FreightTech 25: At XPO Logistics, I.T. kept up with one acquisition after another

In 2011, Brad Jacobs, founder, chairman and CEO of XPO Logistics, Inc., began taking the company down a road that no transport and logistics provider had ever travelled. During the subsequent 4 years, XPO made 17 acquisitions and integrated them under one umbrella. In a 4-month period spanning mid-2015, XPO spent $6.5 billion to acquire Con-Way Inc. and French giant Norbert Dentrassangle S.A., thus establishing large beachheads in North America and Europe.

Integrating 17 companies was an unprecedented step in an industry whose players struggle to achieve even one or two successful combinations. The fact that no major blow-ups have occurred is, in no small part, testament to Jacobs’ decision to make I.T. investments the company’s top priority. Given its incredibly rapid scale-up, Jacobs and his CIO, Mario Harik, knew a single-sourced model that today handles 160,000 ground shipments and more than 7 billion inventory units daily could fall flat on its face without an effective uniform I.T. platform to support its growth.

“We worked hard to thoughtfully integrate those companies into our business while making additional investments in people and technology to accelerate our growth,” Harik said in a statement. “The thought process behind that integration was, as always, to give our customers the technology and service they need to succeed.”

XPO has been out of the M&A game for more than 3 years. During this time, it has leveraged technology to achieve Jacobs’ goal articulated after completing the Con-way purchase in the fall of 2015 and then taking to the sidelines: Fortify the value of its portfolio—which today serves more than 50,000 customers across a broad array of verticals—control its costs, and maximize its scale. The Greenwich, Conn-based company spends $450 million a year on I.T., amounts that very few providers not named FedEx, UPS and J.B. Hunt can match. It employs 1,700 I.T. folks, 100 of whom are data scientists. It is re-investing revenue and profits into I.T. projects it believes will build an insurmountable lead in an industry that, with select few exceptions, has lagged in high-tech uptake.

In October, XPO said it would deploy 5,000 “collaborative” robots—machines built to work alongside humans—at sites in North America and Europe. Earlier this year, it launched a cloud-based warehouse management platform aimed at quickly integrating robotics and other advanced automation into its operations. The company touts this approach as a more efficient way to ramp up new customer projects than by using traditional warehouse management systems, particularly with multi-site and multi-channel projects.

In June, XPO announced a partnership with Nestle, the Swiss food and drink giant, to build a 638,000-square-foot distribution center in the UK for Nestlé’s consumer packaged goods distribution. The facility, which will cost XPO $77 million and set to open in 2020, will include advanced sorting systems and robotics, as well a digital networks to integrate predictive data and intelligent machines, all components central to XPO’s long-term I.T. strategy. The facility will also function as an XPO high-tech lab, think-tank, and petri dish for I.T. initiatives.

XPO refers to its warehouses as “high-tech hubs” for robotics, drones deployed to manage inventories, and analytics for demand forecasting, the latter being an area where providers, if they do it right, can build a wide competitive moat. It uses algorithms to predict the flow of goods and future returns, which it said helps e-commerce customers plan for peak inventory, capacity and labor levels. XPO said it has started using “dynamic analytics” in its warehouses to optimize workforce productivity day by day, and shift by shift. 

But it is in less-than-truckload and last-mile transportation, which unlike contract logistics is behind the I.T. demand curve, that XPO may make significant hay. In October, it launched four technology initiatives for its LTL business that Jacobs said would result in $100 million in profit improvements after two years and then $100 million a year in increased profits thereafter.The tools include the use of artificial intelligence for load-building and cross-docking improvements, advanced algorithms to strengthen the company’s line-haul network, algorithms to maximize pricing efficiency, and dynamic route optimization that functions in much the same way as digital apps like Waze that guide motorists around traffic chokepoints. 

Several weeks before, XPO rolled out a tool to strengthen bid communications between its brokerage business and its network of motor carriers. In explaining the move, Jacobs said that more than half of XPO’s brokered loads are offered to carriers electronically, levels he said reflects a dramatic change in the way brokers and carriers do business.

In final mile deliveries of heavy goods, where XPO is the market leader, the company uses Amazon and Google voice activation technologies to allow consumers to request personalized alerts and electronically reschedule delivery times electronically. The system also gathers real-time post-delivery feedback which it shares with is retailer customers. By the end of December, it plans to roll out Augmented Reality functionality that creates an image of how an item will look in a given room before it’s delivered. This makes the last mile process more efficient and decreases the likelihood of returns, according to the company.

If there is a holy grail for XPO’s I.T. technology, it may be in a product called “XPO Direct,” which links the company’s 250 U.S. distribution centers, its middle-mile service via its brokered and owned truck capacity, and its last-mile network to develop an end-to-end physical distribution network for e-commerce and other transactions involving heavy goods. The product is part of Jacobs’ grand vision to build an unmatched closed-loop ecosystem for the fastest-growing part of U.S. commerce. No doubt IT will play a major role in it.