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

Okay. Good afternoon, everyone. Thank you for joining us for our 2:00 Central Time fireside chat here on day 1 of the Stephens Investment Conference. Once again, thanks to everyone for being here in person with us. And we're going to have, I think, a lively discussion here with Bob Biesterfeld from C.H. So I think for most folks that are in the room, you know C.H. Robinson. But these guys are headquartered in Eden Prairie, Minnesota, but they have a footprint globally, not just here in the United States. These guys are a global platform company, both in terms of freight forwarding and domestic truck brokerage and LTL brokerage as well and a number of other complementary services, too. So Bob, well, I'll turn the floor over to you for some introductory remarks, but thanks so much for being here, [ being at ] the conference and looking forward to a great fireside chat.

Great. Thanks, Jack, and thanks, everybody that's in the room as well as those that have joined the simulcast today. As Jack said, C.H. Robinson is a global provider of logistics solutions across a myriad of modes and services where we really have an industry-leading position. This year has really shown the resilience of our model as we -- our Global Forwarding services has grown substantially in order to complement our strong domestic service offering. Robinson, when we think about our go-to-market strategy and how we create value for our customers, and ultimately, that value translates into value for our shareholders, is we really orient around 4 critical pillars of our -- what we call our customer promise. And the first is about our people. And we continue to hear from our customers, from our carriers. And we continue to invest in, ensuring that we've got the people that our customers can rely on. And I think sometimes in today's digital age, talking about people can sound like taboo. But for us, that cornerstone of having great people that can solve problems is really critical for our success. The second piece of our customer promise is around technology. Technology built by and for supply chain experts. And we know that the technology is going to continue to evolve, digitalization of the global supply chain will continue to take hold. But we really think it's that mix of technology and people that is what can help us to succeed. The third piece of our customer promise or our go-to-market is around our global suite of services. So a leading position here in North America in truckload. Less than truckload is about a $3.5 billion business for us roughly on a trailing 12-month basis. One of the largest NVOs on the ocean side, specifically in the transpacific eastbound lane, but truly a global presence in both air and ocean. And then the final fourth pillar, if you will, of our go-to-market is around what we call our information advantage. In any given year, Robinson will manage over $26 billion in freight under management across all of those modes and services where we serve as the primary provider of service, but also in our managed services business. which is our 4PL service that manages about $6 billion of freight under management for some of the largest multinational companies in the world. So when we think about bringing together all that freight under management, we were able to gather a tremendous amount of information. And ultimately, we believe it's that information that we're able to gather, the data that we're able to gather that allows us to really bundle those 3 first pillars, the people, the tech and the services to bring to life the unique value proposition that continues to win in the market and will continue to evolve just as we always have.

Okay. Great. Well, let's dig into a couple of questions here. I'm going to start with a few, but if folks in the audience have some questions, feel free to jump right in. Would love to have a pretty robust discussion here. So I think, Bob, let's start with maybe a macro question or 2 just because it's -- I'd be remiss if I didn't ask you a couple macro questions. But we're now through Thanksgiving. Peak season is certainly upon us. A lot of different things kind of going on out there from a supply chain perspective as well. A bit curious if maybe you could just talk about how you're seeing things in the overall transportation market, both domestically and internationally. And then I've got a follow-up question on just supply chain congestion.

Yes. So I'm sure I won't be probably the first or the last person to state it at this conference, but it feels like we've been in the peak for a while, right? I mean we've been on kind of this 14-month up cycle, really coming from unsustainably low levels at mid-2020 to where we sit today. And I guess encouragingly, we are starting to see some easing of the peak, whether that be a bit of -- I don't know if I'm ready to yet call it a trend but softening in some of the global air freight markets. We're starting to see ocean rates start to come down a little bit. We're starting to see fluidity at the ports improve a little bit. We're starting to see some improved rail performance. So there are green shoots and some signs of progress that we're starting to see. But we've got a long ways to go, right? We've got a long ways to go. We continue to look at a driver shortage that's real. We've got a labor shortage that needs to be addressed more broadly across everything, from warehouses to trucks to loading docks to ports, both domestically and globally, before we can get back, in my opinion, to whatever normal might look like.

Right. Well, I don't think we're ever going back to wherever we came from, that's for sure. It's -- too much has changed in a lot of ways. So okay. So you are seeing some -- maybe the -- at the margin, some easing in terms of some of the supply chain congestion. Is that coming from improved labor participation, you think? I mean at warehouses, at ports, people are maybe coming back into the workforce that weren't there this summer.

It would be speculation for me to say, Jack, whether it's labor itself or if it's just we're a resilient industry. The supply chain industry is resilient. Regardless of what the current status of the market, retailers are still going to have high expectations for inventory to get in for the holiday season, manufacturers are still going to continue to have high demands for products to get in for manufacturing. And as an industry, I think we do a really good job of coming together to solve for those problems. Some can talk about government intervention and that. But ultimately, I think whether it's the private-public partnerships, there's a lot of people at this conference, C.H. Robinson and others, working really hard to try to meet the needs of the consumer and the manufacturing economy. And I think we're all adjusting to these market conditions and finding creative ways to drive those solutions. So I'm not ready to call it an improvement in labor participation as much as perhaps just us finding new ways to work in this environment to deliver outcomes.

Understood. And I guess kind of thinking that through a bit, I mean, it's been an awfully volatile 18 months, that goes without saying. It's been incredibly painful for shippers. In some instances -- probably in all instances, it's just a matter of degree. But as you sort of think about this in a post-pandemic world, whatever that looks like, do you find that there's the potential that shippers could really look to truly partner, not just say they're a partner, but truly partner with key strategic capacity providers, like yourself, like some other larger companies that are here at the conference over the next couple of days, so that they can avoid some of these major supply chain issues that we've seen over the last 18 months. Is that just a pipe dream or is that a possibility?

I think the last 1.5 years has been 1.5 years of learning for all of us on a lot of different levels. And whether that's how we think about staffing our offices, work from home, remote work, what's possible in terms of alliances, partnerships and strategies in the supply chain, I think we've all learned a lot. I would tell you that we've, for a long time, worked to partner strategically with our shipper customers. And the thing that I've said is I've always tried to build the culture at Robinson where shippers should experience the market that they deserve. And sometimes that's really a positive statement, sometimes it can be less so. But based on how a shipper interacts with us, we want to ensure that we kind of mirror that and interact with them in an equally strategic or unstrategic way. When I look at our -- I mentioned our Managed Services business, which is a great proxy for us to look at the overall market of the contract market. And over the past 14 months, our routing guide performance in terms of which carrier accepts a load has really been kind of pegged at this 1.7, right, meaning the 1.6th, their 1.7th carrier in the routing guide accepted the load. And with all the talk about repricing, with all the talk about routing guide substitutions, all the talk that's going on in the past 1.5 years about all the changes, performance literally hasn't improved. And so there's a high degree of fatigue, I think, that's set for shippers, for receivers, for carriers who are saying, how can we come together and actually solve for this problem? Maybe that means more index-based pricing. Maybe that means more price transparency and fixed-margin pricing. Maybe that means shorter duration of terms of agreements. Maybe that means more automated pricing that delivers real-time pricing and capacity on demand. Or -- and in many cases, it may mean, hey, continuing with those 12-month pricing engagements but having some markers that allow you to revisit those when market conditions may shift. I think all those things are going to happen. I think the thing that both shippers and carriers and brokers and providers have learned over the course of the past couple of cycles is that the cost of being wrong introduces far too much risk. And the cycles have tended to be shorter, more difficult to predict. And so I think if I go back to early in my career in the '90s when cycles tended to last 7 years, right, and every year was just a 3% increase and you can kind of set your watch by it, you could absorb that risk and just adjust for it the next year. But with the volatility that we've seen from 2017 through today, I think we have to think differently about the collaboration, the strategic relationship between shipper and provider and how we address pricing in those environments.

Okay. Yes, but it's...

It's a long answer to your question, Jack, and I apologize.

No, it was a long question. It was a long-winded question. I'm known for those long-winded questions. So...

You'd never get that much time on one of our earnings calls for that, by the way.

Good to know. Good to know. Okay. So that all makes sense. I guess kind of thinking about this from a shipper perspective, going into next year's bid season, which is on everyone's mind. I mean we're hearing from a number of carriers that shippers are not really asking about price. They're just asking, can you guarantee me capacity? Would you agree that, that's kind of the shipper mindset right now? And as we kind of go through bid season next year, is it still going to be a carrier's market in terms of pricing power?

Well, price is always going to be a thing. I mean ultimately, carriers -- no one carrier and no one shipper are able to set price, right? I mean we're the largest provider of truckload capacity in United States and maybe 3% of the market. And as hard as perhaps we've tried to set price, we -- even at our size, we're not able to do that. So it's this great market where ultimately, the market is going to determine where the price is. The -- as we all know, spot market tends to be the determiner of where contract markets fall. And so as long as the spot market is above that of the contract market, contract rates will go up and vice versa. That delta has been there for a while. I would anticipate that we're going to start to see that spot market, at least on a year-on-year basis, start to soften. But we still think that sequentially, there's some room to run on contract pricing, perhaps slightly ahead of inflation in 2022. But I think price will always be a thing, but the collaborative nature that's going to have to be addressed through pricing next year, I think, is going to be really important. And those shippers and providers that are able to find that harmony are going to perform really well. I think some will find themselves on the outside looking in.

We've seen a number of asset-based carriers with captive brokerage arms find a lot of success with trailer pools, et cetera. I know you guys have some trailers within your business. We don't really talk about it all that much. And it's awfully hard to get your hands on trailers, so kind of growing it right now is difficult to kind of do. But as you sort of think strategically over the next couple of rate cycles, do you think it would make sense for C.H. to expand its trailer pool, do more drop and hook? Is that kind of strategically kind of where you think it would be a good place to go?

Yes. So we spend a lot of time talking to carriers about why they choose Robinson; why they maybe choose other competitors; why do they choose to work direct; why do they choose to work with other, whether it be digital or traditional brokers; and what are those items of affinity that draw them into a network. And one of the things that we hear more and more is that small carriers do appreciate the opportunity to do power only, drop and hook, drop trailer-type business. Drop trailer has been an important part of our mix of business for a long time candidly. Today, within our truckload business, about 12% of our business -- 11% to 12% of our business is actually drop trailer business. And so it's nothing necessarily new for us, but it takes on a few different flavors, if you will. We contract with assets that manage their own drop trailers and manage the traditional drop trailer dedicated pool that way. We build and execute what we call rainbow fleets, where we may have multiple carriers with interchanges with each other that share in a trailer pool. Or we have what's been called our Robinson POWER + program, which is trailers where we hold leases or have lease agreements on. That trailer pool is about 500 trailers today. It scales up and down based on demand. But we do look to continue to expand that POWER + trailer pool certainly as a way to not only attract additional carriers into the pool but to drive greater efficiency for some customers that find that a benefit.

Yes. Okay. That makes sense. And again, if anyone has a question, just feel free to hop right in. Otherwise, I'll just keep on rolling through here. But I guess maybe shifting gears a bit and kind of thinking about some of the longer-term strategic items for C.H. Robinson. I think there's been a lot of focus internally over the last several years, really going back before that, on your tech plus strategy. I don't think it's fully appreciated and understood by Wall Street. It doesn't really come up a lot in investor conversations. Can you talk a bit about what is tech plus? And how will it transform the company and you're bidding over the course of next several years?

Sure. So at the onset of the conversation, I somewhat led with kind of the 4 pillars, but I'll take an opportunity to build on that. And as -- I think as we've talked about technology and the investments at Robinson, 10 years ago, we talked about people, process and technology as kind of the 3 cornerstones and we haven't departed really too far from that in terms of those being critical in nature. But I think there's been this thought that Robinson's investment in technology has been solely or exclusively focused on automation and productivity. And while there has been a focus there in terms of helping to make our operations more efficient, to design tools for our people, to help them cover more shipments per person per day, to drive greater operating margins, those are critically important, but the majority of the investment in the technology has really been to be customer and carrier-facing. How can we create differentiating value for our customers and for our carriers? How can we address the inefficiencies that exist within the transportation network, whether that be domestically or globally? Given the fact that we deal largely with small motor carriers, those are carriers -- the best of the best large assets that are at the show have 10% to 11% empty miles, right? These small carriers have got to 20% to 30% to 40% empty miles. And we believe that through technology, through having a really efficient digital freight marketplace with great liquidity, we can help to solve for that. We can unlock a tremendous amount of capacity that can help bring capacity to life without adding another driver, without adding another truck, without adding any more resources into the pool. And as we think forward a little bit towards autonomy and the opportunity to remove the bias of a driver from a truck and to truly just optimize an asset, we think that our network is probably the most effective network in order to do that within. And then when we start to think about collaborations and layering over different shippers and different networks, we can drive an extremely efficient transportation network in that autonomy [ place ]. So that's a bit about how we're thinking about tech. But in the end, we are a services company, right? Ours -- whatever the number is today, 110,000 customers don't come to us only for technology. Some do, right? Some of the largest companies in the world manage their entire global supply chain using our Navisphere technology from an end-to-end global supply chain. But ultimately, we're a services company enabled by technology. So we've got to couple that tech with really great people. We continue to evolve, and I would say, improve and expand on the capabilities about -- of the people side of that, the people you can rely on kind of what I led with. And I think when I was on the desk at Robinson, it was about account management, it was about responsiveness, it was about problem resolution. And those things are still important, but it's really becoming more and more about supply chain engineering. How can we take a more engineering-based approach to the challenges in the supply chain that our customers face and really help them to think differently to solve for those? On the services side, the third component of that, we've been very intentional about the investments that we've made in our Forwarding portfolio and our LTL portfolio. And I'm not sure that those are broadly understood by the investor community, certainly. I think they're well understood by our customer base in the fact that across our top 500 customers that make up half of our revenues roughly, there's a very high degree of cross-selling between our Forwarding business and our NAST business. It's a very natural extension for something that comes into United States on an ocean vessel to transport via truck, right? There's just a very natural extension there, and those 2 businesses work very closely together. Our LTL business, which years ago was almost exclusively common carrier led, today is about 2/3 of our business. That LTL business is us working with common carriers and bringing their services to life for customers from the largest multinational retailers to the smallest businesses. But about 1/3 of that business is today about things that aren't just about us managing common carrier. It's about consolidation. We have the largest retail consolidation program in the country today where we're literally building millions of square feet of warehouse and running millions of SKUs of product through to help slow-moving goods and producers to hit the OTIF expectations of their largest customers every single day. We do that in retail. We do that in automotive. We do that across several different verticals. On the e-commerce side, we have first and final mile services in place there, their reverse logistics, parcel, product reclamation and distribution. So there's this whole suite of services that exist within LTL that has really helped to fuel our growth and, I think, in a bundled service is really unmatched in the industry because we're literally able to go to a client and say, "We've got everything from your parcel business to all your consolidation to all your common carrier to a temperature-controlled service offering," and really provide them a service across the gamut linked by that entire technology piece. And then the final piece of the tech plus really is that data. And we've spent a lot in our technology investment over the course of the last couple of years, a lot of that has been about really solidifying that data asset. How do we have the right data estates? How do we have the right structure to our data, so that we can use that data to help us to be more predictive, more prescriptive and to really add value in new and exciting ways for customers and carriers so we can move faster.

Okay. All right. So there's a lot there. And one of the things I kind of wanted to really focus on in our discussion is understanding how this investment in technology, tech plus, and all the different forms that it takes at your organization as you just discussed, comes together to create -- I guess, the output of that is what? Is it faster than market growth? Is it faster than -- is it strong bottom line growth? Like what should we be looking for as the output of all this work? So you guys have been investing very, very heavily, and you've also been putting an enormous amount of effort into this. And the Street's not appreciating it. You guys clearly believe very intensely in what you're doing. And so -- I mean -- I guess I'm just curious, what's the output of this?

Yes. So we're 2.5 years under this 5-year journey roughly, right? And since, I think, the end of 2019, we kind of came out and said, "Hey, we are going to increase our investment in technology, and we're doing that for these reasons." Part of the challenge of coming out and making an announcement like that is you're essentially announcing to the world and the Street that we're going to be -- I won't say fixing the airplane, but we're going to be adding some new features to the airplane while we're flying it, right? We don't get to park the airplane for 5 years and then reemerge with this bright, shiny new thing. And so the front end of those investments in technology are almost, by nature, going to be more focused on things like architectural improvement, infrastructure improvement, things that are going to enable us in the out-years to really deliver, I say it somewhat tongue-in-cheek, but the bright, shiny things that are going to -- that are really going to create customer value. And so the investment on the front end comes in, in the base. The value creation really comes in, in the out-years. One of the things that I'm most excited about today is really a reorientation that we've taken about halfway through this journey, which is really reorienting ourselves around our product organization and moving a bit away from what many would refer to as a more legacy IT in the business orientation and really moving towards being an organization oriented around products, led by a product organization that sits kind of at the center of business strategy, technology and engineering capability and really that voice of the customer and the carrier. Through that, I would expect that we're going to deliver features and functions more effectively at greater pace. I would expect that we're going to be able to test, learn and deploy in a much more rapid and iterative fashion. But those investments are going at things like connectivity, where I think we've made a tremendous amount of inroads. We've got over 500 customers connected with API pricing and booking bots, things like that through their TMSs and ERPs. I truly believe we are the most connected supply chain platform in that space. It's coming in the area of carrier autobooking and the touchless freight distribution, which a lot has been talked about over the course of the last 5 years. That continues to ramp up, up and up. I think last quarter, we were at 340,000 shipments in our truckload business that flowed through in that respect. It's coming in the fact of visibility, right? Our customers expect that we're delivering real-time visibility to inventory in motion and inventory at rest. The new standard is kind of like every 15 minutes, so we've had to rebuild and retool for things like that. But net-net, what does that lead to? Our expectation is going to lead to outsized growth, right, at -- in our truckload business and our overall business at a growth at a rate above market. We do believe it's going to lead to -- in some of the automation and efficiency things, an operating cost structure that allows, even with some margin compression that may happen over time, for us to continue to deliver returns to our shareholders, commensurate with what they've expected and experienced in the past and improved return on invested capital. And net-net, a better customer experience and a better carrier experience. As I continue to go back, if we don't serve the needs of those customers and carriers, we can say whatever we want to the investor community, but it starts and ends with making sure that we have a product that's relevant in the market, that's market-leading, that our carriers and customers want to purchase from us.

Okay. Okay. That makes a lot of sense. So the -- halfway through this journey, the first half, a lot of it has been going the fiscal plan, if you will, but it's not as readily visible to Wall Street. And I guess as we kind of think forward to the back end of this, that's when we'll start [ seeing -- they probably ] will accelerate to take multiple analogies into one question.

Yes. And it's not to say that there hasn't been proof points, if you will, one way. I mean if I think about, again, staying close to the voice of the customer and what they say are the critical things, I mean, over the course of the last couple of years, they've said there's 3 things that's -- that are most critical in their mind. The first is access to capacity, the second is sustainability and the third is around kind of market volatility. And through our Robinson Labs tech incubator, we've delivered 3 very specific products. That while you couldn't look at either of the 3 and say we've necessarily monetized them as independent products, but what we've created in the back end is that customer stickiness that leads to greater customer retention, which leads to greater volume growth, which leads to better pricing strength, et cetera.

Okay. All right. That -- yes, sir, go ahead.

As you're somewhat agnostic in fulfilling the customer requirements, I'm curious because of the capacity issues, [ you have the issues with the LPs ] and the stocks, do you see an ebb and flow between these TMS optimizations that might have said before multiple truckloads, now we're going to go to LTL or some sort of moving solution, and then you just sort of flow back and forth in terms of the capacity solution?

Well, we are mode-agnostic, and that's a great observation. And so we're able to -- when we talk to our customers, we don't really talk to them about loads or shipments. We talk -- and our systems are all orchestrated around orders, right? So when we receive an order from a customer, we're able to look at the specifications of that order, whether that be size, weight, must arrive by date, et cetera, and we're able to best optimize that order for the best outcome for the customer. So if it's a 16-pallet shipment that most companies would take and say, "We need to move this truckload," we would likely take that if we can meet the arrival dates and move that as multi-stop truckload merged with some other customers' freight, right? That helps the sustainability aspect of it. That helps the cost aspect of it. But we are able through -- just through our experience and our technology, to really be able to move between modes fairly easily. I don't know if that directly hits on your question.

And I guess you...

There's a robust optimization engine that lives within that, that makes the recommendations for best outcome.

And do you have -- I guess, you sort of alluded to it, you've got brand A co-loading with Brand B?

As long as brand A and brand B are both good with the parameters of that, absolutely. Yes. I mean Coke and Pepsi don't want to be on the same truck, right? The Costco truck doesn't stop by Walmart too often. But as long as the parameters say, hey, brand A and brand B are willing to share space on a truck and then, the algorithms within the optimization engine can absolutely optimize that.

So then [ tilt the scale a ] huge advantage?

Huge, yes.

One of the things that I don't think you guys get a lot of credit for, Bob, is your integrated service model. You acquired a large freight forwarder a number of years ago and you've run it significantly, both organically and inorganically. And obviously, it's shown here over the course of the last 18 months. A, what does it mean to your customers to be able to offer this complete sort of global end-to-end solution? And B, how is that, over time, fuel -- how does the global boarding business fuel NAST and vice versa?

Yes. When we -- if I go back to 2012 when we made the Phoenix acquisition, Phoenix was largely, from a gross revenue standpoint, about the same size as our Robinson Forwarding business. But the difference was we were, at the time, running our Forwarding business with a bunch of NAST people and trying to apply what we knew in surface transportation to Forwarding, and I'm oversimplifying that, but we couldn't -- profitability was something that was very elusive to us, right? And we weren't experts in Forwarding. And so when we acquired Phoenix, we were smart as a leadership team and somewhat threw them the keys and said, "Hey, come help us be a better forwarder." And the first step of that integration was them and us finding who are the best-of-breed people who'll lead us on a global basis. But the second step was really about cross-selling, right, and bringing to life a capable Global Forwarding business across the long tail of all of our NAST customers. And we have tens of millions of dollars of success in introducing the 2 groups together. Today, that continues to be the case where the NAST customer base, if you will, is a very likely place where the Global Forwarding growth will stem from. We lead with truckload or LTL. Our account management structures are incented in such that they're encouraged to cross-sell into our Forwarding services or our 4PL services, et cetera. But what I would say has evolved and changed more and more lately is there's a more holistic global sell, where we're going into a client and saying, "It's not -- we already do truckload for you, let us do some ocean as well," but us going in with a more end-to-end solution and saying, "Hey, you're experiencing the supply chain of 2020 and 2021. Let's take a consultative approach to this. Let's look at the supply chain performance and weave together an end-to-end solution." It could be for a trade lane. It could be for a facility. And as long as we're able to provide best-in-breed service across entirety and link it together with technology, we're seeing ourselves, I guess, winning and providing value more and more there. So it's that evolution from 2 groups, cross-selling in each other's ponds to more of an integrated services model coming to life for customers, really, of all sizes. And I continue to see us doing more and more there. We're investing heavily in what we call our Enterprise Account VP program, which is very seasoned, high-level senior executive account managers that are really empowered to work with our top 100 customers to go out and really integrate those services across the whole -- to help those customers solve for issues.

Okay. Okay. That makes sense. And I guess kind of staying with Global Forwarding for a moment, I think we all know we're in an extraordinary Global Forwarding operating environment right now. Unprecedented, I think, is an understatement. But I think as we look forward, things will normalize there in terms of net revenue per load and pricing. But you guys have been pretty clear that you believe that you've taken quite a bit of market share, and this kind of ties in what you're saying a moment ago in that the output in a normalized operating environment in Global Forwarding is a bigger organization than what you had going into COVID. Could you maybe talk a little bit about what is giving you the confidence? And maybe it's a little bit of what you're just saying to say that in terms of the share you've taken in Global Forwarding and how you've been able to grow that business maybe under the hood there.

Yes. So the commercial activity is a huge part of it, right? We've never had a more robust or more complete pipeline of new business than in Forwarding than we have today. And I would say, additionally, our legacy Forwarding customers have been -- have tended to be more mid-cap type customers. And I would say, today, our new additions in our Forwarding business tend to be larger enterprises, larger award sizes, but continued -- so that's driving some of the continued growth. So pipeline size is one. We -- there's been a lot of work done kind of under the hood, to your point, in the Forwarding business with Mike Short and his team as they have looked at things like centralizing pricing on a global basis. It seems like a small thing to people that maybe aren't in the forwarding industry, but it's provided huge dividends and our ability to be more reactive, to be more agile to market shifts and market changes, which allowed us to not only improve margins but also to improve volumes and to be more responsive to our customers' needs. We've hired a number of engineers on that team to really help us to think about global process uniform. Again, it seems simple to say, but when you think about the number of countries in which we operate in, when you think about the number of modes, the number of languages, the number of currencies to have true global process uniformity and to engineer waste and cost out of that system is going to only help us to not return to the pre-2019 operating margins. We've added a lot of talent commercially. We've added a lot of talent and leadership. We've taken talent from some of our largest competitors that have brought some fresh new ideas for us to think about different ways of going about business. And I just -- I think we've -- I think we're in a really, really good place in that Forwarding business to continue to drive growth forward. Now I don't think the third quarter of 2021 is the new normal for margins and forwarding. I mean at some point, things will normalize to whatever normal looks like in that space. But today from a market condition standpoint, we continue to see tightness in the ocean, we continue to see tightness in air. We have some questions in terms of -- leading into Lunar New Year, you start to see a pull forward in advance of Lunar New Year. Do we really get out of this West Coast port backlog anytime soon? Or what does it take to cycle through that? So short-term market condition's in our favor, long-term structural changes to the business should continue to help us drive growth.

Okay. All right. Makes sense. On the M&A front for a moment, obviously, it's a very active M&A market out there, a lot of rumors rolling around. I'm not going to get into all of that because that don't do any good. But I guess what I would like to get you to talk about is how are you guys thinking about your M&A strategy going forward? Over the past several years, you've been focusing on tuck-in porting acquisitions. As you've gotten further along with this tech plus strategy, would more of a domestic acquisition or a core NAST acquisition make sense if it's bringing you something that accelerates that process? I would just be curious if you maybe talk about the M&A strategy and if it's changed at all over the last couple of years.

Yes. The way you closed that sentence to that question, if it accelerates the process, yes, right? I mean we've said for a long time, buying market share for the sake of buying market share likely is not in our best interest and the best interest of our shareholders because we feel like we can acquire that market share organically. At that lower cost, then it becomes -- it comes with better chances of retention. What hasn't changed in our M&A strategy is we continue to pursue companies that are healthy companies, right? We have not strayed from the fact that we are looking at companies that we'd have to go in and "fix," right? We want culturally healthy companies. We want companies that over time can be accretive to earnings. We want companies that can either add either core volume into our core trade lanes or additional capabilities. And those capabilities could be geographic in nature, right, so think our Forwarding business. I anticipate in our Forwarding business, we will continue to acquire in geographies where we don't have a deep relationship. We're always looking at the Nordics, think different parts of Europe, where we don't have a depth of scale. We'll continue to look in those areas. It's not to say we wouldn't continue to look in our trans-Pacific lanes either just because density and scale really does matter for us in forwarding there. In NAST, it would have to be something that would make us better that could accelerate this digital flywheel, this digital carrier marketplace that we're really focused on building for NAST relative to truckload. Or would have to add some technology capability that we would feel that we could rapidly integrate and build upon that would be differentiated from what we've been building and creating on our own. Within LTL, I mentioned the number of services that exist kind of within that LTL portfolio. We are not -- I like to be #1 or #2 in the markets that we compete in. There are opportunities within that LTL portfolio to continue to grow. But in order for us to do that through M&A, we would have to have a very clearly differentiated value proposition in the market. We're not going to dabble in things and just kind of buy our way and hope our way to growth in some of those things. So that's a broad -- that's kind of a broad answer, but I think we've got a strong corporate development and M&A team that is evaluating and understanding what is going on in the overall marketplace. I think that we've got a better pulse today than probably we have in any time in our past on some of the emerging technologies, some of the emerging companies. We're having a lot of conversations but we're going to be really responsible in the investments that we make.

Got it. Speaking of emerging technology and you touched on it earlier, but autonomy. It feels like it's both close and far off in terms of autonomous trucking if we even see it. But it could be potentially game-changing for the truckload industry for a number of different reasons. But as you sort of think about the possibilities from autonomous vehicles and what that could do to -- what that could open up for your business, how do you think over the -- again, big picture, long term, how could that play in to C.H. Robinson's strategy as you look out?

Well, I mean, we are -- we continue to be in conversations with all of the major players that are in the autonomous space today. We're learning from them. We're help -- trying to help them to learn as well, to understand what our role is in the supply chain and how life exists outside of some of the largest, asset-based trucking companies that have got close relationships with them. I think there's a really interesting play there for us. I don't know if that's going to ultimately end up in us owning assets. It could, right? I mean if you think about whoever has got the lowest cost of capital in that space, if it makes sense to own or lease some of those assets. I mean our network sets up very, very well to move assets around if we've got the ability to -- again, I said it earlier, eliminate the bias of the driver. We have the largest network of owner operators of any network in the world probably. And so if the thesis is true that these autonomous vehicles are going to go from, call it, city port to city port and be delivered by a local driver in a power-only network, like who's better set up than what we are today to help to really facilitate that? So we're staying as close to it as we think we should at this point. But it -- we're pretty excited about the potential there.

Interesting. Yes, yes, I totally agree. I think that there's a lot of interesting opportunities for you guys with autonomous as we look forward. Down to the last few minutes here, if I could maybe ask a question on the expense side. Obviously, it's a very unique year in 2021. But as we sort of think forward for 2022, anything we should be keeping in mind from an expense perspective, whether it's the usual incentive compensation accruals this year that may not repeat next year or an acceleration in headcount. Just want to make sure that everyone is on the same page from an expense perspective.

Yes. So 2021, clearly, I mean, on all respects from a financial perspective, a very strong performance by the team at C.H. Robinson. Really proud of the team, all corners of the globe. And what's exciting is that they're going to get paid this year, right? They're going to see some really nice equity vesting. They're going to see some really nice short-term incentives and their cash bonuses and be rewarded for working through a -- what has been a really, really challenging year in the supply chain. Now if I pivot to the investor side, that's now going to be a tailwind for us for next year, right? And so there's no question that performance-based compensation and equity will be a tailwind into '22. That's going to be offset by some headcount growth that we've added in order to support and fuel both the existing and the future growth. Another variable that we'll look at is travel. We kind of had thoughts on where we thought travel would land in 2021 relative to kind of a 2019 baseline. We still haven't found that. We're still trying to work our way out -- wean our way out of Zoom calls and Teams calls but that will likely be, potentially, a small headwind for next year. As we finish out '21 and get into our Q4 year-end earnings call, I'm certain that we'll provide more specific guidance at year-end around personnel and SG&A and how we should be thinking about those levers. But in general, kind of those 3 themes, incentive compensation down, headcount up, travel likely up slightly.

Okay. That sounds -- it sounds like it maybe is a net positive when you kind of add all those things together, so that's -- we'll hear more in January, so TBD. Last question, Bob, just to close out. I know it's an open-ended question, but I always like to ask you this because I think it's going to let you provide your vision for the company. But 3 to 5 years from now, when we're sitting here at the conference, what do you think the company's going to look like? What's your vision for the company over the next -- let's call it, intermediate term here?

Yes. No, I appreciate the opportunity to address that question. I opened with this concept of this technology plus strategy and the 4 pillars of our customer promise, and I don't see us vying too far off of that over the intermediate term, right? I mean -- I think the concept of having great people that can solve supply chain challenges, coupled with really strong technology with a global suite of services that create value for customers and truly leveraging that information and data advantage. And we're not all the way to that fourth point, right? We're still working our way there. We think that those 4 pillars of that go-to-market can really provide some room to run. Some of the things that we do believe, though, is that the supply chain is going to continue to become more and more digital, right? And people will be critical. But there's so much inefficiency that exists today and whether it be forwarding networks or domestic freight networks, that through AI, through machine learning, through data science, through truly having the best data and the products built around leveraging strong analytics on that data that we can make a real difference in how the North American supply chain specifically operates and provides a really liquid marketplace between the demands of the 110,000 customers we work with, providing access to the 75,000 carriers that we work with in really exciting and efficient new ways. In terms of supply chain cyclicality, it's -- this is a cyclical business, right? I mean that's -- I don't know how long this cycle goes. I think I mentioned earlier, I mean, past cycles have been much longer in nature. Cycles in the '90s were 7 years old. Cycles in '04 -- or '02 to '07, 5 years old. And then you get into 18 -- maybe 18 months in that cycle, 14 months so far in this cycle. So we're going to have to continue to be responsive over the course of the next 3 years, if we stay with that time period, to how the cycles change. We're going to have to continue to kind of stay close to our core values in organization, which are evolved constantly, right? And these team values and core values guide a lot of what we do. Evolve constantly, that's the first one on the list. Deliver excellence, that's all about staying focused on our customers. Grow together, that's about having an inclusive and a rewarding workplace where we all can learn from each other. And finally, embracing integrity, right? Us telling our customers, our own carriers what we say we're going to do, absolutely executing on those. And so the environment in which we do those things will continue to evolve. Our leadership position in that, in those things will continue to evolve. I believe we'll continue to strengthen our leadership position. But the 4 pillars of the customer promise and the 4 core values of the organization, I don't see necessarily changing.

Okay. Great. Bob, thank you so much for your time.

Thank you, everyone.

Mike, Chuck, thanks for being here, guys. Really appreciate it.

Good. Appreciate it.