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XPO Logistics CEO on how the transport industry is handling COVID-19

XPO Logistics CEO and Chairman Brad Jacobs joins Yahoo Finance’s Alexis Christoforous and Brian Sozzi to discuss how the company has adapted to the coronavirus.

Video Transcript

ALEXIS CHRISTOPHOROUS: We know the trucking industry is, of course, a vital part of our economy, and it has taken a huge hit, along with a lot of other industries, during this pandemic. For an inside look at the trucking industry, the logistics industry, let's check in with the CEO of XPO Logistics, Brad Jacobs. Brad, good to see you again.

I know you came out with your annual shareholder letter, and in it, you don't mince words. You say, quote, I'm a pragmatic bear in the short term because that's the reality of COVID-19. You go on to say things are difficult right now, and they'll get worse in the short term, then they'll get much, much better. When you look out, when will that much, much better come for XPO and the trucking industry in general?

BRAD JACOBS: Well, Alexis, it's not going to be in the second quarter. The second quarter, you have GDP predicted to be down 30% to 40%. The last time that GDP was down double digits was in 1958, and it was down 10%. So we're looking at a very challenging second quarter for the whole industry and for most companies all around the world, frankly.

Now, people are expecting a V in the third quarter. I don't know whether I'm a believer in that or whether it really would be the fourth quarter, but I don't think it matters so much as long as by the end of the year, we're out of this, it's in the rear view mirror, and the resilience of the economy and the resilience of the people in Western Europe and North America where we do most of our business is shining again. And I'm confident we will. I'm confident it will.

- Brad you mentioned-- good to see you again. You mentioned that consumer confidence and GDP won't come back really until 2021. Now, that leads me to believe there's some caution, likely still a lot of caution, potentially, for the holiday shopping season. What are you hearing from clients right now regarding orders? How are they thinking about their business in that critical period?

BRAD JACOBS: Well, I think GDP will come back and consumer confidence will come back this year. I just don't know whether I share the same confidence that it'll be in the third quarter as opposed to the fourth quarter. I don't-- many people are saying 20%, 25%, maybe 30% GDP positive in the third quarter, which would be fantastic. I'd be totally delighted if I'm wrong on that. I just don't see it yet. In my calls with our employees, with our customers, I don't see it turning to the better yet. I see it getting worse, actually, for the next couple of months.

In terms of your question about the customers, it depends which customers we're talking about. Our e-commerce business is booming. Our food and beverage business is booming. Our reverse logistics business is booming. But most of the other business lines are soft and are getting softer. And if you look at the two different segments we have in our company, our contract logistics business that we do in about 800 warehouses around the world is doing pretty well.

And all the goods that are coming in that don't have an end demand yet, they're being stored in the warehouse. They're being repaired in the warehouse. Reverse logistics is going to the warehouses. That's a very, very strong business. The transportation business-- you see a lot less freight out there because people are in their houses. People are in their homes.

- Brad, last time we saw you was actually back in our studio in January, which feels like a lifetime ago. And at the time, you were talking about exploring strategic alternatives for some of your businesses. Any update on that since we talked? You had Costco go out there and spend $1 billion for the third-party logistics company Innovel, big purchase price. Leads me to believe there could be a lot of undervalued areas in your business still.

BRAD JACOBS: Yeah. So the strategic alternatives process to think about selling four of our divisions is totally off. It's completely yesterday's news. We're not pursuing that at all, whatsoever. We're not actively pursuing M&A right now because we're very introverted, taking care of the health and safety of our employees. That's our main focus is doing everything we possibly can to protect our employees, particularly our frontline employees.

ALEXIS CHRISTOPHOROUS: Brad, to your point, I'd have to think your employees are considered essential workers in the eyes of the government. Are they? And what are you doing? What steps are you taking to make sure those workers are safe? And also-- it's a three-parter-- do you see you having you contract your workforce at all, or are you actually hiring more people to deal with the influx of, like you were saying, e-commerce?

BRAD JACOBS: We're hiring in certain places, but we're furloughing and laying off in more places because there's less freight. There's less work to be done. I do believe that the workforce that we have is very, very motivated. We've come together. We found-- you know, there's a Yiddish word called [YIDDISH], and I use it only because there's really no English translation for it. It's the best word would be strength, inner strength. But it really refers to the power that comes from finding mental clarity to conceive of large goals and then having the willpower to materialize those goals and make them really happen.

And that's what we found. We found as an organization, our inner [YIDDISH], our inner strength. We recently did-- last week, we did our employee satisfaction survey. And I was expecting it to go down 100 basis points, 200 basis points. It went up. It went up 53 basis points.

So once our employees realized that we had their backs and we totally care about their safety more than anything else, something very interesting happened. People rallied together and said, look, we are essential workers. We're the people who are making sure that you and you are getting your Purells and your diapers and your toilet paper and your household goods and the safety and medical supplies that everybody needs right now.

We're the ones doing that, so we're on the front lines. And over the next two days, we're rolling out an additional incentive compensation plan for our frontline workers. And that's great. We're taking care of their financial health. But we're mainly focused on their physical health, making sure all forms of social distancing are taking place, all forms of hygiene are taking place. We're doing testing where we can. There's not enough testing available at the moment.

So everything-- in part of the survey, we asked everyone to brainstorm together. What can we do more to protect our employees? And we've got thousands of ideas that we're now in the process of prioritizing and assigning owners to.

ALEXIS CHRISTOPHOROUS: All right. We're going to leave it there. I learned a new word today, Yiddish word [YIDDISH]. That's the word of the day here at Yahoo Finance. Thank you, Brad Jacobs, CEO of XPO Logistics. Best of luck to you.

BRAD JACOBS: Thank you.