C.H. Robinson Worldwide, Inc. (CHRW) Earnings Call Transcript & Summary

Hi. Good morning, everyone. I'm David Vernon with Bernstein, I cover transports and airlines. We are privileged to welcome you to the second day of Bernstein's 36th Annual Strategic Decisions Conference. We are joined for this session by Bob Biesterfeld, CEO of C.H. Robinson Worldwide, a global logistics and freight forwarding company. We're going to do a bit of Q&A. I want to, first of all, thank Bob and C.H. Robinson for making the time to join us at the conference. [Operator Instructions] I also like to remind you that, at the end of the session, the Procensus link will also be live. That's a real-time survey where you can go in, answer a few short questions about the company and also see how other investors are answering those questions in the same way. This gives you a fairly unique way to, in real-time, test how you're thinking about the company with respect to how your peers may be thinking about the company. So with that, I would like you to -- I would like to kick off the session. I'm going to hand it over to Bob for a couple of opening remarks, and then we'll get into Q&A.

Great. Thanks, Dave. It's good to be back with you, albeit virtually this year instead of being in New York. But thanks for hosting us, and thanks to all the investors and analysts that have chosen to join us today. At C.H. Robinson, right now, obviously, the primary conversation is around COVID. And given the global nature of our business, we've certainly seen the intersection of COVID with the global supply chain over the course of the last several months. As a company, we're staying grounded in the 3 pillars today that have led our decision-making throughout this. And that's, first and foremost, ensuring the health and safety of our employees; secondly, ensuring the supply chain continuity of our customers; and thirdly, ensuring the economic security for our employees. While there are still uncertainties going around the world with COVID, we feel really confident about our position in the supply chain and the importance of our position in the supply chain in keeping global businesses moving. We entered this year in a really strong financial position, strong liquidity, strong balance sheet with a growth mindset, and that continues today. We've experienced a lot in the last 100-plus years as a company. And just like all of the challenges we've had in the past, we expect to emerge even stronger from this challenge that faces us today. As I reflect in the last few months, I'm really proud of the team and how they have executed, the speed in which the team has innovated, the speed in which the team has made decisions and move business forward. Relative to some of the current market conditions that we see today, if we had a crystal ball, it does feel a bit like April and May were maybe the trough of this part of the cycle, and we're starting to see some recovery in businesses as businesses come back online, as geographies start to reopen, as countries start to reopen. So we see that as a positive thing looking forward. Obviously, a lot of turmoil that continues to happen in global supply chains, but I'm sure we'll get into some of that as the hour progresses.

All right. So maybe if you could talk a little bit, obviously, the slowdown that hit the economy, this is unlike anything we've really ever seen before. How would you -- how should investors be thinking about the resiliency of the earnings profile at C.H. Robinson, sort of through this volume drawdown? I know you've taken some steps, furloughed some workers, things like that. Can you talk about kind of what we should be expecting from an earnings resiliency standpoint? And what you and the team are doing specifically to help the company cope with this unprecedented falloff in demand?

Yes, absolutely. To your point, Dave, we had to make some difficult decisions in the first quarter to deal with the economic realities of what we're facing us. And so we made some short-term decisions in order to ensure that resiliency of earnings, inclusive of furloughing around 7% of our workforce, taking some pay cuts across the executive team along with our Board of Directors, accelerating the use of some PTO, rolling back our 401(k) match for the year. And those are incremental steps that we've taken in addition to the $100 million of cost savings that we committed to earlier in the year. But as I think about Robinson as a company, resilient is a way that we've often described our company. And if I look back at the last 23 years since we became a publicly traded company, you can see that earnings resiliency through a number of different economic up-cycles and down-cycles. If we look back to the Great Recession in '08, '09, we were a different company then. We were primarily a surface transportation-based company, primarily a truckload company. And that model reacts today just like it did then, just as the industry does. In our industry, cost tends to lead price a bit. And so when costs decline, margins can tend to return to more normal levels. And as things recover, margins can face some constraints. But over time, those margins tend to be relatively range-bound and pretty consistent over the long term. Today, our portfolio is much more diversified than it was in the last recession, so we're not as reliant on our truckload performance to drive earnings growth. Over 20% of our business today is tied to the global forwarding industry, where we've got a strong industry-leading position there as well. So what hasn't changed in our model over the course of the last 20 years is the shippers that we work with, the distributed nature of our customer base and carrier base and that value that we're able to create for both throughout cycles. So we really do feel like we're in a good position, strong free cash flow generation, strong balance sheet and strong liquidity to get through this.

So one of the things that's been a part of Robinson story has been the variability in the operating cost base. Traditionally, you've been able to match changes in net revenue with changes in personnel expense. That story was a little bit different in the first quarter of this year. I think as personnel expenses kind of stayed higher than they normally would have, given the declines in net revenue that were reported or the change in net revenues that was reported. How should we think about that as a change in the business? Is this something that we're going to have a higher level of personnel costs going forward? Or will the variability in personnel costs in relation to net revenue kind of come back into the business as we lap this IT spend and investment program you're undergoing right now?

Yes. It's the right question to ask, Dave. And so there's a couple of things that I want to call out. And again, I'd reinforce, I mentioned already, but some of the initial cost savings. The $100 million that we identified over 3 years, we think is really a good starting point. Those are really long-term cost savings initiatives. The $60 million is more short-term in nature, but we do look for ways to parlay those short-term savings into longer-term savings. And we believe that, just as you and I were talking prior to the beginning of this conference, there are a lot of things that we're learning about how to operate differently in this model that we maybe didn't think were possible prior to COVID. Things like remote work, things like teleconferencing, things like being excellent and selling customers and doing implementations in a remote manner, all of those had implications to cost savings long term. But there's no question, if you look within first quarter, there are more fixed costs in our model today than there were at the last time we went through a recession like this. And those fixed costs are borne of the technology investments that we're making, the additional professional services that we've brought on to help us through the transformation and also the mix shift in our business. Our Global Forwarding, which is now, like I said, in the north of 20% of our business, tends to be more of a fixed-cost model than does the North American Surface Transportation business. If you were to look at North American Surface Transportation alone, there's actually greater variability in the cost model there than there's been at any time in the past. But given some of the changes in the mix of headcount and the mix in the business, there is more fixed cost in that business. As we think about engineering our engine for the long term, reintroducing some variability into that cost model is probably just as important for us as is the actual takeout of cost long term.

And then how do you do that? Is that a change in the composition of pay between cash and equity? Or how should we be thinking about your approach to adding that variability back into the business?

Yes. There's a number of ways that we can tackle it. And my commitment isn't that it's going to go back to the way that it was because, frankly, some of the fixed expenses is there by design. Simply said, as we were in times when we were highly variable, we had higher turnover as well. We just weren't able to attract and retain some of the talent that we needed and wanted at those times with that high variability in personnel expense. And so we've moved with intent to more fixed compensation in some of our roles. IT is a great example. Technology and engineers, where we've grown our headcount in that by over 30% in the last 2 years, that starts to become a meaningful impact to that. The way that we inject variability into some parts of our business is through different approaches to contingent labor, different approaches to consultants versus employees, et cetera, that allow us to ebb and flow a bit. But ultimately, it's about comp design. It's about enterprise efficiency. And it's about managing the costs appropriately.

Okay. And you -- so you stepped into the role at a pretty interesting time around the truckload brokerage business. After years of taking share at faster-than-market growth rates, Robinson had a period where volume growth was actually lagging the market a little bit. That has changed. It feels like, in the last couple of quarters, you guys have made a conscious decision to go for volume. Why is that the decision -- why is that the right decision for C.H. Robinson? Because, obviously, it comes a little bit of a cost on the gross margin side. You are extending yourself on the contract side here into whatever happens into the market in the future. But talk to me about -- a little bit about the pivot towards volume growth again. And why now is the right time to be doing that for the business?

So the sense that we've pivoted towards volume growth, with all due respect is, I don't know is the right way to depict it. And I will tell you that there's never been a point in our -- in the past where we haven't said that volume growth is important. There have been points in the past where we haven't achieved it. And whether that's clean growth or share gains, I tend to look at share gains as being the most important measure there because there are some things in the overall economy that we just simply can't control. But us taking market share in our core services is a really important part of our strategy. As you know, Dave, 85 -- if we're talking about truckload, 85% to 90% of all the truckload freight that moves in North America moves under the contract -- moves under contract terms, right, typically of a year in length. And so that's a really, really critical part of our business, it's winning in that contract marketplace. The reason that's so critical for us is we really think it opens up the field of play. Brokerage today is defined as 25% to 30% -- 20% to 25% of the overall for-hire marketplace. But given our strength in the contractual environment, we think that opens up that aperture a lot for us, and allows us to play and compete with not only the brokerage marketplace but also that marketplace with the large-asset carriers that primarily focus there. So winning in the contract marketplace is really important for us there, just as it is in LCL, just as it is in ocean and our other products. Our first quarter marked the fifth consecutive quarter of share gains as measured against some of the industry metrics, which we feel good about. I would say that within the quarter, we -- in the fourth quarter and the first quarter, we observed that the behaviors were potentially changing from some in the competitive market that were perhaps pursuing more of a winner-take-all approach or win-at-all-cost approach prior to that, regardless of the profitability. And so when we saw within some key customers the opportunity to, I guess, get re-awarded 10,000, 20,000, 30,000 loads that had maybe gone in other directions in the past, you do that a few times in the quarter and you start to show some pretty significant gains, not only in share but in overall absolute volume.

So I appreciate the correction on the characterization. So it sounds like instead of it being a conscious sort of move towards volume, this is more about the competitive dynamic maybe loosening up a little bit in light of the market volatility. I mean, should we be reading this as -- and I mean, I don't want to put words in your mouth, but the digital disruptors that may have been out there buying share reassessing their decision to invest in money-losing loads given a finite capital-raising window? Like, is this rise like a competitive dynamic thing? Or how should we be thinking about this as far as kind of why the outcome changed a little bit? Because the share growth was a little bit faster than -- in the first quarter than the second quarter.

Yes. No question. And I -- there's probably -- the answer is probably one of those c: All of the above, right? I mean it's -- there's things that are within our control. The fact that we went aggressive into some of our core customers to defend our market share. We're getting much better with our investments in technology, around pricing algorithms and making it easier for our customers to award freights to us in a frictionless environment. And I do think that I would characterize in the competitive landscape a bit of a change in behavior amongst some towards more -- of what we would refer to as a more rational pricing approach to the marketplace. And that's really been our thesis ever since the onset of this "dislocation" or "disruption" of our industry is it's really difficult to buy market share long term because of the constant resetting of pricing and reallocation of freight on an annual basis.

So I want to get back to the disruption stuff, but I also love to get your perspective on some bigger market issues, right? You guys have your finger on the pulse of the surface freight market unlike any other company kind of in our coverage across modes. As we think about the broader truck market and the long tail of carriers that are out there, 2019, we started to see some capacity leaving the market. We started to see the uptick in carrier bankruptcies, things like that. How are you thinking about the capacity picture as we look out over the next 12 to 24 months on the asset side?

On the asset side, yes, I think it's still a bit unclear. I mean, one of the things that we look at internally is new carrier sign-ups, right, as an indication of either new -- that can -- we sign up new carriers for 1 or 2 reasons. Either, one, they're new to the industry; or two, it's a retreat to quality, so to speak, where they've tried to work with other 3PLs or other companies, and they're not able to get the freight they need, so they come to us. And we have not seen a meaningful change in that metric. One of the other things that we look at is the amount of freight that we do with larger motor carriers as a percentage of our total. And typically, that number goes up as markets soften. And we did see in the first quarter that number increase with us. And so that typically is not a great sign probably for some of the larger motor carriers in terms of the efficiency of their networks that they're looking more and more towards brokerage for base freight, if you will. The other variable that's there today is just the impact of all the liquidity that's been pumped into the market, the PPP loans and everything else. I have to assume those things are helping some carriers to hold on here for some period of time. For us, a vibrant carrier marketplace, a healthy carrier base is great. But I think the reality of where pricing has trended over the course of the last several quarters, frankly, through '19 into '20. And the current demand would indicate there's likely some decline in capacity coming, both in the small motor carriers as well as others that we've seen in some of the larger and midsized motor carriers as well. So you couple that looking forward with potentially some economic rebound in the third and fourth quarter, and I think it's realistic to expect a more -- a tightening in the marketplace into '21.

And that tightening, obviously, the spot market, and I'm sure you guys have -- you guys have actually shared a lot of data around routing guide depths and things like that on your website, which has been very helpful. But as you think about that tightening into 2021, one of the things that we wonder about is, obviously, the truckload industry today is laying off workers, right? How sticky do you think that pressure is going to be? Or how -- what's the drop-through from the spot market to the contract market if the trucking industry is actually able to gear-up with capacity and seat drivers more easily because of a looser labor market? Is that something that you're thinking about in terms of the rate of change in the contract rate environment in relation to spot? Obviously, spot should tighten as we get into '21, but what about contract?

Well, spot typically is going to lead contract, right? Cost leads price. Our model, as you know, if you were to simplify it, is we sell long and buy short, and the greatest indicator of where the contract markets are going to go is the cost of purchase transportation over time. And so I think, again, I've never once predicted a market correctly, so take this with a grain of salt. But if I think back to '17 into '18, and it was going to be the mother of all capacity crisis season. The market was going to completely tighten. And then you saw the front end of '18, it was tight, it was tight, it was tight. And then all of a sudden, capacity starts to just flood the marketplace. And just like it has in every other cycle, supply and demand reached some sort of an equilibrium, and that "peak" or dislocation becomes very short-lived. If I play out into '21 under the -- some of the economic assumptions that we've been talking about, if you've got a high degree of unemployment, likely even lesser barrier of entry because of depressed or lower truck prices, the flood of drivers back into the market might even be faster than it's been in other times in the past.

That's helpful. So a couple of other big-picture issues for you on your different lines of business, one more brokerage and then we'll talk a little bit about forwarding. There have been a number of things, protests if you will, happening in the trucker industry where smaller carriers are arguing about transparency and trying to make the case that because brokers are not being as transparent as they are, they're making too much money and truckers are having to go out of business. As the CEO of the largest truck brokerage in North America, how do you think about that argument? What do you say about that argument? And what's your reaction to the kind of the view that brokers are earning while truckers are going bankrupt?

Sure. So first and foremost, I think the market is more transparent today than it's ever been at any time in the past. I mean, that's at the heart of what's changed in so many ways about the digital transformation of the entire 3PL industry has been about rate transparency and load transparency and digital freight optimization. And we've gone from just having DAT and truck stop as load boards to now having so many different companies with the ability to book freight automatically online with rates visible, visibility as to where capacity is, predicted supply, predicted demand. The market is more transparent than any time in the past. And any participant in the market, for literally a couple of hundred dollars a month, can have visibility and view into what market rates look like in both the spot and the contractual marketplace. So with that being said, small businesses, small carriers are the lifeblood of our business. I mean 85% of our freight moves with trucking companies with less than 50 pieces of equipment, and we need them to be successful, which is why we took the steps that we did in the first quarter and through the second quarter to really get back and to help these small businesses. We extended our Carrier Advantage Program to all contract carriers of Robinson, which gave them the opportunity to purchase diesel at a $0.30 per gallon discount across our network of fuel stations, and we extended that out through July. That's a meaningful impact to the profitability of those small businesses. We also made the largest donation on record to the St. -- excuse me, St. Christopher's fund for truckers, which helps to feed and provide benefits to truckers that are suffering insecurity of either food or economics. So we're committed to these small businesses. If you look at transportation margins over time, you can look at ours as one proxy, and you see that over the past 12 years, they range between 15% and 17%. The markets move cyclically. As markets drop, margins in the industry tend to expand on the trucking side. As markets increase, they tend to contract on the trucking side for the 3PLs. You can also look at the TIA and their data that shows a 16% average margin across the industry. But ultimately, this debate or this discussion around broker transparency is tied to a rule that predates the deregulation of the trucking industry, 371.3. And what 371.3 says is that the carrier is due transparency to the broker's rate. And we absolutely support that the carrier should have transparency to the broker's rate under the context of how that business was done pre-1980 and deregulation, which was when the carrier actually paid the broker's commission. Today, the carrier no longer pays the broker's commission. The shipper pays the broker's commission. And so we do our best to ensure that carriers get the right rate for the business that they do with us and that they're executing against quality. But to give carriers visibility to that rate without the rest of what went on prior to deregulation, which included the carrier being responsible for contractor risk and contingent liability risk and collection risk and bankruptcy risk and all those other things. It's just a rule for a very different time.

And your experience, your company's experience with feedback from carriers on this issue?

We've received, up to this point, exactly 1 request for transparency.

Great. So let's talk about freight forwarding a little bit, right? Obviously, Robinson made the decision to diversify into freight forwarding a couple of years ago, and now we're coming into a period of time where rural trade and potentially the regionalization of supply chains could slow the growth of that business. Are you -- how are you thinking about that decision to diversify? Has it paid the dividends that the company was hoping it was going to pay? And how do you think -- and we'll start there, and then I have got a follow-up for you.

Yes. So as I think most on the call know, we made the acquisition of Phoenix International in 2012, which really doubled the size of our global forwarding business. But more important than that, it brought in really strong global forwarding talent. And given the opportunity to do that acquisition, again, I would do it 10 times over. And the subsequent acquisitions, plus organic growth that we've built in forwarding, has really helped us to build a diversified service portfolio. We feel really good about the geographies that we serve today. Our service mix between our Surface Transportation, trucking and LTL to the forwarding. I mean, today, we're the #1 NVOC from China to the U.S. and #2 from Asia to the U.S. So we've really built a stronghold in the ocean freight side in that market. If we think about the shifting of global trade, and if we look at more regionalization or nationalization or near-shoring, I truly believe part of -- as we open this conversation around this theme of resiliency, is that our model is built to be resilient through those changes. We maintain that #1 position from China to the U.S. without any long-term commitments, without any asset commitments, without any fixed assets in that business. So we're able to redeploy people and resources against shifting supply chains, whether that means shifting out of China to India, whether that means shifting to Southeast Asia, whether that means near-shoring to Mexico or the U.S. And as one area may draw down in our business, we have the ability to capture that in another geography through other forwarding services or through surface transportation. So the model gives us that flexibility to maintain profitability.

Okay. And then if we come back to this issue of digital disruption, last year, when we were live in this conversation, you were pretty emphatic about your view that Robinson's capabilities in this area are underestimated, and the ability to kind of come in with technology alone and disrupt everything is maybe not as simple as it sounds. We're a year in. You're starting to see some of the digital brokers either reassess or rethink their approach to the marketplace. How is your thinking on this issue of technology disruption and the rise of digital marketplaces starting to change? Or has it changed at all in that period of time? Or what's the evolution of your thinking on this potentially disruptive impact in technology in the brokerage space?

I think emphatic is a nice way of characterizing that, Dave. That was -- I will tell you, I really don't think that my position has changed on it. It's probably, more than anything, been more cemented over the course of the last year as we've seen some of the things play out as we thought they likely would. And that's not to take away anything from the efforts that other companies have made to enter our industry or disrupt our industry, but we simply haven't seen sustainable instances of companies coming in and disrupting this business. I believe that there's truly a wide moat around the Robinson model today. I think that we have a very low likelihood of being disrupted. I think that we are in an evolutionary stage right now of the industry, as we are in our personal lives, as we are across all parts of our lives as we use digital in different ways. I think this pandemic, candidly, is going to accelerate the pace of digital advancement in our industry and in other industries. And we're probably going to accelerate the gains that we make in that space. But just like we have throughout our history, I believe we're going to lead that evolution and not lag it. That's why we're committed to making the technology investments that we are, that's why we're committed to moving forward on the strategic decisions that we're making across our organization. And I think that there's huge opportunity here for us as an organization to continue to lead. We're still only 3% of the overall for-hire marketplace, 15% of the brokerage marketplace. We have that leading position today and a ton of growth in front of us that I simply don't see being disrupted by digital entrants.

So this is going to be more of an evolutionary than revolutionary adoption of these technologies?

I absolutely believe that to be the case.

So one area that has been interesting to me is this notion of convergence between your traditional TMS vendors and some of the online brokers and online marketplaces. How are you thinking about that? Are you getting to a point where you're looking at sort of embedding some of your capabilities inside of some of the bigger TMS vendors or exposing at an API level the ability to kind of integrate with those technologies? Like, were you still sort of set in that sort of EDI, there's an account, there's -- your [ example ] in TMS. Like how are you thinking about that convergence between sort of the TMS world and the traditional broker world?

Actually, I think, Dave, that's an area that we've been on ahead for quite some time. Our mantra in terms of carrier interaction and customer interaction has always been that we want to meet our customers and carriers where they want to buy and how they want to interact with us. So we think Navisphere is the greatest supply chain platform in the world. We love it. We love everybody to be on it, but we know that our largest and most complex customers aren't necessarily going to come to work on Navisphere when they're in Oracle, TMS or they're in a PeopleSoft module or others. And so we've had our rating engines. We've had API connections. We've had many different ways for customers and carriers to interact with us, gain pricing information, do both tendering functions through their TMSs, through their ERPs. And today, we have many of our largest customers that are doing spot pricing, guaranteed capacity, spot tendering through our algorithms and rating engines in their environments. Same to be said on the carrier side. We're implemented and integrated with different dispatch systems, connected directly with several different telematics providers. So we really want to extend that Navisphere platform to be the most connected platform, and that includes all of those different secondary and tertiary types of systems.

So one of the things that I also wanted to talk to you about on this notion of technology, right? You guys reported a pretty significant level of productivity gain in the first quarter in terms of sort of volume growth and headcount against that volume growth. Is this the early signs of automation starting to pay dividends inside of the truck brokerage business? Or is this some sort of shift in sort of the ease of brokering freight given the looser capacity situation?

I think it's the previous. It is one of those early stages that we've said kind of one of the tea leaves that we've shared, that let's stay focused on that relationship between headcount change and volume change. And so we feel really good about the productivity gains that we had there, but that wasn't the only thing that we saw within the quarter that gave us confidence moving forward. Within the quarter, our digital interactions with our customers were up over 20% in general. And so we processed somewhere in the neighborhood north of 309 million or 310 million digital interactions with customers, both on our platform and on theirs. So that puts us on this runway of implementing or interacting over 1 billion times this year digitally with our customers and our carriers. We've talked in our technology investment, Dave, about 80% of that investment being around innovation and new product development, specifically focused around our customer experience, our carrier experience and enterprise productivity. And one of the ways that we look at the results of those is kind of that customer and carrier stickiness. And we look at that through our monthly average users, or MAU, or daily average users, or DAU, of our technologies. And for the first quarter, our -- both were way up. We've got over 200,000 monthly average users on our technology, our external customer and carrier-facing technology platforms. We've got over 42,000 daily average users on those. So significant increases there. We've really built out a much more robust data science and advanced analytics practice. I would argue possibly potentially one of the strongest in the industry. Other things that we look at is around digital matching and digital freight optimization. Our rate of fully digital truck bookings in March of this year was up almost 100% compared to March of last year, which puts us on a run rate of close to 1 million truckloads being fully automated and booked in 2020 by the year-end. And we're on a path by the year-end to have over 90% of all of our interactions with our motor carriers, real-time status updates, location updates, load tenders, load acceptance and receipts being fully automated. So early innings, early stages of wins that we saw in first quarter, but the growth in those measures is going to continue to improve throughout the year.

So as we think about that leverage to volume on the headcount side, I mean, I guess, are we going to be looking at a period where headcount is going to be growing a lot slower than volume growth for a sustained period of time? Is this something that is kind of -- are we at that inflection where the investments are paying off? Are we at a point where headcount is going to be a little bit -- headcount growth is going to be slower?

Dave, I'm sorry. I can't hear you right now, Dave. I apologize. The irony that, that happened in the middle of us talking about technology or I'm not really sure which.

I wasn't going to bring it up. But...

Okay.

Look, it's the -- it's a brave new world we're all in. The question I was going to ask you was on the headcount side. Are we at a level where headcount is going to be growing slower than volume for the foreseeable future? Do you feel comfortable with that as far as an outlook?

I certainly do, yes.

Okay. Now a bigger-picture question for you from an industry standpoint, right? So you guys are dumping money into the technology that's creating automation. Every other broker and trucking company is doing the same thing. How should we think about the structure of the brokerage business, right? Traditionally, I thought about this as you've got guys, broker and freight, generating net revenue and then you've got comp coming out of the back end. Then you get to earnings. Should we be expecting that the leverage on the operating cost maybe increases the pressure to compete a little bit on the margin side? I mean, I guess, the question really is, is do these technology investments that everyone's making get passed through to the customer at some point? Or do they kind of stay in the gross margin line?

It's a great question. We are focused on ensuring -- I'm not a firm believer that customer -- the market is driven by cost-plus for -- so to speak. I think the market is so broad that you've got, whatever, 9 million shippers in the U.S. that generate either a parcel, a pallet or a truckload. You've got 250,000 trucking companies. You've got 20,000 brokers. Thinking that our cost of higher plus on margin is going to be what dictates on market, I think, is a challenging way to think about it. So I tend to think that the market will set itself. And those that can drive down their operating expenses to the lowest common denominator are going to be those that generate the outsized returns. If you look across the competitive landscape up until this point, that has been what Robinson has done for 23 years. No one has been able to meet the returns that we've been able to generate in our industry. And we do that in a manner in which we're continuing to win more business because we're competitive with that market. And it's not just the pricing, right? We're competitive with the market, and we're adding incremental and important value in new ways every single day as we further [ add in ] our services and we further deliver more innovation on tech.

Okay. And as you think about that further innovation and the investment level, right, obviously, last year, you gave us an outlook for the IT spend, OpEx/CapEx. Could you maybe give us a view of how you're thinking about it now given that you are starting to see the early returns of this program? Should we be expecting that the investment rate to stay at the same level? Will it moderate? Will it taper? How should investors be thinking about the investments you're making in IT and where they show up in OpEx versus CapEx in the next 3 to 5 years?

Yes. Largely unchanged. We made the proclamation last year around the $1 billion IT spend. We really said that was going to be $1 billion over 5 years, $200 million a year. We still think that's the right way to model that. We still think that's the level of investment for us. Obviously, we're much more focused on the outcomes than we are just spending the dollars for the sake of spending the dollars. But we think that that's about the right way to model our business. The mix between OpEx/CapEx likely remains largely the same with that $60 million to $70 million in CapEx [ spend and balancing OpEx ].0:36:17.6

Okay. So the investment level is going to stay relatively same productivity coming in. And as you think about other things you can do on the technology side that you haven't done through partnerships, there was a question that we have from the audience on your partnership with Microsoft and Azure and whether you're getting much traction there. Is there anything that you think about changing the way you go to market as a result of this IT spend?

Yes. So the build versus buy versus license or partner is always the first lens that we look at things through. Microsoft is a great partner of ours. We continue to co-innovate. We're in the process of moving from an on-prem environment to an Azure cloud environment over the course of the next couple of years. There's some cost associated with that, built into that $200 million run rate. But we're really excited about what that's going to allow us to be able to do, and it's going to accelerate our ability to scale faster, innovate faster, take advantage of the Platform-as-a-Service offering that Microsoft offers through Azure. And so that will be a nice step forward for us. So we're constantly evaluating partnerships, Dave. We're looking, whether it be investment or acquisition, [ for us it's important ]. But in those areas we've talked to and looked at a lot of different companies. For us, it's got to be really additive or transformational if we were to look at it on the tech side for us to buy something. We haven't seen that. And equally, it's got to fit the culture and it's got to fit the valuation models that we think are right as well. So we'll keep evaluating build, buy, license or partner. We'll keep looking at opportunities to invest and acquire, but it's going to make circumstances.

And I asked you this question last year, right? As you're looking out, and I'm sure you have a bunch of the brightest at Robinson out there looking at what your competitors are doing? What some of the digital disruptors are doing? Is there anything you've -- is there any capability where you would think maybe we should go and buy a company or acquire a technology platform? Is that something that you are actively considering? Or do you feel like you -- the home-grown is the way to go?

Well, I won't say that it's something that we're actively considering because I wouldn't want to paint that picture that that's our appropriate path forward. We've got a tremendous amount of faith in the development teams that we've got on a global basis. We've got a tremendous amount of pride about the capabilities, the implementation of Navisphere, both our customers and our carriers. The continued increase in the digital footprint that, that brings. The continued growth in MAU and DAU, like I talked about earlier. But we -- like I said, I mean, we certainly are open to exploring partnerships in different ways. We implemented Oracle for our financial systems, right? That was a really clear-cut idea. We're not going to go buy Oracle in order to capture the value of Oracle, right? We went out into the CRM environment, part of our Microsoft partnership. Implementing the Microsoft Dynamics CRM for us has helped us to scale sales force in a different way. We've been able to rightsize our sales force in that. We've taken 200 or 300 people out of that business by being able to automate lead generation, accelerate our ability to improve our opportunities, our activities and our results. So there's a number of different steps there, and we're looking at partnerships as ways to improve.

Well, I guess, I want to address this in a way that kind of gets to some concern amongst investors but doesn't necessarily make you never want to talk to me again, so I'm going to try to phrase this in the nicest way possible. There's a perception out there that Robinson as an old school broker is working to pick up the phone and fill every load and write it down on a piece of paper, put the chit in and ring the bell every time the loads get brokered. How do you -- how could you like help investors feel comfortable that you are not lethargic, old technology company with their head in the sand that's going to be overwhelmed by a significant amount of investment by smart venture capitals?

Right. We don't have...

Well, it's a perception. But there -- the reality is there is a fairly high shortage at your stock on this idea of technology disrupting your stock and you not being able to respond to it. So I want to just give you a chance to kind of maybe give your perspective on that. And again, I'm not trying to put you on the spot and make it uncomfortable, but it's a concern that some investors have, and it's one that I think is worth talking about.

Yes. Sorry, you threw me off with your description because, typically, there's also the inclusion of somebody with a backwards baseball cap and a fax machine or two. And I just wanted to clarify that. Look, Robinson is one of the most connected platforms in the industry, right? And if I think about what differentiates us, when I think about the -- when I think about why we're not going to be different or disintermediated, it starts, first and foremost, with the financial stability and security of our company, right? Strong balance sheet, absolute power to weather any storm. And freight is our only focus, freight is what we do. So let's start there. Second is that we serve a highly fragmented market, we're talking about millions of shippers, 20,000 competitors in the brokerage space alone and hundreds of thousands of motor carriers that turn to us more so than anybody else because of the value that we create. We have a suite of services that is unmatched in the industry, where we've maintained industry-leading positions in domestic truckload, domestic LTL. We have a strong European Surface Transportation business. We're #1 in NVO from China to the U.S. Those things come together and complement each other really, really strongly. The ocean business that we have complements our trucking business. The LTL business that we have complements our trucking business. We've got great people. We are a people company. We talk about our values. Our people are extremely important. Those people aren't sitting around waiting for faxes to come up so they can write something down on a manila folder and then type it into Excel file and fax it back to a carrier. These are supply chain engineers. These are people that are solving really, really complex supply chain problems for some of the most complex global companies in the world. They're also working with small businesses and carriers and helping those carriers to sustain through really difficult economic times like they're going through today. We have great technology. We're not spending $200 million a year on technology in order to catch up to anybody. We are spending $200 million a year in technology to stay ahead of all of our competitors. We have the most connected network. We have an information and a scale advantage. We have $20 billion worth of freight under management. We move over 18 million shipments. Other people are trying to get to scale. With all due respect to many of our domestic competitors, many of them have gotten to scale. What they've forgotten to get to or have been unable to get to is profitability. And so we've been able to achieve scale at an unmatched level. We're 3x larger than our next closest competitor in North America, and we have profitability historically that's unmatched in our industry. And we have focused on customer experience. Our customers tell us again and again they value their relationships they have with us, and they choose to work with us because of the value that we bring. And finally, our value is, I don't believe can be disintermediated. Because you put all those things together, you wrap a really great technology bow around it. This isn't about a mobile app and matching a load in the truck, this is far more complex than that. And if anyone tries to distill it down to a mobile app and the number of automated loads you have as being the definition to success, we're not going to chase that as our definition of success.

That is an excellent response to that question. I appreciate you taking it. For what it's worth, we're more in that camp than not. So I just wanted to give you a chance to kind of speak to that because it is one of the things that comes up in conversations. So I appreciate that. Now one last big-picture question for you, and then I think we're going to start to wrap it up, and I'll give you a chance again to make a pitch as to why investors should you want to put capital toward C.H. Robinson. But as you think about kind of moving your company beyond the pandemic, how are your priorities going to shift as it relates to your cost structure, your level of investment, your level of employee engagement? How do you think about deploying the resources that your shareholders have given you to create value? How does that change in a post-pandemic world for you?

Yes. So there's a direct intersect on how the workforce works and the future of our workforce that we have learned so much in the last 90 days that we probably, 188 days ago, I would tell you that there's no way that we'd be able to embrace or enable remote work across our organization like we would intend to in the future. It's not going to be -- we're not going to be a full remote environment. Part of what makes our culture great is those teams that come together in the offices across the world that spend time face to face together, that support their communities together and build the camaraderie and compassion for each other. But the opportunity to take much of our workforce or parts of our workforce remote, for those that are high-performing, those that are proving that they're -- have the seniority and the performance to be able to do it, I think, is real and something that will continue to evolve and shape our workforce. That will have intersections with real estate. That will have intersections with the number of offices we have, [ chains ] of offices that we have. But we've been making steps in this direction for the past several years. I use our NAST network as the example. We've often talked about our NAST network as being 150 offices. Today, we're less than 90 P&Ls in our NAST network. We've made significant changes to the centralization, standardization of the work that [ we do ] in NAST and the associated footprint that goes with that. Furthermore, in terms of what we've learned through managing through this pandemic is, it's amazing how fast our team has been able to mobilize on things, how crystal clear we've been able to be on decisions, and how quickly we've been able to warm our ideas and implement them across the global network of over 15,000 people. We don't want to lose that magic in a bottle, and I fully intend for our senior leadership team to continue to take that forward and execute it in a very similar manner. Relative to cost, there's things that we've learned around both SG&A and personnel expense through this that we will turn into longer-term savings. Our ability to collaborate and communicate with external parties as well as internal parties. Just this example, Dave, and without the technical snafu between my office and this conference room, would have been a couple of nights in New York and a flight and a couple of nice dinners. And that's a few thousand dollars that maybe doesn't exist in the future T&E line. But there's a lot of things like that where the small numbers add up to big numbers at scale. And so super focused on looking for those long-term opportunities to refine and narrow down our cost structure as we come out of this to help us regardless what happens with margins in the future, if they go up or go down, we want to make sure that we're in a position to deliver outsized shareholder returns regardless of what the cycle is or how the net revenue margins perform.

Excellent. Well, thank you for that, and thank you again for attending the conference. I'm going to turn it back. If you've got any other closing comments you want to make for investors. For what it's worth, I do hope we get a chance to actually get together at some point, break bread and have a glass of wine. And I want to thank you, guys, and I'll leave it to you for any last comments, and then we'll wrap it up.

Great. Well, first, thanks to Dave and AllianceBernstein for hosting us. Thank you to all of you again for joining today. We do think Robinson is a good place to put capital to work. We're an industry-leading company. We've got a strong foothold on the industries that we serve. We're committed to this space. We are resilient. We will be here for the long term. We do have a deep pipeline of innovation. We are a technology-enabled company. And we've got a great road map ahead of us that's going to deliver significant value -- continue to deliver significant value for our customers and our carriers and generate return for our investors. Part of what makes us great is the diversity amongst our team, but also the diversity amongst our customer base. No one customer makes up more than 2% of our overall portfolio, which we really think lessens the risk for us and allows us to continue to broaden and grow. Our management team that we've continued to grow and add to is a strong team with diverse experiences and is a very growth-oriented management team. We are focused on growing our way to growth, not saving our way to growth, but finding the appropriate balance between cost containment and making sure that we have a more effective and efficient business while also growing top line growth across all of our services. So we serve a growing marketplace. The 3PL marketplace is growing at a rate ahead of the overall freight marketplace. And I would just close with my personal belief, and I think it's continuing to be shown again and again, is that this threat of disintermediation has been absolutely overhyped, overfunded and is absolutely under-delivered. So thank you for spending the time with us today. For those of you that we have one-on-ones with later today, we look forward to those conversations as well. Dave, thanks for letting us close it out.

All right. That was great. Thank you, Bob, and we'll be in touch.