DC Velocity - November 2016

In the latest example of the power that truck shippers have wielded all year over the direction of freight rates, C.H. Robinson Worldwide Inc., a major third-party logistics service provider (3PL) and the nation’s largest freight broker, said its third-quarter profits were pressured by shippers extracting deeper rate concessions than the company was able to pull from its carriers.

Eden Prairie, Minn.-based Robinson reported that third-quarter truckload “net revenues,” defined as revenues after the costs of transportation services, declined 10. 4 percent year over year. Although Robinson has in recent years broadened its logistics and supply chain management offerings, truckload brokerage remains by far its largest segment. Robinson is a “nonasset-based” provider, meaning it owns no transportation assets but instead pays a large network of carriers to move its customers’ freight.

The company’s margin compression came because so-called sell rates to customers fell faster than the prices at which Robinson could buy space. Excluding the impact of diesel fuel expenses, Robinson reported a 5.5-percent drop in rates charged to customers on average, compared with a 3.5-percent reduction in its costs.

The company’s third-quarter truckload volumes rose 7. 5 percent year over year as it pursued additional share of what has been a flat-to-down overall market. The new truckload business is believed to be profitable, though less so than last year due to 2016’s more difficult rate climate.

“We expected a challenging pricing environment in 2016 as shippers focus on reducing their transportation costs,” John Wiehoff, Robinson’s chairman and CEO, said in a statement accompanying the results. Wiehoff said the company is “making good progress on our long-term plans,” part of which includes achieving profitable volume growth.

Robinson’s results, especially in its core truckload business, are the latest example of shippers successfully bargaining down their providers on “spot,” or noncontract, rates, and in contract pricing, which is still how the bulk of truckload freight moves. Spot rates have been under pressure all year, and contract rates, which historically lag the spot market, have followed suit.

Part of Robinson’s profit shrinkage is the company’s ongoing willingness to sacrifice pricing in a bid to gain truckload share at a time when overall demand has been stagnant, according to analysts. “We suspect margin pres-

Robinson’s Q3 results reflect pressure from hard-nosed shippers

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