On the surface, this would seem to be an inopportune time to spin off a new company ”” and one in the logistics sector at that. After all, the future of covid-19 is still uncertain, and the supply-chain crisis is only gaining momentum.
But surfaces can be deceiving, says Mark Manduca, chief investment officer at GXO Logistics in Greenwich. The company formally began operations as a separate entity from XPO Logistics in August.
“There are always opinions on when it”™s an appropriate time, and when it”™s a less appropriate time, to spin off,” Manduca told the Business Journal. “But we see ourselves as a solutions provider ”” we”™re very much about discovering and discussing with our customers a problem and knowing how to solve that problem.”
One challenge that GXO is facing is identifying what, precisely, it is. The company has about $7 billion in revenue, roughly $700 million in EBITDA, and over 90,000 employees. And unlike XPO, whose fleet of trucks are common sights on roads around the world, GXO is not in the transportation business, but instead manages outsourced supply chains and warehousing for customers in 27 countries.
But “warehousing” doesn”™t mean what it used to. Manduca made headlines when he spoke earlier this month at an online forum hosted by Deutsche Bank”™s transportation research team and disputed the preconception that “what we’re doing is pushing boxes around a warehouse by hand.”
“I was surprised at how much that got covered,” Manduca chuckled. “But it”™s really very simple. People still have this image of a Dickensian warehouse from 1874, when you had a lot of people, boxes and racks in a warehouse. Every now and then the owner of that warehouse in 1874 would go to a 3PL (third-party logistics) company and have a discussion with them that lasted for six months over whether they could save him some money on the costs of a single line item.”
That laborious process is of course no longer the case, though Manduca said what separates GXO from its competitors is the “magic dust” it offers via technology.
“We have the scale and the knowledge required to perform in this field as 3PL has gone parabolic,” he said. “And we can move in split-seconds and minutes rather than in hours and days.”
And that is driven by GXO”™s integrating technology within a customer”™s warehouse on a global scale ”” which, Manduca said, leads to another misconception.
“We don”™t think of technology as being people versus robots,” he said. “It”™s more in the context of collaborating or working alongside each other. The robots can take care of the more mundane tasks while making for a safer environment, which is at the forefront of what we do.”
Although some labor issues have dogged XPO over the past couple of years, GXO is determined to “be very much a labor-conscious company,” Manduca said. “Everything we do is focused on our employees.”
That includes trying to attract “the best talent at the right, fair and good pay rate,” he said. GXO is looking to hire over 9,000 workers throughout North America for the holiday season.
“Christmas has not been canceled,” Manduca declared. “Peak (shopping season) is still happening, it”™s just that it”™s being more fulfilled by e-commerce channels.”
Even so, a significant number of order fulfilments requires a given product”™s entry through the Port of Los Angeles or others, regardless of whether it”™s ordered online or bought at a brick-and-mortar store.
Earlier this month President Joe Biden announced that the port would begin operating on a 24/7 basis, as did the nearby Port of Long Beach in September; the two account for about 40% of all products imported to the U.S. by sea. According to the U.S. Department of Commerce, about 76% of all American trade comes through U.S. ports.
In a report published on Oct. 11, Moody”™s Analytics Associate Director Tim Uy predicted the supply chain problems “will get worse before they get better.”
“Border controls and mobility restrictions, unavailability of a global vaccine pass, and pent-up demand from being stuck at home have combined for a perfect storm where global production will be hampered because deliveries are not made in time, costs and prices will rise, and GDP growth worldwide will not be as robust as a result,” he wrote.
“Supply will likely play catch up for some time, particularly as there are bottlenecks in every link of the supply chain ”” labor certainly, as mentioned above, but also containers, shipping, ports, trucks, railroads, air and warehouses.”
And in a survey released Oct. 14, 75% of CFOs reported supply-chain disruptions, including production delays, shipping delays, reduced availability of materials, and increased materials prices.
According to the survey compiled by Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta, 29% don”™t expect the issue to be resolved by the first half of 2022, with almost 40% believing that won”™t take place until the second half. 15.4% estimate the problem won”™t be solved until “2023 or later.”
Even with the labor and workforce shortages being felt by so many companies, however, GXO remains confident that it can help its customers get over the hump.
3PLs offer scaling and customizing services, which can increase efficiency and thus lower costs for a customer.
“The flow of goods is changing, so you need to be able to adapt to cycles,” Manduca said. With U.S. e-commerce sales at about 40% and expected to grow, automation transforming the speed and safety with which orders are fulfilled, and the outsourcing of warehouse functions increasing, he said GXO is well-positioned for the future.
“We have long-term contracts with a number of blue-chip companies,” he said. “And the opportunity is there to shine the light on what we can do.”
The company will post its first-ever quarterly financial results on Nov. 1, with various analysts holding optimistic expectations.
“We”™re the magic dust,” Manduca said.
