A white truck driving on a highway while pulling a trailer behind it

Erin Jernigan 11/2/2023

Amid a shifting market landscape, XPO, the less-than-truckload carrier, has demonstrated resilience and success. In the third quarter, they not only navigated the closure of Yellow but achieved remarkable service improvements.

Their claims ratio, a measure of damage during transport, reached a new low at 0.4%. Their on-time performance improved significantly, gaining 8 percentage points. This is especially impressive considering their claims ratio was at 0.7% in the previous quarter and as high as 1.2% two years ago.

The revenue for XPO’s LTL (less-than-truckload) segment also saw growth, up by 2% year-over-year, reaching $1.23 billion. They moved more freight, with tonnage per day increasing by 3%. Their revenue per hundredweight improved by 6%, excluding fuel surcharges. This boost in yield was partly due to a 4% reduction in the weight of each shipment. Notably, pricing increased by 9% on contract renewals, nearly double the increase in the second quarter.

XPO’s dedicated efforts led to a significant increase in their daily shipments. They moved over 1,000 more daily shipments each month in the quarter. By September, they were handling more than 54,000 daily shipments, marking a 5% increase from the previous quarter. Their yield, excluding fuel surcharges, grew by 6% sequentially, while the weight per shipment only saw a 2% decrease.

The positive trends continued into October, with tonnage up by 2.5% year-over-year and shipments increasing by 6%. Despite a slight dip from September, these metrics still outperformed typical seasonal trends.

In the LTL segment, they achieved an adjusted operating ratio of 86.2%. This marked a decline of 60 basis points year-over-year but a significant improvement of 140 basis points sequentially. This enhancement was the result of favorable yield trends, improved service, and effective cost management.

XPO’s strategies led to a 230 basis points reduction in purchased transportation expenses as a percentage of revenue. They achieved this by reducing outsourced linehaul miles to 21.5% of the total, down by 200 basis points year-over-year. Furthermore, their plans to in-house more linehaul miles through additional driver teams and tractors with sleeper cabs are on track. They aim to reduce total outside miles by 50% over six years, ending in 2027.

Despite handling an 8% increase in shipments, XPO managed to maintain a slight decrease in headcount compared to the previous year, with a modest increase in labor hours. An annual wage increase introduced in April posed some challenges. However, there was a notable 100 basis points improvement in insurance and claims expenses year-over-year.

Looking ahead, XPO is optimistic about continued yield improvements, driven by enhanced service quality that customers are willing to pay a premium for. They are also expanding accessorial programs in specific areas and attracting more local shipping customers, which offer better margins.

In the first quarter of the coming year, XPO plans to implement a general rate increase (GRI) to base rate tariffs. They anticipate a low-single-digit percentage increase in fourth-quarter tonnage and a high-single-digit percentage increase in yield compared to the same period in 2022.

To support their growth, the company is increasing capital expenditures, likely staying at the higher end of the 12% to 13% of revenue range this year. Their recent initiation of a central Florida service center construction is part of their broader plan to add 900 net doors by the first quarter of next year. So far, they’ve added 531 new net doors toward that goal.

XPO’s commitment to expansion extends to their fleet, with more than 1,000 tractors added this year. Their in-house production facility is set to manufacture over 6,000 trailers, aligning with their aspirations for growth in the dynamic market.