CH Robinson CEO Bob Biesterfeld says, due to the current crisis, the company faces a tricky short-term strategic question over its massive investment plan for digital transformation.

In an earnings call to investors, Mr Biesterfeld said: “Are we best off stopping, or significantly scaling back, investments in our future and the long-term success of the enterprise, or should we stay the course and manage through some of the short-term pain that that will cause?”

It would seem the latter is more likely, but the company had taken immediate action to cut costs, with some $60m expected in savings.

It has made the “very difficult decision” to furlough about 7% of the workforce, but insisted “these furloughed employees are still employees of CH Robinson. We’re going to continue to support them … and we will work to bring them back as soon as the demands of the business dictate”.

Mr Biesterfeld said CHR had also “temporarily suspended the match to our retirement plans for our US and Canadian employees and the executive team had taken temporary reductions in pay, starting with a 50% reduction in my compensation and 20% for my direct reports. Additionally, our directors have taken reductions in their cash retainers of 50%”.

The focus on technology, announced last year, has begun to bear fruit, the company said, enabling the staff reduction.

“Simply put, we’re doing more with less in the field today, and this is due to the output of our technology investments and the work that our teams have been doing to standardise, centralise and automate the core processes within our business.”

However, the hi-tech move, especially in staffing, has been costly. As one analyst pointed out, “net revenue per employee is down 17%, while personnel cost per employee is down only 3%”.

Mike Zechmeister, chief financial officer, explained: “Historically, our personnel expense was more heavily weighted to variable cost components like bonus, commissions and performance-based equity. While that enabled our personnel expenses to more closely align with changes in net revenue, it also meant that in a softer freight cycle, our employees saw significant reductions in overall compensation and we experienced talent retention issues.

“Our increase in IT headcount has grown more than 30% in the past two years. These folks play a critical role in unlocking value for our customers, carriers and cost structure but their compensation is more fixed than our customer and carrier-facing employees.”

Retaining or growing market share is also a focus, it said, noting that “during the quarter, price per mile billed to our customers declined 8.5%, while cost per mile paid to our contract carriers net of fuel declined 2.5%”.

Mr Biesterfeld explained: “Throughout the first quarter, we continue to meet and exceed our commitments on our contractual pricing agreements with our truckload customers, despite instances where the cost of purchase transportation exceeded our customer pricing. We believe honouring these commitments during difficult times is just one of the reasons that we have such higher retention rates with our customer base.”

The future is likely to be tough, he acknowledged, but would vary depending on sector.

“For us, the hardest-hit verticals have been automotive and manufacturing, and these account for about 25% of our revenues,” said Mr Biesterfeld. “The flip side of this is that consumer staples in food and beverage, retail paper and technology all continue to perform really well and show volume growth. These industries make up about 40% of our revenues.”

But he added: “The direction of the freight market and of the broader global economy will be very difficult to predict over the next few quarters. In the logistics industry, supply and demand, volume, pricing and cost will likely vary significantly from month to month and across different industry verticals.”

CH Robinson’s first quarter saw total revenues grew 1.4% to $3.8bn, while net revenues fell 16.3% to $568m. Income from operations fell 51.3% to $109.4m. You can see the full results here.

For a thorough analysis of CH Robinson’s financial results and position, go to Loadstar Premium here.

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