After 10 years, XPO still surprises
It's been a wild ride with many sharp turns for XPO Logistics. Expect more surprises in its second decade.
Welcome to the seventh edition of The Fifth Wheel with Bill Cassidy, a weekly look at a particular aspect of trucking and transportation that’s on my mind or in the news or just caught my eye. Something of a reporter’s notebook. I’ll also post occasional insights and reflections on transportation history.
Photo courtesy XPO Logistics
Ten years ago yesterday serial enterprise builder Bradley S. Jacobs launched XPO Logistics through a $150 million private equity investment in an outfit called Express-1 Expedited Solutions. Here’s what I wrote on Sept. 2, 2011:
“Jacobs, the founder of multi-billion-dollar businesses such as United Rentals and the company now known as Waste Management, plans rapid expansion for XPO.
He told a group of investors in July he plans bolt-on acquisitions this year that would double the size of $158 million XPO Logistics, a publicly owned company.
His goal is to build a multi-billion-dollar truck brokerage, freight forwarding, intermodal and expedited transportation enterprise from XPO’s foundation.
“There are thousands of acquisitions opportunities” in brokerage, Jacobs said in June. “We’re going to buy a lot of freight brokers of all sizes all around the country.”
That was the start of what has been one of the biggest and most unusual transportation stories of the past decade, the rise and continual reinvention of XPO Logistics, which expanded from less than $200 million in annual revenue in 2011 to become a $16.3 billion transportation and logistics conglomerate by 2020 (it actually hit $17.3 billion in total revenue in 2018. Revenue slipped in 2019 and 2020).
The latest chapter of that story is unfolding now. On Aug. 2, XPO spun off its contract logistics business into a new publicly owned company, GXO Logistics, leaving XPO with LTL, brokerage, intermodal, and expedited services. Jacobs remains chairman and CEO of XPO Logistics and chairman of GXO Logistics.
“GXO is an industry leader with massive revenue tailwinds, double-digit EBITDA growth, long-term contractual relationships with blue-chip customers and importantly, a 28 percent return on invested capital,” Jacobs told Wall Street analysts July 29. “XPO will be a pure-play transportation company with an LTL business that is on track to generate at least $1 billion of adjusted EBITDA in 2022 and a booming truck brokerage business with a fast growing digital platform.”
The contract logistics businesses that became GXO last month had $6.2 billion in revenue in 2020, while XPO had $10.2 billion in transportation revenue.
The past could be prologue for what comes next. “Yes, we expect to grow both organically and through acquisition at both companies,” Jacobs said in January when asked whether XPO would resume buying companies after the spin-off.
In 2011, XPO Logistics had six locations. Today it has 744.
The company had 4,000 customers in 2011. Today it has more than 50,000.
In 2011, XPO Logistics moved 107,091 loads. So far this year, the company says it it has moved 1,088,303 shipments.
In 2011, Jacobs seemed to come from nowhere, but his experience in building billion-dollar enterprises through “industry roll-ups” gave him unique insight into the opportunities offered by a fragmented and siloed transportation industry.
Starting with an initial investment of $3 million in 1989, Jacobs built United Waste System into a $2.2 billion company, completing more than 200 acquisitions. He sold United Waste System in 1997 and co-founded United Rentals. By the time Jacobs stepped down as chairman in 2007, United Rentals had $3.7 billion in revenue.
“When I got into the waste and rental businesses, it was premised on a similar sense of the penetration trend,” Jacobs told me in a June 2011 interview. “In the waste business, there were regulations coming into play that put old dumps out of business and created demand for new technologically sophisticated players. In construction, a lot of the contractors were buying equipment and only using it for a portion of the year,” generating demand for seasonal rental business.
Transportation “is bigger and more fragmented than other industries I’ve had success with in the past,” Jacobs said. “I started my search in transportation with the idea of consolidating trucking companies in the US, but I migrated to an asset-light model when I saw the high returns on capital.”
Wall Street analysts, investors, and competitors were often perplexed by shifts in strategy as XPO grew. Satish Jindel, president of SJ Consulting Group, remembered a presentation by Jacobs at a 2012 investor conference.
“Within minutes into the presentation, Jacobs mentioned his goal of growing his small public company from $177 million in annual revenue to $5 billion by 2016, for a CAGR of 95 percent. I saw faces around me and could read their minds wondering who this kid is to come from nowhere and believe that he could expand his company so rapidly in their industry,” Jindel wrote in a 2017 JOC.com commentary.
I had many discussions from 2011 to 2016 with doubters, scoffers, and those who were just plain puzzled by XPO’s strategy. Those most confused seemed to be those who had worked in transportation the longest.
“The key to Jacobs’ success in a new industry has been his willingness to recognize what he doesn’t know, engage with experts for dissenting viewpoints, and reward management for results while holding them accountable,” Jindel said in 2017.
As for those who thought XPO would never make a profit, or that he couldn’t manage asset- and non-asset-based subsidiaries, Jacobs out-thought them.
Another key to XPO’s success has been its ability to anticipate how customer needs would change and evolve, especially as e-commerce expanded. That led Jacobs to expand XPO from its brokerage base to last-mile logistics and e-commerce fulfillment, and eventually LTL trucking.
“We’re going to continue to buy truck brokers and cold-start brokerage operations, but we’re also going to pay close attention to what customers want,” Jacobs told me after acquiring last-mile delivery company 3PD in 2013. He eventually decided customers want transportation partners that own assets, as well as non-asset brokers.
XPO began adding assets in 2014 with the purchase of intermodal rail operator Pacer International. The 2015 acquisition of European logistics and trucking operator Norbert Dentressangle, and the experience of its customers, helped drive the Con-way acquisition in the same year.
“In the next few years, there will be a capacity shortage,” Jacobs told Wall Street analysts in a conference call following the Con-way acquisition. “There is no doubt about that in my mind. When exactly that is, is up for debate. When that capacity shortage comes? He who controls assets will do very, very well.”
XPO has done very, very well, becoming highly profitable. But it hasn’t all been beer and skittles. The company has survived the vagaries of the stock market, the machinations of short-sellers and the ire of unions, who have failed to make significant headway in organizing the company despite attempts to make inroads at its LTL, drayage, and warehousing operations. XPO’s particularly bitter, long-running dispute with the Teamsters spilled into the hall of the Long Beach Convention Center at the 2017 TPM Conference, when protesters broke through the doors during a keynote speech by Jacobs (the speech, in an upstairs ballroom, was not interrupted).
Parted from GXO, XPO is entering its second decade with confidence. The decision to spin-off GXO underscores that XPO exists not just to make money, but to provide value to its shareholders, and that its strategy must remain flexible enough to shift to meet that goal. Here are 10 memorable stories from 10 years of XPO coverage:
Betting on brokerage (June 27, 2011)
With 3PD, XPO goes the extra mile (Aug. 30, 2013)
With $700 million to spend, what will XPO buy next? (Sept. 12, 2014)
Buying Con-way, XPO shifts from ‘asset-light’ to ‘asset-right’ (Sept. 12, 2015)
Cost controls, e-commerce power XPO to profit (Aug. 3, 2016)
XPO transforms LTL acquisition (Aug. 10, 2017)
XPO throws down robotic gauntlet to logistics competitors (Oct. 3, 2018)
XPO on growth track despite big customer loss (Jan. 15, 2019)
E-commerce 'saves' XPO amid pandemic: CEO (May 6, 2020)
Technology creating LTL capacity for LTL shippers (Sept. 3, 2021)
Thanks for subscribing to this newsletter. For those that don’t know me, I’ve been the senior editor for trucking and domestic transportation at The Journal of Commerce and JOC.com since 2009. Before that, I spent 13 years as an associate, managing and executive editor at Traffic World, a weekly magazine once owned by the JOC.
I can be reached at email@example.com, on Twitter at @willbcassidy, and on LinkedIn.