Onstage in Chicago, CHRW talks tech and staffing; RXO sees language order hitting capacity

With two leading 3PLs taking the stage at the Wells Fargo Industrials and Materials Conference in Chicago Wednesday, in the middle of a freight market that still has not made their lives any easier, presenters from C.H. Robinson and RXO made their case in different ways.

They did so from very different positions in the equity markets: C.H. Robinson’s stock by Wednesday had risen about 11.6% in the last year. RXO’s stock declined about 21.7% during that same period.

There was one major overlap in what the two publicly-traded 3PLs said about the market: neither are banking on any significant upturn anytime soon. C.H. Robinson (NASDAQ: CHRW) CEO Dave Bozeman said the freight market is still in what is now a 38 to 39-month recession, “and we have to deal with it and that’s what we’re doing every day.”

Drew Wilkerson, the CEO of RXO (NYSE: RXO), citing several measures such as tender rejections, said “we feel like we’re coming off the bottom.”

But it was other areas that stood out in the presentations for the two companies. (Both companies’ presentations were webcast.) 

Given that it has been technology and productivity that C.H. Robinson has touted as the key driver to its success, which began showing up in its corporate earnings after the first quarter of 2024, it wasn’t surprising that Bozeman and CFO Damon Lee turned to that topic in their discussion.

The RXO discussion with Wilkerson and head of strategy Jared Weisfeld was more focused on the freight market. But one reason for their guarded optimism was a potential strengthening through a potential boost from enforcing the Department of Transportation’s English language requirement.

What’s the workforce size?

At C.H. Robinson, some of the gains at the company have come alongside reductions in staff. Although the precise numbers are not known, they showed up in the most recent quarterly earnings report under the category of personnel expenses. In the first quarter of 2024, that spending was $379.1 million. In the first quarter of this year, it had been reduced to $348.6 million.

Lee said the question about the company’s head count is one that they get “a lot.”

“But we don’t really look at it that way,” he said. “We look at it as productivity.” The key metric the company uses to measure that productivity is shipments per day per person. 

In the company’s most recent quarterly earnings call, Michael Castagnetto, president of C.H. Robinson’s North American Surface Transportation unit that is the home of its truck brokerage activities, said the segment’s shipments per person per day has been growing at a double-digit pace in the past two years. He said that pace continued in the first quarter.

“If I’ve set a target for operating leverage and volume goes up, I may actually add a head or two,” Lee said. 

But given the environment in the freight market, Lee said that reducing head count at present is  “what the productivity drives us to do.”

Continuing reductions in headcount are not guaranteed, according to Lee. “Assuming volumes return to the system at some point, that productivity will show up either as head count reduction, like we’ve seen in this freight recession, or it will show up as increased operating leverage when volume returns.”

“Our head count reductions have not been blind,” Lee said. “They’ve been very systematic. It hasn’t been ‘will I just reduce workforce by 10%.’” The “vast majority” of head count has come on the customer-facing side, Lee said, “where we’re moving up the value stack with the customers.”

He added that questions from investors and analysts often come down to “how do we know you’re not just going to flood people back when the volume returns?”

“Our answer is there’s no reason to flood people back,” Lee said. “The processes have fundamentally changed. The process that required a human touch before no longer requires the human touch.”

Both Lee and Bozeman said the company believes the model it has created during difficult times, based on Lean principles, will “translate” in a stronger market as well. 

Bozeman has talked frequently about a push by C.H. Robinson to get deeper into small and medium businesses. Lee said the productivity gains elsewhere in the company has allowed it “to invest in that space, in bringing people in from a customer facing perspective.”

RXO and the English language rule

Wednesday began with a report published by Jason Seidl of TDCowen, who had met with RXO officials in Canada. Seidl said those officials–who were not identified in the report–had made the point that the enforcement of the Department of Transportation English language requirement that will begin next week could have a significant impact on trucking capacity.

Wilkerson raised that subject in his discussion at the Wells Fargo conference. 

“I think it will have a big impact if it goes into effect,” Wilkerson said.

But where the impact falls is not likely to be evenly distributed, he added. There will be a clear political divide on where the law could affect capacity.

“Watch the red states first, because this is something that would happen at a state level,” Wilkerson said. “So does something happen in Texas? Does something happen in Florida? Does something happen in Tennessee, which are all highly-trafficked areas?”

Estimates on the potential impact

RXO, according to Wilkerson, believes the size of the driver capacity that would not pass the English language requirement “could be anywhere to low double digits.” In his report, Seidl said he believed the industry is estimating that number to be between 5% and 15%. 

Wilkerson, in his remarks, said the continuing sluggishness of freight markets is now more of a demand issue than one of supply, because the departure of so many carriers and owner operators has tightened capacity. “So whenever you talk about demand returning, there is not as much capacity,” he said. Given that, he said, a significant loss of more capacity because of enforcement of the English language requirement would result in a “sharper turn in the recovery.”

Westerfield said he sees “pretty significant coordination” among government agencies like FMCSA to implement the executive order. He added that if a driver can not show proficiency in tasks like reading signs, the penalty is not a fine; it is having that driver and truck taken out of service.

“But it comes down to enforcement, which will be down at a state by state level,” Westerfield said. “So that really speaks to regional dynamics.”

Seidl’s brief comment in his report was that he believed the executive order will be “difficult to enforce.”

More articles by John Kingston

C.H. Robinson – and 3PL industry – win another broker liability case in 7th Circuit

Leadership at C.H. Robinson celebrates 1-year milestone by posting another strong quarter

RXO finds positives in quarter marked by soft market and profit loss

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