XPO’s Jacobs addresses myriad industry topics at SMC3’s Jump Start 2021

Brad Jacobs, Chairman and CEO of Greenwich, Conn.-based freight transportation and logistics services provider XPO Logistics, offered up myriad opinions on a host of industry trends and themes at the opening session of this week’s SMC3 2021 Jumpstart conference, which was held virtually.

Addressing the economy, Jacobs observed that that it has come back strongly since the depths of 2020.

“It turned out to be a real V-shaped recovery, and by almost every measure we are back to where we were pre-COVID-19, which is remarkable and shows the underlying strength of the economy and were able to do that,” he said. “The underlying trend is positive…but there are a lot of challenges that could slow it down or derail it, chief of which is how soon do we get out of COVID. We will get out of COVID, for sure, but does it happen right away or take until the end of the year? That is a big question mark for me.”

As a company that has seen exponential growth through various acquisitions, Jacobs noted that future acquisitions could occur, once XPO completes the spin-off of its contact logistics group and less-than-truckload/truck brokerage services into separate companies, which was announced in early December 2020. Jacobs said at the time of this announcement that by uncoupling its transportation and logistics segments, XPO intends to create two high-performing, pure-play companies to serve the best interests of all its stakeholders.

A key theme of Jacob’s comments focused around XPO’s LTL business, which was conceived though the company’s acquisition of Con-way Freight in September 2015, with XPO transforming its LTL operations into much higher profitability over the subsequent years, as had been witnessed in improved LTL operating ratios seen by many publicly-held LTL carriers, including XPO.

“I think the long-term trend for LTL is to have more profitable operations,” he said. “And I think technology is the underlying motivation of growth profits in LTL…for things like B2B optimization.”

Jacobs likened certain parts of the LTL sector to his previous leadership in the garbage collection business decades ago, in terms of the pickup and delivery similarities between the two sectors, where there is a certain amount of fixed costs and a certain number of stops per day.

“If you get 13 stops instead of 10 stops, those extra three stops are much more profitable because of the idea of fixed costs,” he said. “Having density in LTL really helps, and having technology allows you to route the trucks in the most intelligent, efficient and time-effective way and creates big profit uplifts. P&D technology is going to fuel more profit in the business. We have taken the smart labor workforce automation tools that we have, in our contract logistics business, that we use in order to staff up our warehouses accurately to match demand….and applied them to LTL and call it XPO Smart. We found about a 5% productivity improvement from that, and being able to use algorithms to predict what the amount of freight is going to be collected from our customers over the next day or the next week and staff up to the right amount. We are not overstaffed, and we are not understaffed, are managing overtime to the right amount, and keeping the freight moving on time.”

In terms of LTL linehaul, Jacobs surmised that on a collective basis the top 10 LTL carriers probably run around 15 million-to-20 million miles per day. And he added that as the LTL sector uses more intelligent technology to route trucks on highways, a significant portion of them could be removed, positing at a rate of 10%-to-15%, or possibly higher.

“Think about what the impact of that is on profit and the environment—by having less emissions on the nation’s highways,” he said.

Another aspect of LTL where Jacobs said he sees technology having a big role is on pricing.

“The pricing system in LTL is archaic, it is not going to last,” he said. “It is not efficient, and things that are not efficient don’t last. It is surprising it has lasted this long. Eventually, we will sell LTL based on space and dimensions, because that is what we have. It is not just on weight, and it is not on these arbitrary classifications either that are not always accurate. I think the way freight is priced will be more automated and more done by algorithms. I think it will be more accurate, and will help the carriers, because we won’t be overpricing and losing business and won’t be underpricing and leaving money on the table.”

Jacobs also addressed other topics at SCM3, including: risk management; the increasing profile logistics has received, going back to the onset of the COVID-19 pandemic; and sustainability, among others.