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

Great. Good afternoon, everybody. Welcome to the next part of our 29th Annual Global Transportation, Airline and Industrials Conference. I'm Ken Hoexter, BofA's air freight and surface transportation and marine shipping analyst. Next up, we have C.H. Robinson, the leader in freight brokerage and multimodal transport service provider and third-party logistics. We welcome Bob Biesterfeld, President and CEO, one of the first times he's joined our conference, but this is C.H. Robinson eighth time participating in the 21 years we've hosted. So we welcome C.H., and Bob, happy to have you here with us, hear your thoughts and insights in what's going on with the industry today. So Bob, I guess, maybe let's just start it out with -- I'll turn it over to you, maybe just give us a backdrop of C.H. Robinson, what's going on in the environment today, and maybe the key message you want to leave us with. And we'll certainly get into Q&A as we go on, but I'll turn it over to you for a quick intro.

Great. Ken, thank you. It's great to see you, and thanks, everyone, for joining us here today. First and foremost, I appreciate the introduction and how you referred to us as a leader in North American freight brokerage and also global logistics. We've spent a lot of time over the last number of years really working to bring together a unique multimodal and global logistics company that can help all of our customers really navigate the complexities and the challenges of the supply chain that we've experienced so much, especially over the course of the past few years. We feel like the world has learned in the last couple of years what we've all known for a long time, and it's the supply chain that really drives the world's economy, and we've been really blessed to be part of sitting in the midst of that. The work that we do on behalf of our customers in truckload, less than truckload, air, intermodal and ocean, we are proud of the fact that we've got industry-leading positions across the board in many of those solutions. As we think about this through the lens of our shareholders, our unique nonasset-based business model continues to deliver strong free cash flow, strong returns to our shareholders in terms of buybacks and dividends, and we've got a history of returning above-market average returns to our shareholders. As we think about kind of the go forward in this industry, we believe that our competitive advantage is unique and the fact that we blend this global network of services, along with great supply chain experts and one of the largest freight networks under management of over $28 billion, which provides us a unique data advantage that we can, in turn, help to drive value for our 200,000 customers and carriers that we work with on a daily basis.

So Bob, we've actually heard from a lot of different companies at the conference and over the last couple of days. And I guess the one thing is this evolution over the last 2 years, given the ELD and kind of the advancement of ELDs in terms of drivers, so looking at the brokerage side for a second, and the need to create and have trailer pools as a competitive advantage, particularly in their company's logistics and brokerage side. How do you come at that as an asset-light company? What's your thoughts on that? Is that a differentiator? Is that just a smaller part of the market? Maybe talk about your thoughts on what's going on there.

Yes. We launched our POWER + program, which is what we refer to as our power-only program associated with trailer pools, I don't know, probably 3 or 4 years ago. And we started in a small way in a pilot with a handful of customers, and we have seen that continue to grow year-over-year, and we continue to win business in that space. I think shippers are looking for efficiency in today's market. And one of the ways they can do that is through trailer pools and trying to eliminate the need for live loading at origin and destination. And so we've -- if you think about our business, our truckload business in total, drop trailer represents about 10% of our total truckload volume. And within that is our POWER + and our power-only solutions with trailer pools that we manage, our gray box fleet, if you will. So we do see that as a growing, albeit a small percentage of our total business, an important part for growth.

Just because something we've heard a lot about over the last 2 days. So let me talk near term for a second, just to knock this out of the way. So you haven't given guidance on EPS for a while, but every year for the past decade, EPS has gone up from first quarter to second quarter. This year, consensus seems to target a decline. Is there any thoughts you'd give on seasonality or maybe benefits from capacity costs falling rapidly as spot rates roll over? Is there anything that kind of looks different to you in the market now?

Yes. So we're coming off of a record results in first quarter, really strong performance for Robinson as a whole, led by improvement in operating margins in our NAST business as well as continued strength in our Global Forwarding business. And really, each of our business units performs in a strong manner with delivered growth in the first quarter. As I said in the first quarter earnings call, April was really looking kind of like March in terms of what we saw in the results. It's been well documented that we've seen spot costs and the cost of purchase transportation coming down over the course of the past several weeks, and I would expect our model to continue to react the way that it traditionally does in that part of the cycle. So that's -- without giving guidance, that's a bit of kind of how we see the model holding up. I would say as much as we continue to think or maybe hear that our Global Forwarding business is outperforming or outearning, we really continue to see a favorable macro backdrop there and feel really good about the growth in that business.

Wonderful. So let's talk about that. You mentioned the volumes kind of -- or I guess you mentioned pricing in terms of what you're seeing on the spot. But volumes have tougher comps in this environment. Maybe talk a little bit about the backdrop, given with the news that's come over the last couple of days, whether Walmart, Target in terms of maybe seeing inventories climb, and which is a very different story, I think, we've heard from the market. I think you've come at this from a different perspective in terms of you're providing that capacity to the market versus having assets you have to fill. So what do you see in terms of the market volumes and maybe continue on your pricing commentary there?

Yes. So since the onset of this pandemic, and I've been asked a lot, what is it going to take to get back to some sort of fluidity or lack of disruption in the overall supply chain, and there's kind of been 4 points that I've been focusing on. The first is labor availability. And I think we started to see -- whether it be in some of the earnings releases this week or the rail reports, we're starting to see more labor. Net-net, we've got, I think, 650,000 incremental jobs in transportation and supply chain now compared to the month prepandemic. The second thing that we needed to solve for was kind of the number of the turns and the speed in which product is getting through the ports. And we're starting to see some improvement in that as well. And you could say the same thing for the velocity of equipment availability, right? And so we're starting to see those things become less of a bottleneck. And the fourth piece is -- excuse me, around labor, ports and -- excuse me, I'm drawing a blank. But we're starting to see improvements in many of those bottlenecks that sit in front of us. And so -- sorry, the fourth piece was just simply, we've been chasing this rapidly increasing cost of purchase transportation over the course of the past several quarters, which has really caused disruption in routing guides, right? And we've seen that in terms of the average depth of tender, the average first tender acceptance rates. Now that in first quarter, we started to see some moderation there, along with the regular repricing of contracts, you've really seen routing guide start to operate much more effectively than they have at any point in the past several years. And so those factors, I think, are helping supply chains to operate more effectively than they have in the past. Sorry, the fourth thing I was looking for was inventory to sales. We've seen some improvements in inventory to sales there as well. So I don't know that in all the talk of are we headed to a freight recession. I don't believe that to be the case. I just think we're starting to see some normalization in the market coming off of some really historically high peaks.

Yes, certainly. I guess returning to seasonality just indicates some loosening up overall versus what you had before, right? So I guess just effectively, it is -- the difference in that incremental change is what gets the market nervous overall. So looking at your truckload pricing, what you're paid over the year was down about 16% over the prior 2 years. I'm looking, if I kind of average over 2 years, pricing jumped 60% over the last 2 years, which pushed you up about 33% over levels in 2018, just roughly, right? So as you see now spot rates falling rapidly, even unseasonably now, right, with beverage season and everything else, how did you end up in bid season versus last year? Is it -- is the spot market as weak as we see in the load boards and what's going on? And what does that signal to you in terms of kind of what you were just talking about, the effects of a smoother operation, inventory to sales? So do you flip more into the contract? Did you take advantage of that and move away from spot? Or how do you think about it on the broker side?

Yes. So first of all, and we know that first quarter is one of the busiest, if you will, quarters in terms of repricing, and so we've had the opportunity to reprice a number of our large client relationships throughout the course of the first quarter. And I think one of the questions that was top of mind for investors going through 2021 was what is -- what's the impact of Robinson taking a longer-term view to some of these relationships, maybe absorbing more negative file, maybe taking a lower-than-expected margin in 2021 with the thought that they would be rewarded in 2022 should the market change? And then I'm really pleased with the fact that as we've gone through the bid cycle in the first quarter, we are seeing really high levels of retention and growth with those customers that we really did take that long-term kind of customer lifetime value view with. And so in terms of net-net, what did we get awarded in first quarter versus what we expected, we feel really good about the results there. What you said is true. We talked about spot markets are down. Obviously, spot rates are always a leading indicator of where contractual rates have gone. The impact to shippers have been somewhat moderated though by the record fuel prices that we've had so far this year, right, with fuel prices up some 70% to 75% on a year-over-year basis. Routing guides, I mentioned, are holding up somewhat in line with what we saw in 2019 within our Managed Services business. We're seeing that move from what was kind of 1.5, 1.6 last year to closer to 1.1 to 1.2 this year. What's interesting about that to me is -- if I look at another metric that we pay pretty close attention to and that DAT load-to-truck ratio, is the market conditions today, in terms of the balance of loads to trucks, looks much more like 2018, which was the past peak. The routing guide performance looks more like 2019. And so we need to continue to look at that and unpack that and kind of get to the root cause as to why that is. It could just be contracts have reset at such higher rates, but there's just very high degrees of compliance.

So talk to us about net profit margin per load and a difference given the way rates have changed versus your historical look at net revenue margin. And then I've got a -- well, I'll wait. You go ahead and then I've got a question that just came in on that same kind of subject.

Sure. So we put a new slide into our Q1 earnings deck because this conversation continually comes up around adjusted gross profit dollars versus adjusted gross profit margin. And what I wanted to show in that slide last quarter was as -- we started to see our adjusted gross profit dollars per shipment above our 10-year average in the past 2 quarters after kind of being below average, the 8 quarters prior to that as we were chasing an increasing cost of purchase transportation. The adjusted gross profit margin for us, because we don't necessarily operate our business on a targeted margin percent, we much more operate on, if we look at the relationship with a customer, what do we think we can earn on a dollars per load basis. Because the impacts of fuel and the changes in market are so far out of our control, it's very difficult for us to try to manage to a net profit or adjusted gross profit margin percent. But we see in that 10-year chart, the adjusted gross profit dollars per load tend to move in a pretty tight band over that decade period.

So the question that came in kind of was then, can you -- given that, can you reach the gross profit per load levels at the highs you reached in 2018? And why or why not?

Yes. So you may have seen yesterday -- or I'm sorry, earlier today, we updated our client advisory that we put out on chrobinson.com and have reforecasted where we see the cost of purchase transportation truckload moving throughout the balance of -- on a year-over-year basis, full year basis for 2022. And we've taken that estimate from flat to being down about 11% on a year-over-year basis. So said differently, we do expect that the cost will start to come down through the balance of the year. Whether we reach the highs of the peak for a quarter, for a couple of quarters, it may or may not happen. It's certainly not our focus in terms of maximizing the results in any one given quarter. But cyclically, I guess that's a word, through the cycle, we'll see the highs and the lows, but the goal is really over the longer term to smooth that out and make sure that we're finding that right balance between volume growth, adjusted gross profit per shipment and personnel expense in order to get back to and maintain operating margins at or above that 40% range that we've been talking about publicly.

Yes. So last month, you mentioned the proportion of loss-making load still about, what was it, 300, 400 basis points off kilter after meaningful improvement. Maybe just walk us through the steps that you mentioned going through bid season where you can optimize that AGP per load further here.

Yes. So there are several steps that come there. Some of it is just a natural progression of pricing, right? As we cycle through age rates or older bids and we reprice, we'll start to see some of those negative files with loss-making loads fall off. Some of it is intentional, right, in terms of looking at the behavior within a portfolio of customers or portfolio of lanes and realizing that we need to make some intentional changes mid-cycle. And so that's occurred as well. The decrease in spot rates have obviously been a tailwind for us in making some adjustments there. And then through the cycles, we just tend to manage our acceptance rates to ensure that we're optimizing that yield. Throughout all of that, we're continuing to tune our pricing algorithms that feed our forward look on our contractual business as well as our short-term look on our spot business to try to, again, optimize the yield of the transactions. So we would expect, as we go through the cycle, we start to get back to or below average on kind of the rate of negative loads, both the rate in terms of the percentage of total negative loads. But as markets become less volatile, we tend to see the amount of money that we might expose ourselves to on a loss go down as well.

So let me switch subjects now for -- sticking with still the brokerage side, but moving more toward the digital kind of aspect of it. Maybe just -- if there was origination, maybe walk through how you measure it, all the different piece parts, all the way to connectivity and how many are fully digital, how many are touched by digital and what is still traditional just to base that and then we can get into the technology a bit.

Yes. My goal before I retire at some point from C.H. Robinson has to come to an industry standard of what digital or what automated means. Because right now, we -- I think all of us describe it in a slightly different way. And so I'll do my best to kind of describe how we think about it internally with Robinson and the work that we're doing. We've always been highly, highly digital on the customer side of our business, right? And think the larger the customer, it's almost assumed that we're receiving that tender in some sort of an electronic fashion, whether that's EDI or API or whatever that mechanism is, but highly, highly digital in terms of demand that comes into our system from our customers. Where we've had kind of a long tail of smaller customers that may not have those digital capabilities, we work on connecting to their ERP to their TMS, providing them access via Freightquote by C.H. Robinson so that we can generate as much demand as we can in a fully digital manner. That takes touches out of the system upstream and allows data to -- the demand to flow towards supply more simply. One of the main initiatives that we've done on the carrier side over the course of the past couple of years is really trying to automate the booking process and to try to provide that opportunity for a carrier to, whether it be utilizing the app, utilizing the web, again, connecting to their TMS and giving them booking APIs and pricing APIs, trying to figure out the best way to connect to them. And I shared them in the first quarter earnings call, we made tremendous growth in that space in the first quarter with sequentially 100% improvement from January to March and year-over-year, a 350% improvement in a number of digital bookings. I would add that our LTL business, which is we move more LTL shipments today than we do truckload business or truckload shipments, is highly, highly automated from end to end. Now from the digital demand creation to the digital booking, there's a lot of work that has to happen in between that. And I would argue even if you have fully digital demand and fully digital procurement, there's a tremendous amount of time and opportunity to digitize the processes in between. And if you don't do that effectively, you essentially end up channel shifting from analog to digital without really getting the benefit of that. And so we have a lot of work to do still in kind of that middle portion to ensure that we're taking and driving the right customer experience for the carrier, so that we're optimizing the use of our labor and so that we're giving our people the tools that they can be even more productive. So coming a much higher percentage of the procurement is happening in a digital environment, very high percentage on the demand side. Still a lot of work to do in the middle to really maximize the benefit of those 2 digital endpoints, if that helps.

No, it does. It does. And I guess we had heard on our digital freight brokerage panel the other day, kind of maybe the way to measure it, like you said, if there was a standardization in the industry, is there 5 parts? And somebody said you maybe need 3 parts of those to call it a digital transaction. And whether it was quoted, bundled -- I'm missing one, but then tracked in an invoice, right, so you've got kind of 5 different parts of that process that need to be -- that are part of the process and that ultimately need to get there. Maybe that's an interesting thing for everybody to kind of work on in terms of what, like you said, is that. All right. So now looking at that. And you and I have talked a lot over the years about Navisphere our Freightquote and the ability to scale and progress. Maybe talk a bit about how that's going. Obviously, we've heard of a lot of entrants, right, into the space. You know them all, Uber Freight, Convoy, UPS bought a brokerage [ in JV360 ], XPO Connect. So many have done that. It seems like we kind of faded a little bit into COVID. Kind of now it's starting to come back again in terms of the interest in what's going on and where these carriers are. So maybe just talk about your Navisphere, Freightquote, how well it's doing and the investments you're making there.

Yes. So to your point, the competitive landscape has continued to evolve and it always has. I mean since I've been involved in this industry for 23, 24 years, whatever it's been now, there's always been evolution and change in the competitive landscape. And this time in the industry is no different than any time in the past. I would argue that change has likely never been slower than it will be today, right, and the competitive landscape will continue to change and evolve. I think for all of us that are working our way into this more digital future, it comes down to capabilities. It comes down to thinking about what has been a legacy brokerage business, more like a two-sided marketplace, and how do we create the value on both sides of that marketplace for the customer on one end and the carrier on the other end. And for us, we think about that through acquisition retention and growth kind of through those 3 lenses. We've gone through a pretty significant shift in our organizational structure and how we're thinking about this over the course of the past 6 months as we've really worked towards the legacy thought of having kind of IT in the business, if you will, moving away from that towards having a product organization that sits at the center of our business strategy, our technology strategy and the voice of both our customers and our carriers. Really optimizing the work that we're doing, testing, hypothesizing and ensuring that we're working on the things that will deliver the highest leverage to really accelerate the pace of growth on that 2-sided marketplace. And so that's been a bit of the inside baseball, if you will, over the course of the past several months here. But if you think through the lens of acquisition retention and growth, that's really about us scaling this NAST marketplace where we're starting because we think that's the most critical economic engine to get right for the organization. And while it's a great group of companies that you mentioned in the competitive space, we're really trying to keep our eyes on what's most critical for our customers, our carriers maximizing the value for our shareholders, and we'll go and compete with those folks every day. And we just need to make sure that we've got an innovative product that we're bringing to the market that's differentiated that our customers and carriers want to do business with every day.

So Bob, given all of that, the sum I guess here is do we still expect NAST, I guess, net profit growth to grow sequentially here? I mean you've had such a string just given the market. Should we expect growth to continue in this environment?

I certainly expect NAST to continue to grow. The NAST leadership team certainly knows that. But no, I mean we expect to grow our NAST business. Success to me is our ability to demonstrate growth in NAST through cycles, right? We've demonstrated some volume growth over the past several quarters. But we know that, that's likely come not at the same rate that some of our competitors have delivered volume growth at that same time. So we've underachieved in some of our aspirations on driving volume growth. We know that we need to find that right mix between volume growth and adjusted gross profit growth and continue to show that growth through cycles. And that will come both through our digital aspirations and continuing to drive both the scale of the digital marketplace, but also through our more legacy channels of hiring great people and putting them into the marketplace to go generate demand and solve complex customer needs.

So let's take that to the next step. You just said growth, right? And then you also kind of threw in margins, right? So your goal to get to 40% NAST operating profit margins looks now at 36%, right, to take more receivable. What are the steps you need to do to get to that 40%?

Much like in first quarter where we saw a significant improvement there, it's about the health of our contractual truckload business. And through the course of 2021, as we were chasing back half of '20 first -- or in all of 2021, kind of chasing this cost of purchased transportation up, we were under-earning in our contractual truckload business. And so we're starting to turn the corner on that. We feel like we're in a much healthier place there. That's lever number one. The second is consistent volume growth. And as I said, we've demonstrated volume growth in several quarters in a row. We need to continue that momentum. And then the #1 lever to achieving that in our business, if you think about the NAST income statement, 60% to 65% of the expense base is personnel. And so we need to ensure that we're giving our teams the right tools that can help them to be the most productive and the most effective in serving their customers. We've added people pretty aggressively over the course of the past couple of quarters because we felt like we perhaps cut a bit deep there. And so we've got a fair amount, I guess I'll use the term dry powder, in terms of the investments that we've made in people that have -- while they've been a drag on our operating margins for the past few quarters as they've come in and they're not near average productivity, as they ramp and start to get to a higher level of productivity, we'll see that start to be a tailwind for our operating margins as well.

So is the -- on labor availability, has it eased more recently? Are you able to get the people you need? Is it, I guess, more freer than it's been in the past?

Yes. We have continued to see challenges in terms of labor availability, specifically as you think about supply chain engineers, as you think about data scientists, as you think about product managers. Obviously, the engineering, the technical software engineering space is highly, highly competitive. And so those have been challenging, but we are filling our roles. In general, what I would say is it's taking us longer than typical to fill an open requisition and I think, as an industry, seeing fewer applicants for the number of open requisitions that we have. That being said, I think we've got a really interesting and unique culture at Robinson. People come to work here because of the culture. They come to work here because of the fact that we're sitting in the midst of solving really complex problems within the supply chain. And the work that we does matters, right? The work that we does -- the work that we do matters to the world's economy, and I think that's really engaging. Ken, I want to go back, though, to the operating margin, if I could, Ken, because there's one point there that I wanted to bring forward that I don't think we've talked about enough within the NAST operating expenses. And that's that of our warehousing business, our consolidation business that's really been born both organically and through the Prime acquisition that we completed a couple of years ago. We, today, have one of the largest retail consolidation businesses in the industry. But as we've built that, we've also had to add some assets in terms of warehouses. And so just as a comparative point, in 2019, our warehouse expense made up about 1.5% of NAST SG&A. And in Q1 of 2021, that was about 4.5% of our NAST SG&A. And so you can see kind of that impact to the operating margins. And as we've built that out, you need to kind of build the building before you can recognize the revenue and get the returns on the assets. And so we feel like our footprint is pretty well established there now that we've got the whole consolidation network built out and we should see improved returns on that as well.

All right. All right. Let's switch over to the Global Forwarding business, right? So I think I get a lot of pressure in terms of isn't C.H. overearning on it. We're going to see rates coming down. And so it was a special time given what was going on in ocean rates, air rates. How would you think about that business? Is -- do you see some of that as belly space comes back online or just passenger capacity or as ocean fluidity improves from 91 vessels out less to 31 vessels? Maybe what's your thoughts on the Global Forwarding business?

Yes. So since we acquired Phoenix in 2012, we've stated that, really, our operating margin targets for that business were to be in line with our best-performing publicly traded peers. And we've kind of talked about 30% being the goal. And for a long time, we looked at that as being, I don't want to say the ceiling, but the upside target for us. And that's still the public comments that we maintain today. With that being said, we've outperformed that 30% for the past -- we've been at or above that 30% for the past 8 quarters, and I have no reason to think that this wouldn't be the ninth that we would do that. No doubt that there's been a macro tailwind that we've had over the course of the past couple of years that have helped us to deliver strong results there. But I think what's been hard to see through is just the amount of share gains that we've made, not just overall, but relative to our peers. And if you look at the -- some of the publicly available data around share gains in ocean and air and you index that versus our peers, you can see that we've really outperformed the majority of our peer set in taking share through this. And we've done that through adding many larger customers, many larger BCOs that I think we will demonstrate that we've developed some pretty sticky and long-standing relationships with. Additionally, in that business, we've really strengthened, on a global basis, the relationship with our carriers, which is providing us more and more capacity to take to market. We think that the macro backdrop will continue to be favorable for us in the forwarding space for the next several quarters at a minimum. And we know that we continue to have a strong amount of new business in the pipeline that's yet to be implemented. So while this has all been going on, Mike and the team have been really active in integrating the last few acquisitions that we did, working really hard towards global process standardization, which is allowing us to be much more productive and efficient in that business. And I strongly believe that we have structurally improved the profitability of that business. And to your point, at some point, whatever normal looks like will come, and we can have this conversation again. But as -- from where we sit right now, we feel really positive about the future of the forwarding business, and not only the future of the forwarding business, but our ability to integrate that global end-to-end solution for our customers as evidenced by the fact that almost half of our revenues are generated by customers that are doing business with us in both forwarding and NAST.

So have you -- I mean the customers are doing it, but have you found any integration capabilities between the 2? Or is it still 2 different things that you might win the other business because you're doing the forwarding?

I think we've evolved, Ken, from an environment of cross-selling to an environment of global solution design. And there's no question, at the onset of the acquisition of Phoenix, we talked a lot about the NAST to GF cross-sell or the GF to NAST cross-sell. That's evolved really to us going in with a global lens of solution design saying, how can we engineer an end-to-end solution for you versus just doing business with you in 2 different locations?

So switching subjects again. I appreciate that rundown on forwarding. I think important to understand kind of how you manage the business through the cycle. You formed recently a capital allocation committee with Jay Winship and Henry Maier. Anything you want to kind of highlight in terms of what you're looking to do? What -- is it storing up cash post the pandemic and now looking for opportunities? Is there some other thing? Maybe you can walk us through your thoughts there.

Yes. As we made our public statements on late February, both press release and 8-K, as part of our cooperation agreement with Ancora, one of our large investors, we did add 2 directors to the Board, Henry Maier and Jay Winship. And I would say that both of them have brought really strong points of view to the Board. Jay coming from a really strong background of public company governance and a financial background, Henry, who's led FedEx Ground for a number of years, knows the industry very, very well. Both have brought great points of view to the Board. Our Board and our management team has always been fully committed to ensuring that we're doing whatever we can to maximize long-term shareholder value, and that certainly hasn't changed here. The process around the committee is really about looking objectively across the strategy of the business to make sure that we're doing everything we can to unlock the greatest amount of shareholder value long term.

So what -- let's go on the financial side, right? So you've got -- I think you said you've doubled your debt down to, what, 1.5x-ish debt to EBITDA. Where do you want to be steady state? And what's your thoughts on that in working capital in this environment?

Yes. So our stated -- kind of our stated strategy around our capital allocation is, one, we want to maintain investment grade in terms of our credit ratings. So that gives us some flexibility in terms of that debt-to-EBITDA ratio and still being able to maintain investment grade. So we see the right opportunity to do that. In terms of working capital, if you think about the #1 asset in our balance sheet is our receivables right now. And as we've seen increases in the cost of purchased transportation and fuel, there's been a tremendous amount of working capital absorption due to that. The good news is -- with that is net of working capital, we continue to deliver extremely strong free cash flow and returns to our shareholders throughout that. If you just break our business into the 2 biggest chunks, forwarding and NAST, our average DSO in forwarding is somewhere between 90 and 100 days and a NAST is between 40 and 50 days. And so as we start to see pricing level out and even come down at some point, there'll be a bit of a delay, but we'll really see an influx of cash in a pretty significant way as the working capital absorption comes off of those receivables. In terms of looking at the receivables, the quality of the receivables, we feel really good about. And really, any write-downs or credit losses as a percentage of our receivables are at the lowest levels that they've been.

So Bob, I'm going to kind of shift to a completely different subject, but you've made -- I guess you sit on Torque Robotics Advisory Board. They participated in our conference yesterday. You've announced a strategic partnership with Waymo on autonomous driving. How do you see as a broker adding that autonomous capacity into your business? Or is it just understanding the process as to why you're joining the Advisory Board? I just want to understand from a brokerage perspective, how do you see autonomous playing out in the market?

I don't know when it's going to be. I don't know that any of us maybe didn't have an opportunity to participate or listen in on that panel. But we do believe that at some point, autonomy is really going to have a meaningful impact to the overall domestic supply chain and logistics industry, and we want to be a part of that. And we wanted to take the opportunity to work with Torque and Waymo and others to really understand kind of the direction of autonomy. We wanted to help them to understand how the small and midsized carrier might have a play in that. And when it comes right down to it, if you -- the way that I've thought about this really for the last number of years is as efficient as transportation trucking can be, there's a number of inefficiencies, and we know that even the best asset operators run with 10% or 11% of their miles empty, and smaller operators, north of 25% and 30%. And a lot of what causes that is either lack of freight or bias of driver, and drivers want to go home. And so when I think about removing the bias of a driver, just really think about optimizing the use of that asset, I don't see a better network that we could do that, Ken, with -- other than that of C.H. Robinson, where we've got tens of thousands of shipments every single day. And the ability to move that asset without bias to maximize the return on that, I think that, that's -- there's a really interesting perspective there for us to continue to look at long term, and that's why we wanted to be involved in this on the front end.

So Bob, if I step back and as we wrap up here, so you talked about record results in the first quarter. April and May, still holding through -- or I'm sorry, was it March to April holding through? Or was it April?

Yes, March to April.

March to April.

And May to April.

And May to April is holding that same level you were saying, right?

Yes.

Yes. Rolling pricing, spot leading, spot is down, which typically leads to contracts. NAST, you're targeting still growing volumes, growing revenues, continue to gain some share. You're looking to catch up to where the industry was. You put the -- put your focus on that to continue to get that. Margin, obviously still upside to margins. You were talking about getting toward the 40%. Forwarding, obviously, it's cyclically high given what's going on in the market. You aim to -- it's not cracking yet, but eventually, you'll expect some normalization within that, if I'm saying that the wrong way. And then obviously, the technology continues to adapt and grow within Navisphere and Freightquote that continues to digitize that process as you move on. So I've given kind of some of what I think you've kind of said what -- how would you sum up? Or what would you highlight that I may have missed or you want to make sure we focus on and walk away with?

No, I think that was a really good summary, Ken. I might have you do more of these for me. But I think you encapsulated what we talked about really well there. I would just want to close with we're extremely focused on helping customers and carriers navigate through whatever is coming with the cycle. There's still a lot of uncertainty in terms of the overall economic environment. And the great part about our model, our nonasset-based model, is that we are able to move with the markets and continue to deliver strong shareholder return, strong free cash flow. And we're absolutely committed to finding ways to maximize that return to our shareholders through cycles.

And even with the pullback in the rates, I mean, typically, that's when, as a brokerage model, you would kind of shine, right, because now as you flip more into contracts. Have you talked about the percentage that you're now moving more into contract from the spot market? Is that a -- have you shifted to a significant amount?

Ken, it's my belief that our mix between spot and contract really tends to follow that of the market more so than we're directing it. So as the pendulum swings and more freight is moving under contract terms than spot terms, we typically -- that's when we typically see our model move closer to that 70-30 on the contract side. As things become more disrupted, we can edge back to that 50-50 range. So if we continue to see routing guides hold up the way that they are, I think there's a lot of uncertainties on what happens as Shanghai reopens, as China reopens and what happens 70 or 80 days later, what that does to the domestic trucking markets in the back half of the year. Those are things that we're continuing to watch closely. But I do think that our mix of spot and contract tends to follow that of the market in general.

And so where would you say that is today?

I don't know where it is mid-quarter. I don't have a mid-quarter outlook.

At the end of the quarter?

On the earnings call, I will guarantee you that we'll talk about where we finished the quarter on spot contract.

No, where was it last -- at the end of last quarter?

Oh, I'm sorry, 60 -- sorry, 60-40. Yes, 60-40 on the contract side.

60-40. Okay. And just since you bring it -- brought it up before we break away, that wall of -- do you see a wall of freight? Or was freight moving from the other regions? And as Shanghai is now 90% open, like you said, in 5 or 6 weeks as factories get up and running, we start moving that, we're going to have a bump? Or do you see a wall of freight that's racing to come over here?

Shanghai was down 25% last month. China was down 2.5% in terms of export volumes. I mean that's 2.5% of a big number. But as I think about the things that we've been doing for our customers like using barges to -- small barges to move containers from inland to Hong Kong, to move things via air freight, I mean like us, others have been working hard to keep goods flowing out ex China to where they've been needed. You saw some slowdowns in terms of L.A. Long Beach last month relative to the growth rates in March. But I don't know that we're going to see a wall of freight. I think we're likely going to have a bit of an air pocket here in the short term and then likely a bit more of a pickup towards the back end of the year.

Very encouraging. I was very surprised we heard from the Port of L.A. exact same thing, Bob. It was that stuff had been moving to other ports had still kept coming over. And so it's more likely going to be a bump, not a wall of freight, that I think everybody was fearful that there's this wall of freight that's going to hit. But it seems like it will be a bump, as you said, on an overall, a little bit down. Bob, thank you so much for joining us at the conference. I know you couldn't be here in person, but truly appreciate you taking the time out of your schedule for this great insight and update. Thank you.

Thanks. Thanks, Ken. Great to see you. Thanks, everyone.