The ongoing XPO saga

December 19, 2018

John Bendel


XPO Logistics could be in trouble, at least according to one Wall Street research company. Or maybe it’s just fine. So say other industry analysts. We’ll come back to all that, but first: why do I care?

Well, I wouldn’t but for one thing. XPO Logistics has some pretty deep roots in trucking history.

XPO Logistics came out of nowhere in the last few years and now seems to be everywhere. You see their red and black logos on truckload, less-than-a-truckload, and expedited trucks all over the country. How could any company grow so fast?

In this case, a billionaire named Bradley Jacobs did it by buying and merging companies – 17 so far. XPO is what investors call a roll-up.

XPO began with a Michigan-based expedited carrier, Express-1. Jacobs bought Express-1 in 2011 and changed its name to its New York Stock Exchange symbol, XPO. He then began buying other companies in Europe and in North America. One of the biggest was Con-way, a major LTL and truckload carrier with a family tree that dates back to Consolidated Freightways, the one-time LTL giant known familiarly as CF. CF began in 1929.

For decades, CF’s distinctive cabovers were a common sight on West Coast highways and later over the Rockies. In the 1960s, the company acquired coast-to-coast operating rights to become one of the earliest truly national LTL carriers. At one time, CF designed and built its own trucks. Their manufacturing arm was called Freightliner – the same Freightliner that now belongs to Daimler Trucks North America.

So where’s the Con-way connection?

As a Teamster carrier, CF was doomed by deregulation in 1980. CF management saw it coming and in 1983 launched three regional, nonunion carriers that would eventually become Con-way. The original, unionized CF struggled along for years, negotiating pay cuts and reducing maintenance. By the late 1990s, CF’s fate was obvious in its ragtag rolling stock. CF trucks looked about to collapse in a pile of parts as if in a 1920s Buster Keaton silent comedy. Consolidated Freightways itself finally fell apart and died in 2002. Meanwhile, its Con-way offspring had become one of the largest LTLs in North America.

There’s another historic thread that weaves ever-so-briefly into the XPO saga. That one goes back to 1951 in Joplin, Mo., with the founding of truckload carrier Contract Freighters Inc. Trailers with the letters CFI became recognizable all over the country, especially after deregulation in 1980.

In the early 2010s, Con-way decided it had to offer truckload service. The company launched a new division, Con-way Truckload. They tried to grow organically, but the process was too slow, largely because it was hard to hire enough drivers. So in 2015, Con-way bought CFI with all its drivers, equipment, and customers. Some CFI drivers complained loudly about their new bosses even as CFI lettering was replaced by XPO on company equipment.

XPO should have left the lettering alone.

The following year, 2016, XPO sold off the truckload division to Canada-based Transforce. That company thought it best to return the division to its original name – CFI. All those brand-new XPO logos were replaced by CFI logos.

XPO does not operate a distinct truckload division, but on its website they’re recruiting over-the-road drivers, maybe just for LTL linehaul, but maybe for other services as well.

Jacobs had promised to create a multibillion-dollar, international logistics giant, and he did. With its stock at $102 a share the company was worth just north of $12 billion in April, 2018.It reached $114 a share in September and then it fell. Last week, XPO stock was in the $51-52 range, less than half its price four months ago.

What’s going on? Hell, I don’t know.

But it all became news on Dec. 13 when a company called Spruce Point Capital put out a news release bashing XPO. Spruce Point called XPO an “ineffective rollup dependent on financing for survival.” That was the kind part. XPO, Spruce Point said, suffered with “a $4.7 billion debt overhang, flawed business model, questionable governance, dubious financial and accounting methods, increased regulatory scrutiny, and a loss of confidence in management.”

The day of the news release, XPO stock dropped to less than $44 a share. Since then it has risen, perhaps because other stock analysts say things are not that bad at all. Perhaps more importantly, they point out that Spruce Point focuses on short selling – betting that a stock will fall in value. A decline in stock price for XPO can be a good thing for Spruce Point and its investors.

So where does XPO go from here? Stay tuned.