How GXO Logistics Provides Solutions to Stay Ahead of Competitors

The Logistics Game Has Changed

E-commerce and online shopping had already transformed how goods are bought and delivered before COVID-19. But the pandemic’s stay-at-home environment accelerated existing trends.

Businesses quickly discovered the complexity and expense of establishing and operating e-commerce channels as online orders soared dramatically. Managing returns, refunds and exchanges is incredibly complex.

As a result, many companies have sought to outsource these functions. This need spawned an industry dedicated to providing logistics services and software solutions. Such solutions allow companies to outsource these functions and concentrate on their core operations.

Secular Growth Drivers Support Industry Growth

E-commerce Trends Remain Strong

Online ordering trends accelerated during the pandemic and are normalizing at lower levels, following the COVID-led gains in 2021. According to the U.S. Department of Commerce, online sales reached almost 15% of total sales in 2020 and are expected to rise. 

We believe the market for logistics solutions providers has room for expansion. The most successful firms may be those positioned to benefit as penetration of online trends increases outside the U.S. Market leaders, like GXO, also have room to increase the proportion of revenues from the U.S., where online trends are more established and still growing rapidly.

Automation Increases Efficiency

The industry average rate of automation is around 5%. Firms that are able to increase automation rates may be positioned to grow revenues more quickly. Automated warehouses can pick and process 300 units per hour versus 50 units in a manually operated warehouse.

Outsourcing Provides Customer Solutions

Fulfilling online orders is becoming increasingly complex as e-commerce trends accelerate and supply chain challenges proliferate. Offering efficient solutions is more valuable as customer margins are pressured. Returns, refurbishment, restocking, and warranty claims are additional services that logistics providers can deliver more cost-effectively than retailers and manufacturers.

Customer Warehousing Needs

Customers’ key warehouse demands include a global presence, scalability, strong balance sheet and technological innovation. Successful logistics solutions providers must have the capacity and resources to meet this demand.

Inflation Protection

Higher inflation and its effects on consumers’ disposable income present a risk to e-commerce demand for all logistics providers. Firms that can hedge some of this risk by building inflation protection into customer contracts may thrive. Such protection would allow them to pass through wage and operating cost inflation to customers.

GXO Logistics: Company Overview

Based in the U.K. and spun off from freight and logistics company XPO in August 2021, GXO is the largest global logistics solutions firm, operating over 900 highly automated warehouses with approximately 100,000 employees (Source: company publications).

Company Statistics

E-commerce and omnichannel retailing represent about 50% of GXO revenues. The remainder comes from food and beverage, packaged goods and industrial manufacturing. 

GXO generates approximately 60% of revenues from Europe and 30% from the U.S., making it well-positioned to benefit as non-U.S. e-commerce trends approach U.S. levels. As noted, it also has capacity to grow revenues from the U.S., where online trends are more established and still growing.

GXO generates about 30% of revenues from automated warehouses, far above the industry average rate of approximately 5%.

GXO has committed US$125 million annually in CapEx toward technological advancements for its warehouse network.

GXO can hedge some of this risk by building inflation protection into its contracts with clients. Thus, the company can pass through wage and operating cost inflation to its customer base.