XPO uses strong market to work assets harder


It is not just market sectors such as shipping that are experiencing a boom. Road freight services also seem to be doing well judging by the performance of the newly stripped-down XPO Logistics.

For the full year 2021, the company saw revenues up by a quarter to US$12.8bn whilst net income trebled to US$323m. The picture was similar for operating income, at $616m, up from $228m in FY2020.

Both the core businesses did well. Revenue at the North American ‘less-than-truckload’ (LTL) segment was up 16%, whilst operating profit was up 26% to $618m. XPO Logistics management said that for this business “the year-over-year increase in segment revenue reflects an increase in gross revenue per hundredweight, partially offset by a decline in average weight per day”. In other words, although XPO LTL is moving less freight it is able to charge higher rates that more than compensate. It also seems that XPO LTL has rebalanced its network in order to deliver better yields.

The truck brokerage business saw revenue up 31% but operating income leapt more than 10x from $21m to $282m. XPO described the business as seeing an “increase in segment revenue” that “reflects a significant increase in North American truck brokerage loads per day, facilitated by the company’s XPO Connect digital platform, as well as strength in other brokerage services”. In other words, the furious demand for road freight has driven-up volumes enabling XPO’s brokerage business to cover its fixed costs better and thus leading to a dramatic increase in profits.

In his comments around the results, CEO and founder of XPO, Brad Jacobs admitted that the strong market has enabled the company to redeploy its assets better than previously, saying that in the LTL business “the operating ratio degradation we saw last quarter bottomed out in October with the launch of our action plan. This created immediate momentum — we reduced the year-over-year operating ratio erosion throughout the quarter and significantly improved our service metrics. We also grew yield by a record 11% ex-fuel, and yield remained strong in January”. However, he said the growth of the brokerage was more down to the “XPO Connect digital brokerage platform” which enabled the company to “far outpace industry growth”.

Therefore, Mr Jacobs is asserting that despite the strong market background, it is operational issues around the increased efficiency of the company’s LTL network and its new technology platform at the brokerage that is the key to delivering higher profits. Nonetheless, a strong market must help in delivering these results.

Source: Transport Intelligence, 15 February 2022

Author: Thomas Cullen