XPO has seen some major growth over the last year since the company announced its plan to divide its tech-enabled brokerage services into its own business, with the core of its business evolving to a stand-alone, purely less-than-truckload carrier serving 99% of ZIP codes in North America.
During April 3’s WHAT THE TRUCK!?! Ali Faghri, chief strategy officer at XPO, shared how the move has already brought value to its customers and shareholders. He also shared his optimistic outlook for future growth, despite the headwinds of the current market.
“We love LTL. It’s a stable playing field, both in terms of pricing discipline and the competitive landscape,” Faghri said. “We’re one of a handful of players that has a nationwide network, which is critical from a customer perspective.”
As part of the company’s transition to its stand-alone LTL status, it launched a strategic LTL 2.0 plan to widen its market share and strengthen operations. In the plan, XPO committed to the following:
- Grow capacity. The company is strategically adding new doors in capacity constrained markets, while also investing in equipment like tractors and trailers.
- Double down on service. The organization will be hyperfocused on ensuring every shipment is on time and damage free.
- Deploy technology. New technology implementations will improve pricing and drive cost efficiencies.
“Overall, the combination of these initiatives should allow XPO to deliver above-market growth in coming years while at the same time continuing to provide best-in-class service to our customers,” Faghri explained.
So far, these service enhancement initiatives are proving successful. Since rolling out LTL 2.0, XPO has significantly improved some of its key service metrics, including damage frequency and on-time delivery. In the fourth quarter of 2022, damage frequency improved by a staggering 70% and on-time improved by 14% year over year.
Through 2027, the company expects to see sales grow between 6% and 8% and earnings by 11% to 13%.
“We’re not only winning new customers but we’re also winning more wallet share with existing customers, and that’s a big reason why we’ve been able to outperform the industry from both a shipment count and tonnage perspective in what has been a softer freight demand environment for the industry,” Faghri observed.
Investing during both the good and bad times has been a page from the historical XPO playbook. Despite the soft volume and excess capacity currently in the market, the carrier is not shying away from expansion in strategic areas where there is strained capacity and strong growth potential.
This expansion includes growing its fleet: More than two-thirds of its investment spend is set aside for adding equipment like tractors and trailers, while the company is also strategically adding new dock doors to markets where it is currently capacity constrained and expects strong growth going forward. Since the start of 2022, it’s already added about 370 net new doors and expects to open 900 total by the end of 2023, which equates to about 6% total capacity growth.
“We think about these investments as long term. We’re not making them for the next few quarters, we’re making them for the next few years and beyond,” Faghri said.
XPO’s investments will allow the carrier to capitalize on the freight cycle and ensure its ability to meet demand, Faghri added. The new equipment will also bring down the average age of their fleet and lower maintenance costs.
Although industry wide carriers are still dealing with a backlog of trailer orders, XPO has the advantage of its Arkansas-based in-house trailer manufacturing facility, which produced 4,700 trailers last year and will produce an additional 6,000 this year.
It’s been about a year since the transportation industry has seen a slowdown, and the near future is still undetermined from a freight demand perspective, but Faghri has glimpsed signs of hope.
“Our customer mix is about two-thirds industrial and one-third retail,” Faghri explained. “On the retail side, customers have made progress working through the elevated inventory that was a headwind through much of last year. Now they’re expecting more normal seasonal buying patterns this year, but it’s not uniform across the board and there’s still uncertainty about what consumer demand is going to look like as we progress through the year.”
While it’s been a softer market for the industrial side, Faghri anticipates the automotive sector will see growth due to the pent-up demand and now largely normalized supply chain.
“Overall, we’re cautiously optimistic that you should see a gradual recovery sometime in the back half of the year, but it’s still an uncertain environment so we’re really focused on what we can control, which is making long-term, high-return investments in the business, providing best-in-class service and controlling costs,” Faghri said.