XPO Logistics CEO Bradley Jacobs Talks Con-way, Strategy, and Future Plans

If you have not noticed what XPO Logistics is doing these days, when it comes to growth though acquisition and expanding its service menu, then you have not been paying close enough attention to what it has been up to, basically since its inception in 2011.

The company recently announced its plans to acquire Con-way Inc., the most recent of its mostly high-profile acquisitions in recent years.

I recently caught up with XPO Logistics Chairman and CEO Brad Jacobs to discuss the Con-way deal, market conditions, and future plans - a transcript of the conversation below:

What is XPO’s approach or strategy to integrating Con-way into the company?
Integration is one of our core competencies. The teams I have led over the years have purchased and integrated 500 acquisitions, it is something we know how to do very well.

Con-way is a company that is running very well, and customer satisfaction scores are running very high. It ranks highly on on-time pickup, on-time delivery, load damage, liability, proper resolution of any claims.

It is a company that has had repeat business for decades so it must be doing something right.

The integration becomes a lot easier, when you are integrating a company that is functioning on all of its cylinders to begin with.

The real integration work is on the back office, where we have a lot of duplicative Selling, General and Administrative Expenses (SG&A), and where they have something and we have something, you don’t need two of the ‘same something.’

And that is something that is fairly mechanical, a process where it takes a few months to sort if out and is then behind you.

Is this approach similar to the one XPO is taking with Norbert Dentressangle?
Yes. With Norbert, we had less of an overlap so there is less synergy there, because we did not have any European operations to speak of so we kept their financial and IT organizations.

How are things going so far with Norbert as part of XPO?
It has been great. We are ahead of budget and beating plan.

Customer reaction to XPO has been very positive, and employee engagement is very high. We have rebranded from the name Norbert Dentressangle to XPO Logistics in a substantial way.

We had not been known very well in Europe prior to the acquisition, but we are very well known there now, and I have met most of the top customers, many of whom have done business with the predecessor company for decades, with deep long-term relationships and integrated supply chains for those companies.

How are you viewing the economic landscape in Europe? Is southern Europe still in rough shape for the most part?
The UK and Spain actually are doing pretty well and generally speaking Europe is growing. Its GDP is at 2-to-2.5 percent depending on which country you are in so there is a moderate level of growth.

The central banks there are doing quantitative easing…pumping money into the economies and are in a different part of the cycle, I think, than they are in the U.S. Their trough was a few years ago.

Shifting back to Con-way, there have been various attempts to get Con-way Freight to unionize, which have not been successful. What is the situation with that now moving forward?
I have dealt with unionization efforts my whole career, including at United Waste and United Rentals, and they have never succeeded.

The reason…is we respect our employees and pay our employees fairly and communicate with them regularly.

They are part and parcel of the whole culture. When I was doing town halls in Joplin, Missouri (Con-way Truckload headquarters) a few weeks ago meeting with drivers, I asked what they thought about unions, and they winced.

They don’t like unions, because why do they need a third party to get between them and the company? What value does that add?

With the Norbert and Con-way acquisitions coming for a cumulative $6.5 billion and fairly close to one another in terms of timing, what are some of the things you are currently vetting in terms of future acquisitions?
The verticals we are in right now form a very comprehensive suite of transportation and logistics services, and that complete of service offerings is resonating with customers.

I have heard from many customers about how much they value being able to do business with a vendor that is offering half a dozen different services that they use.

We are going to keep doubling down in contract logistics, keep expanding in last-mile and intermodal, truck brokerage, expedite, and now LTL with Con-way.

On the truckload brokerage side, there are a lot of major players in that space, with some overlap in carrier bases. In a few years, will we be looking at the present time as the ‘good old days’ for truckload brokerage or is the best yet to come?
I think truckload brokerage will morph and evolve and technology will change it.

The companies investing in the technology like XPO that are staying on the cutting edge of technology will be the winners?

How would you describe the demand for truckload brokerage services from your customers?
Our brokerage is growing because it can be expanded organically simply by hiring people and getting new business.

Looking at the economy on the freight side specifically, how are you viewing it?
In meetings with customers, I always ask how business is. The general answer is things are up but not drastically up. People are seeing growth, but it is low growth. That seems to be the general feeling out there.

Is there any concern about future available capacity, assuming the economy continues to show slow growth, coupled with more regulations, like ELDs, coming?
We are well-positioned for that eventuality even better so as a result of buying Con-way, as we are now in a position where we control assets and capacity. That was one of the reasons we bought Con-way.

We believe that long-term capacity is generally tightening. I don’t necessarily mean in the next few months but more so over the next several years. Capacity is going to get tighter, and it is important to control assets in that environment.

Was being a heavy asset-based player a part of your playbook four years ago, when you started up XPO?
Not really. It has been more of an evolution of our strategy. We started out non-asset and then we became asset-light, when we got to the owner-operator model and then we bought Pacer a couple of years ago, which was the beginning of the asset journey with 11,000 containers.

And we learned that the big intermodal customers don’t do business with you unless you have assets. They are not going to do $50 or $100 million in intermodal business with you unless you have boxes.

When we got into contract logistics, we saw there has to be some capex invested in leases for warehouses, racking, and the technology that goes with it along with supply chain solutions.

Then when we bought Norbert earlier this year, and we got 7,700 trucks and made the leap forward in terms of asset intensity. I met with dozens of Norbert’s largest customers; it is a real who’s who of the large, blue chip retailers, manufacturers and beverage companies in Europe. It was very clear that having the assets was important for them and really was a ticket to the party so to speak.

That is when we started to revisit the opportunity to buy Con-way, because a few years ago we looked at buying Menlo, but we were not ready to buy assets at that time. But we gained a positive learning experience from the Norbert deal (in terms of acquiring assets) and that was a good thing.

What does Menlo bring to the table for XPO?
Menlo brings about $1.5 billion of contract logistics, which fits in very well with the rest of our contract logistics business here in North America and Europe.

It also brings about $1.3 billion of freight under management in its managed transportation group, and when we put that together with our $1.4 billion of managed transportation, that is a critical mass of $2.7 billion of freight under management.

It also brings about $250 million in truck brokerage that we are going to integrate right into the rest of our XPO brokerage business and onto our freight optimizer platform, which will give us more lane density and let us bulk up our truck brokerage presence.

With the two acquisitions of Norbert and Con-way coming fairly close together, is there any type of concern about getting too big too quickly?
No. It is more about integrated comprehensive services. The big theme of our customer meetings has been ‘What can you do for me? What else do you do?’ and that really resonates with shippers looking to winnow down their partner and vendor base to a fewer number of larger and multimodal suppliers.

What is the revenue outlook for XPO once Con-way is officially part of XPO?
Once we close Con-way, we will be around $15 billion in revenue and about $1.1 billion in EBITDA, and our goal financially is the raise that $1.1 billion in EBITDA to in excess of $1.5 billion over the next few years.

And we don’t have to issue one more share of equity or increase or debt by $1 in order to do that. It is purely done through operational improvements and internal growth.

As we execute on that business plan, we will create dramatic shareholder value.

Related: Why XPO Logistics Lost Nearly a Third of Its Value