how to execute that playbook. Sure, it's going to be a lot of hard work, but we know how to drive the synergy benefits of the RXO integration because again, look at what we've done with C. H. Robinson, right? 65% productivity since the end of 2022, right?
With the combination of our technology and our operating model. We're very confident in what we've laid out to the street on the benefits of this deal, and very confident in how we're going to execute that at a very high level.
I would just add on here, Dan, RXO, both companies are really good at customers. I know Drew, I know that team, driving customers, driving customer retention, attraction. That is what we both do. I could not feel better about an acquisition, as Damon just laid out, when you just look at the math. For everyone listening to this and watching, we also feel super good about when it comes to the type of customers that we have. We said that it has been limited on the overlap. We stand on that. There is no worry for us about the customer overlap, and we feel really high when it comes to the execution. I think we have had some of the receipts to prove that. We will run that play again.
Well, let us close with one last thing. Milestones, as we think about 2027. If you were to set some milestones for yourself that investors could hold you accountable to, and you do it all the time, to be clear, but what two milestones, be it in the core business, be it with RXO, what would you qualify as being important milestones?
I will give you
to that success?
I'll give you three real quick here. One is, we're going to continue to outgrow our end markets, right? Our NAST business is going to continue to do what it's been doing. Global Forwarding business is going to continue to drive profitable growth there as well. Second is we're going to continue to drive productivity, expand our operating margins, right? Nothing changes there. The same strategy we've had the last three years applies to 2027. Then certainly put up a meaningful synergy number in 2027 for the RXO acquisition, right? I mean, this isn't a deal where all the benefit's going to come in the last month of the two years we committed to, right? There'll be meaningful savings in 2027, and we can't wait to share those with you guys.
Well, I want to thank you both for being here. Really enjoyed the time together here on stage.
Yeah.
Welcome everybody to ask questions in your breakouts and one-on-ones. Hope you have good meetings. Thank you for being here.
Yeah. Thank you.