羅賓遜全球物流 (CHRW) 2016 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the C.H. Robinson fourth-quarter 2016 conference call.

(Operator Instructions)

Following today's presentation, Tim Gagnon will facilitate a review of previously submitted questions.

(Operator Instructions)

As a reminder, this conference is being recorded Wednesday, February 1, 2017. I will now turn the conference over to Mr. Tim Gagnon, Director of Investor Relations.

Thank you, Donna, and good morning, everybody. On our call this morning will be John Wiehoff, Chief Executive Officer and Andy Clarke, Chief Financial Officer. John and Andy will provide some prepared comments on the highlights of our fourth quarter, and we'll follow that with a response to the pre-submitted questions we received after earnings yesterday.

Please note there are presentation slides that accompany our call to facilitate the discussion. The slides can be accessed in the Investor Relations section of our website at chrobinson.com. John and Andy will be referring to these slides in their prepared comments.

I'd like to remind you comments made by John, Andy, or others representing C.H. Robinson may contain forward-looking statements which are subject to risks and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations. With that, I'll turn it over to John to begin his prepared comments.

Thank you, Tim, and good morning, everyone. Before I discuss the results for the quarter and year end, I want to take a minute and talk about some new information that we're presenting this quarter and will be going forward. You may have noticed in our release yesterday afternoon that we began presenting our business in three reporting segments in addition to the traditional reporting that we've provided.

Our decision to add segment reporting is largely based on the accumulation of changes that have occurred in recent years. We've invested to expand our services and diversify our business and have also made structural changes to align executive oversight to the business. In late 2016, we made changes to our internal financial information that we use to make decisions, including the allocation of all shared costs to the key business segments.

Our three reportable segments are the Surface Transportation business in North America, where we're a market leader in providing truckload, less than truckload, and intermodal services; the Global Forwarding business, which now represents over 20% of our enterprise net revenues after the recent acquisition of APC; and the Robinson Fresh business, where in addition to transportation and logistics services, we provide fresh products for our customers. Our additional business units are aggregated into All Other. These business segments provide specialized services, and we remain focused on assuring that we provide our full portfolio of services to our customers.

Divisions work collaboratively to assure that we present a single quality experience focused on improving outcomes and delivering exceptional value to our customers. These changes are helping us to drive more efficient business processes and to better understand the returns on our capital allocations as we continue to diversify.

Overall, it's been a very busy month for our Finance Team, and they did a great job of executing the year-end closing with the addition of the acquired APC business and segment reporting. So with that, let me move on to talk about our results for the fourth quarter and full year of 2016.

Total revenues increased 6.4% in the fourth quarter. The revenue increase was the result of volume growth across all of our services, as well as the fact that fuel comparisons normalized on a year-over-year basis. Net revenues declined 1.6% in the quarter, and this was primarily the result of lower truckload margins when compared to a very strong fourth quarter in 2015.

The fourth-quarter truckload activity was consistent with what we experienced in Q3 and discussed on our last call, with good volume increases offset by margin compression. Outside of North American truckload, we achieved solid net revenue growth of 14%.

APC contributed approximately 2% to the overall net revenues of the Company in the fourth quarter. The integration of APC is off to a good start and we'll talk more about this later.

Income from operations was $195 million, a decrease of 9%, and net income was down 3%. We had diluted earnings per share of $0.86 compared to $0.88 last year for the quarter. We finished the full year with EPS of $3.59, a 2.3% increase over 2015.

Our average headcount was up 7%, or approximately 4.5% organically. We continue to believe that the strength and experience of our team is a competitive advantage. The additional segment information includes employees by segment that will help you better understand how we are evolving our teams and where we are investing.

We've made progress on a number of efficiency metrics across our Company, and we believe we can continue to leverage technology and process improvements so our employees can continue to focus on creating value for our customers.

I would sum up my comments on 2016 by saying that we achieved many of our growth goals and made some good progress on our long-term plans. Truckload margin compression was a challenge to our earnings growth in the second half, but our service metrics remain good, and we'll adjust our pricing to the market going forward as we always have. With that, I'll turn it over to Andy for some more prepared comments.

Thank you, John, and good morning as well and thank you all for joining us on this call. As you will notice, we have rearranged the slides in the deck to present a cleaner flow of results from the enterprise level to the reportable segments. For comparison purposes, we have a few holdover slides to conform to the way we previously discussed results. I will briefly cover these to allow ample time for discussion of the segments.

And finally, before diving into the numbers, I'd like to recognize all of our people for their great efforts in delivering these results. While not perfect, they reflect solid performance in a challenging environment. Thank you all. On to the summarized income statement.

For the fourth quarter, operating expenses increased 3% to $367 million. For the year, operating expenses were up slightly, up 2%. Personnel expenses decreased 3% in the quarter, primarily driven by lower variable compensation incentives, which were partially offset by average headcount growth of 7%. APC added approximately 2.5% to the headcount growth in the period. For the year, personnel expenses increased just over 1%, highlighting strategic investments we are making in talent, as well as the variable nature of our cost structure.

SG&A expenses increased 22% in the fourth quarter, a $19.6 million increase over the last year. The primary reasons for this increase were higher claims and bad debt reserves. These items accounted for approximately $7.5 million of the increase.

In addition, we had higher cost related to the acquisition of APC Logistics and other M&A activities, as well as other items including amortization, and that totaled about $8 million. Finally, we had increases in warehousing expenses of $2 million.

Our operating income as a percent of net revenue was 34.5%, a decrease of 310 basis points from last year. For the year, that figure was 36.8%. Interest and other expenses decreased approximately $10 million in the fourth quarter. This was primarily the result of approximately $4 million in currency gains related to the strong US dollar and the fact that we had a $7.2 million indemnification asset write-off in the fourth quarter of 2015. Our effective tax rate during the quarter was 35.8% versus 37.1% last year.

Moving on to slide 5 and other financial information, we generated nearly $153 million in cash in the quarter and had just over $20 million in CapEx. Year-to-date cash flow from operations was $529 million and year-to-date capital expenditures were approximately $91 million, reflecting the completion of our second data center and increased technology spending. We finished the quarter with $248 million in cash and our debt balance is $1.24 billion. For 2017, we expect capital expenditures to return to a range of $60 million to $70 million.

On to slide 6 and our capital distribution to shareholders. We returned approximately $455 million to shareholders in 2016, with approximately $245 million in dividends and approximately $210 million in share repurchases. For all of 2016, we returned 89% of our net income to shareholders, which is in line with our stated objectives.

Slides 7, 8, and 9 will serve as transition slides for the call, as they reflect the manner in which we traditionally discussed our results. I'll spend less time on slide 7 and 9 to allow more time for a discussion of the segments. Going forward in 2017, some of these perspectives and slides may be removed or in the Appendix of the earnings deck. Slide 7 represents our net revenue for the various services from an enterprise perspective.

Moving on to slide 8 and our North American truckload price and cost chart. Slide 8 presents a few key metrics of cost and price for North American truckload. On this graph, the light and dark blue lines represent the percent change in North America truckload rate per mile to customers and carriers, net of fuel cost since 2008. The gray line is the net revenue margin for all transportation services.

In this year's fourth quarter, the North America truckload rate per mile fell 3.5% versus last year's fourth quarter, while the cost per mile was flat. The 3.5% spread between the cost and price was the largest we have seen in several years and was primarily the result of the fact that the cost of capacity was moving up, while close to 65% of our customer pricing is committed through our customer contracts.

During the fourth quarter, the monthly percentage change in cost per mile to carriers trended up sequentially due to the seasonality around peak in year end. We've discussed through the back half of 2016 that our commitments to lower price freight opportunities would likely bring lower margins when compared to last year's fourth quarter.

In that period last year, the cost of capacity was falling at a faster pace than customer pricing. We are familiar with this type of cyclicality and are confident that our network is executing well. We continue to take share and are adjusting transactional pricing as appropriate.

As many of you know, in the first two quarters of the year, we are quite busy responding to customer bids. We do expect carrier cost to continue to rise through the year, and if this happens, it will likely lead to rising customer prices when compared to commitments we made in 2016.

Moving on to slide 9 and our transportation results. Transportation total revenues for all segments were up 8.5% to $3.1 billion in the fourth quarter. As John mentioned, this is a result of strong volume growth of 9.4% across all of our services in the quarter. Transportation net revenue margin decreased approximately 180 basis points from last year's fourth quarter to 17.2%.

We have been highlighting fuel prices over the past six or so quarters when discussing net revenue margin, as fuel has had a significant cosmetic impact here. Versus last year's fourth quarter, we estimate that fuel had an approximate 110-basis-point impact on net revenue margin. The primary reason for the remaining margin compression was due to the results and our North American truckload business. I'll provide some details on that in a moment.

As we transition to slide 10 and the start of the discussion of our results by reportable segments, it is important to understand that the overhead costs associated with our technology investments and other shared services teams are allocated into each of the business segments.

We refer to our North American transportation division as NAST. The NAST business is comprised of offices in the United States, Mexico, and Canada, providing primarily truckload, less than truckload, and intermodal services to our customers.

NAST total revenues were $2.3 billion in the fourth quarter, an increase of 5% over last year's period. Net revenues decreased 8.8% to $363 million in the quarter. For the year, NAST revenues decreased slightly at 2.6%.

Net revenue margin was 15.9% compared to last year's fourth quarter of 18.3%. The lower margins were primarily the result of margin compression and the fact that fuel prices normalized on a year-over-year basis in the period. For the year, NAST revenue margins were flat at 17.4%. I'd like to call out, again, the NAST Team for performance in 2016 on delivering these strong results.

NAST income from operations was down 14.3% to $158 million. NAST operating margin was 43.4% in the quarter and finished 2016 at just over 44%. Employee count was 6,809, up just under 2%.

Now on to slide 11 and the service line results within NAST. John and I have both highlighted some of the factors impacting our truckload business in the quarter. NAST truckload net revenues were down $39 million, or 12.9%. NAST contributes approximately 92% of North American truckload net revenues for the Company.

Volume was up 10% in the quarter, and this was a result of growth in both our contractual and transactional shipments. We believe that taking market share in a challenging part of the cycle is important to our ability to grow our business over the long term. The NAST Team did a great job delivering strong volume growth while adding minimal new headcount to execute this business.

We added 3,400 new carriers in the fourth quarter compared to approximately 2,700 in last year's period. These new carriers moved approximately 15,000 shipments for us in the quarter.

The LTL business had another solid quarter, growing net revenues over 5% to nearly $91 million. Volumes increased 5% when compared to the fourth quarter last year. Pricing was up slightly, and net revenue margins were down slightly in the quarter.

Volume growth was the driver of the net revenue growth in both the quarter and for the full-year 2016. The combination of our legacy LTL business and the Freightquote e-Commerce platform are helping us reach all types of customers.

Intermodal net revenues decreased 15.8% in the quarter, however, volumes were up 10%. The margin compression in the quarter is consistent with the trend we have been highlighting throughout 2016, as we've been winning more often with our large customers and the contractual business which comes at lower margins.

Moving on to our Global Forwarding segment results on slide 12. I'd like to start my comments as John did, with congratulating the Global Forwarding Team for these strong results. Our people have done a tremendous job of integrating the APC acquisition without taking their eye off the organic growth ball.

We'd also like to welcome our new colleagues in Australia and New Zealand to the Robinson Team. It's great to have you on board and thank you for the contribution to our success.

Total revenues for the Global Forwarding segment in the fourth quarter were $476 million, up 26.3% versus last year. Fourth-quarter net revenues were $114 million, a 27.5% increase from 2015. APC Logistics contributed approximately 14.7% of the total growth.

Net revenue margin was 24%, up 20 basis points over last year. Income from operations was just shy of $26 million, up 37% (sic - see slide 12, "31.5% change") in the fourth quarter. Operating margin was 21.6% in the quarter and 20.4% for the full year of 2016.

Headcount increased 14% in the quarter, with APC representing just over 300, or approximately 9%, of the additional employees in the business. We continue to realize the benefits of the global portfolio of services, as our cross-selling activities are yielding positive results for the entire Robinson organization. Next we'll discuss the Global Forwarding service lines on slide 13.

Ocean net revenues were up 23.7%, and APC contributed approximately 12% to the growth. Ocean shipments increased approximately 23% in the quarter, and pricing continued to be down in the ocean service line. This was a nice bounce-back quarter for the ocean business, as the team did a great job of managing through the Hanjin disruption.

Air net revenues increased 32.3%, with APC contributing approximately 10% to that growth figure. Air shipments increased approximately 35% in the quarter, and pricing was again down double digits. Growing the air freight business has been a strategic initiative throughout the year, and the Global Forwarding Team finished the year with over 20% air freight shipment growth. Congratulations.

Customs net revenue increased 48.5%, with APC contributing approximately 40% to the growth. Customs transactions increased approximately 31% in the fourth quarter.

Transitioning to our Robinson Fresh business on slide 14. The Robinson Fresh segment includes revenues from both the product sourcing sales and services, as well as transportation services provided to Robinson Fresh customers.

Robinson Fresh total revenues were $530 million, a decrease of 3.7% in the fourth quarter. Net revenues were $52 million, down 7.9% from last year. For the year, Robinson Fresh net revenues were essentially flat.

Robinson Fresh operating expenses decreased 3.3% in the fourth quarter, primarily due to decreases in personnel expenses and partially offset by an increase in warehouse expenses related to expanding facilities. Income from operations was $13 million, a decrease of 19% versus last year. And Robinson Fresh headcount increased 4.3% in the quarter.

Robinson Fresh sourcing total revenues declined 11.5%. The decline in total revenues was primarily the result of lower market pricing on some key commodities. Net revenues decreased 3.5% in the fourth quarter as a result of the lower net revenue per case and partially offset by 2% growth in case volume.

Slide 16, Robinson Fresh transportation net revenues decreased 11.9% in the fourth quarter, primarily due to decreases in truckload net revenue. These decreases were partially offset by increases in other transportation services' net revenues. Robinson Fresh transportation net revenue margin decreased in the fourth quarter of 2016 compared to the fourth quarter of 2015, due primarily to lower customer pricing.

And finally, I'd like to highlight the information that makes up All Other and Corporate on slide 17. All Other includes our Managed Services business, as well as Surface Transportation outside of North America, and other miscellaneous revenues, as well as unallocated corporate expenses. Headcount was up 12.9%, primarily the result of increases in our Shared Services Team, including technology, other enterprise resources, and Managed Services. You will notice an operating loss in both the 2016 and 2015 fourth quarters. This is the result of unallocated corporate expenses of approximately $5 million in this year's fourth quarter. Both the Managed Services and European Surface Transportation business are performing well and are profitable.

Slide 18, net revenues for the Other category increased 20.7% in the fourth quarter of 2016 compared to the same period in 2015, led by the continued strong performance in our Managed Services and Other Surface Transportation business in Europe. The Managed Services net revenue increased 32.7% in the fourth quarter of 2016 to $17.7 million. This was the result of growth from both new and existing customers.

The TMC and Managed Services Teams are consistently outperforming the market and delivering strong results for us and great value for our customers. Other Surface Transportation increased 8.9% in the fourth quarter of 2016 to $14.7 million. Our European Surface Transportation Team continues to perform well, has done a great job of growing the business despite a challenging economic back drop.

Thank you all on the Robinson Team for another great quarter. We appreciate your hard work and dedication. Thank you all, as well, for listening in today. With that, I will now turn it back to John to make some closing comments before we answer some of your questions.

Thanks, Andy. Before we move to the questions, I'll take just a couple minutes to wrap things up and address the topics on slide 19. In January, to date, our total Company net revenue has decreased approximately 1% per business day. This includes the additional revenue from the APC acquisition.

Obviously, it's very early in the year and the quarter, but so far, we have seen a continuation of good volume growth offset by truckload margin compression. We know that we will continue to have challenging comparisons on truckload margins for the first half of 2017, and we also expect meaningful bid and pricing activity in the months ahead. We've managed through these cycles before, and we're confident the network will do a good job adapting to the market conditions.

Our North American truckload volumes continue to be strong, with about 12% shipment-per-business-day growth thus far in January. In the Global Forwarding segment, we are deep into the APC integration and things are going well. Customer and employee retention has been excellent. Our primary focus for 2017 will be integrating the APC offices into the Navisphere platform.

And lastly, a few comments on our 2007 (sic - see slide 19, "2017") investment priorities, starting with growing market share across all of our services. Market share gains were a 2016 highlight, and we believe we can continue to grow and gain share in all of our services. The foundation of this is a relentless focus on having great people who are dedicated to selling and managing accounts; that will always be a primary focus for us.

We're going to continue to invest in technology. At the core of that is our Navisphere platform; that is a common platform for all of our segments and services. The themes around technology will include enhancements and supply chain visibility, as well as gathering more and more analytical data that we can use for our own benefit as well as our customers. And lastly, improving and automating our processes along our digital strategies to make sure that we're transforming our networks and staying current in the marketplace.

Lastly, with regards to global expansion, while we're proud of the coverage that we have, the APC acquisition shows that there are areas of the world where we can continue to expand our network into different geographies, particularly other regions of Asia and Europe, where we believe we have ongoing opportunity to enhance our network and continue to expand around the globe. So that concludes our prepared comments for the quarter, and with that, I will turn it back to the Q&A session.

Mr. Gagnon, the floor is yours for the question-and-answer session.

Thanks, Donna. Let me take a moment to thank the shareholders and analysts who sent in their questions last evening. Some great questions, and we'll get to as many of those as we can this morning. Just as a reminder I'll frame up the questions as they were submitted and turn it over to John and Andy for a response, and we'll get right into that now.

The first question is for Andy. While bad debt was up in the fourth quarter, bad debt was well below normal in 2016. Should we expect to see the bad debt accrual move to a more normal level in 2017?

We had really good claims experience as it relates to bad debt in all of 2016, which really reflects two things. One, the quality of our customer base and two, the timeliness with which they pay.

The accrual itself is a formula which takes into consideration those two factors. One, the quality of the customers and the buckets with which they pay. So we feel really good about the process, we feel really good about the quality of the customer base, and don't expect any material changes to that accrual. Obviously, things change as the market develops, but from where we sit right now, we feel good about our accrual.

Thanks, Andy. Next question for John. What are your thoughts on acquisitions, industry, and geography, and how much capital do you feel comfortable deploying towards the acquisitions?

One of a lot of reasons why we wanted to evolve our financial information into segment reporting is because it is reflective of how today we're thinking about our capital allocation, and that includes M&A exploration. So all of our operating divisions that Andy went through, North America Surface Transportation, Global Forwarding, Robinson Fresh, as well as European Surface Transportation and Managed Services, those are all operating divisions that we have plans to explore M&A opportunities and are open to capital allocation into each of them.

They each have a little bit different unique theme where we're market-share leader in North America Surface Transportation. The types of acquisitions that we look at might be a little bit differently. Freightquote was our most recent acquisition where that went after a segment of or a portion of the customer base that we didn't feel like we were penetrating as aggressively as we wanted to.

Global Forwarding, we've talked a lot about the Phoenix and APC acquisitions in the last four years, and really, strengthening out of the build out of that network and investing in geographies that we weren't previously invested into. So we're committed to all of those divisions, as well as from an Enterprise view thinking about what other services or supply chain activities that we might get involved in that would create yet another division or opportunity to grow in. So we're looking in all of those areas and customizing the capital allocation and the thinking to the specific parts of the business.

In terms of how much capital would we deploy, Andy's laid this out in the past. But over the last four years, through those three larger acquisitions, we've maintained to that capital distribution policy of dividends and share repurchases around 90%. Those acquisitions have been funded by moving from around $0.5 billion of cash to somewhere around $1 billion of debt over the last four years.

We've also stated and remain comfortable that we could take on another $1 billion or $2 billion of debt, depending upon what it is that we're acquiring and where we go. So we do have some more opportunity to deploy capital there as well.

Thanks, John. Next question is for Andy, really building on that topic. Will anything change concerning CHRW's preference for capital return in organic growth or debt repayment in the New Year?

Just to follow-up on John's comments, clearly, if you think about the order of preference first, it's reinvesting in the business. And we, last year, 2016 was one of our bigger years in terms of capital expenditures, just over $90 million. And a lot of that went towards technology. So if you think about where we have been and will continue to make investments in the business to benefit the beauty of being non-asset based is, you're investing in areas around technology and people and process improvement, which generate pretty significant returns. So we have been and will continue to invest in those areas.

John spent a lot of time, and we spent a lot of time thinking about acquisitions and how do we supplement the growth of our organization. Phoenix, Freightquote, APC have all been very both accretive as well as high returns on the capital that we've committed, and we'll continue to look at that. So that's another great way for us to enhance the growth of the organization. And going to that segment reporting, it more clearly delineates where we generate the returns and where we can continue to make investments.

We think about our current capital structure and how much we are comfortable returning to shareholders. We're very comfortable with returning the 90% via share repurchases, as well as dividends. And we don't foresee that changing. And then finally, as it relates to our debt structure, we have a very comfortable leverage ratio right now, and with our short-term rates just hovering below 2% on the debt, we don't foresee a rush to repay that any time soon.

Thanks, Andy. The next question for John on net revenue. Can you provide year-over-year net revenue by month in the fourth quarter?

Yes, so we've provided these numbers before, and in the fourth quarter of 2016, month by month, October down 4%, November and December were closer to flat. When we've talked about these before, I want to throw the same caveat out there again too, that we do the best that we can to scrub those numbers per business day. And that's what it would yield for the fourth quarter.

As anybody in the industry knows there's quite a bit of variance by day of the week, and when the holidays fall on different days of the week, especially on the end of the year around Thanksgiving and Christmas, you can get some pretty meaningful variations on a per-day basis around those. So even though it was down 4, flat-flat, be a little bit careful about the trends within the quarter. I would say that our activity was generally fairly consistent across the fourth quarter, with maybe a little bit of improvement as the quarter wore on.

Thanks, John. Next question for Andy. What do you expect the tax rate to be in 2017?

As John did, the biggest caveat that I will put out there is not knowing what's going to happen to the US corporate tax rate, so my comments will be all else equal. We expect our tax rate to be between 36.5% and low 37%, which reflects the investments, the selection election of APB23, as well as the fact that there is a growing percentage of our net income that's generated outside of the United States.

Thanks, Andy next question for John. How is your European truck brokerage business doing under the leadership of your own [icing]? It appears that you've been hiring some high-powered talent with a lot of local knowledge and experience. Have those hires changed up your play book in Europe significantly to drive outsized growth? Or is the market suffering from the same pricing, supply/demand dynamics currently creating the challenging environment in North America?

Andy talked you through the all other category. While both European brokerage business and Managed Services didn't rise to the materiality of a reportable segment, they're both very important growth areas for us, just like I talked about and we're committed to growing them. We have added and made some leadership changes to that European truck brokerage division over the last couple of years, and we do feel very good about our leadership team and our prospects for sustained growth.

You can see the net revenue that Andy described is growing very nicely. Our truck brokerage business or surface transportation business in Europe is at a much smaller scale and is far more transactional today than the scale of North America and the committed freight. So we're not seeing same degree of margin fluctuation in the European Surface Transportation business. There was more normalized net revenue growth, along with volume growth that was comparable to North America.

So we do feel good about our foundation there, and we have pretty aggressive growth goals for organic market penetration, as well as what I mentioned earlier around exploring M&A opportunities.

Thanks, John, next question for Andy. Is the $22 million in depreciation and amortization expense in the fourth quarter a good run rate to use going forward?

We had our second data center come on line in October, and as a result, and obviously the increased technology spend that we have, we would expect that number to be between $22 million and maybe even just a shade above $23 million per quarter for 2017.

Thanks, Andy. Next to John, can you give us your thoughts on the outlook for the Forwarding business overall? How are margins trending and which trade lanes provide the most opportunity for Robinson?

Giving visibility to the Global Forwarding segment and the investments that we've made there over the last couple of years, again, was one of the things that we believe segment reporting will give you a little bit better insight into. We've been committed and offering Global Forwarding services for a couple of decades, but in the last several years as we've ramped up our scale and have improved some of our operating processes, you can see that we've not only gotten good returns, but we have some pretty good growth momentum in the Global Forwarding division.

I'll remind you that the core of our Global Forwarding business is centered around Asia to North America activities. That's where we have the highest market share. That's where we are a market leader, particularly China to North America, where we rank number one in the NVOCC rankings that we've talked about in the past.

A lot of our growth initiatives are building on the investments that we've made to expand and strengthen our network in other regions. So in terms of the corridors where there are opportunities, we have been, for the last several years, focusing in on Asia to Europe and really leveraging the platform and the strength that we have in Asia and the carrier relationships to sell more into the Asia to Europe lane.

Andy also mentioned the air freight initiative where today, we are disproportionate to ocean net revenues. We're building and investing in the competencies around air freight, and we're very happy with the market share gains that we had in those corridors this year.

Lastly, with the APC investment, we've talked that they have been our agent for a couple of decades. And so, North America to Australia has been a focal point for us for awhile. But with this acquisition and having a world-class team in Australia now, it also opens up the opportunity to sell more from Asia and Europe to Australia to work on those trade lanes as well.

Rounding it out, as we strengthen in Europe, we'll also be able to focus more on Europe to North America and building out all of the major trade corridors as we grow. So our investments are in the Global Forwarding division, our businesses that we feel very comfortable with. And as we gain strength in each of the regions, we'll just continue to build that global network by putting the pieces together on the Navisphere platform and adding talent and additional offices to grow.

Thanks, John, next question for Andy. There's been quite a bit of press recently that both Amazon and Uber may be looking to compete in both the truck brokerage and forwarding segments with high automation and digital offerings. Can management provide any high-level thought of how Robinson's model might differentiate from the competition? And how should we think about the digitization of the brokerage model on net margins in the future?

Great question, and a lot of ways that we can take this. But I'll first start off by saying that both of those companies, I think what they're doing is challenging every organization, whether you're in transportation or not, to fundamentally look at the way in which you connect your customers with your suppliers and the way in which you interact.

The good news is we've been doing this for a long time, and I would tell you, the even better news is that, and I'll speak specifically around Robinson and how we approach it, is that we talk about our people, we talk about our process, and we talk about our technology. And they're very key and they're very fundamental to the way in which we interact with both our customers and our carriers.

So for all of 2016, we connected over 110,000 customers with over 71,000 carriers, and moving over 18 million shipments across the globe. So a very complex network that we've developed and that we perfect and that we go to market with every day.

And we do that with smart people and we do that with technology, and there's a process that you need to go through to make it really effective for everybody involved. Because if something goes wrong, which it always does, you have to be smart, you have to be ready to react in that manner.

We spend a lot of time, we've talked a lot about it on this call, and we've talked a lot about it in the past around the investments that we're making, particularly on the technology side and the digitalization or digitization, however people want to phrase that, of connecting the supply chain.

So we do it on a full suite of services, so I'll go across the spectrum, a full suite of services with our TMC division. They're managing global supply chains. It's global. It is across the globe. It's not moving a truckload from one city to another; it's moving millions of shipments for some of our best customers, some of our biggest customers across the globe.

And yes, we're spending a lot of money in technology to provide visibility and enhancements in that for our customers. But at the end of the day, you still need people to make sure that the job gets done.

And then all the way on the other side, in terms of what people would consider to be more transactional, and so that's committed on the transactional side, it's connecting. It's automation, It's you go into any of our offices today, and you'll see a different type and a higher caliber knowledge worker that is in those offices that are doing more value-added services, even on the transactional business that five years ago, quite frankly, wasn't happening. And I would argue that five years from now, you're going to continue to see that on a more refined basis.

As it relates to what's going to happen with margins, you can go back and look at our margins over the last 40 quarters, the last 10 years, and you can see a variability within that, and throughout, we've always had competition. We've had good competition, we've had competition that's challenged us. And but, we've always been able to maintain a certain amount at a level of margin in our business.

Why? It's because we add value. We add value to our customers, add value to their supply chains, we're helping them be more efficient and more effective in how they serve their customers.

And on the other side of it, is we add a tremendous amount of value to our carriers. We allow the 70-some odd thousand carriers to connect directly in to our customers, that otherwise, had they not gone through us, they wouldn't be able to effectively serve them. And again, at the core of that is our people, and at the core of that is our technology, and the connect points that we have are, quite frankly, unparalleled.

And without going into the specifics of the other companies that were mentioned in the question, yes, they have technology as well. Yes, they have that. But I would say that our people is what really differentiates us in that marketplace, and I think our customers respect and understand that, and quite frankly, I know that our carriers do as well.

Thanks, Andy, next question for John. What level of contract mix do you plan to run in 2017 for the North America truckload business?

One of the longer-term trends that we've talked often about is that the mix of business in North America truckload has over time been moving more towards committed or awarded freight, or sometimes referred to as contract freight. Over a long period of time, if you go back a couple of decades, we were almost entirely transactional in that North American truckload freight.

And Andy mentioned earlier that at times now and in 2016, we would estimate somewhere 60%, 65%, so more than half of our freight is committed or awarded in some form or fashion. So that shows the trend of as we've grown and taken on scale, that we're moving more into larger customers who are doing bids and signing contracts and accepting those committed or awarded relationships.

While we expect that trend to continue over time, and that percentage to likely continue to tick up, we've also talked about the fact that it does ebb and flow a little bit based upon market conditions and the account management decisions with each of our thousands of customers. So this year, we talked about coming into 2016 that we felt the market conditions warranted and our account managers executed on making sure that we stayed near the top of the route guide and staying very high on our committed or awarded freight, and you see the results of that in 2016.

I don't think that will change significantly for 2017. As the market tightens, like we discussed during the second half of 2016, each of our account managers will be working with their customers to make sure that we're responding to their needs and approaching the market in an appropriate way.

Sometimes when prices are rising, if shippers are too aggressive on wanting to try to save money, we do have to back off of some of those awarded commitments if we don't think it appropriately matches the market. So that's why sometimes the growth of that will fluctuate or move around a little bit. But in general, we view that those higher value, integrated, committed relationships have served us well, and it's what a lot of our customers want and need. And we would expect that trend to continue over time.

Thank you, John. Next question for Andy. Why is headcount ex-acquisitions going up at a time when technology allows you to deliver better services with fewer people?

I'll reference some of my earlier both prepared remarks, as well as and some of the earlier answers around that. We have a fundamental -- and for people that -- there are others that maybe take a different approach, but fundamentally, we believe that you need quality people to service your customers. Yes, technology is absolutely important, but I think the debate remains that you can deliver better service with fewer people.

I'll speak specifically around our NAST team, and they've done a great job. Bigger volumes, 10% in the fourth quarter, while only adding 2% of the people. So I would argue that; we are actually doing a great job of being more effective in servicing our customers and the stuff that you can automate, we're absolutely spending money to automate in that area.

On the Global Forwarding side, you look at the productivity measures of that team, we're adding resources and it's showing up in the growth. So we don't believe that you can put up an app and you can put up a system, and therefore, just remove the human and the personnel experience from and the knowledge that comes with that, from the entire transaction as it relates to customers. There's a lot of imaginations that go into a Global Forwarding move, a simple one even as moving, as John mentioned, ocean freight from China to the US.

We're investing in data scientists. We're investing in technology people, just like, by the way, one of our competitors are, to really drive great volume, great revenue, and ultimately, great earnings growth through the organization. That's why we're making the investments that we are.

Thank you, Andy, next question for John. A very large eCommerce player that has been moving into the transportation space recently opened an office near your headquarters to head their push into the middle-mile truck brokerage market. Have you seen any impact from a recruiting-retention perspective?

So for those of you who may not be aware, the Minneapolis marketplace is a pretty healthy environment in terms of our concentration of not only large companies with over 20 S&P 500 or Fortune 500 companies, but in addition, there are a number of very technology-focused companies in town here. So the good news of that is that we have a long track record of working in a very competitive market with a lot of very large and effective IP shops in town that we have to make sure that we source our talent and interact with that marketplace every day.

So there have been some new entrants, but the answer is no, we haven't seen any change in the competitive landscape. We have to pay our people competitively and recruit our talent across a number of great organizations. And we feel very good about the strength and depths of our team, and haven't seen any movement in terms of changes in retention or recruiting tactics.

Thanks, John, to Andy. LTL margins have held up nicely, even as many formally truckload-only brokers have entered the LTL space. Why do you think that is the case? And would you expect the superior and steady margins to persist going forward indefinitely in the LTL space?

I don't mean to sound like a bit of a broken record, but I'm going to go back and reemphasize we've got a great LTL service team, so we've got great people. And we've got great carriers, so when you combine -- and some really good technology that allows us to be -- we're the largest LTL broker by a wide margin, a multiple of our other competitors, and the reason that is was we've got a great service to sell our customers. We have a great value proposition that our people are out there in the NAST network selling every day, and we've got a great LTL service team that backs them up, because they've got great relationships with the LTL carriers. And those LTL carriers have been able to provide us a great service.

We go and we are able to effectively sell a solution to customers, and we partner with those carriers. And I think it matters to them that we are a partner for them in providing a valuable service to our customers. So other people are going to continue to enter the space. They have been, they are truckload-only, they're some smaller competitors that are in the marketplace. We respect them, but our team has been and will always be on its toes and continue to drive the best-in-class results that they have.

Thanks, Andy, to John. With truckload volume up 10% year over year in an otherwise uninspiring freight market, what were the primary drivers of volume growth? Was there an attempt to buy market share in a difficult environment? Did you add new accounts as a result of some of the new sales and/or marketing activities? Or did much of the growth come from penetrating existing customers more deeply?

We are several years into some enhanced go-to-market strategies that our leadership teams have implemented, where we're segmenting customer opportunities and adding salespeople to go after more aggressively in the marketplace. In 2016, we did have, in the North America segment and really for the Company as a whole too, we had a record number of what we would call new-new customers. So new opportunities where we previously didn't have a relationship and it's new freight to the network.

We also have a lot of account management practices where we are trying to get incremental freight and opportunities from current customers and did grow our business in that way as well too. So we're very proud of our go-to-market tactics.

As Andy laid out in the freight world, each relationship, especially in the committed or awarded world, has some unique connectivity around EDI mapping and service expectations. So a lot of the processes are digitized, but each relationship is unique in terms of understanding the service relationships and the types of data that you may want to exchange. So a lot of effort was put into both identifying the opportunity, selling our value proposition, and then getting those new customers integrated in ways that are customized to each opportunity.

We don't ever use the term kind of buying market share; that's not the way we would think or go to market. But I think where that part of the question is headed does relate to what I mentioned earlier that in a very competitive bid environment, which there was a year ago, with general market expectations of declining prices, there are account management relationships where we will make the decision to accept lower prices based upon market conditions warranting that and the bid results requiring that.

So there are times when we're making decisions to stay at the top of the route guide and taking some margin risk on what the actual cost of hire may be coming in those future years. So we talked about the fact that in our good customer relationships where we're making those commitments and honoring committed or awarded freight, it does give us some margin exposure, which we experienced in 2016. Even in those relationships though, we are constantly working towards profitability and long-term profitability, relationships with those customers.

So we did feel very good about our volume growth and success during the current year, and it's much more than just lowering prices or buying share, if you will. But it's a lot more involved process like I just described.

Thanks, John. To Andy. Is the Company seeing any actual pick up in demand or sell-rate pricing following the election? Or is it more about expectations at this stage? How has the election impacted your branch managers' outlook for headcount in 2017?

To the former question in terms of what we've seen, as John mentioned in his remarks, the rate of growth, particularly in volumes during the quarter, were essentially flat. So we did not see any material pick up post election in that.

As it relates to our outlook for adding headcount in 2017, again, I think it's too early to make a long-term determination as to what's going to unfold in 2017. And as a result, we think about headcount adds as we've been talking about for quite some time now. We're going to add where we need to reflect the volumes that we have both in Global Forwarding business, as well as North America service transportation business, technology, data scientists, we're going to continue to invest in those areas.

Thanks, Andy. Next question for John. Have you been able to buy truckload transportation less expensively so far in the first quarter of 2017? Or are any customers of Robinson willing to absorb price increases here in early 2017? Or can we expect the same margin dynamic we witnessed in the fourth quarter to repeat in the first quarter of 2017?

We shared in the prepared comments that January to date, what we saw was very similar to the fourth quarter. I think the important thing there is that a lot of the pricing bid activity and committed or awarded freight opportunities are happening and will happen over the next few months.

I would share that what our teams are reporting back is that a year ago, while there were expectations of meaningful price reductions in most of the lanes, that's not the case now. The environment is more flat to modest increases, depending upon, again, there's oftentimes thousands of lanes involved and there's a lot of granularity and the repricing that gets aggregated into these overall trends. So it is a different environment versus a year ago, but not one where there's general acceptance of meaningful price increases across high volumes of business.

And the interesting part about that though, is we've talked often in the past about how difficult it is to forecast the cost of hire and the changing market conditions, and it's really at the foundation of why we don't feel comfortable giving guidance and trying to firmly predict what these markets are going to be.

January is always seasonally a little bit slower than the remainder of the year, and it grows towards the spring time. And big changes in the supply and demand environment typically happen either on the demand side with freight or weather-related compounding when we're getting into more of a higher peak season out in the spring. So just like always, a lot will be -- remain to be seen over the next couple of months around how bids continue to evolve and how the market supply and demand dynamics work out over the next couple of months.

Thanks, John. To Andy. Broadly speaking, industry expectations are for ELDs to reduce industry capacity by 5% to 7%. Can you talk through your expectations for industry capacity, especially in the second half of 2017 and how you view the potential impact from ELDs on your business?

We've been getting this question pretty consistently since the regulation came out, and as far as what we've seen. We talk about in my prepared remarks how many carriers we signed up during the quarter, which is pretty consistent. We've been signing up new carriers, a lot of new carriers, and those carriers are running a lot of loads for us throughout all of the second half of 2015 into 2016. And we expect that to continue, quite frankly, through 2017.

I'll let the experts speak about what's going to happen to industry capacity. We do know that there will be some productivity issues that will come up. And going back to all of my statements around the value that we bring, we allow our customers to access capacity in the marketplace, and we're going to continue to do that.

We don't expect anything to happen materially either in the first half or even the second half of 2017, because the rule, the regulation does not take effect until the end of -- middle of December, the end of all the way in 2017. So it's probably more of a 2018 issue. But we're going to continue to monitor it, we're going to continue to talk to our carriers, we're going to continue to inform our customers of the potential impacts that may or may not take place and have discussions around how we're going to help them keep their supply chains up and running effective and efficient.

Thanks, Andy. Next question is for John, and just based on time, this will be the last question of the morning. Is it possible to grow organically in your intermodal operation to a scale where it can compete head-to-head with JB Hunt or Hub Group? Or would that have to be accomplished via an acquisition or a more sizeable operator already possessing critical intermodal mass?

We do think that we have a competitive intermodal offering and that we are going to be able to grow it organically. Scale is an advantage, particularly around the size and scale of your network. And I think for somebody like us, we just have to be more tactical around the lanes and the types of freights that we can compete in and continue to look for opportunities to grow that organically.

We've shared in the past and say that from a capital allocation standpoint, intermodal is certainly one of the areas within our North America Surface Transportation that we would be willing to commit capital and gain scale if we can find the right opportunities within there. But in the meantime, we can grow it organically and we can be competitive; we just have to be smart about the types of opportunities and the right types of customers that we can find to work with to gain share.

Thanks, John. Unfortunately, we're out of time. Again, we appreciate all of the great questions, and know we weren't able to get to all of your questions. Thank you for participating in our fourth-quarter 2016 call. This call will be available for replay in the Investor Relations section of the C.H. Robinson website at chrobinson.com. The replay can be accessed by dialing 1-877-660-6853 and entering the passcode 1365-2500 pound, and the call will be available approximately 11:30 Eastern time today. Should you have any questions please give me, Tim Gagnon, a call at 952-683-5007 or by e-mail. Thank you, everybody, for participating. Have a good day.