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XPO Logistics Inc (NYSE:XPO) may not be a household name like some of its competitors, but that doesn’t mean it isn’t a significant player in the logistics space. As a matter of fact, with a $14 billion market cap, it sits in a very good spot for the massive trend that occurring in the supply chain and logistics sector.
XPO is big enough that it has a global reach and has enough revenue to buy itself bigger, yet it’s small enough that its growth makes for big stock performance and it’s still flexible enough to move to where the action is quickly.
That’s why XPO stock is up nearly 80% in the past 12 months while FedEx Corporation (NYSE:FDX) is up a mere 12% and United Parcel Service Inc (NYSE:UPS) is roughly flat for the year.
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The big players are actually in a situation where their size may not be an advantage any longer. Just the opposite.
XPO Stock Is Benefitting From the Trends
There are two major trends that are happening in global commerce that are changing this sector forever.
First is global trade. While the interconnected world has been around for a while, it’s starting to take on a more mature phase. Trade is no longer as simple as “build in China and ship to U.S.” Factories are going up all over the world to build everything from cars to semiconductors.
Products are built across multiple countries before there is a final product. For example, the iPhone has parts coming in from a number of countries and then the phone is assembled in China before being shipped around the world to customers.
For logistics companies, this is very good news. It means that supply chains are becoming increasingly complex and there are more niches to exploit. And the intermodal implications (products that move by various transport methods along their journey — train, ship, truck, plane, etc) are also expanding.
Where FDX (founded 1971) and UPS (founded 1907) were built around less dynamic models, they have continued to use their market size to stay competitive. But XPO (founded 1989) came up in a different world and built its company to reflect that.
I say built, but that isn’t accurate. It’s building itself as we speak, as are all these firms in the space. It’s just that XPO is ideally positioned to be able to move quickly on new opportunities because it’s a smaller more nimble company than its significantly larger rivals.
This is where scale comes in. Where a small or medium-sized deal is big for XPO, UPS may pass since it would be less cost effective. It’s tougher for bigger outfits to step in to new opportunities.