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C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW)
Q4 2018 Earnings Conference Call
Jan. 30, 2019, 8:30 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the C.H. Robinson Fourth Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. Following today's presentation, Bob Houghton will facilitate a review of previously submitted questions. If anyone needs assistance at any time during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded, Wednesday, January 30th, 2019. I would now like to turn the conference over to Bob Houghton, Vice President of Investor Relations.

Robert Houghton -- Vice President, Investor Relations

Thank you, Donna, and good morning, everyone. On our call today will be John Wiehoff, Chairman and Chief Executive Officer, Andy Clarke, Chief Financial Officer, and Bob Biesterfeld, Chief Operating Officer. John, Andy, and Bob will provide commentary on our 2018 fourth-quarter and full-year results. Presentation slides that accompany their remarks can be found in the Investor Relations section of our website at chrobinson.com. We will follow that with responses to the pre-submitted questions we received after our earnings release yesterday.

I'd like to remind you that our remarks today may contain forward-looking statements. Slide 2 in today's presentation lists factors that could cause our actual results to differ from management's expectations. And, with that, I will turn the call over to John.

John Wiehoff -- Chairman, Chief Executive Officer

Thank you, Bob, and good morning, everyone. Thank you for joining our fourth-quarter earnings call. In my opening remarks, I want to highlight some of the headline themes that we'll be discussing with you today. A strength of our business model is the ability to rebalance our portfolio between contractual and spot market freight as market conditions change. In periods of market dislocation, we experience higher levels of repricing activity across our portfolio. Then, as routing guides perform more effectively and freight costs decelerate, we tend to see our volume shift more heavily toward contractual business, accompanied by net revenue growth and margin expansion. This outcome is clearly reflected in our fourth-quarter results.

Over an extended freight cycle, we continue to believe that honoring our commitments on contractual freight while also securing spot market capacity is the best way to serve our network of customers and carriers, grow our business, and create value for shareholders. With fluctuating levels of freight demand and carrier supply, significant weather events, and changes in tariff activity and government regulations, the last few years have marked a period of high volatility in the freight market. A critical part of our strategy is to make investments that add value for our customers and carriers and drive growth for our business regardless of where we are in the freight cycle. We are proud of the strong financial results we delivered in the fourth quarter and full year of 2018 and believe that they are a reflection of our strategy of through-cycle investments.

Our North American Surface Transportation business did an excellent job of supporting our customers and carriers through a volatile freight market and delivered outstanding results for the year. Our Global Forwarding business delivered strong revenue growth through a combination of volume increases and pricing adjustments that reflect market conditions while also making investments to drive future growth. Our Robinson Fresh business delivered significantly improved results in the second half of the year and finished the year with net revenue growth and operating margin expansion. With those introductory comments, I'll turn it over to Andy to review our financial statements.

Andrew Clarke -- Chief Executive Officer

Thank you, John, and good morning, everyone. I'd like to begin my comments on the financial results by highlighting the fact that Robinson achieved record results across the board. Gross revenues, net revenues, and operating income for both the quarter and the full year were at all-time highs. All three of our reportable segments contributed to this success by growing both net revenues and operating income at a double-digit rate in the fourth quarter. Each segment expanded operating margin significantly in the quarter as well.

From a cash flow perspective, we knocked it out of the park, generating over $700 million in free cash flow and returning nearly $600 million to our shareholders during the year. Our enterprise platform has been carefully and thoughtfully constructed over many years for both scale and leverage through all types of environments and cycles. We are appropriately proud of this performance.

Now, on to Slide 4 and our financial results. Fourth-quarter total revenues increased 4.5% to $4.1 billion, driven by higher pricing across most transportation service lines, volume growth in LTL, ocean, and customs, and higher fuel costs. Total company net revenues increased $82 million, or 13%, in the quarter to $714 million. Net revenue growth was led by truckload services, up $53 million, and LTL services, up $12 million. We delivered double-digit net revenue growth in ocean, air, and customs for a combined increase of $15 million in the quarter. Fourth-quarter monthly net revenue per business day was up 10%, 11%, and 13% respectively in October, November, and December.

Total operating expenses increased $37 million, an 8.9% increase versus the prior-year period. Personnel expenses increased 8.9%, primarily as a result of increases in our performance-based compensation that aligns the interests of our employees with our shareholders. Total company average headcount increased slightly in the quarter and slowed sequentially from the 2.6% growth in the third quarter. The fourth quarter included headcount reductions in both Global Forwarding and Robinson Fresh.

SG&A expenses were up 8.8% in the quarter to $119 million. The primary drivers were increases in outside professional services, occupancy, and travel and entertainment costs. Total operating income was a record $256 million in the fourth quarter, up 21.2% over last year. Operating margin expanded 240 basis points versus last year and 40 basis points sequentially to 35.8%. Our teams did an excellent job of achieving operating margin leverage in the quarter and the year. This has been and will remain a top priority for our organization. Fourth-quarter net income was $187 million, an increase of 22.7%. Our diluted earnings per share was $1.34 in the fourth quarter, up from $1.08 last year.

Slide 5 covers other income statement items. The fourth-quarter effective tax rate was 23.9%, up from 21.1% last year. Recall that the year-ago period included one-time tax benefits totaling $31.8 million. For the full year, our tax rate was 24.5%, and we expect our effective tax rate to be between 24-25% again in 2019. As noted throughout the year, we adopted the new accounting standards update for revenue recognition in the first quarter of 2018. As a result, in-transit shipments are now included in our financial results. This policy did not have a material impact on our overall operating results for the year. However, it did significantly decrease gross revenues in our Robinson Fresh sourcing business, including a $37 million reduction in the fourth quarter of this year. For the full year, sourcing gross revenues were negatively impacted by $121 million.

Fourth-quarter interest and other expense totaled $9.5 million, down from $17.5 million last year. Every quarter, we are required to revalue our U.S. dollar working capital and cash balances against the functional currency in each country where we conduct business and hold U.S. dollars. The resulting gain or loss is reflected on the income statement. The U.S. dollar strengthened against several of our key currencies this quarter, resulting in a $2.4 million gain from currency revaluation. Movements in currency valuations will continue to have an impact on our quarterly net income, and we will continue to break out this impact in future quarters. The gain in currency valuation was partially offset by higher interest expense due to higher interest rates while overall debt balance was down. Our share count in the quarter was down just over 1% as share repurchases were partially offset by the impact of activity in our equity compensation plans.

Turning to Slide 6, we had another strong quarter of cash generation. Cash flow from operations totaled $264 million in the quarter, up 59% versus last year. For the full year, cash flow from operations increased nearly 107% to $793 million. A combination of increased earnings and improved working capital performance drove the fourth-quarter and full-year improvement. Capital expenditures totaled $14.3 million for the quarter and $63.9 million for the year. In 2019, we expect capital expenditures to be between $80-90 million. The increased spending will be primarily dedicated to technology.

Our capital distribution is summarized on Slide 7. We returned $168 million to shareholders in the quarter through a combination of share repurchases and dividends, a 42% increase versus the prior-year period. For the full year, we returned $590 million to shareholders, a 28% increase. In 2019, we will continue to evaluate and deploy our capital to add value to our network of customers and carriers and generate returns for our employees and shareholders. We will look to acquire quality companies that fit our strategies, business model, and culture, and we will continue to reward our shareholders through buybacks and dividends.

Now, on to the balance sheet on Slide 8. Working capital increased 12% versus the prior-year period, driven by higher gross revenues and the resulting increase in accounts receivables. The contract assets and accrued transportation expense lines on the balance sheet primarily reflect in-transit activity in accordance with the adoption of revenue recognition. Our debt balance at the quarter was $1.35 billion. Across our credit facility, private placement debt, accounts receivable securitization, and senior notes, our weighted average interest rate was 4% in the quarter.

Slide 9 captures our full-year financial performance. We delivered double-digit growth in net revenues and operating income and a 100-basis-point improvement in operating margin. Strong operating profit performance combined with improved working capital and the benefits of corporate tax reform drove a 32.5% increase in our earnings per share. Once again, it bears mentioning 2018 net revenues, operating income, earnings per share, and cash flow from operations all represent record levels of performance for C.H. Robinson. I'd like to congratulate all of our teams across the globe on your outstanding performance in 2018. Our great results this year reflect our focus on profitable growth and our vigorous efforts to grow our business while maintaining strong operational excellence.

I'll wrap up my comments this morning with a look at our current trends. Our consistent practice is to share the per-business-day comparison of net revenues and volume. January 2019 global net revenues per business day have increased approximately 9% and North American truckload volumes have increased approximately 3%. As we look ahead to the balance of the first quarter, we wanted to highlight an item from our 2018 first-quarter results. Driven by the tight truckload market last year, we saw sequential acceleration in our net revenue growth during the first quarter of 2018. Last year, net revenue per business day increased 7%, 12%, and 12% respectively in January, February, and March. Additionally, the 2019 first quarter has one less business day versus the first quarter of 2018. Thank you all for joining us this morning. We appreciate you all listening. I will now turn it over to Bob to provide additional context on our segment performance.

Robert Biesterfeld -- Chief Operating Officer

Thanks, Andy, and good morning, everyone. I'll begin my remarks this morning on our operating segment performance by highlighting the rapidly changing nature of the logistics market. On Slide 11, the light and dark blue lines represent the percent change in North America truckload rate per mile billed to our customers and cost per mile paid to our contract carriers net of fuel costs since 2008. As a reminder, North America truckload includes both NAST and Robinson Fresh truckload. The grey line represents our net revenue margin for all transportation services.

The rate of growth in North America truckload price per mile and cost per mile continued to moderate this quarter, including a modest decline in truckload cost per mile versus the prior year. We benefited from the shift toward contractual volume in a decelerating cost environment in the fourth quarter, leading to 110 basis points' sequential improvement in transportation net revenue margin from the third quarter. Our net revenue margin expands and contracts with changes in the freight cycle, tending to expand when costs moderate. Despite the high level of rate and cost volatility as well as other secular market factors, our average net revenue margin has remained relatively consistent over time.

One of the metrics we use to measure market conditions is the truckload routing guide depth from our managed services business, which represents roughly $4 billion in freight under management. In the fourth quarter, the average routing guide depth of tender was 1.4, representing that on average, the first or second carrier in a shipper's routing guide was executing the shipment in most cases. This representation of routing guide performance is reflective of a more balanced market.

Moving to Slide 12, this graph shows North America truckload average price per mile billed to customers and cost per mile paid to our carriers net of fuel since 2010, and represents the underlying data from the previous slide. We've excluded the actual price-per-mile and cost-per-mile scale to protect our proprietary data. The absolute price per mile and cost per mile moderated versus last quarter. However, both metrics remain well above levels we've seen over much of the current decade. So, while the managed services routing guide depth of 1.4 reflects a more balanced market, it appears that in general, routing guides have reset at higher pricing and are functioning more effectively.

The chart also shows that since 2010, we've continued to adjust our pricing in response to changes in marketplace conditions. We've generally maintained a consistent spread between price and cost, even in periods of high volatility in the freight market. On average, both customer pricing and carrier costs have increased at roughly 3% annually over this time period.

Turning to Slide 13 in our North America Surface Transportation business, fourth-quarter NAST net revenues increased 13.5% to $471 million, led by double-digit growth in our truckload, less than truckload, and intermodal services. A combination of higher contractual prices and moderating freight costs in the fourth quarter drove a 110-basis-point expansion in net revenue margin despite a roughly 35-basis-point headwind led by higher fuel costs. Led by higher pricing, our truckload net revenues increased 13% to $344 million in the quarter.

The successful repricing of our contractual business during 2018 has rebalanced our portfolio, leaning toward more contractual freight with an approximate mix of 65% contractual and 35% transactional volume in the fourth quarter versus a 50/50 mix in the year-ago period. NAST truckload volume declined modestly in the quarter, down 1.5%, as our repricing activity led to roughly 45% reduction in our negative loads associated with contractual shipments and returned our negative load percentage to a more typical level.

We continue to add new carriers to our network, driving continued expansion of the largest fleet of motor carriers in North America while simultaneously bringing new capacity solutions to life for our customers. We added roughly 4,800 new carriers in the fourth quarter, which is a 30% increase over last year's fourth quarter. Our less than truckload business delivered another quarter of great performance, with net revenues increasing 11.5% to $112 million. This represents our fifth consecutive quarter of double-digit net revenue growth.

We delivered a high-single-digit increase in pricing driven by the continued expansion of pricing tools that enable us to react faster to changes in the LTL market. LTL volumes increased 2% in the quarter, driven by continued growth in manufacturing and e-commerce. Through our common carrier service offerings and our consolidation products, we continue to gain scale and market share in the LTL segment. In our intermodal business, fourth-quarter net revenues increased 76.4% versus the year-ago period, which included elevated repositioning charges. We remain committed to our intermodal business, as it enables us to offer our customers the most comprehensive service line offerings in the logistics industry.

Slide 14 outlines our NAST operating income performance. Fourth-quarter operating income increased 16.9% to $211 million. Operating margin of 44.8% improved 130 basis points, led by net revenue growth. This strong performance includes the impact of higher variable compensation expenses. Our fourth-quarter operating margin also improved 90 basis points sequentially.

Our fourth-quarter results reflect the benefits of our continued investments in technology. We are leveraging advanced algorithms and the scale of our data advantage to further improve our ability to profitably match shipper demand and carrier supply across our network. We are also driving productivity improvement through tools that automate interactions with our customers and our carriers and improve our internal workflows. These investments enabled us to deliver growth in both net revenues and expand our operating margin in the fourth quarter.

For the full year, our NAST business delivered outstanding performance. Net revenues increased 17.3%, including double-digit growth in our truckload, LTL, and intermodal service lines despite headcount that grew less than 0.5%. Operating margin expanded 210 basis points, including the impact of increased variable compensation expense driven by our strong performance. In 2019, we plan to accelerate our digital transformation efforts and technology investments to make our processes even more efficient and our employees even more productive while continuing to deliver more benefits to our network of customers and carriers.

Turning to Slide 15 and our Global Forwarding business, fourth-quarter Global Forwarding net revenues increased 11.6% to $143 million. We lapped our acquisition of Milgram & Co. in Canada in the third quarter, so our fourth-quarter net revenue performance reflects pure organic growth from a comparability standpoint. In our ocean service line, we returned to net revenue growth as expected, driven by a combination of pricing reflective of the current market conditions and a robust sales pipeline. Ocean net revenues increased 12.4% in the quarter, including a 7.5% increase in shipment volumes. Fourth-quarter air net revenues increased 9.3% as a shift in customer mix was partially offset by a 3% decline in shipments. Customs net revenues increased 12.4% in the quarter while transactions increased approximately 4.5% in the fourth quarter, as we continue to expand our customs presence around the world.

In our conversations with carriers and global shippers, companies continue to plan for tariff activity and potential implications to the redesign of global supply chains. Our Global Forwarding business is actively engaged with customers to help them understand and quantify the impacts of both the enacted and potential future tariffs. The current set of tariffs in place has not had a significant impact on our Global Forwarding financial results. Given our broad portfolio of service offerings and our strong presence in key markets such as Southeast Asia and India, we believe we are well positioned to help our customers continue to win in an ever-changing global trade environment.

Slide 16 outlines our Global Forwarding operating income performance. Fourth-quarter operating income increased 76.9% to $30 million. Operating margin of 20.9% increased 770 basis points versus last year, led by higher net revenues and a modest decline in headcount. For the full year, we're pleased with the top-line growth of our Global Forwarding business. We grew volume in our ocean, air, and custom service lines and generated double-digit growth in Global Forwarding net revenues. Looking forward, we continue to see significant opportunities to drive scale and geographic reach in the segment. At the same time, we realize that we have opportunities to drive even greater efficiency as we grow this business. So, we're focused on operating margin expansion through additional technology deployment and intelligent process automation. Over the long term, we remain confident that we will deliver operating margin performance consistent with other leading companies in the Global Forwarding segment.

Transitioning to Slide 17 and our Robinson Fresh segment, sourcing net revenues were $25 million, down 8.2% from last year. Case volumes declined 6.5%, driven by a combination of lower levels of promotional activity at our retail customers and lower restaurant traffic at our foodservice customers. The revenue recognition policy change negatively impacted sourcing total revenues by approximately $37 million in the quarter. There was no impact to net revenue. Transportation net revenues grew 45.9% to over $39 million, led by a double-digit increase in truckload. The improvements in Robinson Fresh transportation results are directly related to the repricing activities that took place throughout 2018.

Slide 18 outlines our Robinson Fresh operating income performance. Fourth-quarter operating income grew by 53.5% to nearly $20 million. Operating margin of 30.8% improved 700 basis points, led by higher net revenues in the transportation business and a 5% reduction in headcount. Through a combination of pricing reflective of market conditions, operating expense controls, and investments to improve operational efficiency, our Robinson Fresh team generated improved results in the second half of 2018, and for the full year, delivered both growth in net revenues and operating income along with 190 basis points of operating margin expansion.

Moving to our All Other and Corporate businesses on Slide 19, as a reminder, All Other includes our managed services business, surface transportation outside of North America, other miscellaneous revenues, and unallocated corporate expenses. Managed services net revenues increased 10.9% to $20 million in the quarter, driven by a combination of selling additional services to our existing customers and new customer wins. Freight under management increased 2% in the quarter to over $1.3 billion and freight under management for the full year increased 9% to eclipse $4 billion. Customers continue to value our transportation management system offering, which allows them to manage their carrier selection process and complex supply chains without the required fixed investment in people or technology.

Our sales pipeline in the managed services business remains very robust, and we expect continued growth in this business in 2019. Other surface transportation net revenues declined 7.3% in the quarter to $15 million as pricing declines were partially offset by a mid-single-digit increase in volume. We have a very strong pipeline of new business in our Europe surface transportation.

Before I turn the call back to John for some final comments, I'll take a minute to wrap up the section on our operating performance. Our operating results reflect our continued ability to help our network of customers and carriers navigate a rapidly changing freight market and provide solutions that accelerate commerce in their businesses. In both the fourth quarter and the full year, we delivered strong growth in net revenues and an expansion in both net revenue margin and operating margin. We also significantly increased our cash from operations and cash return to shareholders. I'm very pleased with our fourth quarter and our full-year financial results.

As we turn to 2019, we remain committed to our operating plans that we've been implementing across our businesses. We will continue to leverage our comprehensive offering of services and capabilities to deliver logistics expertise to our customers and carriers. We will accelerate our digital transformation with investments in technology that deliver actionable intelligence and supply chain capabilities to the over 200,00 companies that conduct business on our global platform. I remain confident that we'll continue to deliver industry-leading capabilities to our customers and our carriers to provide rewarding career opportunities for our employees and to generate strong returns to our shareholders. Thank you for listening this morning, and at this point, I'll turn the call back to John.

John Wiehoff -- Chairman, Chief Executive Officer

Thank you, Bob. I want to wrap up our prepared remarks for the few final comments. Let me start by sharing a few data points on what we're seeing currently in the marketplace. As stated, we do see evidence of a more balanced freight market. Routing guide depths are now more consistent with a balanced freight market and our truckload shipments have moved back to our typical, more contractually weighted mix.

The significant price increases of 2018 have moderated, and while it's uncertain what the remainder of 2019 will bring, we are in a more balanced situation today. Tariffs and changes in global trade agreements remain a big uncertainty for many of our customers. We do believe there were modest amounts of advance shipping and inventory buildup in 2018. The U.S. economy continues to grow and our customers are generally planning for steady to increased freight volumes. While our markets are more balanced at the moment, the potential for further changes remains high.

Our core go-to-market strategy has always been to help our customers understand and adapt to the market conditions. We focus on managing through the cyclical changes in the market while investing in our capabilities for the future. 2018 was a year of excellent financial performance for Robinson. We generated record levels of revenues, operating income, earnings per share, and cash from operations, but more importantly, we continue to invest in our people, processes, and technology for the future. Our team, our culture, and our platform are real competitive advantages that are getting stronger every day. We feel great about our future and our continuing ability to create value for all of our stakeholders. That concludes our prepared comments, and with that, I'll turn it back to the operator so that we can answer the submitted questions.

Questions and Answers:

Operator

Thank you. Mr. Houghton, the floor is now yours for the question and answer session.

Robert Houghton -- Vice President, Investor Relations

Thank you, Donna. First, I would like to thank the many analysts and investors for taking the time to submit questions after our earnings release yesterday. For today's Q&A session, I will frame up the question and then turn it over to John, Andy, or Bob for a response. Our first question comes from several analysts. "Bob, after a very strong 2018, year-over-year comparisons clearly get more challenging as we move through 2019. Can you speak to the levers that you intend to pull to help drive NAST net revenue growth in 2019 given evidence of a balanced freight market?"

Robert Biesterfeld -- Chief Operating Officer

Absolutely. So, we're definitely feeling a more balanced market in 2019 when compared to the prior year. As we've stated in the past, we tend to look at net revenue dollars on a per-load or per-shipment basis as a more important internal metric than absolute net revenue margin. So, we know for the first half of 2018, our net revenue dollars per load were pretty close to our historical average, and those really expanded throughout the second half of the year as costs started to moderate.

So, for us, success in 2019 is going to come from continuing to take market share through increasing truckload and LTL volumes on a year-over-year basis as well as continuing to stay focused on our initiatives around cost control and driving further efficiency into our business model. Volume growth will be key for us throughout the year, but even more so in the second half. Fortunately for us, we've only got 3% market share today in NAST, and we've got a really large and aggressive sales force that's committed to driving growth in 2019 by continuing to add value to our customers and carriers in these market conditions. I've said it a lot in the past several years, but our focus is really not to go ditch to ditch between a focus on net revenue per load and load volume, but to continue to pursue that balanced growth strategy over the long term and throughout cycles.

Robert Houghton -- Vice President, Investor Relations

Thanks, Bob. The next question comes from Jack Atkins with Stephens.

Jack Atkins -- Stephens, Inc. -- Managing Director

Andy, looking back to the last time we were in a balanced market -- 2016 and early 2017 -- your net operating margin peaked in the second quarter of 2016 and then declined pretty significantly over the next several quarters. Would you expect net revenue to grow faster than operating expenses in 2019?

Andrew Clarke -- Chief Executive Officer

Thanks, Jack, for the question. The short answer is our stated goal and objective is always to grow net revenue faster than operating expenses. That's at the enterprise level, but also at the divisional levels. When you reference a balanced market, I know you're speaking specifically to the truckload market, and let's go back and revisit that and the difference -- which, by the way, is truckload is 55% of our net revenue today, and it's growing, and it's great, and we're very pleased with it. But, in that market, I would say that there are two differences that primarily are different than today, and the first is GDP was lower, and the second is pricing and cost were lower. So, today -- and, at that point, it's pure arithmetic, where the cost and the price were lower -- today, GDP is higher and the price and the cost are higher, so if you look at those lines that we produce in the published reports on our earnings, they're higher, but the relative difference hasn't really materially changed.

So, when we think about those levers, particularly within NAST, we think that continuing to grow net revenue in excess of our expenses is clearly achievable. You then layer in some of the other services that we've added over the last five or six years -- you think about LTL, you think about global forwarding. Both of those businesses have doubled in that time, and in doing so, we've added more of a secular growth story to the Robinson enterprise and Robinson platform, and in doing that, we've made investments, and clearly, as you saw in the fourth quarter, a lot of those investments began to pay off. So, we're really pleased with those results, and we do expect -- and, it's our stated goal and it's how we're all compensated -- to grow net revenues in excess of our operating expenses.

Robert Houghton -- Vice President, Investor Relations

Thanks, Andy. The next question is for John, and it's from Ben Hartford of Robert W. Baird. Jack Atkins with Stephens asked a similar question.

Benjamin Hartford -- Robert W. Baird -- Analyst

What are 2019 contractual pricing growth expectations? Have they softened from the low-single-digit outlook provided on the third-quarter earnings call?

John Wiehoff -- Chairman, Chief Executive Officer

So, in our committed bid, the low-single-digit comment was relevant to truckload, so I'm assuming that's where the question is at. But, with regards to our contractual bidding, whenever you go through a period of time where there's meaningful change in the spot market, you're going to start to see some of that show up in the sentiment around the contracts and the committed rates. Over the months of December and January, there have been some meaningful softening and reductions in some of the spot market, and that will start to show up in the attitudes and the outcomes of the bids and the committed relationships.

I think low single digits is probably still a good center of gravity. Maybe a quarter ago, people were saying low-to-mid-single digits, and that's more what we're seeing now, more common low-to-flat single digits. So, some of the softening in the pricing is showing up in the committed activity. It's a pretty rapidly changing market, as we shared in our prepared comments. There's a lot of different factors that are continuing to impact those bid arrangements and a lot of potential for change, but today, probably low single digits is still a good center of gravity in terms of expectations around committed pricing.

Robert Houghton -- Vice President, Investor Relations

Thanks, John. The next question is for Bob from Todd Fowler with KeyBanc.

Todd Fowler -- KeyBanc Capital Markets -- Managing Director

With respect to the outlook commentary indicating that continued investments in technology will help achieve the 2019 objectives of top-line growth and operating margin expansion, could you comment on how you see technology impacting 2019 and beyond? Are there costs associated with these investments that tail off in the future, and if so, how much?

Robert Biesterfeld -- Chief Operating Officer

Thanks, Todd. We expect that our CapEx run rate will increase to about $80-90 million in 2019, and with that, really, our total expense related to IT investment for next year is planned to increase to well over $200 million. So, while we're really proud of the foundation we've built within our Navisphere technology platform and our ability to provide customers and carriers with unrivaled actionable intelligence about their businesses, the further investments that we're going to make in technology will really be focused on ensuring that we're providing best-in-class user-centric technology, we're providing technology that enables even more frictionless transactions, leveraging more effectively advanced analytics and data science, and that doesn't just apply to truckload, but really applies across all of our services.

We want to make sure that our IT team has the appropriate resources that they need to accelerate the speed to value so that they can take the great ideas from our people and from our customers and bring those to life even faster for our clients and create value for all of our stakeholders. So, in terms of the step-up in CapEx, I'd expect that to be pretty consistent for the next several years.

Robert Houghton -- Vice President, Investor Relations

Thanks, Bob. The next question is also for Bob, from Chris Wetherbee of Citi.

Chris Wetherbee -- Citigroup -- Analyst

Fourth quarter marked the second consecutive quarter of solid operating margin expansion. Can you help provide color on the broader trends in the cost structure? Is it being driven by more automated transactions in direct load matching? And, are there other initiatives, and what level do you think operating margins can move to over time?

Robert Biesterfeld -- Chief Operating Officer

I'm really bullish on our ability to both drive net revenue growth and operating margin expansion in the coming years, much as Andy said. Automating transactions and direct load matching are certainly part of the reason why operating margin has expanded and why we believe the opportunity to continue to expand operating margin, but it's really only part of the story. The active matching capacity to demand is really a small part of the overall quote-to-cash cycle that our clients ask us to manage for them, and we're focused on creating value and reducing cost at each step of that cycle.

So, we're investing in the area of direct load matching, but we're also rolling out tools that help us to accept the right freight based upon predictions of outcomes, more effectively manage exceptions, and we're leveraging tech in new ways across all of our reporting segments that remove unnecessary steps out of our operational processes. We're investing in tech and process improvement to enhance our sales force, both the sales force effectiveness and the sales force efficiency as well as back-office function, such as collections, billing, imaging, and the like, which has a positive impact. Digital freight matching is clearly gaining most of the headlines today. We feel like we're in a great place in that space, but our focus is going to continue to be from quote to cash, and in the simplest sense, it's about winning more freight, executing at a lower cost, and maintaining or improving our industry-leading operating margins.

Robert Houghton -- Vice President, Investor Relations

Thanks, Bob. The next question, for Andy, comes from Todd Fowler.

Todd Fowler -- KeyBanc Capital Markets -- Managing Director

What do you view as normalized net operating margins for NAST and Global Forwarding? What factors within your control contribute to your ability to improve net operating margins over time?

Andrew Clarke -- Chief Executive Officer

Several years ago, we made the decision to go to reportable segments, and in doing so, we broke out NAST, Global Forwarding, and Robinson Fresh under individual performance, so now we have four years of data to look at, and over that period of time, I would break NAST and Global Forwarding into two components, and the first component is net revenue. And, NAST net revenue -- the median net revenue margin percentage of NAST has been 16.4% over those last four years with a standard deviation of 120 basis points, and that includes the cosmetic impact of fuel, but also the substitution impact of LTL, which tends to have a higher net revenue margin percentage.

And so, we would say that that net revenue margin has been relatively consistent, and it's been in that mid-double digits for a long period of time, and we would expect it to continue to be in that. And so, then, you go to -- and, to a large degree, there's a cyclical element of that, as Bob mentioned earlier -- making a lot of investments on the IT and the business side to help us make smarter decisions, both for our customers on the pricing side, but also our carriers on the cost side. In doing so, we think that we can continue to move the needle a bit on the net revenue margins.

On the operating margin side -- again, same figures over the last four years -- NAST operating margins, the median's been about 43.5%, and if you knock out the high highs and the low lows, the standard deviation on that has been 160 basis points. And, we talk about making investments in a through-cycle environment. And so, fortunately for us, we have the ability -- as Bob mentioned earlier -- to give our IT people the resources to make investments despite the fact there were periods of time -- if we go back to the net revenue number -- where, in fact, the net revenue has been below the median for a period of time.

We're still making investments, and as a result, you see the commensurate impact on the operating margin percentage. But, the good news is when we come out the other side, the operating margin expands. And so, to a large degree, that's where we're really focusing our efforts. Again, as both Bob and John mentioned, we're going to continue to make those investments, but we're going to continue to be more efficient and more effective as we go to market.

The Global Forwarding story is yet another interesting one. As I mentioned earlier, it's doubled in the last four or five years. We continue -- have made significant investments in that part of our business, and today, it's continuing to grow, and it'd be an important part of our go-to-market with our customers. Their median net revenue margins have been 22.8% -- again, with a standard deviation of about 180 basis points.

On the operating margin side, the median's been about just under 21%, and again, knocking out the high highs and the low lows, you've got about a 280-basis-point standard deviation on the operating margin. You have to then add back or include what I would say -- we talk about the investments we've made on the cash amortization. That's anywhere from 6-8%. So, think about the operating margin of 21%. We believe that those are on a cash basis in the high-20s/low-30s. Now, on a relative basis, it's less mature than our NAST business, and so, we would expect both the net revenue margins on Global Forwarding -- as well as the operating margins given the investments that we've made -- to continue to expand both in NAST and Global Forwarding.

Robert Houghton -- Vice President, Investor Relations

Thanks, Andy. The next question is also for Andy, from Matt Young with Morningstar. Jason Seidl with Cowen and Company also asked a similar question.

Matthew Young -- Morningstar -- Analyst

A few upstart digital freight brokers appear to be gaining some traction in the truck brokerage space, at least from a gross revenue standpoint. Could you talk about what you are noticing -- if anything -- in the marketplace from these providers?

Andrew Clarke -- Chief Executive Officer

I think it's appropriate to first talk about and start off by answering that question and -- really telling the story of our platform, and then maybe begin to talk about what others are talking about what they're doing. And so, Robinson is a digital leader in the logistics space, and it's a big -- it's a growing space, but we've been in it the longest. Bob mentioned we're spending as much, if not more, than anybody else. We're connecting over 200,000 companies around the globe through that Navisphere technology platform. We're executing truckload, LTL, intermodal, ocean, air customs, managed services, parcel, and other services with over $20 billion in freight under management. One hundred percent of our shipments are executed on the Navisphere platform.

And again, why does that benefit? The benefit is obviously to our customers. They have one source of truth for that. Why does it benefit our carriers? It allows them to go to one place to get access to all of their information. And so, we believe in that one platform. And so, we're going to continue to invest in it, and while it's big and growing, we're the largest -- I wouldn't say that anybody could go out there and claim to have conquered logistics despite the fact that there are many people out there with apps or many people out there with press releases; there are many people that are out there telling the story of how much they might have raised in a particular round. It's a big space, and we're going to continue to lead in that.

Where we are seeing some of these digital competitors that you might have mentioned are in select customers. We have over 120,000 customers, and I'd say if you canvassed all of them, there's probably 119,000 of those customers that aren't or haven't been doing business with the digital upstarts. Now, there are 17,000 brokers, truckload brokers, freight brokers in North America right now. If you think about where that exists in the globe, there's multiples of that as well.

And so, we have had and will always have competition in the marketplace, and to a large degree, everybody's talking about technology. Our go-to-market has been and will continue to be our people, our process, and our technology. We believe that those three tenets are core to how we're going to continue to successfully grow our business, solve the complex global logistics needs of our customers, be a strategic provider to our carriers, whether they be located in North America, whether they be located in Europe, Asia, Latin America. And so, we're pretty comfortable and pretty confident in our technology story, particularly vis a vis the start-ups.

Robert Houghton -- Vice President, Investor Relations

Thanks, Andy. The next question, for John, comes from several analysts. "How much business is currently under spot versus contract, and do you think there will be a shift back to the spot market in 2019?"

John Wiehoff -- Chairman, Chief Executive Officer

We are today, in our truckload business, back to that more typical mix of having more committed or contractual activity -- probably two thirds/one third, about 65%/35%, with more of that being committed or contracted today. With regards to where will it go in 2019 and where it will -- it's more difficult than ever to predict, but a few thoughts around that. Coming off of 2018, where we showed on our charts double-digit price increases over a short period of time, and that being higher than anything that you see historically on any of those charts, those price increases were, in part, driven by some regulatory changes around ELD implementations and all of the carrier network changes that accompanied those implementations.

We don't see anything on the horizon that is that significant. There's no pending rule changes or anything that would suggest that that type of spot market activity or price increases would happen again in the short term. As I commented earlier, there has been some deceleration of pricing in the spot market and some opportunity where maybe the committed rates are softening a little bit and could drive some shippers to explore more spot market opportunities to take advantage of lower prices, if that's where it's sustained.

So, while we don't see anything big on the horizon that would drive it back to the spot market, another factor to consider is that over the last decade, as shippers have automated their supply chains and carriers have automated and tightened their network around how they run their capacity, there is less slack in the overall system, which has led to more volatility and greater price changes. So, while there's nothing big on the horizon that caused the price increases in 2018, the overall environment is predisposed toward faster changes and greater impacts that could result in more freight going back to the spot market if we see a meaningful change in the overall demand.

Robert Houghton -- Vice President, Investor Relations

Thanks, John. The next question, for Bob, comes from Matt Young with Morningstar.

Matthew Young -- Morningstar -- Analyst

Could you provide some additional color on NAST efforts in terms of running more truckload transactions through a mobile platform along with a rough idea of the magnitude of adoption among C.H. Robinson shippers and carriers?

Robert Biesterfeld -- Chief Operating Officer

Sure. So, a core tenet of our go-to-market strategy has always been to really meet our customers and carriers how and where they want to buy. So, our focus has been less on moving transactions to mobile as it has been on just really being focused on driving toward those frictionless transactions we based upon the preferences of our customers and our carriers.

So, a couple of examples. If a customer wants to integrate their ERP into Navisphere, we just want to make sure that we're the easiest supply chain platform to connect to and extend our platform into their ERP. If our customer wants to use the Navisphere platform to place orders, track shipments, or get exception notifications, we want to ensure that we can provide that information via web or mobile in a means that serves their needs in the fastest, most user-friendly way. Another example -- if a carrier prefers to work in their native TMS versus in Navisphere, again, we try to connect to their native TMS and ensure that they've got visibility to our freight and make it easiest for us to connect to them.

Specific to mobile, in general, we've seen the carrier community much more active in the mobile space than on the customer side. In terms of rough orders of magnitude, today, we capture about 55% of our truckload events in an automated fashion, much of that coming from mobile, and we've got tens of thousands of active users every single day on the Navisphere Carrier, both mobile and web platforms as well as the customer, primarily web platform. Another example -- our Book It Now feature on Navisphere Carrier continues to gain broader acceptance among the carrier community, and we see more and more carriers taking advantage of the ability to come online, either via the web or app, and self-select and self-book freight. On the customer side, we see relatively low adoption of mobile as the primary means for communication, and EDI really continues to be the preferred method of electronic integration with the customers.

Robert Houghton -- Vice President, Investor Relations

Thanks, Bob. The next question is also for Bob, from Ben Hartford of Robert W. Baird. Todd Fowler of KeyBanc and Jason Seidl of Cowen and Company also asked similar questions.

Benjamin Hartford -- Robert W. Baird -- Analyst

What are NAST and overall headcount growth plans for 2019?

Robert Biesterfeld -- Chief Operating Officer

In the simplest sense, over the long term, we expect volume to grow at a rate ahead of our headcount growth. I made this commitment at our 2017 Investor Day relative to NAST, and I believe that that formula still has application across our business in total. Over the past couple of years, the mix of our job families has continued to evolve, and as we continue to grow through some of the roles that are more task-oriented, it allows us to improve productivity there and keep headcount relatively flat in some of those areas, and we'll continue to add more specialized skills and more customer-facing people to drive growth and innovation in our workforce.

Our headcount growth moderated in the fourth quarter, and our focus in 2019 and beyond is to continue to layer in that technology and process automation so that our people can be even more effective, which should further moderate headcount growth moving forward.

Robert Houghton -- Vice President, Investor Relations

Thanks, Bob. Ravi Shanker of Morgan Stanley asked about personnel expenses. Tom Wadewitz with UBS also asked a similar question.

Ravi Shanker -- Morgan Stanley -- Managing Director

Andy, what drove personnel expense growth to be below net revenue growth?

Andrew Clarke -- Chief Executive Officer

Well, again, we talk about the operating leverage of our model, and we've been pretty clear about how it does work, and in fact, 2018 is a great example of it -- not only in the fourth quarter, which I'll address shortly, but also for the full year. If you think about it, we added pretty significant net revenue during the entire year, but relative to last year, headcount was relatively flat, and in fact, in certain cases with Global Forwarding and Robinson Fresh, it was down. So, you think about how they were able to grow their business -- those two particular divisions -- with less headcount. We're pretty pleased with -- as Bob was talking about just before -- the leverage that is inherent in our company and in our platform.

As it relates to the fourth quarter, again, just think about how much net revenue additionally we drove over the fourth quarter -- over $84 million. The bulk of the increase in the fourth-quarter personnel expenses are related to performance-based pay, both in terms of cash compensation as well as equity. So, if you think about headcount, again, relatively flat on a Q4-versus-Q4 basis, but because we performed so much more, a lot of that variable expense went up, which obviously aligns -- as we talked about -- the interests of our employees with the interests of our shareholders very well, and that's the beauty, and that's how our models always were throughout different cycles.

Robert Houghton -- Vice President, Investor Relations

Thanks, Andy. The next question, for John, on tariffs came from several analysts. "Have you seen any impact in your forwarding business from the tariffs from both the U.S. and China or the political economic unrest in Europe? We have heard other large international logistics and retail companies mention both of these as headwinds in 2019. Curious if you are seeing an impact and what your outlook is for forwarding in 2019 given these overhangs."

John Wiehoff -- Chairman, Chief Executive Officer

We've been growing our global forwarding business the last five years by taking market share in a number of corridors around the world, and we do continue to believe that we're going to be successful doing that in 2019 as well. The primary impact to date -- or, in the year 2018 -- was the processes around implementing and collecting the increased tariffs as well as some modest increase and shipment activities -- probably near the end of the year -- to try to accelerate some of the activities to get in before year-end or get in before tariffs. There's still so much remaining uncertainty around where those trade negotiations in Asia and Europe will both land.

So, beyond the minor impacts that we had to our business in 2018, all of the discussion around supply chain strategy, where will your suppliers be, will shippers have to move out of China into other places in Asia -- those communications are going on, and the planning is accelerating as we speak, so there's high potential for greater changes in routing, greater changes in sourcing areas for a lot of our customers, but we haven't seen a lot of that activity to date.

We've mentioned in the past and continue to invest in expanding and scaling our global forwarding network precisely for reasons like this, that if customers do end up making decisions, that these tariffs and supply chain changes are going to be permanent and move their sourcing locations. We're confident that we'll be able to move with them and that we have capabilities in other parts of the world that we'll be able to continue to go after that market share and grow our business regardless of where the trade negotiations land.

Robert Houghton -- Vice President, Investor Relations

Thanks, John. The next question is for Andy, from several analysts. "Why did the annual increase in cash from operations, up $409 million, significantly exceed growth in annual net income, up $160 million? What were the drivers?"

Andrew Clarke -- Chief Executive Officer

2018 was a fantastic year for us from a cash flow from operations, and obviously, you got net income up $160 million, but Bob mentioned earlier the investments we're making on the quote to cash. But, there's also the order to cash, and once it becomes an order, across the organization, from the business to support from financial operations, driving down that order-to-cash cycle. And so, if you think about the decrease on a year-over-year basis and the need for spending that on working capital, the largest contributor of that came from the effort there, and that's where we're making a lot of investments on digitalization, that's where we're making a lot of investments in standardization, streamlining that part of the organization so that we would expect to continue to see improvements in that area.

Robert Houghton -- Vice President, Investor Relations

Thanks. The next question is also for Andy, from Chris Wetherbee of Citi. Ken Hoexter of Bank of America Merrill Lynch asked a similar question.

Chris Wetherbee -- Citigroup -- Analyst

With the truckload spot market rolling over on a year-over-year basis, how would you expect net revenue margins to trend as 2019 progresses?

Andrew Clarke -- Chief Executive Officer

That goes back to what we talked about earlier on the net revenue margins dollar percentages. It's largely a function of arithmetic. And so, if you look at one of the slides that we have in the earnings deck -- and, that's a relative change -- we talk about how those cycles tend to go in three- to four- to five-quarter periods, where cost is always the leader. When costs rise or fall, pricing tends to follow that. We saw that through a balance period, and we talked about that earlier, and when it begins to tip over and costs go down, price tends to lag that, which does have a positive impact on the margins, but on a relative basis, you see that the price and cost numbers on a sanitized -- the numbers that we report are at an elevated level.

And so, there's the balancing impact of fuel, the balancing impact of the numerator and denominator simply being higher, but overall, when costs begin to decrease, it does tend to have a positive impact on our truckload margins. We've made a lot of investments -- as Bob mentioned earlier -- on the LTL side to be smarter on the pricing and the cost side, and so, we would continue to expect to drive secular margin expansion in other parts of our business as well.

Robert Houghton -- Vice President, Investor Relations

Thanks, Andy. The next question is for Bob, from Lee Klaskow from Bloomberg. Ryan Ossenbeck with J.P. Morgan asked a similar question.

Lee Klaskow -- Bloomberg -- Analyst

Did the implementation of precision scheduled railroading in the East drive the 13% decline in intermodal volume? If not, what was the driver?

Robert Biesterfeld -- Chief Operating Officer

So, we don't believe that PSR has had a broad impact on our intermodal volumes for the quarter, nor do we expect it to. We have seen examples where lane cancellations have either limited intermodal options altogether or new routings have created drayage inefficiencies, which has made the routing more cost-effective using truckload, which could potentially benefit us. In terms of our volume decline for the quarter, it was really driven by less spot market opportunity and truckload-to-intermodal conversion, as well as lower-than-expected West Coast volumes when compared to the peak season of last year.

Robert Houghton -- Vice President, Investor Relations

Thanks, Bob. Andy, Todd Fowler of KeyBanc and Tom Wadewitz of UBS asked about M&A. "Please provide an update on potential acquisition opportunities, both service line and geographies, and if you feel anything imminent in 2019."

Andrew Clarke -- Chief Executive Officer

Well, I'm going to talk about the first one in terms of the potential acquisition opportunities. We have and will continue to be an active participant in the M&A environment. We look at transactions every day that are complementary to both our service line, whether that be NAST, whether that be our Global Forwarding, or Robinson Fresh, but we also look at it in terms of geographical expansion, and I'll go back and talk about how we've made investments over the last several years in Global Forwarding, we continue to make investments in NAST, as we did with the acquisition of Freight Quote, and those are pretty much part of our standard routine as it relates to assisting and enabling our rather strong organic growth strategy that we have in place.

And so, I wouldn't say that there's anything materially different as to how we're looking about it. I would say that it continues to be a robust environment for well-run organizations. We are very selective in the acquisitions that not only we look at, but also execute upon. And so, they have to meet a rather stringent criteria, both in terms of strategy, culture, and business model. And then, of course, financial returns are very important to how we view and evaluate those opportunities. And so, I wouldn't say that there's anything materially different in 2019 of our strategy versus what it's been over the last several years.

Robert Houghton -- Vice President, Investor Relations

Thanks, Andy. That concludes the Q&A portion of today's earnings call. A replay of today's call will be available in the Investor Relations of our website at chrobinson.com at approximately 11:30 a.m. Eastern time today. If you have additional questions, I can be reached via phone or email. Thank you again for participating in our Fourth Quarter 2018 Conference Call. Have a good day.

Operator

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may disconnect your lines at this time, and have a wonderful day.

Duration: 59 minutes

Call participants:

Robert Houghton -- Vice President, Investor Relations

John Wiehoff -- Chairman, Chief Executive Officer

Andrew Clarke -- Chief Executive Officer

Robert Biesterfeld -- Chief Operating Officer

Jack Atkins -- Stephens, Inc. -- Managing Director

Benjamin Hartford -- Robert W. Baird -- Analyst

Todd Fowler -- KeyBanc Capital Markets -- Managing Director

Chris Wetherbee -- Citigroup -- Analyst

Matthew Young -- Morningstar -- Analyst

Jason Seidl -- Cowen and Company -- Managing Director

Ravi Shanker -- Morgan Stanley -- Managing Director

Tom Wadewitz -- UBS -- Analyst

Ken Hoexter -- Bank of America Merrill Lynch -- Managing Director

Lee Klaskow -- Bloomberg -- Analyst

Brian Ossenbeck -- J.P. Morgan -- Analyst

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