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Mark Manduca is chief investment officer of GXO Logistics Inc., the intended spinoff of XPO Logistics that will include the company’s contract warehousing and logistics business, while the remaining XPO focuses on transportation and freight brokerage. Manduca comes to the job from a background as a research analyst in the European transport sector with companies like Citigroup and Bank of America Merrill Lynch.
David Maloney, Editorial Director, DC Velocity 00:00
GXO is set to impact the supply chain market. There is growing demand for warehouse space. And new funding of logistics shows the value that investors place on the industry.
Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast.
Hi, I'm Dave Maloney. I'm the group editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by Honeywell Intelligrated. From system design and emulation, to integrated warehouse automation software and technologies, to AS/RS shuttles and robotics, Honeywell Intelligrated's end-to-end solutions address the most pressing e-commerce and labor challenges facing our industry. To learn more, visit sps.honeywell.com.
As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insight into the top stories of this week. But to begin today: A new company, GXO, is a result of a split in the operating businesses of a large logistics company XPO. To explain more about the new company and how GXO will operate, here is Ben with today's guest. Ben.
Ben Ames, Senior News Editor, DC Velocity 01:22
Thanks, Dave. Yeah, joining us here today, we have Mark Manduca. He's the chief investment officer of GXO Logistics, which is, as you said, the intended spin off from XPO, intended to to go live here in the third quarter of 2021, so, very soon now. Mark, we appreciate your being here with us today.
Mark Manduca, Chief Investment Officer, GXO Logistics 01:43
Thank you so much for the opportunity today.
Ben Ames, Senior News Editor, DC Velocity 01:47
Mark comes to the job from a background as a research analyst in the European transport sector, with companies like Citigroup and Bank of America Merrill Lynch, so he's been in the logistics sector from a number of angles for a long time now, and brings a lot of context to the conversation today. First off, Mark, maybe you could describe the role of a chief investment officer at a logistics company, since some of our listeners might not be familiar with that title.
Mark Manduca, Chief Investment Officer, GXO Logistics 02:16
It's an interesting one. So, the role will be responsible for the analysis of GXO's growth opportunities and the optimization of the company's asset portfolio. And I think alongside these responsibilities, I will hopefully be playing a relatively important role in ensuring that GXO's investment case reaches a global audience, both via the media and through to investors. So that's the goal.
Ben Ames, Senior News Editor, DC Velocity 02:45
And in your case, GXO is not a typical company, but in fact, it's, of course, sort of already operating within XPO, so it has a ready made sector and clientele, and in fact, as soon as it launches, it will become the second-largest contract warehousing provider in the sector, I understand. How does that very large scale affect your role and its operations?
Mark Manduca, Chief Investment Officer, GXO Logistics 03:14
Well, you're totally right. Second-largest global contract logistics provider. It's—I come with this role with amazing pride, quite frankly. It's a strategic operation with an experienced team, with unparalleled growth opportunities. We are, as a business, at GXO, we're best in class, I believe, at standing up complex, technologically advanced supply chain solutions at scale and with speed for our customers. And we do it globally. We do it, as I mentioned, at scale, and we have a very strong balance sheet and technological advancement, all of which we offer our customer base. The world is increasingly becoming, as you know, more and more global from an e-commerce standpoint, and therefore the companies that play in this sphere need to be global too. We have some phenomenal tailwinds in this business, I think, that we're benefiting from, whether it's automation, whether it's e-commerce or whether it's outsourcing, they will all act as strong secular tailwinds, not just a post-pandemic boost. And I think that this will put us in a very good stead for the next decade to capitalize on some of these phenomenal avenues of growth that this business and the secular tailwinds present. Our customers are global brands, mostly blue chip customers, with no single customer representing more than 4% of our revenue, and within that, what we have is some very long-duration contracts, with an extremely strong pipeline, and all pull together with the blessing of a world-class management team, so I'm very excited to be working for GXO.
Ben Ames, Senior News Editor, DC Velocity 04:57
Interesting, yeah, sounds like a very strong team that you have and those, those secular tailwinds, as you say, are factors that are affecting players all throughout the sector. However, of course, you mentioned the pandemic. The timing of this launch is not typical, since it comes, as you know, at a time when Covid has changed so many of our practices and assumptions. Could you describe some of the impacts that the timing will have in terms of how Covid might have affected how GXO will operate?
Mark Manduca, Chief Investment Officer, GXO Logistics 05:32
Your question is an excellent one. There are there, are as you know, a number of supply chain pressures out in the market, and I think that if you look at the market overall right now, across inflation issues; supply chain pressures, as I mentioned; warehousing price increases; difficulties with just-in-time inventories, this is exactly the reason why our customers need us and choose GXO. They need a player that is global, they need a player that has expertise at managing scalable solutions, and they need technological advancement, both from the software and hardware side of the equation. When it comes to those tailwinds that I mentioned, Ben, whether it's e-commerce—which clearly is in its nascency, even after the strong growth that we've had in the last two decades—we've built a leading position in e-commerce, with 40% of our revenues coming from omnichannel, retail, and e-comm, and, in many ways, across the North American and European market, we still see phenomenal growth there and ability to win more market share. When it comes to automation, in many ways, even more nascent than the e-commerce opportunity that I talked about. Warehouses are becoming increasingly automated for efficiency, for speed and safety, and this is transforming the logistics industry. And, as many of your viewers will know, it's just getting started. We design, at GXO, and execute this transition for our customers, and it's backed by what I feel is a first-mover advantage, and very scalable software solutions. And then finally, on the outsourcing side, this is one area which I find most interesting. Supply chain functions have historically been handled in house. So, right now, broadly around 70% of all global supply chains are still yet to be outsourced. This is a phenomenal growth driver for this industry. And with expectations for speed and precision continuing to rise, the vision that I see over the next 10 to 20 years is, supply chains are going to become more and more complex. And if I leave you with one thing from our discussion, it's that this drives businesses towards third-party players like us. So,outsourcing, automation, e-commerce, they are all coalescing for some phenomenal growth in the next decade. And I believe that GXO is well positioned to capitalize on that.
Ben Ames, Senior News Editor, DC Velocity 07:54
Fascinating trends, for sure. And you mentioned something that we cover a lot in the magazine, of course, and that's globalization, which is a large part of supply chain complexity, but at the same time, over the last year, we've seen a handful of events that may have been Black Swan events, or maybe we're just [living] in a tumultuous time, but you know, Suez Canal blockage, and the pandemic, of course, and trade wars and tariffs have all made international trade—put some serious hurdles up there. Is that something that GXO is seeing a lot, in terms of the international trade side?
Mark Manduca, Chief Investment Officer, GXO Logistics 08:32
These types of events happen periodically, as you know, across across supply chains, and, let's be very specific, looking at the Suez Canal incident, for example, as you mentioned. We weren't really affected to any great degree. Most of our customers that we're working with, as you know, are big blue chip organisations, and they have multiple routes for goods coming into their markets. So, from that perspective, I would highlight two things: On that specific instance, we weren't affected, but because of the flexibility in our organization, and both our management team and the team members working throughout our organization, we like to deal with supply chain pressures. That's what we do, we solve problems for our customers. And as we continue to see these pressures proliferate through the market, particularly recently, and as you mentioned, in this post-pandemic veneer, we feel that our ability to solve problems for our customers is really our winning trait, and it's a driver of both pricing power for our business and volume growth going forwards. So, our solution is very much making sure that we can fix some of the world's problems. We don't pretend to be able to fix all of them, but our offering is a complete customer offering to help their very complex supply chains.
Ben Ames, Senior News Editor, DC Velocity 09:51
And another followup on that, in terms of some of the challenges that that your clients, and really everybody in the sector, are facing that we've been hearing a lot about lately is labor. And just to wrap up our conversation here, labor was in short supply even before the pandemic. Of course, we saw a tightening of that with distancing, with health challenges. What is GXO's approach to finding sufficient labor to be able to solve all those customer challenges?
Mark Manduca, Chief Investment Officer, GXO Logistics 10:23
We're hiring globally, as a global business. Lots of opportunities exist within our business to grow from the ground up, and I would certainly encourage any of your viewers who are thinking about joining the technologically driven future of supply chain automation to be thinking about going into our industry. And, beyond a strong hiring packag is, if you think about our business from a hiring standpoint, we've, we've got very many programs in our operation to help our employees develop their careers going forward, whether it's our XPO Rise program, whether it's our XPO Grow program, or graduate program, the opportunities in our business are, in many ways, across 27 countries, and the opportunity for growth in a high-growth business like ours, are almost endless. And what I would like to do is take an opportunity to really thank some of the teammates that I've met over the past few weeks and months through our operation, who have been so phenomenal at helping us through the pandemic. You know, the effort, and the hard work that's been put in from those teammates has really helped not only our own company succeed, but also helped so many of our customers succeed as well, and it can't go unnoticed. They really did, they really did do phenomenal work over the last very challenging 18 months. So, a big thanks to our teammates across XPO and GXO.
Ben Ames, Senior News Editor, DC Velocity 11:51
For sure, It's—I don't think any of us will forget this last year, year and a half that we've been through. Mark, we really appreciate your being here with us today on the podcast and learned a lot about GXO and about the sector in general, so thank you for your time.
Mark Manduca, Chief Investment Officer, GXO Logistics 12:07
Ben, thanks so much for the opportunity. Again, I really appreciate it.
Ben Ames, Senior News Editor, DC Velocity 12:10
And our guest today has been Mark Manduca. He's the chief investment officer for GXO Logistics, which is set to be launching any week now as a contract warehousing business. Back to you, Dave.
David Maloney, Editorial Director, DC Velocity 12:25
Thank you, Mark and Ben. Now let's take a look at some of the other supply chain news from the week. Victoria, you reported this week about the growing demand for warehouse space, and if there will be enough capacity within the market to satisfy the needs. What did you find?
Victoria Kickham, Senior Editor, DC Velocity 12:42
Well, we've talked quite a bit recently about the growing demand for industrial real estate, and essentially, demand continues to outstrip supply and the forecast calls for more of the same over the next few years. Not surprisingly, this is driven by e-commerce growth, and a couple of recent reports delve into the trend. First, real estate services firm CBRE is forecasting the need for an additional 330 million square feet of distribution space in the United States, and an additional one and a half billion square feet globally, by 2025, and that's all to meet strong e-commerce growth. I should say that anticipated 330 million square feet here represents 27% of the projected overall demand for industrial real estate growth in the United States, and that broader category includes warehouses for traditional retail distribution, manufacturing, research and development space, and data centers. Just to give you a little bit more context, CBRE's forecast is based on its estimate that for every additional $1 billion of e-commerce sales requires about a million square feet of new distribution space, and the company estimates that here at home, e-commerce sales will rise by $330 billion over the next five years, and globally, that number is forecast at one and a half trillion. So that just gives you an idea of where they're coming from, in terms of predicting the space needed. Meeting the demand for that space will be a challenge moving forward. The report shows that much of the construction already in the pipeline has been leased to meet existing demand—you know, we've seen exploding demand in the last, past year, during the pandemic—and on top of that, traditional retailers, 3PLs, and others are also going to drive demand over the next few years, which could lead to higher costs for space in an already expensive market, which we've also discussed quite a bit here. So, a lot going on, but the the idea is that space is in demand, and it's going to continue for the next few years.
David Maloney, Editorial Director, DC Velocity 14:48
Yeah, it certainly seems that way. But so much has changed over the past year given the pandemic. What other factors are contributing to the strong demand for industrial space?
Victoria Kickham, Senior Editor, DC Velocity 14:58
Yes, you're right. That's true. So, you know, I had said earlier that there are a couple of reports on this. A separate report from logistics real estate firm Prologis—this was released earlier this month—highlights some of those underlying reasons that supply can't keep up with demand these days, and those include rising construction costs, insufficient land availability, and labor constraints—you know, some of these issues that Ben talked about as well, in terms of labor, earlier. First, you know, I can pull out a few things that this second report mentioned. In terms of costs, or rising costs, rising steel prices, they've tripled in the U.S. in the last year, as well as general contractor prices have increased, to. An interesting note, they, the researchers said that the time between breaking ground on a facility and completion has expanded by two to three months, or roughly 20%, over the past decade, and that adds to costs as well. The report also pointed to the additional space required for e-commerce fulfillment. That's a big issue as well. They say—this is pretty generally reported, that about three times the logistics space is needed for e-commerce compared to traditional brick-and-mortar fulfillment. And that's because of the deeper inventory levels, space-intensive shipping operations, and returns processing required in the e-commerce business. As a result, of course, warehouses are getting bigger, but at the same time finding suitable land is getting more challenging. They also noted that in the U.S., industrial-zoned land is shrinking in cities, and that's because of conversions to office and residential real estate in many places. Along those lines, e-commerce uses roughly three times the labor of traditional warehouse operations as well, and they reported turnover rates around four times that of other uses. Because developers are having trouble finding land in cities, they've expanded to suburban secondary markets, where the labor pool is not as deep. That also complicates the issue. And sort of the clustering of distribution centers can really exhaust, you know, the limited availability of talent. That's an issue as well. So, clearly, there are a lot of factors contributing to the issue, but, again, the bottom line is that warehouse space remains at a premium and likely will be that way for the next few years.
David Maloney, Editorial Director, DC Velocity 17:17
Yes, it certainly may take a while for available capacity to catch up with demand, something we'll continue to track. Thanks, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 17:25
David Maloney, Editorial Director, DC Velocity 17:26
And Ben, you reported on some rather large investments that are backing logistics firms. Can you tell us more?
Ben Ames, Senior News Editor, DC Velocity 17:33
Yeah, that's exactly right. We had heard earlier this week that a German logistics technology startup called Forto had raised $240 million in venture capital. It said it plans to use that money to expand geographically for its software program that provides digitized freight forwarding and supply chain solutions. There are a lot of supply chain buzzwords in there. But for me, it was just as interesting to see where the money came from, because that venture capital round was led by a Japanese company called SoftBank Group. SoftBank, our readers may have heard, but they describe themselves as a holding company that owns a portfolio of firms in spaces like telecommunications, internet services, artificial intelligence, smart robotics, IoT. And it turns out that a lot of companies providing those things are in the logistics space. For example, also this week—on the same day, in fact—SoftBank had closed a separate deal that it had previously announced, and that's selling 80% of its ownership stake in a Massachusetts robotics vendor called Boston Dynamics, which our readers may remember. They tend to make viral YouTube videos of their robots doing cool things like dancing and acrobatics, and they also make a dog, robot dog called Spot, as well as, in recent months, some new warehouse picking models for robotics, so a lot of impacts in the sector that we all follow here.
David Maloney, Editorial Director, DC Velocity 19:09
Well, those are some very large investments. Does SoftBank on other companies in logistics as well?
Ben Ames, Senior News Editor, DC Velocity 19:15
Yeah, they sure do. SoftBank has its hands in a lot of different areas here. In fact, SoftBank opened a lot of people's eyes—or maybe raised some eyebrows, even—in April, when it bought a 40% stake of a Norwegian automated storage and retrieval systems—AS/RS—vendor called AutoStore, that's a pretty well-known brand in the space, for almost $3 billion. It was $2.8 billion. At the time, SoftBank said that AutoStore's products enables rapid cost-effective logistics for companies, and I think everybody agrees with that, but the surprising part there was really that size of the investment. SoftBank also has smaller holding, to be sure, and a handful of other companies: ShipBob, Brain Corp., Berkshire Grey, Simbe Robotics, and Fetch Robotics. So, really, this is one company that's making a very big impact in the technology that's currently changing the logistics sector.
David Maloney, Editorial Director, DC Velocity 20:15
Well, seeing this kind of financial investment from the world's leading financial institutions just really underscores how important logistics is to our economy. Thanks, Ben.
Ben Ames, Senior News Editor, DC Velocity 20:25
Glad to do it, Dave.
David Maloney, Editorial Director, DC Velocity 20:26
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. And check out the podcast Notes section for some direct links on the topics that we discussed today. Thanks, Ben and Victoria, for sharing highlights of the news this week.
Ben Ames, Senior News Editor, DC Velocity 20:41
Happy to do it.
Victoria Kickham, Senior Editor, DC Velocity 20:43
Yes, thanks for having us.
David Maloney, Editorial Director, DC Velocity 20:45
And again, our thanks to Mark Manduca of GXO for being our guest. We encourage your comments on this topic and our other stories. You can email us at podcast@dcvelocity com.
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We're going to take next week off to enjoy a long Independence holiday weekend, but we'll be back again in two weeks from today, on July the ninth, with our next edition of Logistics Matters, so be sure to join us. Until then, please stay safe and have a great week.