RXO, post-Montgomery, sees benefit in its insurance, vetting

Here’s the key rules

CFO Jamie Harris, in his prepared remarks, said RXO’s vetting standards are “some of the strictest in the industry.”

Among them: carriers with a conditional rating from the Federal Motor Carrier Safety Administration (FMCSA) are not allowed in the RXO network, Harris said. 

(In a blog article from 2024, Kathy Close of J.J. Keller & Associates described a Conditional rating as meaning “inadequate safety management controls are in place. You cannot ensure compliance with the safety fitness standard. You have deficient areas that FMCSA expects the carrier to resolve. However, you can continue to operate.”)

Harris also said a carrier in the RXO network must have an active authority from FMCSA for at least 90 days “before they even have an opportunity to serve a customer.”

What it spends

Harris during the call provided specifics on RXO’s coverage. He said the company’s annual insurance spend is between $15 million to $20 million, which Harris described as the base number to use in forecasting future expenditures.

“You’ve got to take that into account because we are in the top percentage in the amount of insurance power that we have,” Harris said. “As we look forward to next year, I think we’ll have the exact same experience that we’ve had in prior years, which is our vetting process and our safety record is at the top of the list of things that insurance providers look for.”

RXO has been in communication with its insurers, Harris said. “We are confident our insurers will be even more focused on carrier vetting processes and controls as well as safety outcomes,” Harris said. “We believe that our best-in-class process and safety record will continue to be of significant benefit when we renew our policies at the end of the year.”

RXO’s view, according to Harris, is that there are a large number of brokers both large and small that are “underinsured.” They will be the ones hit with the largest increases as the new legal landscape for brokers post-Montgomery begins to show up in premium increases, he added.

How AI helps

In recent earnings calls, RXO has tried to catch up to the relentless message that competitor C.H. Robinson (NASDAQ: CHRW) has driven home: AI is powering our future. 

C.H. Robinson discloses headcount numbers in its quarterly earnings, which allows a comparison of revenue per employee that has for more than two years produced a widening ratio and more precise numerical proof of the impact of AI. RXO until more recently has been less aggressive in pushing that message.

But in the discussion about insurance and vetting, Jared Weisfeld, chief strategy officer at RXO, said AI tools were part of the company’s process.

Weisfeld said RXO has developed a “proprietary AI-powered system that evaluates carrier reliability and history.”

“This system includes real-time identity verification with the FMCSA,” Weisfeld said. “We also aggregate real-time tracking from nearly all major ELD and visibility providers to eliminate blind spots. This proactive approach allows us to identify suspicious patterns long before they can impact our customers’ supply chains.”

Beyond the discussion of the combination of insurance and carrier vetting, other topics of discussion on the call included:

• The presentation released in connection with the analysts’ call gave further detail on several financial benchmarks that were not in the company’s initial earnings release. Truckload brokerage revenue was up 19% year-on-year. The strength has continued: revenue per load was up more than 25% in July compared to the prior year. RXO had said in its initial release that truckload gross profit per load in the second quarter posted the largest sequential growth rate in four years. That figure was revealed in the company’s presentation released in connection with the analysts’ call: 11%. No year-over-year growth rate was disclosed.
• Wilkerson said the strength in gross profit per load was driven by a 42% spot percentage of the mix. Weisfeld on the call said that number was up 900 basis points sequentially and 1,500 basis points year-on-year. “Spot volume carries a significantly higher revenue and gross profit per load when compared to contract volume,” Harris said. Wilkerson added that in the past, he would have thought a 60/40 split between contract and spot was a goal. But with the spot number already above that in the quarter, “I think that we still have room for spots to increase off of where we are now, and we’re seeing that in the third quarter, so I don’t know that there’s an optimal mix.” 
• The message about RXO’s embrace of AI came through in other areas other than carrier vetting. Wilkerson said the company is in “the early innings of our agentic AI journey.” “Productivity continues to increase,” he said. “The biggest thing as you walk the brokerage floor, looking at it and asking how does this help us add gross margin dollars, and how does this help us source capacity differently? And we’re seeing wins on all fronts. “ In the presentation, RXO said its various AI tools allowed five times more requests for spot quotes that arrive via email, a 50% increase in agentic phone calls, and a variety of other improvements.
• Although the first market reaction to the RXO earnings report was positive, at approximately 1:15 p.m. EDT the company’s stock was down 3.9% to $20.18. Its 12-month performance is up about 31.5%, but after the nuclear verdict in Lipe vs. Lupus Superior, and the earlier hit from the Montgomery case, RXO stock is down about 23.6% in the last 30 days. 

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