Q&A: C.H. Robinson Worldwide CEO and Chairman of the Board John Wiehoff
October 18, 2012 - LM Editorial
Global logistics services provider and freight forwarder C.H. Robinson Worldwide Inc. (CHRW) is essentially a household name. With a highly visible global and domestic presence, it is hard for the Eden Prairie, Minnesota-based company not to be. CHRW has been active on the acquisition front in 2012. Warsaw, Poland-based freight forwarder Apreo Logistics S.A. was brought into the fold in early September and a couple weeks later CHRW announced that it plans to acquire Chicago-based global freight forwarder Phoenix International.
At this month’s Council of Supply Chain Management Professionals Annual Conference, Logistics Management Group News Editor Jeff Berman had an exclusive interview with CHRW CEO and Chairman of the Board John Wiehoff about the company’s growth and acquisition plans, how it views the future, and the current freight transportation market. A transcript of their conversation is below.
Logistics Management (LM): How long has CHRW been actively involved in global transportation?
John Wiehoff: Getting into European trucking and global shipping of containerized freight started for CHRW around 20 years ago, right around when I joined the company and we were starting to work on global efforts.
LM: What have been the drivers on the global acquisition front for the company in that time?
Wiehoff: These acquisitions are really driven by how the world has changed in last 20 years with global supply chains and people moving manufacturing to other parts of the world to take advantage of cheap labor and all of the transportation and technology related things you need to facilitate that. In the last 20 years, the pace has really accelerated.
LM: How did the deal with Phoenix come together?
Wiehoff: We have known of them for a long time—but it was not exactly known how big of a company it was because it was private. So when we got the book in early summer, we were surprised, too, at its size and success. They ran a formal auction process to sell it, so they said they talked with about 20 different companies and narrowed it down as the process went on. This more than doubles the size of CHRW’s forwarding business. (Editor’s note: For the fiscal year ending June 30, Phoenix had gross revenues of roughly $807 million, net revenues of roughly $161 million, and roughly $48 million in adjusted operating revenue. Phoenix has about 15,000 customers, 2,000 employees (860 in the U.S. and 1,000 in Asia) in 76 offices in 15 countries.)
LM: Once the deal is made official, how will things proceed from there in terms of the integration process?
Wiehoff: From a staffing standpoint we feel really good about putting the businesses together and keeping everybody. Phoenix CEO Stephane Rambaud will be the leader of the new company; we are excited about the company/the leadership team and kind of how our two global forwarding businesses will fit together.
LM: When will the deal be made official?
Wiehoff: Hopefully, the soonest deal will be official is by end of October, but more realistically in November. The way we have been talking about it is to close the deal in Q4 and get things in 2013 pretty well aligned
LM: How will the IT integration between the two companies work?
Wiehoff: It is probably one of the most important things to deal with as well as the people and culture things, too. Past history has shown in this industry that if you have done a poor job of connecting the system, you will start having information problems and that is the quickest way to disrupt customer service—even if all intentions are good. We are going to put a tremendous amount of effort into the plan to integrate them together and we are working on a detailed road map focused on sewing them together and get the integration to work. Over the last three years Robinson has been very public about significant investment being made into the global infrastructure of our new technology-we are referring to as Navisphere, our global operating system which has connected all our offices around the world, including our global forwarding offices. Phoneix has a similar system as well which connects its offices, and what we are going to do is identify functionality and features in that system we want to keep and slowly integrate them into our Navisphere framework. It will probably take more than a year and will happen office by office so as not to disrupt customer relationships or any information flow that will happen. We spent a fair amount of time with the Phoenix leadership team during due diligence, and we each have some very unique capabilities from a system standpoint and we are going to try and make sure our global platform gets enhanced with all of the neat stuff they have and come out of this with one network and one common platform sometime in the next couple of years.
LM: Phoenix has a large presence in Europe. What is your take on the European economy as it relates to freight and biz conditions there at the moment?
Wiehoff: In regards to Phoenix, like our current business, the heaviest concentration of their freight is from Asia to North America so with this investment the focus really is more about from Asia to North America and the health of those freight activities; those two areas are down in the last couple of years based on last couple of decades but nothing like Europe which is much softer. We have a very positive long term view towards Europe in that we think the transport needs across Europe are going to evolve over the next several decades just as they have in North America through the unification of countries and supply chains becoming more spread out across Europe. Long term, we are investing across Europe through our Apreo acquisition in Poland and opening new offices. We feel good about the long term outlook. In the shorter term, the volumes from Asia to Europe and within Europe have not been very strong but we are taking a several decades-long view and see great opportunities.
LM: What is the plan regarding future expansion for CHRW?
Wiehoff: From a longer term strategy standpoint, we have three bullet points for the future of our long term growth strategy.
1-Take market share in the services that we offer, with the first focus being to take market share and with integrating with Phoenix there is a lot of North American global forwarding freight we want to go after and continue to focus on selling and hiring more salespeople to and building out our current network to take market share;
2-Expanding our global network through investment in Asia to North American opportunities. We each have offices there and in Europe and there will be continued opportunities to invest more in Europe both in truckload and domestic Europe transportation but then also trying to build the Asia to Europe and North America to Europe trade lanes and make them stronger than they are today, too. There are portions of our global forwarding network that will continue to have good growth opportunities by acquiring more or investing in offices to do that; and
3-Innovating with our customers and expanding our services. We continue to try to spend money on technology or look at acquisitions or other types of investments that we can make to try to do more for our customers.
Today we have TL and LTL, intermodal and global forwarding; we also have some technology and management services offerings and we are constantly looking at what else we can do for the customers in the transportation and logistics and SC space and will continue to look for investment opportunities to expand the menu of services we offer.
We will continue to look at how we can expand market share and expand globally and whatever else we can do to expand services.
LM: What are you seeing on the global forwarding market with ocean having excess capacity and air volumes being depressed?
Wiehoff: With global forwarding, there was tremendous growth for several decades with air and ocean and with the expansion of global supply chains and with so much freight there were a lot of double digit growth years in the industry for air and ocean freight. Since 2008 and 2009, though, it has been choppy. When we think about the industry and look at the steamship lines and the ports and a lot of the investments being made with the next 20-30 years in mind the industry is ramping up for more growth; there are bigger ships, there are more ports and more lanes. In the short term, there is still excess supply today with the impact of the recession still being felt. But I believe the industry consensus is there is still going to be mid-to-high single digit long term growth; it may not be like the 80s and 90s in terms of growth, but our view is that there is still a very positive secular story for global freight and global containerized freight and the investments being made in steamship lines and in air freight, too, is going to take a while for global markets to get back on track as it will likely be longer sustained growth. We are not planning for the world to go back to where it was pre-recession but we are also not planning for things to be like what they are today.
LM: How are you viewing Peak Season this year? Are things muted?
Wiehoff: There was one last year and a small one the year before, and this year we are not yet seeing what we should at this point. One of the themes we have talked about over the last three years is that it collectively feels like shippers are managing their supply chains a little different than they did prior to the recession. The traditional Peak Season was based on an inventory ramp up for the holidays and most shippers are talking about managing their inventories differently and trying turn them quicker and trying to have less inventory and managing for liquidity and flexibility like they were forced to in the peak of the 08-09 recession. It is quite possible that the collective approach and psyche of shippers out there that would had been traditional/seasonal patterns with Peak Season and inventory stocking that the world is just going to think differently and in the future it won’t go back to being like that. In last three years when things have gotten volatile there have been easy comparisons and hard comparisons although freight has been more balanced as comps go up and down. Since the recession there have been subsequent ripples, and the reality is that there have been periods of slight optimism and negative ones, too, but it has never really gotten back to where it was.
LM: How does CHRW view the intermodal market? On your second quarter earnings call, you mentioned that by the end of 2012 the company should 1,000 owned containers in place.
Wiehoff: We have been an intermodal service provider for about 30 years. The vast majority of our intermodal assets and business runs on pooled equipment, where you take equipment out of a leased pool of equipment for as long as you need it. Those pools have shrunk over time so us and our competitors have started to invest in our own equipment to have it available for larger dedicated customers for intermodal and rail. Some was accentuated by BNSF who opted to not sponsor their own pools anymore and want all their customers to bring their own equipment. Most of our equipment today is captive to BNSF and in order to get right kind of equipment access and relationship with them we have purchased 1,000 containers and still do the majority of our intermodal business through daily leased or pooled equipment. We have been growing our intermodal business. Our margins have been compressed and revenue growth has not been strong in recent years, but volume growth has been good and we will continue to balance customer needs with whatever equipment is available in the marketplace. Where we go from here in terms of adding more containers is based on what the overall marketplace inventory looks like and what our customer needs are and then we will make the right decision based on how much equipment we think we need in order to service them. On the domestic side we are an IMC. Several competitors own equipment and some are asset owners—a lot of the equipment purchasing decisions are based on railroad preferences. We are doing it in conjunction with railroads and going to market together with them in the way that they see most effective. When we go to some customers with higher volume dedicated needs it is comforting to them that we have equipment for them that we control.
LM: How do you view current freight volumes? Intermodal is on track for maybe its best year ever, while rail is down due in large part to coal and trucking is mostly flat.
Wiehoff: One of primary reasons for intermodal’s growth is that railroads have been pretty aggressive about investing in intermodal services, have dedicated more trains to it and invested more money into intermodal ramps to expand capabilities. Some of what you are seeing is a significant capital investment made by railroads over the last decade or so to be more competitive and have more scale to the market. Most people believe intermodal is taking a bit more market share from other modes because of the aggressive investments over last decade and international volumes are helping, too, as freight has become more containerized over last 20 years.
LM: What has fundamentally changed in the domestic freight market going back to 2009?
Wiehoff: From 2005-2007, there was very high freight demand especially on the TL side and the supply side was having a difficult time catching up so there was not a driver shortage as there was not enough new capacity coming into market place. So what you saw in 2006-2007 was double digit price increases and fuel surcharges on top of that and transport costs were going up. In the Last half of 2008 and first half of 2009 there was a freight recession with volumes dropping double digits and at the highest rate since 1980 deregulation. A lot of those gains were taken away so there were significant price declines and everybody did a bit and the market went crazy. But now in the last couple of years, the market is more balanced and leveled out a bit and pricing is more stable and supply and demand seems pretty balanced but nobody is ordering new equipment from OEMS as demand is flat. Eventually trucks will wear out and need to be replaced but there are not on order to accommodate that as people wait for demand to increase or change. For last couple of years on the truckload side it has been a bit of a balanced market moving sideways without much price changing and waiting for something exciting to happen on the supply or demand side.
LM: Speaking of pricing, LTL pricing has seen more than its share of recent increases.
Wiehoff: In the depths of recession LTLs were cutting rates—in a sector where a much higher percentage of costs are fixed—and went low during downturn and not getting back to pre-recession levels. On the truckload side there were some price decreases in 2008-2009 and some increases in 2010 with pricing sticking at mostly the same level now.
If you look at the future cost of truckload capacity, new trucks are going to be more expensive with emissions requirements and steel and other commodities up in price and driver wages will be more expensive, too. While pricing has been fairly stable in recent years at some point with contracting capacity and pent up cost pressure, there is a pretty meaningful risk of significant costs pressure in there but it is a question of when it happens do we go sideways for 5 or 8 years before that happens?
There is probably a general consensus that if freight demand really takes off there will be some price inflation/rate increases, especially on the truckload side.
LM: What is the long-term plan for CHRW’s future growth?
Wiehoff: We have a long term plan around global services and capabilities and with some of these investments around Europe and in global forwarding we feel very good about the next couple decades. We have to react to the short-term market and pricing and will continue to do it and despite short term econ environment we are excited what these things will mean in the long term. And when we get better economic growth we feel we have a pretty good platform for it.
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