C.H. Robinson posts strong Q1 results

If the first-quarter results reported April 21 by 3PL giant C.H. Robinson Worldwide Inc. are any indication, the specter of tightening truck capacity is no longer an abstract notion.

Eden Prairie, Minn.-based Robinson posted strong revenue and volume figures across its multimodal product line, with transportation revenues up 24.3 percent year over year, and truckload volumes up 22 percent in the same period. Total revenues rose 22.9 percent to $2.07 billion.

At the same time, its transportation "net" revenues, which back out the impact of transportation costs, declined 4.3 percent, Robinson said. Net revenues for Robinson's truck services—by far the largest component of its business—declined by 5.7 percent year over year. Meanwhile, the company's margins on its net transportation revenue declined to 17.4 percent from 22.9 percent in 2009's first quarter. The company attributed the decline to higher transportation and fuel costs, as well as lower prices charged to customers. Excluding the impact of changes in fuel prices, Robinson said the truckload rates it charges customers declined 3 percent year over year.

In a statement, John P. Wiehoff, Robinson's chairman and CEO, said the dual trends of strong volume growth and reduced margins "have continued into the first three weeks of April," with the company's net revenue so far this month running comparable to the first-quarter trends. Wiehoff said fluctuations in Robinson's net revenue margins are a "part of our business model that we believe we are very capable of managing, but are difficult to predict and can have a significant impact on our results in the short term."

Analysts said the trend toward tighter capacity had been expected, and they lauded Robinson for effectively managing through the headwinds. Jon A. Langenfeld, transport analyst at Milwaukee-based Robert W. Baird & Co., said he expects near-term pressure on Robinson's yields as the company works to pass through its higher costs to shippers in the form of rate increases. Langenfeld expects larger shippers to begin accepting price hikes in the year's second half, which should then help lift Robinson's margins. Evan Armstrong, president of Armstrong & Associates, a research and consulting firm that closely follows the 3PL sector, said Robinson's carriers have been hiking rates faster than the company can pass them on. Armstrong said it would take about six months from the time Robinson absorbs the higher rates from carriers to when shippers feel the impact.

Today's standard shipper-carrier contracts are one year in duration and have no volume or capacity commitments, Armstrong said. As a result, shippers balking at paying higher rates later in the year may find their carriers or 3PLs refusing to handle their cargo. Non-contract or "spot" rates are already rising, Armstrong said.

Tightening capacity "may be a rude awakening for shippers who think they are going to pay the rates they were getting before," during times of economic weakness, he said.

Robinson is the nation's largest 3PL based on total revenues, according to Armstrong data. Robinson's influence in the marketplace means that the current trends affecting its business will spill over to the 3PL sector as a whole, Armstrong said.