羅賓遜全球物流 (CHRW) 2017 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the C.H. Robinson Fourth Quarter 2017 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, January 31, 2018.

I would now like to turn the conference over to Tim Gagnon, Vice President.

Thank you, Donna, and good morning, everyone. On our call today 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 full year results. We will follow that with a response to pre-submitted questions we received after our earnings release yesterday.

Please note that 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, which is located at chrobinson.com. John and Andy will be referring to these slides in their prepared comments.

I'd like to remind you that 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 expectation.

With that, I'll turn it over to John to begin his prepared comments on Slide 3 with a review of the fourth quarter results.

Thanks, Tim, and good morning, everyone. Thank you for taking the time to listen to our call this morning. I'll start with the results. Total revenues increased 16% in the fourth quarter, driven by increased pricing in truckload, volume growth across our other transportation service lines and higher fuel costs.

Total company net revenues increased 12.5% in the quarter, primarily driven by increases in both NAST and Global Forwarding. Operating income was $211 million in the fourth quarter, up 8.9% over last year and net income was $153 million, up 24.7%. The quarter included nonrecurring tax items that Andy will cover as he reviews the details of the financial results.

Average headcount was up 6.8% versus last year's fourth quarter and our diluted earnings per share was $1.08 in the fourth quarter, up from $0.86 last year. The improved results in the quarter reflect the hard work of our teams across the network. Market conditions changed significantly from the first half of the year to the second half. The experience of our team and the ability to adapt to changes in the business climate is one of the strengths of Robinson. This capability was critical to our success in the fourth quarter.

For the full year, we finished with approximately $15 billion of total revenues, and our portfolio of services continues to be stronger and more diversified than at any time in our past. We served over 120,000 customers and 73,000 carriers and suppliers around the world in 2017.

Prior to talking through the deck, I want to highlight some of the headline themes that you'll be hearing us talk about. Starting with pricing. There were significant price increases in many of our services during the fourth quarter. On our truckload pricing chart, the price increase over the previous year was 15%. Our business model is built to drive innovation and adjustments to the market, and we're continuing to do that. Our committed pricing to customers does create margin volatility for us when price increases accelerate. That will continue to be an important topic in our fourth quarter results as well as discussing month-to-date activity in January. There were also significant price increases in other areas of transportation services during the quarter.

Additionally, investing in people, process and technology has been and continues to be critical to our success. We finished 2017 with just over 15,000 employees, up 6.7% from 2016. With transportation volumes across all services increasing 9.5% in 2017 and an expanded global presence, our talented team continues to focus on building relationships and delivering supply chain expertise to shippers and carriers around the world.

In technology, we are focused on digitization and visibility to drive efficiencies and further leverage our scale and data advantage. We will continue to build on the strategic themes of having the best team, innovating processes and investing in our platform.

Last, the tax reform changes signed into law at year-end will be a benefit to our business. For many years, we have felt that tax reform was needed in the U.S., and we expect the benefits to be a source for continued investment and to allow us to be more globally competitive.

With those introductory comments, I will turn it over to Andy to review our financial statements.

Thank you, John, and thank you, Tim, and good morning, everyone. I'd like to begin by recognizing our entire network for their efforts in the fourth quarter. We executed and helped our customers navigate some of the most challenging circumstances in recent memory. In doing so, we achieved solid financial results in the fourth quarter with momentum moving into 2018.

Now onto the summarized income statement on Slide 4. Net revenues increased 12.5% to $632 million, the largest contributors were truckload services, which was up $45 million; Global Forwarding services, up $13 million; and less than truckload services, up $11 million.

Fourth quarter personnel expenses increased 19.7% as a result of higher variable compensation and a 6.8% increase in headcount.

We've mentioned in the past that our compensation plans are annual, but adjusted on a quarterly basis. The adjustments this quarter are increasing as the results improved in the quarter while the results were declining in last year's fourth quarter, thus, driving lower incentive compensation during that period.

For the full year, personnel expense increased 10.8% on a 7.4% increase in headcount and a 9.5% increase in overall volume.

SG&A expenses were relatively flat in the quarter at $109 million. The slight increase was due to higher warehousing, occupancy, equipment rental and depreciation, partially offset by lower claims, travel and entertainment and temporary labor.

Operating income as a percent of net revenue was 33.4%, 110 basis points below last year's fourth quarter and up 70 basis points sequentially. Our objective is to grow operating income at a rate equal to or greater than net revenue. And while we narrowed the gap, we still have work to do. We will continue to manage expenses and strive for greater efficiencies as we move through 2018.

As John mentioned, our fourth quarter results contain certain nonrecurring tax items, which fall into 2 primary categories. The first is a domestic manufacturing tax deduction under Section 199 of the tax code and the second relates to the Tax Reform Act passed in December that caused a revaluation of deferred tax liabilities, which reflect a lower domestic tax rate in the future. These nonrecurring tax benefits are partially offset by an increase in repatriation tax on foreign earnings and other impacts of the legislation.

In total, these items lowered our fourth quarter provision for income tax by $31.8 million. The effective tax rate was 21.1% in the fourth quarter and 30.7% for the full year. Including the benefits of the new U.S. tax legislation, we expect our 2018 effective tax rate to be between 24% and 25%. We believe tax reform will be a benefit to our company, our employees, our customers and our shareholders in 2018 and beyond. This act increases our ability to invest in areas of growth and efficiency, which help us drive greater shareholder value.

Moving on to Slide 5 and other financial information. We generated $162 million in cash in the quarter and $381 million for the full year. On a year-over-year basis, the decrease in cash flow from operations for the year was due to the increase in accounts receivable. Increased volumes, customer rates and cost of transportation resulted in increased growth in working capital. While we need to do a better job of working with our customers to drive down our DSO, it is typical to see receivables grow during periods of accelerating top line growth.

We had $11.5 million in capital expenditures in the fourth quarter and $58 million for the full year. For 2018, we estimate capital expenditures to be between $60 million and $70 million, the majority of which will be dedicated to technology. We finished the quarter with $334 million in cash, up almost $40 million from the third quarter, and our debt balance is unchanged at $1.47 billion.

On to Slide 6 on our capital distribution to shareholders. We returned approximately $118 million to shareholders in the quarter, with over $65 million in dividends and nearly $53 million in share repurchases. For the year, we returned 91.5% of our net income to shareholders.

The majority of our earnings are generated in the United States, so we have historically paid a high tax rate. The reduction in the U.S. corporate tax rate will certainly increase our earnings and cash flows from operations in the future.

In line with our stated policy, we will continue to evaluate and deploy our capital in ways that both drive better performance and increased shareholder value. We will continue to invest in our people, processes and technology as collectively, these generate outstanding results for our customers and returns for our shareholders.

Corporate development and acquisitions have been and will be an important part of our future strategy. Over the last several years, we spent over $1.2 billion on companies and people that are an important part of our current go-to-market strategies. That will continue to be an area of high priority for us.

And finally, share repurchases and dividends. Over the last 5 years, we've returned over $2.8 billion to our shareholders in the form of buybacks and dividends. We will continue to reward our shareholders through this avenue in 2018 and beyond.

Moving on to Slide 7 and net revenue by service. This slide represents the services revenue for all of our business units. I will not review this slide in detail, but rather make comments about the various services within the business segments.

Moving on to Slide 8 and our transportation results. Transportation total revenues were up 17.2% in the fourth quarter to over $3.6 billion, and we finished the year at $13.5 billion. Both results are all-time highs for our organization. Fourth quarter transportation net revenue margins decreased 60 basis points to 16.6%. The decrease was driven by margin contraction in our Global Forwarding business, more on that in the coming section.

We finished the full year in 2017 at 16.6%, down 180 basis points from 2016. The truckload margin compression we experienced throughout the first 3 quarters in 2017 was the primary driver of the decreased net revenue margin.

Turning to Slide 9, the North America truckload price and cost chart. On this graph, the light and dark blue lines represent the percent change in North America truckload rate and cost per mile to customers and carriers, net of fuel costs, 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 increased 15% while cost per mile increased 14.5%. Q4 was the first quarter in the past 6 quarters where the change in price outpaced the change in cost. We have mentioned in the past that the duration and severity of supply and demand imbalance will factor into pricing outcomes. We do expect market volatility and higher pricing to continue throughout 2018 in both contractual and spot market freight.

The volatile market conditions, which started at the end of the third quarter, continued in the fourth quarter. One of the other metrics we often share is the routing guide depth from our Managed Services business. In December, the routing guide depth was 2, representing that on average, the second carrier in a shipper's routing guide was executing the shipment.

As I mentioned, this was an average of 2 during the month. However, during the quarter, we experienced weeks where the routing guides spiked to over 3 and was over 4 in certain parts of the country. By comparison, last year's routing guide depth was 1.4, which is what you typically see in a more balanced market. We think this chart does a great job illustrating the significance of cyclicality and the volatility in the North American trucking market. The dramatic increase in pricing from the first quarter to the fourth quarter was challenging for our business, and I'd like to recognize the NAST and customer-facing operations teams on their ability to successfully execute and adapt to this fast-changing market.

Moving on to Slide 10 and the North America Surface Transportation results. In the North America Surface Transportation segment, total revenues were approximately $2.6 billion in the quarter, an increase of 14.8% over last year's fourth quarter. NAST net revenues increased 14.3% to $415 million as a result of increases in both truckload and less than truckload services.

Net revenue margin was 15.9% in the fourth quarter, which is flat versus last year. Our fourth quarter margin represents a 60 basis point improvement sequentially as we successfully repriced a portion of our contractual business in the quarter. The quarter also benefited from double-digit volume and pricing growth and higher-margin transactional business.

Operating expenses increased 14.2% as a result of increased personnel expenses, primarily driven by additional headcount and higher variable compensation expense when compared to last year's fourth quarter.

NAST income from operations was up 14.5% to $181 million. For the year, NAST generated just under $630 million in operating income.

NAST operating margin was 43.5% in the quarter, up slightly from the 43.4% last year and up a very nice 340 basis points sequentially from the third quarter.

Employee count was 6,878, up 1% from last year's fourth quarter and down 120 people sequentially from the third quarter.

Now on to Slide 11 and the results by service within NAST. NAST truckload net revenues were $305 million, up 16.6% from last year's fourth quarter. The truckload market continued to experience high capacity and rising cost beyond the third quarter when hurricanes in the beginning of peak season caused the market disruption.

In the fourth quarter, a strong holiday season led by e-commerce, the official implementation of ELDs and severe winter weather further impacted an already tight capacity environment. Our account management and capacity teams executed well in this environment.

In our contractual business, we worked with our customers to adjust pricing to adapt to the rising cost environment. Pricing for our truckload business increased 15% in the quarter. The repricing activities did negatively impact our volumes in the contractual business and was the primary driver of the 3% volume decrease in the quarter. The truckload volume decline accelerate through the quarter with October down 1%, November flat and December down 4%, all on a year-over-year basis.

And despite rising cost, we continue to honor our customer commitments. Our negative loads associated with contractual shipments were nearly double a typical fourth quarter. The fourth quarter was an active quarter for repricing, and this cadence is accelerating into the first quarter, which is typically the highest volume quarter for bid activity. Our teams were also active in helping customers as their routing guides deteriorated.

Growth in our transactional shipments partially offset the contractual shipment declines, resulting in approximate 50-50 split between those segments for the quarter. Pricing and margins were higher on these transactional opportunities, helping to offset the pressured contractual margins.

In January, we are seeing a double-digit increase in transactional volume and continued increase in pricing. We added 3,700 new carriers in the fourth quarter, a 9% increase over last year. These new carriers moved approximately 17,000 shipments for us in the quarter. While the ELD mandate did not take effect until December 18, we did not see a slowdown in signing up new carriers in the quarter.

For the first time in our relatively young LTL 3PL history, we crossed the $100 million mark in net revenue for a quarter. We are all proud of the great the work that the NAST team is doing and in particular, the LTL group including Freightquote. It's yet another way we differentiate ourselves as the leading 3PL in North America. Volumes in LTL increased 10% versus the fourth quarter of last year, driven by increases in the e-commerce and manufacturing verticals. LTL pricing and cost increased in the quarter as a result of larger shipment sizes, higher purchase transportation cost and increased fuel prices versus last year's fourth quarter.

Intermodal net revenues decreased 34.4% in the quarter. Consistent with previous quarters, we are seeing growth in lower margin contractual business and declines in transactional business. In total, volumes increased 7% in the quarter.

Slide 12 outlines our Global Forwarding results. Total revenues for the Global Forwarding segment in the fourth quarter were $591 million, up 24.2% versus last year. Our Global Forwarding team has been on a very nice growth trend the past several years. Over that time, we've significantly expanded our service offering, grown organically and successfully brought 2 wonderful companies into the fold. Congratulations to the Global Forwarding team for exceeding $2 billion in total revenue for the full year.

Fourth quarter net revenues were $128 million, a 12.1% increase from 2016. Milgram & Company contributed approximately 5 percentage points to the growth in the quarter. As a reminder, Milgram is a world-class provider of freight forwarding, customs brokerage and Surface Transportation in Canada. Organic net revenue growth was approximately 7% in the quarter.

Net revenue margin was 21.6%, down from 24% last year. The margin compression was a result of lower margins in both air and ocean service lines.

Operating expenses increased 24.1% in the fourth quarter. During the quarter, headcount increased 19% with Milgram accounting for approximately 8%.

Additionally, as in other parts of the business, we saw an increase in performance-based compensation. SG&A expenses were also up in the quarter, driven by investments in airfreight and technology and slightly higher levels of reserves for doubtful account.

Income from operations was down 31.6% to just under $17 million and operating margin was 13.2% in the quarter.

Turning to Slide 13 on our Global Forwarding service lines. Ocean net revenues were up 5.5% with the acquisition of Milgram contributing approximately 3 percentage points to the growth. Ocean shipments increased approximately 12.5% in the quarter. In 2017, for the third year, we maintained our ranking as the #1 NVOCC from China to the United States.

Air net revenues increased 16.7%, with Milgram contributing 2 percentage points. Air shipments increased approximately 28% in the quarter as we continue to execute on our strategy to grow volume and density in our air gateway cities. Air freight costs have increased over the past couple of quarters as increased demand continues to outpace supply.

Customs net revenues increased 33.3%, with Milgram contributing 22 percentage points to the growth. Customs transactions increased approximately 68% in the fourth quarter. The Milgram integration is going well, and we are currently working with our global team to convert their agent business into our network, which is very similar to what we did after acquiring APC.

Transitioning to Robinson Fresh business on Slide 14. Robinson Fresh total revenues were $595 million, an increase of 12.3% in the fourth quarter. Net revenues were $54 million, up 4.6% from last year, driven by increased sourcing and other transportation net revenues, partially offset by a decrease in truckload net revenues in the quarter. Robinson Fresh operating expenses increased 6.4% in the fourth quarter. The increase was due to increased personnel expenses, partially offset by a decrease in SG&A. Income from operations was approximately flat versus last year at $12.9 million. Robinson Fresh average headcount decreased 1.7% in the quarter.

We'd like to thank the Robinson Fresh team for doing a nice job in executing in the dynamic commodity and transportation environment to deliver improved results in the quarter.

Moving on to Slide 15 and our sourcing results. Robinson Fresh sourcing total revenue increased 2.8% in the fourth quarter and net revenue increased 4.6%. Sourcing case volume increased 1% and net revenue margins increased slightly in the quarter as a result of higher net revenue per case.

Slide 16 outlines our Robinson Fresh transportation business. Robinson Fresh transportation total revenues increased 25.1% in the fourth quarter, driven by truckload volume growth of 18%. Robinson Fresh transportation net revenue increased 4.5% in the fourth quarter due primarily to an increase in less than truckload and intermodal net revenues, which is partially offset by a decrease in truckload net revenues in the quarter.

Moving to 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 6.7% in this area, and this was primarily the result of personnel increases in technology, other enterprise resources, European Surface Transportation and Managed Services.

Turning to Slide 18. Net revenues for the other category increased 6.6% in the fourth quarter. Managed Services net revenues increased 3.7% in the fourth quarter, driven by adding customers and growing business with our existing customers. The lower growth rate in this year's fourth quarter was expected given the strong performance in the fourth quarter of 2016 when net revenues increased 33%. The Managed Services business finished the year with approximately $3.5 billion in freight management and 11.5% net revenue growth.

Other Surface Transportation net revenues increased 10.1% in the fourth quarter of 2017 to $16.2 million. The increase was primarily the result of truckload volume growth in Europe, which is partially offset by truckload margin compression. We continue to grow market share in Europe and are pleased with the work that team is doing.

I'll conclude my remarks today by again thanking the entire Robinson team for their performance during a volatile fourth quarter. We made some significant improvements versus the third quarter, and we head into 2018 with positive momentum.

Thank you for listening this morning. And I'll turn it back to John to make some closing comments before we answer some of your questions.

Thanks, Andy. Before we move on to the questions, I'll take a couple of minutes to wrap things up with some final comments related to our month-to-date activities so far in January.

Consistent with past quarters, we've shared a couple of key metrics for our month-to-date activity. Through January, we have seen global net revenues increase by approximately 5% per business day while truckload volumes have declined by approximately 7% per business day.

We have 1 additional business day this January compared to last year. Our consistent practice is to share the per-business day comparison of net revenue.

In terms of our North American Surface Transportation business, we saw the year start with significant weather events that displaced capacity and caused shipping patterns to be disrupted. These events, coupled with motor carriers working to understand and implement the impacts of the ELD mandate to their networks resulted in a disrupted marketplace with increased costs and rates in a constrained capacity pool.

While we worked to honor our commitments to our committed customers during this time of disruption, we saw volumes drop double digits to start the month in our core North America truckload business and down single digits in our LTL business.

So far in January, net revenue margins are remaining consistent sequentially when compared to the fourth quarter of 2017, and both truckload and LTL volumes have begun to recover in the second half of the month after a slow start. From a year-over-year comparison standpoint, we had double-digit volume growth last January that we are comparing to.

As we discussed on our third quarter call, we continue to be active in repricing business where appropriate across all our modes and services as we deal with an extremely fluid marketplace.

Given the healthy economy, high freight demand and tight capacity environment, we do expect prices to increase in 2018. We will work closely with our customers to help them understand the market to ensure we can both meet our customer commitments and achieve pricing reflective of the marketplace conditions. Our account management practices, including how we manage the relationship between cost and price while continuing to provide outstanding service to our customers, is as important as ever in this dynamic market.

We expect to see a significant benefit to our business from U.S. corporate tax reform. As the majority of our earnings are generated in the United States, we've historically paid a high tax rate. So the lower tax rate will increase our cash flow. These benefits of tax reform will enable us to increase investment in our business, which should be good for both us and our customers' supply chains.

We will win in 2018 by leveraging our 3 most critical assets: Our people, our process and our technology. We'll continue to invest in data analytics, vertical expertise and order management to arm our people with the right information, insights and capabilities to best serve our customers and carriers. We will leverage our Navisphere platform and digital strategies to drive process efficiency for our customers and carriers and cost efficiency for our company through continued investment in technology.

In closing, I want to personally thank the over 15,000 employees around the world for all their outstanding contributions to Robinson in 2017. These are dynamic times in the logistics industry, and I'm confident we have the right team in place to win in the marketplace in 2018 and beyond.

That concludes our prepared comments. And with that, I will turn it back to the operator so that we can answer the pre-submitted questions.

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

Thank you, Donna. And first, I'd like to just take a minute to thank the many analysts and investors for taking the time to submit questions after the earnings release yesterday afternoon. I'll frame up the questions as they were submitted to us and then turn it over to John and Andy for their response. And the first question will be to Andy. Andy, how are you thinking about operating expense growth in 2018 relative to the pace of net revenue growth? Should we think of these 2 lines growing in sync with each other? Or is there an opportunity for expenses to grow slower than net revenue and for us to see greater levers -- levels of operating leverage in 2018?

Yes. Thanks, Tim. We've talked at length over the past several years about our desire and our goals to show the leverage in our organization. And if you look at the history of Robinson, you can see that there is significant operating leverage within the business model. So as we go forward, we would expect over time, our net revenue to grow in excess of our expenses. Now within that period, you have what we call investment cycles. And so go back to 2015, where we had better operating margins and even today despite the fact that they are down in the fourth quarter, slightly versus last year, they're up 200 basis points from where we were in the second quarter. And so we think about broadly the global investments that we make whether they be via acquisition and the expenses that go along in acquiring companies. We think about attracting new talent into the organization, whether that be here in North America, whether that be in our NAST organization, Global Forwarding, our technology organizations. We, as an organization having been around for 114 years, think about investing through cycles. And we will continue to do that because we believe that, over the long term, it allows us to provide more services to our customers and, over time, generate more value for our shareholders. We do expect continued leverage in 2018.

Thanks, Andy. Next question to John. As we approach the 2018 bid season for your contractual North America truckload business, how do you intend to prioritize volume growth versus pricing gains?

This is a great question, and I think something worth spending a few minutes on because it really gets to the core of our 3PL model and some of the ways that we would differ from an asset-based network and thinking about pricing and yield and how we would go to market. We talk often about our account management practices and how we work hard to have the customized resources to make sure that we understand every shipper's supply chain and what their unique needs are and interacting with them in a way to try to figure out how we can best serve them and where we're going to -- what role we're going to play in the short term and the long term for them. So the answer to the question is that we don't really prioritize any outcomes when we're going into those negotiations and relationships to renew pricing and to renew the volume commitments with our customers. However, as we've talked often in the past, there are sort of predictable outcomes that when you get into an accelerating price environment like this, that several things will happen. First off, we'll be managing our award volumes more closely so that some of that committed freight activity where maybe we were accepting more loads than we had committed to, that activity will taper off and accelerating price times, and the whole market itself will move more to higher spot market activity. So as we go into the pricing seasons and we're working with our customers to figure out what role we can play for them and how we can serve them best, we're always looking for both volume growth, market share gains as well as adapting our pricing to the market. So we've seen some volume deterioration, and we would expect some of that to continue on our committed pricing during an accelerating price period like this. But we know that over time, we've had a great track record at gaining market share and increasing our volume activity in the market over the long term as the cycles even out.

Thanks, John. Next question for Andy. Could you please characterize the current spot versus contract pricing environment in truckload and LTL?

Yes. Dovetailing on what John just mentioned, I would categorize all 4 of them spot both in the truckload and LTL and contractual, and the truckload and LTL is robust and up. Following on what we talked about in the fourth quarter, our overall pricing was up 15%. And if you think about the volume changes between contractual and spot, you can then clearly deduct that, that spot market was up well over the 15%. And the contractual business through a combination of repricing and through a combination as we mentioned of award management was up mid to high single digits in the fourth quarter. The LTL is a bit of the same, except it's more contractually weighted with GRI. So there's less in that particular market. And as we talked about in our prepared remarks, our growth in that area and our ability to serve our customers has really been evidenced over the last several years as we're obviously the largest 3PL LTL in North America. That market is up mid to high single digits in terms of the pricing, and we expect that to continue as well.

Thanks, Andy. Next question for John. Can you remind us the year-over-year net revenue comparisons you're facing in the first quarter of 2018? Is there anything, in particular, that is driving the apparent slowing in net revenue growth trends in January, especially coming off a 12.5% year-over-year growth in the fourth quarter of 2017?

A year ago, in the first quarter of '17, the net revenue growth was plus 2 for January, minus 2 for February, plus 2 for March. And if you go back and look at that, we also talked about significant volume increases where I think the environment a year ago was that pricing was relatively stable, but there was discussion already about the pending ELD and that maybe 2018 was going to look a lot different. But the overall environment a year ago was that we were aggressively taking volume. And as I discussed earlier, matching those customer expectations to increase our committed freight activity. So the net revenue activity that we're comparing to was fairly stable, but we were taking on a fair amount of volume a year ago. The apparent slowing of net revenue in January, we had some prepared comments that talked to that a little bit, but we like to use these forms to give you a sense of what is happening currently and what we're seeing in the marketplace. But as always, kind of what the caveat that until the month is over, until the quarter is over, it's kind of hard to know what's happening. The things we know for sure are that the year started slow. The first week of January with the weather that we discussed earlier and probably some. Adapting to the ELD compliance caused a very slow start, and we were a little bit confused as to what may all be contributing to that. But as we commented earlier as the month wore on the last couple of weeks, the activity has been more consistent with what we saw in the fourth quarter, and we continue to see, as Andy commented, significant pricing increases in a very tight market that we're adapting to.

Thanks, John. Next question to Andy. Please discuss the negative load growth for truck -- North America truckload volumes during the quarter. Was this a function of handling less committed freight given elevated buy rates during the quarter? When would you expect load growth to turn positive? And how does this impact your plans for headcount growth?

A lot of questions there, and I'll try to unpack them maybe one at a time. But let's first start with the whole concept of the negative load. And if we were a pure spot market provider, you certainly wouldn't see that. Or if you did, you wouldn't see it to a large degree. Our brand promise when we go out to talk to our customers and commit to covering their loads, inherent in that is a negative load. So we'll do better or worse, just given market conditions. When we got into the fourth quarter and as we were kind of talking about it in some of the earlier quarters of our award management, we committed to our customers that we would cover the loads that they were awarding to us throughout the previous year. In doing that, we knew that those negative loads were going to increase. What we saw on the fourth quarter was a doubling of what you would normally see, and that had a material and negative impact on our results. But we think it affirms and demonstrates to our customers our commitment in doing that. So that's the commentary around the negative loads in the fourth quarter. John just mentioned that we stuck to the awards. And so while you saw volume decrease, that was more a function of us being very disciplined across the account management teams in award management. So we're pleased with the work that the team did there. As we talk about, and John just mentioned the trends and how they started, it's always difficult if you come off of a robust 2017 and you go into the start of January where the first day is a holiday and it kind of bleeds in the rest of the week, and you had weather that week, and as John mentioned, you had ELD. So there was a lot of noise to start the quarter. We had a robust January of '17. What we've seen is much better volume trends as the quarter has progressed, both in the truckload and LTL. And when you couple that with the increase in pricing and the increase in the net revenue per file, I think that sets us up well for 2018. Final comment on the headcount, it goes back to maybe one of my earlier statements around investing in our business, investing in our people and investing in our customers and the services throughout the cycle. And so we wouldn't say that we feel like that team is doing a great job of managing that. We feel like the team is on top of it across the entire organization and believe that the work that we are doing will continue to yield benefits throughout all of 2018 despite the fact that, as we mentioned, we're starting a little slow.

Thanks, Andy. Next question for John. Can you please discuss the impact you've seen thus far from the ELD mandate and what you'd expect for 2018?

For those who may not be completely familiar, the rules went into effect for the electronic logging on December 17. So it happened before year-end, but this is the first quarter where it's really being implemented. In our year-end review, when we talked with our teams about what we saw in the end of December and into January, we made a comment earlier that we haven't seen any deterioration or meaningful change in our carrier sign up. There was discussion and concern that maybe an ELD requirement would eliminate capacity from the marketplace. We haven't seen any of that to date anecdotally or statistically in terms of our general access to capacity and a number of carriers that we're working with or interacting in the marketplace. What we have seen most significantly is that with more precise electronic logs and measurement of it, there has been some reassessment of the desirability of certain types of freight. And it gets into topics like the length of haul, the mileage bands and what types of freight maybe would be more at risk to moving from 1- to 2-day transit times or different cutoffs as well as multiple stop, multiple pick up type transactions where there is more risk around downtime or detention or demerge or any of those things that can make more precise measurement of compliance a challenge. So what we've seen in the first month or so of implementation around this is that, in a very tight capacity environment, this is yet another secular change that is driving some reassessment of the desirability of certain types of freight and probably corresponding price increases that are being pushed through. So like many of the other safety and hours of service type changes that have happened over the last 8 to 9 years, the net result is some price adjustment that gets blended in with the cyclical changes and the seasonal changes that go into all of the other pricing. But it came at a time when the market is very tight and the year is starting out with the implementation of those requirements as well.

Thanks, John. Next question for Andy. Any onetime items in interest expense? Hard to see why it would jump so much in Q4 relative to prior quarters given that debt balances didn't change much.

Yes. There are 2 factors that have impacted that number in the fourth quarter, and the first one is the debt. On a year-over-year basis, we do have slightly more debt, and we do have the interest rate on our floating debt. Our revolver was up over the quarter, but that was only about a $2.5 million impact on a quarter-over-quarter basis. The biggest impact in the quarter was what I'll call functional source currency. And so as a U.S.-based and U.S. dollar-based organization and particularly in our Global Forwarding operations, our accounts receivable, our accounts payable and our cash tends to be conducted in USD. But when you get into the functional currency of a country, last year, say, China, when the RMB was declining versus the dollar and the euro that was declining versus the dollar, that positively benefited us to the tune of roughly $5 million. On a regular quarter-over-quarter basis, they're generally -- it's not a material impact, but in the fourth quarter of last year, it positively impacted the other operating expense. And then this quarter, it went in the other direction, and that's primarily driven by the Mexican peso. And again, we're a functional USD organization, but we have accounts receivables, we have accounts payables and we have cash in some of those other areas. And at the end of every quarter, there is a revaluation of that. And when that revaluation occurs, accounting rules require that you run it through the income statement. So the delta of those 2 on a quarter-over-quarter basis negatively impacted us by $11 million. In previous quarters, it usually has been $1 million to $2 million. This happened to be a unique quarter, where they went in opposite directions on a year-over-year basis.

Thanks, Andy. Next question for John. What was your net revenue growth by month in the fourth quarter of 2017?

The total company net revenue growth per business day was consistent in all 3 of the months of that fourth quarter. There were some business day variances, similar to the month of January when we look at our total month activity versus the per business day activity. You can debate what is the most accurate calculation. As Andy referenced, depending upon holidays and the days of the week where there's more activities on certain dates, sometimes per business day is more helpful, but in general, was consistent throughout the fourth quarter.

Thanks, John. Next question is for Andy in Global Forwarding. So in Global Forwarding, net revenues were up 12%, but operating income was down 31% year-over-year. Were there any specific costs that drove this? And do you expect forwarding to face challenging profit comparisons for the next 3 quarters? Or was this issue specific to the fourth quarter of '17?

I'll talk about the fourth quarter where in the quarter, growing organically, growing the acquisitions, we have roughly 1/4 of the increase in the total cost in the Global Forwarding business, would be what we would consider more onetime in nature related to those issues. The Global Forwarding group has done a really nice job, as we mentioned, growing both organically and via acquisitions. And they and we expect continued growth and profitability for that organization. So the team is highly focused and highly incentivized on -- or the rest of us throughout the entire organization of growing our operating income in excess at a rate that is greater than our revenue because there is leverage in that model. We'll spend money as we did last year converting agent business with APC. We're spending that right now, converting agent business at Milgram. So we will continue to invest in that business. But through the cycle, we do expect Global Forwarding operating incomes to do very well.

Thanks, Andy. Next question for John. Do you expect more shippers to move away from spot freight with spot prices being so elevated to start the year?

Particularly, the larger shippers. In general, the cycle is that there's a preference for committed pricing that you can plan around and that you can manage more predictably with your cost. When the market moves and prices accelerate, more of the market and more of the freight will move to a spot market pricing. But I think the general trend would be that as those adjustments get absorbed and business gets resituated that the market and we will move back towards a higher blend of committed activity.

Thanks, John. Next question for Andy. What are the CHRW expectations for market conditions in airfreight and ocean freight forwarding in 2018?

If you think specifically about the work that we've been doing in that, we -- I think that team has done a wonderful job of growing both ocean and airfreight volumes in excess of what the market has borne. We call out the 28% on our airfreight volume growth during the fourth quarter. So those are all really good things. Overall, in the market conditions, demand continues to be good and capacity to a degree. It's been more rationalized, more specifically in the airfreight arena. And if you think about, we've all been speaking all the reports that are out there in the airfreight world, volume grew rather nicely going into the fourth quarter, driven by the e-commerce boom and capacity was at an absolute premium. I think our team has done a great job of securing that capacity of growing that business, but we would expect to see both continued growth in our ocean and airfreight environment, and we would expect to see capacity remain tight.

Thanks, Andy. Next question for John. Outside of Milgram, what's driving the headcount increases in Global Forwarding? Is it volume? Did you transition employees from NAST to forwarding?

In our Global Forwarding business, through the acquisitions that we've been doing with APC and Milgram, we get the workforces of those businesses. But as we've referenced a few times, those were agent-based businesses where our opportunity is to go in and absorb that agent business into the other offices. So in addition to the acquired business, there is some staffing that this involved with absorbing the acquired business and taking over the agent part of those transactions. We've also been investing aggressively in organic growth for airfreight services, so the hiring of sales and operational freight, which tends -- or employees, which tends to be more focused on airfreight. There were some minor transfers of people from the NAST division to Global Forwarding, but that is not a material part of it. And the transfers within the divisions would not be a common practice or something that would explain most of it. The NAST reduction in headcount is really more driving that network transformation, relying on automation and adjusting to the volume and price activity that we've talked about within the NAST division.

Thanks, John. Next question to Andy. Can you please provide what the fourth quarter '17 spot mix was in truckload versus what it was in the fourth quarter of 2016?

The fourth quarter of '17, as we referenced, was split equally 50-50 between contractual and the spot. Last year's fourth quarter was 2/3 contractual and 1/3 spot.

Thanks, Andy. Next question for John on intermodal. I know intermodal is a small mix of net revenues, but NAST intermodal net revenues were down 34% on a 7% volume and positive price increase. What was the key driver of what appears to be a massive margin compression in gross margins? Was it drayage, rail? Is C.H. still committed to intermodal?

The easy question is we're still very committed to intermodal. We're investing a lot in technology and the processes to make sure that we can help our customers with that. The margins are reflective of us moving to more committed intermodal activity with less margins and some equipment repositioning cost in the quarter associated with equipment that we do have. As we've shared often in the past, our challenge in that business is the capital requirements for significant equipment commitments that while we have some, we haven't made large commitments to that, and therefore, the costs associated with managing the equipment are a lot more material to the level of volume that we're having. But it's an important part of how we serve customers, and we are investing in the people process and technology side of it to make sure that we're adding value.

Thanks, John. Next question to Andy. Can you characterize the competitive environment post ELDs, especially the activity levels and competitiveness of new start-up tech entrants?

The short answer is, as John referenced and everybody knows, the ELDs have only been in effect for the last month, so there really isn't any change in the competitive environment, particularly from start-up and tech entrants during that time. We've often talked about and will continue to say that we are doing quite a bit of work in leading a lot of the technology work that's going on out there in the marketplace with our connectivity to our customers, with our connectivity to our carriers and the ecosystem that we're building. We will -- we've always had and we'll continue to have competitors in that marketplace, but we often talked about our people, our process and our technology, it's a combination of all 3, which differentiate us.

Thanks, Andy. Next question for John. How are you thinking about year-over-year contractual rate increases in 2018 given the constrained truckload capacity environment and unknown impact from full ELD enforcement at this time. A large asset-based carrier spoke yesterday of high single to low double-digit contractual rate increases throughout 2018. Is this in the ballpark of how you're thinking about it?

Yes, we would generally agree with that. And maybe to just add a little more color on the committed pricing, I'll reference back to Slide 9 that Andy made some comments on. The market is very fluid and there's a lot of spot market activity, but it's helpful to step back and look at it over a long period of time, too, which is why we've continued to share that 10-year chart around our pricing. While we had a 15% quarter-over-quarter increase, that is a blend of both our committed and transactional pricing with the transactional pricing being higher than the committed pricing. I think I mentioned this last quarter, but if you take a sheet of paper and kind of hold it across the 3% increase on that chart, which is what that 10-year average has been, some of the interesting observations are that probably half of this period of time, there's been activity price increases below that and price declines for a significant part of it. So when you look at a double-digit price increase and try to put it into a longer-term context around it, it doesn't look like it's too far out of context to think that you're going to need some significant increases if 3% is the right long-term price increase. Combining some secular changes around ELD constraints and other things that have happened over that period of time, it's not unbelievable that there would be high single-digit, low double-digit increases in some of the committed stuff to correct for those longer-term adjustments.

Thanks, John. Next question for Andy. Please discuss areas of potential investment, either organically or inorganically into 2018.

Yes. Following on with our commentary on the Tax Reform Act and the impact that it's going to have positively on both earnings and cash flows, we will continue to look for ways of expanding our services and our capabilities with our customers across the globe and in doing so in a way that generates long-term sustainable value for our shareholders. We have an active M&A pipeline. We have an active investment pipeline, particularly in the areas of technology. And broadly speaking, business development across every part of our organization, whether it be the NAST, Global Forwarding, Managed Services. I think one of the things that's unique to our organization is the nonasset-based business model and our ability, as John mentioned, to take 15,000 people currently in 42 countries and expand that even further into 2018 and beyond. And with the ability to do so with a really strong balance sheet and the ability to have leveraged both on the balance sheet as well as broadly speaking, all parts of our organization. We continue to be very opportunistic and optimistic in both these areas.

Thanks, Andy. And with that, we're -- unfortunately, we're out of time. We apologize that we could not get to all of the questions today. Thank you for participating in our fourth quarter 2017 conference call. This call will be available for replay in the Investor Relations section of the C.H. Robinson website at www.chrobinson.com. It will also be available by dialing 1 (877) 660-6853 and entering the passcode, 13674982#. The replay will be available at approximately 11:30 a.m. Eastern Time today. If you have any additional questions, please contact us via phone or email, and we'd be happy to follow up with you as soon as we possibly can. Thank you, everybody for listening. Have a great day.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time, and have a wonderful day.