The Joplin Globe, Joplin, MO

Business

April 20, 2012

Truckless trucking company profits in unbalanced times

MINNEAPOLIS — Transportation broker C.H. Robinson Worldwide Inc. thrives when the world is a bit off balance.

As the summer peach harvest approaches, for example, trucks needed to move the fruit to market will become scarce in Georgia. As oil prices rise, as they are doing now, demand for freight trains tends to go up while demand for truck transportation dips.

To solve those imbalances, shippers turn to the low-profile Eden Prairie, Minn.-based company that owns no trucks, trailers, ships or rail cars to get their goods to market. At Robinson’s headquarters, workers match thousands of ready-to-go freight shipments with available transportation around the world as if they were buying and selling commodities — which, in fact, they are.

In industry jargon, this is called “third-party logistics” and Robinson has gotten very good at it, regularly growing earnings by 15 percent annually. But the main question at Robinson these days is whether the 107-year-old firm has peaked. A global recession and slow recovery have delivered a shortage of shortages for Robinson to exploit. The stock, which hit an all-time high of $82 in July 2011, has dropped almost 20 percent since then and closed at $66.14 Thursday.

“We haven’t achieved (historic goals) in the last couple of years because the world has been a pretty choppy place,” said Robinson CEO John Wiehoff. “A lot of people ask if something has changed, if our run of success is over. We feel strongly that’s not the case. We believe there are at least a couple more decades in which we can achieve those long-term growth rates.”

Some analysts aren’t so sure. Today’s slow economy doesn’t create the kind of transportation shortages on which Robinson thrives, they say.

“The company is going to have difficulty growing at 15 percent on the earnings line, given its size and the balanced supply and demand in the truckload market,” wrote John Larkin of Stifel Nicolaus after Robinson’s fourth-quarter report in January. Profit margins on trucking declined and the company slightly missed Wall Street expectations. The company has missed three of the last five earnings per share estimates, Larkin noted. Robinson reports first-quarter earnings on April 24.

Ben Hartford, an analyst with Robert W. Baird & Co. in Milwaukee, says Robinson can return to 15 percent growth, but only if it consistently takes market share away from its trucking industry competitors. The reason? Trucking accounts for 75 percent of its revenue, Hartford said. Despite Robinson’s international reach, the U.S. trucking business remains its bread and butter. The company has only a small trucking presence in China and Europe.

For 2011, earnings and revenue both increased 11.5 percent, and the company earned $431.6 million, or $2.62 per share, on revenue of $10.3 billion.

What sets Robinson apart is its worldwide scope and proprietary technology. Its website offers nine languages. Its 8,350 employees understand both the micro and macro aspects of the global transportation markets. Although it doesn’t own trucks or trains, its trading rooms are packed with computers linked to global networks and loaded with company-written logistics software.

“We have thousands of competitors, but not anybody who’s close to being like us,” Wiehoff said, noting that the company competes against everybody from FedEx to railroads to thousands of smaller brokers who also bring shippers and transportation companies together. “In a fragmented competitive industry, we’re unique.”

Karen Donohue, an associate professor of supply chain and operations management at the University of Minnesota’s Carlson School of Management, calls Robinson “an asset-light” company that doesn’t own as much of the supply chain as some third-party logistics companies do.

“Because Robinson isn’t asset-intensive, it can be more flexible,” she said. “As the economics of shipping by rail versus truck change, Robinson is better able to make those tradeoffs quickly.”

Ryan Pettit, Robinson’s director of technology strategy, agrees.

“We’re not trying to bend someone’s supply chain to fit what we have to offer,” he said. “Instead of approaching customers as a trucking company, we approach people as strategic partners. We can see the supply chain and the problems in it, and we can offer tips for improving their business.”

Robinson earns the most for its services when either shipments or trucks are in short supply. For example, during Georgia’s annual peach harvesting season from mid-May to mid-August “everyone fights to get their hands on a truck,” Pettit said. “Trucks are cheap in Georgia the rest of the year.”

As a result, Robinson’s best results in recent years occurred “when the country was growing fast in 2005 and 2006, and most shippers had more freight than expected and less than enough trucks to haul it,” Wiehoff said. “That’s when what we do is most valuable.”

The company has achieved success by adhering to its roots. It began in 1905 as a hauler of fresh produce, a business it remains in today, although it is only about 8 percent of net revenue. As a shipper of food, the company was exempt from federal trucking regulations out of concern that food might spoil if it were subject to regulatory delays. When the trucking industry was deregulated in 1980, Robinson expanded into other types of freight. The company went public in 1997, and its revenue has grown more than fivefold since then.

Employment is growing, too, although Robinson is vague about how many people it currently plans to hire and where they’re needed. It is constructing a new $20 million office building on its current headquarters site in Eden Prairie, which will both replace another building in the city and accommodate future growth.

Being big also has its disadvantages. Wiehoff downplays the company’s clout in determining transportation prices within the estimated $1 trillion U.S. shipping business. Robinson has 2 percent or less U.S. market share in all of its businesses except for its relatively small fuel purchase credit card business for trucking companies, in which it has a 10 percent market share, he says. Robinson’s international market share is even smaller.

“Nobody in our industry can set prices or drive prices,” Wiehoff said. “We work with 37,000 shippers, and almost all those prices are competitively bid. We deal with 50,000 transportation providers, mostly truck lines, and we buy at market rates.”

But, like all public companies, Robinson has to be concerned not only about what its customers think of it, but what Wall Street thinks of the company. And this year, uncertainty around the company’s future growth may be weighing on its stock price. At about $66 a share, Robinson’s stock is trading near its 12-month low of just more than $62.

Concerns about the company’s growth “are likely to continue weighing on the stock if near-term growth remains muted,” JPMorgan analyst Thomas Wadewitz concluded in a February report. He predicted that Robinson’s stock would underperform its industry for the next six to 12 months.

Wiehoff shrugs off such views.

“Our current business model has been working for 32 years,” he said. “Even if the business is getting more competitive, or things are not quite so favorable for us going forward, we might grow at 12 percent instead of 15 percent. And I wouldn’t call that a failure.”

 

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