XPO(XPO) - 2021 Q4 - Annual Report

PART I ITEM 1. BUSINESS XPO Logistics, Inc. is a leading freight transportation services provider, primarily offering less-than-truckload (LTL) and truck brokerage services, following the 2021 spin-off of its Logistics segment into GXO Logistics, Inc. - XPO Logistics, Inc. is a leading provider of freight transportation services, primarily less-than-truckload (LTL) and truck brokerage services, which generated the majority of 2021 revenue and operating income[16] - The company operates with two reportable segments: North American LTL and Brokerage and Other Services, serving over 50,000 customers in 20 countries with approximately 42,000 employees and 771 locations as of December 31, 2021[17] - On August 2, 2021, XPO completed the spin-off of its Logistics segment into GXO Logistics, Inc., with GXO's historical results presented as discontinued operations[19] Company Overview XPO Logistics, Inc. is a leading freight transportation services provider, primarily offering less-than-truckload (LTL) and truck brokerage services. - XPO Logistics, Inc. is a leading provider of freight transportation services, primarily less-than-truckload (LTL) and truck brokerage services, which generated the majority of 2021 revenue and operating income[16] - The company has two reportable segments: North American LTL and Brokerage and Other Services, with approximately 42,000 employees and 771 locations in 20 countries serving over 50,000 customers as of December 31, 2021[17] Spin-off of the Logistics Segment XPO completed the spin-off of its Logistics segment into GXO Logistics, Inc. on August 2, 2021, making GXO an independent public company. - On August 2, 2021, XPO completed the spin-off of its Logistics segment by distributing 100% of GXO Logistics, Inc. common stock to XPO stockholders, making GXO an independent public company[19] - The historical results of GXO are presented as discontinued operations and excluded from continuing operations and segment results for all periods presented[19] North American Less-Than-Truckload Segment XPO is a top three LTL provider in North America, focusing on technology, pricing, driver expansion, and network growth to drive growth and margin expansion. - XPO is a top three LTL provider in North America, holding approximately 8% share of the $42 billion LTL market as of December 31, 2020[20] - The company delivered approximately 13 million LTL shipments in 2021 and serves about 25,000 LTL customers[21] - XPO's LTL growth and margin expansion are driven by proprietary technology, industry fundamentals (limited commoditization, rational pricing, rising industrial demand, e-commerce growth), and a five-area action plan initiated in October 2021[22][23][24] - Key initiatives in the LTL action plan include: * Improving network flow, leading to stronger service metrics * Driving pricing, with an 11% yield growth (excluding fuel) in Q4 2021 due to early rate increases and accessorial charges * Expanding the driver base, graduating ~900 drivers in 2021 and aiming to double that in 2022 * Increasing trailer production by adding a second line, expecting to double units in 2022 YoY * Expanding footprint by 900 net new doors (~6%) by year-end 2023, adding 149 net doors from Oct 2021-Jan 2022[24][25] Brokerage and Other Services Segment XPO is the second largest truck broker worldwide, operating an agile, non-asset model driven by technology and industry tailwinds. - XPO is the second largest truck broker worldwide and one of the largest in North America, with approximately 3% share of the $80 billion North American market as of December 31, 2021[26] - The segment operates an agile, non-asset model with a variable labor structure, generating high return on invested capital and free cash flow conversion[26] - Growth is driven by massive capacity (98,000 independent truckload carriers), cutting-edge technology (XPO Connect® digital platform), and industry tailwinds like e-commerce and omnichannel retail demand[27][28] - This segment also includes last mile logistics for heavy goods (XPO is the largest North American provider) and European services, where XPO holds leading positions in France, Iberia, and the U.K[29][30] Innovation and Sustainability XPO invests significantly in technology to create smart supply chains and prioritizes environmental sustainability, integrating both to improve its carbon footprint. - XPO has invested over $3 billion in technology since 2011 to create 'smart' supply chains, serving as a major competitive differentiator[31][32] - Environmental sustainability is a significant priority, integrated with technology to improve carbon footprint by reducing empty miles, maintaining a modern fleet, and eco-friendly driver training[33] - A 2020 ESG scorecard tracks measurable progress in environmental initiatives (reducing fossil fuel dependency, carbon emissions, waste) over four years, with targets tied to executive long-term incentive compensation[34][35][36][84] - Key focus areas for sustainability strategy: * Transportation Fleet: Switched to 100% premium diesel in 2021 for fuel savings (1.8-2.5%) and carbon reduction; investing over $100 million in ~1,000 new tractors in 2022; deploying cleaner fuels (natural gas, biogas, electric) and testing longer, duo-trailer vehicles in Europe to reduce CO2 emissions by 25-30% per trip[37][38][39][40][41][42] - Key focus areas for sustainability strategy: * Technology: Uses machine learning and XPO Connect® to improve truck capacity utilization (reducing empty miles, optimizing freight matching) and enhance driver performance through eco-training and digital tracking[37][43] - Key focus areas for sustainability strategy: * Facilities: Implements circular economy practices like LED lighting, pallet reuse, right-sizing packaging, and waste recycling[37][45] Our Strategy XPO's strategy focuses on efficient goods movement through technological innovation, process and cost efficiencies, and reliable outcomes for customers. - XPO's strategy focuses on helping customers move goods efficiently through their supply chains by delivering technological innovations, process efficiencies, cost efficiencies, and reliable outcomes[47] - Management's growth and optimization strategy includes: * Marketing solutions and vertical expertise to new and existing customers * Capitalizing on secular demand trends like e-commerce growth and supply chain outsourcing * Recruiting and retaining talented sales and customer service representatives, improving productivity with training and technology * Attracting and retaining high-caliber independent contracted carriers * Integrating industry best practices with a focus on automation and analytics[48][49] - Competitive differentiation strategies: * North American LTL: Recruit and retain quality drivers, optimize capacities (drivers, equipment, terminals, technology) for superior customer experience * Truck brokerage: Leverage XPO Connect® digital marketplace to grow market share and penetrate the for-hire trucking industry[49] Proprietary Technology and Intellectual Property XPO's proprietary technology, built on a scalable cloud platform, provides robust visibility, control, and automation, with annual investments of approximately $300 million. - XPO's proprietary technology, built on a scalable cloud platform, provides robust visibility, control, and automation, enabling rapid innovation deployment across geographies and services[50][51] - The company invests approximately $300 million annually in technology, one of the highest in the industry[52] - Key technology impacts: * XPO Connect®: A proprietary digital freight marketplace (including Freight Optimizer, shipper/carrier interfaces, pricing/tracking engines, Drive XPO® mobile app). As of Dec 31, 2021, had ~98,000 registered carriers and 600,000 driver app downloads; 70% of North American brokerage orders were digital in Q4 2021[52][53] - Key technology impacts: * LTL Optimization: Technology focuses on optimizing linehaul (intelligent route-building to reduce empty miles, improve load