On Jan. 3, 2023, the transportation world awoke to the news that Bob Biesterfeld, president and CEO of freight broker and 3PL giant C.H. Robinson Worldwide Inc., had resigned his posts. The company’s stock, which had already dropped more than 15% from around $120 a share in August, registered little immediate reaction to Biesterfeld’s abrupt departure.
Analysts, however, were less forgiving, raising concerns about a leadership vacuum and the company’s general direction. Almost to a person, they began lowering their 12-month price targets, with many dropping their estimates into the double-digit range.
The ensuing 12 months proved those analysts right. In a rough trucking market, and with no clarity on a recovery plan, C.H. Robinson (NASDAQ: CHRW) shares followed the path of least resistance, which was down. Shares descended into the high $70s in the fall before drifting up into the mid to high $80s, the level it trades at today. It took six months for the board and an executive search committee to pick Biesterfeld’s successor. When it came, the new leader, an outsider with virtually no C-suite experience and a relatively modest transportation background, was not who many had expected.
A year and a week since Biesterfeld stepped down, the story has largely stayed the same. Robinson’s North American truckload volumes, the core business of the company, continue to decline. C.H. Robinson’s freight forwarding business, whose performance was so strong during the pandemic that the company considered selling it at a premium, has fallen back and is no longer on the block. Questions have been raised about the cost-effectiveness of its proprietary technology, Navisphere, especially when less-expensive and equally functional off-the-shelf alternatives exist.
The company’s costs have risen and remain mis-aligned with volume trends. Margin pressure continues almost unabated. Analysts are hard-pressed to identify trends that illustrate short to intermediate-term improvement, especially with demand and pricing expected to remain weak at least through the first half of the year. On the anniversary of Biesterfeld’s departure, Ken Hoexter of Bank of America/Merrill Lynch published a note setting a 12-month price target of $80 a share, more than $7 a share below where shares traded on Tuesday
The question is whether C.H. Robinson’s problems are due to the punishing cyclicality of the current trucking market, or if the company faces a secular problem separate from industry cycles, namely if it has lost its relevance. There are approximately 18,000 brokers in the U.S., and C.H. Robinson’s volumes could likely be absorbed without much of a hiccup should the company slide into some form of long-term abyss.
All of this is to the chagrin of C.H. Robinson’s long-term shareholders, who have relatively little to show for their investment over the past 15 years. On Jan. 5, 2009, as financial markets were mired in the depths of the Global Financial Crisis, the company’s shares closed at $49.29 per share. An expected close on Tuesday of slightly below $87 a share means that shares have gained, on a compounded basis, 3.88% a year, a dismal performance given how much the shares of competitors and the major equity indices have appreciated over that time. C.H. Robinson’s shares currently pay a dividend of 2.79%
Mollifying aggrieved shareholders is just one of the issues on the plate of Dave Bozeman, who became president and CEO of the company at the end of June. Bozeman’s hiring came despite concerns that five years serving as vice president of Amazon Transportation Services did not qualify him to run a $15 billion global enterprise, especially with Jim Barber on C.H. Robinson’s board. Barber, who expressed interest in being CEO, had served as COO of UPS Inc. (NYSE: UPS), and had run UPS’ vast international business.
Bozeman has begun to remake the C-suite, starting with a new CFO to replace Mike Zechmeister, who will retire by the end of May if a successor hasn’t been named by then. He is also pushing to improve productivity at the company’s North American Surface Transportation unit, by far its biggest operation, by 15% in 2023 and by an additional 15% in 2024. To do that, Bozeman has said he will embrace lean process strategies, uncommon among transport companies. Bozeman has created an office designed to support the company’s strategic initiatives to be run by Jim Reutlinger, a lean process expert.
In a statement to FreightWaves, C.H. Robinson acknowledged that it “could have done a better job managing costs” during the pandemic-driven market upcycle, when it brought on a lot of people and boosted its IT spending only to be saddled with excess expenses during the subsequent downturn. It added in the statement that the “strategies and productivity improvements currently being implemented, combined with our expert people and strong customer value proposition, are putting the company in a better and more competitive position.”
A truckload of challenges
Bozeman had nothing to do with C.H. Robinson’s subpar performance over the past decade in a half. For that, there are any number of explanations. Founded in 1905, Robinson spent 92 years as a private company before going public in mid-1997. Not every deeply ingrained privately held culture is able to optimally adapt to the unfamiliar rigors of the public markets.
“I’ve always contended that the worst thing they could have done was to go public,” said Jason H. Seidl, analyst at investment firm Cowen & Co.
C.H. Robinson’s first 10 or so years as a public firm were bountiful, mainly because it remained the go-to broker in a world where many carriers did not have in-house brokerage businesses. C.H. Robinson’s world began to change after asset-based carriers, realizing that the company was using their assets to call on their customers, and reaping big margins in the process, began to develop their own brokerage arms and in the process undercut C.H. Robinson on pricing. according to Seidl,
A source familiar with C.H. Robinson said the proliferation of asset-based brokerage divisions was part of the problem, but far from all of it. Pure-play truckload brokerages such as TQL, Arrive Logistics and Echo Global Logistics, have been around for 10 years or more and have managed to compete with C.H. Robinson and grow their truckload volumes over the past five years while Robinson’s traffic has stagnated or declined, the source said.
The rivals’ push into C.H. Robinson’s core business begs the hardest question of all, the source said. “If you’re not a truckload broker, then what are you doing,” the source said.
Part of the blame, the source said, lies with board governance. Four of the company’s 12 board members have served for 10 years or more, and must take some degree of responsibility for the company’s underperformance, the source said. Two board members were added in 2022 at the request of Ancora, which owns 2% of Robinson’s stock and has been pushing for changes within the enterprise.