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CH Robinson Worldwide, inc (NASDAQ:CHRW)
Q2 2021 Earnings Call
Jul 27, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the CH Robinson Second Quarter 2021 Conference Call. [Operator Instructions] I would now like to turn the conference over to Chuck Ives, Director of Investor Relations.

Chuck Ives -- Director of Investor Relations

Thank you, Stacey. And good afternoon everyone. On the call with me today is Bob Biesterfeld, our President and Chief Executive Officer; and Mike Zechmeister, our Chief Financial Officer.

Bob and Mike will provide a summary of our 2021 second quarter results and then we will open up the call for live questions. Our earnings presentation slides are supplemental to our earnings release and can be found in the Investors section of our website at investor.chrobinson.com. However, our prepared comments are not intended to follow the slides. If we do refer to specific information on any of the slides, we will first let you know which slide we're referencing.

I'd also 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'll turn the call over to Bob.

Robert Biesterfeld -- Chief Executive Officer

Thank you, Chuck. Good afternoon everyone and thank you for joining us today. During the second quarter, we delivered record financial results by staying focused on serving the needs of our customers and keeping their global supply chains moving in a capacity constrain environment. We're pleased that we returned to truckload volume growth. We delivered record volume and less than truckload in ocean and air and we believe that our tech plus strategy that combines industry-leading technology with great logistics experts and great processes is the right strategy. As part of our global suite of services, our largest services delivered both year-over-year and sequential growth in total volumes, revenue, and adjusted gross profit or AGP, which resulted in quarterly highs for Robinson in total volumes, revenues, AGP, and operating income. Excluding the fourth quarter of 2012, when we sold our TTEC business, our earnings per share was also a record high. I'll talk about how we achieved these results as I walk through my prepared comments on our second quarter results.

In our largest service of NAST truckload, we grew our adjusted gross profit by $34 million or 4% [Technical Issue] year-over-year. This came through a 6% increase in volume and a 7% increase in adjusted gross profit per load. This included an increase in spot market volume of nearly 30% year-over-year due in part to an 85% increase in quotes and 160% increase in volume, that was driven through our proprietary real-time dynamic pricing engine. 40% of our spot or transactional business was priced via integrations with our dynamic pricing engine in the second quarter, delivering real-time pricing with capacity assurance from the largest network in capacity in North America.

While our business in the spot market increased significantly, our volume in the contractual business declined approximately 10% during the quarter, as we continue to reshape our portfolio and pursue profitable volume growth. This included a balance of two things; first, honoring our contractual commitments with strategic customers, which is still resulting in a higher than normal percentage of loads with negative adjusted gross profit margins due to ongoing increases in the cost of purchased transportation; and second, managing acceptance rates in order to limit negative loads and to manage our business for profitability.

We closed the quarter with an approximate mix of 55% contractual volume and 45% transactional volume versus a 65-35 mix in the year ago period, and this was consistent with our mix in the first quarter of this year. Our average truckhaul linehaul cost per mile paid to carriers, excluding fuel surcharges, increased 47.5% compared to the second quarter of last year. Our average linehaul rate billed to our customers, excluding fuel surcharges, increased 42% year-over-year. This resulted in the highest cost and price per mile on record and a 12% year-over-year increase in our truckload adjusted gross profit per mile. This combined with a 4.5% decrease in average length of haul resulted in a 7% increase in adjusted gross profit per truckload. We continue to reprice our contractual business in the second quarter, including some underperforming contractual positions. The bid process continues to be a dynamic one and 40% of our awarded contracts in second quarter were for terms between three and six months.

Having said this, greater than two-thirds of our bid volume awarded to us in the second quarter was still on 12-month contracts. During the quarter, we saw a routing guide depth of tender in our Managed Services business declined slightly from 1.8 in March to 1.6 in June. However, the average in second quarter of 1.7 was unchanged from the market conditions in first quarter. In the second quarter, we welcomed an additional 6,900 carriers to our network, which represented an 88% increase over the carriers added in the second quarter of last year. Leveraging the scale and the information advantage that comes from the size of our carrier network, is just one of the ways that we help customers navigate capacity constrained marketplace. Given the current structural constraints around the expansion of truckload supply, coupled with the continued reopening of the economy, as well as other factors, we do expect the current market conditions will persist through 2021. And as I said last quarter, we expect to grow our truckload volume during the remaining quarters of this year.

In our second largest service line of ocean forwarding, we grew our adjusted gross profit by $72 million or 92% year-over-year. This came through a 29% increase in shipments and a 49% increase in adjusted gross profit per shipment. Strong demand continues to outpace supply with container and equipment shortages and other market disruptions continuing to constrain capacity. Our team has done a great job with strengthening our carrier relationships, procuring incremental capacity to better serve our customers. The forwarding team continues to add new commercial relationships with strategic multinational customers that are leading to increased award sizes, while also ensuring that our existing customers have access to the capacity that they need to meet their needs. Our customers and our results are benefiting from the investments we've made in digitization, data and analytics, as well as our global network that are supporting our expanded geographical and vertical expertise. We believe that these strategies and competitive advantages, will enable us to create more value for customers and in turn win more business and sustain the market share gains that we've achieved. There continues to be a robust pipeline of new business from both new and existing customers and as we move toward the peak holiday shipping season and into next year, we do expect that ocean demand will remain strong into early 2022.

As part of our growth strategy, less than truckload or LTL business, which is our third largest service continued its strong momentum by growing [Technical Issue] the gross profit by $23 million or 22% year-over-year. This came through a 23% increase in volume and a slight decline in adjusted gross profit per order. We're seeing balanced growth across our LTL modes and across customer segments. Through our strategic focus on the LTL market, we've built a $3 billion LTL business through a blend of organic growth, digital investments, and strategic acquisitions such as Freightquote and Prime Distribution, which has made us the largest and most comprehensive provider of retail consolidation services in the industry. This portfolio expansion has capitalized on e-commerce growth and combines a full suite of LTL technology and services, including common carrier, warehousing and retail consolidation, temperature control, parcel, home deliveries, and reverse logistics. Our value proposition, which includes highly automated systems that are easily scaled for high volume growth continues to resonate with shippers of all sizes and across industry verticals. This includes small businesses that utilize our Freightquote by C.H. Robinson platform, as well as large enterprise shippers that look to us as a strategic partner to manage and optimize their LTL freight networks.

In total, NAST overall second quarter volume grew approximately 16% year-over-year compared to a 30% increase in industry volume, as measured by the Cass Freight Index. Due to a large pandemic related decline in the index in the second quarter of last year that we did not experience at the same level. While our growth for the quarter did not exceed the industry benchmark over a one-year time frame, we've outperformed the index for the two, three, four and five-year timeframes.

Finally, our fourth largest service, international air freight, delivered strong results again behind a 43% increase in metric tons shipped. Adjusted gross profit was up 1% over second quarter of last year when we delivered 104% adjusted gross profit growth. Demand has been incredibly strong, partially driven by conversions of some ocean freight to air and recovery of demand in Europe. Air freight capacity has continued to be strained and we continue to position charter flight capacity to support demand from both new and existing customers. Our Global Forwarding customers that utilize our air, ocean and customs and project logistics services, continue to value working with and relying on Robinson's global experts, and offices around the world, that can deliver a full suite of global logistics services and customized solutions. We've built sustainable competitive advantages in our Global Forwarding business that will continue to deliver solid returns for our shareholders and benefits for our customers in the quarters and the years ahead. Because of the efforts of our Robinson team members across the globe and our advanced technology, our total company adjusted gross profit per business day improved by 5% sequentially in second quarter, 22% year-over-year, and 8% over the pre-pandemic quarter of second quarter of 2019.

Bolstering our results were continued benefits of our digital investments, which continue to unlock productivity gains and deliver customer value in new and exciting ways. Our three primary areas of investment in digitization are focused on creating value for customers, value for carriers, and driving productivity improvement for our teams, which in turn drives improvements to both our top online results.

Looking at the impact basin through the lens of customer and carrier adoption, the number of daily and monthly average users across our customer and carrier facing platforms continues to grow with 27% year-over-year growth in daily average users of our customer platforms as just one example.

As I mentioned earlier, the amount of customer quotes and volume that is being delivered through our real-time dynamic pricing tools has grown significantly, enabling these digital connections; improves efficiency for our customers, improves our response time per quote requests, and improves our win rates. We also continue to add digital connections with our customers at an accelerated pace during the quarter, with over 100 new customers connected via TMS and ERP connections in the second quarter of 2021. Our customers now have access to real-time pricing via our Navisphere customer web portal, directed at TMS ERP integrations, as well as via Freightquote by C.H. Robinson. In total, we've been able to use these dynamic pricing capabilities for over 87,000 customers across these point of connection.

On the carrier side, we continue to deliver new capabilities and benefits to our carriers through our web and mobile versions of Navisphere carrier and Navisphere driver. During the quarter, we had over 290,000 fully automated bookings in our NAST truckload business.

And finally, as it relates to productivity, we've again highlighted a couple of key metrics for NAST on page 5 of our earnings presentation. We continue to show year-over-year improvement in productivity as indicated by the 1670 point favorable spread in our NAST Productivity Index, which represents the difference between [Technical Issue] per year change in NAST volume and the change in full time equivalents in NAST, another key metric that we review is shipments per person per day. That was up 17% in second quarter compared to the same quarter last year. Both of these charts show very clearly the relationship between the timing of our increased digital investments and the impact of these key operational metrics. We're encouraged with the progress that we're making in our digital and technology journey and the impact these investments are delivering for our customers, for our carriers, and the impacts to our overall results.

Leading the industry with the most powerful supply chain technology and data platform has been a top strategic priority for Robinson and part of our competitive advantage in the marketplace. We've increased our investments and strengthened our technology and innovation capabilities with our customers' needs and experience in mind. We constantly listen to the voice of our customers and are focused on continually enhancing our customer and carrier experience. We got bold ambitions to continue to evolve as a platform company, giving our employees, customers and carriers the products and the information needed to succeed. Our customers rely on us to be an extension of their team, able to provide a global suite of services, create market leading solutions that work, and drive smarter solutions to our information advantage.

And as we can create differentiated value for the nearly 200,000 carriers and customers of Robinson, I'm excited to have Arun Rajan join our executive team as Chief Product Officer on September 1, reporting directly to me. Arun will lead our Global Product Strategy and its organization will sit at the intersection of our business strategy and technology platforms to provide a consistent industry leading customer experience and to drive our global digital capabilities across our suite of products. Arun is a seasoned and inspiring leader who brings decades of products and technology experience developing and deploying products that enrich the customer experience and create value with industry leading companies such as Whole Foods, Zappos and Travelocity. Arun's deep product and leadership experience will be invaluable as we drive the next generation of innovation for our industry, while creating sustainable long-term value for our customers, our carriers and our shareholders.

I'll now turn the call to Mike to review the specifics of our second quarter financial performance.

Mike Zechmeister -- Chief Financial Officer

Thanks, Bob, and good afternoon everyone. As Bob mentioned, we delivered solid quarterly financial results across a variety of top line and bottom line metrics in Q2, driven by strong performance in a favorable market as we continue to leverage our technology plus strategy. In Q2, we established quarterly total company records in volume, total revenue, adjusted gross profit and operating income. Our total company AGP was up 22% compared to Q2 of 2020 driven by strong performance from ocean, truckload, LTL, and air. On a sequential basis, each of our business segments delivered AGP growth compared to Q1. On a monthly basis compared to 2020, our total company AGP per business day was 21% in April, up 12% in May, and up 35% in June. With the cost per mile and price per mile in our truckload business reaching all time highs in Q2, our AGP margin percentage [Technical Issue]. This is simply a function of a larger denominator in the AGP margin equation. To illustrate that, I'll share some facts about our Q2 AGP per mile versus our AGP margin percentage.

Our Q2 truckload AGP per mile was approximately 3% higher than our 10-year average, while our AGP margin percentage was more than 350 basis points below our 10-year average. As truckload pricing is predominantly determined by dollars per load as opposed to percentage markup, having an all time high priced results in a compressed margin percentage.

We continue to be focused on growing our overall AGP dollars by optimizing volume growth and AGP per shipment across our service offerings. With our customer focus and digital investments continuing to drive growth inefficiency into our model, we have solid strategies to generate sustainable long-term growth.

Turning now to expenses. Q2 personnel expenses $62.9 million, up 20.8% compared to Q2 of last year, due to higher incentive compensation costs and the impact of short-term pandemic related cost reductions in Q2 last year. Our Q2 average headcount increased 0.7% compared to Q2 of last year, and our average full time equivalents were up 3.1%. Headcount was added primarily to deliver on our long-term growth expectations, particularly in our Global Forwarding business. In addition, the June 3 acquisition of our Combinex Holdings BV in our European Surface Transportation business, added approximately a 100 new employees to Robinson. Given our increase in headcount and higher incentive compensation associated with our 2021 profit expectations, we now expect our 2021 personnel expenses to be to 1.42 billion to 1.48 billion dollars, which is up from our prior guidance of 1.4 billion.

Q2 SG&A expenses of $125.7 million were up 0.4% compared to Q2 of 2020. We continue to expect 2021 total SG&A expenses to be approximately $0.5 billion, which includes travel expenses building in the back half of the year. 2021 SG&A is expected to include approximately $90 million to $95 million of depreciation and amortization. This is up from our prior guidance of $85 million to $90 million, but down from the 102 million in 2020, primarily due to the completion of amortization related to a prior acquisition.

Second quarter interest and other expense totaled $13.5 million, up approximately $3.3 million versus Q2 last year, due to the impact of currency revaluation. Q2 results included a $1.9 million loss due to unfavorable currency revaluation, compared to a $1.8 million gain on FX in Q2 last year.

I'm pleased to report that we've completed the work that delivers the $100 million per year of long-term cost savings that we committed to a year and a half ago. Our annualized run rate savings surpassed $100 million in Q1 of this year. Going forward, we will continue our efforts to drive efficiency into our business model, primarily through process redesign and automation across the enterprise. Our Q2 income from operations was an all-time quarterly high at $260.6 million and our adjusted operating margin of 34.8% was up 410 basis points compared to Q2 last year. Q2 net income was $193.8 million, up 34.6% compared to Q2 last year. And diluted earnings per share finished at $1.44, which was up 35.8% year-over-year.

Turning to cash flow. Our Q2 cash flow from operations was approximately $149 million, a decrease of $298 million compared to Q2 of last year, driven primarily by the outsized improvement in working capital in Q2 last year. [Technical Issue] Q2 operating working capital increased by $81.8 million or 5.6% versus Q1 compared to a sequential increase of 6.7% in AGP. Over the long term, we expect our working capital to continue to grow at a rate slower than our AGP. Capital expenditures were $16.3 million in Q2, up from $10.3 million in Q2 last year, primarily driven by increased investments in hardware and software. Year-to-date, through Q2, our capital expenditures were $30 million and we continue to expect 2021 capital expenditures to finish in the range of $55 million to $65 million.

We returned approximately $205 million of cash to shareholders in Q2 through a combination of $135 million of share repurchases and 70 million of dividends. That level of cash return to shareholders represents a 199% increase versus Q2 of last year when we were not repurchasing shares, out of an abundance of caution, due to the pandemic. During Q2 this year, we repurchased approximately 1.4 million shares at an average price of $97.47 per share and at the end of Q2, we had approximately 5 million shares of remaining capacity on our 15 million share repurchase authorization from May of 2018.

Our cash balance at the end of Q2 was $173 million, down $189 million compared to Q2 of 2020. We intend to carry only the cash needed to fund operations and to efficiently repatriate excess cash from foreign entities. We ended Q2 with $902 million of liquidity, comprised of $729 million of committed funding under our credit facility, which matures in October of 2023 at our Q2 cash balance. Our debt balance at quarter end was $1.37 billion, up $274 million versus Q2 last year, driven primarily by share repurchases and increased working capital.

Our net debt to EBITDA leverage at the end of Q2 was one 1.2 times down sequentially from 1.3 times at the end of Q1. From an M&A standpoint, the deal flow in the market remains robust and we expect to see more industry consolidation, through the end of 2021. While we don't comment on specific companies or transactions, we do see the potential for Robinson to play a role. We continue to be focused on value creation with our capital allocation and remain disciplined in that regard. We continue to prioritize companies that can expand our geographic presence, particularly in Global Forwarding, at or improve, our service offerings, offer compelling cross selling opportunities, help us build scale to leverage our flywheel, or to enhance our digitization efforts to deliver growth, quality of service or efficiencies. A strong fit with Robinson culture is also important in our M&A efforts.

Overall, we're making excellent progress against our strategic initiatives to drive growth and efficiency into our model. That said, we have tremendous opportunities for growth and efficiency ahead of us as we still represent just a small percentage of the overall addressable market in global logistics landscape. From a capital allocation standpoint, we continue to be committed to disciplined capital stewardship maintaining an investment grade credit rating and generating sustainable long-term growth to our shareholders.

Thank you for listening this afternoon. And I'll turn the call back over to Bob now for his final comments.

Robert Biesterfeld -- Chief Executive Officer

Thanks, Mike. Our record quarterly volumes, revenues, adjusted gross profit and operating income demonstrated the strength of our non-asset-based business model that includes a diverse portfolio of services. As I said earlier, with bold ambitions to continue to evolve as a platform company and we're committed to creating better outcomes for our customers and carriers by delivering industry-leading technology that's built by and for supply chain experts and by leveraging our unmatched combination of experience, scale, technology and information advantage. We'll stay the course with our strategy of pursuing market share gains that align with our profitability expectations. And we'll continue to invest back into the business in order to drive innovation, improved service to our customers and carriers, and drive growth across our global suite of [Inaudible] services.

I believe that the team at Robinson is the most capable team of supply chain experts in the world and I'm incredibly proud of our team as thousands of customers navigate globally disrupted supply chains, while delivering strong results for our shareholders. As we continue to create differentiated value for the nearly 200,000 carriers and customers of Robinson, I'm thrilled to have Arun Rajan join the Robinson team to drive our next generation of innovation. I'm also excited by our return-to-office that our US employees began this month, coming back to a more flexible and hybrid work model. And we look forward to seeing more of our people around the world return to the office as appropriate guided by local health guidelines.

I'd like to thank the Robinson team members around the world for learning to work and collaborate in new ways, for rapidly advancing our digital capabilities, for creating a more open and inclusive environment, and for ensuring the health and safety of our people across the globe, while continuing to help us emerge stronger. This concludes our prepared remarks.

And with that, I'll turn it back to Stacy for the live Q&A portion of the call.

Questions and Answers:

Robert Biesterfeld -- Chief Executive Officer

Thank you. [Operator Instructions] Our first question comes from Jordan Alliger with Goldman Sachs. Please go ahead.

Jordan Alliger -- Goldman Sachs -- Analyst

Yes, hi, I was wondering if you could talk a little bit further about your thoughts on the truckload markets. Obviously, I know you focus more on net revenue dollars, but maybe some of your big picture thoughts on the selling price trends versus the purchase transport. And do we start seeing some tightening of that or --? Anyway, just your thoughts on those two aspects of net revenue. Thanks. Hello?

Robert Biesterfeld -- Chief Executive Officer

Can you hear me, Jordan?

Jordan Alliger -- Goldman Sachs -- Analyst

Yes, I hear you.

Robert Biesterfeld -- Chief Executive Officer

Okay. Sorry. I guess we had a technical difficulty there. Bill 2020 year on mute, I guess. As we think about the market as we see it right now, we continue to see the spot market pulling the contractual market up in truckload. I mean obviously these numbers on a year-on-year basis in the 40% range are clearly outsized because of the depression that we had in the freight markets and in the second quarter of last year. But we do expect to continue to see pricing increasing through the balance of the year. Sequentially, we're continuing to see pressure there. To your point, we do manage the business really to net revenue dollars on a per truckload basis. We're staying really focused right now, Jordan, on growing our overall AGP or net revenue dollars by really optimizing that balance between volume growth and AGP per shipment. We've been working hard to avoid contracts that could contribute more loads with negative margins.

And I think, as I've said in the last quarter's call, we entered the bid cycle late in 2020 and early into '21, facing sustained AGP per truckload that was well below the range for acceptable profitability for us. And so, we really had to take a couple of steps in addressing negative files, avoiding those contracts, but for both that instituted a lot of risk around negatives. And then, focusing on our balance between both spot and contractual. So we had a belief early in this year about where we thought the contract -- truckload market was going to move. And at this point, it appears that that view was fairly accurate. That did cause us to miss some opportunities early in the year, but those are really coming back to us now either shorter-term contractual agreements or more true spot market.

Jordan Alliger -- Goldman Sachs -- Analyst

Thank you.

Operator

Your next question, Jack Atkins with Stephens. Please go ahead.

Jack Atkins -- Stephens -- Analyst

Okay, great. Good afternoon and thank you for taking my questions. So I guess Bob just we kind of take a step back and think about the investments that you all have been making in technology to drive productivity through your business over the course of the last several years, and I know it goes back further than that, but specifically over the last several years. It certainly feels like we're at a tipping point here, and I'm just curious if you could maybe talk about, when do you think we're going to start seeing sort of that acceleration in productivity that's going to drive big clear market share gain where the market can sort of view, to really get a gauge on the level of top line growth and incremental profitability from all these investments. I guess we're just trying to get a feel for when we're going to hit the tipping point and really see those market share gains accelerate, if that question makes sense.

Robert Biesterfeld -- Chief Executive Officer

Yes, it makes sense, Jack. And I think, we're a couple of years in to this increase in investment, obviously, technology spend and investment in digitization has been ongoing for us. As I look at the operational results and the financial results, I believe that we're seeing some of those things today. We are certainly creating value in new ways for both customers and carriers. Some of the NAST productivity information that we provide in the deck, certainly speaks to the productivity uplift that we've gotten within NAST, whether it be shipments for per person per day, or that MPI, the mass productivity index. I believe that we spent the last several quarters really building capabilities and different digital capabilities with different digital products. And today, we're really pushing for broad adoption of that. And I talked in my prepared comments around the ability to leverage our proprietary pricing, that's driven by algorithms and models against our customers. I mean, today virtually, almost every single customer of Robinson can now access that pricing engine through the web portal, whether it's the Freightquote or direct to their TMS or ERP. The fully automated bookings, the digital freight matching that's occurring on the carrier side, they're well over 290,000 fully automated truckload bookings. And it's not only a big productivity lift for us, but it's also a new way for us to attract and engage with carriers in a different way, that may prefer that way of booking. So, again, I go back to, we're not at the finish line of either introducing new capabilities or getting those out into the wild. But I do think we're starting to see some really early stage results and impacts into the business. Just in the spot market alone, the roughly 30% volume growth that we had this quarter, a lot of that was driven through the digital pricing engines and connections. So, I think we're in a good place, Jack. Again, as I said in the prepared remarks, adding Arun Rajan, a really strong product leader with a lot of experience, a true digital native, platform companies. I look at that as a really strategic move for us to help accelerate and to help us be even better there.

Jack Atkins -- Stephens -- Analyst

Okay. Thank you.

Operator

Your next question, Todd Fowler with KeyBanc Capital Markets. Please go ahead. Hey, great. Thanks and good evening. So I appreciate, Mike, the commentary on the impact that the higher rate per mile has on the reported gross profit percentage here in the quarter, but how should we think about the widening of the spread that we saw between buy and sell rates during the quarter? I think it's a little bit unusual to kind of see that gap start to widen again, maybe at this point in the cycle. So, how do we think about how gross profit should trend into the back half of the year based on that dynamic? Thanks.

Mike Zechmeister -- Chief Financial Officer

Yes, thanks, Todd. It's a great question and for Robinson price always follows cost and that's particularly exaggerated in our contract business. And so, with respect to our AGP margins, the margins are best at Robinson when the cost of purchased transportation is coming down. And so, when you look at our business now, it's still going up. It's been going up here for quite some time. It's reached an all-time high. We think that there is going to be tightness in this market that may sustain through the end of the year potentially, but at some point if the cost start coming back to five-year averages or 10-year averages, that's when those margin start widening for Robinson, and that's when you start comparing us back to what happened in Q3 of 2018 or Q4 2018, when the pricing start -- when the cost started coming down. That that's the widening of the margin.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Got it. That makes a ton a sense. If we're looking at slide 9, we need to think about that line coming down versus going up?

Mike Zechmeister -- Chief Financial Officer

Yes, that's right.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Great. Thanks for the time, guys.

Mike Zechmeister -- Chief Financial Officer

Thanks, Todd.

Operator

Your next question, Ravi Shanker with Morgan Stanley. Please go ahead.

Ravi Shanker -- Morgan Stanley -- Analyst

Thanks. Good afternoon, everyone. So, Bob, some of your legacy broker peers, not digitalized, legacy guys, are talking about a 8% to 10% gross margins being the new normal for the foreseeable future and talking about trying to scale up with that level. Do you see it the same way? And how do you think about the current 12% to 13% level over time, maybe even detachment cycle [Inaudible]?

Robert Biesterfeld -- Chief Executive Officer

Yes, I don't subscribe to the 8% average adjusted gross profit margins over time. What I would tell you, and again, I'm going to flip Ravi back to adjusted gross or actual just net revenue or AGP dollars per load. And I would tell you in second quarter, our net revenue per load is basically right at the midpoint of our five and ten year trailing average. That's right. Now, clearly, back half of '18, front half of '19 was outsized margins, when cost started to drop against our contract business. We've got a whole bunch of customers that are at those 8% to 10% margins today. And they're highly profitable relationship for us because they're highly digitized, highly connected, highly automated on both the front end with the customer and in the back end with the carrier. So I really think that 8% margin range that you talk about is so dependent upon mix, right? Because If I can have a highly effective -- highly efficient customer relationship that's integrative via API on the customer side and integrative carriers in the backside, you can run that business profitably, all day long at mid single-digit, type single-digit margin. But if you've got a lot of labor, a lot of work that needs to go into carrier procurement, a lot of issues with shipping and receiving, that's not 8% to 10% business in my imagination. I think there's so many variables that go into that, it's not going to be.

Now, clearly we're taking steps to digitize both in the front end and the back end; front-end with the customer back-end with the carrier that drive greater efficiency and allow us to think differently about that. But ultimately, as we think about our operating expenses and our cost to serve, we are sitting here running a whole bunch of what if scenarios of what if it's eight, what if it's 10, what if it stays at 15? But we want to ensure that we've got the right operating model that we can survive and thrive regardless of what happens because a lot of that is outside of our control as witnessed this quarter just by the rapid run up in cost and sales.

Ravi Shanker -- Morgan Stanley -- Analyst

Okay. Thank you.

Operator

Your next question, Tom Wadewitz with UBS. Please go ahead.

Thomas Wadewitz -- UBS -- Analyst

Yes. Good afternoon. I wanted to get your thoughts on maybe [Technical Issue] changing. I guess I'd look at it a little bit with the 2018 framework that this cycle seems meaningfully different. So I'm just wondering if the way you manage NAST and the mix of business, do you want to target that differently in the future? It seems like the contract business has been a struggle the last couple of years. So, does it make sense to consider instead of trying to be 65% to 70% contract. I know you were less than that in the quarter, does it make sense to potentially target more of a 50-50 mix or -- just wanted to offer that as a question, given, it seems the market change? And then, I guess just if you'll allow me a second one in terms of two for one, but in the Forwarding, I don't think you get a lot of credit for the strong results in forwarding because maybe people don't believe that it's going to persist, do you have any thoughts on the sustainability of that strong results in forwarding maybe, I don't know, if you'd like to 2022 or just out a couple of quarters? Thank you.

Robert Biesterfeld -- Chief Executive Officer

Sure. That was technically two time, but we'll just, we'll dock you one next quarter, [Technical Issue].

Thomas Wadewitz -- UBS -- Analyst

Thanks.

Robert Biesterfeld -- Chief Executive Officer

But on the contract side, on the truckload piece, we're working to shape that portfolio today, right? And that we shape that portfolio based on how we go to market, how we respond on pricing to those bid. As I said in my prepared comments, I think it's 40% of our awards during the quarter. We're for the shorter-terms, three and six months agreements. We're doing a lot of things with customers today. Not in the spot or contract per se, but in kind of in-between space, where we're keeping that customer out of the spot. It's slightly beneficial to us. It derisks things for the customer. It derisk things for us as well. So we're getting pretty creative around pricing because to your point, the volatility that has existed in the market from '17 to today is unprecedented certainly. But moving to a true 50-50, I think disadvantages us, because really 85% of truckload freight in a typical market is moving under contract terms. And so, we really want access to that. We think that we're really good at serving customers in that contractual arrangement. We can look and feel like a large asset and aggregate all of the independent owner operators under a single technology umbrella and bring to life the capacity there that most customers wouldn't -- they're not built to access on their own. So I don't know that we'll ever get to 50-50 on a sustained level, but we do consistently work to shape that -- shape the kind of the makeup of the contract versus spot.

On the forwarding side, I think it was at this point last year that everyone was kind of saying there is no way that Robinson is going to top 104% growth in air freight in future, this must be transitory, and we just did. And so, we don't see anything fundamentally changing in the air and ocean market, so between now and Chinese New Year, at a minimum. Well, I would just really reinforce that there's so much work that Mike [Inaudible] and his leadership team in forwarding have done over the course of the last couple of years. We've challenged beliefs of how we can scale that business, of what the returns can be in that business. And with modest -- I would call modest headcount increases in the business over the course of the last couple of years, we've increased volumes significantly and certainly increased the revenue significantly. So, there's been a lot of commercial activity that's occurred. We've added a lot of new logos to that business. We're a better forwarder today, I believe, than we were two years ago, based on the scale that we've created. And that market does just continue to be so dislocated that shippers that were typically BCOs that weren't working with MBOs are now bringing MBOs into the mix to manage through that. So I'm not a prognosticator of exactly what the size of that business is 24 months from now or 36 months from now. But I really believe that there is a lot of sustainability of the results that we're delivering in forwarding, both on because of the cycle and also the work that's been done there and the investments around technology and investments in talent, on a global basis.

Thomas Wadewitz -- UBS -- Analyst

Okay. Thanks for the time.

Operator

Your next question, Brian Ossenbeck with JP Morgan. Please go ahead.

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

Hey, good evening. Thanks for taking the question. Bob, maybe another one on the contract is expand on your previous answer a bit. Do you think that behaviorally things have changed enough to kind of keep this hybrid mix of shorter-term contracts, something that's more out of the market like just you're going to look to, adapt to and offer more in the future or is this just kind of the size of the market and you just kind of roll with what's given to you? So, I just wanted to see how you're addressing that and if customers are giving any indication that they'd be moving more so in that direction and what that might mean for your mix going forward. Thanks.

Robert Biesterfeld -- Chief Executive Officer

Okay. I think it's a mix, Brian, in terms of how we're going to market and different pricing options that we're putting in front of customers. And also a realization by shippers that there is a ton of work that goes into an annual bid and a lot of cost is associated with that. And between 2017 and today, they're just been too many instances where 30 days after implementation, routing guides are failing acceptance levels are low, or the inverse of that like happened in '18 and the '19. You end up disadvantaged as a shipper and you're paying rates well over the market. And so, I do think that there is going to continue [Technical Issue] cement and a de-risking on both sides because with the volatility that's been there, it's unrealistic. I sort of think that they're going to hand over a 12-month contract at a price when you've got this much volatility and transfer that risk. And likewise, a carrier is simply not going to take that amount of risk on when the markets are moving as quickly as they are. So I do think that we're finding different ways to approach pricing and they get pretty creative to find solutions that are winning in the market for large blocks of freight that are helping shippers to deal with the volatility.

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

Okay, great. Thank you.

Operator

Your next question, Chris Wetherbee with Citi. Please go ahead.

Chris Wetherbee -- Citi -- Analyst

Yes, hi. I wanted to kind of come back to the comment that you made before about sort of the direction of margins and sort of a level that we're at now. And obviously, the absolute dollars of rate has an impact on whether those percentages kind of shake out. We're looking at gross profit per load, certainly makes sense. I guess I want to understand sort of the ability for direction to change in the back half of the year. So we've been sort of stuck between 12% and 13% understandably. So, but as you start to see the potential for rates, level off potentially in the back half of the year, the sort of shorter-term approach to pricing, the better contract versus spot mix, it would seem that you'd be able to see some sequential improvement in margins. I want to make sure I'm understanding the comments you made before where you saying that you don't expect necessarily to see that until you see rate down on a year-over-year basis, or it's some other factors that kind of play into your thoughts around that margins in the back half of the year?

Robert Biesterfeld -- Chief Executive Officer

Yes. So, I may have mentioned earlier, Chris, let me know if it's [Technical Issue] I made comments that we've been in this process of repricing. We've been focused on taking negative loads out. I will tell you, we are still in an elevated level around negative loads in our contract business. On a quarterly basis, if you look to 2012 to today, we normally average, I don't know, $20 million roughly of negative files on a quarterly basis. We're at about $60 million this quarter. So there is a $40 million delta between what normal looks like and second quarter of this year, just in our contractual business. And so, that is the opportunity that we continue to pursue. You start taking that over the course of the year and you start to get some big numbers pretty quickly. So we continue to work on that opportunity, to pursue the way to improve that profitability in that contractual business. That I would tell you is probably the biggest difference. You can take that down to operating margin. You can take that down to net revenue margin. But that's probably the biggest difference between the front end upfront of '18 and today, is just the existence of the spot market margins are roughly the same, but the contractual margins are far lower right now than they were then just because of the existence of those of those negative loads. So we got to keep chipping away at that.

Chris Wetherbee -- Citi -- Analyst

That's very helpful. It does help me with the answer. So presumably, that's a sort of quarter by quarter type of progression that should move you in the right direction assuming rates don't take a further step spike up, I would guess. I just want to make if I understand sort of the duration we're talking about here.

Robert Biesterfeld -- Chief Executive Officer

Yes, you're absolutely right. You're also taking the time [Inaudible] with two questions instead of one. But, Chris, you're absolutely right in the fact that if you assume that the market is going to at some point reach some sort of equilibrium at a higher price point, that's really when you can start those negative loads out. Certainly, we're taking steps along the way, but if you're constantly chasing a rising cost of higher -- through the course of the contract to take those out, if you reach some [inaudible] or equilibrium, even if that's a year-over-year 30% increase in whatever, then you can really start to plan to take that out and improve profitability.

Chris Wetherbee -- Citi -- Analyst

Understood. Thank you. Thank you. Your next question comes from Bascome Majors with Susquehanna. Please go ahead.

Bascome Majors -- Susquehanna -- Analyst

Yeah, good evening, and thanks for taking my questions. You talked about the long-term stickiness of some of what you've done in forwarding but looking at the ocean business, specifically, it looks like it's risen double digits in net revenue sequentially for five straight quarters here, can you talk a little bit about the momentum in that improvement and if it's continuing. I don't know if you can give us that trend by month or some thoughts on how the early third quarter is going, but just trying to get a sense for where that's headed in the short term to think about where it can go long term? Thank you.

Robert Biesterfeld -- Chief Executive Officer

Yes, you are right on the ocean AGP has increased each of the last five quarters. And trying to look to CSR, just like a portion in front of me here, and volume as well. So I would say it's over years, but the flywheel, I believe, continues to feed that business, right? And so, we're continuing to bring on new logos, continuing to build new logos that are larger shippers. And so, our award sizes are like 3.5 times today of what they were five years ago. And so, as we continue to build more trade lane density, as we continue to be able to do more consolidations, we really see that that just continues to grow exponentially over time.

Bascome Majors -- Susquehanna -- Analyst

And in the short term, is that momentum still continuing month after month? So, any thoughts on the sequential trend within the quarter would be helpful.

Robert Biesterfeld -- Chief Executive Officer

Yes, I mean, in general, what I would say about July, Bascombe, is that July for us really looks a lot like June, right? In terms of adjusted gross profit per day and really the performance of each of the underlying services they really carry forward pretty cleanly from June to July.

Bascome Majors -- Susquehanna -- Analyst

Thank you.

Operator

Your next question, Allison Landry with Credit Suisse. Please go ahead.

Allison Landry -- Credit Suisse -- Analyst

Thanks. Good afternoon. And appreciate you taking my question. So I just -- I was hoping you could maybe talk in a little more detail about hiring Arun Rajan as the Chief Product Officer. It seems like a pretty strategic higher, possibly an impressive resume, but what are the key initiatives or product offerings that we should expect them to focus on? I'd imagine there is a tech aspect to it. But also, should we maybe read this as a signal that you're potentially looking at entering other markets whether organically or through M&A? And if so, might that include something that is somewhat more asset intensive than your current business? Thank you.

Robert Biesterfeld -- Chief Executive Officer

Sure. So, hiring Arun is really part of our long-term commitment to bring our customers and our carriers the best products for their businesses, right? Supported by global network of experts and people that they can rely on; most of the things they tell us, they matter. And in the context of that, when I talk about products, I'm really talking about customer and carrier facing technology, right? The extension of the Navisphere platform and how that intersects with our customers and our carriers. Arun has got extremely deep product knowledge and his leadership experience is going to be invaluable for us as we drive really that next generation of innovation here at Robinson and throughout the industry.

The Chief Product Officer position is one that I've been considering for quite some time, and have been looking for the right talent to add to our team. But it was really critical that I found the right person, because I really see this as a fairly transformational step for our organization. And Arun, in me getting to know him, that is over the course of the process, I really found to be quite a transformational leader. He's got this long history of developing and deploying products that really enriched customer experience and create value at industry-leading digital first platform companies. So, in his role here at Robinson, he will lead all of our global product development and innovation across the entire Navisphere platform and how that intersects with, again, our customers and carriers. In terms of it being a signal to adjacencies or looking at M&A and other areas, I certainly wouldn't read through it in that respect. So it's really about creating the product organization and organizing ourselves effectively around this products as we were in the market.

Operator

Your next question, Scott Group with Wolfe Research. Please go ahead.

Scott Group -- Wolfe Research -- Analyst

Hey, thanks. Afternoon. So, any thoughts on sequential net revenue in the third quarter; sometimes it's up, sometimes it's down. And then, longer term, maybe just some thoughts on the net operating margins for NAST and Forwarding has never been higher and NAST sort of toward the low end of the range. Where do you think these margins can go over time yeah?

Robert Biesterfeld -- Chief Executive Officer

So, Q3 net revenue, July looks a lot like June and that's kind of as far as I would [Technical Issues] I mean, on a net revenue per business day, the numbers are pretty similar. The growth rates are probably a little bit higher in July than they were in June, just given the comparisons. So let's talk about the operating margin, I was thinking we might get this question, I was trying to think about we often get the question of how does it compare to previous times in the cycle. And so, just as a point of comparison I checked second quarter of 2018 and second quarter of this year. And if you go back in time, at that time, the second quarter of '18 NAST was at like 41%, Fowardings at 20.7%, and overall, we're 32.6%. Today, NAST is at 34.6%, Forwardings at 45.3%, and we're at 34.8%. So, our operating margin as an enterprise today is actually better today than it was in what I would consider kind of a similar time in the cycle. Where we can go? I still believe that upper 30s and 40 is an opportunity for NAST. We're certainly engineering our cost structure to be able to get there. And the biggest factor there is net revenue dollars per truckload, right? That's what moves -- that's what is going to be the biggest mover of that. But we're certainly doing a lot of things in the cost structure to try to get back to close to 40% operating margins and NAST. We said for a long time that our goal is to move the forwarding business to 30% operating margins. And now, all of a sudden we've shown ourselves that we can do 45, right? And so, I'd say, we'll still guide toward that 30% range for Forwarding but the sustainability of our current margins will continue to look at and could reserve the right to revisit the kind of the guidance, if you will, for that Forwarding business. But if we can keep the enterprise in that mid-30s range, we think that that's -- it's consistent with past quarters and certainly very feasible for us.

Scott Group -- Wolfe Research -- Analyst

Thank you, guys. Appreciate it.

Operator

Your next question, David Zejula with Barclays. Please go ahead.

David Zejula -- Barclays -- Analyst

Hey, thanks for taking the question. I noticed you had mentioned truckload, I believe it was truckload, link to haul 4.5%. I was just wondering how that is trending sequentially? What do you think the trend is really just due to kind of pandemic comps or there some sort of change in either business mix or mix of freight within your current customer base?

Robert Biesterfeld -- Chief Executive Officer

That's really been an ongoing macro trend over the course of the past several years, as e-commerce becomes more prevalent, as inventory gets placed closer to consumers, we've continued to see that trend down over the past several years.

David Zejula -- Barclays -- Analyst

Thanks.

Operator

Next question, Bruce Chan with Stifel. Please go ahead.

Bruce Chan -- Stifel -- Analyst

Great, thanks for the question and congrats to you, Arun. Though this is probably a similar question to what some of the others have been getting to, but if I could just maybe be a little blunt about it, I guess. I still don't understand why we still have so much contractual business that's running under water? I mean, I get that you run your business very collaboratively with your customers and you manage for the long term and honor your contracts, but market volatility is theoretically a good thing for brokers over the cycle. And if I look back over the previous cycle, it just doesn't seem like we've really seen that. So, we've got a market that's really tight. The cycle is probably longer than the normal one. You are providing a ton of value to your customer. Are things just that competitive right now that you can't move faster here or is there something else that's going on?

Robert Biesterfeld -- Chief Executive Officer

Well, Bruce, we just delivered a quarter with record revenues, record volumes across the suite of our entire services, and in the spot market grew our truckload volume by over 30%, which is really in line with what I've seen a lot of other companies that are more focused on the spot market brokerage have delivered very similar results. Our focus on the contractual business as I [Technical Issue] think 85% of the freight that moves in the contracts is a market that we want to be in. We want to participate in that three cycles. Why is it that we're still having a high degree of negative loads in that business? We forecasted where we thought this year was going to go, but we didn't expect 42% increase, 47% increase in carrier cost or higher in the second quarter. And so, we've got to deliver results for multiple stakeholders certainly, but our customers are what ultimately create the value for our shareholders. And so, I'm a firm believer that we need to do our best to manage our commitments to those relationships, through cycles, because it pays dividends of long-term. When I look at our top 500 customers that make up close to 50% of our revenue and see the retention rates that we have with those customers of 99% to 100% in any given year, I think that's a testament as to why we take the positions we do with those customers, because we try to take the long-term view.

Okay. No, that's great. That's a fair point. And I appreciate the color. Thanks, Chris.

Operator

Next question, [inaudible] with Bank of America. Please go ahead.

Unidentified Participant

Hey, good afternoon, guys. Thanks for squeezing me in. Bob, so I wanted to get your thoughts on one of your large start-up competitors, digital competitors has announced that they're acquiring Transplace [Phonetic] and kind of enhancing their offerings in LTL. So, I wanted to get your thoughts there. But I wanted to kind of contextualize it in thinking about -- C.H. Robinson for a long time has said that your competitive advantage or your moat is kind of your scale and the ability that you have to provide kind of comprehensive solutions in really tight freight markets. So, maybe you could talk about -- thoughts on the kind of competitive landscape and also maybe how C.H. Robinson has been able to differentiate itself kind of given the real tightness in capacity that we've seen over the last couple of months?

Robert Biesterfeld -- Chief Executive Officer

Yes, absolutely. I won't comment on competitors' strategies or their moves. But I certainly will speak to our competitive advantages and those things that you cited I still believe to be the case, right? We are highly focused on ensuring our customers are successful navigating challenging freight markets. We continue to have the largest network of carriers in North America, which we're now more and more often digitizing those relationships with those carriers, which will also move faster. We signed up 6900 new carriers in the quarter, last quarter. Those are all new carriers that we can bring to light to help serve our customers. As I go back to the last question I was asked, our word matters to our customers. Our commitment to our customers' matters. We continue to differentiate on that customer promise. So the blend between technology, plus having a global suite of services. Our ability to go into a customer and offer them a leading global Forwarding product, a leading Surface Transportation product, what is -- I believe our LTL business would be equivalent to the fifth or sixth largest asset based LTL carrier, and we don't own a truck or a warehouse. That's a $3 billion business, with the largest non-asset based LTL provider, by multiples of the next closest competitor. And so, those things of scale, of service excellence, of commitment, of technology and investment, those are continuing to resonate with customers and continuing to help us to win in the marketplace. And I believe that to be true today. And I believe that that'll be true in the future.

Unidentified Participant

But does that manifest itself in the form of kind of better margins or kind of better growth rates over time?

Robert Biesterfeld -- Chief Executive Officer

Yes, I believe that it does. Again, I believe that if you want to talk about operating margins, I believe that we have a path to 40% operating margins in NAST, something in excess of 30% in fowardings, and 35% operating margins for the business. And we are investing back in the business. We are investing in building capability. We're investing in building better technology that our customers will use and love. We're building technology that our carriers will use and love. And we're hiring really great people across the globe with great experience to bring these services to life.

Unidentified Participant

Okay, great. Thanks for that.

Operator

Thank you. I would like to turn the floor over to Chuck for closing remarks.

Chuck Ives -- Director of Investor Relations

That concludes today's earnings call. Thank you everyone for joining us today and we look forward to talking to you again. Have a good evening.

Duration: 61 minutes

Call participants:

Chuck Ives -- Director of Investor Relations

Robert Biesterfeld -- Chief Executive Officer

Mike Zechmeister -- Chief Financial Officer

Jordan Alliger -- Goldman Sachs -- Analyst

Jack Atkins -- Stephens -- Analyst

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Ravi Shanker -- Morgan Stanley -- Analyst

Thomas Wadewitz -- UBS -- Analyst

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

Chris Wetherbee -- Citi -- Analyst

Bascome Majors -- Susquehanna -- Analyst

Allison Landry -- Credit Suisse -- Analyst

Scott Group -- Wolfe Research -- Analyst

David Zejula -- Barclays -- Analyst

Bruce Chan -- Stifel -- Analyst

Unidentified Participant

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