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F500-2021-191-C.H. Robinson Worldwide

Traveling over land, sea, and air to deliver goods, the transportation and logistics company also helps companies manage and warehouse their goods.

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The logistics company manages $20 billion in freight—roughly 18 million shipments annually—across several industries, including automotive, food and beverage, health care, energy, retail, and manufacturing.

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C.H. Robinson Worldwide, Inc. is a global logistics firm offering freight transportation and supply chain solutions across all major travel modes. Founded in 1905, the company works with 450,000 contract carriers and handled 37 million shipments in 2024, making it the top revenue earner in its sector.

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C.H. Robinson Worldwide (CHRW): Company Profile, Stock Price, News, Rankings

legacy

C.H. Robinson Worldwide

c.h. robinson worldwide

Good afternoon, ladies and gentlemen, and welcome to the C. H. Robinson Second Quarter twenty twenty five Conference Call. At this time, all participants are in a listen only mode. Following the company's prepared remarks, we will open the line for a live question and answer session.

As a reminder, this conference is being recorded, Wednesday, 07/30/2025. I would now like to turn the conference over to Chuck Ives, Senior Director of Investor Relations.

Thank you, Paul, and good afternoon, everyone. On the call with me today is Dave Bozeman, our President and Chief Executive Officer Michael Castagnetto, our President of North American Surface Transportation Arun Rajan, our Chief Strategy and Innovation Officer and Damon Lee, our Chief Financial Officer. I'd like to remind you that our remarks today may contain forward looking statements. Slide two in today's presentation lists factors that could cause our actual results to differ from management's expectations. Our earnings presentation slides are supplemental to our earnings release and can be found in the Investors section of our website at investor.chrobinson.com.

Today's remarks also contain certain non GAAP measures and reconciliations of those measures to GAAP measures are included in the presentation. With that, I'll turn the call over to Dave.

Thank you, Chuck. Good afternoon, everyone, and thank you for joining us today. When the current transformation of C. H. Robinson began in early twenty twenty four with the implementation of a new lean operating model, We recognize that some people had doubts and didn't understand how this would enable the company to change its trajectory.

Now with six consecutive quarters of consistent outperformance through the disciplined execution of the strategy that we shared at our twenty twenty four Investor Day, there is no doubt in our minds that we are on the right path to deliver sustainable outperformance in all market cycles. I'm proud of the Robinson team for embracing our new operating model and the discipline needed to improve our say do ratio and to generate higher highs and higher lows across market cycles. Our people consistently demonstrate that they are the industry's best logisticians with the value that they bring to our customers and carriers, and they are excited about the transformation happening at Robinson and the momentum that we have. We are not waiting for a market recovery to improve our financial results. And the strategies that our Robinson team is executing are not only working, but they are built to be effective in any market environment.

We're still in the early innings of our transformation journey. We have demonstrated our ability to responsibly grow market share and expand margins at the same time. This has enabled us to approach our mid cycle operating margin targets despite operating in an elongated trough of the freight cycle. We are accelerating our progress by harnessing and scaling the evolving power of AI to drive automation across the full life cycle of a load. Our industry leading innovations not only enhance the service and value we deliver to our customers, but also improve our operational performance by automating tasks that free up our talented people to focus on more strategic high value work.

We are pioneering new ways to eliminate task, augment our capabilities, and supercharge our talented people with industry leading technology that materially elevates the customer and carrier experience, and our lean operating model enables us to do this in a disciplined way that delivers the most value to all of our stakeholders. And you can expect the next chapters of this company's evolution to be just as exciting as the last eighteen months. Shifting to our q two results. In NAST, we outgrew the market again in both truckload and LTL, while expanding gross margins and improving productivity year over year and sequentially. In Global Forwarding, we continue to win new business and improve the yield of our portfolio by beginning to implement the revenue management disciplines that we've been utilizing in NASS for over a year.

We also optimized our Global Forwarding expenses through further increases in productivity. Overall, we delivered a 21% year over year increase in our enterprises Q2 income from operations and we will continue to lean into the self help initiatives that enabled our Q2 market share growth and margin expansion. From a macro standpoint, fluid trade policies continue to create uncertainty, making planning activities more difficult for our over 83,000 customers around the world. For some of them, tariffs cost them to reduce their import volumes. For instance, when US tariffs on Chinese goods increased to 145% in April, numerous retailers limited imports to only essentials needed for fall, like back to school products.

Others accelerated shipments to beat tariff deadlines from Southeast Asia, and some stuck to their standard peak season schedules, taking a more wait and see approach. Although we're approaching the traditional retail peak season for Ocean, the industry may not see traditional peak volumes as some retail customers are working through inventories and being highly selective and strategic about bringing in only the essential products they must import. We saw this dynamic with back to school ordering, and that trend is continuing as uncertainty about trade deals continues to shape customer behavior. But these periods of volatility reinforce CH Robinson's value proposition. There is a flight to quality right now, and that is Robinson.

Customers need a partner who not only understands how to navigate increasing complexity, but who can also partner with them to solve their unique supply chain challenges, especially amid persistent uncertainty and change. We've been doing this for over a century. And with our scale, breadth of services, differentiated experience and financial stability, we are built to lead through disruption and to help our customers adapt just as quickly as we do to changing market dynamics. During the quarter, we continued to lead the industry in this era of digital enablement, including expanding our suite of cutting edge self serve digital solutions to enable faster and more effective navigation of our global trade complexities. Our new US tariff impact analysis tool empowers US importers to assess their overall duty exposure and drill down to the SKU level for precise cost analysis.

We also saw a surge in demand for our ACE import intelligence tool, a proprietary self serve compliance platform that gives importers greater visibility and control over their customs data. Together, these two tools provide an unmatched view into both historical compliance and future facing tariff strategy, helping importers manage every stage of the import life cycle with precision. Additionally, in Q2, we announced the expansion of our proven item level solutions to all global customers, offering unmatched visibility and control over every SKU across their supply chains. These tools, built on years of experience with complex global shippers, reduce blind spots, increase agility and deliver measurable savings. In today's volatile environment, scaling this capability reinforces our leadership in digital logistics and our ability to connect data driven insights with real world execution.

We'll continue to help our customers strategize on how to make their supply chains most efficient and cost effective. Our strategic initiatives remain on track. We've been preparing for a variety of market scenarios, and we're intensifying our strategic focus on market outgrowth, gross margin expansion, and operating leverage improvement. And while we are not immune to global market dynamics, we remain confident in our strategy and our people. The consistent, disciplined execution of our strategy supported by the Robinson operating model makes us stronger, and we'll stay focused on providing differentiated service to our customers and carriers.

I'll turn it over to Michael now to provide more details on our NASH results.

Thanks, Dave, and good afternoon, everyone. As Dave mentioned, the NASS team delivered market share growth in both truckload and LTL in Q2 and further optimized our volume, resulting in year over year expansion of our gross and operating profit margin. Once again, we delivered this outperformance in the midst of a historically long freight recession, underscoring the strength and resilience of our model and people. For more context, the CAS freight shipment index declined on a year over year basis for the eleventh consecutive quarter in Q2 and was down 3.4%. Our overall NASS volume on the other hand increased approximately 1% year over year.

Truckload volume was flat year over year and LTL volume was up approximately 1.5%. All of these outpaced the CAS Index. Sequentially, truckload volume per business day grew approximately 4.5% and LTL volume per business day grew 2.5. At the same time that market volumes have declined, load to truck ratios are higher than they were a year ago and route guide depth in our Managed Solutions business has increased over the past year, reflecting an exit of capacity that has brought us closer to better balance in the market. The result of this has been a year over year increase in the truckload line haul cost per mile excluding fuel surcharges.

Supported by our operating model and armed with industry leading tools, our team of freight experts continues to respond to the challenging freight environment with pricing discipline and the cost of hire advantage. All of this led to improvement in the AGP yield in both our truckload business and our LTL business, resulting in an 80 basis point year over year improvement in our NAST gross margin. Our team continues to actively assess the market and optimize for the most effective combination of volume and margin to enhance earnings performance. With strategic agility built into our model, we have the flexibility to pivot toward volume or margin as market dynamics evolve, making disciplined data driven adjustments in real time, all while staying focused on long term value creation. We're also making smarter use of our proprietary digital capabilities and getting actionable data into the hands of our freight experts faster, enabling them to make better decisions and to capture the optimal freight for us.

Additionally, these digital capabilities have enabled us to increase our NAST shipments per person per day at a double digit pace over the past two plus years, and that momentum continued in Q2. Since the 2022, we have delivered a more than 35% increase in productivity. This enhanced efficiency is not only lowering our cost to serve, but is also elevating the customer experience by enabling faster, more reliable service. As a result of executing on our strategies, our NAST operating margin of approximately 38% in Q2 increased both year over year and sequentially. Regardless of market conditions, we remain focused on what we can control.

Our people and their unmatched expertise enable us to deliver exceptional service and greater value to our customers and carriers. In line with our disciplined and focused approach to capture growth opportunities in targeted customer segments, we recently announced the expansion of our ISO certification, which enhances our ability to meet rigorous quality standards in the healthcare logistics sector. We've also adapted our solutions to match our customer supply chain needs and invested in capabilities such as drop trailer, cross border, short haul and Robinson managed solutions. And we will continue to deliver the industry leading solutions and flexibility that only a scaled broker can provide to customers and carriers. In what continues to be a challenging marketplace, our people are relentlessly driving improved results, powered by their unwavering commitment to our customers and carriers and fueled by their growing adoption of the Robinson operating model and cutting edge tools.

With that, I'll turn it over to Arun to provide an update on the innovation we're delivering to strengthen our customer and carrier experience and improve our gross margin and operating leverage.

Thanks, Michael, and good afternoon, everyone. In Q2, we continued to disrupt from within to transform our business to better serve our customers and to widen our competitive moat. In line with the strategy that we laid out at our twenty twenty four Investor Day, we are scaling several innovations, including our fleet of secure proprietary AI agents across every aspect of the extensive flow to cash life cycle of an order and to more modes and customers. One recently announced example is a new AI agent that helps shippers automate the process of classifying LTL freight under a new national system. In the AI agent's first few months, it has been determining the freight class and code for about 2,000 orders a day, and it has reduced the processing time from ten minutes or more per shipment to ten seconds or less.

The AI agent can also handle hundreds of LTL shipments at once and determine the freight classification for all of them simultaneously. Our customers' freight gets on the road faster, and our people can devote more time to the work that our customers value most, helping them manage disruptions and operate their supply chains more strategically. Another way that we continue to disrupt from within by leveraging and scaling the use of game changing AI technology, such as AgenTik AI, to power new capabilities that are backed by our unmatched data and scale. The advanced reasoning capabilities of AgenTik AI expands the boundaries of what's possible for process automation by adding the ability to autonomously perform complex tasks without the explicit instructions that GenAI requires. As we continue to improve our service with cost efficient AI task agents that listen, learn and act all day, every day, agentik.ai has the ability to ignite a revolution and empower systems to think, adapt and act differently, enabling us to deliver fast, accurate and personalized service at scale and in any market.

All of these innovations are reducing the amount of time it takes for us to respond to a quote or for a tendered load to be accepted, thereby providing a better customer experience. Additionally, our proprietary AI is supporting our market share and margin expansion initiatives. The faster speed provided by our AI has enabled us to respond to more quotes and win more business, thereby augmenting our market share growth. The continued advancement of our AI is powering our dynamic pricing and costing, and we are responding more surgically and faster than ever to dynamic market conditions by performing more frequent price discovery. Along with our operating model rigor and our revenue management practices, this is contributing to the gross margin improvement that we're delivering.

Through the same rigor, we've also improved our ability to manage the short term gross margin compression that typically comes with a spot rate inflection, such that we are confident in our ability to shorten the time and reduce the impact of any margin compression compared to historical spot rate inflections. Over a twelve month time frame, we expect a stronger demand and or reduction of excess capacity that leads to a spot rate inflection to outweigh any short term margin compression that may occur. In this regard, we believe our outperformance will continue as spot rates inflect. Finally, the growing automation across our quote to cash life cycle, whether it be in quoting, order entry, low tenders, appointment scheduling or other manual tasks, creates business model scalability. This enables us to decouple headcount growth from volume growth and to create greater operating leverage.

Our ability to leverage evolving technology has played a key role in our greater than 35% productivity increase since the 2022, and we expect to create further operating leverage as evergreen productivity improvements continue in 2025 and beyond. The advancements that we're bringing to our customers' supply chains, such as automation powered by AI, have significant impact due to our scale and our information advantage, which comes from moving more truckload freight than anyone in North America and doing more LTL shipments than any other 3PL. To date, our tech and AI investments have been over indexed and asked where we could get the greatest leverage. We're now putting more emphasis on deploying the same playbook in Global Forwarding and expect to generate further improvements in that business to enable us to achieve our 30% operating margin target. Ultimately, we are focused on three items that are key to our strategy: transforming the customer and carrier experience to elevate our service offering and drive growth delivering business model scalability and driving gross margin and operating margin expansion.

Technology continues to evolve, and we have and will continue to disrupt from within to stay at the forefront of that evolution. With that, I'll turn the call over to Damon for a review of our second quarter results.

Thanks, Arun, and good afternoon, everyone. As you've heard today, Q2 marked another step forward in executing on the strategic initiatives aimed at our North Star of growing operating income. This was driven by market share growth, ongoing AGP optimization, disciplined cost management and evergreen productivity initiatives. Even as overall market volumes declined, we improved the quality of our volume and AGP through market share gains, disciplined capacity procurement and effective revenue management. Total AGP was up $5,800,000 year over year despite a $15,000,000 decline due to the sale of our European Surface Transportation business.

The overall AGP increase was driven by a 3% increase in NAST and a 1.9% increase in Global Forwarding. On a monthly basis, compared to Q2 of last year, our total company AGP per business day was down 5% in April, up 5% in May and up 2% in June. From an expense standpoint, our total operating expenses declined $32,000,000 or 6.3% year over year. Q2 personnel expenses were $335,300,000 including $3,900,000 of charges related to workforce reductions. Excluding these charges, our Q2 personnel expenses were $331,400,000 down $20,300,000 due to our continued productivity and cost optimization efforts, the divestiture of our European Surface Transportation business and a non reoccurring benefit of approximately $6,300,000 from certain actions taken within Q2.

Our average headcount was down 11.2% year over year in Q2 and was down 3.7% sequentially, reflecting our dynamic workforce planning process that enables us to quickly adapt to changing market conditions. Based on our strong cost controls and productivity improvements through the first half of the year and the visibility we have into the back half, we are lowering our guidance for twenty twenty five personnel expenses to be in the range of 1,300,000,000 to $1,400,000,000 compared to our prior range of $1,375,000,000 to $1,475,000,000 This reflects our disciplined approach to managing our cost structure and our ability to drive efficiency while positioning the organization for long term growth, while remaining committed to further decoupling of headcount from volume. With low to mid teen turnover rates, we are well positioned to manage headcount primarily through natural attrition if needed. Our Q2 SG and A expenses were $142,000,000 Excluding 400,000 of other charges related to the divestiture of our European Surface Transportation business, SG and A expenses of $141,600,000 were down $800,000 year over year. We are also lowering our guidance for 2025 SG and A expenses to be in the range of $550,000,000 to $600,000,000 compared to our prior range of $575,000,000 to $625,000,000 This guidance includes depreciation and amortization of 95,000,000 to $105,000,000 Although most of our SG and A expenses are subject to inflation, we expect continued cost improvements to partially offset the inflationary impact.

Shifting back to Q2, our effective tax rate for the quarter was 21.4%. We still expect our twenty twenty five full year effective tax rate to be in the range of 18% to 20%. We generated $227,100,000 in cash from operations in Q2 and our capital expenditures were $20,200,000 We still expect our full year capital expenditures to be 65,000,000 to $75,000,000 From a balance sheet perspective, we ended Q2 with approximately $1,220,000,000 of liquidity comprised of $1,070,000,000 of committed funding under our credit facilities and a cash balance of $156,000,000 Our net debt to EBITDA leverage at the end of Q2 was 1.4 times, down from 1.54 times at the end of Q1. Our financial strength continues to be a key differentiator in our industry as it enables us to continue investing in the bottom of the freight cycle and improving our capabilities. While our capital allocation strategy remains grounded in maintaining an investment grade credit rating, Our financial strength and improved leverage ratio enabled us to return approximately $161,000,000 of cash to shareholders in Q2 through $85,800,000 of share repurchases and $74,900,000 of dividends.

Compared to last year, our improved leverage ratio has led to a higher likelihood of continued share repurchases in the current year. As we continue to build on our momentum, our Q2 financial results further validate the transformation underway at C. H. Robinson. With the disciplined execution driven by a Robinson operating model and the strength of our strategies to outperform in any market environment, I'm confident in our trajectory and I'm energized by what lies ahead.

With that, I'll turn the call back to Dave for his final comments.

Thanks, Damon. As you gathered from our comments today, we remain focused on executing our self help initiatives to strengthen our market share, expand our margins and enhance the level of service we deliver to our customers and carriers. These efforts are central to our strategy to create long term sustainable value and to lead the logistics industry forward. I'm proud of the work we have done over the past two years to stand up a new operating model and to get fit, fast and focused. Our cost structure is in a much better position with greater than 35% productivity gains delivered since 2022, and we're continuing to drive further process improvements to enhance our service and increase our overall operating leverage.

As lean tools are deployed more broadly across our organization, our teams are becoming more increasingly equipped to identify root causes of problems, implement countermeasures, and drive meaningful improvements. That's how we've consistently delivered outperformance for six consecutive quarters and how we'll continue to do so regardless of market conditions or cycle. This outperformance does not happen because you are one of the pack. This is a new and different Robinson, and our difference sets us further and further apart from the pack. Our transformation is structural and technological.

We're redefining what it means to be a logistics company, leading from the front with cutting edge technology, leveraged by the best logisticians in the game, and moving faster than ever to shape the future of the supply chain. And as we lead our industry and stay on offense with our AI strategy, we are excited about the future. Our advanced AI and machine learning technology is improving our gross margins by allowing us to better align capacity and pricing to the specific needs of our customers and to specific market conditions. These superior dynamic costing and pricing capabilities will be even more important when we eventually see a turn in overall freight demand. Our technology is lifting mundane, repetitive tasks off our people's plates, freeing them up to do more strategic work and to reach more customers, garner more wallet share, and move up the value stack by leveraging our growing capabilities.

I want to thank our people for their relentless efforts to provide exceptional service to our customers and carriers. We're embracing the Robinson operating model and continuing to execute with discipline. I'm confident in the team's ability to drive a higher and more consistent level of operational execution and to keep pushing the bar higher on our financial performance across market cycles. As I reflect on my first two years leading this great company, I'm proud of how we're building on a one hundred and twenty year legacy of grit, innovation and a relentless focus on the customer. From the beginning, Robinson has been grounded in delivering a great customer experience, and that foundation remains core to how we will grow and lead in the future.

But we also have hard work to do to evolve, to push our mindset to deliver more value, sharpen our execution, solve problems quickly, and differentiate through speed, simplicity, and clarity. We've made great progress on our transformation journey, and we're seeing the results, not just in stronger earnings, but in how we improve execution, innovate fast, and elevate the customer and carrier experience. We've reinvigorated a winning culture, and we're getting our swagger back. But we're not resting on our laurels. We will continue to disrupt ourselves and this industry to lead with purpose, move with urgency, and build a company that future generations will be just as proud to inherit.

The message is clear. C. H. Robinson is not just transforming. We're leading.

We are the new disruptor, and we're on track to drive sustainable outperformance across market cycles. That concludes our prepared remarks. I'll turn it back to Paul now for the Q and A portion of the call.

Thank you. We'll now be conducting a question and answer session. Thank you. Our first question is from Chris Wetherbee with Wells Fargo.

Yes. Hey, thanks. Good afternoon, guys. Dave, I'm sitting here looking at the operating margins of NAST at 38%, improving, as you noted, kind of getting you towards your mid cycle goals at what appears to be sort of the bottom of the market. So I guess as you start to think about what's possible with the business, I don't know if you've rethought what you think the potential opportunity is on the margin side.

It just seems like productivity is moving faster than we had maybe expected. So just would hope if you could expand a little bit upon what you think the potential of NAST margins and just overall margins for the business could be over time.

Hey, Chris. Good to hear from you. Hey, listen, no, you're right. First of all, we feel really good about our productivity. I mean, it's been in two and a half years at 35% on where we're going and we look at that as evergreen productivity.

As part of our operating model, it doesn't surprise us as far as how we're moving up the stack on our productivity. And what we really feel good about is as we continue our journey, we're jumping into our technology, which will only enhance our productivity as we go forward. Now we're not discounting the macros. It's still a tough environment out there, but the way we look at it is it's a higher high and higher low and we're going to continue to drive that productivity. I'll have Michael maybe expand a little bit more just on NASS overall margins, where we are in the cycle.

But as I said, we feel really good about where we are and kind of what we talked about at Investor Day as well, which is why we kind of gave that range of the three fifty to four fifty overall. Michael, you can expand.

Yes. Hey, Chris. Again, thanks for the question. I think Dave hit it. First and foremost, I'd say we believe our productivity gains and the movement we've made in our margins are evergreen and we expect to continue to challenge ourselves through the operating model to find additional productivity next week, next month, next quarter, you name it.

I'll go back to some of the comments Arun made. We do think there's some additional unlock in the world of AgenTeq AI. We've been industry leading in maybe the first generation of AI and applying that to our business, but we think there's another round of unlocks that we're just in the early innings on and just starting to get our arms around. And so we feel really good, one, really proud of the team's performance in a continued difficult environment. But two, do believe there's some opportunity for us whether the market changes or not.

Right? We believe we can continue to get better at what we're doing and really excited about the work our teams are doing together, Arun's team and our team in NASA. Just really a lot of great stuff in front of us.

Thank you. Our next question is from Ritu Harnay with Deutsche Bank.

Hey, everyone. Thanks for the time and very impressive results here. Echo Chris' sentiments, you know, at the bottom of the cycle, kind of getting these types of margins is is quite impressive. So maybe you can talk about, you know, there remains this non skepticism about the ability for C. H.

Robins to replicate or augment on such success in the event of an up cycle. I know you've talked about this ad nauseam in the past, but maybe you can update our views and share. As we've seen volume growth this quarter, margins still expanded a very strong amount. So maybe this speaks to is another example of how you'll continue to rebut that. But, yeah, just all the thoughts you can share around that would be helpful.

Yeah. Hi, Rica. Good to hear from you. This is Dave. The you know, we we look at this and we've been saying as you as you pointed out, one, we feel we feel fundamentally really good about one where we are in this cycle.

But I will tell you we feel even better that when the market snaps back that we'll be in pole position to, to continue to drive, what you're seeing and and, that'll be energized even more, based on our operating model and and the technology, that Michael just, just spoke about and that Arun spoke about as well. The key thing that we've always talked about and we said it before is we are fundamentally a different company structurally. Where we were yesterday being 2018 to where we are now, structurally, put that in place in how we operate, the discipline we operate with, and the execution, that we go after with an evergreen continuous improvement approach. And so so when the market goes back, you know, we we think that we'll be in a really good position. I'll call out that we've we've always point to our Global Forwarding business as as that kind of canary in the coal mine.

Last year, we saw Global Forwarding grow each quarter, while taking down expenses. This business goes through our same operating model, and didn't have the benefit of the technology improvements that we put in that. So it kinda gives you a headline within that business of of what's to come when we start really driving a market rebound, within that. So we feel like we're positioned extremely well for the rebound. Damon, you want to expand on that?

Yes. Thanks, Dave. Richie, I would just say that the way we always answer that question is the processes that we have driven efficiency to, that we've brought technology to, they are fundamentally different, right? They're completely changed. And so therefore, there's no need to have the same level of human touch on those processes when the market enters a new stage

And so for us, it's not even a question of do you add back headcount to support the volume. There's just no need to add that headcount back, right? The processes are fundamentally changed. So I'd say that is point number one. Point number two is, as we've talked about many times, I mean, operating model doesn't let us plateau.

It doesn't let us get stale on productivity. It drives continuous improvement consistently. And that's no different in the decoupling of our headcount rate. If you think about what's fundamental to our productivity, it is driving efficiency in our processes. It's using technology to replace those human touches.

And our operating model makes sure that's a continuous flow of improvement. So I think we've been pretty consistent on our answer. We fundamentally believe the processes that we've automated are they're different and therefore don't require the same level of human interaction that they did yesterday. Therefore, we're highly confident when the market does recover that we'll see great operating leverage as part of that recovery.

Thank you. Our next question is from Rosa with Citi Group.

Hi. This is Ben Moore of Citi on for Ariel Rosa. Thanks for taking my question and congrats on a great quarter. As the biggest freight broker, you see everything across your industry and wanted to get your take on trucker capacity related to freight broker technology. As you know, trucker capacity has been extremely elevated.

It's remained elevated for three years as FMCSA carrier registrations this June are still at COVID highs from 2022, and net adds are even above exits in 2Q. And this is happening even as truckers should deplete their COVID savings and transports loan impairments are on the rise. There's this growing narrative that broker technology is enabling owner operator carriers to stay around longer, and that may be a key behind the overcapacity issue that's been pressuring rates. And this is BrokerTec, not just you and your largest competitors, but the 25,000 smaller brokers enabling small owner operator carriers to find loads to better match their costs, like how Uber the Uber apps driven a proliferation of gig drivers to overtake large taxi medallion companies. What are you seeing in terms of broker tech of smaller brokers that you come up against?

And do you believe this might be a key behind the overcapacity issue pressuring rates that keeps persisting?

Hey, Bruce. This is Michael. Thanks for the question. I think one, certainly there's been a democratization of kind of freight brokerage tech over the last couple of years and there are plenty of folks offering capabilities out to smaller brokers. But there's a couple of things that I would say we believe pretty strongly.

And one, our data and information advantage and scale continues to drive opportunities for us in that space. From your question on is it enabling carriers to stay in longer, I wouldn't say that's the case. We've seen a decline not only in the number of brokers, but also in capacity exits. And as we said in our prepared comments, we are seeing a bit better balance in the marketplace. But really, I think our ability to match the right freight to our carriers is unmatched in the industry.

And our ability to match our customer supply chain needs with that ability to match with carriers is what's driving our success. Right? We believe that there's a clear differentiation between what we do in the marketplace and our competition, whether that competition are assets, large brokers or small brokers. And so I'm not sure I would agree maybe with your sentiment on that being a driver of keeping capacity in the marketplace. But certainly, I would acknowledge the democratization of freight brokerage tech.

But we believe our tech stack combined with our people is a clear differentiator for us in the marketplace.

Yeah. Ari, just to add on to that, the we have seen a burn down as you probably have as well with brokers as well about 18 plus now over the last year and a half, two years. So there's a there's a burn down of brokers. And as Michael said, on the carrier side, we see some of that as well. So it's interesting.

We stay focused on what we're doing, but it's a tough market out there for a number of individuals both carriers and brokers.

Thank you. Our next question is from Scott Group with Wolfe Research.

Hey, thanks. Afternoon. I was wondering if there's any color you can give us on mass and and forwarding trends and to start q three or or or any way you gotta think about just normal seasonality if there's such a thing for for q three? And then maybe just separately on the on the head count piece, just do we contemplate should we contemplate some additional reductions in in the back half of the year? And then and at what point do we just sort of reach a natural sort of limit in terms of where how much more there is to go here? Thank you.

Hey, Scott. This is Michael. Thanks for the question. I'll speak from a NASS perspective first. Q3 historically is sequentially pretty flat to Q2.

And so that's just what I'd say from kind of an industry standard and even our historical numbers. You know, from a productivity perspective or headcount perspective, what I'd say is is is we're gonna keep holding ourselves to the challenge that that Damon, Dave, and Arun have mentioned, which is we're going to get more productive every day, every week, every month. Now some of that comes in direct headcount changes. Some of it comes in how we handle a quote to cash life cycle. There's tons of opportunities for us to improve the way we run and operate our business.

But I don't believe I would buy maybe the idea that there's a limit. I think there's a ton of unknown. The world of AI and now AgenTik AI is gonna create opportunities for us to, again, shift the way we manage business and create value for our customers and for our people. And and so I would I would not, you know, buy into the idea that we're gonna run into a a hard floor in that aspect. And so that's where I'd answer from a NASS productivity.

And I'll hand it over to Damon on the GF side.

Yes. And Scott, I'll just kind of end my thoughts on productivity, then I'll give you some market commentary on forwarding. Yes, agree with everything Michael said. I'd say the way I would think about our productivity is, as I mentioned before in previous comments, right, it's an evergreen approach, right? We expect productivity every month, every quarter, every year, right?

That's a baseline expectation. In addition to that, there are going to be milestones where technology evolves or processes evolves, and we'll get productivity even on top of that evergreen productivity that's driven by our operating model. So as Michael said, we really don't see any future of a plateau in productivity for us, right? Our operating model is going to drive us to incremental evergreen productivity. The evolution of our technology is going to drive us to that step function productivity.

So as Dave has mentioned, we mentioned often, we're in the early innings of our transformation and that early innings applies to the productivity journey we're on as well. Specifically to Q3 for Global Forwarding, as you know, don't give guidance. But what I will tell you is and I'll start by framing Q2 and then work into Q3. Certainly for Q2, April was the bottom of our volume due to the tariff wars and the level of tariffs in the quarter that we started out with. We did see volume rebound in May and June, but it wasn't a significant rebound, certainly not enough to offset the pressure that we saw in April.

So as you go into Q3, I think there's just still a lot of uncertainty. As you see every day in the headlines, right, there's still many trade negotiations still pending. The levels of tariff outcomes related to those negotiations are still pending. So I think the tariff front creates a lot of uncertainty for Q3 and I'd say even the second half of the year. And then I think the unknown on top of that from a macro perspective is what will consumer confidence be and what will that ultimately derive from a GDP perspective.

So I think that's the equation. I think we've all got to balance for the second half is what pressure are tariffs going to create from an overall demand perspective? And can that be offset by consumer confidence in GDP growth, right? I think that's the equation we're all starting to run through our models for the second half of the year.

Thank you. Our next question is from Tom Wadewitz with UBS.

Yes. Good afternoon and congratulations on the strong results against a tough rate backdrop. I apologize if you were to comment on this. There were some overlapping calls. But how do you think about the operating margin, I guess, in that, the kind of target of 40% or mid, I don't know, mid cycle target, however you frame it exactly, you're getting pretty close and nice improvement towards that.

Is that something that's kind of around the corner? Or how do you think about, I guess, ability to achieve that in a week, what remains, call it, the soft freight market, however you want to frame it? And then on the gross margin for NASS and further improvement, is there a ceiling on that? Or is that how do you think about what that can get to? There's just been a really favorable progression in the gross margin in NAST as well. Thank you.

Hey, Tom. Thank you. This is Michael. I'll take the gross margin side and then I'll let Damon speak a bit to the operating margin side. We've been pretty consistent over the last couple of quarters around how we view gross margin volume, the optionality we have to really maximize the combination of that regardless of market.

I think what we're getting better is adding intentionality to our optionality, right? So we know what freight is the right freight for our customers, for our carriers. We know there's some key areas. We talked about our value equations, whether it's verticals for specific customers or capabilities like short haul or drop trailer or other places. And so I think every just as we've been talking productivity is evergreen so is our expectation of the improvement of our pricing models, our cost of hire models, our team's interaction with those models and how they're getting better at identifying the right freight for us to go pursue.

And I also do think that customers are Dave mentioned in his comments, there's a flight to quality and I think customers are identifying the value we're bringing in the marketplace. And so I don't necessarily know if I'd say again, I don't like using the word limit anywhere. But I think there is an opportunity for us to continue to refine the combination of volume and margin that we're producing to keep driving growth for the business and value for our customers.

Yeah. Tom, I'm going to hand it to Damon as well. I just I do want to highlight the the fact that the team is doing a really exceptional job in a in a super tough market. I mean, is you know, we're seeing all of this, and I think you all agree that, you know, we're well over three years here and with with, you know, with that pressure, that's on there. But how we're operating in that discipline that the team is operating with is just something that's fundamentally different.

And we we do like to to look at that and say that there's a separation there. I mean, how we're how we're operating, how we go about it, how we're trying to separate ourselves out from competition. I I give the team a lot of credit for that, and it's a lot of hard work in in really a tough environment. So we again, we don't discount it. We just get up every day and and and go do it.

But I I just didn't wanna discount the fact that, it's it's a tough market out there, but this team is kind of, you know, innovating through that. And it's just a different way of how we're thinking about it and executing. But, Jamie, you can add a little bit of

Yes. So, Tom, I would just round this out with saying, look, we feel really good about the margins we delivered in Q2, what we delivered in the '25. As we've said, every time we get an opportunity, we feel really good about our Investor Day commitments for 2026. Now with that said, we won't slow the momentum, right? So there is no cap on what we think we can do, but we are confident in what we've committed to.

I think Michael touched on this on the gross margin level. I'll touch on it on the operating margin level is we've got a lot of optionality between volume and profitability, right? And so we don't want to back ourselves into a corner on limiting that optionality, right? So every day, every month, every hour in some cases, we're playing the optimization game between market share growth and margin optimization through gross and operating. And we feel good about that optionality.

So I'll just reiterate, we feel really good about the 40% for NAST at mid cycle. We certainly won't use that as a cap. And if performance allows us to exceed that, we will. But we also don't want to give up the optionality we have between market share outgrowth and profitability.

Our next question is from Bruce Chan with Stifel.

Hey, good afternoon, everyone. It's been a long day, so happy to see these results. Appreciate that. I think the success that you've had this quarter kinda has me, you know, maybe dreaming about some longer term possibilities. So, you know, maybe on that front, and thinking about m and a, you know, it's been a little while since you've added to the portfolio.

You know, you've made some good progress, you know, over the past few quarters with optimizing the the current business, but we've also had, you know, a lot of changes to trade patterns and and shipper needs. So maybe just talk about the appetite here for inorganic growth and any places in the portfolio or geographic pockets or lanes, especially in the Global Forwarding, that you might see some opportunities, especially in what I'd call a buyer's market here?

Yes. Thanks for the question, Bruce. What I would say, and I think it served us well certainly in my twelve months with the company, right, is we have a very disciplined capital allocation model. And as you can see from our results, the organic opportunities we have internal certainly are attractive, right, and certainly get top billing from an investment perspective. So I'll just recap our allocation strategy and I'll touch on M and A as I go through that.

C.H. Robinson Worldwide (CHRW) Q2 2025 Earnings Call Transcript

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