XPO Logistics’ February Update: Analyzing Tonnage Trends and Market Dynamics

Upon initial examination, XPO Logistics’ update for February suggested that the decline in volumes mirrored the downturn experienced in January. However, a closer look reveals that the company was contending with a more significant year-over-year comparison in February, indicating that the drop in volumes may not have been as severe as it appears.

The Greenwich, Connecticut-based less-than-truckload (LTL) carrier disclosed its results after the market closed on Tuesday, reporting an 8.1% decrease in tonnage year-over-year for February, following an 8.5% drop in January. This decline was attributed to a combination of a 6.2% reduction in shipments and a 2% decrease in weight per shipment.

However, it is important to note that January’s figures were compared to a mere 1.1% decline from the previous year, while February was measured against a more robust 3.5% increase from the prior year. This context is crucial in understanding the relative performance of XPO in these two months.

Despite the prevailing tepid demand across the LTL sector, XPO’s two-year stacked comparisons are showing signs of improvement. Tonnage experienced a lesser decline of 4.6% in February, compared to a cycle-low drop of 9.6% in January. The current guidance suggests further enhancement in the two-year stacked results for March, hinting at a potential upward trajectory.

XPO’s tonnage figures for the first two months of the year align with management’s forecast of a mid-single-digit year-over-year decline for the first quarter, suggesting a roughly flat sequential performance. The company is actively adjusting its freight mix to incorporate a greater volume from local accounts, which tend to yield better margins, while also focusing on shipments that incur additional accessorial charges. While this strategic selectivity may pose a short-term challenge to volume, it is expected to enhance margins over time.

The beginning of 2025 has proven to be challenging, as severe winter storms across the southern and eastern United States have resulted in increased service interruptions within carrier networks. XPO previously indicated that the exceptionally harsh weather conditions negatively impacted its January tonnage results by three percentage points.

Additionally, the manufacturing sector, which can account for up to two-thirds of total freight for certain carriers, remains sluggish but is showing signs of improvement. The Institute for Supply Management’s Purchasing Managers’ Index (PMI) remained in the expansion territory for the second consecutive month in February, following 26 months of contraction. With a reading of 50.3 (where 50 indicates neutrality), this figure was 60 basis points lower than January; however, the new orders index, which serves as a predictor for future manufacturing demand, dropped 6.5 percentage points to 48.6.

It is noteworthy that LTL volumes typically lag behind PMI data by three to four months. As XPO CEO Mario Harik stated in a recent press release, “Our February volume outperformed seasonal trends relative to January, aligning with our expectations for the quarter-to-date. The industry pricing environment is favorable, and we’re executing on our initiatives to drive sequential pricing growth throughout 2025, supporting our margin outlook.”

During its fourth-quarter earnings call on February 6, XPO indicated that it typically experiences a 50 basis points deterioration in its operating ratio (the inverse of operating margin) from the fourth to the first quarter each year. However, the company expects to outperform this trend and surpass the 86.2% operating ratio achieved in the fourth quarter. This projection suggests that XPO may maintain a flat year-over-year result compared to the 85.7% operating ratio recorded in the first quarter of 2024.

Other carriers have projected a modest sequential decline in the first quarter, indicating a potential 300 basis points year-over-year deterioration. In contrast, XPO has forecasted a 150 basis points improvement in its operating ratio for 2025, despite carrying 30% excess capacity resulting from the acquisition of terminals from the bankrupt Yellow Corporation. The company opened 25 new terminals last year, all of which have positively contributed to its operating ratio.

While XPO does not provide revenue-based metrics like yield in its intra-quarter updates, it has previously guided for sequential pricing growth in every quarter of 2025. As the market continues to evolve, XPO’s strategic focus on improving profitability through a refined freight mix and proactive pricing strategies positions it well for the future.

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