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The Roaring ’20s are back thanks to ‘bingo wheel’ of disruptions

GXO Logistics continues to navigate a new market category in uncertain times

Capacity constraints, wars and more are putting pressure on logistics operators to innovate like never before. (Photo: GXO Logistics)

Few had a Russian invasion of Ukraine on their radar a few months ago, but the conflict in Eastern Europe became just the latest disruption to global markets following a long list of disruptors, from COVID-19 to maritime and trucking capacity constraints, from labor issues to product shortages.

Through it all, logistics providers have worked hard to maintain levels of service that resulted in some semblance of normalcy. Through these times, innovation seems to be prevailing.

“Supply chains are getting better,” Mark Manduca, CIO of GXO Logistics, told Modern Shipper in a recent interview. “It feels like if you go back to August/September of last year, we reached the peak of prices. It doesn’t mean it’s over.”

Calling the current environment a “bingo wheel” in which businesses don’t know where the next disruption will come from, Manduca said business for GXO (NYSE: GXO) remains strong with more interest in its services with e-commerce, automation and outsourcing “trends that are on fire right now.”

For a warehouse industry that is only about 5% automated, Manduca sees big potential ahead for automation solutions and, as a result, big potential for GXO.

“[Customers] are looking for the right price, but we’ve gone from commodity to value-added service,” he said. “It’s very clearly shoulder to shoulder, hand in hand, global blue chips working alongside global blue chips.”

Of the three trends, e-commerce is only 20% integrated into overall retail sales and only 30% of the industry is seeking outsourced providers.

“We’re literally at the foothills,” Manduca said.

There is no single automation tool that is dominating the market, he said, but the top automation asks are for goods-to-person robotics, up 103% year-over-year; vision technology, up 54% year-over-year; and cobots (robots that work alongside humans), up 223% year-over-year.

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“There is still mammoth growth ahead,” Manduca said. “This industry could easily be 50% to 60% automated in the next 10 years and we’re barely 5% now.”

Manduca noted that GXO works to fit a technology to the problem.

“Some technologies work better with certain goods,” he said. “What you are trying to solve for here is to turn 50 pick rates per hour into 300 picks per hour. The goal is [efficiency].”

Future possibilities

Reverse logistics is a vexing problem for e-commerce brands and warehouse operators. With return rates estimated in the 20% to 30% range, handling that merchandise when it returns to a warehouse and getting it restocked is a time-intensive process.

“We’re still within the first two or three innings of what this industry can do,” Manduca said. “If you think about the deployment of reverse logistics, [it] has been such an interesting area in the last 10 years because we’ve gone from 1-in-10 items being returned to 1-in-3 items being returned. The holy grail of what is still to be done is opening the box that is being returned and working out what is wrong with the product.”

Manduca said artificial intelligence might someday accomplish that but the industry isn’t there yet.

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“For example, if a shoelace is broken, we don’t have a robot that can identify that the shoelace is broken,” he said. “That said, the technology we are deploying is game changing across the board. Some of this stuff has come leaps and bounds.”

The retail supply chain

Manduca spoke with Modern Shipper before Russia invaded Ukraine, and it remains to be seen what impact that conflict will have on retail sales — both in-store and online — here in the U.S. However, Manduca said some GXO customers are looking to convert up to 80% of their sales to e-commerce sales, and that presents challenges for supply chains.

“The consumer is spending and it is going on unabated. … We don’t see it crashing; the Roaring ’20s are happening,” he said. “As an industry, we are seeing demand for direct to consumer and bypassing that additional five to six weeks [for products] to go to brick and mortar. We see people going direct to ports and get those goods sooner.”

Moving warehouses and product closer to the consumer is driving the warehouse boom in the U.S. and some businesses have gone through “teething problems” to address the challenges, Manduca said. GXO is addressing this by “behaving like our customers” and operating warehouses in the manner that matches the customers’ wants and needs.

“They simply can’t do this efficiently on their own,” he said. “We had a customer that used robots and did 100 picks an hour; but if we did that, we could get 200 or 300 picks per hour.”

E-commerce is also changing the look of warehouses. While some brands maintain dedicated facilities, Manduca said GXO is generating about $300 million in revenue (out of $700 million) from multi-tenant facilities. It is an area that many warehouse operators are getting into.

“It’s a great way to take smaller customers and train them to take dedicated warehouses down the line,” Manduca said. “There are lots of operators that play in that field, but it’s a very different model from the blue-chip model.”

First to market

GXO is unique in the services it provides. Spun out of XPO Logistics, GXO has maintained that it is trying to build a category as a technology-first logistics provider.

“If you think about the business, we’re spending over half of our capex on our technology,” Manduca said. “If you combine that with a big pipeline that is only getting bigger …. we’re going to continue to invest in technology very heavily. We are going to lead the way in that.”

Manduca said the company is also looking to scale — both organically and inorganically. In February, GXO made a firm $1.3 billion offer for U.K.-based Clipper Logistics. The move was met with positive sentiments among the investment community. Morgan Stanley’s Ravi Shanker said the deal provides cost synergies with “upside on the revenue side potentially even more compelling.”

“We like that GXO is supporting its organic growth story with inorganic acquisitions, which is an opportunity given the relative fragmentation of the business,” Shanker wrote in an analysis of the deal. “We are surprised that GXO did this in the U.K., though, a country that they are already very strong in, although [management] believes there will be little customer overlap and big revenue/cross-selling opportunities.

“Ultimately, we think this combination makes a lot of sense and (once approved) should be accretive and well received by the market,” Shanker added.

Manduca said it’s important for GXO to work with its customers and not necessarily for its customers.

“You want to know you are operating shoulder to shoulder with someone rather than a master-servant [relationship],” he said. “It causes a flywheel because good becomes great and great becomes amazing.”

Click for more articles by Brian Straight.

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Brian Straight

Brian Straight leads FreightWaves' Modern Shipper brand as Managing Editor. A journalism graduate of the University of Rhode Island, he has covered everything from a presidential election, to professional sports and Little League baseball, and for more than 10 years has covered trucking and logistics. Before joining FreightWaves, he was previously responsible for the editorial quality and production of Fleet Owner magazine and Brian lives in Connecticut with his wife and two kids and spends his time coaching his son’s baseball team, golfing with his daughter, and pursuing his never-ending quest to become a professional bowler. You can reach him at [email protected]