C.H. Robinson Worldwide, Inc.

Good morning, ladies and gentlemen, and welcome to the C.H. Robinson Third Quarter 2022 Conference Call. At this time, all participants are on a listen-only mode. Following the company's prepared remarks, we will open the line for a live question-and-answer session. To ask a question, please press star 1 on your telephone keypad. If anyone needs assistance at any time during the conference, please press star 0. As a reminder, this conference is being recorded Wednesday, November 2, 2022. I would now like to turn the conference over to Chuck Ives, Director of Investor Relations.

Thank you, Donna, and good morning, everyone. On the call with me today is Bob Beesterfeld, our President and Chief Executive Officer, Arun Rajan, our Chief Operating Officer, and Mike Zechmeister, our Chief Financial Officer. Bob and Mike will provide a summary of our 2022 third quarter results and outline some new cost reduction actions. Arun will provide an update on the innovation and development occurring across our digital platform, and then we will open the call up for questions. Our earnings presentation slides are supplemental to our earnings release and can be found on the investor section of our website at investor.chrobinson.com. Our prepared comments are not intended to follow the slides. If we do refer to specific information on the slides, we will let you know which slide we're referencing. I'd also 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. And with that, I'll turn the call over to Bob.

Thank you, Chuck, and good morning, everyone, and thank you for joining us today. On our second quarter earnings call in late July, I talked about a deceleration in demand that we were expecting to see in the second half of 2022 in three large verticals for freight, including weakness in the retail market and further slowing in the housing market. We're now seeing those expectations play out. and with slowing freight demand and price declines in both freight forwarding and surface transportation markets. Throughout the changes in the freight cycle, we've maintained our focus on continuing to improve the customer and carrier experience while scaling our digital processes and operating model to foster sustainable and profitable growth. Today, we believe that we're entering a time of slower economic growth, where freight markets will continue to cool from their pandemic peaks and will operate more reliably at more normalized rates with fewer disruptions. These changes in market conditions, coupled with many successful endeavors on our digital roadmap directed at scaling our model to be more efficient, are allowing us to take actions to structurally reduce our overall cost structure. Compared to our third quarter operating expenses, the actions we're currently taking are expected to generate $175 million of gross cost savings on an annualized basis by the fourth quarter of 2023. Inflation, other headwinds such as annual pay increases And tailwinds such as lower incentive compensation are expected to result in net cost headwinds of $25 million in 2023 that we expect to partially offset the gross savings, resulting in net annualized cost reductions of $150 million by fourth quarter of next year. We also continue to identify opportunities to accelerate our enterprise-wide digital and product strategy. To drive greater impact and speed of execution, Arun Rajan has been promoted to the role of Chief Operating Officer. Since joining CH Robinson in 2021, Arun has been a critical contributor to and strategic leader of our digital and product strategy. Arun is helping us to think and act differently as we accelerate our pace of digital transformation and scale our operating model. In his new role, in addition to leading the product organization, Arun will have expanded direct responsibility for both technology and marketing organizations, bringing these three critical functions together under a single vision and leadership structure will allow us to integrate these functions more deeply into single-threaded teams and to put the needs of our customers and carriers at the center of our organizational design to ensure that we're positioned well to meet the needs while accelerating the impacts across the business units of C.H. Robinson. Arun's teams will work directly with the business unit presidents to operationalize these efforts. Now let me turn to a high-level overview of our third quarter results for North American surface transportation and global forwarding. In our NAS truckload business, we grew our year-over-year volume for the sixth quarter in a row, albeit with a modest shipment growth of a half a percent. Volume growth in drop trailer, flatbed, and temperature control was partially offset by a decline in our dry van volumes. Within the quarter, we saw mid-single-digit volume increases in July turn into declines in August and September as freight demand weakened. Our adjusted gross profit, or AGP, per shipment increased 20.5% versus the third quarter of last year due to a meaningful increase in our contractual truckload AGP per shipment. On a sequential basis, our truckload AGP per shipment came down 15% from the record peak we saw in the second quarter, but remains above our historical average. The sequential decline was particularly pronounced in the spot market, where our AGP per shipment declined 25% as we continued to pursue volume in the spot market and collaborated with our customers to use the spot market as part of their procurement strategy. During the third quarter, we had an approximate mix of 65% contractual volume and 35% transactional volume, compared to a 60-40 mix in the same period last year. Routing guide depth of tender in our managed services business, which is a proxy for the overall market, declined from 1.4 in the second quarter to 1.3 in the third quarter, which is the lowest level we've seen since the pandemic impacted the second quarter of 2020. Changes in the national drive-in load to truck ratio also reflect the softening of the freight environment. While this ratio was between 3 and 4 to 1 for most of the third quarter, it has declined throughout October. with the latest reading approximately 2.6 to 1 in week 44. The sequential declines in truckload line haul cost and price per mile that we saw in first and second quarter continued throughout the third quarter. This resulted in approximately 17% year-over-year decline in our average truckload line haul cost paid to carriers, excluding fuel. Our average line haul rate billed to our customers, excluding fuel surcharge, decreased year-over-year by approximately 13%. This resulted in a year-over-year increase in our NASC truckload AGP per mile of 15.5%. Consistent with historical patterns, we expect to reprice approximately 60% of our contractual truckload business in the fourth quarter of 2022 and the first quarter of 2023. Encouragingly, our win rate on large contractual bids in the third quarter improved year-over-year as we pursued profitable share gains and responded to a changing market. In our NAST LTL business, we generated quarterly AGP of $161 million in the third quarter, up 23% year over year. This was through a 24.5% increase in AGP per order and partially offset by a 1.5% decline in volume. The LTL volume decline was driven by decreases in final mile, temperature controlled, and consolidation, while our common carrier business, which is the largest component of LTL, had flat volumes. In our global forwarding business, we're now seeing the market correction that has been anticipated. High inventories, reduced consumer spending due to rising inflation, and a muted peak season have all contributed to reduced import demands, which have also led to declining prices for ocean and air freight. For the third quarter, global forwarding generated AGP of $248.4 million, representing a year-over-year decrease of 20% versus a record high for a third quarter in 2021. Within these results, our ocean forwarding AGP declined by $55 million, or 26% year-over-year. This was driven by a 24% decrease in AGP per shipment and a 2.5% decrease in shipments. This is compared to a 12% volume growth in the third quarter of last year. The slowdown in global ocean demand was most evident on the US West Coast, where rates and volumes declined more than other trade lanes and allowed port congestions to ease. Activity on the US East Coast remains stronger as freight continues to be diverted from West Coast ports and due to relatively stronger demand in the transit Atlantic trade lane. Improving ocean schedule reliability and the ability for shippers to accept longer transit times has resulted in conversion of some air freight back to the ocean. This, combined with the slowdown in global demand, has impacted air freight volumes and pricing. Air freight capacity also continued to improve and drive prices lower in many trade lanes due to increased belly capacity on more frequent commercial flights. AGP in our air freight business declined $12.5 million, or 21% year over year, driven by a 16.5% decrease in metric tons shipped and a 5.5% decline in AGP per metric ton shipped. Overall, the forwarding team continues to provide differentiated solutions and customer service, selling aggressively in the market and leading to further additions of new customers and diversification of industry verticals and trade lanes, In the third quarter, for example, 60% of our AGP from new business was generated from trade lanes other than the Trans-Pacific Lane. Additionally, we've attained the status of being the leading ocean freight forwarder from India to the U.S. and from the U.S. to Australia. As shown on slide 10 of our earnings presentation, expanding our capabilities and presence in key industry verticals, trade lanes, and geographies is an important part of our sustainable growth strategy. For the enterprise, we continue to believe that through combining our digital solutions with our global network of logistics experts and our full suite of multimodal services, we are uniquely positioned in the marketplace to deliver for our shippers and carriers regardless of market conditions. We believe our strategy and competitive advantages will enable us to create more value for customers and in turn win more business, increase our market share, and enable sustainable, profitable growth. With that, I'll now turn the call to Arun to walk you through the product innovation and development that's occurring across our digital platform.