Not going to compete in small parcel delivery I wondered about this and am happy Jacobs is basically sticking with the higher margin aspects of the industry. The problem is shipping high volumes of small parcels may be faster growing, but it’s less profitable for businesses.
'Jacobs does not see XPO competing head-on with Federal Express and UPS in the parcel delivery business.'
XPO's Con-way purchase highlights shifting logistics landscape
Bill Mongelluzzo, Senior Editor | Sep 29, 2015 9:25AM EDT
SAN DIEGO — XPO Logistics’ pending purchase of less-than-truckload carrier Con-way is the latest sign that the lines between asset-light third-party logistics providers and asset-based motor carriers are blurring, XPO Chairman and CEO Bradley S. Jacobs said Monday.
Jacobs, interviewed during the annual Council of Supply Chain Management Professionals conference in San Diego, said the $3 billion Con-way purchase received anti-trust approval on Friday, and he expects the deal to close in the next few weeks.
Asset-based trucking companies and non-asset-based logistics providers for the past 20 years have been engaged in a tug-of-war for freight. In recent years, with high-profile mergers within and between both industries, the lines have blurred considerably.
“We will have less of each, and going forward, we will have more blended types of operations,” Jacobs said. He added quickly, however, that “there is still a role for both.”
For rapidly-growing XPO, adding asset and non-asset transportation providers to the company is not new, so the purchase of Con-way, the second-largest LTL carrier, which also owns Menlo logistics, is part of its evolution as a mega-logistics provider with $15 billion in revenue. Con-way’s physical assets include both trucks and terminals. Jacobs noted that the company's April, 2014 purchase of Pacer included that company’s 11,000 containers, and its purchase in June of Lyon, France-based Norbert Dentressangle included 7,700 trucks.
Securing physical assets as well as logistics expertise in different markets not only opens up more opportunity to grow, but it fits in with regional business practices. Jacobs said that in the European market, customers feel more comfortable with asset-based providers. “We wouldn’t have been able to get those customers without assets,” he said.
XPO’s intention is to continue to grow revenue by appealing to a variety of customers. Con-way’s customers, he said, range from blue-chip companies to mid-market and smaller accounts. Jacobs said he found Con-way attractive for several reasons, including its local account executives who handle smaller customers that ship primarily LTL. XPO is in a position to offer these customers an additional range of services including truckload, last-mile delivery, intermodal and cross-border.
He envisions no serious issues combining the two companies, and in fact finds the prospects of integration exciting. “Our cultures are extremely compatible,” he said. Furthermore, Jacobs said his team has led some 500 acquisitions over the years. “It’s one of our core competencies,” he added.
Some financial analysts have expressed concern about XPO’s rapid growth in recent years, which has involved a number of acquisitions and accumulation of debt, but Jacobs said his goal is to increase XPO’s earnings before interest, taxes and amortization from $1.1 billion to $1.5 billion without issuing more stock and without adding more debt. “We have excellent cash flow. We’re rock-solid,” he said.
XPO is interested more in being a leader, which Jacobs defines as being first or second, or possibly third, in areas where it specializes — last mile delivery, intermodal, cross-border Mexico trade, brokerage, LTL, managed transportation and European trucking.
Jacobs does not see XPO competing head-on with Federal Express and UPS in the parcel delivery business. “We’re 30 years too late to that party,” he said.
Contact Bill Mongelluzzo at bill.mongelluzzo@ihs.com and follow him on Twitter:@billmongelluzzo.