XPO Logistics, Inc. (NYSE:XPO) Q2 2023 Earnings Call Transcript

As I mentioned earlier, we’ve added more than 1,900 tractors and we’ve added more than 8,000 new trailers. So the rolling stock side is feeling very good for us. And we are planning on accelerating some of these investments here in the near term. The third part of capacity is on the people side. Today, we are staffed to current volumes and we have some headroom, but also in some markets we also are looking to add more headcount and potentially lean into purchased transportation if we needed as well. The good news there is that the labor markets are very ripe for hiring people. And just to give you an example, Jordan, in the second quarter the applicants per open req that we had went up three-folds on a year-on-year basis. So it’s a very good market to be able to add people, but these are the different aspects of capacity.

And again, on the door side, we’re going to continue on adding doors to get to that 20%, 25% excess free capacity that we can leverage for longer-term growth.

Jordan Alliger: So just as a — in the near-term at least, I get the 20%, 25%, but the near-term at least between rolling stock, headcount, et cetera, you could probably drawdown that excess capacity further, if need be?

Mario Harik: Yes, that’s correct. And again, it will depend on some of the markets where we are at capacity. Then these, obviously, we will need to add more in the near term as well.

Jordan Alliger: Thank you.

Mario Harik: You bet.

Operator: Our next question is from Eric Morgan with Barclays. Please proceed.

Eric Morgan: Hey, good morning. Thanks for taking my question and best of luck to Carl and congrats to Kyle. I wanted to come back to service, maybe from just a higher level. Obviously, you’ve made some good progress here in a pretty short timeframe just looking specifically at the claims ratio. And so, just kind of wondering if you have any thoughts on the runway from here? Have you captured most of the low-hanging fruit and maybe the next 50 bps improvement in that number is tougher, it takes a little bit longer than the first 50 bps or do you have line of sight to improving at a similar pace going forward?

Mario Harik: Our long-term goal is to get the claims ratio of 0.1% and — but the improvement won’t be linear, and it will take a number of years for us to get there. And now having Dave on the team and the experience of him driving a better service product over time is going to allow us to get there on a faster timeline. But it still will take us a number of years to get there. Now when you look at what we’ve done so far, I mentioned earlier, over the last year and a half we tied incentive compensation plans to improvements in service. We tied the recognition programs at the service center level to the improvements in service and we’ve also launched technology that enables us to rate every trailer that we load across the network every single night and having a rating of quality of loading at that particular — for that particular load.

And moving forward, we are launching new tools, as I mentioned earlier, for the field, including new airbag system across all of our service centers, storage racks that help with how you unload and reload appointment freight, higher-quality straps. We’re also improving how we are operating training and loading procedures for our dockworkers to further improve service. Again, our June claims per shipment was the best in seven years and our goal is to keep on improving. But again, it won’t be linear from here, all the way down to 0.1%, but the expectation is to continue to see that service product improvement over the years to come.

Eric Morgan: Thanks for the color.

Operator: Our next question is from Bruce Chan with Stifel. Please proceed.

Bruce Chan: Thanks and good morning, everyone. Mario, maybe just to come back to your comments about people, you recently had a terminal that voted to decertify the union. That’s probably perhaps even more of an achievement given the current climate, but just wanted to see if you could talk about some of the work that you’ve done on the employee engagement side. And then you had your annual wage increase. Any comments on where you stand relative to peers and whether you anticipate any maybe wage cost pressure, given some of the new contracts that have come through in the rest of the industry?