The Urethane Blog
April 30, 2024
Over the past decade, C.H. Robinson lost its moat to innovation and competition
Can it evolve quickly enough to satisfy Wall Street?
Craig Fuller, CEO at FreightWaves
· Monday, April 29, 2024
C.H. Robinson (Nasdaq: CHRW), the largest trucking freight brokerage, is in a challenging spot that isn’t strictly due to the Great Freight Recession. Its stock is trading near the lows of the COVID lockdown (closing price on April 26 was $70.22; the COVID low was $63.91), with investors asking tough questions about the company’s long-term prospects.
For three and a half decades, C.H. Robinson’s position was uncontested. It was in an enviable position — it had information and access to fleets that no one else did. After all, with the largest number of offices around the country and the largest network of carriers, almost no one could compete with Robinson’s pulse on the market or connection to fleets.
Early on, this information and trading arbitrage became C.H. Robinson’s unfair advantage.
However, other freight brokers emerged, and the share of freight that brokers handled grew faster than C.H. Robinson’s business.
Less than a quarter-century ago — in 2000 — freight brokerages handled only 6% of all trucking freight. Today, FreightWaves estimates that 25%-30% of freight is handled by 3PLs; others have suggested that the figure is more than 50%. Regardless, it’s a huge number.
Brokerages gained market share by taking freight from the largest asset truckload carriers, playing the role previously reserved for companies with trucks.
Shippers used to be reluctant to give freight to companies that didn’t own their own trucks. Still, they eventually realized that freight brokerages provided unparalleled flexibility and could offer rates that shifted as the market did (freight costs are massively volatile).
Because brokerages were not constrained by fleet size, they could handle surges much easier than asset-based carriers. In that regard, a brokerage can provide a superior product compared to a single-source truckload provider.
Those circumstances have caused large over-the-road truckload providers to struggle for years. It is not just freight brokerages taking share; intermodal (railroads) are also eating their lunch.
A few companies like J.B. Hunt, Werner, and most recently, Covenant, saw these changes coming. They largely moved away from their dependence on the for-hire truckload market.
Others failed to pivot fast enough — Celadon, CFI, U.S. Xpress, Interstate, etc. — and each paid dearly.
In addition, shippers benefited from the fact that brokerages were faster than the fleets about investing in technology and customer success initiatives.
From 2000 to 2015, the industry saw the scale of startup or small brokerages explode (Brokerage 2.0): TQL, Echo, Coyote, Command, Access America, Nolan, GlobalTranz and many others grew exponentially.
This caught the attention of private equity (PE) firms, corporations, and even UPS — they all bought into the belief that the freight brokerage market was ripe for consolidation.
The Brokerage 2.0 players sold out, and middle management at those firms left and started their own versions of what we’ll call Brokerage 3.0.
Meanwhile, technologies emerged that eroded Robinson’s information and fleet access advantage.
Emerging firms like Arrive, Molo and Steam popped up, and hundreds of others were created, requiring little more than a computer, an MC, and a load board account. These firms grew very quickly — understanding that the secret to freight brokerage was recruiting new brokers and creating a dynamic sales culture — something that “stuffy” corporates, PE and UPS would never understand.
The new firms cleaned the clocks of the incumbents.
PE firms and strategic acquirers soon learned that there was little differentiation between the various freight brokerages, and it was hard to retain talent unless the management teams stayed intact (which is hard to do after they’ve sold out).
Then, the most damning part of the story took place: Silicon Valley discovered freight brokerage. Startups like Convoy and Uber Freight were funded — and all focused on blitzscaling. Even Amazon joined the party, leveraging its vast resources and huge freight spend to take an additional share.
In the U.S., Amazon moves more freight through its network than FedEx.
Early on, these startups tried to achieve critical mass, offering heavily discounted pricing to “buy share.”
And they did. The digital natives grew exponentially without concern for short-term profits. However, many of those same firms have found profit elusive or worse.
At the same time, tech vendors made it easier for new entrants to join the industry and existing players to scale quickly.
DAT Rateview, Truckstop Rate Insights, SONAR and FreightWaves removed Robinson’s information advantage — now, everyone understood what was happening in the market in near real time.
Public and private load boards (DAT, Truckstop, Loadboard123), digital matching apps (J.B. Hunt 360, Loadsmart, Emerge), Trucker Tools, and others took away Robinson’s capacity access advantages. At the same time, systems like Mercury Gate, Ascend TMS, Macropoint, P44, FourKites and Transflo destroyed Robinson’s advantages in system infrastructure that enabled the brokerage to scale so quickly.
Perhaps the biggest blow to C.H. Robinson’s business model is the emergence of payment networks like TriumphPay that make it seamless for brokerages to fund growth without needing large balance sheets.
Now, anyone can start or grow a freight brokerage with little upfront capital and play at the same level (or even better) as C.H. Robinson.
After successfully fending off the pressures of competition for three decades, C.H. Robinson finally gave in.
Bob Biesterfeld, the former CEO of C.H. Robinson, declared in 2019 that the company would protect its market share by investing $1 billion in new technology.
But it was too late. Robinson had been losing market share, but this was hard to see because of the growth of the underlying market. As long as the freight brokerage market grew, few would realize that C.H. Robinson’s business was under real stress.
Then, the freight market exploded during COVID. Robinson made a fortune during the peak COVID cycle, handily beating analyst estimates like everyone in the space. However, that peak cycle turned, followed by the Great Freight Recession — one of the biggest and most painful downturns in freight market history.
Although Robinson replaced its CEO, the new CEO can do little to fend off the inevitable decline of its core business.
In recent months, FreightWaves has received reports of many veteran brokers leaving the firm, something that was unfathomable just a few years ago. Sources told FreightWaves that the departures were caused by compensation restructuring initiatives and a change in the company’s operating culture.
Margins are under pressure from the Great Freight Recession, which is now in its third year, and the cutthroat competition of thousands of freight brokerages all bidding on the same loads.
Sources have told FreightWaves that Robinson’s new management wants to change the company’s cost structure and has pursued a series of changes to its compensation structures to change the unit economics of the business. These changes have been controversial and unpopular; some veteran reps with decades of tenure have left Robinson to protest the company’s new operating culture.
However, the company must reduce operating expenses to offset the impact of declining brokerage margins.
There are few good short-term answers for C.H. Robinson.
Competition is only going to increase. Robinson’s one-time advantages are largely gone, killed by innovation and direct competition. Its leadership has little choice but to address compensation packages representing the largest operating cost at freight brokerages. But, as noted above, as those changes occur, the company will continue to lose some of its most successful sales and carrier reps. Shippers are likely to leave as a result, as often, the personal relationship with the sales and customer service teams is what keeps the shipper from moving to a competing broker.
Worse still, as a public company, all of Robinson’s challenges are visible to everyone, including competitors, employees, and customers.
A huge business model reset with some long-term thinking is required, but that may be difficult for a publicly traded company to satisfy investor expectations every quarter.
April 30, 2024
MILWAUKEE (April 30, 2024) – Platte River Equity (“Platte River”), a Denver-based private equity firm focused on aerospace, chemical, and industrial sectors, announced its portfolio company MFG Chemical (“MFG”), a specialty custom manufacturer of complex chemistries, has acquired H.P. Polymers (“HPP” or the “Company”).
Based in Puslinch, Ontario, HPP is an independent resin and polymers manufacturer for paints and coatings. The Company’s products are used in diverse end markets across North America including metal, wood, marine, specialty, and coil applications. The combined company will continue to provide its customers with advanced technologies, technical support, and customer service.
“H.P. Polymers has a rich legacy of being a value-added partner to its customers, and we are excited to leverage the broader capabilities available through MFG to continue to grow and support our customers,” said H.P. Polymers President, Darren VanNeck.
“We are thrilled to welcome the HPP team to MFG. The acquisition of H.P. Polymers represents a tremendous opportunity for MFG to expand its capabilities and product portfolio within the paint and coatings sector,” said MFG CEO, Paul Turgeon.
“Platte River is excited about the acquisition of HPP, MFG’s third in the past two years, and we believe that HPP will enhance MFG’s product offering and accelerate the combined company’s growth,” added Tarun Kanthety, Vice President of Platte River.
Grace Matthews, Inc. (“Grace Matthews”) served as financial advisor to H.P. Polymers on the transaction.
ABOUT H.P. POLYMERS
H.P. Polymers is a North American independent manufacturer of resin and polymer solutions for customers across the paint and coatings value chain based in Puslinch, Ontario. To learn more, visit https://www.hppolymers.com/.
April 29, 2024
Recticel Trading update first quarter 2024
• Net sales increase from EUR 127.7 million in 2023 to EUR 140.6 million (+10.1%) in 2024, including REX sales in 20241
• Net cash position: EUR 74.9 million (31 December 2023: EUR 161.9 million), reflecting the REX acquisition in the first quarter of 2024 and seasonal working capital investment
Jan Vergote (CEO Recticel):
“New construction is not recovering as yet in the first quarter, but renovation activities are resilient at the vanguard of the European renovation wave.
First quarter sales are up 10.1%, including a 0.8% currency effect and 8.1% attributable to the acquisition of REX Panels & Profiles, which we completed on 10 January 2024.
Organic revenue growth is 1.2% resulting from the balance of substantial raw material deflation and significantly higher sales volumes, both in our Insulation Boards and Insulated Panels divisions.
Price pressures, especially in Insulation Boards, continue to be very high, but are being offset by operational improvements.
We are currently facing price hikes for our most important chemicals and are implementing price increases in all key geographies.
We confirm our confidence in the significant increase of our full year adjusted EBITDA.”
1 REX Panels & Profiles is fully consolidated as of 10 January 2024.
https://www.recticel.com/recticel-trading-update-first-quarter-2024.html
April 29, 2024
MDI Facility Disruptions Resurface? China PMDI Market Review – April 2024
PUdaily | Updated: April 29, 2024
MDI Facility Disruptions Resurface?
The MDI facility dynamics in North America are attracting market attentions. According to market sources, unplanned shutdowns have occurred at some North American MDI facilities, including BASF and Covestro. Their combined capacity contributes 44% of the total MDI capacity in North America. The impact on their supply and deliveries are under assessment. Before it, and in late March, BorsodChem Hungary declared force majeure on MDI products supply, which led to increasing PMDI exports from China to Europe in March. In March 2024, China exported 37 kT PMDI to Europe, a 345.1% increase from this February, according to China’s customs statistics. If excluding the factors related to Chinese New Year holiday, China’s PMDI exports to Europe in March increased by 62.2% compared to this January.
China PMDI Market Review – April 2024
As of April 26, 2024, the average price of spot PMDI goods in China is around CNY 16,438/tonne, showing a 0.5% increase compared to this March (CNY 16,350/tonne), according to PUdaily. In this month, Chinese PMDI market showed a trend of bottoming out. The PMDI market prices climbed gradually from CNY 15,700-16,300/tonne on April 1 to CNY 16,400-17,000/tonne on April 29. The increase trend was attributed by the supports both from supply and demand sides.
In terms of supply, The settlement prices from major PMDI suppliers were higher than market expectations; Covestro also increased its weekly contract prices to distributors week-by-week. All above provided strong support for the April market because the purchase costs from distributors and traders kept at relatively high levels. Major PMDI suppliers also reduced supplies to direct and/or indirect customers, alleviating ovearll sales pressures in distribution market. In terms of demand, the refrigerator and formaldehyde-free panel sectors continued their year-on-year growths in sales and outputs; following destocking measures, downstream manufacturers in construction sectors significantly increased their purchases for PMDI this month to gear up for the May Day holiday.
China PMDI Market Outlook – May 2024
In terms of supply, MDI facilities of BASF Shanghai and Wanhua Ningbo are scheduled to shut down for maintenance in this May, which may lead to supply allocations. In terms of demand, refrigerator, one of major PMDI downstream sectors, the production in May is forecasted to reach 8.5 million units, the highest level since the year of 2005, and will increase by 13.4% year-on-year, according to ChinaIOL.com. The robust demand provides a support for Chinese PMDI market.
April 29, 2024
Wanhua Chemical’s TDI Expansion to Lead Global Production
PUdaily | Updated: April 25, 2024
Wanhua Chemical, a significant player in the chemical industry, recently announced key developments in its TDI (toluene diisocyanate) production capacity expansion plans. The company’s official website disclosed the Environmental Impact Assessment Reports for two crucial projects.
On April 18, the Phase II Expansion Project of TDI, with a capacity of 360,000 tons per year, was unveiled by Wanhua Chemical (Fujian) Co., Ltd. This expansion project marks a notable step forward in the company’s strategic growth initiatives.
Shortly thereafter, on April 23, Wanhua Chemical’s official website released the Environmental Impact Assessment Report for the Phase I Technological Improvement and Capacity Expansion Project of TDI, also with a capacity of 360,000 tons per year.
The Phase I project involves significant upgrades to existing TDI production units, including nitration, acid concentration, hydrogenation, phosgenation, and refining units. These enhancements will boost the production capacity from 250,000 tons per year to 360,000 tons per year.
Meanwhile, the Phase II Expansion Project of TDI by Wanhua Chemical (Fujian) Co., Ltd. is poised to have a notable impact. Situated in the Jiangyin Industrial Concentration Zone in Fuzhou, Fujian Province, this project covers an area of 49,065 square meters. It encompasses the construction of advanced process units, including nitration, hydrogenation, and phosgenation units, alongside auxiliary and public engineering units. Once operational, the facility will produce 360,000 tons of TDI annually.
Together, these expansion projects will increase Wanhua Chemical’s TDI production capacity by 470,000 tons. With a total TDI production capacity of 1.42 million tons per year, Wanhua Chemical is poised to solidify its position as a significant player in the global chemical industry landscape.
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