C.H. Robinson (NASDAQ:CHRW) transports goods using third-party trucks, planes, ships, and railcars. Holding contracts with 45,000 transportation companies, C.H. Robinson ships over 7.5 million packages for approximately 35,000 customers. The company earned $7.6 billion in revenue and $360 million in net income in 2009.
Unlike trucking firms such as YRC Worldwide (YRCW) and Conway Inc (CNW), C.H. Robinson does not use company-owned trucks to move goods for customers. Instead, employees in any of the firm's 200+ branch offices contract with third-party trucks to move food and beverage, manufacturing, and retail goods. The transportation of goods is roughly 88% of gross profits; the balance of revenues come from distributing fresh produce, and its T-Chek Service Unit which provides management services to the trucking industry.
C.H. Robinson's non-asset based model saves money, as it does not need to purchase its own expensive trucks, planes, or ships. The company can choose from a variety of carriers to move goods, and it can adjust its shipping capacity by controlling the number of third-party contracts which it enters. This protects it against lower trucking usage in the event of a recession - when companies ship less in response to lower consumer spending, CHRW adjusts its capacity to meet lower shipping demand. While the company is not as vulnerable to an economic recession as asset-based trucking firms, total volume decline in shipments still hurts profits. Also, by not operating its own transportation equipment, C.H. Robinson depends on securing third-party services to make money, an additional risk factor that asset-based firms do not deal with.
C.H. Robinson generates profit by moving goods, buying and selling produce, and providing information services to the trucking industry. Customers vary from family-owned stores to large Fortune 100 companies. No customer accounts for more than 7% of total revenue. CHRW facilitates movement of goods primarily by acting as a middle-man between shipping customers and third-party transportation carriers. C.H. Robinson will charge customers higher rates (which depend on volume and weight) than it negotiates with its network of third-party transportation companies - this is the source of its operating margin.
C.H. Robinson makes most of its money by moving goods. The salespeople of C.H. Robinson build relationships with the customers whose goods C.H. Robinson moves, as well as the carriers that do the transportation. CHRW charges shipping customers to move their goods, and then pays carriers at spot-market rates to move the product (the difference is profit). The 200+ branch offices allow management of C.H. Robinson to assess local market conditions and build face-to-face business relationships. This business model relies heavily on salespeople who can solicit and manage customers, and C.H. Robinson attracts this talent using performance-oriented compensation to reward salespeople - compensation is the company's largest expense. The performance-oriented pay can help lower expense in weak U.S. Economic Cycles. The company's revenues in terms of transportation mode are as follows:
C.H. Robinson actively buys produce from farmers and then arranges specialized transportation of the fruits and vegetables to food wholesalers, grocery stores, and restaurant chains. C.H. Robinson provides clients with quality control from store-to-store and region-to-region. In addition, C.H. Robinson markets its own brand 'Fresh 1', which has expanded its relationship with retail customers. C.H. Robinson profits when it can sell the produce for more than it cost to buy and move the produce to the customer.
T-Chek Inc, a subsidiary of C.H. Robinson, offers motor carriers and truck stops fuel management, driver payroll, and other related services. Using C.H. Robinson proprietary system, customers can tract equipment, manage fleets, and dictate where and when a truck can stop for fuel for a fee. T-Chek also captures fuel and cost data, and customers pay for access to the information.
C.H. Robinson competes with a large number of non-asset and asset based freight service and logistic firms, third party freight brokers, and freight forwarders. Asset based logistic companies, which own transportation vehicles, include YRC Worldwide (YRCW) and Conway Inc (CNW). Non-asset logistics, like C.H. Robinson, do not own ships, planes, or trucks, and include Expeditors International of Washington (EXPD), UTi Worldwide (UTIW), and Pacer International (PACR). These firms compete for shipping orders and logistic management from customers primarily based on price, reliability, and breadth of services available.