Freight brokerage RXO Inc.
is investing in technology to give its customers more granular information on their shipments, its chief financial officer said, as the newly spun-off company confronts an industry slowdown.
Last month, shipping giant XPO Logistics Inc.
divested Charlotte, NC-based RXO as part of a larger effort begun in 2020 to break itself into smaller pieces. RXO, which before the transaction accounted for roughly a third of XPO’s total revenue, matches freight loads with available trucks on the spot and contract markets.
Prices across the shipping and logistics industry have fallen in recent months from their early-pandemic highs as many retailers grapple with overstuffed warehouses. RXO’s revenue during the third quarter—before the separation—declined 5% from a year earlier, to just over $1.1 billion. Profit shrank to $13 million from $33 million over the same period.
Asked about the impact of a slowing economy, CFO Jamie Harris said the company is listening to its customers, which include retailers such as Costco Wholesale Corp.
Dollar Tree Inc.
and Lowe’s Cos. Inc. While some are discounting their goods to clear excess stock, others are committed to keeping their shelves full after finding themselves short of product early in the pandemic.
Jamie Harris, chief financial officer of RXO.
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RXO Inc.
“As a provider of transportation, we see both of those as positive,” Mr. Harris said, referring to companies purging bloated inventories and those embracing fuller stock. Both groups will need to be placing orders to meet consumer demand, he said.
The Cass Freight Index, which measures US shipment volumes across all modes of transportation, fell 1.4% in October from the prior month, and has decelerated throughout 2022 on a year-over-year basis following sharp increases in 2021. The index is produced by freight audit and payment firm Cass Information Systems Inc.
“It looks like 2023 could be a challenging year,” said Scott Schneeberger, managing director at the financial firm Oppenheimer & Co. Inc. RXO’s competitors include CH Robinson Worldwide Inc.
and Total Quality Logistics LLC.
A priority for Mr. Harris, who was appointed to the CFO post in September ahead of the spinoff, is investing in digital capabilities for shippers and carriers. RXO plans to spend about 1% of its revenue on capital investments. Approximately two-thirds of the company’s total capital budget will go towards technology, with the remainder focused on maintenance-related costs, Mr. Harris said.
Specifically, RXO is enhancing digital features that will provide shippers with information on the location of their loads and estimated delivery times, helping them to plan on the receiving end of transactions, according to Mr. Harris. The company is also working to give drivers more information on available loads, allowing them to plan their days more effectively, he said.
In advance of the Nov. 1 spinoff, RXO set a five-year target of earning between $475 million and $525 million of annual adjusted earnings before interest, taxes, depreciation and amortization. In the latest quarter, that metric stood at $66 million, up 6% from a year earlier.
Among the advantages of being an independent company is RXO now has more control over its capital budget, Mr. Harris said. In a big company with multiple business lines, executives compete for dollars to fund a range of compelling projects. As a stand-alone, RXO can direct its cash to projects with the highest returns on investment, he said.
“It allows us to make capital-allocation decisions very much more surgically than we maybe were before,” he said.
Write to Kristin Broughton at [email protected]
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