[Stay on top of transportation news: Get TTNews in your inbox.]
The U.S. economy is set to come roaring back as the country and freight industry move deeper into the year and the impact of COVID-19 lessens, XPO Logistics Inc. Chairman and CEO Brad Jacobs told shareholders in an April 14 letter.
“After a painful 12 months for pretty much everyone, 2021 and 2022 are shaping up to be big comeback years for the vast majority of our customers,” Jacobs wrote in a copy of the letter obtained by Transport Topics. “I’m proud that the pandemic didn’t stop us from creating value for our stockholders. Our goal this decade is to beat what we did in the last decade, when we were the seventh best-performing stock of the Fortune 500.”
Typically in mid-April, Jacobs writes an annual letter to shareholders offering his opinions on the business climate.
“Well, the bear has left the building and the bull has arrived ahead of schedule.”— XPO Logistics, Inc. (@XPOLogistics) April 14, 2021
Chairman and CEO Brad Jacobs paints an optimistic picture in his letter to stockholders: https://t.co/xPAHCy0xts
Several industry economists, including American Trucking Associations Chief Economist Bob Costello and University of Minnesota-Morris professor Stephen Burks, have forecast the nation’s gross domestic product to grow by more than 7% annually this year. Jacobs believes business conditions have improved beyond that, especially for trucking and logistics.
“Many companies, especially those in consumer markets, are now in an accelerated V-shaped recovery. The 6% GDP growth some U.S. economists are forecasting for this year could be conservative,” he wrote. “Based on what our customers are telling us, I don’t think 10% growth is out of the question. Freight transportation is a leading economic indicator, and our customers, for the most part, think they’ll be in a much stronger position a year from now than they were before the pandemic.”
But Jacobs is cautious, joining a growing list of economists and business leaders who say they are becoming concerned that the economy could overheat and cause inflation to spike, because of the size of the recently passed federal programs targeted to fight the COVID-19 pandemic.
“The crux is whether burgeoning government spending will ultimately stimulate or stagnate the economy. Here, my megabullishness is cooling down a bit,” Jacobs said. “When governments expand their role in allocating capital instead of letting free markets do their thing, historically that’s led to higher inflation, higher interest rates, and higher taxes — and, eventually, to low or no growth. That’s not a certainty, but it’s certainly a question mark.”
The crux is whether burgeoning government spending will ultimately stimulate or stagnate the economy.
XPO Logistics CEO Brad Jacobs
Jacobs said a key factor that will drive the trucking and logistics industry this year and beyond is the explosive growth of e-commerce. According to Digital Commerce 360, e-commerce’s share of the total retail sales was 21.3% in 2020, up from 15.8% in 2019 and 14.3% in 2018. Consumers spent $861.1 billion online with U.S. merchants last year.
“E-commerce is a broad-based tailwind, with demand coming from pure-play e-tailers, omnichannel retailers and direct-to-consumer manufacturers,” Jacobs wrote. “We provide these customers with inventory management, fulfillment, and also returns management, where we have extensive expertise.
“The strong upward trends we saw in the back half of 2020 — notably, in consumer packaged goods, technology products, food and beverage, DIY products, and other consumer sectors — have remained robust in 2021. Soon, we expect to see the return of brick-and-mortar retail demand as stores reopen.”
Since joining XPO Logistics’ predecessor 10 years ago, Jacobs and his team have grown the company from $175 million annually in revenue to $16.3 billion in 2020. Much of the growth is the result of mergers and acquisitions and developing new business lines. Earlier this year, XPO announced it planned to spin off its logistics division and create a new company named GXO Logistics.
Only 14.3% of the truck driver population is made up of African Americans, followed by 13% Hispanic, and 7% Asian. In this episode, host Michael Freeze wonders what industry leaders are doing to increase those percentages. We talk to two trucking industry experts who have implemented their own practices that are contributing to a more diverse work community. Hear a snippet, above, and get the full program by going to RoadSigns.TTNews.com.
XPO filed a confidential initial Form 10 registration statement with the SEC for the planned spinoff. Jacobs also named XPO European CEO Malcolm Wilson to the same position for GXO.
“We announced our plan to spin off our logistics business, and laid out a compelling rationale for separating the company into XPO and GXO,” Jacobs said. E”ach public company will have a simplified business model and its own equity currency when the separation is complete, with pure-play leadership, strategic priorities, capital structure, technology, organic growth initiatives, and M&A opportunities.
“In addition, we’re pursuing investment-grade ratings for both companies: GXO from day one, followed by XPO.”
Jacobs said that after more than a year into the pandemic, XPO’s core LTL operation is strong and he anticipates continued growth.
“Our North American LTL business is a shining example of continuous improvement. That’s saying a lot, given that we’re obsessed with constantly improving all of our service lines,” he said. “We have the LTL industry’s second-best adjusted operating ratio — the measure of profitability — and the best improvement in this metric over the last five years.”
Want more news? Listen to today's daily briefing below or go here for more info: