EUR 850.00 For Business Accounts Only

Morningstar | C.H. Robinson's Growth Trajectory Will Moderate in 2019, but We Expect Continued Strong Execution

C.H. Robinson dominates the $72 billion U.S. highway brokerage market, and its immense network of shippers and asset-based carriers supports a wide economic moat. Although the company isn't immune to cyclical downturns, its variable-cost model helps shield profitability during periods of lackluster freight demand, as evidenced by a long history of above-average operating profitability. The firm does not own transportation equipment, and more than 70% of operating expenses are tied to performance-based variable compensation, which tends to move in line with net revenue growth over the long run. We think the firm remains well positioned to capitalize on domestic third-party logistics consolidation (including market share gains) despite intensifying competition.Over and above underlying shipment demand trends, market share gains will probably remain the key growth driver for Robinson. For perspective, we estimate Robinson's stake of the domestic freight brokerage industry approximated 20% in 2017, up from 13% in 2004, based on market data from Armstrong & Associates. The truck brokerage business is still vastly fragmented, and smaller, less sophisticated providers are finding it increasingly difficult to keep up with rising demand for efficient truckload capacity access and informational know-how. Robinson's industry-leading network of asset-based truckload carriers (most small) will likely remain valuable to shippers in the years ahead. This is particularly because truckload capacity will see growth constraints over the medium term due to the limited driver pool. Robinson has also positioned its international air and ocean forwarding operations to contribute to growth. In this segment, it competes with other top-shelf providers like Expeditors International. In late 2012, it purchased Phoenix International, which more than doubled Robinson's scale in this business. More recently, the firm acquired Australian global forwarder APC Logistics (September 2016) and Canadian forwarder Milgram (late 2017). Buying scale is important in order to secure adequate capacity for shippers, particularly during the peak season.