XPO and Spun-off Company Look to Growth: Brad Jacobs Steps Back

On Tuesday, Brad Jacobs stepped onto the podium at the New York Stock Exchange for the ninth time, leading colleagues in a chant during the celebration of XPO Logistics' second spinoff in two years. With the ringing of the opening bell, XPO officially spun off its truck brokerage business into a new company called RXO. The veteran investor will serve as executive chairman of the less-than-truckload carrier and non-executive chairman of the brokerage, but the day marked the end of Jacobs' tenure as CEO since he founded the logistics giant in 2011.

In this week's spinoff, Jacobs handed over the day-to-day operations of the brokerage to incomingRXO CEO Drew Wilkerson, and the remaining pure less-than-truckload business to incomingXPO Logistics CEO Mario Harik. The three joined dozens of other company executives on Tuesday for the final moments of the company's operation as a conglomerate. Over the past decade, XPO acquired more than a dozen different logistics companies and has since spun off specialized businesses with enough scale to deliver their own returns to investors.

Jacobs' vision will carry on in the spun-off companies: Wilkerson and Harik said they plan to follow a long-term strategy prioritizing technology integration and shareholder value.

"I'm very confident that through these strategic moves, we will better serve customers, respond more flexibly to changing markets, and provide a highly cohesive work environment," Jacobs said in an interview with Transport Dive. "This will therefore create significant shareholder value."

New RXO CEO says 'we will outperform the market'

Beyond managing the day-to-day brokerage business, Wilkerson also inherited Jacobs' outspoken confidence. On the day before the spinoff (Monday) during XPO'squarterly earnings call, Wilkerson struck an optimistic tone, noting that even amid declining freight demand, the brokerage business is poised for success.

"It doesn't matter what happens in the market," said Wilkerson, a C.H. Robinson veteran. "There are many unknowns in 2023. We are confident that next year we will outperform the overall market."

As an independent company, RXO expects year-over-year volume growth in the fourth quarter and to maintain a strong gross margin close to the 19% achieved under XPO last quarter, even if it may be "slightly lower." Gross profit per shipment may also decline due to the changing demand environment, but the brokerage's "consistent excellent performance proves we can gain share in any market," Wilkerson said.

Jacobs' focus on digitalization during his time at XPO helped RXO achieve an explosive start. The brokerage's online platform, RXO Connect, added another 10,000 new carriers last quarter, Wilkerson told investors. The company created or covered 81% of digital truck brokerage volume in the third quarter, and despite expectations of a muted peak season, it still saw strong contract bidding activity and expects year-over-year volume growth next quarter.

To continue increasing the proportion of digital brokerage volume, the RXO Drive app targets carriers and their drivers, Wilkerson told Transport Dive. In addition to carrier reward programs, the app also guides drivers to the nearest cheapest gas stations and shows the closest Subway—which drivers voted as their favorite lunch choice in a brokerage poll.

"Doing things like this, being driver-friendly and making their lives easier," Wilkerson said.

XPO's growth plan as a pure-play LTL company

Technology will also continue to play a key role at XPO, especially under its former chief information officerHarik. As Jacobs' third employee at XPO, Harik rose to president of the LTL business after leading the company's $3 billion technology strategy, which focused on integrating data analytics, machine learning, cloud computing, and other capabilities into company operations.

This year, XPO added six terminals to its national network and expanded others, Harik told investors, with business growing in those markets. "We opened a terminal in Atlanta six months ago," he said on Monday's earnings call. "In September, tonnage in the Atlanta market grew 38% year over year." The business's sales team has also grown 7% since the start of the year, and the company is on track to train 1,700 drivers by year-end.

XPO's third-quarter adjusted operating ratio of 82.8% caught the attention of Satish Jindel, who called it "a very good number for the current period." Jindel, president of SJ Consulting and a longtime observer of the LTL industry, said technology is crucial to solving the "puzzle" that shipments and trailers pose for LTL carriers. Harik's rise to CEO highlights XPO's emphasis on technology and could have ripple effects across other companies in the industry, Jindel said.

"Choosing Mario as CEO is probably the most impressive thing to me, because I think he is the first LTL company CEO with a CIO background," Jindel said. "This should be a very interesting development."

For Jacobs, 'the hunt starts tomorrow'

Although Jacobs will retain board positions, the spinoff symbolizes the end of a decade-long chapter for him as a disruptor in freight. "For RXO, this is a new beginning—this is the moment of our birth," he said. "For XPO, this is a marker and validation of leadership transitioning from me to Mario. So this is a meaningful day."

Since 2011, the company built a platform for shippers and carriers, then gained market share through a series of acquisitions, most notably the 2015acquisition of Con-way Inc.. Believing its stock suffered a "conglomerate discount" compared to pure-play competitors in different business segments, XPO spun off its Europe-focused contract logistics businessGXOin August 2021. In March of this year, it sold its North American intermodal business. The carrier also plans to divest its remaining European operations, though no timeline update was provided this week.

"XPO's scale gives it this opportunity," said Patrick Yorkey, a commercial banker in J.P. Morgan's middle market banking and specialized industries group. "After the spinoff, [XPO and RXO] will both be large, dominant players."

On Tuesday afternoon, Jacobs posed with colleagues in front of the New York Stock Exchange building, with giant XPO and RXO banners hanging on the facade and an XPO truck parked nearby. The founder of United Waste Systems and United Rentals is already considering the next industry suitable for creating more shareholder value. He has not yet decided on his next venture. "The hunt starts tomorrow," Jacobs said.