Baird 2026 Global Industrial Conference - C H ROBINSON WORLDWIDE INC

I'm Dan Moore. I'm the senior transportation analyst here at Baird. I'd like to welcome everyone to the panel discussion with C.H. Robinson. I have the pleasure of introducing David Bozeman and Damon Lee. Chuck's in the audience as well. You know, I've got a lot of history with this company. My first introduction was in 1996. And so I've lived a few lives But had a lot of, you know, had the pleasure of watching a lot of development at CH over the years. And this past year, it has been a busy one, guys. A little bit. Right? It has been. It has. It has a busy time. And so with that in mind, maybe to just unpack some of the last year. And there's plenty. It's a target-rich environment. There's plenty of stuff to talk about. But, you know, we started the year, a weak freight market, some evidence that the spot market was improving. I think, you Know, as the year progressed, we saw a Supreme Court decision that I think radically shaped the market in a lot of different ways. Can you maybe just talk for a minute about how this year has progressed, how you view this cycle relative to whatever a normal cycle is, if it's even fair to say that? Well, happy to be here, Dan. Thanks. And you do have a history with Robinson and good to see everyone here. A lot of familiar faces in the audience. the you're right it has been a year and it continues to be but for us it's been positive and it's an opportunity as well you talked about spot cost let's just go there first and and you're we've seen and a steady increase in spot 38% increase in in spot costs throughout the year and that's for a number of different reasons with capacity coming out and we actually expect spot to be plus 30% year-over-year in in fourth quarter as well and even going into next year probably a plus 10 in spot cost so this kind of continued increased in in spot costs where I get really excited about team Robinson is even with those spot costs when we always talk I always tell you you have you know kind of Robinson today Robinson yesterday the team in really driving AGP at an increase of 38 percent spot costs and keep an AGP kind of flat that just would have never happened in in in kind of Robinson before so the team is really really executing on our strong strategy to do that you also talked about Montgomery a number of things happened obviously with that with that case in which you know we obviously tried to bring some some clarity within the industry that didn't break the way we wanted it nor nor the way the industry wanted it but at the end of the day Dan as you know that was just one defensive claim that preemption most of the states didn't have that anyway coming out of Montgomery case that that federal preemption and so we've had to defend ourselves before that and we do it very well we defend ourselves very well in our docket and we'll continue to do that super happy about our vetting process especially the last three and a half four years that continues to be very strong a lot of confidence in how we're bringing carriers on and how we kind of drive in in this market. We have a number of companies that have latched on to see what we're doing when it comes to fraud and a number, number of other things. So just a lot of positive things going on with Robinson. And I'm sure we'll talk about some of the other things that we've recently announced late on in this conversation, because it opens up extreme opportunity for shareholders, our employees and others. So feel really good about it. I just had one thing. I think Dave covered it well, has been a lot of moving parts this year. The one thing that has not changed is our strategy. So we've continued to outgrow our end markets in our NAS business. We've continued to drive demonstrable productivity. We're continuing to expand operating margins. We have now reached and stabilized mid-cycle margins. All of that in a year with a lot of moving pieces. And as Dave mentioned, I think the market gets a little numb to the spot rate increases now. But just to remind the audience, a traditional broker, historically, this type of spot rate environment would have been disastrous. And for us, we've actually grown earnings over 20% each one of the quarters that we've had over 30% spot rate increases with an average cycle time of repricing our contractual book by close to three weeks. So we are a different company. We are a different broker. We're a completely different company than we were historically. And regardless of what the market yields, we're going to continue to outperform. Fourteen consecutive quarters of market outgrowth for NAST, 12 consecutive quartersof exceeding consensus expectations. So, again, you know, a year with a lot of moving pieces, but we continue tooutperform. We may have to extend this 20 minutes to get to the questions I have. But one area I wanted to start out of the gate is automation. I think, you know, whether you're an investor or whether you'RE an analyst, I think one prescient question that everyone would like context around is, where are you and your evolution around automation? And it's not a light switch, right? It's a journey. You guys have picked a lot of low-hanging fruit over the last two-plus years. There's still opportunity to be had, and I don't think that's lost on anyone. But I'd much rather have you frame it and add context around that so that people can walk away with some expectation and understanding of where you are. No, I'm glad you said that because we do need to frame it. I actually think on this question there's a number of people when you think about what we've done in our story that really don't understand or get it right. I was looking at Chuck because they're looking at fruit and the entire team, and Robinson, no, that's a hot button with me. That's a trigger word for me. That's the trigger word from me because, you know, it's not been just low-hanging fruit. This has been a succinct, purposeful, and very intentional strategy within our company to execute a system that we call that is symbiotic, and it is three major points. This is our operating model that we have introduced that I think not only has transformed Robinson, but it really is impacting the industry if you look at it. And it's going to continue to transform this industry. And I'm happy to have that debate with anyone, but that is that is the conduit of having that operating model that operating model has now unlocked our technology in a way that when someone acts Damon and I about headcount we always answer the same way like we don't know we don' have a KPI on headcount because that's that's backwards thinking we are input based company now and so we engineer our workflows that we are going to automate And when we do that, headcount is but an output of resource that you need once you once you engineer the workflow. So where are we on that? We're like super early. And so you can we put up 65 percent productivity since the end of 2022. That's true. But we sit up here and we'll tell you it is still early days because there are hundreds of processes that still have to be. if you want to put it in air quotes, automated, but it's more than just automated. It's really engineered. We do value stream maps. We go and we look and we say, hey, from the order to cash process in Robinson, and again, I think this affects the industry as well. I know where we're going on this diamond point moment. That order to cache process, we optimize that entire flow, not a portion of it. You have to optimize that entire flow. And that has really helped us. That makes it a symbiotic relationship with our people who are really good, that really drive this. Our technology that is now unlocked, and there's a lot more to go after that, especially with agentic and a number of other things that we're doing. And then the operating model that drives pace and responsibility, visibility and accountability. All of that tells you that this is why Damon can sit up here and we can say, we're not going to stop and we don't ever stop with macros because it doesn't matter what the macros are doing, what the environment's doing. We're going to win on higher highs, higher lows. Now, when it actually shifts, and everyone in here knows this. This is housing, retail, and industrial. When that starts to go up and to the right, it is more of a demonstrable gap that we will put up because of the system we have put in. It's bringing it to scale, right? It's bring it to a scale. And that's going to be a scale that I think far surpasses the competition even more when you have an up market, which makes the acquisition of RxO even more exciting that's how you have to put all of these pieces together not just low-hanging fruit low-hänging fruit is in the first 60 days the way i operate this has been three and a half years right no great great context and appreciate that i'm going to pivot and talk a little bit about if we could um the operating environment because i think the operating environment has changed. Shippers, you know, are thinking more critically about counterparty risk today. I think you're in a unique position to take advantage of that. I'll define it in my own terms, and you're welcome to, you Know, correct where you see appropriate. If you're a large shipper today, whether it's Amazon or Target or Costco or Kohl's or Walmart, whoever it might be. The need to assess counterparty is maybe more critical than at any point in the past. And I had a conversation with a really, a very, very large retailer that everyone would know, their director of transportation. He said, you know, Dan, I've had more conversations with legal in the last six months than I have the last 10 years. And so I think there's a top-down narrative for retail, particularly those that have internal brokerage arms, there's an argument to be made that those arms should no longer be held internally, that you shouldn't have an internal broker charm that needs to get outside the corporate veil. Some people would agree with that. Some people wouldn't. I think that it depends on how you want to operate your business. But I think there are clear advantages to taking it outside the veil, and you're in a position to pick that business up. Small to mid-sized brokers, historically, I would argue, offered a really low rate in many cases, but didn't offer insurance. They may have allowed retailers and wholesalers and industrial companies to do things they might not have been able to otherwise do. And I think we're in a market environment where there's consolidation now, the bottom up because they don't have the fortress balance sheets, they don t have the insurance towers, they can't apply capital to really improving process, and moreover, they can t apply automation like you can across your business. So to me, there's a very clear top-down and bottom-up consolidation theme. I'd like you to unpack that however you'd like to. It's a lot there and a lot of vectors that you put in there, and that's good. But let's try to do it in somewhat of a brief way. I'll start and Damon can jump in. So a couple things that are like facts, because there's a lot of things being thrown around that are just not factual. And, you know, our data set, it's not just a data set that allows us to execute and win transactionally. It allows usto have intelligence and see a number of things that are going on. And so in that data set, I mean, it's a fact that because of the current environment, shippers are making a different choice. And some of that choice is, yesterday, I may have had a distribution strategy of 15 different brokers and things like that. The fact is they're shifting away from that and saying, I don't need to do that. I've got to bring this down into brokers that are going to be able to act as that cartilage between myself, right, and my loads going out there, not just from a legal perspective, but also from an assurance perspective of getting loads there, the fact that you have scale in order to do that. And one that I'm really proud of, and Robinson, it goes really under the radar, is it's problem solving, right? Like we do freight forwarding, we do brokerage as a price of admission, but we really solve high scale problems logistically and globally for shippers at scale. And that's not what a lot of small medium brokers are in this business to do. That's what we do. And so we are seeing and we are getting the calls from shippers who say, hey, I'm doing some consolidation. In one case we had one going from 12 down to two. We're one of the two. And we see that. But I'd also tell you that we're also the one leading the conversation in D.C. to put this kind of genie in a bottle that says this industry doesn't want immunity. We want accountability. And you have to have a standard and you have a legislative solution to really apply some reasonable accountabilities within this industry. We're leading that fight for all, for the industry in driving that. And we'll continue to do that. So that's just a fact in driving that. That's super important. The last point I'll tell you is another fact. Modern commerce does not work without a brokerage model. Everyone just needs to understand that. This was developed to move commerce, you have to have that. That's why you have, you've gone from 6% to 30% penetration, 6% in 2005, and now 30%. And that's going to continue to go up and to the right. And this is why you see assets have brokerage arms. Now, to your point, that's being assessed, but you still have to Have this model for us to have modern logistics and move commerce. And we will be the company that does that. And we'll continue to do that. But we'll also try to drive that fight in D.C. to bring some reasonable standards and legislative solutions to what's going on. That's some unpack of a number of different things you had. I'll just add one thing, which is we've been very consistent since the Montgomery ruling, which, as we said, look, we wanted to win. We felt like that was the right thing to do for the industry, the right things to do Robinson, would bring stability and a standard. We always knew if we lost, there was probably positive economics to follow. That's exactly what we're seeing today. We knew the economics of being a small and medium-sized broker post-Montgomery were going to be less than advantageous, in most cases prohibitive. And certainly there was going to Be a flight to quality as well, just due to the liability related to post- Montgomery. And we're Seeing that every day as far as shippers choosing larger brokers versus small and Medium-sized brokers. The comment that was made earlier around, you know, the procurement arms of shippers now is talking more to legal than they probably have ever in their career. I would argue that risk management within most of these enterprise shippers are making the procurement choices now, right? They're the ones saying these are the brokers you can do business with versus what you did yesterday or two years ago, right, and so as you can imagine, that flight to quality is going to benefit brokers like C.H. Robinson. It's going to profit brokers like ARXO, right. And between the two of us, we have the best insurance stacks in the brokerage industry, right, bar none, right? And so, as we said before, wanted to win Montgomery. We always knew there would be positive economics and a consolidation of this industry. If we didn't, certainly LIPE accelerated that, and we're seeing the windfalls of a flight to quality within brokerage. I'm glad you brought this up because it's an important question, and thank you for all that context. Wayfair and Amazon both filed an amicus brief on your behalf when you were in the midst of the Montgomery case. It strikes me that there is alignment of interest on the part of some very, very large players in the market. Yes. It would behoove the industry to try and get legislation sponsored that would clearly define negligent hiring so that all states could move up and under that definition. It would also behoove the industry to encourage legislation that created a standard for scoring carriers in terms of safety. What's the likelihood that we see legislation at some point in the next year with this new Congress that's bipartisan, activism that simply defines what negligent hiring is in a way that's clear and allows everyone to operate under the same premise? Well, listen, a lot of people here have gone to D.C. I mean, it's our legislative system that we have. Not the fastest, but I will tell you, I feel pretty positive about it. I personally have met with both sides, both Dems, both Republicans, and in solving this, this has to be bipartisan in doing that. I will also tell you that we don't get absolute no's because it's the way you shape the issue. This issue is a combined both side issue. This is a main street issue. And the way we're putting that to them is you have one point two million truck drivers. So we have, you know, call it five hundred thousand small carriers that have one to five trucks driving around on on on the highways. And that represents about one point three million different truck drivers that are in there. This is an employment issue. Those carriers are being impacted. They're being impacted by Montgomery, not to mention the number of small, medium brokers that are not going to go out that are already starting to go out. We know this. We see that. So this is an employment issue, number one. Two, this is an affordability issue. Ultimately, increased insurance rates, a number of different things with less than on time and full, and a lot of things that go on the shelf, that all gets passed down to cost and shelves of products on the shelves. That's going to hit Main Street. This is an affordability issue. And so we lay that down. But then three, you cannot have business going around and adjudicating this in 50 states with multiple jurisdictions and just think that that is scalable and sustainable for most people. It is not. You have Robinson up here who we obviously have the scale and we'll continue to do that. But for most in the industry, that is really, really tough. And then the last one, why you see an Amazon and a Wayfair is when you start looking at plaintiff's attorneys or trial attorneys and looking at this, and you know this, Dan, it is who's next up on the ring. And you could potentially have shippers now that have liability that comes their way. And that's something that, again, do we want to see all of this happening in courtrooms constantly around the country. And I think that's what's made this very interesting on both sides of the aisle. We're going to keep driving that fight. I feel pretty positive about it because ultimately, you know, this is just one thing that kind of brings sensible accountability within the industry. Right, right. Maybe to shift to RxO. So, you know, I think on paper, the RxO, at least the RXO deal to us is very, you know, the benefits of it are very clear. The opportunity to cost out and really leverage that platform across your own is very, it's very clear, I don't think it's a good idea to do that. I think some investors, rightly or wrongly, have questioned in a world where there should be tremendous organic growth opportunity, the way I've defined it at least, from the top down and from the bottom up. Could you accomplish a lot of the same things organically without having to take on leverage? Or when you saw that, and maybe to pivot, when you were pursuing the deal, when you were considering the deal and the opportunities that it offered, you know, clearly you made the decision that those opportunities, those benefits far exceeded anything you could do organically. I think that's something investors want to better understand. And the thing we've said is, you know, just look at the SG&A for RXO. It's a pretty big bucket. There's a lot of opportunity there for you. And so, in your own words, how would you maybe add context around those issues? Well, I'm going to have Damon dive into that on bringing the context to it. I just want to start by saying, Dan, we will sit here 12 months, 24 months from now, and you'll be asking me a different question on just the unlocked impact of this deal in a very different question, which would be a very positive thing. I can tell you that today. That's how strong I feel about this deal and what's going to happen because it's right in front of our face. And I think that makes Robinson almost the ideal investment, not to pitch anyone here, but I'm just telling you. But go ahead. Yeah, look, I think it's very simple. We're going to do both, right? So at no point in time have we said that we're going redivert investment from organic to inorganic. Nope. The same investment we've been making in the organic to drive the demonstrable outgrowth and margin expansion and productivity that we've bee driving, that's going to continue, right. There is no pause. There is not change to our strategy organically. We are going to continue to do what we've been doing for the last two and a half, three years. RxO gives us an opportunity to supercharge that strategy. We lay out this example all the time. Forget M&A for a second. If I was to say, I can add almost $7 billion of profitable revenue to the Robinson books. I can do it in two years. I have to lever up a little bit, but I'm going to completely de-lever that in two years, and by the way, I'm going to generate $300 million in net synergies along the way. I think it's a good project. I Think most, every hand would go up and say, yeah, it's really good project, right? I think the fact that it's done through acquisition is what gives everybody pulse, right. And so we feel really good about it. Why do we feel really good it? What we've been through the last three years with CH Robinson has been one big integration, right, we have reintegrated CH Robinson, right the same processes, same mindset, same strategy, same tools, same operating model, same technology that we've transformed C.H. Robinson with applies to RxO with an extremely high R squared, right? In fact, I don't know that you could find a better R squared. We know exactly how they execute their business model, right, we know exactly how they go to market, right. They're a broker, we're a brokered, they look a lot like Robinson did five to ten years ago, right so we know the playbook, we know what generates success, we know what generates productivity. We feel very comfortable with their book of business, our book of business and having de minimis overlap between the two. We've done a lot of diligence there. To me, this is a once in kind of a generational opportunity to put two of the best franchises together and generate demonstrable returns from doing that. And as Dave said, now's the time to take the benefit of that, right? If you wait 18 to 24 months, it's going to be too late, right? And so Dave and I have had these conversations before. We remember having conversations with investors in 2024 and early 2025 saying, this is what we're going to do and this is the path we're gonna go on. And we had those same conversations a year later with investors saying, man, I wish I had listened to you guys 12 months ago. Well, now's the time to listen to us now. We know what the playbook is. We know how to execute that playbook. Sure, it's going to be a lot of hard work, but we know how to drive the synergy benefits of the RxO integration because, again, look at what we've done with C.H. Robinson, right? 65% productivity since end of 22, right, with the combination of our technology and our operating model. So we're very confident in what we have laid out to the street on the benefits of this deal and very confident in how we're going to execute that at a very high level. And I would just add on here, Dan, and RxO, both companies are really good at customers. I know Drew, I know that team, driving customers, driving customer's retention, attraction. That's what we both do. And so I couldn't feel better about an acquisition, as Damon just laid out, when you just look at the math, and for everyone listening to this and watching, we also feel super good about when it comes to the type of customers that we have. We said that it's been limited on the overlap. We stand on that. There is no worry for us about the customer overlap, and we feel really high when it comes to execution, and I think we've had some of the receipts to prove that. We will run that play again. Well, let's close with one last thing. Milestones. As we think about 27, if you were to set some milestones for yourself that investors could hold you accountable to, and you do it all the time, to be clear, but what two milestones, be it in the core business, be It with RxO, what would you qualify as being important milestones? Yeah, I'll give you three real quick here. So one is we're going to continue to outgrow our end markets, right? Our NAS business is going to Continue to do what it's been doing. Global 40 business is Going to continue To drive profitable growth there as well. Second is we are going to Continue to drive productivity, Expand our operating margins, right, Nothing changes there. So the same strategy we've had The last three years Applies to 2027. And then certainly put up A meaningful synergy number In 2027 for the RxO acquisition. I mean, this isn't a deal where all the benefits are going to come in the last month of the two years we committed to. There will be meaningful savings in 2027, and we can't wait to share those with you guys. Well, I want to thank you both for being here. Really enjoyed the time together here on stage. Welcome, everybody, to ask questions in your breakouts and one-on-ones. Hope you have good meetings. Thank you for being hier. Yeah, thank you. Great. Thank you.