Q&A: Drew Wilkerson, CEO, RXO

Logistics Management Group News Editor Jeff Berman recently caught up with Drew Wilkerson, CEO of Charlotte, N.C.-based RXO Logistics, the fourth-largest full truckload broker in the United States, and asset-light transportation services provider. Wilkerson provided updates and analysis on various market trends and topics, including: the state of the freight economy; the spot market; pricing; and nearshoring, among others. The interview follows below. 

Logistics Management (LM): What are some of the key trends or themes you are seeing in the freight economy?

Drew Wilkerson: So, it's still a soft freight market overall. It's been that way for over a year now. When you look at the key indicators that we're measuring, we're looking at load-to-truck ratio, and we're looking at tender rejections. We're looking at carrier capacity, whether it's entering or exiting the market, and then we're taking into what our customers are telling us regarding inventory levels and expected future shipments and putting all that together to form our own opinion of how we're going to market. It is still a soft market, although we have seen some encouraging signs. You've seen tender rejections start to creep up. You've seen carrier capacity start to exit, even at a little bit of a faster rate than what it had. And both of those things have to happen for your load-to-truck ratio to increase to a point to where, as a broker, you not only have your strong contractual base, but you also get rewarded in the spot market. We're still in the early innings of that. It's not to the point to where you see significant spot volumes at this point in the freight market, but we do have some encouraging signs that we're watching.

LM: Regarding the spot market, there is a lot of interesting stuff going on there. How would you describe the current state of the spot market, at a time when demand is low and there is a fair amount of excess capacity?

Wilkerson: There's not a lot of spot activity right now. If you look at our overall book of business right now, or at the end of the second quarter, it was sitting around 79% contractual and 21% on the spot side. And for this type of market in a soft environment, that's where you want to be. You want to be the carrier that customers trust with their contractual business, because once they trust you with their contractual business, when the market inflects, you'll start to see the spot opportunities come through. So, for us, we're playing this market perfectly positioning ourselves for the inflection but the inflection hasn't happened. When you start to talk about inventory levels and Peak Season, inventory levels are in a much better position than what they were a year ago. If you look at the destocking that has already taken place, our customers are in a good position, and they have the volume to be able to ship. What we're watching and what's still an unknown is what's going to happen with consumer demand. The consumer has held up more resiliently that I think than what most people thought they would have a year ago. But is the consumer is going to spend their money on travel or are they going to go out and spend it in retail or e-commerce, or are they just going to hold on to their cash? So, for us, the biggest thing that we're watching is what happens with consumer demand. Another point on that is our retail e-commerce volumes were positive on a year-over-year basis in the second quarter, and that's the first time that they've been positive for us since the middle of last year.

LM: You mentioned Peak Season, how are you seeing things shape up this year? It seems like it has been anything but normal going back to the onset of the Pandemic, in that it has been minimal or nonexistent, is happening now, or will happen later in the year.

Wilkerson: Out of those three scenarios, it was definitely not nonexistent during the pandemic.

In the second half of 2020, all of 2021 and the beginning of 2022 saw a high level of peak-type activity. For us, the inventory levels are in a good position and we're in a good position with our customers to service Peak Season, but we don't know what will happen with consumer demand. I do think that there is the potential for it to perform better than last year, but that's not saying a whole lot, as last year, there really wasn't a Peak Season.

LM: How does RXO view the current state of nearshoring? There seems to be a fair amount of momentum about the ongoing emergence of Mexico as a global manufacturing hub?

Wilkerson: If you look at our cross-border volumes for the first half of the year, on a year-over- year basis, they're up like 20%-to-30%. It's an enormous number that they're up. We built that business off of automotive, but now you're starting to see industrial, and you're starting to see manufacturing also do more cross-border freight and that's why having a presence in Laredo and the investment that we've made in Laredo over the last decade, and we've really amped it up over the last 12 months with our new facility in Laredo are so important. We've got more customers right now visiting us in Laredo, going through our site to where we've got cross-dock opportunities for them translated opportunities for them than what we ever have before.

LM: How far along are things, do you think, relevant to Mexico? It seems like the early innings.

Wilkerson: For Mexico, looking out over the next five-to-ten years, the volume growth opportunity there can go through the roof. We don't see our growth and Mexico and cross-border freight slowing down anytime soon.

LM: Where are you seeing the most activity? In what verticals?

Wilkerson: Retail and e-commerce was positive for us on a year-over-year basis, in the low single digits. Technology was a vertical that performed extremely well for us. In the first half of the year, healthcare has been another one that has performed extremely well. Manufacturing and homebuilding has performed well so far in the first half of the year, but it is one that we're watching in the back half of the year. We are watching to see what could potentially happen there with new homes being built. Overall, we've got a very diversified book of business. We're not overly concentrated in any one specific area. And I think that's part of the reason whenever you look at the relationships that we've got across all of our customers, that's why we were able to grow volumes 10% on a year-over-year basis in the second quarter. That’s in a market that's down. If you think of the freight industry as a whole, the truckload volumes are down mid-single digits. And we're growing volume at double-digits, so it just speaks to the relationships and the diversified book of business that we have.

LM: Do you think RXO can keep volumes up 10% over the balance of the year?

Wilkerson: I feel confident that will grow volumes again on a year-over-year basis in the third quarter. And we've got a lot of things working for us. We've got deep relationships with our customers; our largest customers have been with us for 14 years on average. If you think about the solutions that we create, whether it's transloading whether it's cross docks, whether it's dedicated trailer capacity, whether it's dedicated milk runs, there are a lot of different solutions that we create for customers. We've got the best technology we believe in the industry that helps our customers run their transportation in a more efficient manner, telling them what days of the week they should ship something, what mode of transportation they should use. We've even helped customers plan out where their warehouses go. So, we feel very confident about growing volumes again and the third quarter on a year-over-year basis and continuing to outperform the market over the long run.

LM: Do you think we are seeing true signs of supply chain normalization, or even a leveling out, of sorts, given what the sector has been through in recent years?

Wilkerson: If you think of the pandemic boom, with carriers entering the market, there's still excess capacity right now. And you're going to have to have one or two things have to happen for an inflection: either demand has to pick up significantly from where it is right now or more carriers have to exit the market at a faster rate. I don't think carriers can hold on at the rates that they're running out right now, for the long term. I think that they were able to build up a good nest egg and 2020 and 2021 in the early parts of 2022. And that's probably prolonged this longer than what people would have thought on the downturn. But, at some point, that capacity lags in the market and it's happened in this business over the last 20 years.

LM: As we look at rates, contracts, pricing, especially over the last few years. Does it feel like things are starting to turn?

Wilkerson: We don't look at it as a carrier or shipper market, because in both markets, we're collaborating with our customers so much that I mean it's just the market dynamics overall. Supply and demand is going to dictate where rates go as we start to head into 2024. I think it's still too early to call where rates go. I mean, if you think about some of the bids that we've just implemented, we're a couple of months out of just having implemented some 2023 rates. But as we get into later in Q4, and the first part of Q1, that's definitely our bid season, and there's a lot of things that can shake up the industry, whether it is an inflection with e-commerce and retail picking up volumes is you know, where you see right now there are also weather events that shake up capacity. There's a number of things that can shake up for capacity wise, and that's where our relationships and the years that we've built with our customers will pay off because we'll be the place they turn for the inflection.

LM: Has the e-commerce driven supply chain that we saw evolve out of the pandemic fundamentally changed anything on the brokerage side? In terms of, for example, the need for more spot capacity, surge pricing, and things like that?

Wilkerson: I think you're going to continue to see the end consumers want their product, and they want to deliver to the home and they want it as fast as possible. So, it definitely creates an opportunity for more spot. It also creates a more some opportunity for dedicated capacity and milk runs within e-commerce transportation lines. So, for us, it's something that we think that will continue to grow and grow significantly and will be a major player there.

LM: Where do you see AI in terms of the freight brokerage market?        

Wilkerson: We've been using AI for more than a decade. When you think of our pricing algorithms and part of the reason why we have the best margins in the industry, it is because our pricing algorithms move fast as a continuous movement, not just throughout the quarter but throughout the day. We've got a system that pings internal and external data hundreds of thousands of times per day, and it gives us the most accurate price—for market price for a customer and for a carrier as far as buying capacity. So, it's something that we've been deeply involved in from using AI within our pricing algorithm. We're also using it some with the customer interfacing and how they're coming back to do business with us. The last piece that I'll say on AI that I think we've got an opportunity that we'll explore some of the stuff over the coming months is on the back office and is an opportunity to automate with some of the newer AI that has come out.

LM: What are some of the main things RXO is working on, from a technology standpoint?

Wilkerson: We are always working on cool new things. Our roadmap, at a high level, focused on everything we are building is being built for our customers. And it is all about what we can do to help them make use our data to make more informed decisions on their transportation and help them run their business more efficiently. For carriers, it is about how do you get them back to the system to find their next load. If you look at our RXO Connect, they come back to the platform over 75% of the time within a week. So that tells you that it's easy to use. There's something that where they can negotiate and don't have to have human interaction. They get discounts on fuel, tires, roadside maintenance, all of these things that are extremely important to a trucker’s life. And on employees it's all about creating less clicks of the mouse, less clicks on the keyboard so that we're able to increase the productivity of loads per day, which is what we're measuring the employees and how they're performing on. For everything that our CIO brings to me to build, we ask him very simple questions: What's this going to do to our volume? What's this going to do to our margin? And what's this going to do to our employee productivity? Every tool that we build is focused on those three things.

LM: Where do you see the truckload brokerage market in the next three-to-five years? What may be in store?

Wilkerson: First, brokers will continue to take share from asset-based carriers. If you go back to when I started in this industry, brokers had less than 10% of the for-hire trucking market. Today, it is sitting at around 22%, I think. We think over the next five years, it'll be around 3% and longer-term, we think we'll get into the 40s. And that's because when you look at capacity as a whole, it is largely built on people who are living the American dream. They're small trucking companies, independent owner-operators who are working for themselves and the way for them to do business with Fortune 100, Fortune 500, and Fortune 1000 companies is by working with companies like RXO. We definitely think that the share gains brokers have gained in the for-hire trucking market will continue. I do think that there will be consolidation in the industry. If you look right now, there's 17,000 brokers, but the top 10-to-top 15 make up the vast majority of the brokerage industry.