Q&A: Jared Weisfeld, Chief Strategy Officer, RXO

Logistics Management Group News Editor Jeff Berman recently spoke with Jared Weisfeld, Chief Strategy Officer, for Charlotte-based RXO, the fourth-largest full truckload broker in the United States, and asset-light transportation services provider. Weisfeld provided Berman with a broad overview of how RXO views current market trends, including inventories, what may be in store for Peak Season, and capacity management, among others. Their conversation follows below. 

Logistics Management (LM): Some large retail shippers have recently indicated that their inventories are starting to see signs of leveling out. Are you seeing things the same way, in tandem with what is happening, in terms of things like volumes and rates?

Jared Weisfeld: That is a good point. If you look at our volumes in the March quarter, specifically within the retail e-commerce vertical, they weren't down year-on-year, and the rate of change relative to the December quarter was significantly improved. So, that speaks to the inventory destocking that has occurred and perhaps that has inflected to the point where inventories are now in a much better place for many of our retail and e-commerce customers, where the destocking was so significant right over the last six-to-nine months since basically the first quarter. Retail e commerce volumes were negative for most of calendar year 2022, and they remained negative in the first quarter, but that rate of change really did flip nicely from the fourth quarter to the first quarter. So, I think I would I would certainly highlight that and…if I were to look at all of the retailers that have reported over the last few weeks or so, in aggregate days of inventory or inventory dollars relative to rate of change of revenue growth, it was actually favorable for the quarter in that revenue grew more in excess of inventories. So, I think that [inventory] depletion has occurred.

LM: What does that mean for the second half of the year, as well as the potential for Peak Season? Do you think there will be a meaningful retail restocking underway?

Weisfeld: I think that remains to be seen. The significant retail restocking was saw over the course of 2022 was particularly noteworthy. I do think it sets up for the potential for restocking in the second half of the year. I think we are continually listening to our customers and all of their needs. We're monitoring the restocking trend as we have into the second half of the year and those conversations have definitely shifted from destocking to restocking, but I also want to be balanced, right. It's a challenging macroeconomic environment. You have tightening credit conditions, and also interest rates that continue to march higher. The consumer demand clearly needs to hold as it relates to the potential for this restock, but I do think that we are seeing early positive indications as it relates to the rate of change from our retail and e-commerce customers.

LM: RXO has stated that that it is seeing strong growth in trucking freight needs with respect to the technology and the healthcare sectors. Why is that the case? Are they coming off of easier annual comparisons?

Weisfeld: It's a good question. If I look at the growth of our non-retail verticals, that wasn't just a Q1 phenomenon. I'd say growth outside of retail and ecommerce has been pretty strong for a while now, even for all of calendar 2022. For RXO, we grew volumes by 12% last year, with retail and e-commerce being down for most of the year. I think that that speaks to the strength of those verticals that we've had, which has been occurring for not just one quarter but for three-to-four quarters-plus, so I think the strength there has been pretty consistent for the past few quarters. It's also important to note that much of the strength that we're seeing is idiosyncratic to RXO. Our top 10 customers have been with us for 16 years. We're at the we're at the part of the freight cycle now where shippers in North America are consolidating across their core carriers and their core brokers. Those core carriers need to have technology, and they need to have scale and the deep customer relationship. I think that's also feeding into the volume growth that we're enjoying because those customer relationships are really strong.

LM: How are you viewing indicators like load-to-truck ratios and tender rejections, in terms of how they factor into the composition of the truckload market, from a capacity perspective?

Weisfeld: Tender rejections are running really low right now. And the load-to-truck ratio is something that that I monitor in particular quite closely and is sitting at about 2:1 right now. In the freight cycle that we're in right now, I think is very reminiscent of what happened during 2019. In 2019, once you A 2:1 load-to-truck ratio, it didn't stay there for very long…for no more than three months. So, I think that when you put all of those factors together, it speaks to some of the encouraging leading indicators that we're seeing, in terms of the current load to truck ratio is at a very low level, especially going back to 2019, which suggests that we're closer to the bottom than not, as it relates to the load-to-truck ratio.

Number two is the capacity coming out of the network, which is key. That plays hand-in-hand with the load-to-truck ratio where you think about the mismatch of supply and demand. You've had so many carriers come into the industry during the boom, and it's been taking a long time for the carriers to exit and react to the deteriorating spotlight. From that standpoint, when you think about you think about it, the carriers that entered the market when the market was good, were enjoying excess profits. That time period lasted and was good for a long time. So, now, I think, it's taking a little bit longer for supply and demand to come back into balance because the balance sheets of the carriers were in a lot better shape, because they earned significant profits during the pandemic boom and all of the related supply chain congestion. We're now seeing that start to normalize. So, carriers, in terms of active carriers on our platform are down 3% sequentially, from the fourth quarter to the first quarter, and I would expect that to continue as the spot market as rates for many for many carriers just don't make economic sense for them. You've got the load- to-truck ratio sitting on multiyear lows, and you've got capacity coming out of the network. There is also class 8 production, which is a good indicator in terms of what's happening in real time, down 40% month on month, from March to April. And then you combine that with a healthier inventory position across many retail e-commerce sectors.

LM: How many carriers are in the RXO brokerage network?

Weisfeld: At the end of December, we reported it was at 123,000 carriers, with that figure now down by around 3%.

LM: From a market perspective, are you seeing are you seeing carriers exit the market in a meaningful way at this point, or are some of them just kind of trying to hang tough until demand returns in a more meaningful way?

Weisfeld: They are exiting, but not exiting at a rate, which is really dramatically shifting that load-to-truck ratio higher. I think we're seeing the beginning signs of that, and it's certainly healthy from a supply and demand perspective to go ahead and see the carriers start to exit. But because their balance sheets were in such great shape entering into this downturn, due to how long the boom period lasted, it's taking a little bit longer than it normally would, in terms of the carrier exits relative to the current environment from a spot market perspective. They're exiting, and it's helpful, but not at the rate necessary to bring that load-to-truck ratio. meaningfully higher. But I do think it's certainly an encouraging start to normalizing supply and demand. For RXO, 47% of our carriers have one truck, with our carrier base having approached a five-year gross profit per load. If you look at our current gross profit per load, relative to the last five years, excluding the period during COVID, we are now within 10% of our five-year cycle on gross profit per load. Our truck brokerage volumes were up 6% annually in the first quarter and up 4% in the fourth quarter, and brokerage volumes are growing again heading into the third quarter. We are definitely bucking the market trend, in terms of what's obviously a very difficult market. We continue to gain share, in part due to this consolidation of our customers, in terms of the carrier base that they're leveraging. They're using fewer carriers and fewer brokers and we're benefiting from that in a pretty significant way.

LM: Revisiting Peak Season, do you think, for 2023, that we potentially may be trending back to something that does in fact, maybe resemble a more traditional peak season?

Weisfeld: There's a lot of uncertainty in the economy, so what I would say is that we are seeing some positive indications that there is the potential for a Peak Season in the back half of the year right, with retail e-commerce volumes, declining at a lesser rate over the last two quarters. That speaks to the better inventory positions, in terms of days of inventory on behalf of a lot of our key customer. I think that's very much encouraging, but I think it also needs to be balanced, right. Obviously, we're dealing with a tough macroeconomic environment, and we've got tighter credit conditions that potentially could impact the consumer got rising and rising interest rates that continue. I think the potential remains, and I think we're seeing a lot of those early indicators, which would suggest the potential for a Peak Season, but I think one key assumption is consumer demand needs to hold on.

Things can change very, very quickly, so I think, from our standpoint, our solution is to go ahead and be there for our customers, regardless of market cycle. And I think that, you know, we really do value the partnership with our customers. Our top 10 customers have been with us for the last 16 years on average and volume for our top 20 customers last quarter was up 13% year-on-year. Things can change very, very quickly. And it's incumbent on us to ensure that we're there to react and be there for our customers across market cycles.

LM: What are you hearing from your customers, in terms of sort of what their biggest concerns, or pain points, are?

Weisfeld: It is going to vary from customer-to-customer but the reality is, I mean, they are looking for the most efficient way to go ahead and move their transportation and they're looking for a reliable partner. But one of the common themes is we are the fourth-largest truck brokerage here in the United States and brokerage as an industry has been getting share from asset-based carriers for the last decade and beyond. And brokerage penetration as percentage of a for-hire truckload market is now up to about 22%, whereas a decade ago, it was closer to 10%, and that that I think speaks to the pain point of our customers. That pain point is our customers want access to massive capacity. With us, you'll get 100,000-plus carriers and access to a million and a half trucks. If we need to go ahead and move loads from Charlotte, which is where we're based, up to New York, the ability for us is there to go ahead and bring a massive amount of capacity to that customer in a very quick amount of time. That is a pain point that we're trying to solve. Combining that with also proactive thinking as customers are planning out their supply chain and deciding where they need to locate factories, and how can we be part of that process is another customer conversation that we're having.