August 19, 2025 • 41 mins
Focusing on scale and productivity helps freight brokers offset weak demand and rates, protect margins and position for growth. In this Talking Transports podcast, Drew Wilkerson, chairman and CEO of RXO, joins Lee Klaskow, Bloomberg Intelligence senior transportation and logistics analyst, to share how the company is navigating the current challenging freight environment and looking ahead for when the market eventually turns. Wilkerson provides insights into the benefits and integration of the Coyote Logistics purchase from UPS in September. He expects the freight-brokerage industry to continue to consolidate from the current top nine brokers, which account for over 50% of volume. Wilkerson also touches on AI’s impact on its business, the importance of its customer-centric culture and how the broker is dealing with the uncertain times.
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Episode Transcript
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Speaker 1 (00:07):
Hi everyone, this is Lee Clasgow and we're Talking Transports.
Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host,
Lee Claskow, senior freight, transportation and logistics analysts at Bloomberg Intelligence,
Bloomberg's in house research arm of almost five hundred analysts
and strategists around the globe. Before diving in little public
service announcement. Your support is instrumental to keep bringing great
(00:29):
guests and conversations to you, our listeners, and we need
your support.
Speaker 2 (00:32):
So please, if you.
Speaker 1 (00:33):
Enjoy this podcast, share it, like it, leave a comment. Also,
if you have any ideas for a future episodes, or
just want to talk transports, please hit me up on
the Bloomberg terminal, on LinkedIn or on Twitter at Logistics Lee.
And Now onto our episode. We're delighted to have Drew Wilkerson,
ourxo's CEO and chairman, back as our guest on the podcast,
a role he's held since ROXO has spun out of
(00:55):
XPO in October twenty twenty two. RXO is listed on
the New York Stock Change under the ticker RXO, and
it has a market cap around two point four billion dollars.
Drew is a transportation industry veteran with over sixteen years
of experience in brokerage operations. He joined rxo's predecessor company
XBO in May of twenty twelve to spearhead the growth
(01:17):
of the company's flagship truck brokerage hub in Charlotte, North Carolina.
Prior to XBO, Drew held leadership positions in sales operations,
customer and carrier relationship management with h.
Speaker 2 (01:28):
Robinson.
Speaker 1 (01:29):
Welcome back to the podcast, Drew.
Speaker 3 (01:32):
Thanks for having me Lei. It's great to be with
you again.
Speaker 1 (01:34):
And a little bird told me you're a pretty big
college football fan, and you know, someone thought that Virginia
Tech was going to beat South Carolina in a couple
of weeks.
Speaker 2 (01:44):
I just wanted to hear your thoughts on that.
Speaker 3 (01:46):
That is not what the odds makers say. Now, I've
learned as a South Carolina fan to, you know, not
get your expectations up too high and hope for the
hope they over delivered for us in the season. We
finished the season strong last year, and heading into this year,
there's a lot of talk about how good we could
be and I think right now, in the early polls
were a top fifteen team but the results come down
(02:09):
to the field. As Steve Spurry once said, talking seasons over,
it's time to play the game.
Speaker 1 (02:13):
All right, And speaking of playing the game, let's talk
about RXO. Can you give people a little brief description
of a baby, a little history about the company, the
markets you serve.
Speaker 3 (02:23):
Yeah, absolutely so. RXO did a spinout of XPO Logistics
back in November of twenty twenty two. And when you
look at what was spun out of XPO, there were
three lines of business. It was led by our tech
enabled truck brokerage business. Now we are the third largest
truck brokerage in North America and we've been one of
(02:45):
the fastest growing if you go back over the last
fifteen years, largely organically, but more recently with the acquisition
of Coyote from ups inorganically. The second line of business
is our Mannus transportation business. This is where we act
as an extension of a customer for a portion or
all of their transportation, and we become their transportation department.
(03:08):
And for us, this is a great business. We've got
roughly three and a half billion dollars of freight under
management that we help our customers make the best decision
possible out there. And then the last line of business
is our last mile business. So if you think of
big and bulky goods that are going into folks homes, washers, dryers, refrigerators,
things like that, we're the leader in that space. We
(03:30):
have been the leader in that space forever. But we're
still taking market share and what's been a down market.
Last quarter, our stops were up on seventeen percent on
a year of a year basis, so there's a lot
of momentum in that business.
Speaker 1 (03:43):
In all three of those business are non asset.
Speaker 3 (03:45):
All three of those businesses are largely non asset now.
In the brokerage, we did build out more than a
decade ago, where we started adding trailers into our network
is something that allows us to look and feel like
an asset based care. So we have more capacity. We
got access to over one hundred and twenty thousand carriers,
and so if a customer's got those last minute shipments
(04:05):
but they wanted to be able to preload a trailer
or unloaded trailer at their leisure, we can flex capacity
up and down for a customer in that situation. So
they are least trailers largely, but we do do that.
Speaker 2 (04:18):
Yeah.
Speaker 1 (04:19):
So, you know you mentioned the Coyote acquisition. Obviously that
was a pretty big deal, not only for you, but
for the industry. You know, some serious consolidation going on there.
Can you talk about, you know, the integration of the
two companies, how's it going, When do you plan on
fully being fully integrated if you're not already, and kind
of what kind of synergies do you expect to extract
(04:40):
from that deal.
Speaker 3 (04:42):
Yeah, So if you look at the acquisition of Coyote,
I think, and Lee you may know this better than me,
that it is the largest asset light acquisition that's ever
transpired in the space. And there's been some big acquisitions
if you go back, you know, a couple decades ago,
H Robinson acquired American caller Sia. Robinson's acquired Freight Quote,
(05:03):
Echo acquired Command you know, UPS acquired Coyote at one point.
But when you look at an asset light company acquiring
an asset light company, I think this is the largest
one that has ever taken place. And to measure success,
we really start with three things. This is an asset
light business, so it starts with the people and making
sure that you're holding on to the people that the
(05:24):
people are excited about where they're coming to work, and
for us, there was a lot of excitement about Coyote
of coming to a place that Brokers was the centerpiece
of what was going on there, and they felt like
they were getting back to their roots, and not just
getting back to the roots, they were coming to an
organization where they were getting to be the star of
the show. There was so much of ups where they
(05:45):
were a part of a big organization and there wasn't
the biggest piece in the asset light piece. So for us,
this is what we specialize in. This is what we
focus in, and there was a lot of appreciation for
the people of saying we're going to be this in
the limelight for one of the largest asset light players
in the industry. The second piece is on customers. Whenever
(06:06):
you do an acquisition, you want to hold on to
the customers and one of the stats that we threw
out in the earnings call recently was we've held on
between the two companies ninety nine of the top one
hundred customers that we had, so the customer retention rate
has been extremely high. The feedback that we're having from
customers has been positive. As we were getting onto this podcast,
(06:27):
I was texting back and forth with one of our
large customers who's talking about giving us more opportunities now
that they've started to see the power of RXO behind
what they had been delivering. And then the last piece
is on the technology side. Technology and powers and enable
so much of what happens here. So for us, we
had to pick a platform to be able to do it.
Wanted to make sure that we had something that our
(06:49):
reps could work on and be more efficient than what
they were previously, and so we went with Freight Optimizer,
which was a legacy ROXO platform. But what we're doing
is we're taking the best tools because Coyote has some
great tools on the carrier side for the carriers I
work with as well as the carrier reps, and so
we're bringing those tools and putting them into Freight Optimizer.
(07:11):
The integration on the carrier side is already complete. Now
we're continuing to add tools in. Overall on the technology side,
we expect to be largely done by the end of
the third quarter. So for the largest acquisition that's ever
happened in North America the asset light sector, we're going
to be largely done in just over a year. When
you think about that timeline to be able to do that,
(07:34):
I think it's unheard of of what the team has
worked together to accomplish.
Speaker 1 (07:39):
And kind of obviously there's going to be some you know,
crossover or overlap i should say, of customer coverage and people. So,
you know, how are you managing through that. You know,
obviously you're not going score churchs and mass firings, but
you know obviously you are going to try to get
some synergies out of it. So can you talk a
(08:01):
bit about, like, you know, how are you going about that,
managing the people and integrating the two cultures, because you know,
cultures are very important in the brokerage industry.
Speaker 3 (08:10):
That's one of the beautiful things is that the cultures
were aligned. We were both a customer centric organization where
we focused largely on the customers and organic growth. Coyote,
if you go back, you know, to the early years
of two thousand and six twenty fifteen, is one of
the hottest names in transportation as far as how well
you go from you know, the early two thousand and
(08:31):
teens call it to twenty twenty one. RXO was the
fastest growing brokerage. I think the entrepreneurship, the focus on customers,
we were very much aligned as an organization and one
of the one of the great things on the acquisition
is as we did due diligence, we realized that we
didn't have a lot of customer crossover. There were some,
but there was not as much as what you would
have anticipated coming into it. And that was because Coyote
(08:55):
built the business off of food and beverage, and like
a lot of other brokerages out they had a heavy
food and beverage presence. RXO was built off of retail
and e commerce, industrial, manufacturing, automotive, So it's different verticals
that we were operating in. And so what we're able
to do is leverage our capacity, which also didn't have
(09:16):
a lot of crossover. And in it where Coyote is
working with larger carriers and private fleets and RXO was
working with smaller carriers, we were able to leverage our
capacity to allow them to have access to more freight,
allow our reps to have access to more freight. The
second part of your question on the synergies is we
expect to achieve over seventy million dollars of cash synergies
(09:39):
from the deal, and about sixty of that will be
in op X. We go through and we look at
things where we've got duplicate vendor spin where we're able
to leverage our scale on the vendors to be able
to receive better pricing. And for people, we always want
to make sure that we've got the right person and
the right role. And if there's opportunities you've got a
duplicate role, as there opportunities where you can have hot
(10:01):
talent folks go into other areas of the organization to
help us achieve our growth.
Speaker 2 (10:07):
Gotcha.
Speaker 1 (10:08):
And you know, moving away from the acquisition, looking forward
into the freight markets as best as we can given
the fact that the uncertainty that's out there. Can you
talk about the state of the freight brokerage industry and
an extension of that, the state of the trucking industry.
Speaker 3 (10:29):
We're still in a very soft truck market and it's
been down for three years. I think the narrative that
has flipped on our end is a year ago we
were telling you that this was a capacity problem. There's
too much capacity in the market. Capacity needed to be
able to exit. Now If you look at the data,
the data is telling us that it is more of
a demand problem. Demand is below levels of where it
(10:52):
was in twenty nineteen. If you look at areas like automotive,
home building, those areas have been hurt. They largely impact
what is going on in the transportation industry. With that said,
we do think we're coming off of the bottom. It's
just been a slow walk off the bottom. Tender rejections
are up on a year every year basis. Loaded truck
(11:13):
ratio is up on a year every year basis. But
it's not to that point where there is imbalance in
the market and you start seeing spot loads and projects
and mini bids starting to happen at that point yet.
Speaker 1 (11:28):
And what are your customers telling you? What are the
shippers telling you about peak season? Are they preparing you
for more business? Are they preparing you for less business?
What are they say?
Speaker 3 (11:37):
It's still too early to call for peak season For us,
We're working with all of our customers closely, and we're
hearing different things from different customers. Some of them are
telling us that they expect a pretty good peak season.
Others are telling us that they expect a peak season
more in line to what happened last year, and if
you go over the last several years, it's been a
muted peak season. So if I was forced to make
(11:58):
a call right now based off of what has happened
over the last several years in base off where we
are from a capacity standpoint, I would say that we
would expect another muted peak season at this point. But
we're prepared and we're staff for growth. If there's opportunities
or if you know, the FED cuts rates and that
somehow jobs consumer confidence on retail and e commerce, we're
(12:19):
in the best position to be able to be benefactors
of that.
Speaker 1 (12:23):
Yeah, you know you mentioned you know you're prepared for growth.
Can you talk about you know, the technology that you
have and you know the benefit that gives you in
a scale that that gives you without adding heads ie
you can you know you can take on more value
with less people.
Speaker 3 (12:41):
Yeah. So, technology and building technology for our employees, for
our customers as well as for the carriers that are
within our network has been our priority since day one,
and we really focus on building the best technology in
two ways. We hired a lot of people who were
some of the best technologists in the world, not necessarily
(13:01):
the best transportation technologists, but I'm talking about people who
have come from Amazon, Microsoft, Google, these type companies that
are technology is in their DNA, but we partnered them
with great operators and we were building our product from
the ground up, and Freight Optimizer has been an evolving
product for our broker reps for the last decade of
(13:23):
what we've been able to see. And so if you
look just at a simple metric on productivity, which is
what you're asking, you know, when you look at our productivity,
it was up eighteen percent on a year of a
year basis. If you look over the last two years,
it was up forty five percent. So for us, you know,
we're going to continue to invest in tools that reduce
the number of clicks that our employees have, reduce the
(13:44):
number of key strokes, because what we really want them
doing is focusing on the customers and the carriers that
they're working with that they can spend their time building relationships,
building solutions, creating tools for our customers to be able
to use that drives value in their transportation network. So
you know, we're laser focused on being efficient with the
(14:05):
technology that we put out, but making sure that we're
having the results, and I think when you look at
the productivity, we will not have to hire at the
same rate of what we did five years ago or
even a year ago because of the technology tools that
we put out there.
Speaker 1 (14:19):
And when talking technology, actually we'd be remiss if we
didn't mention AI. And if you start talking about AI,
you might get another turn on your multiple fear stock.
So could you talk about you know, when you talk
about technology or are you talking about machine learning and AI?
Speaker 2 (14:33):
Is that?
Speaker 1 (14:33):
Is that what's driving the productivity gains?
Speaker 3 (14:36):
And machine learning and AI is not new, right, I
think right now to your point, it is a buzzword.
And you know, companies in every industry are putting out
press releases on their new AI tools and a lot
of what they're talking about is just automation. And you know,
a lot of us been talking about I wouldn't even
consider new if you look at machine learning. Our pricing
(14:57):
algorithms that if you go back and you look over
the last decad that have allowed us to have some
of the strongest margins in the industry have been built
off of machine learning. And so that's where you go
to what I was talking about earlier and you have
this technologist who understands pricing algorithms, who's done it in
hotel industries, who's done it in other industries, and is
able to partner them with an operator, and you can
(15:19):
move the pricing dial on the customer side and on
the carrier side so that you're giving your customers and
your carriers fair, real time prices based off of what's
happening within the market. And if you're doing it right
with your data, your pricing algorithm gets smarter and smarter
with every load that goes into it. And when you
look at our freight brokerage group, third largest freight brokerage
(15:42):
out there are Manus trands. You know, we're the fifth
or sixth largest provider out there. We've got access to
a lot of data that goes into our pricing algorithms.
Is what allows it to be so strong. AI is
something that we will continue to invest in. And the
way that we're thinking about AI right now is anything
that is employee facing or customer facing or working with
(16:04):
our carrier network. We really want it to be homegrown.
As far as what we're building out as specialized tools.
It's unique to us, you know, on the back office side.
There may be some things that allow us to increase
productivity that we can use off the shelf programs, but
anything that is customer carrier employee facing, we want to
be to be unique to RXO because it's part of
(16:27):
our secret sauce.
Speaker 1 (16:28):
Yeah, a lot of brokers now we're talking about like
frictionless transactions or totally automated transactions. Do you have any
goals of like, you know, what percentage of your transactions
do you think that can be totally automated unless there's
an exempt exception that needs to a human needs to
deal with.
Speaker 3 (16:46):
Yeah. Pre acquisition of Coyote, we used to put out
a stat and it was like ninety seven ninety eight
percent of our orders are either created or covered digitally,
meaning there's no human interaction within those orders. Now with
that set, uh, we've got customers that you do not
that you want to make sure that there is human
interaction within those orders. Right now, you're thinking about high
(17:07):
cargo value freight, when you're thinking about electronics, when you're
thinking about automotive, you better believe that they want you
talking to a driver. They want to know that you've
you've physically talked to somebody and so I think it's
instead of putting a metric of this is where we
hope to go for created and covered longer term. It
really depends on what the customer makeup is and what's
(17:28):
required off of that.
Speaker 1 (17:30):
Yeah, you know, you're talking about these high value shipments
and shipments that need the high amount of touch. I
guess this is a good time to pivot to fraud
because obviously, if it's something's worth, a lot of people
don't want to steal it. H And fraud has been
a growing industry, a growing problem within the trucking market.
How are you mitigating those risks? Are you using your
(17:53):
own proprietary technology to use third parties? How are you
going about it? You know, to ensure that shipments get
to where they need to go.
Speaker 3 (18:03):
Fraud's been a huge problem in our industry for the
last several years. And when you look at our technology,
our technology screens the carriers that we're working with. It
tells us how often we've used them, when we've last
used them? Is this somebody that we're familiar with? Is
their insurance up to date? And our technology is smart
enough that it does it multiple times per day, and so
(18:23):
it's something that is always fresh of what we're doing.
It also gives us visibility throughout the shipment with the
carriers that we're partnering with. And then the second thing
goes down to process. We talked about high value cargo products.
We talked about automotive that is just in time shipments
that you can shut down a plant if you're not
getting it there on time. When you look at the
(18:45):
best in class processes that we've built for more than
a decade for these type customers, you're able to take
those processes and use it on all of your customers,
which help you prevent fraud and theft.
Speaker 2 (18:58):
Got you.
Speaker 1 (19:00):
Not to look backwards because we were talking about forward,
but you know, you guys just announce your your two
Q earnings kind of we're the major takeaways from that.
I'm assuming a lot of it circled revolved around the integration.
But from a performance standpoint, you know, how do you
think you did relative to your peers.
Speaker 3 (19:19):
Yeah, so if you look at at market share, we
grew volume on a year of a year basis and
a market this down that was driven by our less
than truckload performance, which grew forty five percent on a
year over year basis, and the reason that we're winning
in less than truckload is because of our relationships and
our history with these customers on the truckload side that
(19:41):
are saying, we recognize the value you provided to us.
We want to be able to use the platform that
we're familiar with to help us prevent planes, damages, lost
shipments because LTL, if you think about it, for large shippers,
it's a small piece of their overall transportation spend, but
it's a big piece of their time. So if they
can let us come in and manage a piece of
(20:03):
it or all of it as an outsource, our brokers
team is winning there and they're winning big. The second
highlight is when you look at last mile. I talked
about the last mile industry being down right now. Our
stops were up seventeen percent on a year of a
year basis. When you look at where we finished from
an ebit of range, we finished at thirty eight million dollars,
(20:23):
which was at the high end of the range that
we provided to the analysts on the prior quarter of
thirty to forty million dollars. And we talked earlier about
the technology piece of the integration. We're largely complete, and
as we get to the third quarter, we think that
we will be right there at the finish line of
completing the technology and integration. And then the last highlight
(20:45):
is our free cash flow was sitting at fifty eight
percent for us. So when you look at that, that's
why investment. That's what's attractive about the brokerage model is
even in a down cycle, it can still generate high
free cash flow dollars.
Speaker 1 (20:58):
You know, Just not to be all over the but
I want to go back to the acquisition of Coyote.
You know, going into it, obviously this was a big
undertaking for you and your team and also for the
Coyote team to fully integrate it. Kind of what were
the surprises during the integration process, you know, I guess
on the positive side, and what kind of challenges did
(21:20):
you did you face that we're that were greater than
maybe you initially thought going into the deal.
Speaker 3 (21:24):
Well, I would start with the positives on the people,
and any time you're doing due diligence, there's only so
deep that you can go uh in a process of
talking to people, and so the people that we have
gotten to know, we've upgraded our leadership team with the
team that came over, and that doesn't mean that we
had a bad leadership team. It means taking the best
(21:45):
of both worlds and we're a stronger team together than
what we were apart from each other. The second thing
is the carrier procurement. Coyote had away with large companies
on their private fleets, which is something we've tried to
break in two for years. Be able to capitalize on
that on our whole network. That really the whole carrier
(22:05):
team within Coyote. You know, I don't think that we
knew the exact experience they had coming in, and their
average tenure on the carrier up floor is over eight years.
That's unheard of in this industry. So they've seen multiple cycles.
They know how to operate through through a cycle. And
then I'll end on the customer point, on the positives
of when you look at what we were able to
(22:27):
do by diversifying our customer base and get much larger
in the food and beverage industry, and the relationships and
the reputation that Coyote had there was extremely positive. So
to be able to build off all that is something
that we're asided about. When you look at things that
haven't gone as expected. There's always things in an acquisition,
especially one of the size that go don't go as expected.
(22:50):
One would be profitability, and I think that the profitability
of the Legacy Coyote team specifically in the fourth quarter
in the first quarter was lower than what was anticipate.
It's understandable of why it was lower because when you
looked at where they were at from a pricing perspective,
we knew that they were a little bit below market
and below Legacy ARC, so heading into that and you
(23:10):
had the weather implications in the fourth in the first
quarter that impacted profitability of the team, and then the
truckload volume slipped a little bit farther than what we
thought it would. But the good thing off of that
is we're still active with all of the customers and
we see a good path on getting back to organic
truckload volume growth.
Speaker 1 (23:28):
And when you mentioned, you know, coyotes access to private fleets,
you're talking about like Walmart as a truck and you'll
kind of fill their back hall if their back hall
is empty, is what you're talking about.
Speaker 3 (23:39):
That's right, Large companies who have a private fleet who
are looking to get there, who were looking to get
their fleet back from point A to point B or
to another pickup spot that's right.
Speaker 1 (23:48):
Right, and to make some money or offset the costs
along the way. Okay, So you know we talked about, like,
you know, continuing on with the Coyote acquisition. So if
you have like two offices in Chicago and RXO office
and at Coyote office, how are you manning that process?
Because you know you did note that they do have
different customers. So are you operating two separate offices? Are
(24:11):
you trying to combine the two get the people together?
How are you working in that kind of physical integration.
Speaker 3 (24:18):
There's been some real estate consolidation, you know, with this acquisition,
and probably more to go. A couple of examples is
Legacy RCHO had an office in downtown Chicago off of
Whacker Drive. Everybody is used to driving down the Interstate
and seeing the Coyote sign whenever you come into Chicago.
Now it's an RHO sign and the team that we
(24:38):
had off of Whacker is now into the building that
is affectionately known as the GX in Chicago, right. And Dublin,
Ohio is another example of where we had two offices
and we brought the Legacy Coyote team over with our
team in the office in Dublin, Ohio. We're better together
than what we are apart, and they're doing a lot
(24:58):
of the same functions. So there's more energy whenever you
get larger teams around each other. And so where we've
got opportunities to do that without creating a lot of disruption,
will absolutely look to do it.
Speaker 2 (25:09):
Yeah, and I'm assuming for your brokers.
Speaker 1 (25:11):
It's really an in office culture right because there's a
lot of learning to be done on the floor.
Speaker 3 (25:17):
We are in office culture and we want our best
people on the floor because those are our best mentors.
There are best teachers to talk about what's going on.
When you can hear somebody that's sitting within earshot that's
negotiating a load, you get a real time feel for
what's going on in the market. When you get a
customer rep who puts an order on the board with
special requirements and they can shout it out to the
(25:38):
floor of I've got a hot load and it needs X,
Y and Z, you know, there's there's an energy and
a camaraderie that can't be replicated over Zoom and Microsoft teams.
Speaker 1 (25:48):
Are most of your your like incoming employees are they like,
are you hiring from like undergrads from universities or is
it more experienced people.
Speaker 3 (26:00):
We do hire undergrads. I would say we're more of
a company that looked for somebody one or two jobs
out of college. Yeah, and you know, we'll let them
go work out some of the bad habits somewhere else
and then we'll bring them over. But you know, if
we find an all star coming out of college, we
absolutely bring them over. We've had interns that have been
with us for years coming out of college that have
(26:21):
been here now four or five, six years down the
road that still work here, and you know, it's great
to be able to see that. They get to see
the culture firsthand. For you know, one two summers into
sad to come back. But you know, when you look
at our typical hire on the floor is typically somebody
just had one to two jobs. And then we're always
(26:42):
looking for outstanding reps that have relationships, that have industry
knowledge that can come make us a better company.
Speaker 1 (26:50):
And you know you mentioned productivity improvements earlier. Is that
how you measure employees success?
Speaker 3 (26:57):
No, not necessarily, that's one of the factors that you
use to measure employee success. I mean, it really depends
on what the role is. If you're talking about an
inside sales role, you're measuring success by the number of
new customers they're bringing, on the amount of grocery margin
they're bringing, on the diversification where they're able to cross
sell into other parts of the organization. If you're looking
(27:20):
at the carrier side, you're looking at it in terms
of gross margin dollars. You're looking at in terms of
loads per day. But it's one of the factors, but
it's not the factor.
Speaker 1 (27:31):
And you know, again going back to our crystal ball,
looking into the trucking market, you know you mentioned it
seems to be more of a demand issue. Now obviously
we're not having a freight recovery this year. Can you
look out and well maybe not obviously, who knows, right
anything can happen, But looking out further out, you know,
what are your expect expectations in twenty twenty six? Are
(27:53):
you expecting more of the same of this like flat,
tepid growth malaise.
Speaker 3 (28:00):
I think it's too early to call twenty twenty six
of where we land there. I mean, I told you
it was too early to call peak season, so it's
definitely too early to call twenty twenty six on where
we land. I think the thing for us is how
do we position ourselves with customers so we are the
call that whenever it turns, we know that we are
in a cyclical business. It's been a cyclical business for
the last twenty years that I've been doing this, and
(28:22):
you know, this has been a downcycle that has lasted
longer than any other in my career. But it's still
about positioning yourselves right with the customer that as the
market turns, you've got the staffing, you've got the relationships,
you've got the capabilities to be able to deliver it
for them in times of stress. And that's something that
we know very very well.
Speaker 1 (28:42):
And when you're looking at the freight broker industry, obviously
you've become a consolidator with this last acquisition and also
you've you know, won market share organically. Do you expect
the industry to consolidate significantly or is it always going
to be shifts because of just the nature of the business.
Speaker 3 (29:04):
I expect major consolidation in the industry over the next
several years, and I think that This was a kickstar
starter of many things to come across the industry. When
you look at it, you know, there's seventeen thousand truck
brokers out there, and that's always the stat that gets
everybody's attention. But what they forget now post acquisition is
that the top nine brokers make up more than fifty
(29:26):
percent of the overall truck brokerage market. So for me,
I see the top players who are financially stable, who
have good relationships with their customers, who have the great
technology and the ability to create solutions for customers. They're
going to be the winner's long term. And I don't
think that number will be nine next time you and
(29:46):
I talk, you know, well, maybe we'll talk before then,
But if we talk, you know, two years down the road,
I think you're talking about a lot a number, a
lot less than nine, And as you get five years
down the road, you're probably talking about three or four.
Speaker 2 (29:59):
Yeah.
Speaker 1 (29:59):
Well, first off, I hope we talk more between now
in two years, And second, I just wanted to make
sure I heard the stat you said, the top nine
brokers make up fifty percent of the market, the.
Speaker 3 (30:08):
Free more than fifty percent of the truck brokerage market,
and Lee that's important because the truck brokerage market is growing.
When you look at whenever I started in this industry,
I think it was you know, mid single digits of
what truck brokerage made of the four higher trucking market.
Now it's in the low twenties. Over the next five years,
I think it'll be in the thirties. You look longer term,
(30:29):
I think it'll be in the forties and follow a
similar path of what the forarding industry, where it got
closer to fifty to fifty. I don't think that it'll
ever get over fifty or as we sit here today,
I don't think it'll get over fifty, but I do
see a clear path for truck brokerages to get into
the forties of the overall four higher trucking market.
Speaker 1 (30:47):
Right and for those with the memory of XPO, you know,
XPO was started by Brad Jacobs to consolidate the brokerage
industry before they went into different businesses. So that's kind
of the genesis of of what is now RIX. So
when you look again into the future, obviously RXO is
one of those companies who else is still standing.
Speaker 3 (31:08):
With you, you know, I think that's the beauty of
the top nine. When you say that, you're asking me
to predict who's going to acquire who, and I can't
do that, but I think that there are several really,
really good competitors out there. If you look at industry
leaders Sea Trominson, they've had some phenomenal quarters lately, and
Dave and his team have done a very good job.
(31:29):
When you look at a Rive a company, they're a
company that is a fast growing company and they've grown,
you know, I think entirely organically. Of what they've done,
it's been impressive to see. If you look at Doug
Wagner and what the team at Echo have done, They've
done a great job of building an LTL product and
a truckload product that focuses a lot on small to
(31:50):
mid sized customers, and they do that as well as
anybody in the industry. And so when you look at
there's a lot of great competitors out there. I can't
predict who's going to acquire who and where it all
shakes out, but I think when you look at the
landscape at the top, there's a lot of good quality
companies out there.
Speaker 1 (32:05):
And for those listening, if you want to go back
to some old episodes. We've done podcasts with the CEO
of Arrivant, N. C. Robinson, so those are could be
interesting to you. So, you know, you mentioned some of
the I guess the and we'll call it a disappointment.
But the things that didn't go right or go as
expected with the merger with Coyote thus far, and one
(32:29):
was was margins on average even before the acquisition, did
RXO have higher margins than Coyote?
Speaker 3 (32:40):
We did at legacy RXO. But I also needed to
caveat that again and go back to remember how the
books of businesses were built, right, it different business so
they were largely food and BEV and we were largely retel,
E commerce, industrial, manufacturing, automotive. Some of those are higher
margin per load shipments. Whenever you think about the requirements
that go into it. Now when you look at how
(33:02):
well it was buying transportation in the market, which is
what you really want to get after both teams had
different markets that they bought really well in and so
now it becomes about being able to capitalize on that
across the organization and looking at new power lanes that
we've got, how do we sell into that for our
customers in the right way.
Speaker 1 (33:21):
And you know you did mention Dave Boseman A C. H. Robinson,
and you know he's was new to the brokerage industry.
Speaker 2 (33:29):
He came in with a.
Speaker 1 (33:29):
Toolkit of kind of six sigma kind of attitude towards
the brokerage industry. Have you, guys, from obviously the outside
looking in it, have you have you learned any best
practices from the success that they're having there, you know,
with how they're managing or changing the way they manage
their business.
Speaker 3 (33:51):
You know, we're not in the boardroom with them, so
we don't exactly what they're doing. We're watching the results
just like you're watching the results. And I think what
Dave and the team have done has been, you know,
great to see. And I think that you know, for us,
the way that we look at the business is how
well do you perform through a cycling So at the
bottom part of the cycle, they're performing really, really well.
Speaker 1 (34:14):
And you know, do you have any long, longer term
targets for RXO in terms of your margins that some
goals that you might want to.
Speaker 3 (34:22):
Share when you look at it. I think, you know,
without putting a number because your margins can go up
or down based off of what's happening on the in
the market. But posts Coyote acquisition, one of the numbers
that we put out is that we do think that
we can improve how well we buy verse market about
one hundred basis points or more. And so when you
(34:44):
think about that, you know, that's call it forty million
bucks of cost avoidance or cost savings based off of
what's going on in the market. Obviously, if costs are
going up on the carrier side, then it's cost avoidance.
If they're coming down as savings to the and L
and we're already seeing the early signs of that in
just a few weeks. We've already saw where are how
(35:07):
well we buy verse market as one team is thirty
to fifty basis points better than what we were doing
pre cutover on the carrier side.
Speaker 1 (35:16):
Got you and you know, is there anything else facing
you know, either your business or the free transportation logistics
industry that's kind of on your radar that you think
that is going to have an impact over the next
six to twelve months.
Speaker 3 (35:30):
Well, I think the biggest thing is what happens in
the market, because you know, we talked a little bit about,
you know, the top of the house, that is how
is performing within freight brokers. But when you go back
in twenty twenty three and you look in twenty twenty
four and twenty twenty three, ten percent of brokers went
out of business. Twenty twenty four, ten percent of brokers
went out of business. I would bet that the number
(35:51):
will be around that again as twenty twenty five. So
I think that it's not just a consolidation story. It's
also who are you doing business with and are they
finingctually stable that they're going to be able to make
it through the downturn to the other side. One of
the things that we have seen from large enterprise customers
is they are testing the financial stability of the carriers
more so than what they've ever done before. And I
(36:13):
think that's where when you look at RXO, we've got
roughly six hundred million dollars of available liquidity, are our
net debts sitting just over two times, so we sit
in a really good position to be able to have
those Then you get to talk about the solutions and
the different things that you can provide across all of
your different lines of business. For these customers.
Speaker 1 (36:34):
And you know, earlier you mentioned the consolidation of the industry,
and obviously that's a lot of that's going to be
through M and A. Are you guys able if the
right deal came along to do another large acquisition or
do you need some time to digest the Coyote deal.
Speaker 3 (36:51):
Yeah, we've had almost a year to digest it now,
and so I think you know, when you look at it,
I talked about the three things that are going really
really well and on the people, the customers, and the technology.
Right now, we're laser focus on making sure that we've
got the profitability there for the long term and that
we're creating value for our customers and for our shareholders
(37:12):
over the long term. But you know, you can't help
the timing of M and A. And we don't have
blinders on, and we have the bandwidth and the capacity
and the team that can handle something if the right
deal comes across. But deals are hard to get over
the finish line. You have to have a willing buyer,
a willing seller has to be a strategic fit, has
to be a cultural fit for the organization. So M
(37:34):
and A is tricky.
Speaker 1 (37:35):
Are there markets that you like to buy into like
markets that you're currently not covering, that is are attractive to.
Speaker 3 (37:42):
Our ex markets that we're not covering. I think that
we would look at what does that do for the
customer and how does that differentiate. Is this something that
would be easy to cross sell across our organization When
you think about markets that we are into that we
would want to expand on starts with Manased Transportation. Manus
Transportation is very good at having data and if we
(38:02):
do our jobs right on the broker side and on
the last mile side and other parts of the organization,
MANUS trans gets to act as a customer to that
to the other lines of business within RXO. When you
think about brokerage, you should think about different modes of transportation.
Both Legacy Coyote and Legacy RXO were built on full
truckload volume largely. If there's something that allowed us to
(38:26):
enhance our lt ON growth even further, if there was
something that allowed us to grow refrigerated or flatbedshipments, or
focus on small to mid sized customers, because we both
do enterprise customers really well. If there's something that brought
in a small to mid sized customers mix, those would
all be things that we would look at.
Speaker 1 (38:45):
And you know with consolidation there was there was a
deal a couple of weeks ago by now, the DAT
buying convoys brokerage business.
Speaker 2 (38:54):
Did that surprise you? That transaction.
Speaker 3 (38:59):
Not in an ass necessarily surprised. I didn't know what
was coming, So I guess in that sense it surprised me. Yeah,
but you know, like you can see that DAT is
looking for different ways to service their client base, which
is you know a lot of the brokers out there,
and especially helps them with the small to mid size
to give them something else to sell into it. So
(39:19):
in that sense, it wasn't surprising, gotcha.
Speaker 1 (39:23):
And so you know we're wrapping up coming at the
end of our time here. You know, just just what
do you like most about, you know, running RXO right now?
Speaker 3 (39:33):
The people. Yeah, I got to spend time this morning
with there's like forty folks that are going through a
leadership development program at RXO, and I think when you
look at the people, we've got some of the best
people in the industry. But they're really good people and
I enjoy spending time with them. I learned from them
every single day. You know, the customers, these are customers
that have been with us forever. If you look at
(39:54):
our top customers, they've been with us for sixteen years
on average. So for me and our investors, we've got
investors that have been with us from the early days
of XBO, that stuck with us through the acquisition. For me,
it's all about the relationships that we've formed and how
do we become a better company off of that, and
how do we challenge ourselves And so for me, it's
all about the people.
Speaker 2 (40:15):
All right, do you have a favorite employee?
Speaker 3 (40:18):
Got seventy four hundred of them?
Speaker 2 (40:21):
All right, Drew.
Speaker 1 (40:22):
I really appreciate your time and your insights again and
really appreciate you coming back onto the podcast, So thank
you for that.
Speaker 3 (40:29):
Absolutely, thank you for having me. It's great talking to
you as always.
Speaker 2 (40:32):
And I want to thank you for tuning in.
Speaker 1 (40:34):
If you liked the episode, please subscribe and leave a review.
We've lined up a number of great guests for the podcast,
so please check back to hear conversations with C suite executives, shippers, regulators,
and decision makers within the freight markets. Also, if you
want to learn more about the freight transportation markets, check
out our work on the Bloomberg Terminal at Bigo and
(40:54):
on social media. This is Lee Clascal signing off and
thanks for talking transports with me.
Hi everyone, this is Lee Clasgow and we're Talking Transports.
Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host,
Lee Claskow, senior freight, transportation and logistics analysts at Bloomberg Intelligence,
Bloomberg's in house research arm of almost five hundred analysts
and strategists around the globe. Before diving in little public
service announcement. Your support is instrumental to keep bringing great
(00:29):
guests and conversations to you, our listeners, and we need
your support.
Speaker 2 (00:32):
So please, if you.
Speaker 1 (00:33):
Enjoy this podcast, share it, like it, leave a comment. Also,
if you have any ideas for a future episodes, or
just want to talk transports, please hit me up on
the Bloomberg terminal, on LinkedIn or on Twitter at Logistics Lee.
And Now onto our episode. We're delighted to have Drew Wilkerson,
ourxo's CEO and chairman, back as our guest on the podcast,
a role he's held since ROXO has spun out of
(00:55):
XPO in October twenty twenty two. RXO is listed on
the New York Stock Change under the ticker RXO, and
it has a market cap around two point four billion dollars.
Drew is a transportation industry veteran with over sixteen years
of experience in brokerage operations. He joined rxo's predecessor company
XBO in May of twenty twelve to spearhead the growth
(01:17):
of the company's flagship truck brokerage hub in Charlotte, North Carolina.
Prior to XBO, Drew held leadership positions in sales operations,
customer and carrier relationship management with h.
Speaker 2 (01:28):
Robinson.
Speaker 1 (01:29):
Welcome back to the podcast, Drew.
Speaker 3 (01:32):
Thanks for having me Lei. It's great to be with
you again.
Speaker 1 (01:34):
And a little bird told me you're a pretty big
college football fan, and you know, someone thought that Virginia
Tech was going to beat South Carolina in a couple
of weeks.
Speaker 2 (01:44):
I just wanted to hear your thoughts on that.
Speaker 3 (01:46):
That is not what the odds makers say. Now, I've
learned as a South Carolina fan to, you know, not
get your expectations up too high and hope for the
hope they over delivered for us in the season. We
finished the season strong last year, and heading into this year,
there's a lot of talk about how good we could
be and I think right now, in the early polls
were a top fifteen team but the results come down
(02:09):
to the field. As Steve Spurry once said, talking seasons over,
it's time to play the game.
Speaker 1 (02:13):
All right, And speaking of playing the game, let's talk
about RXO. Can you give people a little brief description
of a baby, a little history about the company, the
markets you serve.
Speaker 3 (02:23):
Yeah, absolutely so. RXO did a spinout of XPO Logistics
back in November of twenty twenty two. And when you
look at what was spun out of XPO, there were
three lines of business. It was led by our tech
enabled truck brokerage business. Now we are the third largest
truck brokerage in North America and we've been one of
(02:45):
the fastest growing if you go back over the last
fifteen years, largely organically, but more recently with the acquisition
of Coyote from ups inorganically. The second line of business
is our Mannus transportation business. This is where we act
as an extension of a customer for a portion or
all of their transportation, and we become their transportation department.
(03:08):
And for us, this is a great business. We've got
roughly three and a half billion dollars of freight under
management that we help our customers make the best decision
possible out there. And then the last line of business
is our last mile business. So if you think of
big and bulky goods that are going into folks homes, washers, dryers, refrigerators,
things like that, we're the leader in that space. We
(03:30):
have been the leader in that space forever. But we're
still taking market share and what's been a down market.
Last quarter, our stops were up on seventeen percent on
a year of a year basis, so there's a lot
of momentum in that business.
Speaker 1 (03:43):
In all three of those business are non asset.
Speaker 3 (03:45):
All three of those businesses are largely non asset now.
In the brokerage, we did build out more than a
decade ago, where we started adding trailers into our network
is something that allows us to look and feel like
an asset based care. So we have more capacity. We
got access to over one hundred and twenty thousand carriers,
and so if a customer's got those last minute shipments
(04:05):
but they wanted to be able to preload a trailer
or unloaded trailer at their leisure, we can flex capacity
up and down for a customer in that situation. So
they are least trailers largely, but we do do that.
Speaker 2 (04:18):
Yeah.
Speaker 1 (04:19):
So, you know you mentioned the Coyote acquisition. Obviously that
was a pretty big deal, not only for you, but
for the industry. You know, some serious consolidation going on there.
Can you talk about, you know, the integration of the
two companies, how's it going, When do you plan on
fully being fully integrated if you're not already, and kind
of what kind of synergies do you expect to extract
(04:40):
from that deal.
Speaker 3 (04:42):
Yeah, So if you look at the acquisition of Coyote,
I think, and Lee you may know this better than me,
that it is the largest asset light acquisition that's ever
transpired in the space. And there's been some big acquisitions
if you go back, you know, a couple decades ago,
H Robinson acquired American caller Sia. Robinson's acquired Freight Quote,
(05:03):
Echo acquired Command you know, UPS acquired Coyote at one point.
But when you look at an asset light company acquiring
an asset light company, I think this is the largest
one that has ever taken place. And to measure success,
we really start with three things. This is an asset
light business, so it starts with the people and making
sure that you're holding on to the people that the
(05:24):
people are excited about where they're coming to work, and
for us, there was a lot of excitement about Coyote
of coming to a place that Brokers was the centerpiece
of what was going on there, and they felt like
they were getting back to their roots, and not just
getting back to the roots, they were coming to an
organization where they were getting to be the star of
the show. There was so much of ups where they
(05:45):
were a part of a big organization and there wasn't
the biggest piece in the asset light piece. So for us,
this is what we specialize in. This is what we
focus in, and there was a lot of appreciation for
the people of saying we're going to be this in
the limelight for one of the largest asset light players
in the industry. The second piece is on customers. Whenever
(06:06):
you do an acquisition, you want to hold on to
the customers and one of the stats that we threw
out in the earnings call recently was we've held on
between the two companies ninety nine of the top one
hundred customers that we had, so the customer retention rate
has been extremely high. The feedback that we're having from
customers has been positive. As we were getting onto this podcast,
(06:27):
I was texting back and forth with one of our
large customers who's talking about giving us more opportunities now
that they've started to see the power of RXO behind
what they had been delivering. And then the last piece
is on the technology side. Technology and powers and enable
so much of what happens here. So for us, we
had to pick a platform to be able to do it.
Wanted to make sure that we had something that our
(06:49):
reps could work on and be more efficient than what
they were previously, and so we went with Freight Optimizer,
which was a legacy ROXO platform. But what we're doing
is we're taking the best tools because Coyote has some
great tools on the carrier side for the carriers I
work with as well as the carrier reps, and so
we're bringing those tools and putting them into Freight Optimizer.
(07:11):
The integration on the carrier side is already complete. Now
we're continuing to add tools in. Overall on the technology side,
we expect to be largely done by the end of
the third quarter. So for the largest acquisition that's ever
happened in North America the asset light sector, we're going
to be largely done in just over a year. When
you think about that timeline to be able to do that,
(07:34):
I think it's unheard of of what the team has
worked together to accomplish.
Speaker 1 (07:39):
And kind of obviously there's going to be some you know,
crossover or overlap i should say, of customer coverage and people. So,
you know, how are you managing through that. You know,
obviously you're not going score churchs and mass firings, but
you know obviously you are going to try to get
some synergies out of it. So can you talk a
(08:01):
bit about, like, you know, how are you going about that,
managing the people and integrating the two cultures, because you know,
cultures are very important in the brokerage industry.
Speaker 3 (08:10):
That's one of the beautiful things is that the cultures
were aligned. We were both a customer centric organization where
we focused largely on the customers and organic growth. Coyote,
if you go back, you know, to the early years
of two thousand and six twenty fifteen, is one of
the hottest names in transportation as far as how well
you go from you know, the early two thousand and
(08:31):
teens call it to twenty twenty one. RXO was the
fastest growing brokerage. I think the entrepreneurship, the focus on customers,
we were very much aligned as an organization and one
of the one of the great things on the acquisition
is as we did due diligence, we realized that we
didn't have a lot of customer crossover. There were some,
but there was not as much as what you would
have anticipated coming into it. And that was because Coyote
(08:55):
built the business off of food and beverage, and like
a lot of other brokerages out they had a heavy
food and beverage presence. RXO was built off of retail
and e commerce, industrial, manufacturing, automotive, So it's different verticals
that we were operating in. And so what we're able
to do is leverage our capacity, which also didn't have
(09:16):
a lot of crossover. And in it where Coyote is
working with larger carriers and private fleets and RXO was
working with smaller carriers, we were able to leverage our
capacity to allow them to have access to more freight,
allow our reps to have access to more freight. The
second part of your question on the synergies is we
expect to achieve over seventy million dollars of cash synergies
(09:39):
from the deal, and about sixty of that will be
in op X. We go through and we look at
things where we've got duplicate vendor spin where we're able
to leverage our scale on the vendors to be able
to receive better pricing. And for people, we always want
to make sure that we've got the right person and
the right role. And if there's opportunities you've got a
duplicate role, as there opportunities where you can have hot
(10:01):
talent folks go into other areas of the organization to
help us achieve our growth.
Speaker 2 (10:07):
Gotcha.
Speaker 1 (10:08):
And you know, moving away from the acquisition, looking forward
into the freight markets as best as we can given
the fact that the uncertainty that's out there. Can you
talk about the state of the freight brokerage industry and
an extension of that, the state of the trucking industry.
Speaker 3 (10:29):
We're still in a very soft truck market and it's
been down for three years. I think the narrative that
has flipped on our end is a year ago we
were telling you that this was a capacity problem. There's
too much capacity in the market. Capacity needed to be
able to exit. Now If you look at the data,
the data is telling us that it is more of
a demand problem. Demand is below levels of where it
(10:52):
was in twenty nineteen. If you look at areas like automotive,
home building, those areas have been hurt. They largely impact
what is going on in the transportation industry. With that said,
we do think we're coming off of the bottom. It's
just been a slow walk off the bottom. Tender rejections
are up on a year every year basis. Loaded truck
(11:13):
ratio is up on a year every year basis. But
it's not to that point where there is imbalance in
the market and you start seeing spot loads and projects
and mini bids starting to happen at that point yet.
Speaker 1 (11:28):
And what are your customers telling you? What are the
shippers telling you about peak season? Are they preparing you
for more business? Are they preparing you for less business?
What are they say?
Speaker 3 (11:37):
It's still too early to call for peak season For us,
We're working with all of our customers closely, and we're
hearing different things from different customers. Some of them are
telling us that they expect a pretty good peak season.
Others are telling us that they expect a peak season
more in line to what happened last year, and if
you go over the last several years, it's been a
muted peak season. So if I was forced to make
(11:58):
a call right now based off of what has happened
over the last several years in base off where we
are from a capacity standpoint, I would say that we
would expect another muted peak season at this point. But
we're prepared and we're staff for growth. If there's opportunities
or if you know, the FED cuts rates and that
somehow jobs consumer confidence on retail and e commerce, we're
(12:19):
in the best position to be able to be benefactors
of that.
Speaker 1 (12:23):
Yeah, you know you mentioned you know you're prepared for growth.
Can you talk about you know, the technology that you
have and you know the benefit that gives you in
a scale that that gives you without adding heads ie
you can you know you can take on more value
with less people.
Speaker 3 (12:41):
Yeah. So, technology and building technology for our employees, for
our customers as well as for the carriers that are
within our network has been our priority since day one,
and we really focus on building the best technology in
two ways. We hired a lot of people who were
some of the best technologists in the world, not necessarily
(13:01):
the best transportation technologists, but I'm talking about people who
have come from Amazon, Microsoft, Google, these type companies that
are technology is in their DNA, but we partnered them
with great operators and we were building our product from
the ground up, and Freight Optimizer has been an evolving
product for our broker reps for the last decade of
(13:23):
what we've been able to see. And so if you
look just at a simple metric on productivity, which is
what you're asking, you know, when you look at our productivity,
it was up eighteen percent on a year of a
year basis. If you look over the last two years,
it was up forty five percent. So for us, you know,
we're going to continue to invest in tools that reduce
the number of clicks that our employees have, reduce the
(13:44):
number of key strokes, because what we really want them
doing is focusing on the customers and the carriers that
they're working with that they can spend their time building relationships,
building solutions, creating tools for our customers to be able
to use that drives value in their transportation network. So
you know, we're laser focused on being efficient with the
(14:05):
technology that we put out, but making sure that we're
having the results, and I think when you look at
the productivity, we will not have to hire at the
same rate of what we did five years ago or
even a year ago because of the technology tools that
we put out there.
Speaker 1 (14:19):
And when talking technology, actually we'd be remiss if we
didn't mention AI. And if you start talking about AI,
you might get another turn on your multiple fear stock.
So could you talk about you know, when you talk
about technology or are you talking about machine learning and AI?
Speaker 2 (14:33):
Is that?
Speaker 1 (14:33):
Is that what's driving the productivity gains?
Speaker 3 (14:36):
And machine learning and AI is not new, right, I
think right now to your point, it is a buzzword.
And you know, companies in every industry are putting out
press releases on their new AI tools and a lot
of what they're talking about is just automation. And you know,
a lot of us been talking about I wouldn't even
consider new if you look at machine learning. Our pricing
(14:57):
algorithms that if you go back and you look over
the last decad that have allowed us to have some
of the strongest margins in the industry have been built
off of machine learning. And so that's where you go
to what I was talking about earlier and you have
this technologist who understands pricing algorithms, who's done it in
hotel industries, who's done it in other industries, and is
able to partner them with an operator, and you can
(15:19):
move the pricing dial on the customer side and on
the carrier side so that you're giving your customers and
your carriers fair, real time prices based off of what's
happening within the market. And if you're doing it right
with your data, your pricing algorithm gets smarter and smarter
with every load that goes into it. And when you
look at our freight brokerage group, third largest freight brokerage
(15:42):
out there are Manus trands. You know, we're the fifth
or sixth largest provider out there. We've got access to
a lot of data that goes into our pricing algorithms.
Is what allows it to be so strong. AI is
something that we will continue to invest in. And the
way that we're thinking about AI right now is anything
that is employee facing or customer facing or working with
(16:04):
our carrier network. We really want it to be homegrown.
As far as what we're building out as specialized tools.
It's unique to us, you know, on the back office side.
There may be some things that allow us to increase
productivity that we can use off the shelf programs, but
anything that is customer carrier employee facing, we want to
be to be unique to RXO because it's part of
(16:27):
our secret sauce.
Speaker 1 (16:28):
Yeah, a lot of brokers now we're talking about like
frictionless transactions or totally automated transactions. Do you have any
goals of like, you know, what percentage of your transactions
do you think that can be totally automated unless there's
an exempt exception that needs to a human needs to
deal with.
Speaker 3 (16:46):
Yeah. Pre acquisition of Coyote, we used to put out
a stat and it was like ninety seven ninety eight
percent of our orders are either created or covered digitally,
meaning there's no human interaction within those orders. Now with
that set, uh, we've got customers that you do not
that you want to make sure that there is human
interaction within those orders. Right now, you're thinking about high
(17:07):
cargo value freight, when you're thinking about electronics, when you're
thinking about automotive, you better believe that they want you
talking to a driver. They want to know that you've
you've physically talked to somebody and so I think it's
instead of putting a metric of this is where we
hope to go for created and covered longer term. It
really depends on what the customer makeup is and what's
(17:28):
required off of that.
Speaker 1 (17:30):
Yeah, you know, you're talking about these high value shipments
and shipments that need the high amount of touch. I
guess this is a good time to pivot to fraud
because obviously, if it's something's worth, a lot of people
don't want to steal it. H And fraud has been
a growing industry, a growing problem within the trucking market.
How are you mitigating those risks? Are you using your
(17:53):
own proprietary technology to use third parties? How are you
going about it? You know, to ensure that shipments get
to where they need to go.
Speaker 3 (18:03):
Fraud's been a huge problem in our industry for the
last several years. And when you look at our technology,
our technology screens the carriers that we're working with. It
tells us how often we've used them, when we've last
used them? Is this somebody that we're familiar with? Is
their insurance up to date? And our technology is smart
enough that it does it multiple times per day, and so
(18:23):
it's something that is always fresh of what we're doing.
It also gives us visibility throughout the shipment with the
carriers that we're partnering with. And then the second thing
goes down to process. We talked about high value cargo products.
We talked about automotive that is just in time shipments
that you can shut down a plant if you're not
getting it there on time. When you look at the
(18:45):
best in class processes that we've built for more than
a decade for these type customers, you're able to take
those processes and use it on all of your customers,
which help you prevent fraud and theft.
Speaker 2 (18:58):
Got you.
Speaker 1 (19:00):
Not to look backwards because we were talking about forward,
but you know, you guys just announce your your two
Q earnings kind of we're the major takeaways from that.
I'm assuming a lot of it circled revolved around the integration.
But from a performance standpoint, you know, how do you
think you did relative to your peers.
Speaker 3 (19:19):
Yeah, so if you look at at market share, we
grew volume on a year of a year basis and
a market this down that was driven by our less
than truckload performance, which grew forty five percent on a
year over year basis, and the reason that we're winning
in less than truckload is because of our relationships and
our history with these customers on the truckload side that
(19:41):
are saying, we recognize the value you provided to us.
We want to be able to use the platform that
we're familiar with to help us prevent planes, damages, lost
shipments because LTL, if you think about it, for large shippers,
it's a small piece of their overall transportation spend, but
it's a big piece of their time. So if they
can let us come in and manage a piece of
(20:03):
it or all of it as an outsource, our brokers
team is winning there and they're winning big. The second
highlight is when you look at last mile. I talked
about the last mile industry being down right now. Our
stops were up seventeen percent on a year of a
year basis. When you look at where we finished from
an ebit of range, we finished at thirty eight million dollars,
(20:23):
which was at the high end of the range that
we provided to the analysts on the prior quarter of
thirty to forty million dollars. And we talked earlier about
the technology piece of the integration. We're largely complete, and
as we get to the third quarter, we think that
we will be right there at the finish line of
completing the technology and integration. And then the last highlight
(20:45):
is our free cash flow was sitting at fifty eight
percent for us. So when you look at that, that's
why investment. That's what's attractive about the brokerage model is
even in a down cycle, it can still generate high
free cash flow dollars.
Speaker 1 (20:58):
You know, Just not to be all over the but
I want to go back to the acquisition of Coyote.
You know, going into it, obviously this was a big
undertaking for you and your team and also for the
Coyote team to fully integrate it. Kind of what were
the surprises during the integration process, you know, I guess
on the positive side, and what kind of challenges did
(21:20):
you did you face that we're that were greater than
maybe you initially thought going into the deal.
Speaker 3 (21:24):
Well, I would start with the positives on the people,
and any time you're doing due diligence, there's only so
deep that you can go uh in a process of
talking to people, and so the people that we have
gotten to know, we've upgraded our leadership team with the
team that came over, and that doesn't mean that we
had a bad leadership team. It means taking the best
(21:45):
of both worlds and we're a stronger team together than
what we were apart from each other. The second thing
is the carrier procurement. Coyote had away with large companies
on their private fleets, which is something we've tried to
break in two for years. Be able to capitalize on
that on our whole network. That really the whole carrier
(22:05):
team within Coyote. You know, I don't think that we
knew the exact experience they had coming in, and their
average tenure on the carrier up floor is over eight years.
That's unheard of in this industry. So they've seen multiple cycles.
They know how to operate through through a cycle. And
then I'll end on the customer point, on the positives
of when you look at what we were able to
(22:27):
do by diversifying our customer base and get much larger
in the food and beverage industry, and the relationships and
the reputation that Coyote had there was extremely positive. So
to be able to build off all that is something
that we're asided about. When you look at things that
haven't gone as expected. There's always things in an acquisition,
especially one of the size that go don't go as expected.
(22:50):
One would be profitability, and I think that the profitability
of the Legacy Coyote team specifically in the fourth quarter
in the first quarter was lower than what was anticipate.
It's understandable of why it was lower because when you
looked at where they were at from a pricing perspective,
we knew that they were a little bit below market
and below Legacy ARC, so heading into that and you
(23:10):
had the weather implications in the fourth in the first
quarter that impacted profitability of the team, and then the
truckload volume slipped a little bit farther than what we
thought it would. But the good thing off of that
is we're still active with all of the customers and
we see a good path on getting back to organic
truckload volume growth.
Speaker 1 (23:28):
And when you mentioned, you know, coyotes access to private fleets,
you're talking about like Walmart as a truck and you'll
kind of fill their back hall if their back hall
is empty, is what you're talking about.
Speaker 3 (23:39):
That's right, Large companies who have a private fleet who
are looking to get there, who were looking to get
their fleet back from point A to point B or
to another pickup spot that's right.
Speaker 1 (23:48):
Right, and to make some money or offset the costs
along the way. Okay, So you know we talked about, like,
you know, continuing on with the Coyote acquisition. So if
you have like two offices in Chicago and RXO office
and at Coyote office, how are you manning that process?
Because you know you did note that they do have
different customers. So are you operating two separate offices? Are
(24:11):
you trying to combine the two get the people together?
How are you working in that kind of physical integration.
Speaker 3 (24:18):
There's been some real estate consolidation, you know, with this acquisition,
and probably more to go. A couple of examples is
Legacy RCHO had an office in downtown Chicago off of
Whacker Drive. Everybody is used to driving down the Interstate
and seeing the Coyote sign whenever you come into Chicago.
Now it's an RHO sign and the team that we
(24:38):
had off of Whacker is now into the building that
is affectionately known as the GX in Chicago, right. And Dublin,
Ohio is another example of where we had two offices
and we brought the Legacy Coyote team over with our
team in the office in Dublin, Ohio. We're better together
than what we are apart, and they're doing a lot
(24:58):
of the same functions. So there's more energy whenever you
get larger teams around each other. And so where we've
got opportunities to do that without creating a lot of disruption,
will absolutely look to do it.
Speaker 2 (25:09):
Yeah, and I'm assuming for your brokers.
Speaker 1 (25:11):
It's really an in office culture right because there's a
lot of learning to be done on the floor.
Speaker 3 (25:17):
We are in office culture and we want our best
people on the floor because those are our best mentors.
There are best teachers to talk about what's going on.
When you can hear somebody that's sitting within earshot that's
negotiating a load, you get a real time feel for
what's going on in the market. When you get a
customer rep who puts an order on the board with
special requirements and they can shout it out to the
(25:38):
floor of I've got a hot load and it needs X,
Y and Z, you know, there's there's an energy and
a camaraderie that can't be replicated over Zoom and Microsoft teams.
Speaker 1 (25:48):
Are most of your your like incoming employees are they like,
are you hiring from like undergrads from universities or is
it more experienced people.
Speaker 3 (26:00):
We do hire undergrads. I would say we're more of
a company that looked for somebody one or two jobs
out of college. Yeah, and you know, we'll let them
go work out some of the bad habits somewhere else
and then we'll bring them over. But you know, if
we find an all star coming out of college, we
absolutely bring them over. We've had interns that have been
with us for years coming out of college that have
(26:21):
been here now four or five, six years down the
road that still work here, and you know, it's great
to be able to see that. They get to see
the culture firsthand. For you know, one two summers into
sad to come back. But you know, when you look
at our typical hire on the floor is typically somebody
just had one to two jobs. And then we're always
(26:42):
looking for outstanding reps that have relationships, that have industry
knowledge that can come make us a better company.
Speaker 1 (26:50):
And you know you mentioned productivity improvements earlier. Is that
how you measure employees success?
Speaker 3 (26:57):
No, not necessarily, that's one of the factors that you
use to measure employee success. I mean, it really depends
on what the role is. If you're talking about an
inside sales role, you're measuring success by the number of
new customers they're bringing, on the amount of grocery margin
they're bringing, on the diversification where they're able to cross
sell into other parts of the organization. If you're looking
(27:20):
at the carrier side, you're looking at it in terms
of gross margin dollars. You're looking at in terms of
loads per day. But it's one of the factors, but
it's not the factor.
Speaker 1 (27:31):
And you know, again going back to our crystal ball,
looking into the trucking market, you know you mentioned it
seems to be more of a demand issue. Now obviously
we're not having a freight recovery this year. Can you
look out and well maybe not obviously, who knows, right
anything can happen, But looking out further out, you know,
what are your expect expectations in twenty twenty six? Are
(27:53):
you expecting more of the same of this like flat,
tepid growth malaise.
Speaker 3 (28:00):
I think it's too early to call twenty twenty six
of where we land there. I mean, I told you
it was too early to call peak season, so it's
definitely too early to call twenty twenty six on where
we land. I think the thing for us is how
do we position ourselves with customers so we are the
call that whenever it turns, we know that we are
in a cyclical business. It's been a cyclical business for
the last twenty years that I've been doing this, and
(28:22):
you know, this has been a downcycle that has lasted
longer than any other in my career. But it's still
about positioning yourselves right with the customer that as the
market turns, you've got the staffing, you've got the relationships,
you've got the capabilities to be able to deliver it
for them in times of stress. And that's something that
we know very very well.
Speaker 1 (28:42):
And when you're looking at the freight broker industry, obviously
you've become a consolidator with this last acquisition and also
you've you know, won market share organically. Do you expect
the industry to consolidate significantly or is it always going
to be shifts because of just the nature of the business.
Speaker 3 (29:04):
I expect major consolidation in the industry over the next
several years, and I think that This was a kickstar
starter of many things to come across the industry. When
you look at it, you know, there's seventeen thousand truck
brokers out there, and that's always the stat that gets
everybody's attention. But what they forget now post acquisition is
that the top nine brokers make up more than fifty
(29:26):
percent of the overall truck brokerage market. So for me,
I see the top players who are financially stable, who
have good relationships with their customers, who have the great
technology and the ability to create solutions for customers. They're
going to be the winner's long term. And I don't
think that number will be nine next time you and
(29:46):
I talk, you know, well, maybe we'll talk before then,
But if we talk, you know, two years down the road,
I think you're talking about a lot a number, a
lot less than nine, And as you get five years
down the road, you're probably talking about three or four.
Speaker 2 (29:59):
Yeah.
Speaker 1 (29:59):
Well, first off, I hope we talk more between now
in two years, And second, I just wanted to make
sure I heard the stat you said, the top nine
brokers make up fifty percent of the market, the.
Speaker 3 (30:08):
Free more than fifty percent of the truck brokerage market,
and Lee that's important because the truck brokerage market is growing.
When you look at whenever I started in this industry,
I think it was you know, mid single digits of
what truck brokerage made of the four higher trucking market.
Now it's in the low twenties. Over the next five years,
I think it'll be in the thirties. You look longer term,
(30:29):
I think it'll be in the forties and follow a
similar path of what the forarding industry, where it got
closer to fifty to fifty. I don't think that it'll
ever get over fifty or as we sit here today,
I don't think it'll get over fifty, but I do
see a clear path for truck brokerages to get into
the forties of the overall four higher trucking market.
Speaker 1 (30:47):
Right and for those with the memory of XPO, you know,
XPO was started by Brad Jacobs to consolidate the brokerage
industry before they went into different businesses. So that's kind
of the genesis of of what is now RIX. So
when you look again into the future, obviously RXO is
one of those companies who else is still standing.
Speaker 3 (31:08):
With you, you know, I think that's the beauty of
the top nine. When you say that, you're asking me
to predict who's going to acquire who, and I can't
do that, but I think that there are several really,
really good competitors out there. If you look at industry
leaders Sea Trominson, they've had some phenomenal quarters lately, and
Dave and his team have done a very good job.
(31:29):
When you look at a Rive a company, they're a
company that is a fast growing company and they've grown,
you know, I think entirely organically. Of what they've done,
it's been impressive to see. If you look at Doug
Wagner and what the team at Echo have done, They've
done a great job of building an LTL product and
a truckload product that focuses a lot on small to
(31:50):
mid sized customers, and they do that as well as
anybody in the industry. And so when you look at
there's a lot of great competitors out there. I can't
predict who's going to acquire who and where it all
shakes out, but I think when you look at the
landscape at the top, there's a lot of good quality
companies out there.
Speaker 1 (32:05):
And for those listening, if you want to go back
to some old episodes. We've done podcasts with the CEO
of Arrivant, N. C. Robinson, so those are could be
interesting to you. So, you know, you mentioned some of
the I guess the and we'll call it a disappointment.
But the things that didn't go right or go as
expected with the merger with Coyote thus far, and one
(32:29):
was was margins on average even before the acquisition, did
RXO have higher margins than Coyote?
Speaker 3 (32:40):
We did at legacy RXO. But I also needed to
caveat that again and go back to remember how the
books of businesses were built, right, it different business so
they were largely food and BEV and we were largely retel,
E commerce, industrial, manufacturing, automotive. Some of those are higher
margin per load shipments. Whenever you think about the requirements
that go into it. Now when you look at how
(33:02):
well it was buying transportation in the market, which is
what you really want to get after both teams had
different markets that they bought really well in and so
now it becomes about being able to capitalize on that
across the organization and looking at new power lanes that
we've got, how do we sell into that for our
customers in the right way.
Speaker 1 (33:21):
And you know you did mention Dave Boseman A C. H. Robinson,
and you know he's was new to the brokerage industry.
Speaker 2 (33:29):
He came in with a.
Speaker 1 (33:29):
Toolkit of kind of six sigma kind of attitude towards
the brokerage industry. Have you, guys, from obviously the outside
looking in it, have you have you learned any best
practices from the success that they're having there, you know,
with how they're managing or changing the way they manage
their business.
Speaker 3 (33:51):
You know, we're not in the boardroom with them, so
we don't exactly what they're doing. We're watching the results
just like you're watching the results. And I think what
Dave and the team have done has been, you know,
great to see. And I think that you know, for us,
the way that we look at the business is how
well do you perform through a cycling So at the
bottom part of the cycle, they're performing really, really well.
Speaker 1 (34:14):
And you know, do you have any long, longer term
targets for RXO in terms of your margins that some
goals that you might want to.
Speaker 3 (34:22):
Share when you look at it. I think, you know,
without putting a number because your margins can go up
or down based off of what's happening on the in
the market. But posts Coyote acquisition, one of the numbers
that we put out is that we do think that
we can improve how well we buy verse market about
one hundred basis points or more. And so when you
(34:44):
think about that, you know, that's call it forty million
bucks of cost avoidance or cost savings based off of
what's going on in the market. Obviously, if costs are
going up on the carrier side, then it's cost avoidance.
If they're coming down as savings to the and L
and we're already seeing the early signs of that in
just a few weeks. We've already saw where are how
(35:07):
well we buy verse market as one team is thirty
to fifty basis points better than what we were doing
pre cutover on the carrier side.
Speaker 1 (35:16):
Got you and you know, is there anything else facing
you know, either your business or the free transportation logistics
industry that's kind of on your radar that you think
that is going to have an impact over the next
six to twelve months.
Speaker 3 (35:30):
Well, I think the biggest thing is what happens in
the market, because you know, we talked a little bit about,
you know, the top of the house, that is how
is performing within freight brokers. But when you go back
in twenty twenty three and you look in twenty twenty
four and twenty twenty three, ten percent of brokers went
out of business. Twenty twenty four, ten percent of brokers
went out of business. I would bet that the number
(35:51):
will be around that again as twenty twenty five. So
I think that it's not just a consolidation story. It's
also who are you doing business with and are they
finingctually stable that they're going to be able to make
it through the downturn to the other side. One of
the things that we have seen from large enterprise customers
is they are testing the financial stability of the carriers
more so than what they've ever done before. And I
(36:13):
think that's where when you look at RXO, we've got
roughly six hundred million dollars of available liquidity, are our
net debts sitting just over two times, so we sit
in a really good position to be able to have
those Then you get to talk about the solutions and
the different things that you can provide across all of
your different lines of business. For these customers.
Speaker 1 (36:34):
And you know, earlier you mentioned the consolidation of the industry,
and obviously that's a lot of that's going to be
through M and A. Are you guys able if the
right deal came along to do another large acquisition or
do you need some time to digest the Coyote deal.
Speaker 3 (36:51):
Yeah, we've had almost a year to digest it now,
and so I think you know, when you look at it,
I talked about the three things that are going really
really well and on the people, the customers, and the technology.
Right now, we're laser focus on making sure that we've
got the profitability there for the long term and that
we're creating value for our customers and for our shareholders
(37:12):
over the long term. But you know, you can't help
the timing of M and A. And we don't have
blinders on, and we have the bandwidth and the capacity
and the team that can handle something if the right
deal comes across. But deals are hard to get over
the finish line. You have to have a willing buyer,
a willing seller has to be a strategic fit, has
to be a cultural fit for the organization. So M
(37:34):
and A is tricky.
Speaker 1 (37:35):
Are there markets that you like to buy into like
markets that you're currently not covering, that is are attractive to.
Speaker 3 (37:42):
Our ex markets that we're not covering. I think that
we would look at what does that do for the
customer and how does that differentiate. Is this something that
would be easy to cross sell across our organization When
you think about markets that we are into that we
would want to expand on starts with Manased Transportation. Manus
Transportation is very good at having data and if we
(38:02):
do our jobs right on the broker side and on
the last mile side and other parts of the organization,
MANUS trans gets to act as a customer to that
to the other lines of business within RXO. When you
think about brokerage, you should think about different modes of transportation.
Both Legacy Coyote and Legacy RXO were built on full
truckload volume largely. If there's something that allowed us to
(38:26):
enhance our lt ON growth even further, if there was
something that allowed us to grow refrigerated or flatbedshipments, or
focus on small to mid sized customers, because we both
do enterprise customers really well. If there's something that brought
in a small to mid sized customers mix, those would
all be things that we would look at.
Speaker 1 (38:45):
And you know with consolidation there was there was a
deal a couple of weeks ago by now, the DAT
buying convoys brokerage business.
Speaker 2 (38:54):
Did that surprise you? That transaction.
Speaker 3 (38:59):
Not in an ass necessarily surprised. I didn't know what
was coming, So I guess in that sense it surprised me. Yeah,
but you know, like you can see that DAT is
looking for different ways to service their client base, which
is you know a lot of the brokers out there,
and especially helps them with the small to mid size
to give them something else to sell into it. So
(39:19):
in that sense, it wasn't surprising, gotcha.
Speaker 1 (39:23):
And so you know we're wrapping up coming at the
end of our time here. You know, just just what
do you like most about, you know, running RXO right now?
Speaker 3 (39:33):
The people. Yeah, I got to spend time this morning
with there's like forty folks that are going through a
leadership development program at RXO, and I think when you
look at the people, we've got some of the best
people in the industry. But they're really good people and
I enjoy spending time with them. I learned from them
every single day. You know, the customers, these are customers
that have been with us forever. If you look at
(39:54):
our top customers, they've been with us for sixteen years
on average. So for me and our investors, we've got
investors that have been with us from the early days
of XBO, that stuck with us through the acquisition. For me,
it's all about the relationships that we've formed and how
do we become a better company off of that, and
how do we challenge ourselves And so for me, it's
all about the people.
Speaker 2 (40:15):
All right, do you have a favorite employee?
Speaker 3 (40:18):
Got seventy four hundred of them?
Speaker 2 (40:21):
All right, Drew.
Speaker 1 (40:22):
I really appreciate your time and your insights again and
really appreciate you coming back onto the podcast, So thank
you for that.
Speaker 3 (40:29):
Absolutely, thank you for having me. It's great talking to
you as always.
Speaker 2 (40:32):
And I want to thank you for tuning in.
Speaker 1 (40:34):
If you liked the episode, please subscribe and leave a review.
We've lined up a number of great guests for the podcast,
so please check back to hear conversations with C suite executives, shippers, regulators,
and decision makers within the freight markets. Also, if you
want to learn more about the freight transportation markets, check
out our work on the Bloomberg Terminal at Bigo and
(40:54):
on social media. This is Lee Clascal signing off and
thanks for talking transports with me.
Host
Lee Klaskow
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