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CH Robinson Worldwide, inc (NASDAQ:CHRW)
Q3 2021 Earnings Call
Oct 26, 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 C.H. Robinson Third Quarter 2021 Conference Call. [Operator Instructions]

I would now like to turn this conference over to Chuck Ives, Director of Investor Relations.

Chuck Ives -- Director of Investor Relations

Thank you Laura, 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 third 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.

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, and good afternoon everyone and thank you for joining us today. The third quarter was another quarter of progress and strong execution resulting in record quarterly financial results. The trajectory of our business is heading in the right direction as we continue to leverage our tech-plus strategy to help customers navigate through an extremely challenging and capacity constrained environment, which we expect to continue.

Demand for our global suite of services and for the benefit of our powerful technology platform continues to be strong and the digitization efforts continue to take hold and be ingrained in an increasing percentage of our business. In our North American truck load business, we made steady progress in a sustained tight capacity environment. Through the continued repricing of our contractual portfolio and higher volumes of spot business, our adjusted gross profit or AGP per truckload returned to our 5-year average, and our AGP per mile in Q3 exceeded both our 5-year and 10-year averages. We accomplished this while growing our truckload volume 4.5% year-over-year and 3.5% on a sequential basis.

Within the quarter, we saw an acceleration of truckload volume per business day in each month of the quarter with 7% year-over-year growth in September, and that growth trend has continued into October. For the quarter, NAST truckload grew AGP by $83 million or 36% year-over-year through a 4.5% increase in volume and a 30% increase in AGP per load. This included a 14% increase in spot market volume year-over-year, due in part through an 85% increase in volume that was driven through our proprietary dynamic pricing engine, which is now on pace to generate $1 billion in spot truckload freight for the year. Nearly half of our spot or transactional business was priced via integration with our dynamic pricing engine in the third quarter, delivering real-time pricing with capacity assurance from the largest network of truckload capacity in North America.

We closed the quarter with an approximate mix of 60% contractual volume and 40% transactional volume, which is consistent with our mix in the year ago period. Our average truckload linehaul cost per mile paid to our carriers, excluding fuel surcharges increased 26% compared to the third quarter of last year. Our average linehaul rate billed to our customers, again excluding fuel surcharges, increased 27% year-over-year. This resulted in the highest cost and price per mile on record and a 33% year-over-year increase in our NAST truckload adjusted gross profit per mile. This, combined with a 2% decrease in the average length of haul resulted in the 30% increase in AGP per truckload.

During the quarter, we saw a routing guide depth of tender in our Managed Services business increase slightly from 1.6 in June to 1.7 in September, indicating slight deterioration of shipper routing guide performance during the quarter. Given the current structural constraints around expansion of truckload supply coupled with the continued strong demand as we head into the holiday season, we expect capacity to remain tight and we expect to perform well in that environment, with over half of our contractual truckload business stated to reprice in the fourth quarter of this year and the first quarter of next.

During the third quarter, we continued our effort to expand our carrier network, and we launched an effort to recognize truck drivers for their extraordinary efforts and we had incredible engagement. This led to a new record of 9,500 new carrier sign-ups and increased utilization of our carrier technology and apps. Our NAST LTL business grew adjusted gross profits by $14 million or 12% year-over-year. This was delivered through a 1% increase in volume and a 10.5% increase in adjusted gross profit per order. This increase in volume was on top of a 13.5% volume growth in the comparable quarter last year. Overall demand in the LTL market remained strong, driven by growth in e-commerce, resulting in capacity remaining at a premium. Our value proposition in LTL continues to resonate with shippers of all sizes across multiple industry verticals.

Turning now to our Global Forwarding business. The third quarter was our sixth consecutive quarter of strong year-over-year growth in total revenues, AGP, and operating income. Based on low inventory to sales ratios and the robust pipeline of business from new and existing customers, we believe the strength in this business will continue into 2022. In our ocean forwarding business, we grew our adjusted gross profit by $126 million or 142% year-over-year. This came through a 12% increase in shipments and a 116% increase in adjusted gross profit per shipment. Demand continues to be stronger than what the overall industry can meet, with limited vessel and container capacity. And although some ports are working to implement expanded operating hours, other market constraints, such as the shortage of truck drivers, freights capacity and inland warehouse space, continue to be bottlenecks and port congestion is likely to continue into 2022. Our forwarding team has done a great job of strengthening our carrier relationships and procuring incremental capacity to best serve our customers, as well as working with shippers to better plan their shipping needs and to consider ultimate modes or ports.

Finally, our international air freight business delivered adjusted gross profit growth of $26 million or 76% year-over-year. This was driven by a 51% increase in metric tons shipped and a 17% increase in adjusted gross profit per metric ton. Demand for air freight remains incredibly strong, partially driven by continued conversions of some ocean freight to air. Air freight capacity is continue to be strained and we continue to position charter flight capacity to support demand from both new and existing customers.

The forwarding team is continuing 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 that we've made in digitization, data and analytics, as well as our global network that's supporting our expanded geographical and vertical presence. We believe that these strategies and competitive advantages of C.H. Robinson will enable us to create more value for customers and in turn win more business, sustain the market share gains that we've achieved and deliver solid returns for our shareholders.

Our digital investments continue to deliver customer value and unlock growth in new and exciting ways. The latest example of this is our introduction of Market Rate IQ during the quarter. This brings pricing transparency to shippers by allowing them to compare their rates to the market averages and then using the information advantage of C.H. Robinson break down their rates to see potential savings opportunities. When we bring these Robinson Labs Innovations to the market, we see increased engagement with our customers, higher win rates with those customers that are truly realizing the value from these new products.

As I mentioned earlier, the amount of volume that's being delivered through our real-time dynamic pricing tools has grown significantly, enabling these digital connections improve efficiencies 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 with 100 new customers connected via TMS and ERP connections in the third quarter of 2021. The number of daily and monthly average users across our customer and carrier facing platforms also continues to grow with 24% year-over-year growth in daily average users of our carrier platforms as we continue to deliver new capabilities and benefits to our carriers through both the web and mobile versions of Navisphere Carrier and Driver. During the quarter, we had over 340,000 fully automated bookings in our NAST truckload business, which was an increase of nearly 80% year-over-year.

And finally, as it relates to productivity, we've again highlighted a couple of key metrics for NAST in our earnings presentation. During the third quarter, we invested in hiring and building our bench to support growth. On a year-to-date basis, we continue to show year-over-year improvement in productivity as indicated by 880-point favorable spread in our NAST productivity index, which represents the difference between the year-over-year change in NAST volume and the change in NAST headcount.

Shipments per person per day is another metric that clearly shows the relationship between the timing of our increased digital investments and the impact on NAST productivity, with an over 25% increase in productivity since the beginning of the increased investment period. We are encouraged with the progress that we're making in our digital investments and the impacts of these investments are delivering to our customers through our carriers and the impact to our overall results. Across our global suite of services, we believe that our tech-plus strategy that combines our tailored market-leading technology solutions with our global network of logistics experts and an information advantage created from our scale and our data is the right strategy and one that is aligned to the needs of our shippers and partners as we help them to navigate these highly disrupted markets and deliver for their customers.

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

Mike Zechmeister -- Chief Financial Officer

Thanks Bob, and good afternoon everyone. As Bob mentioned, we delivered another quarter of record financial results in Q3 driven by strong performance in a favorable market as we continue to execute on our tech-plus strategy. Our total company revenue increased 48% over Q3 last year, and our adjusted gross profit or AGP was up 43%. Increased AGP was driven by both volume and AGP per shipment across ocean, air, truckload and LTL. Total company AGP also improved by 13% sequentially and 33% over the pre-pandemic quarter of Q3 2019.

On a monthly basis compared to 2020, our total company AGP per business day improved in each sequential month of the quarter and was up 51% in July, up 39% in August and up 40% in September. For the fifth consecutive quarter prices and costs rose across our North American truckload business with cost per mile and price per mile each reaching new highs in each month of Q3 due to the persisting supply demand imbalance. Our NAST team navigated through this environment by continuing to grow spot volume which was up approximately 14% year-over-year in Q3, marking the fifth quarter of double-digit spot market volume growth. Within our contractual freight business, where Q3 volume was flat, we continue to selectively reprice the portfolio to reflect the ever-increasing cost of purchase transportation in this market.

As Bob mentioned, our Q3 truckload AGP per mile is now above both our 5-year and 10-year averages. AGP per mile and AGP per load are key metrics in our truckload business rather than an AGP margin percentage, which naturally rises or falls with the changing market cycle pricing. For those following AGP margin percentage if or when the market loosens within the current cycle with the greater than two-thirds of our truckload volume on 12-month contracts, we would expect to see AGP margin percent expansion as we typically have in the past. We continue to focus on overall AGP dollar growth by optimizing volume and AGP per shipment across our service offerings. With enhanced customer focus and digital investments, we expect to drive long-term growth and efficiency into our model.

Now turning to expenses. Q3 personnel expenses were $399.9 million, up 32% compared to Q3 of last year, primarily due to higher incentive compensation costs and the impact of short-term pandemic-related cost reductions in Q3 of last year. Our Q3 average headcount increased 7.1% compared to Q3 last year. Despite the tight labor market, we successfully hired the talent we need to support our growth expectations, particularly in Global Forwarding and NAST. Given the increase in incentive compensation resulting from our profit expectations for 2021 and the additional headcount, we now expect 2021 personnel expenses to be in the $1.5 billion to $1.55 billion range, which is up from our prior expectations of $1.42 billion to $1.48 billion.

Q3 SG&A expenses of $133.5 million were up 13% compared to Q3 of 2020 primarily due to the impact of short-term pandemic-related cost reductions in Q3 of last year. We continue to expect 2021 total SG&A expenses to be approximately $0.5 billion, including approximately $90 million to $95 million of depreciation and amortization. Our Q3 income from operations was a quarterly record at $310.8 million, up 85% versus Q3 last year, and our adjusted operating margin of 36.8% was up 820 basis points compared to last year and up 510 basis points from the pre-pandemic quarter of 2019. Third quarter interest and other expense totaled $16.7 million, up approximately $9.2 million versus Q3 last year due primarily to the impact of currency revaluation. Q3 results included a $3.8 million loss on currency revaluation compared to a $3.3 million gain in Q3 last year. Interest expense was also up $1.2 million due to the higher average debt balance.

Our Q3 tax rate came in at 16%, our second lowest tax rate on record, which was only eclipsed by the 15.1% rate from Q3 last year. This year's Q3 rate was lower than our expectations, primarily due to the favorable mix of foreign earnings and U.S. tax incentives. We are now expecting our 2021 full year effective tax rate to be 18% to 19% compared to our prior estimate of 20% to 22%. Q3 net income was $247.1 million, up 81% compared to Q3 last year and diluted earnings per share was a quarterly record at $1.85, up 85% versus Q3 last year.

Turning to cash flow. Q3 cash flow used by operations was approximately $74 million compared to $169 million used in Q3 last year. Sequentially, cash flow from operations declined by $223 million, driven primarily by a $679 million sequential increase in accounts receivable and contract assets and partially offset by a $267 million increase in total accounts payable and the $247 million in net income. In Q3, accounts receivable and contract assets were up 19.6% sequentially, while total revenue was up 13.2%. The resulting 3.9 day increase in days sales outstanding or DSO was driven primarily by the mix shift associated with higher revenue growth in Global Forwarding where our DSO runs approximately double that of our NAST business. While our accounts receivable balance has grown, we are not seeing quality issues as our percentage past due and credit losses have both improved compared to our 3-year averages. Over the long-term, we expect AGP growth to outpace working capital growth.

Capital expenditures were $22.7 million in Q3, up from $15.2 million in Q3 last year. We now expect our technology-driven 2021 capital expenditures to be $70 million to $80 million, up from our previous expectation of $55 million to $65 million. We returned approximately $237 million of cash to shareholders in Q3 through a combination of $168 million of share repurchases and $69 million of dividends. That level of cash returned to shareholders represents a 230% increase versus Q3 last year when we were not repurchasing shares out of an abundance of caution due to the pandemic. During Q3 this year, we repurchased approximately 1.9 million shares at an average price of $90.58. At the end of Q3, we had approximately 3.2 million shares of capacity remaining on our 15 million share repurchase authorization from May of 2018.

Our cash balance at the end of Q3 was $203 million, down $41 million compared to Q3 of 2020 and we continue to work down our cash balance through efficient repatriation of excess cash from foreign entities with the end goal of carrying only the cash we need to fund operations. We ended Q3 with $571 million of liquidity comprised of $368 million of committed funding under our credit facility, which matures in October of '23 and our Q3 cash balance. Our debt balance at quarter end was $1.73 billion, up $633 million versus Q3 last year, driven primarily by increased working capital and share repurchases. Our net debt to EBITDA leverage at the end of Q3 was 1.39 times up sequentially from 1.25 times at the end of Q2. 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 in our total shareholder returns.

Overall, our NAST team made progress toward our truckload volume growth expectations. As you saw in Q3, the percentage increase in price per mile was higher than the percent increase in cost per mile for the first time in 9 quarters. While there is no telling where the market is headed, inflections like we saw in Q3 had historically led to periods with our highest AGP margins. The Global Forwarding team continue to generate significant earnings while building on a solid foundation for future growth. The expanded global team with upgraded tech and more uniform operations across the globe is now onboarding its strongest pipeline of new customers.

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. I'll take a couple of minutes here and wrap up our prepared comments before we turn it back to the operator for our live Q&A. I believe that our results, once again this quarter, continue to demonstrate that our model is working and that our strategy is sound. There is no question that we're in a time of unprecedented supply chain disruption across the globe that reaches virtually every mode of transportation, and I believe that Robinson continues to be uniquely positioned to help customers not only navigate this environment, but to succeed in this environment. None of us know exactly when the cycle is going to begin to turn or how long it will last, but with everything that we see today, we believe this cycle will in fact extend due to the global constraints around adding capacity in labor while demand remains strong. I certainly don't believe that having 70 ships anchored in Los Angeles is by any stretch the new normal, but I also don't see us reverting to a market resembling 2019 anytime soon.

As reference on Slide 3 of our earnings deck, one of the pillars of our tech-plus strategy is our people. Our customers continue to tell us that our team around the globe are the people that they rely on. As I've said before, I believe that the people at Robinson is the most capable team of supply chain experts in the world and I'm incredibly proud of how this team has continued to help thousands of customers navigate this environment, while also delivering record financial results for our shareholders.

These past couple of years have been stressful times to work in the supply chain. In many parts of the world, we continue to work in a primarily remote environment, we're certainly hopeful to start getting more people back in the office into a hybrid model as soon as we begin to see the Delta variant begin to fade. Solving for the complexities of today's supply chain issues is not a 9:00 to 5:00 job. It's 24x7x365, and I want to again recognize and thank our people for the great work that they're doing. In a time where labor participation rates are low and companies across the globe are challenged to add team members, we were able to grow the size of our team to support our customers and to fuel our future growth. People are choosing to join Robinson today because of the strength of our global brand and the opportunities that we offer for both personal and professional growth.

As I close out my prepared remarks, I'd like to reference Slide 6 in our earnings deck. For those of you who have been following us for a while, you know that a decade ago or so, we were primarily known as a North American truckload brokerage company. In 2012, we had a belief that strategically it would be important for our future to have a more balanced portfolio of services, We believe that time of supply chains will continue to become more global and that if we had a strong Global Forwarding business to complement our industry-leading North American Surface Transportation business, we can really hold a unique position in the marketplace and bring a more comprehensive solution to life for our customers, which would in turn drive growth, by connecting supply chains across the globe. We also believe that if we execute that effectively we can create a business with operating margins in line with other industry-leading forwarders that could help us to offset some of the cyclicality in our core truckload brokerage business and we can deliver more consistent results to our shareholders.

At that time, prior to the acquisition of Phoenix International, forwarding represented around $150 million of adjusted gross profit, I guess, at the time we called it net revenue, and that was less than 10% of our enterprise net revenue and contributed very little to operating income. Since that time we've made a string of strategic acquisitions in the forwarding space and delivered strong organic growth and execution while creating a single global operating model supported by our Navisphere technology platform. Today, we're the number one NVOCC in the Transpacific Eastbound trade line and a top five NVOCC in the entire global ocean freight industry, while we've also driven strong growth in both air and customs.

Our successful execution of this strategy along with favorable tailwinds in the marketplace has allowed us to deliver on a trailing 12-month basis over $944 million in Global Forwarding AGP and $422 million in operating income. Global Forwarding now represents 37% of our total company AGP for the past quarter, while we delivered 97% growth in AGP and an operating margin of over 53%. And looking at the left side of that slide, we can zero in on NAST a little bit. We stated that we'll continue to pursue profitable market share growth within this business, which we achieved again this quarter. Volumes increased both year-over-year and sequentially. Within NAST, we've spoken extensively about our investments in technology as we transition to more of a digitally led company and you can see there's multiple proof-points to our advances in technology and the evolution of our business process are driving successful outcomes.

Our NAST business is healthy today and the pace of evolution to our business model continues to accelerate. In today's environment of global supply chain disruption, customers are looking for solutions that span the globe and across all modes and ocean freight solution alone doesn't solve for the problem that customers are facing, neither does the stand-alone truckload or an LTL solution, and we continue to be uniquely positioned to serve customers during this time of disruption and beyond to orchestrate end-to-end supply chain success for these customers.

So just as we believed in 2012, we continue to believe today, our ability to deliver a global suite of services fueled by great people, supported by industry-leading technology and an information advantage that's unmatched due to the scale and the $26 billion in freight under management that we have matters, and I'm confident that it's going to continue to drive our growth in the future.

Going forward, we're going to continue to leverage the strength of this diversified non-asset-based business model that delivers strong returns on invested capital. 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 to drive innovation, improve service to our customers and carriers and to drive growth across all of our global suite of modes and services.

So this concludes our prepared comments, and with that I'll turn it back to Laura for the live Q&A portion of the call.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Tom Wadewitz with UBS. You may proceed with your question.

Thomas Wadewitz -- UBS -- Analyst

Yeah, good afternoon, and you know what, congratulations on great results in forwarding in particular and -- it seems like really taking advantage of the market and doing well. I guess, I mean, my question is on NAST. It's -- you give a lot of good stats on technology and how are you getting traction on that, but it seems like it's not necessarily translating in terms of, you know, if it's net revenue growth or operating income, but it seems like there is a little mismatch between how well you're doing with the technology and how that's flowing through in terms of just I guess growth or kind of profitability in NAST as well, so if you have any thoughts on that. in that relationship in NAST and maybe just relative to the strong brokerage market? Thank you.

Robert Biesterfeld -- Chief Executive Officer

Sure. Thanks for the question, Tom, I guess, I'll maybe reiterate my closing comments there, and we tend to look at the sum of the parts here and we feel pretty good about the fact that we just delivered enterprise operating margins, one of the highest that we delivered since the third quarter of 2016. Specific to NAST, there's really two things at play there. The first is, due to the increased investment in technology and the investment that goes with that whether its expenses are capitalized, comes prior to some of the benefits that we've gained sort of couple of years into this journey of have increased investments and we haven't fully harnessed the impacts of the business, because working I'll tell you, drive adoption both internally and with our carrier partners.

We talk a lot about connectivity and connectivity is to me the thing that eliminates the friction from these transactions and allows us to drive greater efficiency. When I think about our transactional pricing engine being up to the level it is some 85% year-over-year. That's a great example of us taking friction out and driving better outcomes. The second area that is weighing on the operating margins today is still the higher level of negative loads in our truckload business, while we improve that on a year-over-year basis by about 390 basis points or about $12 million, it was pretty consistent from Q2 into Q3 and so not that you can just net out one variable, but if you net it out those negative loads and they looked more like historical averages, you would see operating margins that look very similar to what we've experienced in the past in NAST.

Thomas Wadewitz -- UBS -- Analyst

Do you think that there is an acceleration coming like just when you talk about the traction of the spot loads and the technology, is it reasonable to think that accelerates at some point looking forward, or is that the wrong way to look at it?

Robert Biesterfeld -- Chief Executive Officer

I would believe that we're seeing some of the acceleration right now, I mean, when I saw an 880-basis-point spread between headcount and volume growth, that's a real accelerant, we talk about a 25% increase in shipments per person per day. I think that's an important proof-point of the productivity that we're gaining. The automated bookings is something that we've talked about consistently arguably and I would venture to guess the number of automated bookings that we have there 340,000 in a quarter likely exceeds any of the "Digital upstarts" in terms of their total load volume for the quarter. And so I do think that we are making progress here. The biggest weight and the biggest drag on operating margins relative to past quarters has been those two factors of the increased technology investment and the negative loads in truckloads, and those two things that we anticipate, gaining better value from that technology as time goes on, as well as narrowing the scope of those negative loads, as markets continue to settle.

We'll reprice about half of our contractual truckload base in Q4 and Q1 of this year and I really see the market going in a couple of different directions, if take scenario, A, we maintain this kind of current status, so tight markets at elevated prices and if that's the case, then we will reprice accordingly and we shouldn't eliminate some of those negative loads and settle out at a certain net revenue or AGP per shipment. The other side of that is that potentially the markets starts to cool down and you see margin expansion in that model. I don't anticipate that we're going to continue to see year-on-year increases at the same rate that we have over the past couple of quarters in terms of cost of purchased transportation.

Operator

Our next question comes from the line of Jordan Alliger with Goldman Sachs. You may proceed with your question.

Jordan Alliger -- Goldman Sachs -- Analyst

Yeah, hi. Just curious, just taking a spin on the freight forwarding side of the equation, which obviously continues to do quite well, there is questions of course on sustainability. So I'm just sort of curious if you could talk to your thoughts on what are the operating margin in that segment, the tightness in the supply chain, tightness how long that could potentially linger and drive these outside gains? And then maybe more importantly once the frenzy does dial down between market share and gaining new customers, are you at a new platform levels and even if things do dial down, we're not dropping back to sort of earlier pre-COVID type of levels in terms of base level profitability? Thanks.

Robert Biesterfeld -- Chief Executive Officer

Yeah, I don't see us going back to the base level of profitability that we demonstrated pre-COVID, pre-pandemic call for 2018-2018 levels. I think we've done a lot, the team at forwarding has done a lot to engineer their cost structure in such a way that we can deliver improved operating margins over time. We've cited the target of 30% operating margins in that business. We haven't updated our guidance around that point, but it's certainly shown that we've got the capability of delivering operating margin as well in excess of that. I won't try to forecast how, where or when the cycle on the forwarding side ends, but there has been a lot of conversation here as way the reports and keeping some select ports open 24x7.

That is one node within the overall supply chain, but it is not -- while it's an important one, doing that alone isn't going to solve for this, and so I think we have certainly domestically, but potentially globally a real challenge with labor participation, truck driver shortage, warehouse labor shortage, port labor shortage, rail yard labor shortage. I mean that labor issue permeates throughout the entire supply chain and it's really driving fluidity out which causes many of these backups. And so, I don't know what the magic bullet is so to speak that solves for that Jordan, but I do believe because labor sits at the center of this in virtually every single node, that it's going to be slower to develop. You look at inventory to sales ratios and clearly there is a lot of demand pent-up behind that in order to get to more normalized levels there. So again, I won't try to prognosticate when and how this ends, but I do believe that it's going to extend for quite some time.

Jordan Alliger -- Goldman Sachs -- Analyst

Thank you.

Operator

Our next question comes from the line of Jack Atkins with Stephens. You may proceed with your question.

Jack Atkins -- Stephens -- Analyst

Okay, great, thank you for taking my question. So I guess Bob going back to the reference in the slides around the 340,000 fully automated bookings in the quarter. One, is there a way to kind of quantify what percentage of your truckload shipments that represent? And I guess secondly, do you feel like that you're at a point where you can really kind of see the the bottleneck around capacity procurement, that's really -- I think it's been fairly been historically fairly labor intensive, are you starting to see technology breakthroughs there that can allow you to accelerate those fully automated in sort of communications in bookings with your carrier partners, just be -- I'm curious if you could maybe talk about that, because it seems like that's an opportunity to really accelerate the automation within the system?

Robert Biesterfeld -- Chief Executive Officer

Yeah, i think how I would quantify that and I won't comment on the percentage of total. But just note, on a year-on-year basis and sequentially, it continues to grow in kind of a hockey stick up into the right, the good kind of chart right up into the right, unless it's expense. I think that the way that I would quantify where we sit today on this journey is I think we've captured the low hanging fruit. I think we've captured the early adopters in the carrier community. I think we've captured those that more naturally want to interact with us in a fully automated way and there is a lot of things coming down the pipe in terms of greater adoption of booking APIs, this isn't just all about a mobile application, right? This is looking and meeting our carriers where and how they want to interact with us and trying to drive friction out of every step of that organization -- out of that process. I would say Jack, I would say that the next 6 to 9 months for us are really, really critical in this journey, and that I would expect for us to really deliver some strong results related to this carrier procure automation over that time period.

Jack Atkins -- Stephens -- Analyst

Thank you.

Operator

Our next question comes from the line of Jason Seidl with Cowen. You may proceed with your question.

Jason Seidl -- Cowen & Co. -- Analyst

Thanks, operator. Good evening gentlemen. I want to stick to the forwarding side of the business here. Clearly, you're doing a great job, you're throwing up some fantastic revenue growth, as we look to the back half of the year, what type of scenario can we see in revenue growth in, as opposed to it just might fall off because we have just unheard of comps right now?

Robert Biesterfeld -- Chief Executive Officer

I think the thing that gets me really feeling good about our forwarding business is, it is so grounded and really strong volume growth, and obviously there has been improvement in adjusted gross profit per shipment, but when I look at our growth this quarter of 12% in ocean and over 50% in air, we think that there is some staying power to that. Our customer -- We have several large opportunities and a very robust customer pipeline of opportunities that we're yet to implement customers that we've come to agreements with or we're going to take over portions of all of their forwarding business where we've yet to implement large chunks, for lack of a better piece or better term of business. So we think the pipeline is robust. And yeah, the macro market conditions are going to dictate some of this, but the growth trajectory for that business, we feel really strongly about.

Jason Seidl -- Cowen & Co. -- Analyst

So to be clear, you do think there are scenarios where you can grow your revenue in the back half of the year?

Robert Biesterfeld -- Chief Executive Officer

You know Jason after the second quarter of last year we all sat here, and so there's no way that we can grow our freight revenue off of 104% growth rate in Q2 of 2020 and we did, and we continue to grow really strong and deliver strong results on top of some really difficult comps. And so based on where we sit today and looking into the quarter, we think it's realistic to expect that we can deliver growth -- we can continue to deliver growth in that business.

Jason Seidl -- Cowen & Co. -- Analyst

That's great color. Listen, nice quarter, I appreciate the time.

Robert Biesterfeld -- Chief Executive Officer

Appreciate it.

Operator

Our next question comes from the line of Todd Fowler with KeyBanc Capital Markets. You may proceed with your question.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Great, thanks,and good evening. Bob, I wanted to ask on Slide 9. I think that Mike made the comment and we've got this in our model. This was the first time in nine quarters when year sell rate exceeded your cost of hire. Can you just talk a little bit, I mean is that the contract renewals and repricing work that you've done here this year, is that a greater ability to pass through some of the higher spot rates that you're seeing just because we've been in this market? And as we think about this chart and this curve, what would be the reason why this isn't sustaining going forward, which as you pointed out is typically a good environment for you on the AGP side?

Robert Biesterfeld -- Chief Executive Officer

Yeah, If you look at the actual cost of hire within our business, and you look at it sequentially week by week and the actual customer pricing, we have started to see that flatten out, right, in terms of dollars per mile that we're billing, dollars per mile that we're paying. And so we're not experiencing the week to week volatility of these increases and decreases. We do -- people have found things kind of flattening out at a much higher level, and we've delivered the change there based on just the opportunities that we've taken in the spot market and also the selective repricing activities that we've done within our contractual portfolio. We've continued to take the long game on our contractual strategic customers, right? And so there are customers I can tell you within the portfolio today that in the third quarter, we lost maybe on 20% of the loads or 25% of the loads, but they're really important customers for us that have been with us for 20 years that we know that we have an opportunity to reprice the business with them in the fourth quarter. And so, some might say we should have been really aggressive in the third quarter to go in and whack those losses in order to drive those losses out the short term, but we believe that that would have a very negative implication for us in the fourth quarter and moving forward for the next four quarters. And so we continue to take the long game with those customers. And so, I do expect to see this type of trend continuing and the difference in the year-over-year change in rate and cost and if we can get a more stable-type market, I think we have that opportunity.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Yeah. Okay that makes sense. Thanks for the time tonight.

Robert Biesterfeld -- Chief Executive Officer

Yeah, thanks Todd.

Operator

Our next question comes from the line of Chris Wetherbee with Citi. You may proceed with your question.

Chris Wetherbee -- Citi -- Analyst

Hey, thanks, good afternoon. Maybe I want to zero in a little bit on net operating expenses and maybe just get a sense, I'm guessing, there's probably some incentive comp that's in there based on the business that you're doing in the quarter, but I want to get a sense of, I mean how to think about that going forward, so it's a nice step-up from the second quarter to the third quarter. And I guess I think adjusted gross profit per load was at a high level, I think it was above your longer term averages, but when you look at for an operating income on a per-load basis, how does that compare? I just want to get a sense of what you're actually getting that leverage dropping to the bottom line, I know heads are growing slower than volumes, I would have expected that relationship to feel a little bit more favorable, so I just want to make sure I'm not missing something there.

Mike Zechmeister -- Chief Financial Officer

Yeah, Chris. Let me take that. So on our NAST business, we have increased heads slightly in that business, and that's really as we've looked at procuring capacity and making sure that we're taking bottlenecks out of the system. We've taken up-heads to get ourselves aligned with where we feel like long-term growth is there, so that's a little bit of the increase, but we're also seeing increases because of personnel expense, and that is on the back of incentives for the most part and that's where our folks are paid an incentive on enterprise results we're seeing pretty significant increase overall and if you take that question to the enterprise level, we showed you the personnel expense of $97 million, over half of that was incentive, inside incentive is equity, it's commissions and bonus and then probably also should note true to NAST and to the enterprise another quarter of that increase year-over-year in personnel expense is a result of short-term savings that we had a year ago. And so, obviously, we didn't expect those to continue. And so, getting back to a more normalized level, that's a little over a quarter of that increase and then headcount makes up the difference there on the personnel side. So we think we're in better position now going forward, but as we roll into next year, those outsized incentive payments will be a tailwind for us as we get back to targets.

Chris Wetherbee -- Citi -- Analyst

Okay, so operating profit per load can probably start to ramp up in that scenario?

Mike Zechmeister -- Chief Financial Officer

Yeah. It really depends on what happens on AGP, but all things being equal, yeah.

Chris Wetherbee -- Citi -- Analyst

Thank you.

Operator

Our next question comes from the line of Scott Group with Wolfe Research. You may proceed with your question.

Scott Group -- Wolfe Research -- Analyst

Hey, thanks guys. So I just want to follow up there. So I make sure I'm understanding. So in the third quarter NAST net revenues, up sequentially, but the NAST earnings were down sequentially, it sounds like you think that that's more of a one-off, and going forward, if NAST net revenues growing earnings should be growing, is that the -- do you think we start to see that normal relationship?

Robert Biesterfeld -- Chief Executive Officer

Yeah, over time we would expect the growth of operating income for NAST to grow at a rate ahead of net revenue or AGP growth.

Scott Group -- Wolfe Research -- Analyst

Okay, and then if I can just ask a strategic one, like I'm just not sure you guys are getting much credit for your forwarding business. And I guess I'm wondering other than talking about it more what you do about it? We've also got a really active M&A market, how do you think about either being an acquirer or may be selling businesses. I don't know if any thoughts you may have there?

Robert Biesterfeld -- Chief Executive Officer

Yeah, I appreciate that, I appreciate that question, I mean, clearly we're continuing to look at companies in the marketplace from an acquisition perspective, as I've alluded to in the past, they've got to meet some certain criteria, right? We wanted to fit into our culture, we really like the business that we've built in forwarding through organic and inorganic growth, and so if we've got the opportunity to continue to expand our geographic presence in that business to add additional capabilities, add density to specific trade lanes, anyway that we can build scale, we're committed to looking at those opportunities. In terms of some of the other strategic alternatives that you mentioned, I'm not in a position today to comment on some of those, but really, our goal today is not about growing that business versus any of the other alternatives you've brought up.

Scott Group -- Wolfe Research -- Analyst

Okay, thank you guys. I appreciate it.

Operator

Our next question comes from the line of Bascome Majors with Susquehanna. You may proceed with your question.

Bascome Majors -- Susquehanna -- Analyst

Yeah, thanks for taking my questions. Just to follow up on Scott's questioning there, as an acquirer could you discuss whether or not buying a U.S. centric truck brokerage makes more sense today for some reason compared to in prior years? And I know you can't comment on specific M&A speculation, but if you could give us some thoughts on how the Board perceives any approach that you guys receive what you have to go through and what your obligations are as a target, that would be helpful. Thank you.

Robert Biesterfeld -- Chief Executive Officer

Yeah. Bascome I'll touch on -- I'll do my best to try to answer your question, but I won't go real deep into it and I'll address the first part of it in terms of would we consider the acquisition of a domestic brokerage. The term domestic brokerage I think has evolved a lot over the course of the last decade or so certainly since 2014-'15, and so I don't know, there isn't really a one size fits all. I go back to kind of the same, I guess guidelines that I shared with, So the great thing about the C.H. Robinson is we do get a look at virtually everything that's in the market at least at a cursory level and we can determine what level of interest that we want to display in those assets. But I think strategically our acquisition strategy is not going to be driven by what's readily available in the market. It will be driven by the strategic needs of our business and we will go out and seek those opportunities inorganically if we choose for that to be the right path and we'll control that process.

Bascome Majors -- Susquehanna -- Analyst

And the question around the Board's obligations and process if you're approached?

Robert Biesterfeld -- Chief Executive Officer

Yeah, I mean, I would just briefly answer that to say assume that we have the appropriate governance mechanisms in place that if we were approached that there would be a process in which we will work through in order to maximize the value for our shareholders.

Bascome Majors -- Susquehanna -- Analyst

Thank you.

Operator

Our next question comes from the line of David Zejula with Barclays. You may proceed with your question.

David Zejula -- Barclays -- Analyst

Thanks for taking my question. I just thought you have a number of competitors that have touted success in the power-only brokerage line. Do you feel this offering is impacting your business in anyway, if so, how are you adjusting the business accordingly?

Robert Biesterfeld -- Chief Executive Officer

Yeah, it's a great part of our business, we launched our Robinson Power Plus program. I think probably five years ago and it's been a really fast growing part of our business, we've taken a very customer-centric approach to it where we're about 10% of the business that Robinson manages in NAST today, a little bit north of 10% is drop trailer where we're doing drop trailer loading, we've kind of taken two approaches to that, one being kind of the rainbow fleet where we aggregate trailer pools on behalf of a bunch of smaller carriers and establish interchange agreements between them. And the second probably more fast growing is that Power Plus piece where we've got trailers we're leasing directly or the carrier; we have leasing agreements with carriers and we're moving those trailer pools around specific corridors between specific customers. And so it allows us just another opportunity to look and feel like an asset for some of our customers who have very specific needs around trailer pools and it's a fast-growing piece of our overall business.

Operator

Our next question comes from the line of Tae Matsusue with Bank of America. You may proceed with your question.

Tae Matsusue -- Bank of America Merrill Lynch -- Analyst

Hey, good afternoon. Bob a solid job on the quarter, but I guess maybe just two small questions, one is the capex that you're spending. I just want to understand is that targeted to scaling the take rate on the digital brokerage? In other words, is that looking to regain market rates in terms of share gains? And then on the ocean side a smaller one, just given rates have scaled so much on the ocean side, it's actually collapsed, it looks like the differentials between ocean and air from maybe 10 to 15 times to 5 times is that -- are you starting to see scaling on the air side or is that gap may be bringing more of that swapping into the equation that you talked about?

Robert Biesterfeld -- Chief Executive Officer

Okay, I'll take the air freight question I'll throw it to Mike to talk about capex. We have seen tremendous growth in our charter business, and I think it's, to your point, when you've got container rates that go as high as they have all of a sudden charters starts to look a little bit more feasible. And so I do think some of that spillover from ocean and air is what's driving some of the growth, certainly that we're seeing on the air freight side. Now I'll let Mike talk about the capex.

Mike Zechmeister -- Chief Financial Officer

Yeah, on capex, we took our guidance for '21 up to $70 million to $80 million and we were at $55 million to $65 million prior to that. Our capex spend is almost entirely a tech spend, and we've got money to deploy there when risk adjusted returns are high. And so we like when we're seeing a better flow of great projects and we certainly prioritize those among our capital allocation plans when we see them. So in my book a higher capex spend is encouraging because it means that the pipeline that we have of projects with nice returns are into the future is stronger.

Robert Biesterfeld -- Chief Executive Officer

Yeah, and I maybe just add on, maybe more directly to your question, yes, a lot of that is directed toward scaling the digital platform for truckload and the truckload freight exchange, but there are a lot of other high returning projects that we've got in flight there, whether that be in our LTL business to enhance and manage yield and better techs with some of the capabilities of our carriers to continue to strengthen the global platform and Global Forwarding to drive operational processes. So there are a number of things in flight there that brings benefits to different parts of the business.

David Zejula -- Barclays -- Analyst

Thanks Bob, thanks, Mike. Appreciate the time.

Robert Biesterfeld -- Chief Executive Officer

Yeah, thanks, Tae.

Operator

Our next question comes from the line of Charlie Yukevich with Evercore ISI. You may proceed with your question.

Charles Yukevich -- Evercore ISI -- Analyst

Good evening and thank you for taking my question and congratulations on a great result. I wanted to talk about the collaboration with SPS Commerce, how should we be thinking about this partnership with regards to automation and incremental volumes have been LTL? And then from a broader perspective, any commentary you could give on how you're positioning for the holiday season such a tight freight environment would be appreciated? Thank you.

Robert Biesterfeld -- Chief Executive Officer

Yeah. Thanks, Charlie. And welcome to the call. So we're early innings obviously with the launch of the SPS Commerce partnership. I think we just launched that early last week, I'm kind of looking to Chuck here, started to 10 days ago and so I wish I had a whole bunch of revenue results that I can share with you. But since it's within the quarter, I wouldn't share even if I could, but I think the really neat thing about this partnership is SPS Commerce is a leader in their space. I mean, they've got over 95,000 customers that are on their platform that they're connecting directly into the retail ecosystem and managing the flow of information, it's such natural merits or natural partnership given our strength in retail and food and beverage and having such deep knowledge of that space. So our ability to be the LTL provider and help the customer -- the shipper customers of SPS Commerce access that LTL marketplace in a fully automated way, I think is a real win for the customers of SPS. It's an incremental opportunity for us, and it helps them to strengthen their product portfolio and allows us to tap into an entire group of customers in a new and exciting way. And we continue to look at alliances and partnerships across the supply chain landscape for opportunities such as those, which is just another example of us extending the ecosystem and pursuing some of these digital initiatives to drive growth.

In terms of positioning for the peak season. It feels as though we've been in the peak season here for a number of months, maybe quarters quite frankly, and so our job is to be really agile to work with our customers to help them navigate the unknowns to being mode agnostic to help them move, whether it be moving forwards, moving modes, collaborating with other shipper customers to drive greater utilization. We work really, really closely with our shipper customers to help them be successful in this environment in a number of different ways, but as I said, it's 24x7x365 and our team around the globe is doing their best to help navigate us.

Charles Yukevich -- Evercore ISI -- Analyst

Okay, great, that's really helpful. Thanks for the clarity.

Operator

Our next question comes from the line of Jeff Kauffman with Vertical Research Partners. You may proceed with your question.

Jeff Kauffman -- Vertical Research Partners -- Analyst

Thank you very much and congratulations on a very strong quarter. I wanted to focus a little bit on the forwarding, this morning, UPS reported and they had discussed about how procedures related to Delta variant out of Asia impacted shipments coming out of that region. I was just wondering, did this impact your forwarding business and was the net of that impact a positive or was the net of that impact a negative?

Robert Biesterfeld -- Chief Executive Officer

So the net to service just overall I would say on the water has been a negative. I mean, if you think about the current environment, in ocean freight, right now, there's only about 2.5% of the active fleet the ocean freight fleet that isn't active right now, right? And so it is literally at full capacity. Service reliability on the water has never been lower than it is today and that's to no fault of the steamship lines that it's clearly just an amalgamation of all these supply chain issues as we saw issues in Asia related to COVID what you started to see with their plants shutting down, ports shutting down, ports being not called on for a period of time because the ships would go to another port and so it's just further exacerbated the delays that were occurring in the global freight cycle. So I can't quantify a number in terms of impact to earnings or impact of volume, both of them, clearly we're very strong for us, sequentially, in year-over-year, but clearly it caused additional disruptions and delays in the supply chain.

Jeff Kauffman -- Vertical Research Partners -- Analyst

Okay. And you would benefit from that, I guess in some ways where customers would need solutions and on the other hand, you're probably moving a little less volume across the ocean than what otherwise be, but no view of whether that was net positive or net negative to the company?

Robert Biesterfeld -- Chief Executive Officer

Not in a meaningful way in terms of sum of all the results.

Jeff Kauffman -- Vertical Research Partners -- Analyst

Okay great. That's what I want. Thank you very much.

Robert Biesterfeld -- Chief Executive Officer

Thanks.

Operator

Your last question comes from the line of Brian Ossenbeck with J.P. Morgan. You may proceed with your question.

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

Hey, good evening. Thanks for getting me on the call here. Appreciate it. So Bob I just want to come back to maybe get your closing thoughts on balancing volume market share and in margin, how are you going to measure that AGP, it would seem, I would have thought we would have seen the negative files maybe at least improve sequentially or maybe not all together just gone at this point given just how strong the market is. So I appreciate the comments that there is a good customers, but they won't be share in some of the disruption in the cost that you're seeing here, so maybe you can just address that one more time for me. And then if you want to weave in some comments on how you think this is going to -- I think this cycle is going to change these relationships going forward, maybe more shorter contracts, more visibility and pricing and indices that you kind of mentioned already, but it sounds like despite all this, you're still looking at two thirds of your book annual, so appreciate any thoughts there.

Robert Biesterfeld -- Chief Executive Officer

Yeah. So let's talk about the -- I will start with the negative files and here's how I think about this, I think our Managed Services business makes -- is a great proxy for just kind of what happens in the contractual marketplace where we've got $6 billion or $7 billion in freight under management today in that Managed Services business, is just a great proxy for the contractual marketplace. If I go back to fourth quarter of last year and call it October, September of last year, all the way through today. We've been in this extended tight trucking environment and presumably there has been all sorts of bids, mini bids, repricing, reshuffling of routing guide and not just with Robinson or other brokers, but all the asset guys and everybody that's involved in the domestic Surface Transportation trucking business has said some sort of movement in their pricing and in their commitments and all of those things in contracts.

There has been virtually no improvement in routing guide depth of tender over that 15 months. It's been 1.7, 1.6, 1.7. So I think our kind of consistent negative files is somewhat analogous to that in the fact that the market just continues to reset. We seem to be -- We've been on, it is flattening out, but we've been on this consistent year-over-year increase in cost and part of our model, good or bad, is that we typically we sell long and we buy short. And so when we consistently see that upward pressure on cost of hire, we're going to have a higher currents with negative thoughts. Now clearly this is the highest it's been and we expect that we'll draw it down, but I think that's a bit if where we are, I would be very disappointed if after the fourth quarter or end of the first quarter of next year once we start repricing if we're still having this conversation about negative files being at the same level. I expect that they will come down both sequentially and year-over-year.

In terms of some of the contract terms, yeah, I think two-thirds of our business is still on 12-month terms, which is kind of is what it is, but a third of our contractual business being on something other than 12-month terms is new to us, and I think it's relatively new to the industry and so pricing transparency continues to be an important thing that we focus on. So whether it be the Market Rate IQ product that we launched during the quarter to give shippers visibility to how they are performing compared to industry benchmarks, but also visibility to some of their behaviors and how their behaviors are impacting the rates that they pay is probably is an important exercise for us to be consultative and help them to realize their behaviors and how they can be more effective, right because rate per mile, you're not going be able to negotiate it down per se very easily today. Our dynamic pricing engine that we've talked a lot about is another way for us to provide real time pricing to customers that keep them out of the kind of the dog eat dog spot market, and we provide kind of an intermediate step between the guaranteed committed contractual business and not allowing them to fall all the way through their routing guide. So we're spending a lot of time on trying to deliver innovative pricing solutions that are good for us and good for the customers, but that annual contract still has held up to be the main mechanism for us to price contractual freight and the main mechanism in which customers are requesting it.

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

And you think they would hold pretty much the next year as well based on where your conversations are right now looking into '22?

Robert Biesterfeld -- Chief Executive Officer

I don't know that I've got a clear view. I mean, looking into Q4. I can tell you that that appears to be the case. But looking out beyond that would be speculation I wouldn't be comfortable making at this point.

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

All right, thank you, Bob. Appreciate it.

Robert Biesterfeld -- Chief Executive Officer

Appreciate it. 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: 63 minutes

Call participants:

Chuck Ives -- Director of Investor Relations

Robert Biesterfeld -- Chief Executive Officer

Mike Zechmeister -- Chief Financial Officer

Thomas Wadewitz -- UBS -- Analyst

Jordan Alliger -- Goldman Sachs -- Analyst

Jack Atkins -- Stephens -- Analyst

Jason Seidl -- Cowen & Co. -- Analyst

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Chris Wetherbee -- Citi -- Analyst

Scott Group -- Wolfe Research -- Analyst

Bascome Majors -- Susquehanna -- Analyst

David Zejula -- Barclays -- Analyst

Tae Matsusue -- Bank of America Merrill Lynch -- Analyst

Charles Yukevich -- Evercore ISI -- Analyst

Jeff Kauffman -- Vertical Research Partners -- Analyst

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

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