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The Biggest Logistics Company You’ve Never Heard Of

7investing Lead Advisor Daniel Kline sat down with Mark Manduca, Chief Investment Officer for GXO, to discuss the company's origin story, what it hopes to accomplish, and the logistics market in a broad sense.

August 17, 2021 – By Samantha Bailey

Logistics may be one of the most important things you rarely think about. When you get two day, one day, or even same-day delivery, an awful lot of moving parts have to come together to make that happen.

GXO Logistics (NYSE: GXO) will be one of the companies working behind the scenes to make the magic happen. Spun-off earlier this month from XPO Logistics (NYSE: XPO), a top ten global logistics provider of supply chain solutions to some of the most successful companies in the world, GXO will be its own standalone company with no ties to its former parent.

The new company “is now the largest pure-play contract logistics provider in the world,” while XPO will remain “a leading provider of transportation services, primarily less-than-truckload transportation, and truck brokerage,” according to the spin-off press release.

Mark Manduca serves as Chief Investment Officer for GXO, and is responsible for analysis of the company’s growth opportunities, optimization of its asset portfolio, and oversight of its U.K. pension investments. He will also play a key role in ensuring that GXO’s investment case reaches a global audience.

With his company less than two weeks old, Manduca sat down the Dan Kline to discuss its origin story, what it hopes to accomplish, and the logistics market in a broad sense. He also talks about the role of automation and which companies he sees as major players in the logistics space.


0:00 Introduction

1:15 The split between XPO and GXO

2:07 What will GXO Do?

2:56 Why split the two companies?

3:46 Will the two companies still work together?

4:10 What are contract logistics?

5:55 What is GXO’s role?

6:45 Robots and tech solutions

7:12 Who are GXO’s competitors?

9:01 How big can the logistics market get?

11:15 How do you balance automation versus people?

13:20 What types of robots and automation are being used?

15:01 Is GXO a name the public needs to know?

16:54 Wil consumers demand ever-faster delivery?

18:40 What does the investing community need to know about GXO?


Dan Kline  0:04

I’m Dan Kline and joining me today on the 7investing podcast is Mark Manduca, Chief Investment Officer for GXO Logistics (NYSE: GXO) if that’s a name you’ve never heard, it’s because that is a relatively new company. They were essentially born on August 2, we’ll get to that in a second. GXO is a spinoff of XPO Logistics. XPO logistics is a top 10 global logistics provider of supply chain solutions to some of the most successful companies in the world. They probably also help some unsuccessful companies, they’re really big company.

Mark is responsible for analysis of GXO’s growth opportunities, optimization of the company’s asset portfolio and oversight of its UK pension investments. Alongside these responsibilities, he will play a key role in ensuring that GXO’s investment case reaches a global audience that as you might imagine, is their text and not mine. Mark, before we get into it, let me say congratulations, and welcome to the program.

Mark Manduca  0:59

And thanks so much for your time today. I really appreciate it.

Dan Kline  1:01

It is your time. We appreciate it. So let me set the table a bit here because well, XPO is a really big name. Most Americans probably only know it from when their delivery shows up. It’s not a pop culture name. It’s not one we talk about all that often. So XPO spun off GXO, that’s its logistics segment on August 2. So relatively recently, or incredibly recently, that creates two pure play companies GXO is now the largest pure play contract logistics provider in the world and GXO is a leading provider and XPO is a leading provider of transportation services primarily less than truckload transportation and truck brokerages.

Mark, why don’t you explain a little bit in layman’s terms, what that means and what GXO is going to be doing versus what XPO does, but focus on GXO here,

Mark Manduca  1:52

XPO a business that had a brokerage business, which is effectively moving freight around the world. It is a business that had a large LTL so less than full truckload trucking business. And then there’s the last portion of it, which is the warehousing portion of the three big businesses that make up the majority of XPOs profit.

The warehouses have been spun off in the last week. So last Monday, they got spun off, and was listed on the New York Stock Exchange. So now we have our own ticker, (NYSE: $GXO), and 869 warehouses, 27 countries, roughly 100,000 teammates and workforce across the world.

And we are super energized for the growth opportunity going forwards. We’re growing at roughly 8-12% next year on revenues and on profit roughly around 14-20%. So we couldn’t be more excited.

Dan Kline  2:42

We’re excited for you. Now, why the split? We’ve seen this happen with other companies. And sometimes it works. If you’re PayPal, you’re really happy you split from eBay, if your eBay not so happy you don’t own PayPal, what was the logic here for the split?

Mark Manduca  2:57

It’s pretty simple. When your company isn’t well understood by the market. And when your company isn’t therefore getting the right valuation that it deserves. Sometimes you need to shine a light on a great asset. This is a great company spinning out great company in its purest form. But for us, it was about that value realization.

And then on top of that, I think what you saw with this business was an opportunity to really delineate what great looks like an opportunity to take back control of hiring decisions and strategic transactions in a ring-fenced very strong investment-grade balance sheet. So there’s a lot of excitement here and a lot of energy about what we can do going forwards in terms of signing new customers in terms of delighting our existing customers under this new umbrella brand.

Dan Kline  3:43

Will the two companies still have a working relationship? It would seem that that that would be pretty logical.

Mark Manduca  3:48

It’s a ring Fence Company, GXO, so the working relationship will be purely contractual like any other company that you have across the trucking and brokerage sphere. So our business is utterly ring-fenced, and it is utterly spun out 100%.

Dan Kline  4:04

So let’s talk a little bit about logistics. First, what do you mean by contract logistics?

Mark Manduca  4:11

What’s inside the warehouse for us is what contract logistics really means. People have different terms for it supply chain management, warehousing, contract logistics, logistics. But when we think about what we do for our customers, we operate within those warehouses, and we help them manage their inventory, get their products back into store quicker. Make sure that the customers get their product back when they sometimes buy it or sometimes even when they return it.

But imagine these 1000 t-shirts come into a warehouse they need to be sorted, palleted, and then sent off to their final destination for sale. In some cases, you can send it back to the consumer. In some cases, you’ll send it to a storefront but you’re effectively managing inventory for the customer, making sure that they can manage 100% of their reputation and 100% of their revenue because ultimately, you are the last person to touch the product. It’s an oh-so important role in the overall value chain of how to get products to the consumer. And we play that role with huge efficacy and pride.

Dan Kline  5:13

So we talk about this a lot in the retail space that many of the biggest players, your Amazons of the world, your Walmart’s have completely reconfigured their supply chain so they can handle something like okay, I ordered it well, how do you send it to me from the closest store to me? How do you make sure a Nike is another one that’s done this really well.

How do you make sure that the size 13 sneakers sitting in a warehouse in Orlando don’t get shipped to the order in LA, they get shipped to the order in Virginia or whatever is logical. So is your service basically to help all of the companies that aren’t those absolute top tier giants sort of make this happen and compete in that logistics base?

Mark Manduca  5:52

We have contracts across the spectrum in terms of size, and what we offer is that Cadillac service, it’s that white glove, absolute on-time desired service, a premium service dedicated for our customers across those 869 warehouses, we tend to do less of the multi-tenant warehouse type operation, we have an amazing growth engine in the form of objects, so direct, and that provides us another growth angle in what is already a very high growth business.

But e-commerce is our bread and butter. And we really focus on precision, we focus on making sure that our limited time delays, we get products back into store quicker, we get products returned quicker, we are ultimately focused on that expertise that we’ve had over the last 20 to 30 years as a business, driving that through to our customer solutions today.

And we do it with a huge tech advantage as well. We’ve got roughly around 3100 robots coming into our network by the end of this year from a collaborative global perspective. So we’re very excited about the tech advantage that we have versus our other three PL competitors, and the tech solutions that we can therefore offer to our customers who are delighted in turn.

Dan Kline  7:00

I want to talk about the tech in a second. But first let’s establish a little bit and you don’t have to this doesn’t have to be expansive. Just give me some examples of who on some level you’d consider competitors.

Mark Manduca  7:11

It’s pretty simple. I’ll give you the broad market. So the top of the market, you have the conglomerates, you’ve got the doorposts of this world that obviously have DHL they make up around 9% of the market. We have around 5% of the market with the largest pure play dedicated provider, as I mentioned, which comes with its advantages, as you can imagine being really focused on one thing.

Then, of course you’ve got the other conglomerates, whether it’s Kuehne’s, DSVs, whether it’s the Jonas’s of this world, it could even be the Hitachi’s over in Japan. They’re the other conglomerates that sit within this top five, top six sphere. Then you have the local champions, the heroes such as Clipper, Wincanton, ID logistics, all phenomenal businesses, and very much focused on what they do best. When you think about the tail of the industry, that’s where it becomes very interesting. Because what’s happened here is is that the market ultimately is very fragmented amongst a number of mom and pops.

And arguably, there is an opportunity to consolidate this market from an organic standpoint by just winning market share over time, and also inorganically as well, while ultimately taking market share through m&a. And I think we’re focused on both clearly our key focus is going to be on capitalizing on some of these phenomenal growth opportunities that we have across automation, ecommerce and outsourcing, which are going to be one of the one of the drivers behind our our growth story from a revenue and EBITDA standpoint, going forwards.

But our ability to also acquire is going to be part of that part of our good balance sheet part of our heritage, as you know, of how we came about. So this business is going to have strong organic growth, and I think, in the right places, strong inorganic growth as well.

Dan Kline  8:54

So let’s talk a little bit about the growth cycle for logistics. I’ve talked about this a lot in the US, online sales are about 13%. It’s like 13.8%. So that’s a relatively small amount, during the height of the pandemic, it went up a little. But do you see a big part of your growth, just being that your existing customers just do more business, I mean, I know I’ve placed three online orders today, and it’s it’s 11:50 in the morning. Now, I’m not home. And I’ve thought of things I need that might not be typical. But I think that’s kind of where we’re going where there’s an awful lot of, hey, here’s who I use. And I’m going to use the more is that a big part of your growth story here?

Mark Manduca  9:32

Completely. A big part of our growth story is going to be existing customers doing more in the e-commerce field. So we have the 8-12% growth that I talked about for next year, just to give you a sense of numbers, 3-4% of that growth is coming from existing customers, and 5-8% is coming from growth from new customers going forwards. So to get you to that, that growth algorithm and of 8-12%. You can see it’s broadly evenly split with a slight tilt towards new customer wins.

What I would also say in terms of your point about growth going forward is that e-commerce is barely penetrated. We’ve been talking about it for 20 years, but it’s still only 20% penetrated. So the opportunity for you to not just buy three things this morning, but to buy 8 to 12 things, this is only going to go up going forward. Then of course, there’s outsourcing. Outsourcing right now in terms of the potential addressable market for a business such as ours is the leader on a pure play basis, with only 7.5 to 7.7 billion of revenue in a market that is $430 billion. Our ability to grow within that market is significant.

So from that perspective, 20-30% penetrated from an outsourcing standpoint, lots of room to bring those in-house contracts into the outsourced market. So that’s exciting. And then of course, when you think about automation, our leading edge here is that we have 30% of our business that is tech-enabled. 30%.the average industry competitor is only 5%. So from that standpoint, we have advantages across the piece, we’ve got some mega secular tailwinds. And our customers are doing more and more e-commerce by the day, which therefore is just underpinning at an idiosyncratic level underpinning these massive macro tailwinds that we have as a business.

Dan Kline  11:12

So how do you manage the balance between automation and human workers, and I’ll give a bit of an example. And it’s just one it’s not in your field. It’s one anyone can understand. You walk into a target, and they’ve gotten rid of a lot of cashiers. And there’s what I’d call automated chaos. And they have to throw people at it to solve the problem. Now, is that a forever problem? No.

But it shows that there’s definitely some logistics not working there, or Hey, I want to buy alcohol, someone has to come over. I don’t know how to get a receipt, whatever it is, as a company managing on a much bigger level than me checking out at Target. How are you figuring out when it when do we employ an automated solution? When do we deploy a human solution?

Mark Manduca  11:51

It’s very simple. First and foremost, when it comes to automation, and robotics and cobots, and vision technology, there’s a customer element, which is improving customer efficiency. There’s also a people element, of course, which is this idea of making the workplace a safer, more efficient place to operate. So that’s very much at the forefront of our mind with driving efficiency and savings for our customers, but at the same time enhancing our workspaces across our circa 100,000 employees. So it’s an important that comes in both hands. Left hand is definitely speaking to a right hand in this business, we have a strong ESG backbone as an operation. And as a result, this is very much about people working with robots and cobots, rather than people versus robots and cobots going forward, it enhances the worker experience, it enhances the customer experience. And that’s why we like to lead and invest so heavily in our technology.

Dan Kline  12:47

This is actually something I’ve talked about a lot, it’s really easy to fear this robot future where everything is automated. But here’s the reality, there’s a cost logic of automation, and the one that drives me nuts, and I’m sure you’ve seen this living in Connecticut, there’s that Domino’s commercial where they show a full truck that can deliver two medium pizzas, that’s not going to be the future, that’s not going to be what happens. Whereas the stuff we don’t see, and I’m curious if you’re using any of this technology is the drone that’s taking inventory in a warehouse, which is a safe, closed environment, what types of automation and robots are using again, without giving away any trade secrets, we don’t need to know, you know, something that wouldn’t be public.

Mark Manduca  13:25

Now, we’re very much open book here. If you think about robotics, we’re doing a variety of different automation software suites for our hardware suites for our customers. And it’s the way we stack those robotics, we insource a number of different robotics providers, whether it’s the gantries or whether it’s the robotic arms, the cranes that we use across our operation. It’s very much unique to us. And the way that we stack the technology for our customers sourcing some of the world’s best technology, as I’m sure you can imagine.

On the software side, we have our labor productivity tool, which is called GXO Smart. That is a labor productivity tool that is proprietary to us. And it saves customers around 5-7% in terms of labor productivity, picking up problems quickly, making the workspace a more efficient and safe place to operate. It’s a phenomenal tool and customers actually signed contracts with us, in part because of that GXO Smart software. So it’s it’s a game changer in the spirit.

Dan Kline  14:26

So as we start to wrap up here, one of your jobs is raising awareness. Do you need to raise awareness? So me and I don’t mean talk show host investing guide me, I mean, me like regular American consumer, do I need to know your name? Or do the leaders of industries need to know your name like do you have to become a household brand? Or can you stay behind the scenes, you know, not necessarily forefront player?

Mark Manduca  14:50

This is a customer driven business and in so many ways, that is 99.9% of everything that we do on a day to day basis. We’re utterly customer and shareholder focus does an operation. When you are operating a spin, the way we have been doing in such a short period of time, the typical spins can take 12 to 18 months, you have to make sure that you do everything efficiently. And that obviously has been a big part of the investor outreach that we’ve been doing the sell side outreach, the media outreach, the podcast outreach, it’s been a big part of that process.

It’s something that we’ve really enjoyed as well getting the message out there of this amazing brand, with this amazing workforce across so many different countries. And it’s something that we definitely want to keep in terms of a relationship, because naturally, keeping the good word out there about the good things that we’re doing drives this flywheel of new customer wins customers talking about you to other customers, the media talking about you about the customers, it causes this sequence of events, which results in a better funner more energetic place to work.

So one of my key roles is going to be making sure that we have a great dialogue with, with the likes of yourselves, the media, across a number of different sell side analysts and a number of cross investing houses as well. So we’re just super excited that people are talking about us the reception that we received. And we’re just going to do a really, really good job for our customers and our shareholders going forward. That’s our our primary objective, bar-none.

Dan Kline  16:22

We appreciate the enthusiasm, we appreciate the openness, one of the things we do at 7Investing is unearth investing opportunities that you may not have thought of, because obviously, it’s easy to look out there and go, Hey, I want to be in retail, I’ll buy Amazon shares. And that’s great. Like I own Amazon shares, on the other hand, everything that’s been happening behind the scenes.

So let’s ask a question about consumer logistics. And I know you’re not doing last mile but this obviously plays into it. It used to be that three to five delivery day delivery was just fine. Then it became two day delivery was the the norm set by Amazon, then it became one day delivery. And now we’re seeing same day delivery, do we think that bar keeps rising? Or at some point? I know, I don’t care if you give me same day or two day delivery, it doesn’t matter 99% of the time, do you think we’re gonna see increasing customer demand, or we’ve kind of plateaued that there’s going to be this mix of sort of 0, 1, and 2?

Mark Manduca  17:20

Absolutely not. I think this is going to continue, I think this is going to be a drive towards the last mile. And it only points towards why you need a great partner like us not only to source the right labor forces within those jurisdictions closer and closer to the last mile. Sourcing the right real estate, having the bargaining power to be able to do those things at scale. And with speed and short order. These are very, very important tenants have a great 3PL like us.

So to be able to have that scale is oh so important in a world where the you’re describing which is a customer wants it today, this hour, tomorrow, not in three days time, it’s a trend that will continue. It’s a trend that we’re seeing on the ground at the moment across all our ecommerce customers, the bar is being raised further and further, the demands of our customers are going up. And that is gravitating them towards a scale player such as us. So what you’ve just described is exactly the reason why a 3PL like us exists and why we own our margin for our customers. It’s hard fought, but it’s well deserved.

Dan Kline  18:22

Let’s close out here a little bit. And first of all, I will point out that I ordered an iced coffee this morning. And that is an important thing to get delivered within a limited amount of time. But the other things I ordered today, a new watch some batteries, whatever not that important. But let’s close out what is one thing the investing community and the 7Investing audience here doesn’t know about your company that you wish was out there?

Mark Manduca  18:45

At the moment, we are trading on a low teens multiple and our peers are trading at a high teens multiple. And there are acquisitions in the space that are taking place at high teens multiples. This to me if life is about spotting anomalies in the investing community. This to me is is an anomaly that sits at the forefront of my mind of all the many stocks that I’ve covered over the last 20 years.

For me, the crystallization of that value is going to be fascinating as we deliver upon our results. And we earn that higher multiple going forwards and watch the share price appreciate it’s our job to earn the trust of the market as a new company going forwards. There are a few skeptics out there as to the prowess and brilliance of the third party logistics business model. And we’re here to prove them both right and wrong and equal measure and we’re going to do a great job of pleasing our shareholders over the coming years.

Dan Kline  19:38

You’ve been listening to Mark Manduca He is the Chief Investment Officer for GXO Logistics a company that is what is today the night the company that is one week old though obviously it has a long history in its previous incarnation. Mark, thank you for doing the seven investing podcast.

Mark Manduca  19:55

Thanks, Dan.

Dan Kline  19:57

I am Dan Kline. We are 7investing where it is our goal to empower you to invest in your future.

Mark Manduca  20:03

Thank you so much for the support

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