Engineer of XPO’s foray into heavy asset freight bullish on $15 billion multi-platform giant

The man behind the serial acquisitions that have made XPO Logistics the third-largest provider of multi-platform freight services in North America (after UPS and FedEx) says integration of its recent $3 billion purchase of the former Con-way Inc. is ahead of schedule and going better than planned.

“This is not our first rodeo,” XPO Chairman and CEO Brad Jacobs told LM in an exclusive interview. Noting “hundreds” of other successful acquisitions that have turned XPO into a dynamic $15 billion giant in the worldwide freight and 3PL industries, Jacobs says the integration of the former Con-way and Menlo operations has been smooth.
 
“We are off to an excellent start,” Jacobs said. “In meeting with employees in town halls and meetings, we have challenged the entire organization to take customer service to higher levels. There is a big opportunity to blend and cross-sell between other XPO businesses. We’re really fired up about this.”
 
Thanks in part to the Con-way acquisition, XPO now has 2,000 sales personnel tracking 55,000 customers—and potentially more because of XPO’s newfound capacity in the heavy freight LTL and truckload sectors.
 
“We’re having very different conversations with customers than someone with one or two services to sell,” Jacobs said. “We want to support every customer’s supply chain as completely as possible.”
 
What Jacobs said he is discovering is that XPO’s legacy logistics customers often have LTL needs, and vice versa.  Following a company-wide sales summit in St. Louis recently that rolled out incentive programs for sales personnel, Jacobs said after three days XPO was able to find 268 new LTL customers from its logistics customer data base.
 
“Now we can offer those customers a premier LTL platform,” he explained. “Outside of LTL, there are lots of opportunities to help our customers across multiple lines of businesses. Intermodal customers have significant truckload business. We’re going to do a good job cross-selling between U.S. and Europe. We’re bringing out last mile services over to Europe.”
 
The Con-way acquisition filled that need for a domestic, asset-heavy carrier. “We were keen to expand into LTL space for some time and this was the right opportunity,” Jacobs explained.

“LTL is a high value-added, $35 billion a year business. We bought premier platform to make us second-largest LTL provider in North America. Nearly all of our customers can use LTL.”
 
With forecasts of tight U.S. surface freight capacity looming, XPO is well positioned to take advantage of any capacity crunch. “What’s changed is we’ve given customers more reason to do business with us. We own 11,000 tractors with a global ground network of 19,000 tractors and 46,000 owned trailers. Plus, we have 10,000 more trucks contracted with owner operators for our dedicated business.” 
 
Jacobs’ fiscal plan is to wring some $200 million in cost synergies out of the former Con-way units. His ultimate plan is $1 billion in pre-tax operating profit out of his $15 billion worldwide giant. Analysts say given Con-way’s operational strength, that’s highly possible.
   
“They are still are a very favored carrier among shippers,” says Satish Jindel, principal of J Consulting, Pittsburgh, which closely tracks the LTL industry. “The bigger opportunity is freeing management to allow people to do things that they have been held back last couple years. They have very good people there.”
 
That Jacobs is a newcomer to heavy asset trucking operations in North America may actually prove an asset, Jindel added.
 
“Brad Jacobs knows what he doesn’t know,” Jindel said. “So he makes the effort to learn about the industry and allow the people to implement what they can do.”
 
XPO Freight, which is how the former Con-way business is being marketed, still has among the fastest transit times in North America, Jindel said. “They are on a par with FedEx Freight priority service. (XPO Freight) competes in the one-, two-, three-, four- and five-day lanes with the best of the LTL carriers—and that is not an easy thing to do while being efficient.”

The job of keeping XPO Freight on top belongs to Tony Brooks, a 30-year industry veteran and former Roadway executive who has managed transportation and logistics networks for several large shippers. “He brings that perspective as both a shipper and carrier,” Jacobs said. “He’s a great fit.”
 
XPO’s goal, Jacobs said, is to be a one-stop shop for transportation and logistics businesses of all types. “We want to be the first call when you need to ship something from A to B in any model, need contract logistics, warehousing.”
 
While obviously concentration on large national and international shippers, Jacobs says he is not overlooking the small- and medium-sized shippers either. As he quipped, “We cash their checks just as fast.”
 
As to how he views the competition, Jacobs says no one single entity has the complete suite of services worldwide that XPO has. He noted it is the second-largest in contract logistics, third-largest in truck brokerage, with the biggest European owned fleet. It manages $2.8 billion in transportation. Now with XPO Freight, it is the second-largest LTL carrier with a significant truckload business that may or may not be sold, depending on offers.
 
“There is no single competitor across the board that can offer what we have,” he said. “We want shippers to confide in us and tell us what’s not working in their supply chains. We can show them how to save them money.”
 
As for XPO’s financial game plan, Jacobs said 77 percent of its pre-tax cash flow comes from its asset-light operation such as logistics and transportation management while 22 percent comes from asset-heavy operation such as XPO Freight. He is reserving 3.3 percent of revenue for capital expenditures.
 
“We are light on assets,” he said. “But having assets is very important to some customers. In my meetings with customers, they say they see huge value because of our blend of assets and asset-light operations. Sooner or later there’s going to be a capacity crunch. When that happens, we’re assured of having trucks to serve them.”
 
At the end of the day, XPO’s goal is to leverage those assets into every part of shippers’ supply chains. “We want to be an essential part of customers’ supply chains. We have a fierce commitment to customer service and technology. They go hand in hand. You can have the best intentions. But if you’re not armed with cutting edge technology, there’s only so much you can do. We will never rest with information technology. We have a $400 million IT budget a year.”
 
Noting that transportation and logistics are industries where scale does matter, Jacobs said: “We have critical mass on a global scale. Every strategic action we take leads back to how do we lead to be a highly integrated multi-modal supply chain partner to our customers. What services to they need now and how to they need it?”
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