XPO's Jacobs on 4Q: 'Fasten your seatbelts'

XPO's Jacobs on 4Q: 'Fasten your seatbelts'

Revenue growth at XPO Logistics has accelerated steadily throughout the year. Photo credit: XPO Logistics

XPO Logistics is bracing for what chairman and CEO Bradley S. Jacobs expects will be a very busy peak holiday shipping season, with a steady increase in online shopping driving freight volumes and pricing higher across the logistics landscape from North America to Europe.

“All of our customers are saying fasten your seatbelts,” Jacobs said in an interview Wednesday. XPO has been preparing for a bull rush in last-mile deliveries, opening eight new last-mile hubs this fall to bring its total number to 53. Jacobs said XPO will open at least two more this year and 85 by the end of 2018.

“We will have a bigger footprint this year going into the busy season,” he said. “We not only have more hubs, we’ve got larger docks in large metropolitan markets.” XPO also will hire 6,000 temporary workers, 20 percent more than last year, based on the strength of the holiday forecast.

E-commerce, however, is no longer just a holiday story. It is increasingly becoming just “commerce,” as expectations set by online fulfillment spill over from the consumer to commercial and industrial distribution markets. That has ramifications for all types of logistics and transport operators.

“There’s no doubt our e-commerce customers are our fastest growing customers, with some growing 20 percent or more a year,” Jacobs said. E-commerce directly affects four of XPO’s diversified lines of business, Jacobs said, but, indirectly, online sales affect all of them.

All of XPO’s operations saw significant growth in the third quarter, when XPO revenue rose 4.9 percent year over year to $3.89 billion. E-commerce not only pushed more business to e-fulfillment, reverse logistics, and last-mile logistics divisions, it filled truck trailers, too.

Less-than-truckload (LTL) shipments per day in North America were up 1.8 percent from the same quarter last year and average weight per shipment increased 3.7 percent. That generated a 5.6 percent increase in LTL tonnage at the second-largest stand-alone US LTL trucking operator.

“In LTL, our revenue per load was up 6 percent, where it was down 1 percent in the second quarter,” Jacobs said, another indicator that LTL pricing is moving upward. Pricing on contract renewals on average is up 5.1 percent year over year, he said. E-commerce is helping, but so is higher US industrial output and a tightening of truckload and LTL capacity, said Jacobs.

The same trends fueled a 15.5 percent jump in freight brokerage revenue in North America to $628.6 million. “Our truck brokerage business was off the charts in the quarter,” Jacobs said. “That continued in October. The aftermath of the storms created strong truck demand.”

By Nov. 1 that demand had lessened somewhat, but remained strong in many regions. “The West Coast is extremely tight,” he said. “In many California metro markets, rates have soared up to 20 percent.” Shipper priorities are changing, thanks to the flip in the marketplace.

“As much as shippers were focused on price in the last few years, they’re now very focused on actual access to capacity and service and reliability,” Jacobs said. They’re also turning to the spot market more for capacity. “We’re now 50 percent spot market. We used to be 20 percent.”

XPO’s revenue growth accelerated from 0.2 percent in the first quarter to 2.2 percent in the second quarter and now 4.9 percent, fueled by e-commerce, but also a “more positive” US economy and an uptick in global trade that benefited an increasingly global company.

Despite a 4.4 percent increase in operating costs, the company more than doubled its profits, increasing net profit 230 percent to $71 million. 

“We had the highest revenue, net income and highest cash flow of any quarter in our history and beat expectations for EBITDA [earnings before interest, taxes, depreciation, and amortization], cash for operations, and free cash flow,” Jacobs said. “Our diversification is yielding results.”

The rise of global trade helped XPO close $2.1 billion in new business this year through September, a 49 percent year-over-year gain and up from $1.43 billion in new sales in the first six months. “Our global sales pipeline continues to exceed $3 billion,” Jacobs said.

That number is likely to move higher as transportation and logistics costs climb. Tight capacity is pushing transportation pricing northward, and not just in the US trucking and intermodal markets. Tight capacity is “a common theme in North America and Europe,” Jacobs said.

“You’ve got 2 to 3 percent economic growth in most countries and yet [transportation] capacity is going down. The see-saw has moved toward an imbalance, with tight capacity and upward demand.” It is a good time to own assets and to be a non-asset broker, he said.

The four business lines most affected by e-commerce at XPO are its e-fulfillment operation in Europe, last-mile logistics in North America and Europe, omnichannel distribution, and reverse logistics. “Everything e-commerce-related in Europe is going gangbusters,” Jacobs said.

“We signed new e-commerce and cold chain contracts in Europe, in the United Kingdom and Spain" in the quarter, he said. European trucking revenue rose 6.2 percent to $629.8 million, with. European truckload revenue moving up 4.2 percent, and LTL revenue 10.1 percent.

Jacobs does not see indication that current trends will reverse themselves anytime soon. The US economy GDP is moving “in a positive direction and feels buoyant,” he said. “On the capacity side, carriers have not added a lot of trucks. I don’t see that turning around soon.”

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @wbcassidy_joc