August sees a lessening of tonnage decreases for XPO

XPO Logistics, a leading provider of freight and logistics services, released its latest report, revealing a mixed picture of the current market conditions.

According to the report, for every positive comment about new orders, there were 2.5 comments expressing concern about near-term demand. The primary concerns revolve around tariff costs and uncertainty, indicating a challenging environment for the logistics industry.

Despite these challenges, XPO continues to make strides in reducing its reliance on third-party capacity for linehaul runs. This strategic move is part of the company's broader efforts to enhance its operational efficiency.

In August, XPO reported a 4.7% decrease in tonnage per day in its less-than-truckload unit compared to the same period last year. This decline was due to a 3.4% decrease in shipments and a 1.3% decrease in weight per shipment. However, the August tonnage result is modestly ahead of typical seasonal trends, with July and August being down by 9.5% and 9.3%, respectively.

XPO's operating results continue to benefit from several self-help initiatives. The company has several AI-enabled initiatives in place to reduce linehaul miles, improve pickup-and-delivery functions, and cull labor hours per shipment.

Despite the challenging market conditions, XPO's third-quarter yield is expected to increase y/y by a similar amount to the 6.1% y/y increase captured in the second quarter. This growth is attributed to a shift in freight mix toward small-to-midsize businesses and the selling of more premium services incurring accessorial surcharges.

XPO's third-quarter margin guidance remains unchanged, as stated in its Wednesday news release. The company also expects no sequential change to its adjusted operating ratio (OR) during the third quarter, implying an 82.9% OR and 130 basis points of y/y improvement.

In a separate development, the Purchasing Managers' Index (PMI) for August remained in contraction territory at 48.7, indicating a contraction in manufacturing activity. However, the PMI new orders subindex moved into expansion territory at 51.4 after six straight months of decline, offering a glimmer of hope for an improvement in manufacturing orders.

The DOUGLAS Group, another prominent player in the logistics industry, also confirmed its guidance for an adjusted EBITDA margin of around 17% remains unchanged for the third quarter 2024/25.

In conclusion, while the logistics industry faces challenges, XPO Logistics is navigating these difficulties with strategic moves to reduce reliance on third-party capacity and leveraging AI-enabled initiatives to improve operational efficiency. The company's third-quarter yield and margin expectations remain optimistic, offering a positive outlook amidst a challenging market.