Few companies straddle the North American domestic truck and global ocean freight markets as does C.H. Robinson Worldwide, the largest US-based truck freight broker, in terms of revenue, and largest non-vessel-operating common carrier (NVOCC) in the China-US trade. The 112-year-old company is at the fulcrum of change rippling through the US trucking market and across trade lanes from Asia to Europe, much of it driven by e-commerce and technology.
In July, C.H. Robinson extended its overseas reach, opening a gateway for containerized ocean freight in Antwerp, Belgium. The $13.1 billion company also reached out to small US trucking companies struggling with the upcoming electronic logging mandate, working with a partner to supply companies in its carrier base with a low-cost electronic logging device (ELD).
Chairman and CEO John Wiehoff sat down with JOC editors Chris Brooks and William B. Cassidy last month at C.H. Robinson headquarters in Eden Prairie, Minnesota, to discuss the threats and promises of new technology, opportunities for growth in global forwarding, and a North American surface transportation market tilting toward tight capacity and higher costs.
JOC: C.H. Robinson is celebrating a big anniversary, your 20th year as a public company. How is the company changing today, and where do you want to go?
Wiehoff: All of us in this space are aspiring to be more automated and more global. The last 20 years as a public company we’ve focused on global third-party logistics and trying to expand our footprint around the world. Probably the thing in the last five years that we’ve been the most proud of is our success in global forwarding. And we’ve continued to reach new milestones in volume, particularly between Asia and North America. So, we have this third-party heritage as a brokerage that was very focused on North American surface transportation. We’re leveraging that hundred years of history, and we’re aspiring to be more connected and more global. It’s been fun. In the last five years, we’ve reached a new level of relevance outside of North America. Our technology platform is a big part of that. It’s literally changing every couple of months as technology allows more visibility and connectivity. Every six months, it’s kind of a new chapter.
JOC: The speed with which you have to evolve and change today ...
Wiehoff: It’s unbelievable. The lifecycles of computing power just go faster and faster. And you’re probably aware that in surface transportation, Dec. 18 is a big date. That’s the deadline for trucking companies to install ELDs. With that will come all sorts of telematic capabilities. So we’re investing in lots of real-time tracking and tracing tools that will bring us closer to global real-time supply chain visibility. That’s always been "utopia."
JOC: How do you see the marketplace as we move into the second half of 2017?
Wiehoff: Starting with global forwarding, we’ve seen a lot of positive momentum. There’s lots of uncertainty around [ocean] capacity consolidation, and pricing, and what’s going to happen. But we’re in the middle of integrating our Australia and New Zealand acquisition [APC Logistics], and have some sales momentum.
On the [North American] truckload side, all of the discussion the last several months has been around volume increases and the market tightening up, and we’re certainly seeing that. There’s a lot of concern about shortage of supply, with this Dec. 18 [ELD] deadline out there. What’s the second half of the year going to look like, and is the US economy going to hang in there, or are we looking at a bubble? Will this tightening of truckload capacity that’s been happening the last several months continue? Some people have been talking about a “mother of all shortages” and warning this ELD mandate is going to be a really big problem.
Over the next three or four months, it’s going to be really interesting to see if the tightening of the last couple months continues. If it’s a foreshadowing of Dec. 18, it’s going to be really messy. But we remind people that in the supply-demand relationship, the biggest variable is the demand. What happens to freight demand over the next six months is just so hard to predict; it’s easier to talk about ELDs.
We have a division that focuses on project-based logistics and freight management, and that’s the fastest-growing part of C.H. Robinson. That feeds the whole discussion around how you apply technology, how you use analytics, how you execute more effectively. We see shippers investing in the supply chain to gain a competitive advantage — that area is growing fast.
The pressure on our business today is investing in that technology and transforming our platform. The demand is there. Shippers want it. You’ve just got to be smart about what you’re investing in and what opportunities you’re pursuing, and how to commercialize them and how to get paid for them. The threats are real, but they’re real for everybody.
JOC: How prepared is the trucking and freight-shipping industry for ELDs – obviously, the big guys, the large carriers, they’ve been doing this for some time, but the trucking industry is so fragmented. Is word getting out that this regulation is coming down the pike?
Wiehoff: I think so. It shouldn’t be a surprise to anyone. The question we’ve gotten the most from shareholders is what impact to expect. We’ve seen estimates that the loss of capacity will be as high as 6 to 8 percent, and we’ve heard other people say it will be nominal. There’s been speculation, particularly by the bigger carriers who have been automated for a long time, that some smaller carriers haven’t been compliant with their logs, and that forced electronic logging would drive them out of industry because they can’t cheat as easily anymore.
There’s going to be an impact. I’m sure that thought was put into choosing the December deadline. December and January are the softest months of the year for trucking. Every year, there are some people who stop driving around that time. I’m sure the end of December and January will be just fine, and we’ll see how tight capacity gets in the spring. But if you think maybe 3 to 5 percent of truck drivers are cheating on their logs, driving perhaps 20 percent more than they should … if that goes away, that’s probably not going to be a super material impact. But we won’t know for a few months afterward because supply and demand will take over and people will adapt. It will be just like the HOS [hours of service] change [in July 2013].
In a way, I’m probably more positive about ELDs than any of the regulatory changes around HOS, because of the commercial impact of this, the visibility data that’s going to come from it. The government wants visibility so it can monitor HOS compliance. But the value of that visibility from a commercial standpoint is probably way greater than the compliance cost.
JOC: Are you thinking of increased utilization?
Wiehoff: Just the opportunity to have better data, better estimated arrival times and pickups. From our standpoint, because we’re utilizing so many different providers, it’s about eliminating empty miles and trying to proactively offer drivers the next best freight-hauling opportunity. Knowing exactly where they are, and being able to give them more valuable freight.
It is easy to see this from a negative standpoint, a “Big Brother’s watching” perspective. But I think this is going to be a pretty positive step for the industry and the benefits are going to be good. From our standpoint, this is probably one of the biggest equalizers in terms of quality, really being able to know where your capacity is and understanding your capacity.
JOC: So, from just having that data, that utilization data, you’ll be able to see which of the carriers is providing the greatest value in terms of service?
Wiehoff: Yes. There will be lots of advantages in terms of capturing that data and working with our customers to plan better, to eliminate dwell times, and to make sure shippers know if there’s a traffic problem, so they can manage around it. Those are some early applications we’re already working on. Customers are most excited from a service standpoint. They’ll just have better visibility into inbound freight and their supply chain. But then there’s analytics, data collection, figuring out how much of that history you store, and the types of analytics you can run to improve network performance. There’s optimization. If you really know where everybody is, you can do a better job of matching the freight opportunities with the capacity that’s out there. So, in some ways we’re doing exactly what we were doing 35 years ago, but the sophistication and the data have really moved up. In trucking, location services are already here, but come Dec. 18 they’re going to be universal, and that’s a big deal.
JOC: Is there a knock-on effect on how shippers operate? How they schedule shipments? How they work their docks?
Wiehoff: There’s going to be a lot of ripple effects. When we talk with customers, the good shippers want feedback on how their freight is seen by carriers. What’s it like to pick up at their locations. Because drivers will turn down freight if there’s a high probability that they’re going to have to wait four hours to load it. They don’t get paid to wait unless there’s a separate accessorial charge for detention time. So, we’re not only going to have more efficient access to capacity, but we’re going to be collecting better metrics around yard efficiencies. So, we’ll definitely get more data about who’s causing inefficiencies in the supply chain.
JOC: How do you marshal all this data, and then how do you analyze it and act upon it?
Wiehoff: One of our core themes in technology is advanced analytics and machine learning. Most of these analytics and cloud service companies, they’re assuming unlimited storage and unlimited computing capacity, which is mind-boggling. When you’re collecting data every 15 seconds, you can get real-time visibility. But then you’ve got to decide how frequently you take a snapshot of the data and how you build your data warehouse to make sure you’ve got a rich amount of history, but not so much that you can’t sift your way through it. So, we’re investing in data engineers and analytical people who are skilled at that. We’re constantly thinking about what’s the right amount of data and the right way to structure it. And then, what do you do with that data? What’s the value proposition?
There’s a bunch of startup companies in that space, and most companies like us are investing heavily in analytics capabilities. Shippers all want to gain competitive advantage from their supply chains. They all want perpetual improvement in their networks and analytics. For all of us providers, the race is on to think about how you come to them with innovation and creativity and data that help them improve. So much of what we do today is based on exception management. I think in the early stages a lot of the improvement is going to come from predictive analytics.
JOC: Turning back to the international business, what’s your growth strategy there? Do you see Europe as a growth region? The Asia-Europe trade?
Wiehoff: When we went public 20 years ago, one of our stated ambitions was to continue to grow aggressively in global forwarding. Now we’re coming up on the five-year anniversary of the Phoenix [International Freight Services] acquisition. The integration [with Phoenix] has gone extremely well. When we put the two teams and the two platforms together, we were able to grow the business substantially without adding a lot of cost to it. That’s really improved our profitability.
Then we added APC Logistics in Australia-New Zealand about a year ago. At any point in time, if you look at the Robinson-Phoenix merger or the APC acquisition, when we strip those out we’ve still had positive growth every quarter organically, separate from them. Not only have the investments been good, but they’ve enabled us to leverage our platform better and organically open gateways and other offices. We’ve been opening offices across Asia, and we’ve been opening offices in Europe.
Global forwarding is very network-oriented. You leverage your procurement with the steamship lines and airlines. It’s about density. We do a lot of less-than-containerload freight where we’re consolidating shipments, so the greater the density, the better it gets. In the global forwarding business, when you’re growing and you’re gaining scale and density, it’s a beautiful thing. And when you’re not, it’s terrible. It’s a momentum game, and we’ve got good momentum right now. It took us 20 years and a very strategic acquisition to tip us over. But the exciting part is we think there’s a lot left to do.
JOC: Where do you see the greatest opportunity overseas?
Wiehoff: We are the leading NVOCCs from China to North America. We’re building on our relationships with the carriers, building on gateway consolidation, building on our efficiencies. As you get more dominant in one corridor, it provides more opportunity. Asia-to-Europe is one of our key initiatives. A lot of our Australia-New Zealand customers that have North American freight are looking at service to Europe. A lot of the organic growth has come from cross-selling current customers where we’ve had a 20- or 30-year North American surface transportation relationship. But you have to earn that freight. They won’t just give it to you. We’re looking for other parts of the world where we can expand. We’ve got capital, and we’ve got the desire to do more. The investments we’ve made in our global platform, our technology, give us an even better competitive advantage outside North America.
JOC: You mentioned disruption earlier, disruptive technology. We hear the word a lot today. It’s being thrown around all the time, right?
Wiehoff: It gets annoying, doesn’t it?
JOC: I’m sure it does. Is transformation really a better description of what we’re seeing?
Wiehoff: One of our key internal initiatives focuses on network transformation. We’re changing and automating a lot of business processes. The positive term is “network transformation” or “reinvention.” We’re trying hard to stress the more positive connotations of all the change that’s coming. But the pressure on all of us, not just in logistics but probably every industry right now, is to embrace this technological change and figure out how to capitalize on the opportunities and avoid the threats. When everything’s moving so quickly, it stresses your capital allocation, your decision-making, your resource prioritization. And when the word “disruption” gets tossed in, it gets annoying because you’re just emphasizing the threat, and not the opportunity. The reality is they’re both present, and the challenge is to stay balanced between them.