EXPD Expeditors International of Washington Inc

We are maintaining our long-term Neutral recommendation on C.H. Robinson Worldwide Inc. (CHRW) with a Zacks #4 Rank (Sell) based on  its strong business structure and accelerated revenue growth.

We believe broad-based growth opportunities, market share gains, improving existing services and introducing new ones bode well for the company’s long-term growth target of 15% for gross profit (net revenue), income from operations and earnings per share.

However, competitive threats, higher fuel costs, uncertainties in the Truck Load (TL) market, various government regulations and the company’s inability to pass higher carrier cost to customers can significantly hamper its future growth.

For the longer term, the company remains focused on growing revenue by gaining Intermodal market share and providing best-in-class services as it is likely to remain the fastest growing mode of transportation over the next decade.

International freight forwarding also remains a key area for revenue generation. We believe that network and service capabilities in this segment will continue to strengthen and foster the company’s presence in these markets.

C.H. Robinson continues to invest in expanding network and improving global presence. The company has increased its international freight forwarding footprint, gained exposure to the over-dimensional and heavy lift shipment businesses as well as the oil, gas, mining, and wind power industries by acquiring Transera.

Additionally, C.H. Robinson has started to develop a new transaction processing system for T-Chek, and has other development projects in hand to support long-term growth of its businesses. Over the year, the company will invest approximately $40 million, mostly dedicated toward international freight forwarding and T-Check systems.

However, intense competition in the transportation services industry remains the major impediment for the company. Competitors include logistics companies like Expeditors International of Washington Inc. (EXPD) as well as transportation providers owning their own equipment.

The company does not own or control the transportation assets for freight deliveries. It relies on independent third parties to provide truck, rail, ocean and air services. In the event of insufficient equipment to deliver services alongside increased competition, the company’s profitability could be adversely affected.

The current trend of road freight conversion to rail intermodal is also likely to bear a negative impact on the Trucking business. The TL market remains subject to regulatory mandates like the Federal Motor Carrier Safety Administration's Compliance, Safety, Accountability (CSA) initiatives. Implementation of these regulations requires huge investments.

Further, C.H. Robinson will add headcount to support business expansion in 2011. We believe the given regulatory mandates along with  the increase in crew capacity will summon an additional cost burden on the company, thereby, hurting its operating efficiency.

 
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