XPO Logistics ramped up hiring when trucking was cratering — and now execs say the bet fueled record revenues
Summary List PlacementXPO Logistics doubled down when the trucking market faltered last year, and it paid off. The logistics giant beat analyst expectations in Q4 as a glut of e-commerce shipments led the company to report its highest single quarterly revenue ever, at $4.67 billion. The pandemic caused freight markets to flail at the beginning of last year. The ratio of loads to available trucks hit bottom in April, according to DAT Freight & Analytics data, before a steady drumbeat of consumer demand drove a tightening market for trucking that's not expected to let up until at least the second quarter of 2021. XPO, the third largest brokerage by revenue according to Transport Topics, kept hiring brokers despite the spring 2020 drop in demand for trucking services, Chief Strategy Officer Matt Fassler said. Those extra hands helped drive the company to such heights in Q4 when the ratio of available loads to trucks reached a two-year high. "We drove that growth by making a strategic decision to hire and train people at the bottom of the market," Fassler said, according to a transcript from Sentieo. Staffing up when business was weak meant XPO was ready when business roared back. XPO's brokerage unit increased net revenue 110% in Q4. Going digital Extra brokers helped propel XPO through the pandemic, but it's technology that will keep the growth growing, according to executives. Truck brokerage, the art of matching loads with available trucks, is still a high-touch business in which brokers communicate with available truck drivers and shippers looking to hire them via phone and email, sometimes one load at a time. Recent tech-first entrants to the space like Uber Freight, Loadsmart, Convoy, Transfix are working off of a similar playbook, using technology to decrease the brokers' labor per load while, ideally, yielding a better experience for brokers, the shippers who own the cargo, and the truckers who move it. They promise real-time data and more transparency. Incumbents like XPO have reacted by building their own apps. XPO rolled out its XPO Connect app in North America in 2018, expanding it to Europe 2019. The company said 75,000 carriers are now using the driver-focused version of the app to find loads. All transactions, whether or not they originate in the app, run through XPO Connect now, said Fassler. Every brokerage order has roughly 10 steps, and about 90% of orders have at least one automated step today, according to a company spokesperson. The pandemic increased demand for digital brokerage, according to Uber CFO Nelson Chai. The tight trucking market drove shippers to Uber Freight in Q4, since digital platforms offer real-time information in a chaotic market, he said on a Wednesday earnings call. Active users on Uber Freight's platforms were up 45% in Q4. Even for XPO transactions created by more old-fashioned means — phone calls and emails — automated pricing tools are saving brokers' time. "We're also using API tools to generate quotes for some shippers," Fassler said. "This is a relatively recent pricing channel for us. It's an efficient, touchless way to capture revenue and maintain our margin." The automated tools are enabling the company to build brokerage volume faster than headcount, he added. XPO increased its loads per day by 24% year over year and headcount 20% in Q4. Human labor won't be completely removed from brokerage for a long time, if ever, but as brokers integrate technology, they're keeping a close eye on freight loads per headcount. Echo Global Logistics, the fifth largest North American trucking broker by revenue, reported last week that sales per headcount increased 9% year over year in Q4 — the sixth consecutive quarter of increase — due to "automation, self-service capabilities, and predictive pricing algorithms," according to a transcript from Sentieo. XPO announced in December it would split its contract logistics business away from its transportation segments, including less-than-truckload and brokerage. If everything goes according to plan, the split will be complete in the second half of 2021, with current CEO Brad Jacobs helming the transportation business and Malcolm Wilson, currently CEO of XPO Europe, heading the global logistics business. So far, XPO's January brokerage performance looks stronger than December, according to Cowen analyst Jason Seidl, even though traditionally, brokerage would see a drop off in volume from Q4 to Q1. Join the conversation about this story » NOW WATCH: What makes 'Parasite' so shocking is the twist that happens in a 10-minute sequence
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