XPO sees big bump in new logistics, intermodal business

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A greater need for automation in the supply chain has helped fuel growth at XPO Logistics.

Transportation markets worldwide may be “lukewarm,” but contract logistics “is hot,” XPO Logistics chairman and CEO Bradley S. Jacobs said Thursday. Increased demand for contract logistics and e-commerce-linked last-mile delivery services powered first-quarter expansion at the $14.6 billion company, aided by growth in trucking and a big bump in new business.

Across the board and across two continents, “retailers are outsourcing logistics more,” Jacobs said, as the impact of increased demand for rapid fulfillment of online orders roils and permeates supply chains. “We’re opening a new [contract logistics] site every two weeks in North America and it’s a similar situation in Europe,” Jacobs said. “It’s unprecedented.”

Jacobs said the situation resembles an inflection point. Shippers that have been discussing automation and supply chain outsourcing for years are now taking action, he said.

“Demanding consumer expectations are driving changes,” Jacobs said, releasing first-quarter earnings. “Our European supply chain business grew 12 percent year-over-year. We are firmly established as the largest provider of outsourced e-fulfillment services in Europe, so when business comes up, we almost always get the call. The United Kingdom is on fire with e-commerce wins.”

XPO Logistics signed two big deals in the first quarter, one in intermodal rail and the other in reverse logistics, helping to drive new business up 67 percent year-over-year. “We’re on a roll with sales,” Jacobs said in an interview. “We just signed the largest contract in our company’s history in any business line.” XPO declined to release the names of the customers.

Among the first-quarter deals XPO has disclosed are a contract to manage the primary parts distribution center of heavy-duty engine manufacturer Cummins in the United States and a dedicated trucking and distribution agreement with Gower Furniture in the United Kingdom. Under that agreement, XPO will make more than 8,000 multi-drop deliveries to more than 150 UK locations a year.

Altogether, XPO closed $716 million in new business in the first quarter, up from $429 million a year ago, a $287 million year-over-year increase. First-quarter revenue was almost flat, dropping $6.2 million to $3.55 billion, despite the loss of potential revenue from the company’s former truckload division, sold in October, which had $128.8 million in revenue a year ago.

Excluding the impact of that sale, XPO increased overall transportation revenue 5 percent to $2.27 billion. Logistics revenue rose 3.1 percent to $1.3 billion, with European logistics revenue growing 4.9 percent and North American logistics sales up 1.3 percent. The growth of contract logistics in Europe, mainly in the United Kingdom, France, Spain, and Italy, pushed up revenue.

Last-mile logistics and truck freight brokerage led the way in organic revenue growth. Last-mile logistics revenue in North America climbed 15.7 percent to $207 million, and freight brokerage revenue rose 6.9 percent to $548 million. Net freight brokerage revenue dropped 6.2 percent, however, to $85.9 million, an indication of weak pricing in the truckload market.

Contract logistics is also producing greater profit for XPO, which first turned a profit in the second quarter last year and had an $84.5 million net profit for 2016. Operating income for the logistics business jumped 48 percent in the first quarter to $47.2 million. Transportation group profit rose 33.7 percent. Less-than-truckload profit in North America alone rose 49 percent.

The company’s net profit of $24.9 million compares with a $19.3 million loss a year ago.

With a $3 billion “sales pipeline,” Jacobs expects revenue to keep rising, along with earnings. “We expect organic growth in contract logistics to accelerate in the second quarter,” he said.

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @wbcassidy_joc.

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