H Robinson Worldwide ($CHRW) is an international third-party logistics coordinator with focuses on truck, rail, and air freight. Trucking freight makes up 63% of revenues internationally. CH Robinson is made up of the North American Surface Transportation (NAST), Global Forwarding, and Robinson Fresh segments. It operates in North America, Europe, Asia, Australia, New Zealand, and South America. The Company also develops global transportation and distribution networks to provide transportation and supply chain services throughout the world. NAST provides trucking services in North America, Global Forwarding coordinates air freight services around the world, and Robinson Fresh provides temperature-controlled transportation and logistics for perishable foods.
The company dominates the $80-plus billion asset-light highway brokerage market, with a wide economic moat thanks to a long record of above-average profitability and a strong 18% market share. They have managed to maintain that market share even in the current, stressed supply chain, with a strong driver pool and pricing power within its trucking fleet. CHRW is an attractive source of freight opportunities, given its ability to aggregate fragmented demand across a broad customer base of shippers and demonstrate skill in minimizing non-load-bearing (empty) miles.

Although the company isn't immune to freight downturns, its variable-cost model historically helps shield profitability during periods of lackluster freight demand, as evidenced by a long history of above-average profitability.

transportation peer group ttm revenue growth
source: bloomberg

The firm's ownership of transportation equipment is minimal, and a large swath of operating expenses are tied to performance-based variable compensation, which tends to move in line with net revenue growth. We think the firm remains well positioned to capitalize on gradual truck brokerage industry consolidation (including market share gains) despite intensifying competition.

Traditionally, container goods are transported intermodally, or by moving the container between multiple types of transportation. Think, unloading a container from a ship onto a truck without moving the goods inside. Because inventories have built up across most industries, trucking demand for hard goods and appliances have slowed. Meanwhile, high turnover, consumer packaged goods (CPG) products like groceries are still commanding consistent trucks, keeping the industry moving. Thanks to this, domestic trucking rates are dropping below intermodal rates, shifting demand to trucks for moving goods from A to B.

CH Robinson is one of the main carriers in this sector and preferred by all major grocery retailers for full truck and less-than-truck (LTL) business. All grocery chains and hard goods retailers have what they call preferred carriers, the groups they allow to deliver goods to their distribution centers. In some cases, this means only their preferred carriers are allowed or others can deliver plus a fee. They sometimes also break this out for preferred full truck and LTL, of which CHRW is nearly always a preferred carrier for both.

chrw business segment revenue distribution fy 2021
source: chrw investor relations

‚ÄćThe main reason for this is reliability and execution ‚ÄĒ truckers are the ones who make their appointments for drop offs. Each group has a different method ‚ÄĒ CHRW trucks are always consistently in tune with appointment methodology and each retailer‚Äôs quirks while organizing loads.

The company has maintained a TTM return on equity of 39% demonstrating exemplary capital expenditures, a stable gross margin of 8%, and receivables turnover of ~7. Its key competitors are Expeditors International of Washington ($EXPD), Landstar System Inc ($LSTR), and JB Hunt Transport Services ($JBHT), to the latter of which $CHRW has a 60% Price/Sales discount.

Analysts assign little upside to the stock, but they may fail to grasp the nuance of the trucking industry in its current state. Solid demand for domestic logistics services coupled with the company's stable market share, efficiency, and pricing power, should continue to provide strong short- to mid-term returns.


Sep 2, 2022
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