Truckload contract rate gains to level off, spot rates to soften in 2019, new C.H. Robinson CEO says

The new CEO of broker and third-party logistics (3PL) provider C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) said his company expects to absorb low to mid single-digit increases in contract rates this year, while spot market rates will stay soft.

In an interview Friday with FreightWaves, Robert Biesterfeld, who last week was tapped by the Eden Prairie, Minnesota-based company to succeed John Wiehoff in the role, said the market is behaving rationally after a roller-coaster 18-month period. Supply is flowing in to balance the scales with still-solid demand, Biesterfeld noted. Routing guides, which suffered a “high degree” of failure last year as shippers and 3PLs scrambled in a tight supply environment to find contract capacity before heading to the spot market, have been performing better, he said.

“First-tender acceptance” rates, which measure the frequency of carriers’ accepting loads on the prospective customers’ first tender, are back to 90 percent for Robinson’s managed transportation business, which handles about $4 billion of spend, Biesterfeld said. The ratio had fallen to 60 percent for the unit’s traffic, levels that were nearly unprecedented, he added.

Contract rates, which reset at high single-digit to low double-digit levels as spot rates spiked in the first half of 2018, are still holding, Biesterfeld said. However, the current bid cycle is likely to produce a slower pace of increases after spot rates sagged in the second half. Spot pricing typically leads contract pricing by about three to six months.

Currently, contract business accounts for 70 percent of Robinson’s mix, Biesterfeld said. That’s up from 50-50 and 60-40 ratios, respectively, over the past two years, and more in line with historical ratios. Meanwhile, Robinson has used its clout as the country’s biggest broker to undercut rivals on rates. Several brokers have told FreightWaves that they’ve seen multi-year accounts disappear because Robinson priced traffic at levels they couldn’t match.

What sets the current cycle apart from others over the past 10 years is that volumes are increasing “in an economy that still feels healthy,” Biesterfeld said. Demand remains strong and “people are doing more business in 2019” than some pundits might have expected at this point in the economic recovery, he added. At the same time, the industry continues in an “inflationary cost environment,” he said.

Robinson’s total headcount growth has flattened out, though the company, in a nod to the increasing relevance and availability of advanced digital technologies, is hiring more data scientists and other information technology professionals, according to Biesterfeld. Staffing for more traditional, less-automated functions is static, he said.

Digital load-matching services are “high on the hype curve,” Biesterfeld said, though he acknowledged it is an important part of Robinson’s business and of the technology used to support it. The overarching objective of Robinson’s increasing information technology investments is to improve the efficiency of all aspects of its business, he said. One example he cited is compressing the quote-to-cash cycle to expedite the flow of funds.

Robinson is not looking to shoehorn all of its carrier partners into following the automation clarion call, Biesterfeld said. Rather, Robinson wants to leverage technology to perform such functions as building predictable routing scenarios for carriers, he said. For example, once a carrier hauls loads on a specific lane, repeat opportunities will be available within a rate range deemed to be reasonable based on the lane analysis, he said.