Timothy D. Gagnon - Director-Investor Relations & Business Analytics John P. Wiehoff - Chairman & Chief Executive Officer Andrew C. Clarke - Chief Financial Officer.

Good morning, ladies and gentlemen, and welcome to the C.H. Robinson third quarter 2015 conference call. At this time, all participants are in a listen-only mode. Following today's presentation, Tim Gagnon will facilitate a review of previously submitted questions. As a reminder, this conference is being recorded Wednesday, October 28, 2015.

I would now like to turn the conference over to Tim Gagnon, the Director of Investor Relations. Please go ahead, sir..

Thank you, Erika, and good morning, everyone. On our call today will be John Wiehoff, Chief Executive Officer and Andy Clarke, Chief Financial Officer. John and Andy will provide some prepared comments on the highlight of our third quarter and will follow that with a response to the pre-submitted questions we received after earnings last night.

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

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

With that, I'll now turn it over to John to begin his prepared comments on slide three with a review of our third quarter results..

income from operations increased 14.4% in the quarter, and net income increased 11.6%. Our network did a great job in the quarter, and we again accomplished good productivity and results in most of our core services. We had earnings per share of $0.96 in the quarter, and that compares to $0.85 last year or a 12.9% increase.

One of the other key metrics, our average head count or employee total increased 13% in the quarter. Again, that was about a 4% increase in our organic base of business, and the remainder of the increase coming from the Freightquote acquisition.

Before I turn it over to Andy to walk through the specific revenue lines and service items, I thought maybe I would just highlight what we sort of view as some of the key highlights for the quarter that you'll hear come throughout the comments. First, net revenue margin increases.

You'll see in most of the services that we did have improving net revenue margins.

In a business model like ours where the market is softer from a demand standpoint than was anticipated at the beginning of the year, it's not surprising, and I think it's consistent with what you see elsewhere in the industry that our net revenue margins would be improving across our service offerings. Second, a lot of references to Freightquote.

We've tried to be as transparent as we can by showing what impact Freightquote had on the key line items across our results. From an overall standpoint, I would say that we're very happy with the Freightquote acquisition.

We continue to believe that it's been a great fit for our company and that it has really helped us penetrate certain segments of the market in a much more effective way. So we continue to feel very positive about that acquisition, and you'll hear a lot of references to the impact that it's had on us.

The last item that I'd like to highlight from a productivity efficiency standpoint, we've referenced many times in the past that probably the key enterprise metric around that is our operating income as a percent of net revenue, and you'll see that improved in the quarter versus last year.

And, again, there's a lot of changes and a lot of different impacts that Andy and I will talk about that impact that, but from an overall standpoint, the fact that that improved year-over-year and has improved year-to-date is reflective of what we feel is good productivity and efficiency in the business.

So those are some of the highlights that I would point out to you before we jump in. With that, I'll turn it over to Andy to walk through our financial results for the quarter..

Thank you, John, and good morning. Before moving on to slide four, I would also like to thank all of our people for their hard work in delivering best-in-class performance during the quarter and throughout the year. I think it's fair to say our team put the puck in the back of the net this quarter.

Total net revenue grew by 12.5%, with truckload growing 10.8%, LTL growing 38.6% and intermodal contracting slightly by 4%. Net revenue margin improved by 220 basis points to 18.4% versus last year's third quarter. The two primary drivers of this margin expansion were fuel and the overall market conditions.

I will speak to the specifics in my comments on the various services. Turning to our truckload results on slide five, we had another strong quarter in our truckload business, growing volume at 7%. The organic volume growth was approximately 4% in the quarter, and Freightquote added approximately 3%.

We are proud of the fact that this is the 24th consecutive quarter where we have grown our year-over-year North America truckload volume. We also believe we were able to take share in the quarter, as most of the benchmarks we look at showed slight year-over-year declines in volume. Net revenues grew nearly 11%.

Organic net revenues increased approximately 8%, with Freightquote adding approximately 3% in the third quarter. We have continued to focus on balanced growth, and, clearly, we're executing well to that end.

In North America, the line haul price per mile to our customers, excluding the impact of fuel, was flat on a year-over-year basis, while the cost paid to carriers decreased approximately 1%. The overall market was less volatile in this third quarter when compared to last year in the third quarter. There are two interesting points to highlight.

The first comes from the routing guide depth associated with our managed services businesses where we saw routing guide compliance at the high end of our historical benchmarks. The second point is our negative loads were down significantly in the quarter on a year-over-year basis.

Both these facts are an indication that capacity is available and there are minimal disruptions to the procurement plans of shippers. We had another strong quarter signing on new contracted carriers. In the third quarter we, again, added over 3,000 carriers, and these carriers moved over 20,000 shipments for us.

Year-to-date, we have added approximately 9,000 new contracted carriers. Let's move to slide six and the less-than-truckload results. Our LTL net revenues increased 38.6%. Organic net revenues increased approximately 6%, while Freightquote contributed approximately 33% to our LTL net revenue in the third quarter of 2015. LTL volumes increased 32%.

Freightquote contributed approximately 19% and organic growth was 13%. Net revenue margin increased on a year-over-year basis in the third quarter, primarily as a result of the higher margin Freightquote business with small customers and growth in our consolidation business.

Both Freightquote and our organic business continue to do well with the significant activity happening in the industry during the quarter. We continue to feel very good about our value proposition and our approach to the marketplace with our LTL services.

Further, we're confident we provide a unique and sought-after service to both our shippers and carriers with our non asset-based strategy. Transitioning to our intermodal results on slide seven, intermodal net revenue decreased 4% in the third quarter with volume down 4% as well.

Without Freightquote, organic net revenues decreased approximately 13% in the third quarter. The intermodal volume continues to be impacted by lower fuel prices and a looser capacity in the truckload environment with some shippers converting freight back over the road. Year-to-date, our net revenue is up 6% versus last year with volume up 5%.

And now to slide eight and a review of our Global Forwarding business. Net revenue for the Global Forwarding services increased 1.8% over the third quarter of 2014.

While the 1.8% represents a lower growth rate than our year-to-date trend, it is important to remember the very strong quarter in 2014 we had as a result of the additional services provided during the disruption at the ports.

The macro environment in this quarter was challenging, with rates dropping and capacity readily available; however, we were able to grow our volumes and took market share in the quarter. Our ocean net revenues increased 1.6% in the third quarter while air decreased 1.3% and custom services were up 8.1%.

Our cross-selling initiatives are producing new opportunities for us and did drive net revenue growth in the quarter. We are proud of the fact that we were able to retain the number one rank as the NVOCC with the largest number of TEUs shipped from China to the U.S. again in the third quarter.

In air freight, though our net revenues decreased, we added new customers in the quarter and grew our air freight tonnage. Customs net revenues increased 8.1% due to an increase in transaction volume. Moving to other logistics services on slide nine, the services in this group include transportation management services, warehousing, and small parcel.

Net revenues increased 7.3% in the third quarter of 2015 compared to the same period in 2014. Managed services represent over half of the net revenue in this area and that business is performing well with good net revenue growth. We added new customers in the quarter, and the pipeline of signed customers in the queue is increasing nicely.

These customers require supply chain technology, great transportation processes, and execution on a global basis. And we've built the platform to handle this growth and will continue to innovate with this service going forward.

Transitioning to our sourcing business on slide 10, our sourcing net revenues decreased 4.4% in the quarter, while case volume grew 2.5%. As with most quarters, we had some ups and downs across the many categories we serve in the sourcing business.

In a couple of our strategic vegetable categories, we had some very tough markets that had an impact on our net revenue in the quarter. We believe those impacts should be isolated to the third quarter, and the sourcing team is working hard to serve their customers and finish up the year strong.

Year-to-date, we are up nearly 3% net revenue, and case volume is up 5%. Slide 11 covers our summarized income statement for the third quarter. The operating income as a percent of net revenue was 39.5% in the third quarter, and this represents the fifth consecutive quarter with a year-over-year increase in this key metric.

This also represents a 100 basis point improvement versus last year. We have and will continue to invest in our people and organization, but we will also do so in a balanced way. Personnel expenses were up 8% in the quarter. This was primarily due to the additional head count related to our acquisition of Freightquote.

As a percent of net revenue, personnel expenses improved 150 basis points to 44.9%. Other SG&A expenses increased 15.3%. This increase was, again, primarily due to the Freightquote acquisition, including amortization expense of $1.9 million. We also had an increase in claims and travel expenses in the quarter.

We expect the rate of increases and expenses relating to the Freightquote acquisition to decrease as we are pleased with the progress we are making on the integration. Moving on to slide 11 and other financial information, we had a very good cash flow quarter, generating just over $213 million. Year-to-date cash flow generated is $465 million.

Capital expenditures in the quarter were $13.2 million and year-to-date CapEx is $33 million. We continue to expect the 2015 capital expenditures to be between $40 million and $50 million. We recently began the development of our new offsite data recovery facility, and that will consume the bulk of the remaining CapEx for the year.

We finished the quarter with just over $1 billion in debt, which was broken down between $500 million with an average coupon of 4.28% and $530 million drawn on a revolver with a current rate of 1.32% as of September 30, 2015. And finally, before turning it back to John, let's go to slide 13 and our capital distribution to shareholders.

We returned approximately $130 million to shareholders in the quarter with approximately $57 million in dividends and $73 million in share repurchases. We finished the quarter returning approximately 93% of net income to shareholders.

For the year, we have returned 88%, which is in line with our target to return approximately 90% of net income to our shareholders annually. Again, thank you to the entire Robinson team for your great work to produce these results. And thank you, as well to those listening today. We appreciate your interest in our company.

With that, I'll turn it back to John to make some closing comments..

Okay, thank you, Andy, and my closing comments will be focused on the look ahead slide. Consistent with previous periods, we want to share the headlines of what we know about October with you and from that standpoint, the total company net revenue growth in October is tracking at a consistent growth rate, consistent with the third quarter.

The trucking market in North America continues to be a little bit soft from a demand standpoint and that continues to be reflected in our results.

In our Q&A session with the submitted questions that we have, there's a lot of things that are asking about pricing and the market dynamics that will come back to around that net revenue growth and what we're seeing in the marketplace.

I think from an overall standpoint, one of the things that we wanted to highlight, though is that the trucking industry continues to be a cyclical industry and one of the things that we've experienced over the last four or five years and we continue to expect to see is how we adapt to the cyclicality of that marketplace.

And, again, some of the Q&A comments will come back to that, but a lot of our net revenue growth this year has been enabled by responding to a market that has a little bit softer demand and taking advantage of the marketplace from the standpoint of serving our customers in a more effective way.

Before we move to the Q&A session, I want to touch on just a few of the strategic priorities that we have bullet pointed on our look ahead slide.

While we adapt to those shorter term cycles in the market, we believe that, kind of the primary foundation of how we create value over a longer period of time is by focusing in on some of these important competitive advantages that really are the foundation of how we go to market and how we serve our customers over a long period of time.

It really starts with our sales and account management initiatives, and we are as focused on them as we've ever been. We are delivering record amounts of training and we continue to be very focused on the effectiveness of our sales and account management initiatives across our network.

The fourth quarter and first quarters of the years are always a little bit more active around bid periods, so those groups today, both on the customer side with our account managers, as well as our capacity account managers, are all very engaged with the marketplace on a localized way to make sure that we understand the varying needs and perspectives of the tens of thousands of people that we interact with and making sure that all of our customers and capacity providers have good and efficient access to our network.

So, we are very proud of our sales and account management capabilities and we will continue to invest in those people and those processes to make sure that we're maintaining our competitive advantage in the marketplace. Talent acquisition and development. We've hired throughout the year.

We highlighted kind of the increases in our employee base and head count. We are continuing to hire. Our hiring tapers-off near the end of the year and increases in the spring because we're hiring primarily new college graduates that we will continue to focus on.

But from an annual basis, we do expect to continue to add to our workforce and add to our team of sales and account management people in accordance with our primary metric around volume growth.

So, while we do expect to hire during 2016, we remain pretty fluid with regards to understanding the marketplace and understanding the rate at which we're taking market share and making sure that we add proportionately to how we're growing our business. But we do expect to continue to hire.

We think talent acquisition and identifying the right types of cultural fits and people that we are looking for are, again, a really important competitive advantage. That's part of the foundation of the company that we're not going to lose focus on regardless of what part of the cycles we might be in in any of our services.

The next point, technology, I mean, people process and technology is the tagline that we've been using for decades and is really an important part of how we think about building value over time and maintaining all of these advantages.

As we look into 2016, we're going to continue to increase our investment in technology, spending well over $100 million a year with our IT team to make sure that we're investing in capabilities to achieve a number of things.

We focused on connectivity around both that [audio skip] (19:12) to make sure that the people who are accessing our network have visibility to what they want as well as efficient ways to exchange information with us.

We've got some enhancements to our mobile applications that we think will be very impactful next year and that we think will have some good value for our customers and particularly our capacity providers on the mobile strategies. Security and stability.

As we work with large customers and more collaborative outsource solutions, it's very important that we secure the data and that we have the right sort of stability in our systems to facilitate the real time programs that we do, so that's an area that we'll continue to invest heavily in.

Purchase order, order management, inventory management capabilities. As we get more integrated into our customer supply chains, it becomes more and more important that we can consolidate, deconsolidate, that we can provide information at the order level and help our customers drive efficiencies and manage inventory in their supply chain.

And that will continue to be an important investment area for us. Analytics and data science.

We have a very significant data warehouse and a lot of capabilities around analytics that we extend to both our capacity providers and our customers, and we will continue to invest in that to make sure that we have market-leading information and that we can help our customers adapt to the changing market conditions, just as we do with our own business model.

So those are a couple of the areas that I wanted to highlight that we're going to continue to invest as technology continues to change in our industry. We believe we're one of the leaders, and we've got some good things in works that we think will continue to keep us in a good competitive spotlight.

The last bullet point that we highlighted on there, from a strategic priority standpoint, is mergers and acquisition. As we've said many times, we've been around for 110 years, and our two largest acquisitions in our 110-year history have both occurred in the last three years, with Phoenix and Freightquote acquisitions.

We have not changed our approach or our messaging around acquisitions.

We continue to have what we believe is a very meaningful filter around finding the right sorts of deals for Robinson, and that starts with cultural fit but also encompasses all the right sort of financial metrics and business model parameters that we think are important to providing integrated services and managing our business as one global network.

So we'll continue to have those high standards of what we think is the right sort of addition to Robinson.

However, given the current capital environment and the activity in the marketplace and our ability to use our balance sheet more if appropriate, we are going to continue to look and to try to identify opportunities where we can create value by expanding our M&A activity as well, too.

Increasing our global footprint and increasing our service capabilities are probably the two broad bullet points that we would focus in, in terms of priorities and the types of acquisitions that we think would have the most ability to add value. So those are some of the strategic priorities.

Again, it's important to highlight those, because I think those are the long-term foundation of creating value while we do our best to adapt and help our customers and capacity providers adapt to the cycles in the marketplace.

With that, that concludes our prepared comments for this morning and I will turn it over to Tim to facilitate our Q&A session of the call..

Thanks, John. And I'd like to start by thanking the many analysts and investors for sending in the questions late yesterday afternoon and evening. A lot of good questions. I've done my best to organize them categorically and turn it over to John and Andy and respond to them. So we'll get right into it with the Q&A portion here..

The first question is for Andy, and it states, can you break down how much of the net revenue margin expansion in the third quarter came from mix versus lower purchase transportation?.

Yeah. As we indicated, we had a 220 basis point improvement in that key metric during the quarter, and just over 40% of that was due to fuel, just under 40% of that was due to the market conditions, and the remaining, this is, say, 20% was the Freightquote mix and other..

Okay, thanks, Andy. The next question around technology, for John, to elaborate a little bit on your comments that you just made. Please elaborate on the strategic priorities included on slide 14, specifically with respect to the technology development and innovation.

Is this aimed at improving employee productivity or more of an outward-facing solution towards the marketplace?.

The answer is both. Prioritizing and determining what we're going to work on and focus in, in the technology area has become increasingly challenging, just because of the universe of opportunities that exist.

But for several decades now, we have tried to adapt or adopt a balanced approach towards focusing in on productivity initiatives, as well as some of the connectivity initiatives that I talked about before, with making sure that the exchange of data and the transparency of data is there.

And an important focus, too, is that market-facing customer insights, customer analytics, making sure that we've got everything that we need to create better solutions and help our customers and capacity providers get smarter in the marketplace.

So it's both balancing the prioritization of those two types of initiatives is something that we go through very aggressively every quarter and try to make sure that we're balancing all of those different motivations in the best we can..

Okay, thanks, John. Next question for Andy.

Can you please give us an update on your cross-selling efforts as they relate to Phoenix and Freightquote?.

Certainly. And I'll start by saying, as John mentioned, from a macro perspective, we're extremely pleased with both acquisitions. We've owned Phoenix for just over three years now. And in terms of the progression, where we are today in year three is, quite frankly, where we thought we'd be in year five when we did the acquisition.

So in terms of cross-selling, what we have called phase two is selling North American services to the legacy Phoenix customers has gone extremely well.

And phase three was selling Global Forwarding services to our traditional North American customers, again, is progressing very nicely and generating significant results for us in the Global Forwarding and in the North American service transportation.

As it relates to Freightquote, again, we've just owned that great business since the beginning of the year, and we are very excited about the progress we're making there, specifically, I think, as John mentioned, our go-to-market strategy, particularly with small customers. So very, very pleased with the cross-selling efforts on both acquisitions..

Thanks, Andy. The next question for John around pricing.

Given that truckload carriers are now guiding to a more muted pricing outlook for 2016, can you elaborate on your pricing outlook and the opportunity for net revenue margin improvement?.

For the last five years, we've been sharing our quarterly activity in terms of what we've experienced on average rate per mile and average price increases to our shippers, as well as our average cost of hire and change to the capacity providers that we have.

Andy mentioned earlier in review of the slides that for the current quarter, the pricing was relatively flat and the cost of hire was down 1%.

If you look back over the last five years, I think the five-year average of those numbers that we've disclosed is somewhere around 4.5%, and I think very consistent with what we, and maybe many others in the industry, have been saying that there is some underlying cost pressure increases around driver shortages and increased equipment and increased regulation that's limiting productivity.

So you put that all together, and over the last five years, think the industry and we have seen some above inflation cost increases due to a lot of the factors that have been talked about in the industry.

However, when you look at the last five years from quarter-to-quarter standpoint and a year-to-year standpoint, those increases have, at times, been double-digits and, at times, have been flat to small declines.

So my earlier comments kind of setting up around the cyclicality of what going, gets (27:56) very difficult to predict the cycles and to really time them perfectly in terms of understanding what's going on in the marketplace.

But there's no question as you look at our results and look at the industry that the price increases and the rate of growth have tapered off during the year as the market has softened. And we see that continuing into the fourth quarter as we shared with our October results to-date so far in terms of what we're seeing.

We also talked about fourth quarter and first quarter being an active bid season. And, again, I think one of the things that's important to remember about C.H. Robinson is we do not have centralized pricing decision-making, we do not have GRIs, we do not give targeted price increases across the network.

It's that decentralized account management strategy that is working with all of our shippers and all of our capacity providers to work literally on thousands of lanes in each of these bids that we participate in.

And it becomes very fragmented and very spread out in terms of how we think about making adjustments and properly repositioning ourselves in the route guide based on what our customers want from us and all those relationships.

So no question there's a more muted pricing outlook, and we're down on the lower end of that range of change that we've seen over the last five years. But in terms of exactly what it means in terms of price increases, that really probably remains to be seen based upon the next couple of quarters and how the marketplace continues to evolve.

In terms of predicting our net revenue margins, that gets even a little bit more challenging, because really whether our net revenue margins expand or contract, over the last five years, they've, as I mentioned earlier, both the pricing to the customers and our cost of hire have averaged a comparable amount.

But sometimes the change gets ahead of each other on one side, where customer pricing or capacity costs might be moving at a little bit different rate. And most of that is centered around whether or not we've anticipated or we and our shippers have anticipated the market impacts correctly.

So everybody's expecting a softer market and everybody is moving down towards the lower end of price changes in the range, and really whether net revenue margins on that committed business expand or contract probably has more to do with how next year compares to what everybody is expecting during these bids versus the absolute tightness of the market year-over-year.

So that's why it's difficult for us and we don't try to guide or expect exactly what's going to happen with our net revenue margin, but we believe our track record of adapting to market conditions and adjusting both our customer pricing and our capacity pricing consistently over time, that that track record sort of speaks for itself..

Thanks, John. Next question is for Andy around regulation.

What impact, if any, do you expect electronic logging devices to have on your ability to source capacity in 2016?.

Yeah, thanks. Similar what we said in our second quarter call, obviously, we're watching the situation very closely, but we still think it's too early to make a hard determination on impact. We will watch it closely. We will continue to monitor, as we've always done, and react to the final regulations when they're published.

But it's no different than any other regulation that comes out. I mean, we're going to continue to secure capacity..

Thanks, Andy. Next question for John on head count.

What is your expectation for head count into 2016? How do current fundamentals, namely tighter or looser North America truckload supply dynamics, influence this decision?.

I touched on this earlier in some of the prepared comments that we are hiring and we do expect to continue to hire into 2016.

Under our balanced growth initiatives across the network, it would probably be low to mid single-digit employee head counts is what we would target as our baseline of activity, priding ourselves and kind of remaining flexible to adapt to what's going on in the marketplace.

Again, the primary metric that we're looking at in terms of people and talent is around volume activity. We know that the margins are going to fluctuate.

If you look back at our commentary over the last several years, when we're aggressively taking more market share, we do need to add people into those sales and account management roles to facilitate that high volume growth.

There have been other periods of time when we've been adapting to aggressive market changes and not experiencing the same significant volume growth, but really focusing in on price changes and adapting to more volatile market conditions where we've talked about leveraging the experienced team that we have more as opposed to adding.

So, like many years, we're going into next year with a balanced growth approach, hoping to add to our team and continue to strengthen it, but we will adapt to market conditions largely based upon our view of opportunity for volume and market share opportunities..

Thanks, John. Next question for Andy.

To what extent do you see risk to your core business model from potentially disruptive truck brokerage technology platforms, given the growing number of Uber-like startups in logistics?.

Yeah. This is a space we're paying very close attention to because quite frankly, we're in it every day. Scale, technology, capital, and access to customers in capacity matter in this regard.

I think our advantage is the ability to connect tens of thousands of small, medium, and large customers with hundreds of thousands of small, medium, and large carriers across multiple modes and geographies. This market is significantly more challenging than pulling up a mobile app and securing a ride.

It's about connecting customers and carriers across multiple supply chains and transportation management systems. I think the good news is, as John mentioned, we're spending over $100 million a year with our technology team and we've got some really sharp people that are focused exclusively on this area..

Thanks, Andy. The next question for John. A little more detail on October.

How is the fourth quarter started in terms of demand?.

I shared earlier that our net revenue growth has been fairly consistent into October. If you break that down a little bit more, the market has been pretty soft from a demand standpoint.

If anything, in the first part of October here, there's maybe a little bit less volume growth and a little bit more margin expansion to get to that consistent net revenue growth.

This time of year is always interesting because historically there had been a lot of traditional fall peak activity and volumes had fairly predictably peaked during this time of the year.

So things can change quickly and there's still time left, and we don't know exactly what will happen over the next month or two, but the market is pretty soft right now from a demand standpoint..

Thanks, John. Next question for Andy. What's your opinion on the benefits of asset light companies bulking up on assets in order to get a better seat at the negotiating table during bid season? Is that a strategy you've entertained in this or any other market?".

I'll simply say that we're in the business of providing solutions to and solving problems for our customers. Every day, our people partner with our customers and carriers and use our process and technology to accomplish this. I think our results would indicate that our customers and carriers think we're doing a pretty good job of partnering with them.

We believe focusing on solutions, regardless of who owns the assets, is the right approach, and I can't think of a situation where a customer has not afforded us a prominent seat at the table because of our non asset-based model..

Thanks, Andy. Next question for John. Net operating margins have continued to expand in 2015. Understanding mix related to the Phoenix acquisition may limit the ability to return to pre-Phoenix levels. Can you discuss the potential for additional margin improvement from areas the company is able to control internally?".

So the question is referencing, first, the mix issue on Global Forwarding, where any of the market leaders in the Global Forwarding have lower efficiency ratios in terms of operating income to net revenue, and that's true in our Global Forwarding business as well, too. So that has put some downward pressure on that metric relative to our history.

In addition, because we have completed those two large acquisitions of Phoenix and Freightquote, the purchase accounting and some of those amortization costs in those business services also puts some downward pressure on that. We have been able to improve that this year. I would say it's a combination of things.

If you go back three years ago, we talked a lot about not only including the purchase accounting from Phoenix, but there was a significant amount of integration spending that we went through, in 2013, especially, where today, I feel like we're harvesting some of those efficiencies, and that service offering has continued to get much more efficient and contribute in a great way to that improved operating income.

Where can we go from here? There are other services and other areas that we've been investing in but have not reached scale that we would like to in terms of achieving operating income margins that we think are sustainable.

I would throw out Europe as an area where we've invested heavily in the last 20 years and feel like there's opportunity to improve that.

Our managed services, as we continue to aggressively implement new relationships, there's a lot of implementation spending that happens early on in those relationships that, as we mature that business it should provide some opportunity for improvement.

We've talked about our lack of scale in intermodal and a few other startup or emerging services where we think we could improve that.

That, combined with using technology, just to continue to improve our core business processes and what we're doing, we do have a pretty healthy list of ways that we hope to be able to continue to improve that operating margin.

We've also acknowledged that, since it is industry-leading in terms of where it's at right now, that in the balance of growth and profitability or efficiency that we want to stay focused on the growth side of the continuum.

So we are going to continue to look for ways to grow our business and expand our services, even if they don't always instantly improve that metric for us..

Thanks, John. The next question for Andy around M&A. Please provide an update on your view around the acquisition market, specifically what modal offerings and/or geographies seem attractive, and what is your view?".

Yeah. As John highlighted in the opening comments, this has been and will continue to be a priority for us. We've done two very good acquisitions in the last three years and are very comfortable with our ability to have integrated them. But, as John mentioned, we have a pretty rigorous kind of strategy filter that we run the acquisitions through.

So we're aware of a lot of the assets that are out there. We continue to look, every day, at ways of enhancing areas and markets where we think we can generate more scale, and John -- John just mentioned, obviously, Europe is one of those areas that we continue to look at, as well as bolstering our services in North America.

We think we're a preferred buyer. We think as a strategic – we are very thoughtful in how we integrate acquisitions. And we're very cognizant of the partners that we choose when we do that. So we have, and we'll continue to look at acquisitions and hope to continue to do more in the future..

Thanks, Andy. Next question for John. You continue to take share from your competition. Is there a particular company or a particular competitor profile that you're having the most success against?".

The answer to that is really no, and it speaks to something that we've emphasized a lot in the past, that while this is a very competitive industry, and like most industries, getting more and more competitive all the time, it also remains very fragmented.

Really, if you look across all the different service offerings that we have, even though we acknowledge there's a lot of new, worthy competitors, there still are thousands of them in almost every service offering that we have.

So while there's a lot of change in the competitive landscape, and it remains a very competitive industry, most of these bids that we're participating in literally have hundreds of providers in each bid scenario that we're working on with our larger customers.

With a mix shift and changes and shippers evolving their roles, we're constantly trying to improve our market share and our relationship in terms of the activity, but it's very difficult to understand who you might be taking it from, or in the aggregate, why you're winning or losing against specific people.

The last thing that I would share is we do believe that from a 3PL standpoint, a common – a significant trend in the marketplace has been that more and more of the activity out there is, probably, running through a 3PL today versus 10 years ago, so that some of the market share gains are coming from the evolution of the marketplace itself, where models like us are more accepted and maybe not coming directly from a competitor as well..

Thanks, John. Next question for Andy, ocean net revenue growth slowed considerably in the third quarter.

Is this a function of more difficult comps? Is your 2% net revenue growth in line with, above or below the market?.

Yeah. I think what we're seeing is a result of multiple rate reductions in the Transpacific Eastbound that has decreased enough to cause customers to request new quotes. The reduction in rates is because of increased capacity and lower volumes being shipped. In quoting new rates we're having to reduce margins to remain competitive.

From our research, this is an industry-wide event and quite frankly in line with market if not a little above..

Thanks, Andy.

Next question for John, I know it's still little early and there's a lot of moving pieces, but do you think customers are interested in securing or perhaps even over-securing capacity for 2016, as they were in 2015? If not, how do you think that manifests itself in bid discussions around pricing?.

So we've talked a couple times about the cyclicality in the truckload space and, kind of from our standpoint, how those changes to pricing and changes in capacity availability have cycled over the last five years and really over the last couple of decades.

Probably no doubt when you're in a – as part of the cycle like we are now where demand is softening, that it would be very logical that people would be a little bit less concerned about locking down committed capacity for next year, because the sentiment going in is that capacity's going to be more available.

We have talked about one of the ongoing tensions in this bid process and trying to anticipate the cycles of truckload is that you can go after very aggressive rates and committed pricing, and if the market moves and tightens up and price increases become more significant than everybody was anticipating, that can be very challenging to your route guide and cause the need for a lot of meaningful adjustments and changes or exposure to the spot market as you go forward, so, probably, less concern about locking down capacity for 2016 today versus a year ago.

However, there remains that sort of ongoing tension around really trying to anticipate the cyclicality of the market and make sure that you optimize your approach to the marketplace to get a good outcome for next year..

Thanks, John. Next question for Andy, can you comment on the pricing environment in freight forwarding? The ocean freight capacity situation is obvious, but there seems to be more capacity as well in air freight with the belly space growth..

Yeah, the belly space growth comes from the addition of new passenger planes coming online. What we're seeing is market reductions and volumes in both of the ocean and air markets. The oversupply with the decreased volumes is causing quick and frequent reduction to rates. The carriers can't cover the operating cost on freighters at the current levels.

So, all the information points to this lasting at least to the end of the year..

Thanks, Andy. Next question for John on the sourcing business.

Sourcing, once again had a disappointing quarter with net revenue declining 4% year-over-year, what needs to happen to return this business to consistent growth?.

So the 4% decline in net revenue was below our internal hopes and expectations, however, when you look at our Robinson Fresh business, very similar to what I talked about in the look ahead comments.

The long approach towards adding value is to really improve or increase our participation, our market share around our volume and the types of products and commodities that we're interacting with and integrate those into our transportation services to provide better answers for the customers.

We did increase our volume, but similar to truckload, the produce industry is very cyclical as well, too, so we are going to continue – we always have and we will continue to see fluctuations in crop availability and the types of supply and demand relationships that will impact our margins.

With a lot of the weather situations and some of the volatility of the various crops that we do buy and sell and distribute for our customers, we do expect to continue to see some volatile results. Our year-to-date net revenue growth for our sourcing business is probably fairly consistent with what our longer term expectations are.

And remember that for this Robinson Fresh business, internally, there's also some temperature controlled transportation that is aligned with those perishable commodities. And our temperature controlled transportation results have been consistent with our overall transportation results, providing good growth for the year.

So that division with inside of Robinson has done a nice job of servicing their customers and growing their presence in the marketplace, and just due to the nature of the business where we're buying and selling the fresh commodities, we do expect to continue to see some volatility in the net revenue growth from a quarter-to-quarter standpoint..

Thanks, John. Next question for Andy about Freightquote.

What did Freightquote's organic growth rate look like for its LTL and truckload businesses?.

Yeah, thanks. As we've mentioned numerous times both on this call and previous, we're pretty pleased with the acquisition of Freightquote and how it fits well into the Robinson culture and our go-to-market strategy.

That being said, we don't disclose what the organic growth rate is, although I will share that they are actually tracking to the plan that they laid out and we laid out when we did the acquisition..

Thanks, Andy. Next question for John.

Can you remind us how much of the truck brokerage book of business is contractual versus transactional? Does it stand to reason that if truckload rates are less robust and potentially trend lower in the fourth quarter and 2016, that the contractual business will experience more net revenue margin improvement than the transactional business?.

So, the definition of committed or contractual business and the definition of spot market, as we've said many times in the past is – it's tough to be very specific. There's a more of a continuum of relationships around where we are in the route guide and what exactly those commitments represent.

If you go back 15, 20 years Robinson was almost 100% transactional. We were pretty much reacting every day to what opportunities were available.

Over the last couple of decades, as we've integrated in with larger shippers and have participated in a lot of the annual bid processes to sign up for committed volumes and activities, that business has become somewhere around half or maybe a little bit more of our business today.

So, our most common answer to that is it's roughly half contracted and half spot market business, but in reality on a day-to-day basis, the amount of freight that's moving under pre-priced contracts versus the amount of freight that's moving in the spot market can change based upon the supply and demand conditions in the marketplace and how the market is reacting.

So that's the answer on the first part of the question. From the second part, in terms of will we experience net revenue margin improvement, again, I'd go back to the answer that I gave earlier.

The challenging part there is that as we renew these bids in the next couple of quarters and reset the pricing levels in a lot of the committed or contracted freight, we're working with our capacity providers and looking at our historical analytics and anticipating the market to try to come up with what we think is the right approach in 2016.

Our net revenue margins will expand or contract largely based on how the market varies from what we were expecting going into these contracts. And the expectations with these contracts are very localized, very decentralized on a customer-specific basis.

So that's, as I said earlier, it gets difficult to predict what we think will happen to our net revenue margins. As we shared through October, as 2015 comes to an end, we know that we will probably have some continuation of the net revenue margin expansion in the fourth quarter, just because of where we're at in the marketplace.

2016 gets a lot more challenging to predict..

Thanks, John. Next question for Andy.

Can you discuss freight volume trends as the third quarter progressed and thus far in October?.

Yeah. They were pretty consistent throughout the quarter. It's what we discussed. Towards the end, there was kind of a slowing of that growth rate towards the end of the quarter. In October, what we're seeing is volumes are still up, but, again, it's up – that growth rate has decreased from where it was in the third quarter..

Okay. Thanks, Andy. The next question is for John. You've been able to grow operating income faster than net income for a few quarters in a row now, which is a nice trend.

Are there things that you're doing different to amplify the leverage in the model, and how much more is there to go and how sustainable do you think that it is?.

I touched on this briefly earlier, but I think, from a big-picture standpoint, if you rewind to three years ago, we divested of T-Chek, which was perhaps our highest operating margin business; we acquired Phoenix Global Forwarding business, where best-in-class is lower operating margins, and then we had some purchase accounting from that acquisition that, all combined, had a pretty significant impact in that operating income to net revenue metric.

While that didn't feel good in 2012, we thought it was the right thing to do for the long-term in that we would be able to integrate and improve the operating margins of our legacy forwarding business and really kind of use the combined scale to continue to improve that service offering which, in fact, has happened.

T-Chek has cycled out of the comparisons, and we've been able to leverage some of our technology investments, just to continue to improve the efficiency of the service offering that we acquired there.

So, as I kind of laid out earlier, there's a few other subscale areas where we think we have more opportunity to grow, but we also, as I mentioned, feel that we're best in class and that we want to remain sensitive to making sure that we balance growth initiatives and investment with the productivity and profitability initiatives that we have..

Okay thanks, John. Next question for Andy.

At what point does the health of the truckload market have a negative effect on your net revenue margin? Is it just a matter of there being a lag between the buy rate and the sell rate? If the cost of transportation is expected to continue to decrease, would you expect the sell rate to follow to the same degree?".

I think, as John mentioned earlier in the comments in the Q&A, if you look since 2010, those rates have risen on average over 4%. And we're signing on new truckload carriers every day, 3,000 in the last quarter. So I'm not sure, in terms of the subject of the question, if the assumption is that truckload market is unhealthy.

I would tell you that pricing, what we've seen on average, is an increase in truckload pricing and that varies depending on the cyclicality, where we are in the cycle, what quarter we're in. It bounces up, it bounces down.

But we think that the expectation is that you look out there across any different industry research report, quite frankly, we think prices are going to continue to rise..

Thanks, Andy. Next question for John on the Global business.

How sluggish is the activity in China and what's the factor on your volume outlook?.

So, as we've talked in our Global Forwarding business, our number one corridor is Transpacific Eastbound and we are the number one NVOCC from China to the U.S. So the deceleration or the decline in the growth rate of shipments out of China does have an impact on our expectation of ocean volumes, particularly from China to the U.S.

However, even though we're proud of our market share and our scale and the improvements we've made there, we still represent a single-digit market share in terms of the activity that's going and the market in China is still growing, even though it's not growing at the pace that it was before.

So, if you put those two things together, it's still a growing market and we still have a lot of market share opportunity to go after and we feel like we have some pretty compelling value propositions to go to the marketplace with.

So, while it clearly has an impact and is material to a lot of the things in the world, it doesn't really dampen our excitement around the ability to grow our Global Forwarding business..

Thanks, John. So I think we've been able to cover the primary topics that were sent to us in the questions last night and early this morning. If you have any follow-up that you'd like from Andy, John, or myself please reach out to me and I'd be happy to schedule some time for us to talk further.

I'd like to thank everybody for participating in the call this morning and remind you that there will be a replay available in the Investor Relations section of our website. And you can get access to that by dialing 888-203-1112 and entering the pass code 359696 and that replay will be available through November 4.

Again, if you have any additional questions or would like follow-up please call me, Tim Gagnon, at 952-683-5007 or via e-mail at tim.gagnon@chrobinson.com. Thank you, everybody. Have a great day..