Good morning, ladies and gentlemen, and welcome to the C.H. Robinson Third Quarter 2020 Conference Call. [Operator Instructions]. Following today's presentation, Chuck Ives will facilitate a review of previously submitted questions. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, October 28, 2020. I would now like to turn the conference over to Chuck Ives, Director of Investor Relations.

Thank you, Donna, and good morning, everyone. On the call with me today is Bob Biesterfeld, our Chief Executive Officer; and Mike Zechmeister, our Chief Financial Officer. Bob and Mike will provide a summary of our 2020 third quarter results. We will follow their comments with responses to the pre-submitted questions we received after our earnings release yesterday. I'd like to remind you that our remarks today may contain forward-looking statements. Our earnings presentation slides are supplemental to our earnings release and today's comments and can be found in the Investor Relations section of our website at chrobinson.com. 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.

Thank you, Chuck, and good morning, everyone. Our third quarter was a quarter of transition in the U.S. freight markets and a quarter of progress at C.H. Robinson, with our team continuing to deliver against our key initiatives. I'm proud of their efforts that helped deliver solid results and position the company to emerge stronger from the volatility that we've experienced over the last 7 months. At the time of our second quarter earnings call in late July, I painted a picture of the current market condition that included a sequential degradation of routing guide performance, an adaptive tender that increased from 1.1 in May to around 1.5 in late July, and a decline in first tender acceptance rates from the high 90% range to around 70%. In the third quarter, this dynamic continued to play out as demand recovered faster than carrier capacity returned to the marketplace. Sequential demand growth outstripped supply growth in the contractual market and routing guide depth in our managed services business rose to 1.8 by quarter end. This is a level we haven't seen since mid-2018. We believe that these trends we see within the Managed Services are a good proxy for what's happening in the broader North American truckload market. Consequently, more loads moved up to the spot market, which caused spot pricing to increase and drove sharp increases in our cost of purchase transportation. During the quarter, truckload cost per mile paid to our contract carriers, excluding fuel, increased 16.5% compared to the third quarter of last year, while price per mile billed to our customers, excluding fuel, increased 10.5%. Against this backdrop, we delivered on our contractual commitments with acceptance rates that were above the industry average, while also serving many customers' needs in the spot market. In response to the…

Thanks, Bob, and good morning, everyone. Our third quarter gross revenues increased 9.6% compared to Q3 last year. The increase in gross revenue was driven by both higher pricing and higher volume across the majority of our service lines. Total company net revenues decreased 7% in the third quarter, primarily due to a 12.6% increase in the cost of purchased transportation. In NAST truckload, the increase in cost resulted in a 25% decrease in truckload net revenue per load compared to Q3 last year. As Bob mentioned, our net revenue per business day hit a low point in July and improved sequentially in both August and September. Our monthly net revenues per business day in Q3 were down 12% in July, down 6% in August and down 3% in September compared to the same periods last year. As Bob mentioned, in October, we are seeing year-over-year growth in total company net revenue per business day, which is the first month of growth in over a year. Q3 personnel expenses totaled $302.9 million, down 5.5% versus Q3 last year, primarily driven by our cost reduction initiatives. Average head count decreased 5.6% despite the Prime acquisition adding approximately 2 percentage points. Average full-time equivalent head count, which accounts for employees with reduced work hours, decreased 7.6% compared to Q3 last year. Q3 SG&A expenses of $118.1 million were up 5.7% or $6.3 million compared to Q3 last year despite significant reductions in travel. The overall increase was primarily due to ongoing expenses from the Prime acquisition and Q3 last year benefiting from a $5.8 million gain on the sale of an office building in Chicago. Overall, our short-term cost reduction efforts generated approximately $40 million of savings again in the third quarter. As we communicated previously, we put in place cost savings…

Thanks, Mike. I continue to be incredibly proud of the hard work and the dedication that our Robinson team members around the world have displayed during these challenging and unprecedented times. It's because of them that we've been able to meet and exceed our customers' and our carriers' needs during what has also been a trying time for many of them. A strong testament to our team's customer service is the recognition that several shippers, customers of ours, such as Lowe's, Bayer, Whirlpool, General Mills, Target, Chick-fil-A, BJ's Wholesale and NextEra Energy, just to name a few have bestowed upon C.H. Robinson in this quarter alone for our leadership, our service excellence and our support. I thank our employees for continuing to deliver excellence to our customers and our carriers every day and for driving our company forward despite the disruptions caused by COVID-19 and the resulting economic uncertainty. Through our investments in technology and the precautions that we've taken in our offices, we are effectively managing and maintaining a flexible work environment that enables our employees to work safely from home or from our offices that are open around the world. We'll continue to make measured and thoughtful decisions that are in the best interest of our employees, our customers, our carriers, our shareholders and our communities and the long-term health of our company, while remaining true to our values and our pillars that guide our business decisions. We believe we are still in the midst of a strengthening freight cycle that, we anticipate, will continue into 2021. Freight markets are continuing to tighten in the fourth quarter due to higher demand as we enter the holiday season and lower availability of carrier capacity. At C.H. Robinson, we're committed to creating better outcomes for our customers and carriers, investing in technology to unlock both growth and efficiency, while focusing on profitable market share growth and driving the transformation of our company so that we can emerge from this time of uncertainty as an even stronger organization. That concludes our prepared comments this morning. And with that, I'll turn it back to Donna so that we can address your pre-submitted questions.

Mr. Ives, the floor is yours for the question-and-answer session.

Thank you, Donna. First, I would like to thank the many analysts and investors for taking the time to submit questions after our earnings release yesterday. For today's Q&A session, I will frame up the question and then turn it over to Bob or Mike for our response. Our first question is for Bob from Jack Atkins with Stephens. Chris Wetherbee with Citi and Matt Young with Morningstar asked similar questions. How does the quarter unfold from your perspective? And how did your model perform relative to your own expectations? With the worst of the margin compression behind us, do you feel like C.H. Robinson is now in a position to return to net revenue growth as we move forward?

While we provided some context to this in our prepared comments, I will try and go a little bit deeper here to add some additional clarity. I think it's important that we start with NAST truckload that's clearly the largest driver in terms of the results for the quarter. And I really do believe, like I said, that this is a quarter that we were in transition in the markets. July was the bottom. Relative to the quarter, we saw results improve sequentially as the quarter progressed. As we came into July, we faced a July 4 holiday that caused all sorts of the dislocation and disruption in the marketplace. And as July progressed, we saw costs continue to increase as the month moved on. But candidly, we're a bit hesitant to take action relative to mid-cycle repricing due to just the uncertainty of the longevity of the tightness of capacity that we are experiencing there in July. During July, we saw our lowest net revenue per load on record within NAST truckload. Our files that resulted in a negative margin were up 150% year-over-year, and our net revenue per load was down close to 40% when we compare it to July of 2019. As we got into August and September, we actually saw costs continue to accelerate in comparison to last year. And we began to work with customers one by one to strategically reprice some contracts mid-cycle. This work, coupled with more opportunities in the spot market, did lead to sequential improved net revenue per load in each month of the quarter. Improved net revenue margin off of the trough of July and a reduction in negative loads as a percentage of the total loads moved. Volume remained pretty steady throughout the quarter. The work that the team…

The next question is from Bruce Chan with Stifel. Bob, what lessons did you learn in the last freight up cycle that are applicable today? As you honored commitments then, did you find that customers reciprocated when capacity loosened into late 2018 and 2019? Or is this cycle too different to compare?

I don't think it's too different to compare. And I think it's a great question, Bruce, and I'm really glad that you asked it. I'd point first to the retention rate of our top 500 customers over the past decade, and the fact that we have got nearly 100% retention rate of those customers. So I do believe that us continuing to take the long-term view to these relationships makes a lot of sense. With that being said, I can tell you that we did learn a lot since the last freight cycle, and our learnings from that have really helped us to inform both the decisions that we're making and the actions that we're taking today. Albeit sometimes the results of those are painful in the short-term, we really do believe that the steps we're taking will enhance our results through the cycles. Look, the annual procurement cycle is not a perfect science for either the shipper or the carrier, but it still does dominate the common practice in terms of how freight contracts are managed. Part of our learnings from that last freight cycle have come to life in the launch of our Procure IQ product, which is tied into this rising freight environment, we don't think that we're necessarily going to change how all of freight is procured, but we do think that we can introduce really interesting conversations with some of our really big clients and provide an alternate approach to them to approach this market that could work more effectively for all the parties in the supply and the demand side of the equation. Up to this point, we've pushed about $1 billion of opportunity through that process already, and we're seeing some really nice win-win returns for both us and our shippers. So we're taking those learnings to become more innovative, to be more consultative in our approach for our customers and to help them navigate, which appears to be shaping up to be a difficult environment in new ways. Specific to your question, though, one of the learnings that we did take away from the freight cycle of '17 and '18 was that in the cases where we managed to our commitments and honored them through what, let's call it, the Snowmageddon and the ELD implementation phases, which were kind of the catalyst of that cycle, we continue to see great returns with those customers and really, really strong relationships. On the flip side of that, though, we did learn that, perhaps, we overreacted a little bit too quickly in those cycles to short-term market dynamics back in 2017. We did cause some damage to some relationships. And in many cases, we haven't been able to regain either the trust or the volume commitment of some of those customers. So we're intentionally being more patient through this cycle and putting even more value on the importance of those long-term relationships and working with our customers to manage through this cycle together.

Our next question for Mike is from several analysts. When you think about the $40 million in cost reduction actions that impacted the third quarter, how much of that was tied to temporary costs that you expect to come back at some point? And how much is more permanent? On the temporary costs, how should we think about those layering back over the next several quarters?

Thanks for the question. Let me provide some additional clarity to the cost savings that we generated in Q3. To recap, we delivered approximately $40 million in short-term savings or temporary cost savings in Q3. Given the nature of those expenses, the vast majority will return in 2021. Think about the supension of the company match upon retirement plans in the U.S. and Canada, furloughs, some noncritical project spending and some of the travel reductions due to the pandemic. As I referred to earlier, for all of 2020, there's approximately $20 million of savings that began as short-term savings or temporary and was later converted to long-term savings or permanent savings. In Q3, about 1/3 of that $20 million annual savings is included in both short-term and long-term savings. Simply put, for Q3, we had approximately $40 million of short-term savings and approximately $20 million of long-term savings and approximately $7 million counted towards each total. By way of example, our Q3 travel expense savings was greater than what we would expect over the long term. As the impact of the pandemic subsides across the globe, our folks will get back to business essential travel, but at a level that we expect to be much lower than historical run rate. So all the travel expense savings that we delivered in Q3 was short-term or temporary, and some will become long-term savings or permanent as we eventually land at a much lower annual spend.

The next question for Bob comes from Ben Hartford with Robert W. Baird. Brian Ossenbeck with JPMorgan asked a similar question. In what inning would you describe this current freight pricing cycle to be? Public spot data shows growth rates continuing to accelerate into the fourth quarter, but investor concerns about peaking growth rates and the resulting broader truckload cycle have become quite pronounced over the last 3 months. Please provide any context to the durability of the drivers of strength to the cycle, including your perspective on potential inventory restocking, and supply growth limitations.

So a great baseball analogy on the day after the world series, Ben. So I guess, I think we're in the early innings of this freight cycle relative to truckload in North America. I think the graphs that we have in our deck that shows the change in price and cost is a really important reference point when we think about this. If you look at that graph, which go back to 2011, the last decade, what you see pretty clearly is that the third quarter of this year is the first quarter where both price and cost inflected positive on a year-over-year basis in the past 8 quarters. The 16.5%, 17% increase in cost year-over-year is the first increase since Q3 of '18 and the largest year-over-year -- largest year-over-year in cost since the second quarter of 2018. So I guess the way that I think about it is that considering that virtually every truckload contract that exists out there, other than those priced in third quarter, were priced in an environment where costs were declining year-over-year. I think it's a safe assumption that pricing will be on the upward trajectory as we move forward as the majority of contracts reprice in the fourth quarter of this year into first quarter of next year. With that being said, there's a tremendous amount of uncertainty that abounds. We're all seeing COVID cases surge in the U.S. and in Europe. We've got uncertainty around the political and policy landscape in the U.S. with the upcoming election. And we've also got some uncertainty around additional stimulus funding and how that might intersect with consumer confidence and demand. So if you listen to any of my peers on the asset side of the equation, who are really the experts on both attracting and retaining drivers into our industry, it seems like there's some real headwinds there as well that we need to deal with that could be somewhat long-lasting. So if you're asking for a projection in terms of where I see things going, back to our question of what inning are we in, absent some of the uncontrollable macro factors tied to the health and the economic crisis associated with COVID, I'd say we've kind of just turned the corner in the third inning. And we've got a great team on the field here at Robinson, and we're in for a pretty interesting ball game that we expect to win in the end.

The next question for Bob is from Bruce Chan with Stifel. Can you give us some concrete examples of how your technology investments have helped you to navigate an unbelievably volatile market over the past couple of quarters?

Yes, absolutely. There have been a number of advancements that have come to life this year that we've announced through our regular channels, including the launch of Robinson Labs, the further development of our Freightquote by C.H. Robinson platform, the recent launch of Procure IQ, alliances with great technology companies, such as Microsoft and Intel as well as just some of the updates that we've provided already today around the digitalization of our business processes. But in terms of really tangible examples, I'd point to a few things. First and foremost, it can't be understated how critical it has been throughout this pandemic that we've been able to really enact a work-from-anywhere culture at C.H. Robinson so that we can keep our people safe, and we can keep our customer supply chains running. We've done this flawlessly since we went remote in March. Our tech team has done an amazing job ensuring that we've got the infrastructure, the scale, the speed, the stability and the security in place in order for us to maintain this environment. Within the business, we saw some really good examples of progress this quarter. I shared in my opening remarks that we saw a 2,400 basis point difference between the change in NAST head count and the change in the volume that we managed. In NAST, we call this the NPI or the NAST productivity index, and it continues to improve. Huge steps taken here driven by technology as well as ongoing structural evolution. Another key metric we look at in NAST is shipments per person per day, and that's up 30% for the quarter. So we're seeing tremendous productivity unlocks in the business. Bruce, you know our business as well as anyone. And you know that historically, there's been a lot of internal and…

The next question for Mike is from Fadi Chamoun with BMO Capital Markets. Ken Hoexter with Bank of America, and Bascome Majors with Susquehanna asked similar questions. Working capital draw seems larger than what we would have expected from revenue growth alone. Any changes in policy or maybe more timing issues?

You're right. The working capital draw was large in Q3, but not the result of any policy changes. As I mentioned earlier, the $362 million sequential increase in accounts receivable compared to Q2 was the primary driver of the working capital absorption in the quarter. Receivables grew 16.7% sequentially and that coincided with the 16.5% sequential increase in gross revenue, which was driven by the pricing and volume gains that we talked about. The quality of our receivables also improved in Q3 as our percent past due improved by 60 basis points compared to Q2. One other point to note is that our payables did not offset the receivables increase in terms of impact on working capital. As you saw in Q2, our payables balance and days payable outstanding were atypically high, which contributed to the high cash flow from operations. In addition to our days payable outstanding, it generally runs about 18 to 20 days less than our days sales outstanding. And as a result, when gross revenues are increasing, payables are not a full offset to the increase in receivables.

Several analysts asked for the following question. Bob, please discuss your ability to adjust pricing on North America truckload contract revenue in the short term. Given the sharp move in spot rates in late 2Q and 3Q of this year, will you be able to adjust any contract rates in 4Q or in the first half of 2021? Or will it be necessary to wait for contracts to reset in 2021?

I'll say, just to reinforce, we are taking a customer-by-customer approach in terms of pricing and really putting the long-term relationship at the forefront of that. We're working closely with our customers to help them navigate what's a really volatile time in the freight market. But as I said, the fourth quarter has us on pace to reprice about 150 of our top 700 customers, which represents about $1.3 billion in existing truckload spend. We know that there will continue to be some off-cycle adjustments to customer pricing and really driven by necessity based on the needs of our customers to get freight moved and changes in routing guide performance. I would estimate that between fourth quarter and first quarter, about 60% of our current contractual truckload revenue will reprice just based on the natural cycle that we experience with those customers.

The next question is for Bob from Jordan Alliger with Goldman Sachs. Ben Hartford with Robert W. Baird. Baird and Ravi Shanker with Morgan Stanley asked a similar question. Please discuss the spot volume environment. And looking ahead will it be strong enough to mitigate possible net revenue margin pressure that could still exist the balance of this year? And could net revenue margin pressure still exist for part of next year until truckload rates start to fade?

And so if I look forward 4 quarters in terms of our comparisons with our contractual -- just if I start with our contractual truckload business, what I can say with great certainty is that our margins on our contract business over the past 4 quarters are well below our historical averages, right? So that's up for some interesting comparisons for next year or for the next 4 quarters. So given that fact, I expect a return to more normalized margins on our contractual book of business as we reprice, given all the repricing that's going to occur in the next couple of quarters. Additionally, we expect some growth to come through additional volume growth, right? We're going to continue to pursue profitable market share growth to drive growth and earnings through volume. And relative to the spot market, we do anticipate continuing to participate more in that spot market, which should also be a nice tailwind for our growth.

The next question comes from Bruce Chan with Stifel. Mike, on the SG&A front, there are a lot of moving parts within T&E coming back in, medical visits, et cetera. What kind of headwind should we be expecting? And what kind of offsets are available?

Thanks for the question, Bruce. We do expect some headwinds and tailwinds in SG&A in 2021. As I mentioned earlier, while we expect travel expense to land significantly lower than our historical run rate due to enhancements in our ability to engage with customers, carriers and teammates virtually, we do expect an increase in 2021. We also anticipate additional insurance expense as costs are rising in the industry. In aggregate, those expense categories, historically, represent less than 15% of our total SG&A spend. In terms of offsets, we would expect occupancy to be a tailwind in 2021 as we look to optimize our real estate footprint across the network in anticipation of more flexible work arrangements. Real estate represents 15% to 20% of our SG&A spend. You also mentioned medical visits. Those expenses are included within personnel expense on our P&L. We expect medical to be a headwind in 2021 as it becomes safer and easier for our employees and their families to see their doctor and have elective procedures. Medical has, historically, been 5% to 7% of personnel costs. As I referenced earlier, the largest headwind in 2021 is expected to be incentive compensation, which will increase in alignment with improved financial results.

The next question for Bob is from Bascome Majors with Susquehanna. Chris Wetherbee with Citi and Matt Young with Morningstar asked similar questions. How much would you attribute to extremely elevated buy rates in both air and ocean? When and why do you expect the cyclical components of this pressure to ease?

It's been well documented in the airfreight market that there's a lot of capacity that's come out of the market due to the decreases in passenger flights, transcontinental and domestic, right? So that's driven a lot of capacity out of the market. But we've also seen a significant increase in charter activity that has helped to offset that. So I don't know if we're net-net back to a neutral capacity market, but certainly are seeing more charters come back in. So while overall capacity is still flat to down, it has recovered quite a bit over the past several months. If we think about air, what we really see is demand and supply chain disruption driving the tightness in capacity, and ultimately, the significant pricing increases that we're seeing in the market. And looking forward, if we add to this the potential strain that a global distribution of a COVID vaccine could have at some point, whether it's in the next months or quarters, we believe that these end markets are likely to remain displaced for some time to come. Relative to ocean, we continue to see consolidation in the ocean space over the course of the last several years. And today, there are just fewer carriers with meaningful size and scale. So these consolidation things that have happened have driven better pricing and capacity discipline year-over-year in some of our core trade lanes. Given that the ocean network is at near 100% utilization of existing capacity, we again see this as being somewhat of an ongoing constraint that's going to continue to put pressure on pricing in this mode as well.

The next question is for Bob from Scott Schneeberger with Oppenheimer. Jack Atkins with Stephens asked a similar question. How sustainable do you view the forwarding operating margins in the high 20s?

Over the past few years, if we look back, we can see that the forwarding margins have ranged between about 15% and 19% between 2017 and 2019. And we've obviously seen some great improvement to those metrics this year, driven by really strong net revenue gains, coupled with a blend of both short and long-term savings that have been implemented in the business. Since we acquired Phoenix International in 2012, and through subsequent acquisitions and organic growth, we have been reinforcing in our statements that we believe that our Global Forwarding division has the capabilities to deliver industry-leading operating margins in the business. And we're seeing that this year. Like many other parts of Robinson, forwarding is in a phase of transformation and evolution and making investments, significant investments in technology, been in a way, a drag to their short-term results, but on a risk-adjusted return basis, are great decisions for the future that are both going to accelerate their opportunities for growth as well as share gains, while at the same time, drawing -- I'm sorry, driving down our cost to serve, which further enhances the profitability of this business. So given some of the variable cost headwinds that Mike just talked about, we anticipate coming back next year, we think returns in the forwarding business, expecting them to be in the mid-20% range in the near-term are really achievable. But we continue to work towards expanding that margin over time as we fully integrate some of the technology capabilities that are being developed. And we think -- we really think that the macro market sets up favorably for our model.

The next question for Mike is from Ken Hoexter with Bank of America. Employees were down 7% year-over-year. Do you see a secular decline continuing in employee count as you adopt more technology?

Yes. As you know, we've been delivering significant productivity in our transformation efforts. Q3 marked the fourth consecutive quarter that we delivered a favorable spread between head count growth and our volume growth in NAST. Moving forward, we expect to continue growing faster with volume than head count as our investment in process redesign and automation for our customers, carriers and employees continue to have strong risk-adjusted returns. We remain committed to delivering industry-leading technology and industry-leading operating margins.

The next question for Bob is from Ken Hoexter with Bank of America. Jordan Alliger with Goldman Sachs asked a similar question. Do you see rates nearing peak? Or do you subscribe that capacity will be slower to add than in the past, keeping this rally deeper into 2021 than general expectations?

All right. So I'll start with the fact that it's really hard to predict where the peak is going to be, which is part of what makes annual procurement cycles really difficult. And as I said earlier, this is the first quarter that we've seen truckload rates inflect positive over the course of the past couple of years. So I guess, I'm going to go back to the graph that I referenced earlier in the deck that tracks the change in rate and cost on a quarterly basis going back to the beginning of 2011. So let's -- for context, that slide covers 39 quarters. And of those 39 quarters, 28 of them experienced customer rate inflation year-over-year and 11 have shown customer deflation. Interestingly, rates basically only went one way, and that was up for 19 consecutive quarters from 2011 through 2015. And since then, there's been a lot more volatility in the cycle in terms of both ups and downs. On that chart, we see 2 pretty distinct cycles play out over the course of the past 5 years within the data. Following that 19 consecutive quarters of rates running out that I referenced from Q4 of '15 through Q4 of '16, rates on a per mile basis dropped for 5 consecutive quarters year-over-year, which was then followed by 8 quarters of increases through 2017 and '18. We then saw rates inflect negative for 6 quarters through '19 into the 20 -- first 2 quarters of 2020. And now we've got 1 quarter under our belt showing a recovery. So while history isn't a perfect predictor of what's going to happen in the future, I do think that it's realistic to expect that there's likely some legs to this recovery, and it will likely run a few more quarters. One other data point that I'd share that's not reflected on that chart, but on absolute terms, when I look at our truckload data, our contract rates in the third quarter on a per mile basis to our customers were about 2% below the peak of 2018, adjusted for fuel. But our cost of purchase transportation were up 5% higher than the peak of 2018, again, adjusted for fuel. So if we consider that to be a fact, along with the average inflation of truckload pricing of 2% to 3% a year that we see over time and the fact that cost in the spot market is almost always a leading indicator where contract pricing heads, it's not unlikely that contractual pricing could trend off in a pretty meaningful way in the coming quarters. And we feel like based on the work that we've done with our relationships, we're positioned really well to capitalize on that, while still benefiting our customers.

The next question is from Brian Ossenbeck with JPMorgan. Todd Fowler with KeyBanc asked a similar question. Bob, what do you believe Procure IQ can accomplish over the next 3 to 5 years? And how much freight from shippers is currently on the platform? How does this differ from marketplaces like J.B. Hunt 360 and Convoy's guaranteed primary service?

Thanks Brian and Todd. So in terms of product positioning, I just want to be really clear in terms of what it is and what it isn't. I think about it like this. Procure IQ is an analytics and data science platform that delivers models focused on improving reliability and price and service. Navisphere, really, as you know, is our operating platform that executes the outputs of the Procure IQ process. So to date, we've executed about $1 billion of freight opportunities in Procure IQ during the pilot phase. Since our product launch in September, we've escalated the pace of engagement with customers. And over time, we expect to execute all of our large bid opportunities in the platform, and that represents exposure to about $60 billion in truckload freight in truckload on an annual basis. So we do expect that, over time, this product will also evolve into other transportation modes and geographies in 2021 and beyond. So hopefully, that adds some clarity in terms of what it is and what it isn't. In terms of impact to the business, ultimately, I expect that leveraging this framework of analytics and data science is going to improve our win rate and our allocations and contractual opportunities.

The next question is from Brian Ossenbeck with JPMorgan. Chris Wetherbee with Citi asked a similar question. Mike, what range do you expect the effective tax rate to normalize to in 2021, assuming no changes to the current tax law?

Thanks for the question. As we have communicated, our updated 2020 tax rate of 18% to 20% has been aided by a variety of onetime benefits this year and doesn't represent our long-term expectations. On your question, if we assume no state, federal or international tax law changes, I'd point you to our 2019 effective tax rate of 22.3% as more indicative of our normalized tax rate. Once the U.S. election results come in, we may get a bit more clarity on where rates are headed. But regardless of the election results, our team will continue to evaluate long-term tax planning strategies to improve our effective tax rate.

The next question is from Scott Schneeberger with Oppenheimer for Bob. LTL volume growth of 13.5% year-over-year was in excess of the market. Could you please discuss the drivers of the share gains?

I'm always happy to talk about our LTL product because I don't think we talk about it enough, and it's such a great growth story within Robinson. To put it simply, we bring to market one of the most comprehensive and most compelling LTL value propositions in the industry. We've got incredibly good client retention, and we're winning a lot of new business. We have really great partnerships with virtually all of the national and the regional asset-based LTL providers. We've got a compelling value proposition for them as well. We've invested in our Freightquote by C.H. Robinson platform, and we're continuing to bring on business with really large companies that look to us as a strategic partner to manage and optimize their LTL freight networks. We had strong growth in the quarter with both new and existing customers within our common carrier business. And we made the acquisition of Prime earlier in the year, and our consolidation product continues to win in the marketplace. That Prime acquisition, coupled with our legacy retail consolidation network, has made us hands down, today, the largest and most comprehensive provider of retail consolidation services in the industry. Volumes grew in consolidation this quarter as more and more shippers are working to navigate the evolving OTIF or on time in full requirements that are being implemented across the retail landscape. Prime's volume alone contributed meaningfully to our overall LTL growth within the quarter. Also within LTL, we've got an unrivaled temperature-controlled network that's managing less-than-truckload across all temperatures of fresh produce to frozen foods on a national level. And again, we delivered strong volume growth in our temp control business this quarter. And finally, while it's a smaller part of the overall LTL portfolio in the story, we had incredible growth in our final mile delivery in our reverse logistics groups this quarter, driven by really meteoric growth in the e-commerce channel.

The next question is from Jack Atkins with Stephens for Bob. Allison Poliniak with Wells Fargo asked a similar question. Truckload net revenue dollars on a last 12 months basis are below the last cycle through the third quarter of 2017 by 9%, one of the principal factors behind this deterioration cycle point to cycle point. Is it primarily cyclical challenges, market share losses? Or do you think we are also potentially seeing the signs of some structural pressures on profitability impacting this business as well? As a follow-up, with your investments in automation and employee productivity now well underway, do you believe that over the course of the next cycle, you will be able to achieve prior levels of profitability in your truckload and brokerage business?

Allison and Jack, thank you for that question. There's a lot to unpack there. So I'm going to do my best to do that here based on what I know. There are a lot of things in play. I do think that there are some structural things in play here as well as some that are cyclical. So the one variable that I can clearly identify as structural and likely is not going to change is that the truckload supply chain in the U.S. is simply getting shorter, right, whether it's the rise of e-commerce, the necessity of a bit more localized distribution centers or shippers moving inventory closer to receivers, it's a structural change that we've seen in the supply chain that we probably haven't talked enough about in the past few years. Why that's important is in the simplest sense, candidly, we make less net revenue dollars on a per load basis on short-haul freight than we do on long-haul freight. And today, short-haul freight is a pretty big part of our total portfolio, more so than it really ever has been in the past. If I just look back over the past several years, since 2013, the average length of haul on our truckload business has dropped every single year. Over that time period, it's dropped about 10% to right around 650 miles for an average load in our network today. So that we know that in terms of net revenue dollars per shipment, there's some impact there that probably lives on into the future and doesn't come back. Additionally, as we've discussed in other calls over the past few quarters, there's been some downward pressure on truckload pricing in the marketplace that I would categorize as relatively unsustainable and likely short-term in nature, as some new entrants have attempted to pursue share gains over profitability. I anticipate this is going to normalize over time, but it has had an impact on our margins with some customers as we've taken a pretty firm stance to protect our share and to protect our house with some select customers. Looking at this quarter specifically, our truckload net revenue per load was at an all-time high -- or an all-time low, rather, in July, and we took steps to improve it throughout the quarter. Given where I think we are in the cycle, I think we're going to have some pricing power moving forward, and we're focused on moving off these historically low margins to something more sustainable for us and our customers over time. This, coupled with the productivity improvements that you mentioned in your question and that I've talked about today, coupled with some of the discrete cost-saving initiatives that Mike has described, I do believe that we're set up really well to get back to more historical operating margins in NAST.

The next question is from Allison Landry with Crédit Suisse for Bob. Jason Seidl with Cowen and Company asked a similar question. Given the current market volatility, can you give us any color on how the current M&A market looks? What are your main considerations for potential M&A targets right now?

Yes. I'll take that one. Our top priority for capital allocation continues to be the closing transformation investments that fuel growth and efficiency in our core business. On the M&A front, we continue to maintain a strong pipeline of opportunities, and the deal flow seems to be picking up over the past quarter. The current environment is certainly favorable from a borrowing standpoint to the extent financing is needed, but the pandemic related uncertainties of the market, the election outcomes and the related impact on tax rates creates some level of hesitation. Longer term, we continue to see M&A as a lever that can help us expand our geographic presence, add or improve services, build scale and enhance our technology platform. We prefer strong businesses with compelling strategic benefits, good cultural fit and proven nonasset-based business models. For all deals, we will continue to maintain our discipline around value creation and strategic fit.

The next question is from Brian Ossenbeck with JPMorgan for Bob. How the proliferation of rate transparency within transportation management systems impact brokerage margins independent of the current cycle?

I don't know that I subscribe to the idea that there's necessarily greater transparency to rates today than any time in the past. I can think back to my own experiences 10, 15 years ago, when I was on the desk managing customer relationships and the process then was that a customer would have a TMS, and they put out a broadcast e-mail with a spot load that was available to every carrier in their book. And every carrier would rush to log on online to whatever system they were using. They put in a rate and they hope to get a load tender. So to that end, great transparency and the ability to compare a rate across providers in the spot market has been around for quite a while. I do believe, though, that the velocity associated with the distribution of rates and the use of science to determine the appropriate rate that will move freight and generating economic benefit has really accelerated exponentially, which, for our customers, is a huge benefit in terms of time savings for them and giving them the ability to shop, so to speak, for spot market solutions to meet their needs. And it goes without saying though that whether that is a paper rate or in this case, a digital rate, a rate is just that. Shippers also have to have the confidence that they're committing to the rate that's going to be met with an equal commitment from that provider to deliver that expected outcome, which is almost every time on time in full. And that's where I think we, at C.H. Robinson, continue to differentiate through our execution against our commitments in the market.

The final question is for Mike from Chris Wetherbee Citi. Weighted average diluted share count increased 1.1% sequentially in the quarter. Should we expect further increases in the fourth quarter? Or was there something temporary driving this? What should we expect going forward in terms of share repurchases?

Thanks, Chris. We did see a 1.1 million or approximately 1.5 million share increase in our weighted average diluted shares outstanding in Q3. There were 2 forces at work in Q3. The increase in average diluted shares outstanding was driven by the impact of employee stock options on our stock -- as our stock price increased. Our stock price went up and more options were exercised and more options moved from out of the money to into the money, creating a more dilutive impact on our share count. The second influence was that we suspended our share repurchase program. As a result, we're not offsetting the stock option dilution with repurchases. As I mentioned in the prepared remarks, we do expect to resume our opportunistic share repurchase program in the fourth quarter. And over time, we expect our share repurchases to reduce the overall level of diluted shares outstanding.

That concludes the Q&A portion of today's earnings call. A replay of today's call will be available in the Investor Relations section of our website at chrobinson.com at approximately 11:30 a.m. Eastern Time today. If you have additional questions, I can be reached by phone or email. Thank you again for participating in our third quarter 2020 conference call, and have a good day.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may disconnect your lines or log off the webcast at this time, and have a wonderful day.