XPO sees improvement in February, tonnage still down y/y

At first blush, XPO’s February update showed volumes fell at the same pace as they did in January. However, the carrier was facing a more formidable comp in the recent month, suggesting the falloff was less severe.

The Greenwich, Connecticut-based LTL carrier announced Tuesday after the market closed that tonnage was down 8.1% year over year in February following an 8.5% decline in January. The February result was the combination of a 6.2% decline in shipments and a 2% decline in weight per shipment.

However, January was comping to a 1.1% decline from a year ago whereas February was up against a positive-3.5% comp.

There’s little doubt that demand across the less-than-truckload space remains tepid but XPO’s two-year-stacked comps are improving. Tonnage was down 4.6% in February after a cycle-low 9.6% decline in January. The current guide implies further improvement to the two-year-stacked result in March.

XPO’s (NYSE: XPO) tonnage for the first two months of the year was in line with management’s guidance for a mid-single-digit-plus y/y decline in the first quarter (roughly flat sequentially).

The company is actively changing a portion of its freight mix to include more volume from local accounts, which have better margins, and more shipments that incur accessorial charges. The increased selectivity presents a headwind to volumes but should continue to deliver improved margins.

The start of 2025 hasn’t been easy as severe winter storms across the southern and eastern U.S. resulted in increased service interruptions across carrier networks. XPO previously said abnormally harsh weather was a 3-point drag on its January tonnage result.

Also, the manufacturing complex, which can account for two-thirds of total freight for some carriers, remains tepid but improving.

The Institute for Supply Management’s Purchasing Managers’ Index (PMI) remained in expansion territory for a second consecutive month in February following 26 months of contraction. A 50.3 reading (50 is neutral) was 60 basis points worse than in January, but the new orders index, which is predictive of future manufacturing demand, dropped 6.5 percentage points to 48.6.

LTL volumes normally lag the PMI data by three to four months.

“Our February volume outperformed seasonal trends relative to January, aligning with our expectations for the quarter-to-date,” said XPO CEO Mario Harik in a news release. “The industry pricing environment is favorable, and we’re executing on our initiatives to drive sequential pricing growth throughout 2025, supporting our margin outlook.”

XPO said on its fourth-quarter call Feb. 6 that it normally sees 50 bps of deterioration to its operating ratio (inverse of operating margin) from the fourth to the first quarter each year, but that it expects to outperform that change rate this year and to outperform the 86.2% OR it generated in the fourth quarter. That would likely mean a flat y/y result with the 85.7% OR posted in the 2024 first quarter.

Other carriers are calling for modest sequential degradation in the first quarter, implying 300 bps of y/y deterioration.

XPO previously forecast 150 bps of y/y OR improvement in 2025 even though it is carrying 30% excess capacity after acquiring terminals from bankrupt Yellow Corp. (OTC: YELLQ). It opened 25 new terminals last year, all of which were accretive to the OR.

The company doesn’t provide revenue-based metrics like yields in its intraquarter updates but previously guided for sequential pricing growth in every quarter of 2025.

More FreightWaves articles by Todd Maiden:

• Old Dominion, Saia stay on different paths to overcome same challenge in Q1
• Tariff fears evident in February supply chain data
• Yellow settles WARN claims from nonunion employees for $12.3M

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