C. H. ROBINSON WORLDWIDE, INC. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and related notes. FORWARD-LOOKING INFORMATION Our quarterly report on Form 10-Q, including this discussion and analysis of our financial condition and results of operations and our disclosures about market risk, contains certain “forward-looking statements.” These statements represent our expectations, beliefs, intentions, or strategies concerning future events that, by their nature, involve risks and uncertainties. Forward-looking statements include, among others, statements about our future performance, the continuation of historical trends, the sufficiency of our sources of capital for future needs, the effects of acquisitions or dispositions, the expected impact of recently issued accounting pronouncements, and the outcome or effects of litigation. Risks that could cause actual results to differ materially from our current expectations include, but are not limited to, changes in economic conditions, including uncertain consumer demand; changes in market demand and pressures on the pricing for our services; changes due to catastrophic events including pandemics such as COVID-19; competition and growth rates within the third party logistics industry; freight levels and increasing costs and availability of truck capacity or alternative means of transporting freight; changes in relationships with existing contracted truck, rail, ocean, and air carriers; changes in our customer base due to possible consolidation among our customers; our ability to successfully integrate the operations of acquired companies with our historic operations; risks associated with litigation, including contingent auto liability and insurance coverage; risks associated with operations outside of the United States; risks associated with the potential impact of changes in government regulations; risks associated with the produce industry, including food safety and contamination issues; fuel price increases or decreases, or fuel shortages; cyber-security related risks; the impact of war on the economy; changes to our capital structure; risks related to the elimination of LIBOR; and other risks and uncertainties detailed in our Annual and Quarterly Reports. Therefore, actual results may differ materially from our expectations based on these and other risks and uncertainties, including those described in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on February 19, 2020 as well as the updates to these risk factors included in Part II—“Item 1A, Risk Factors,” herein. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update such statement to reflect events or circumstances arising after such date. OVERVIEW C.H. Robinson Worldwide, Inc. (“C.H. Robinson,” “the company,” “we,” “us,” or “our”) is one of the largest third party logistics companies in the world. As a third party logistics provider, we enter into contractual relationships with a wide variety of transportation companies and utilize those relationships to efficiently and cost-effectively arrange the transport of our customers’ freight. We provide freight transportation services and logistics solutions to companies of all sizes, in a wide variety of industries. We operate through a network of offices in North America, Europe, Asia, Oceania, and South America. We have developed global transportation and distribution networks to provide transportation and supply chain services worldwide. As a result, we have the capability of facilitating most aspects of the supply chain on behalf of our customers. 22 Table of Contents Our net revenues are a non-GAAP financial measure calculated as total revenues less the cost of purchased transportation and related services and the cost of purchased products sourced for resale. We believe net revenues are a useful measure of our ability to source, add value, and sell services and products that are provided by third parties, and we consider net revenues to be our primary performance measurement. Accordingly, the discussion of our results of operations often focuses on the changes in our net revenues. The reconciliation of total revenues to net revenues is presented below (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenues: Transportation $ 3,944,981 $ 3,608,346 $ 10,835,710 $ 10,751,890 Sourcing 279,819 247,786 821,944 764,292 Total revenues 4,224,800 3,856,132 11,657,654 11,516,182 Costs and expenses: Purchased transportation and related services 3,378,651 2,999,979 9,141,354 8,826,233 Purchased products sourced for resale 256,876 222,722 744,621 682,502 Total costs and expenses 3,635,527 3,222,701 9,885,975 9,508,735 Net revenues $ 589,273 $ 633,431 $ 1,771,679 $ 2,007,447 MARKET TRENDS The North American surface transportation market experienced increasing sequential demand during the third quarter of 2020 despite many small to mid-sized companies and certain industries continuing to experience demand below historical levels due to the COVID-19 pandemic. The improving demand during the third quarter of 2020 was most pronounced with large companies and from the retail and food and beverage industries. The impact of increasing consumer demand and production resulted in tighter carrier capacity and led to an increase in purchased transportation pricing. Industry freight volumes, as measured by the Cass Freight Index, declined approximately 8 percent during the third quarter of 2020 compared to the third quarter of 2019 although they did increase sequentially during the third quarter of 2020. One of the metrics we use to measure market conditions is the truckload routing guide depth from our Managed Services business. Routing guide depth represents the number of carriers contacted prior to an acceptance when procuring a transportation provider. The average routing guide depth of tender in the third quarter of 2020 was 1.6, representing that on average, the first or second carrier in a shipper's routing guide was executing the shipment in most cases. This routing guide penetration compares to 1.2 in both the first and second quarters of 2020 and is reflective of the increasing consumer demand and production and the tightening carrier capacity evident in the third quarter of 2020. This caused routing guides to rapidly degrade and more loads to move to the spot market driving sharp increases in transportation costs. The global forwarding market also showed signs of improvement during the third quarter of 2020 after multiple quarters of reduced demand and production resulting in decreased volumes due to the COVID-19 pandemic. Many companies began to replenish low inventory levels amidst continued market uncertainty from the COVID-19 pandemic. Both the airfreight and ocean market experienced significant pricing increases in the third quarter of 2020 compared to the third quarter of 2019 resulting from reduced capacity. In the airfreight market, a reduction in commercial flights resulted in an increase in charter flights and larger than normal shipment sizes due to the COVID-19 pandemic. In the ocean freight market, sequential demand accelerated faster than carrier capacity returned to the market, resulting in significant pricing increases. BUSINESS TRENDS Our third quarter of 2020 surface transportation results are largely consistent with the overall market trends summarized above, although we did experience volume increases in excess of the industry trends as measured by the Cass Freight Index. Despite industry freight volumes declining approximately 8 percent, our NAST truckload and LTL volumes increased 0.5 percent and 13.5 percent, respectively, which is reflective of our pricing strategies to ensure we are near the top of our customers' routing guides. We continued to work with our customers to meet our contractual commitments during the third quarter of 2020 while adapting our pricing to reflect the volatile cost of transportation pricing seen since the beginning of the COVID-19 pandemic while also serving customers' needs in the spot market. This resulted in an increase in average truckload linehaul rates per mile, excluding fuel costs, charged to customers although our truckload transportation costs, excluding fuel prices, increased at a faster rate resulting in margin compression. 23 Table of Contents In our global forwarding business, we continued to experience significant increases to the price of airfreight due to significant capacity shortages in the airfreight market. These shortages were caused by a reduction in commercial flights, which have resulted in an increase in charter flights and larger than normal shipment sizes. The increase in airfreight pricing more than offset a 19.0 percent decline in airfreight volumes. Ocean volumes increased 1.5 percent as many industries resumed or increased production. In addition, the accelerating sequential demand for ocean freight grew at a faster rate than ocean carrier capacity, which resulted in significantly higher pricing in the third quarter of 2020. On March 2, 2020, we acquired all of the outstanding shares of Prime Distribution Services (“Prime Distribution”), a leading provider of retail consolidation services in North America for $222.7 million in cash. This acquisition adds scale and value-added warehouse capabilities to our retail consolidation platform, adding to our global suite of services. The acquisition was effective as of February 29, 2020, and therefore the results of operations of Prime Distribution have been included as part of the North American Surface Transportation segment in our consolidated financial statements since March 1, 2020. SIGNIFICANT DEVELOPMENTS During the three and nine months ended September 30, 2020, our financial results and operations were impacted by the COVID-19 pandemic described above and discussed throughout Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations.” In addition, see Part II—“Item 1A, Risk Factors,” included herein for an update to the risk factors described in “Item 1A, Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on February 19, 2020. The extent to which the COVID-19 pandemic impacts our financial results and operations for the remainder of 2020 and going forward will depend on future developments which are highly uncertain and cannot be predicted, including fluctuations in the severity of the outbreak and the actions being taken to contain and treat it. We have taken a variety of measures to ensure the availability, continuity, and security of our critical infrastructure, ensure the health and safety of our employees around the globe, and provide service and supply chain continuity to our customers and contracted carriers in order to deliver critical and essential goods and services. We continue to follow public and private sector policies and initiatives to reduce the transmission of COVID-19, such as requiring social distancing, wearing a mask, and limiting the number of employees to less than 50 percent capacity when in the office, in addition to the elimination of all non-essential travel. We have also adopted work-from-home arrangements, and as of September 30, 2020, over 80 percent of our employees were working remotely executing their duties and responsibilities. We do not believe these policies and initiatives will adversely impact our operations. In addition, we have taken steps across the organization to reduce costs, including the elimination of all non-essential travel, temporary salary reductions for company executive officers, temporary reductions in cash retainers for board members, temporary suspension of the company match to retirement plans for U.S. and Canadian employees, accelerating the use of paid time off, and furloughing approximately seven percent of our U.S and Canadian employees in the second quarter of 2020. As we continue to harness the benefits of our technology investment and network transformation, we have eliminated certain positions during the third quarter of 2020, and therefore, a portion of employees did not return from furlough. We recognized $4.4 million in severance during the third quarter of 2020 as a result of these reductions. Due to the ongoing uncertainty around the severity and duration of the outbreak, we are not able at this time to estimate the impact COVID-19 may have on our financial results and operations for the remainder of 2020 and going forward. However, the impact could be material in all business segments and could be material during any future period affected either directly or indirectly by this pandemic. Many businesses continue to experience reduced production and output which could result in a decrease in freight volumes across a number of industries which may reduce our contractual and spot-market opportunities. In addition, a significant number of our contracted carriers may reduce their capacity or charge higher prices in light of the volatile market conditions which may reduce our net revenue margins as we honor our contractual freight rates. SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS The following summarizes select third quarter 2020 year-over-year operating comparisons to third quarter 2019: • Total revenues increased 9.6 percent to $4.2 billion, driven primarily by higher pricing in most service lines, most notably in ocean and airfreight services, and higher volumes across most of our service lines. • Net revenues decreased 7.0 percent to $589.3 million, primarily driven by rising costs and lower margin in truckload services, partially offset by contributions from the acquisition of Prime Distribution and higher pricing in most of our service lines. • Personnel expenses decreased 5.5 percent to $302.9 million, driven primarily by cost reductions. Average headcount decreased 5.6 percent, despite the Prime acquisition contributing approximately two percentage points of growth. 24 Table of Contents • Other selling, general, and administrative (“SG&A”) expenses increased 5.7 percent to $118.1 million due to the acquisition of Prime Distribution and the prior year period benefiting from a $5.8 million gain on the sale of a facility in Chicago, Illinois. These increases more than offset declines resulting from cost reductions including the elimination of all non-essential travel. • Income from operations totaled $168.2 million, down 16.3 percent due to declining net revenues. • Operating margin of 28.6 percent decreased 310 basis points. • The effective tax rate in the quarter was 15.1 percent compared to 21.8 percent in the third quarter last year. The lower effective tax rate was due primarily to discrete benefits from foreign tax credit utilization and additional deductions from increased employee stock option activity in the third quarter of 2020. • Diluted earnings per share (EPS) decreased 6.5 percent to $1.00. • Cash flow from operations decreased 46.0 percent to $337.0 million during the nine months ended September 30, 2020. CONSOLIDATED RESULTS OF OPERATIONS The following table summarizes our results of operations (dollars in thousands, except per share data): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 % change 2020 2019 % change Revenues: Transportation $ 3,944,981 $ 3,608,346 9.3 % $ 10,835,710 $ 10,751,890 0.8 % Sourcing 279,819 247,786 12.9 % 821,944 764,292 7.5 % Total revenues 4,224,800 3,856,132 9.6 % 11,657,654 11,516,182 1.2 % Costs and expenses: Purchased transportation and related services 3,378,651 2,999,979 12.6 % 9,141,354 8,826,233 3.6 % Purchased products sourced for resale 256,876 222,722 15.3 % 744,621 682,502 9.1 % Personnel expenses 302,904 320,563 (5.5) % 933,607 999,547 (6.6) % Other selling, general, and administrative expenses 118,130 111,783 5.7 % 371,606 354,730 4.8 % Total costs and expenses 4,056,561 3,655,047 11.0 % 11,191,188 10,863,012 3.0 % Income from operations 168,239 201,085 (16.3) % 466,466 653,170 (28.6) % Interest and other expense (7,465) (13,180) (43.4) % (32,904) (36,935) (10.9) % Income before provision for income taxes 160,774 187,905 (14.4) % 433,562 616,235 (29.6) % Provision for income taxes 24,245 41,011 (40.9) % 74,948 138,373 (45.8) % Net income $ 136,529 $ 146,894 (7.1) % $ 358,614 $ 477,862 (25.0) % Diluted net income per share $ 1.00 $ 1.07 (6.5) % $ 2.63 $ 3.45 (23.8) % Net revenue margin percentage Transportation 14.4 % 16.9 % (2.5) pts 15.6 % 17.9 % (2.3) pts Sourcing 8.2 % 10.1 % (1.9) pts 9.4 % 10.7 % (1.3) pts Total net revenue margin 13.9 % 16.4 % (2.5) pts 15.2 % 17.4 % (2.2) pts Average headcount 14,904 15,782 (5.6) % 15,177 15,582 (2.6) % A reconciliation of our reportable segments to our consolidated results can be found in Note 9, Segment Reporting, in Part I, Financial Information of this Quarterly Report on Form 10-Q. 25 Table of Contents Consolidated Results of Operations—Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019 Total revenues and direct costs. Total transportation revenues increased, driven by increased pricing in the ocean, airfreight and truckload service lines in addition to increased volumes across most service lines. These increases were partially offset by decreased pricing in LTL services and a decrease in airfreight volumes. Total purchased transportation and related services increased, driven by higher average truckload linehaul costs per mile and higher costs of capacity in the ocean and airfreight service lines, in addition to higher volumes across most service lines, most notably in LTL services. Our sourcing total revenue and purchased products sourced for resale increased due to higher pricing and costs per case, partially offset by lower case volume. Lower case volume was driven by decreased demand in the food service industry which has been significantly impacted by the COVID-19 pandemic. Net revenues. Our transportation net revenue decreased due to lower margins in truckload, and to a lesser extent LTL services, partially offset by an increase in airfreight and ocean margins driven by increased pricing. Truckload and LTL margins declined in the third quarter of 2020 as we continued to meet our customer commitments despite increases for the cost of capacity. Airfreight margins expanded driven by increased pricing caused by significant capacity shortages in the airfreight market due to a reduction in commercial flights resulting in an increase in charter flights and larger than normal shipment sizes. Sourcing net revenue declined due to a decrease in net revenue per case and lower case volumes. Operating expenses. Personnel expenses decreased primarily due to short-term cost reductions, including the temporary suspension of retirement matching contributions for North American employees, furloughs and reduced work hours. Average headcount decreased 5.6 percent, despite acquisitions contributing approximately 2.0 percentage points of growth. SG&A expenses increased due to increased customer credit losses and the prior year period benefiting from a $5.8 million gain on the sale of a facility in Chicago, Illinois. These increases more than offset declines resulting from short-term cost reductions including the elimination of all non-essential travel. Interest and other expense. Interest and other expense primarily consisted of interest expense of $11.9 million in the third quarter of 2020, partially offset by a $3.3 million favorable impact of foreign currency revaluation and realized foreign currency gains and losses. Interest expense decreased driven by a lower average debt balance in the third quarter of 2020 compared to the third quarter of 2019. The third quarter of 2019 included a $1.1 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses. Provision for income taxes. Our effective income tax rate was 15.1 percent for the third quarter of 2020 compared to 21.8 percent for the third quarter of 2019. The effective income tax rate for the third quarter ended September 30, 2020, was lower than the statutory federal i ncome tax rate primarily due to foreign tax impacts and the tax impact of share-based payment awards, which reduced the effective tax rate by 5.2 percentage points and 3.8 percentage points, respectively. The effective income tax rate for the third quarter of 2019 was higher than the statutory federal income tax rate due to state income taxes, net of federal benefit, and foreign income taxes, but was partially offset by the tax impact of share-based payment awards and the combined tax impact of Global Intangible Low-tax Income (“GILTI”) and Foreign Derived Intangible Income (“FDII”). Consolidated Results of Operations—Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019 Total revenues and direct costs. Total transportation revenues increased driven by higher pricing for airfreight and ocean services due to the impact of the COVID-19 pandemic on capacity. These increases were largely offset by the impact of the COVID-19 pandemic on the truckload market which has experienced lower pricing due to slowdowns of demand and production in many industry verticals. Despite industry freight volume declines, we achieved volume growth in both NAST truckload and LTL services which is reflective of our pricing strategies to ensure we are near the top of our customers' routing guides. Total purchased transportation and related services increased driven by the high cost for airfreight and ocean capacity in the marketplace due to the impact of the COVID-19 pandemic in addition to increased volume in truckload and LTL services. Our sourcing total revenue and purchased products sourced for resale increased due to higher pricing and costs per case which was partially offset by lower case volume most notably in the food service industry which has been significantly impacted by the COVID-19 pandemic. 26 Table of Contents Net revenues. Our transportation net revenue margin decreased driven by margin compression in truckload services due to the tight carrier capacity in the marketplace and the significant transportation cost volatility resulting from the impact of the COVID-19 pandemic relative to our contractual customer pricing. We have continued to meet our customer commitments despite moderating declines or, in some instances, increases for the cost of capacity, which has resulted in margin compression. Partially offsetting these declines was an increase in airfreight pricing resulting in margin expansion as we were able to leverage our contractual airfreight capacity despite significant shortages in the airfreight market. Sourcing net revenue margin declined as the costs of purchased products sourced for resale increased at a faster rate than our sourcing total revenues. Operating expenses. Personnel expenses decreased primarily due to declines in variable compensation and short-term cost reductions, including furloughs and reduced work hours. Average headcount decreased 2.6 percent. SG&A expenses increased driven primarily by increases in occupancy expenses, including those attributable to acquisitions, and the reserve for credit losses, and an $11.5 million loss on the sale-leaseback of a company-owned data center, partially offset by the elimination of non-essential travel. Interest and other expense. Interest and other expense primarily consisted of interest expense of $36.6 million partially offset by a $2.2 million favorable impact of foreign currency revaluation and realized foreign currency gains and losses in the nine months ended September 30, 2020. Interest expense decreased driven by a lower average debt balance and lower interest rates in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The nine months ended September 30, 2019 included a $3.3 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses in addition to approximately $5.6 million of miscellaneous other income. Provision for income taxes. Our effective income tax rate was 17.3 percent for the nine months ended September 30, 2020 and 22.5 percent for the nine months ended September 30, 2019. The effective income tax rate for the nine months ended September 30, 2020 was lower than the statutory federal income tax rate primarily due to the tax impact of share-based payment awards, including the tax benefit from the delivery of a one-time deferred stock award that was granted to the co mpany's prior Chief Executive Officer in 2000, which reduced the rate by 4.1 percentage points in addition to foreign tax impacts which reduced the rate by 3.1 percentage points. The effective income tax rate for the nine months ended September 30, 2019 was higher than the statutory federal income tax rate due to state income taxes, net of federal benefit, and foreign income taxe s, but was partially offset by the tax impact of share-based payment awards and the combined tax impact of GILTI and FDII. 27 Table of Contents NAST Segment Results of Operations Three Months Ended September 30, Nine Months Ended September 30, (dollars in thousands) 2020 2019 % change 2020 2019 % change Total revenues $ 2,923,842 $ 2,826,308 3.5 % $ 8,222,879 $ 8,495,145 (3.2) % Purchased transportation and related services 2,555,899 2,392,548 6.8 % 7,102,602 7,088,417 0.2 % Net revenues Truckload 226,992 299,065 (24.1) % 722,843 1,011,008 (28.5) % LTL 117,602 122,959 (4.4) % 335,360 359,403 (6.7) % Intermodal 7,297 6,878 6.1 % 22,197 18,875 17.6 % Other 16,052 4,858 230.4 % 39,877 17,442 128.6 % Total net revenues 367,943 433,760 (15.2) % 1,120,277 1,406,728 (20.4) % Personnel expenses 148,958 169,644 (12.2) % 474,999 543,323 (12.6) % Other selling, general, and administrative expenses 96,459 87,916 9.7 % 287,380 271,190 6.0 % Income from operations $ 122,526 $ 176,200 (30.5) % $ 357,898 $ 592,215 (39.6) % Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 % change 2020 2019 % change Average headcount 6,702 7,448 (10.0) % 6,870 7,436 (7.6) % Service line volume statistics Truckload 0.5 % 1.0 % LTL 13.5 % 6.5 % Intermodal 2.5 % 3.5 % Three Months Ended September 30, 2020 compared to Three Months Ended September 30, 2019 Total revenues and direct costs. N AST total revenues and direct costs increased due to increased truckload pricing and increased volumes in LTL and truckload services. These increases were partially offset by lower pricing in LTL services. The increased pricing in truckload was the result of demand and production recovering at a faster rate than carrier capacity returning to the market leading to sharp increases to the cost of purchased transportation. Despite industry freight volume declines, we achieved volume growth in both truckload and LTL services which is reflective of our pricing strategies to ensure we are near the top of our customers' routing guides. Net revenues. NAST net revenues decreased driven primarily by margin compression in truckload services due to the tight carrier capacity in the market leading to sharp increases in the cost of purchased transportation relative to our contractual customer pricing as we continued to meet our customer commitments despite increasing purchased transportation costs. Our average truckload linehaul rate per mile charged to our customers, which excludes fuel surcharges, increased approximately 10.5 percent in the third quarter of 2020 compared to the third quarter of 2019. Previously, we had disclosed the change in average truckload linehaul rates compared to the total average truckload rate per mile, which included fuel surcharges. We believe comparing to average truckload linehaul rate per mile to be preferred because it completely eliminates any impact of fuel charges passed through to our customer. Our truckload transportation costs, excluding fuel surcharges, increased approximately 16.5 percent. NAST LTL net revenues decreased primarily due to reduced margins, partially offset by increased volumes. The acquisition of Prime Distribution contributed 4.0 percentage points to LTL net revenue growth in the third quarter of 2020. NAST intermodal net revenues increased driven by increased volumes and modest improvement in net revenue margins. NAST other net revenues increased primarily due to incremental warehousing services related to the acquisition of Prime Distribution. Operating expenses. NAST personnel expense decreased primarily due to short-term cost reductions, including furloughs and reduced work hours, in addition to declines in variable compensation and a decrease in average headcount. The acquisition of Prime Distribution contributed 4.5 percentage points of growth to NAST average headcount. NAST SG&A expenses increased 28 Table of Contents primarily due to the acquisition of Prime, which contributed 9.5 percentage points in addition to an increase to the reserve for credit losses. The operating expenses of NAST and all other segments include allocated corporate expenses. Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019 Total revenues and direct costs. NAST revenues decreased due to lower pricing in truckload and, to a lesser extent, LTL services, which were partially offset by increases in truckload and LTL volumes. Despite industry freight volume declines, we achieved volume growth in both truckload and LTL services which is reflective of our pricing strategies to ensure we are near the top of our customers' routing guides. NAST cost of transportation and related services increased driven by increased transportation costs per mile in truckload services. Net revenues. NAST net revenues decreased driven primarily by margin compression in truckload services due to the significant transportation cost pricing volatility experienced relative to our contractual customer pricing as we continued to meet our customer commitments despite moderating declines or, in some instances, increases for the cost of capacity. These decreases were partially offset by increased volumes in truckload and LTL. Our average truckload linehaul rate per mile charged to our customers decreased approximately 2.0 percent. Our truckload transportation costs, excluding fuel costs, increased approximately 3.5 percent. NAST LTL net revenues decreased primarily due to reduced margins, partially offset by an increase in volumes. This decrease was partially offset by the acquisition of Prime Distribution which contributed 3.5 percentage points to LTL net revenue growth. NAST intermodal net revenues increased primarily due to increased volume and improved net revenue margin. NAST other net revenues increased primarily due to incremental warehousing services related to the acquisition of Prime Distribution. Operating expenses. NAST personnel expense decreased primarily due to declines in performance-based and variable compensation, a decrease in average headcount, and short-term cost reductions, including furloughs and reduced work hours. The acquisition of Prime contributed 3.0 percentage points of growth to NAST average headcount. NAST SG&A expenses increased primarily due to our acquisition of Prime Distribution, which contributed 7.0 percentage points, partially offset by the elimination of non-essential travel and decreased claims. 29 Table of Contents Global Forwarding Segment Results of Operations Three Months Ended September 30, Nine Months Ended September 30, (dollars in thousands) 2020 2019 % change 2020 2019 % change Total revenues $ 831,957 $ 597,695 39.2 % $ 2,070,161 $ 1,727,745 19.8 % Purchased transportation and related services 674,300 461,880 46.0 % 1,621,230 1,322,758 22.6 % Net revenues Ocean 88,878 77,777 14.3 % 237,422 234,623 1.2 % Air 33,836 26,195 29.2 % 112,254 77,543 44.8 % Customs 22,463 23,719 (5.3) % 63,115 68,892 (8.4) % Other 12,480 8,124 53.6 % 36,140 23,929 51.0 % Total net revenues 157,657 135,815 16.1 % 448,931 404,987 10.9 % Personnel expenses 71,095 69,085 2.9 % 205,310 209,674 (2.1) % Other selling, general, and administrative expenses 40,263 42,054 (4.3) % 126,588 129,816 (2.5) % Income from operations $ 46,299 $ 24,676 87.6 % $ 117,033 $ 65,497 78.7 % Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 % change 2020 2019 % change Average headcount 4,607 4,790 (3.8) % 4,716 4,748 (0.7) % Service line volume statistics Ocean 1.5 % (3.5) % Air (19.0) % (21.5) % Customs (2.5) % (7.5) % Three Months Ended September 30, 2020 compared to Three Months Ended September 30, 2019 Total revenues and direct costs. The results of Global Forwarding were impacted by the COVID-19 pandemic during the three months ended September 30, 2020 as discussed in the market and business trends sections above. Global Forwarding total revenues and direct costs increased driven by significantly higher pricing and volumes in ocean services. As many industries resumed production in the third quarter of 2020 demand grew at a faster rate than ocean carrier capacity which resulted in significantly higher pricing for ocean services. In addition, airfreight pricing continued to be significantly impacted by reduced cargo capacity due to fewer commercial flights, an increase in charter flights, and larger than normal shipment sizes which has created an environment with unusually high pricing. These increases were partially offset by volume declines in airfreight. Net revenues. Ocean transportation net revenues increased driven by higher pricing and an increase in volumes. Air transportation net revenues increased due to higher pricing which more than offset a decline in volumes. Customs net revenues decreased driven primarily by lower volumes. Operating expenses. Personnel expenses increased slightly driven by an increase in variable compensation due to the strong net revenue growth in the third quarter of 2020. This increase was partially offset by short-term cost reductions and a decrease in average headcount. SG&A expenses decreased driven by the elimination of non-essential travel. Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019 Total revenues and direct costs. Total revenues and direct costs increased driven by the significant increase in airfreight and ocean pricing due to the impact of the COVID-19 pandemic. The airfreight market has been significantly impacted by reduced cargo capacity due to fewer commercial flights, an increase in charter flights, and larger than normal shipment sizes which has created an environment with unusually high pricing. The price for ocean services has also increased significantly due to tight ocean carrier capacity. These increases were partially offset by volume declines in all service lines, most notably airfreight. Net revenues. Ocean transportation net revenues increased slightly driven by increased pricing which was mostly offset by a decline in volumes. The acquisition of Space Cargo contributed approximately 2.0 percentage points of ocean net revenue growth for the nine months ended September 30, 2020. Air transportation net revenues increased significantly due to higher pricing, which more than offset a decline in volumes as we were able to leverage our contractual airfreight capacity despite 30 Table of Contents significant shortages in the airfreight market. The acquisition of Space Cargo contributed approximately 3.0 percentage points of net revenue growth in airfreight. Customs net revenues decreased driven by decreased volumes. Operating expenses. Personnel expenses decreased driven by short-term cost reductions, including furloughs and reduced work hours, and a slight decrease in average headcount in addition to declines in healthcare costs. SG&A expenses decreased driven by the elimination of non-essential travel. All Other and Corporate Segment Results of Operations All Other and Corporate includes our Robinson Fresh and Managed Services segment, as well as Other Surface Transportation outside of North America and other miscellaneous revenues and unallocated corporate expenses. Three Months Ended September 30, Nine Months Ended September 30, (dollars in thousands) 2019 2018 % change 2020 2019 % change Total revenues $ 469,001 $ 432,129 8.5 % $ 1,364,614 $ 1,293,292 5.5 % Net revenues Robinson Fresh 24,449 26,382 (7.3) % 82,109 86,276 (4.8) % Managed Services 24,060 21,574 11.5 % 70,090 61,985 13.1 % Other Surface Transportation 15,164 15,900 (4.6) % 50,272 47,471 5.9 % Total net revenues $ 63,673 $ 63,856 (0.3) % $ 202,471 $ 195,732 3.4 % Three Months Ended September 30, 2020 compared to Three Months Ended September 30, 2019 Total revenues increased driven by increased pricing in our Robinson Fresh business which was partially offset by decreased demand from customers in the food service industry resulting from the COVID-19 pandemic. Robinson Fresh net revenues declined due to a decrease in net revenue per case and lower case volumes. Managed Services net revenues increased driven by a combination of new customer wins and selling additional services to existing customers. Other Surface Transportation net revenues decreased driven by decreased margin in truckload services in Europe. Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019 Total revenues increased due to increased pricing in our Robinson Fresh business related to elevated demand at large grocers and retailers especially near the end of the first quarter of 2020. This increase was partially offset by decreased demand from customers in the food service industry resulting from the COVID-19 pandemic. In addition, total revenues increased in Other Surface Transportation driven by the impact of the Dema Service acquisition. Robinson Fresh net revenues decreased driven by reduced case volumes partially offset by increased net revenue per case. Managed Services net revenues increased driven by a combination of new customer wins and selling additional services to existing customers. Other Surface Transportation net revenues increased driven by the acquisition of Dema Service, which contributed 4.5 percentage points of growth. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Refer to the company's 2019 Annual Report on Form 10-K for a complete discussion regarding our critical accounting policies and estimates. As of September 30, 2020, there were no material changes to our critical accounting policies and estimates.