XPO, Inc. (XPO) Earnings Call Transcript & Summary

That's a good one. I think, clearly, the people that you deal with on a day-to-day basis, those personal relationships have quite a significant influence. If you talk company to company, perhaps less so, because the buy-in there is, as we've talked about is from a procurement stage through where you're setting out that vision, that joint vision and that, what's your end points that you're trying to get to through that strategic partnership. But as you get into the go-live situation and then into a business-as-usual circumstance, those relationships that, so for me, as example, I'm embedded on the site here at East Midlands Gateway on a day-to-day basis. And I'm very much working on a personal level with the general manager right through to the ops teams and the managers and the operations on the floor, it entirely depends on what it is at any given moment in time of day and week as to what we're doing, and that's where those personal relationships, I think, come to the far more so than the setting out the strategic vision and approach when you're looking to create that early relationship with a company.

Absolutely. And I think that personal relationship piece, you need that to buy-in. You want a bit of that and passion for your brands and for the business that you're working with, the team that you're working with, more than the business that you're working with to go that extra mile when you need them to because I don't really know what's around the corner. We've experienced that quite a lot this year. And which leads me to my next question really then. So how has COVID-19 impacted your business relationships? And have you seen any change in that dynamic because of the virtual nature of some of those relationships in the last 6 months or so? Matt, do you want to answer that?

Yes. So I think, obviously, COVID had an impact. And as I alluded to earlier on, I think challenges like this is an adversity can only bring you stronger. Certainly, if you've got a long-standing relationship like we have with XPO. I mean it will always be challenging even holding webinar like this, for example, that we're all virtual. And what you're seeing here may not be what you're seeing behind closed doors. So it is easy to put on a front and show that everything is okay and that you're holding up okay, and your teams are holding up okay. But actually, when you're in person, you can obviously see that a lot better because you can see how individuals are acting with other people and how those relationships are bearing up in challenging times. But yes, I think it's definitely challenged. I think it's given us more opportunity to communicate. And sometimes, we would only communicate either by phone or when we saw each other face-to-face on site, whereas now it's far more accessible and we're all far more used to using things like Zoom, things like Teams, et cetera, which I think is a bonus. But ultimately, COVID has changed it. But for us, it's changed it for the better, and we're stronger for it. We're now far more prepared, should we ever be faced to a situation like this, again, which hopefully, we're not, but after obviously, recent events, we may be going back into one.

Yes. And so you, Gonta. So we went live for you at the very start of the pandemic, which was quite different to what we'd all fund. How did you guys find that in terms of it being a new relationship?

Yes, it was definitely a new experience, definitely, that's for sure. So for us, I think I tried to look at the positive side of things. And I wouldn't describe the situation as an impact. I would sit with our teams as well. I think I see it as a lessening in disguise. In a sense, I think COVID really tested the strength of our relationship. I would say that, Sarah. And I think we went through how on high waters. And I think with XPO, it's really enhanced via agility and learning and reinforce a closer collaboration, trying to overcome some of the constraints that was imposed to us due to COVID. And I would say the other positive aspect to COVID was it served as a catalyst to explore opportunities. So it really opened up our minds, I think, and we weren't confined to certain setups or templates or I think it really helped us to say, okay, we need to right size our business. Probably, we need to have a leaner operation. And so going into the initial setup in the phase gave us an advantage that we didn't have a de facto standard process, we're really working towards building something. So it gave us an opportunity to really reset and how do we make leaner in an inflated global retail supply chain and overall. So I think it triggered a nice change on how we were operating, how we were working and is still relevant of our fit for purpose. And I think also coming to Matt's point. I think once you have the initial stage where you really have a foundation in terms of common value shared visions and all intact, I think the dynamic of that relationship does not change, regardless, if you go on virtual or not, in my experience and based on what we've experienced as well.

That's good. And Kevin, have you found that -- had anything from our members in the CILT on how COVID has impacted their relationships at all?

I think it's been a very mixed bag. So obviously, organizations involved, anyone involved in the food retail distribution and e-commerce. And obviously, in health care, there's been through a particularly busy time, coping that the challenges are very, very sporadic and unplanned demand spikes, which I think have brought relationships closer. But we have seen on the other side, obviously, a lot of organizations pretty much in lockdown. One company I know quite well, 67 customers, 65 of those customers were shut down and are only now beginning to reopen. And I think what that actually did was bring the relationship closer because they kept in very, very close communication, recognizing that the recovery was going to be fundamental but recognizing that neither side was in a position to invest or bring people back too early. So they needed to really carefully plan about how that was going to come through. So it's been a mixed bag. Some organizations, I think, have coped with it very well. Some have had very, very extreme difficulties and challenges.

Certainly. And Jo, have you seen a difference in the relationships in your business because of the COVID-19?

Yes, we've taken the opportunity to actually change some of the ways we do things quite radically. We now on board all our customers remotely, which was something that we had an ambition to test in 2020. So that's we've sort of ever done that particular objective. But we've certainly found that having -- being able to bring people on to calls rather than so much traveling and making bite-size life like that. The way this event has been done bite-size chunks has been very beneficial. I think when there's conversations, when you need a bit of creativity and you need to really bounce around some ideas, then that gets harder. And I also think at the moment, we are working on the basis of relationships we've forged over years and having -- when we have met people. And I think as time goes on, that will become more challenging. But I do think that back into the logistics space, I do think some of my customers I've worked with in the past on consulting days, I look and see how that's gone with them. And I think people had to adapt. You can't work on your own on something as big as this, you have to work together. And like a, I think Gonta mentioned marriage, like a marriage going through difficult times, you either come out and think, well, we've learned a lot about each other and we're stronger or you probably have learnt some things that were hidden that, that means that actually, that is you realized you can't work together in long term in the future. I think there's less of that I've seen. But I do think that's a risk as well because if you haven't been able to work together through something like this, then probably your ways should part at some point.

Yes, definitely. And that leads quite nicely into another one of the questions from the audience. And Alice, I'm going to direct this to you. Is relationship-building you do between different 3PL providers more difficult because of the competitive nature of our sector? And can the cooperation taking place as a result of COVID-19 be built upon? Now I know that Nestlé work with multiple 3PLs. So what's your response to that question?

I think certainly, COVID has taught us a very different way of operating. That's for certain. And I think to answer that question, probably to take the example that we have with the site that we're starting up at the East Midlands Gateway, and we've got sadly a partner sites run by Eddie Stobart Logistics down the road that is closing as a consequence of starting this up. And the relationship that we've had to build across those 2 businesses between XPO, Eddie Stobart and ourselves as Nestlé, in order to be able to facilitate that transition. And as you can well imagine, through this -- the pandemic, the transition has taken many twists and turns. And it has relied on great flexibility between all 3 companies in order to be able to continue to deliver on behalf of Nestlé to all of our customers. And as such, we've received some very positive feedback from some of the bigger customers like Tesco's and Sainsbury's, mentioning that this is one of the best transitions that they have seen within the business in the marketplace. So and that is testament to the ability of those 3 big companies all working together in such a collaborative way when they could have easily certainly the 2 3PLs could have easily said, well, I lost the business. I don't want to work with you. It's up to you, Nestlé and XPO to work out, how are you going to make this happen. And so I think collectively, the 3 businesses have delivered. And hopefully, we continue to deliver throughout the rest of this year. We're in our seasonal peak right now. So quality streets are flying out both distribution center stores as fast as we can make them. So...

And a few of them are going into my home.

I think you can speak on that question firsthand because obviously, we've had a scenario, we at Ted were and just to give the audience a little bit of a background. We were in Memphis in the U.S. with XPO, and we took the decision to move away from XPO in the U.S., and we moved to future board and we were already with you at the time so we just consolidated 2 sites into one. But Sarah and the team at Darby hopped on a plane and flew over to the U.S. to support that site, our future, because the go-live was, again, we had some challenges and there were some fee up going the way. They've also offered before to fly some of the team out from Darby to our Hong Kong operation, who Jo just run for us. So putting the question back to you, Sarah. I mean -- and back to the audience's question around the competitiveness. I mean what's your thoughts behind that? Because obviously, you guys were more than willing to support us that actually support your competitors in delivering for Ted Baker?

I think for me, it's -- we are in a competitive industry, and each of the 3 -- the 3PLs, the main 3PLs that are competing against each for business, and we very often turn on tenders alongside each other. But the reality is that for a lot of our customers, they work with multiple 3PLs, and we have to work together to deliver the service. And you kind of need to be able to build on that. And for us, when we supported you in Memphis and after that supported again in Hong Kong, that was because Ted were going to suffer without that, and we're a long-term partner, we've got a long-term relationship with you. We've gone through some of those start-up challenges as everyone does in a start-up, and it was about being able to help you guys to get the results that you needed whether or not that 3PL thrives beyond that initial support pieces is down to them, but helping you guys to get that setup be you to be successful, actually means that we're successful as a business. So would we be willing to share all of our intellectual thinking? No, but would we be supportive in terms of helping our customers to get business over the line and to make sure as they can thrive, absolutely because that part of the relationship for me is key, you brought it up there, so you've not forgotten. So we've done that extra mile at some point we'll need to lean on you in that emotional bank account and take the withdrawal I'm sure.

No, exactly. I think as all these questions are very interlinked. But it comes back to that approach at the very start, where if you're going to go to war on the contract time and time again throughout the relationship, you're never going to get the best from that relationship. But the real contract is between ourselves, between Ted and between XPO and myself and you, Sarah, and the wider teams and that day-to-day, we have to work with each other on a day-to-day basis, and we wouldn't get the best out of that relationship if we were bringing the contract down in times of need and support. You guys may not be so forthcoming with flying over to various places to support our operations.

Thank you. Jo, how did that -- did you see any of that when you were doing your writing your book on outsourcing that competitive between 3PLs? Is that something that was well recognized?

Well, obviously, yes, and that's going to be a positive tension, isn't it. But I think -- I mean, you are -- as you've alluded to, we aren't passing work often what comes around, goes around, isn't it? And I think the way people exit relationships is very important as well as the way they take them on. I would like to just build on to one other point. From what you said about, you and Matt just talked about, really, it sounds like there's a really good alignment of objectives there. So the top level you're aligned as to what you're trying to achieve, and both companies' interests are sufficiently aligned that it allows you to go and support the other operation in the short term. And I think that's, again, when we may come back to the contract. The contract should also be aligned. And of that, it shouldn't be something that is in a way the way. I'm not saying you've reached for all the time. No, of course, you shouldn't. But if you did have to, it should also support those alignments. And I think, again, if you end up in a situation where the contract and KPIs are all at a lower level and are all about short-term service delivery and not about that broad relationship -- that broad long term and what both companies are trying to achieve. Because you want to make it to grow and grow profitably, and they want you to do the same because then you're both there for the long-term relationship. And again, that has to be reflected in the objectives that you've given and the way you're rewarded as well. I think that's hard. I think that's really hard to turn that into something in a written form. I think softer stuff is sometimes easier. But obviously, some of the written form is done without that thinking. And then can undermine the good efforts done, the relationships that people build.

And I think you're right. I think if you would have seen that in a contract written down in that form that you would go out and support and then I'm sure that the legal teams in both businesses would be like, well, you can't, you can't write that, you can't expect that. And that's the importance I think about being able to establish and build those relationships that you can then use that leverage to support each other when you know what the long-term goals are. And you're right. For us, it was about, Ted -- we want Ted to survive. We're dependent on our customers, thriving and growing and supporting them to do that is one of the most important things for us within XPO. Kevin, in terms of your role within the CILT, in your experience, is that something that you've seen a lot 3PLs working together and then collaboration on customers, probably more so I would have thought within COVID-19, particularly in the food sector?

Yes. I mean there's always been collaboration between those that are doing the warehousing and doing elements of the transport, for example. There's always been competitive tension. It's never like to lose business and see a competitor pick it up. But actually, you want to ensure the best for your staff. So transitioning smoothly is key. And as Jo said, what comes around, goes around comes around. And if you're a multinational business, you may be working with that customer in another geography. Anyway, certainly, during COVID, we saw a lot of organizations pulling together to support health care. Not just customers allowing staff to be repurposed from one site within the 3PL organization working together. And I think we'll see more of that as we move forward. I mean there's a term that's coming out of the moment called coopetition, which is -- will be fundamental, I think, as we move forward to tackle the environmental agenda. But I think we will see people working more closely together.

Yes, absolutely. And then moving on to another question then. And Matt, if you can answer this for us that would be great. What industry trends or factors do you think will make logistics relationships even more important in the years ahead?

I think the being reactive. I think we have to -- and certainly, I can speak from the retail market. And obviously, Ted's certainly, as I'm sure many of you will have seen has been in the headlines very recently for various reasons. But being reactive in general, to be able to be reactive, we have to have those relationships and that's continuing -- collective strategic view to be able to do what we need to do at that point in time to get the job done and make us successful. Obviously, as we've touched on many, many a times, we know what we're currently going through. We have Brexit coming up as well. We're not crystal clear. I don't think anybody is what that actually means to us at the moment. We need to be ready for that. And what does being ready actually mean? Well, at the moment, for us, it's about having the right people around the right table, all engaged, all focused, yes, we don't know quite what we're aiming at because the target keeps moving. But I have full confidence that we have the right people around the table to be able to make the decisions when that time comes. And then stand by those decisions, take accountability for them collectively between the partnership and believe that we're doing the right thing. And if we're not doing the right thing, that's also absolutely fine. We just adjust and we go again. And I think that will be looking at the market and the way things have gone historically with a focus on e-commerce and coming away from the bricks-and-mortar shop. I think there will always be a place for your bricks-and-mortar shops, but we will go down the digital route, and that poses other challenges like same-day deliveries, like you've only got to look at what Amazon are doing and going in that kind of direction as well. And we need to make sure we have the right infrastructure, the right people around us to be able to go and react to those changes.

Okay. And Gonta, that question to you?

So I think it's been well-articulated by Matt. And I think there are always changes there. There's no crystal ball. And I think the essence of overcoming any storm such as Brexit and COVID is really to have that flexibility, the agility, the ability to adjust to such situations that are unpredictable and unexpected. And I think that's what you're looking for. And I think that's what we've been able to achieve through our partnership. But I think in relevance to our industry, I would say, that it's been -- we've been hard hit in the luxury industry, for sure. And I think in terms of the bricks and mortars, it's gone through a big shift. And for us, it's been an awakening. Definitely in the U.K. when you see bricks and mortars, high-risk suit retailers and going to CVA liquidations and bankruptcy. So definitely, in our industry, there are winners and losers. And as Matt highlighted, I think the winners that we've seen are the ones that's really adapted to the rise in e-commerce and to the speed of digitalization. And for us, I think when you -- there was a joke previously on the chat that who accelerated the pace to digitization. Was it your CEO, was it your CTO or was it COVID? And I think what we tried to transform over the 2 or 3 years, and everyone bought into the need to transform our business model in adapting to the e-commerce platforms and adapting to digitalization. It's taken a while to trying that, instill that change and get everyone on board. But I think COVID has really accelerated that. And that was more effective than any senior positions that we've had in our company. But I think when we went to this, we knew that, that was before the trend because the U.K. followed the U.S., and we saw that coming. And we saw that already being driven in the Asian market. So we came into this partnership, as you know, that we really wanted to transform our beauty house into something that is a digitally empowered one. And that helped us to reconfigure our product portfolio, footprint and reinforcing the online strategy and marketing, what we now call the omnichannel strategy. And I think what it was COVID that really accelerated and help us to really jump on to that trend and then to have that agility and the response and the adjustment to really make that happen to what Matt was saying is something that we find very beneficial.

And Alice, that same question to you. I know we've got quite an agenda around innovation and technology.

Absolutely. And forgive me if I plunged into darkness a moment ago, one of the CI initiatives is like monitoring in the room. And because I haven't moved, it plunged me into darkness. So I was trying to put it back again without being too obvious. So apologies for that. But yes, so I think the one key area that I would draw upon that hasn't been mentioned is automation and the use of automation. And I think, especially -- actually, not so much in terms of the execution of it on a particular sites, but the education that, that provides back into other parts of our business in respect to our customers, the Tescos and Asterix, et cetera, are all moving towards more highly automated sites. And if we don't learn and move as quickly as they are, we will end up with some significant bottlenecks within our supply chain because as we are learning and very rapidly, and automation is far less forgiving than a manual operation in terms of the way that you present pallets to it and then ask it to process them. So that's one key thing that we are learning very quickly, and we can then pass that knowledge on to our partners across the Nestlé globe. And then I guess, building on the vision of the site, so the site has a shared vision between XPO and Nestlé to become the digital distribution operation of the future within the Nestlé global world, driving forward innovation and being a test bed on-site here to be able to bring to the 4 technologies that may or may not be used here on-site in anger, but actually testing it for the purposes of other parts of the Nestlé world, where they're working with other 3PLs are indeed in-sourced DCs where they might need to use that technology, but the purposes of this site is to test them. And then coming back to the previous point, actually, with developing the way that we communicate through the pandemic, it will help us to then be able to communicate that testing back to other parts of the world in a more live environment that saves people from having to get on a plane and fly over to the site to be able to see those technologies tested as well. So yes, we're at the very, very early days and stages of that journey, but it's really exciting to be beyond and be part of as well and can wait to see what the coming years bring to the site to be tested.

Absolutely. And Jo, in your experience, what trends do you think are going to change logistics relationships?

Well, I think climate change is going to be another big challenge and that actually shock when we get to -- when we're going to have to do something radically -- radical. And I think it'd be a proportion -- different from, but similar -- it needs similar working together as COVID has, there's no way we'll solve it in company silos or even without or just as companies working together. So it's going to need a big -- and it's going to need again that sort of changing of objectives and ensuring that to make sure that it's consistent again of everyone working towards the same name.

Okay. Great, thanks. And Kevin, in terms of industry changes within the CILT?

I think if we look outside, I mean, the environmental challenge is a major one, and it's not just about sticking some grass on the roof and buying some electric vehicles. It will require fundamental changes in supply chain models. That will need a lot of collaboration across all the partners within those supply chains and across working with competitors. I think one of the big issues at the moment, what COVID has begun to question, a lot of supply chain directors prior to COVID, would have answered the chief exec by saying my supply chain is resilient. And then COVID hit and they suddenly realized, it wasn't. And I think part of the challenge is how you balance agility with resilience moving forward because the 2 are not necessarily compatible. And that's going to be a real challenge, and that will require a lot more joint discussion planning. Forecasting has been extremely difficult. But actually looking at scenarios for the future and taking the information back down the supply chain across multiple suppliers, so across different tiers, I think we'll see quite changed relationships as we move forward. That's before you get into the whole sort of Supply Chain 4.0 and the technology side as well. So some big challenges.

Thanks very much. Thanks, Kevin.

Great. Thank you ever so much, Sarah. I'm afraid that the hour is nearly up and our time is drawing to a close. We didn't get to every single audience question, but as I said at the start, we can always carry on talking via social media on a fascinating discussion, a lot of really interesting questions there. It just reminds me to say a few thank you. I must, of course, say thank you to the Chartered Institute of Logistics and Transport for organizing this event and to XPO Logistics for sponsoring it. A big thank you to you, our panelists, to Jo, Gonta, Alice, Kevin, Matt and our facilitator, Sarah. I think you all did a great job and gave us a really interesting discussion. Thank you to Heather, who did the captions. And of course, a big thank you to you, the audience. I know everybody is very busy. And for a lot of people, it will have been difficult to take time out of your day to attend this session. There is going to be a short feedback poll just as the session closes. There'll be a couple of questions on the screen, and it would be great if you could answer them for us. And further to that, there will be a follow-up e-mail, but that won't be until next week when all of the sessions have been completed. So it's not too late to book for Thursday or Friday. If you've really enjoyed it today, then why not join us at 1:00 tomorrow or for the final session on Friday. And feel free to continue any of these discussions via LinkedIn and Twitter. So once again, thank you very much indeed for coming, and goodbye.

Thank you.

Thank you.

Thank you, Clare.

Thank you.