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.
Thomas C Heine
The reason that CH isn’t doing well is because of their awful productivity and less than worthless investments in technology. CH has 16,000 employees and they are doing about 16 billion in sales. That works out to about a million per person. In contrast, many smaller brokers are doing 2-3 million per employee with off the shelf technology. CH reports they are paying a BILLION per year for technology and their sales and employee counts show they are LESS PRODUCTIVE than the AVERAGE broker.
The differences are startling. A million in sales should equal 100-150,000 in gross profit, maybe 10k in net-net profit. 2 million is (of course) double – 200-300k in gross profit per employee, and net profit would be maybe 5-10x the net profit, reaching 500-100k per employee, even after paying them more for moving twice as much freight per person.
When CH gets to 2-3 million in sales per employee, then their stock will go back up.
averhu mcoaxunt
apparently mentioning not dealing with ch robisnon because they push creepy DEI/ESG nonsense is a bridge to far for freightwaves .
Owner operator
Even in a boom year of 2021 CHR was offering ridiculously cheap loads and became last resort broker like tql. They can change CEO every year if they want. It will not make any difference. Unless they start offering competitive rates to carriers.
Heathen
Perhaps they should rethink their rate structure. CH is a last resort for us, second only to TQL. They have a hard rule that if they cannot keep above 15% of the rate, they let the load go unbooked. 30% is their preference.
With the average lease operator keeping 80% of rates, it makes more sense for us to run contract freight with a carrier than to deal with these brokerages that, on average, are keeping 20% for themselves, and aiming for more. Why bother with spot when you see better rates on contract freight, keep the same percentage, on average, and get access to a greater fuel discount pool?
Argue semantics all you want. Business runs on revenue, not feelings. I haven’t touched a CH load in years, and have no plans to, simply because their rate targets are garbage.
Freight Zippy
CH like every Broker makes a living off of Owner Operators and curtring pay and stalling checks. This coule not happen to a more deserving company or industry.
FTL Brokers are the most sleazy people/organizations.
As Reverend Wright would say “the chickens have come home to roost”
This is welcome and great news.
Freight meme
For many years CH had mid-level and upper level executive management that thought there sh1t didn’t stink, and that they had a right to look down on everyone else because, after all, they were CH.
These managers and executives thought that their number one spot was their divine right and they treated everybody as such.
They did this to themselves. Typical big company bully that thinks they OWN the top spot.
FW Commenter
Who at CH hurt you Mark?
Carl
I normally take Freightwaves articles with a grain of salt, but this one is directionally on point.
The 15% productivity improvement is a bit of a shell game as described during their last earnings call. In fact it sounded eerily similar to how results shifted around in the legacy produce/sourcing/fresh business years ago, not surprising considering the most recent ousted CEO grew up in that line of business. Hopefully Bozeman, Ancora or the Board spend some time addressing the ballooned expenses at corporate, HR, IT, etc..While they figure out how to get more out of technology, they need the people in the field more than they need a DEI heavy corporate office. Building on what others have already commented on here, getting back to its roots makes good sense. Sure, the market and industry have been changing year after year, and while they have tried to keep up with those changes, the thing they stopped paying attention to was the bottom up culture that drove the growth for so many years. In a very short period of time the culture shifted in a way that no longer values the intellect and insights of those engaged in the daily business. Unfortunately as they went from a bottom up to a top down culture, the top turned out to be less in tune with the needs of the market and significantly marginalized the best talent in the industry. Now that talent is sprinkling itself throughout the competitive market and doing very well.