GXO's CIO on the Past, Present, and Future of Warehouses

the supply chain that we haven't covered. So we've talked about shipping a lot, we've talked about trucking and so forth, but they're all still all kinds of all kinds of links in the chain we haven't talked about. And of course one of those links is warehouses, and so we've talked about. You know, there's this been this incredible boom and sort of like e commerce demand for goods from China that's created issues with the shipping and the containers

and the trucking. But of course along the way everything at some point stops in a warehouse. And warehouses setting aside even the pandemic and all of the tensions. Now this has just been a booming area and people think about Amazon warehouses and the rise of e commerce and warehouses in general because of all this are expected to

grow massively in the future. So we wanted to explore further this sort of current moment where there's all this bullishness on warehouses themselves, with this current tension that we see in supply chain disruptions, I'm very excited. I think we have the best guest for it. Today we're going

to be speaking with Mark Manduca. He is the chief investment officer of g XO, which is spitting off from the big logistics and transportation company XPO very soon, and he's going to be talking to us about this moment. So with out further ado, Mark, thank you so much for joining us. Jerry, thank you for that kind introest. Absolutely, why don't you start off actually by explaining g x O just a little bit, because it's sort of confusing.

I know it's part of XBO, it's on the verge of spinning off into its own publicly traded company, But what do you just tell us what what g XO is for listeners and how that how that spin will work and the timing and all that. Absolutely, so, g x is a warehousing company, as you as you eloquently explained at the start of the pool. G XO hands around nine hundred warehouses across twenty seven countries and we

solve people's problems for them. And you mentioned a number of supply chain problems that exist in the market, and I'm happy to to talk about those on this call. The reality is is that we we fix what's in the warehouse. We we take parents, we distribute parts, We manage your supply chain for you within the warehouse. And

it's such an important part of someone's business. We've got some of the bluest blue ship customers in the world and we are we managed, We managed their back office, so to speak, to make sure that you can get the goods back into the front office. And that is that's our bread and butter. Do you own the warehouses? So we least the warehouses by and March got it. So what don't you exploit a little further? Like what

is the relationship with the customer? So I mean, I get I gather the sort of relationship is different from one to another. But what is sort of a typical uh, you know, a client comes to g x O for what service, What is the sort of nature of that arrangement? Yes, So when a customer moves to g X, so it's it's not a cost decision, it's actually a revenue decision. And what I mean by that is that logistics represents

about three percent of the typical customers cost space. But if you pick the wrong provider to provide you with third party logistics, and for whatever reason it doesn't work out. Maybe there the third party logistics providers too small, maybe that they don't have to write balance sheet, maybe they're not global enough, maybe they don't have the right technology stacks. Then what happens is is that ultimately about a hundred

percent of your revenues end up suffering. So this is not a cost decision anymore for for customers, it's an absolute necessity. And this is exactly why customers are increasingly demanding a best in class, scalable third party logistics. Provided you asked what we do well in so many ways, the biggest portion of our businesses is e commerce, and as you know, e commerce has has made the lives

of our customers incredibly exciting but also incredibly complicated. So in the old world, what you would find is that a thousand T shirts would arrive on a pallet in a warehouse, and they would need to be organized in turn, and then you'd have two palettes. Ultimately that afternoon, leaving the warehouse, they'd go to a brick and mortar type institution. So a thousand T shirts arrive and basically two boxes or two palletts will leave that afternoon. That's the old world.

In the new world, what will happen is that a thousand T shirts arrive and then a thousand separate boxes

have to leave that afternoon. And that complication has just called caused a volcano effect in most people's back offices, most people's supply chains Joe, and that's effectively resulted and not only a three x two ten x need for warehousing, it's also resulted in a demand for scalable players, multinational players, players that provide a good balance sheet, long term relationships, and technological advancements, and just that happens to be us.

So I want to focus obviously aren't the warehouses, but just real quickly, can you just explain for listeners g XO is part of XPIOT, like what has happened, like how it is formed within XBO and then what is

the plane going forward? Here? Yeah, easy. So g XO is in effect around of the revenues of XPO, which is the conglomerate, which is largely based around lt L as you mentioned at the start of the call, as well as brokerage and of course our warehousing business, and we're planning on spinning that out as the second of August, and therefore g XO will become its own entity. As spinoffs goes, some spinoffs are always good company, bad company,

and that's not the case here at all. Once, once your listeners look at the look at the numbers, look at the look at the company, and hear what I have to say, you'll see that this is great company spinning out great company, XBO spinning out g x So it'll be it'll it'll be a very exciting spin I think.

And the goal ultimately will be able to allow g XO to to focus on its own strategic priorities and ring fence the business with its own capital structure going forward and ultimately play in its own field with its own decision making. Now, what we we talked about trucking a few weeks ago, and one of the things that really stood out to me was just how incredibly fragmented the space with it, and I actually until that episode, I had no idea that there is essentially no like

really dominant market leader and trucking and something. There's some insane stat about tens of thousands of new truck and companies having entered the market just the last few months. Of course, many of them quite small. What does the warehouse market look like in terms of size and fragmentation and how big is g XL within that market. There's a few things to know. So we've got some phenomenal secular tail ones in this market, unlike I think any

other market that I've ever looked at. I've covered the transportation and the just acceptor for the last fifteen years. So from my perspective, we're in the right place at the right time, whether that's e commerce, automation, and outsourcing. In terms of your question about the total addressable market, the total addressable market is roughly around four hundred and thirty billion dollars. Remember we're about an eight billion dollar revenue.

To contextualize that, as the biggest market player out there that is a pure play asset, that's being US g x O. We've go got five per cent of the market. So everything you've just said about fragmentation is very much the case here, and we're waiting for a white night

to emerge within this four dred and thirty billion dollar market. Now, within that four billion dollars, there's a hundred and thirty billion dollars that's already outsourced and three hundred to get you to four hundred and thirty three hundred billion that is still sitting in hops. And what I mean by

that is companies running their own logistics networks. I'd like to start with all these things like what the pre pandemic normal looked like, and I don't you know, and as much as you describe what is you know, the sort of February twenty or March nineteen world look like for a company like g X, so just we could sort of get a sense of the changes in the new trajectory. Let's let's let's characterize that as old world

the world. So in the in the old world, in the brick and mortar world, and that's not obviously just pretty pandemic, it's it's it's it's a long way for the pandemic. But in the old world, what you'd have is is the dickensiean warehouse where cardboard boxes would would rule the roost and there will be very little alternation. In fact, the industry is still outside of outside of our good selves, there's there's very little automation. If you look at some of our smaller peers within the space.

The punch line here is very simple, and that is the Dickensian warehouse evolved didn't have automation. It was largely focused on brick and water operations. And therefore what would happen is is that there wouldn't be the same level of complexity that there is today. And what I mean by that is not so much our own complexity with technology,

but actually customer complexity. Very simply, today one in three items are returned in an e commerce world, whereas in the old days it would be more like one in ten. To give you a sense of that volcano that I talked about that is erupting on the the balance sheets of so many of our customers. And therefore the customers are seeing more complexity in regards to working capital, they're seeing more complexity in regards to their day to day operations.

I mean, you can imagine if you all of a sudden. Have you know, you send out a hundred boxes and ten boxes used to come back, and now all of a sudden, thirty boxes are coming back. You up pulling your hair out and end up crying for help. And that's that's ultimately where we step in. Is that White Knight that I talked about. In so doing, you've you've referenced a bunch of interesting points post pandemic. What's happened ultimately is that the the industry has become a bit

log jammed elbow to elbow. Clearly people have been buying online rather than going to the cinema having experiences, And in so doing, what's happened is is that you've had a lot of the supply chain outside of the warehouse getting a bit log jammed. Now there's a bunch of reasons for that. Most prominently, buying patterns have changed. I referenced that, and the question you should ask, I guess is when we're consumers go back to pre pandemic buying pattern.

I hope you have the answer to that, because that's the that's the trillion dollar question everybody wants to know, so we better come up with an answer. On this episode, we will we will, we will, we will endeavor together. Let's and then the other thing that's changed, obviously, is the flying patterns have changed. You'll know, of course that

the world's available cargo capacity. If you think about the amount of cargo capacity that we have in the world, half of it, half of it lies in the in the belly of passenger planes, and clearly without people flying as much as they used to at the moment, that means there's less supply, which means air freight rates have gone gone through the roof, and in so doing, people have shifted their mode of transport towards shipping, so that in turn has led to a log jam in the system,

which is why you're seeing in part things going on in the port of Los Angeles. So that log jam ultimately needs to unwind itself at some point in the

next in the next six or twelve months. But all of these things, whether it's the truck driving point that you mentioned, whether it's the inflation that we're seeing at the worker level, whether it's the log jam that I talked about from the ports and the shortage of containers, all of this leads to one thing, which is that White Knight, someone needs to help me run my business because I need to focus on whatever it is selling t shirts, selling shoes, making cookies, while my back office

needs to be managed by someone else who has expertise precision scale, good balance sheet, technological advancement. That's where we have stepped in effectively. As sad as it sounds, we have. We have benefited from the last twelve months because people have realized that they can't do it on their own.

Let me ask you before we forget. You know, you mentioned something about your model, which is that you lease the warehouses, and I'm curious, like, I guess what prevents the rent so to speak, from accruing largely to the warehouse owners because I imagine that actual like physical warehouse space is not infinite. That is a big advantage if you own it. What what what gives you or your client sort of leverage to not give up all of the margin to the warehouse to the people renting it to.

So the question is is very much a case of availability of real estate and that's cually a challenge at the moment, as you've seen from vacancy rates yourself and the stuff that you've been reporting on. You know, the industry has seen vacancy rates falling to single digits, particularly in Europe, and um I really believe that this highlights

of strength of our services. Not only does it point to increased uses of usage of warehousing and logistics capabilities, but given the given our scale as the largest pure player, the second largest warehousing company globally, it it leaves it leaves us relatively well placed to secure leases for our customers.

So we have obviously dedicated relationships with some of the exact same warehousing companies that you've mentioned that therefore provides us with bargaining power logically, So if your decision is I need a warehouse, either I'm going to do it on an in house basis or I'm going to outsource it to the third party logistics provider. You've already decided that you need a warehouse, and you can have that close to the last mile or you can have it

further away. It doesn't change the demand for warehousing. But if you can have someone who has bargaining on labor has the scalability to negotiate rents for you on a global basis, that does provide a value add the dynamic of you either paying it directly to the to the segrea of the plodgers, yourself or getting a third party logistics provider to do it doesn't really change the price dynamics.

But what it does do is we can provide potentially better bargaining power, which in turn provides arguably a lower price for the end customer. So using a third party logistic provider is useful. I don't know, Like, I'm curious if you have a stat in the industry that answers this question. But you know, obviously I want to get into this world deeply. But automation is a huge theme you mentioned as one of the key tail winds for

your business. How would you compare I don't know, is it humans per dollar moved per day or something like that, Like, is there some or human wages per dollar per moved per day by the warehouse? Like can you sort of contextualize the degree to which the sort of like the old brick and border warehouse versus today's warehouse, And how much more efficient a warehouse of today is versus what

we think of the old fashioned ones. So there's there's plenty of examples in the technology sphere of how technology has helped make warehouses more efficient. We put a number of stats within our Investor Day presentation last week specifically talking about how the Dickensian warehouse of old has accelerated in so many ways um and become the warehouse of

the future. And we've got plenty of examples across our network, whether it's advanced automation, whether it's improved efficiency, reducing the footprint, whether it's some of the class based, cloud based systems that we use, or some of the intelligent robotics of how this saves money for for our customers, and naturally it results in customers coming to us because very few people have the amount of dedicated automation implementation that we

have across robotics and automated guided vehicles and vision technology and advanced sortation systems. But if you look specifically at say a robotic arm, I'll answer your question right down the line. In the old days, a typical pick let's call it would be around two hundred and ten cases per our picking rate. With a robotic arm, you can do four x that, so effectively eight hundred cases per

hour picking rate. So you can see explicitly how manual goes to automation and how the customer benefits and it generates dramatic productivity gains as you can see both for our customers and for us. And we'd obviously share any economics of that when it comes to thinking about other other other factual numbers out there that we can we can help you get a sense of of how technology

improves on the automation side for our customers. Obviously, robotic d stackers early good example you get in the old manual world versus the automation world as six x saving taken automate a gantry, for example, you can get a sixty next saving if you think about the cases per hour that can be picked um by gantry. So there's so when you when you think about an automated warehouse, what you find is is you find different different operations

across the entire supply chain that that offer. So you can take the adjustable heights of various gantry cranes across the across the warehouse and that allows you to in affect lighting more efficiently through the warehouse school. So obviously though I mean you know most of the attention to the warehouses. You know, there's been numerous stories about Amazon for example, So despite and the stories are always that the hiring is just absolutely voracious and that there's just

an incredible demand still for actual people. So what is the you know, you you describe all these efficiency gains, and yet it doesn't seem like hiring needs have really slowed down for the industry. What does it look like for year? If you think about inflation that you're seeing in the system right now, there's there is undoubtedly inflation. We're certainly seeing that across the markets that we operate in,

and clearly it increases the global problem for customers. And this isn't just a phenomenon that's taking place in any particular market. As I mentioned, were seeing it coast to coast in the US, and we're seeing it in the UK and specific terms, and labor inflation is clearly an improblem, that a problem that's here to stay for our customers.

If you think about the silver lining in terms of inflation volatility, I think it goes back to my key point, which is that it drives demand for those third party logistics providers, and labor inflation obviously causes our customers to want more automation and more robotics as well. And clearly, as I mentioned we're a global global tech leader when it comes to automated warehouses. But it is a problem.

I think it is here to stay. There is demand for labor, and so there should be in so many ways we we we aspire to make sure our teammates are all a hundred thousand teammates are all exceptionally well rewarded for for their efforts. But it is it is something that we're very good at managing from a bargaining power perspective in a similar way to the way I described Joe on the on the warehousing side of things. But just in terms of pure numbers, I guess is

what are we're trying to get at? Like how much hiring do you have to do? So, even with all of the automation you described, what is the trajectory of the actual numbers of people that you've had to hire? Because again, just going by the news reports from say Amazon, I'm sure they have incredible technology investments, but they still just have to keep you know, they seem to be hiring people nonstaff. Yeah, we ultimately will see the same the same trend in regards to the way we plan

on expanding. I mean, our revenues are planning to expand next year at about eight after some phenomenal growth already this year that we've already seen with a number of new customer winds, and with that will obviously come its o unfair share of being able to grow a warehousing footprint and thus our employee footprints. So you know, teammates will continue to grow at g X. So we're a fast growth company over the next few years and we intend to partake within that growth as as as an

industry leader. Do you see a difference in labor market titaness globally because obviously there are a lot of economist debates about well, why is it hard to hire? And some people point to unemployment insurance, and some people plointed to the persistence of the virus and the lack of childcare and so forth. But you have a global footprint and so you, I guess you can see sort of a natural experiment, so to speak, with different labor markets

across the different set of policy and virus outcomes. How global is the tightness right now in or the challenge of hiring? I would say the similarities in our two core markets two thirds of our revenue is is obviously Europe one third is board in North America. When you think about those two markets, I would say that the similarities are there. I would say that the US is probably three months ahead of what we're seeing in the in the European market. What do you sorry do you

mean by that labor wedging question? Europe's lag what you're seeing in the US, what you have seen with all the articles that you refer to, Yeah, it's probably three months three months lagging in the European But ultimately, what you're saying is this, this is not just a U S a U S. This is definitely not just a US phenomenon. This challenge of hiring under no circumstances, this is just a US phenomenon. In fact, the same applies

for for for warehouse vacancy rates. Were seeing similar phenomenons within the European European market as we are in the US market. That's really interesting. Go back to the automation question. Obviously, you know that I assume you know you're constant spending. How do you how do you keep up? You know, again going up against big tech giants. What is your um what is your edge so to speak? And how

much investment does it require? On your part in terms of high tech automation to be the status quo or be an industry leader in automated warehouse. So let's let's plup the question on it's head. Joe, if I was to give you, if I was to ask you a number of how much do you think you talked about the big industry tech giants that in so many ways we're not going up against our major Our major competition is actually more in the logistics speriments in the tex spit,

so to speak. But if I was to say to you, how much do you think the industry overall is automated right now? Would you pin it more at right now in terms of total automation across all warehouses. I guess think by the way you frame the question, I'm guessing it's pretty low. Still, yeah, you're totally right, So it's around five to give you a sense. So with within that, if you look at our European operation, we're about automated.

Can you actually explain that further? What does that mean? Actually? I realized we haven't even because any warehouse, even with plenty of robots, is going to have humans. So when you say a warehouse is thirty percent or would you

say thirty percent automated? What does that actually mean to say, okay, this warehouses we can we we call this automated using any form of automation, whether that's hardware or software, to eliminate siloes, to overcome space and labor constraints, to increase fulfilm and speed and accuracy, and provide superior visibility in control at any point through the warehouse chain. And therefore, so would you say when it's just would you say

that the industry is just five percent? You mean there's ninety percent of warehouses that are literally just people in boxes old school, I mean not people don't know, people and the boxes. Sorry yeah, people and people and the boxes.

Yeah sorry, that's really so that is pretty striking other industries that have yet, Like is there an industry pattern that's like, okay this these types of industries have embraced it really fast, or there are certain types of goods that have not um that are less likely to be automated, Like what are the patterns in terms of who has actually invested significantly in technology? I think brush you would you would assume that the industry could over time get

to around fifty six automation. I think that that will take many, many years and possibly decades to get there um and it very much comes down to the demand from the customers. This is not us trying to enforce technology onto onto every in any solution, So it depends on customer demand clearly, as you can see from the numbers that I was giving you earlier about your set of palettes and cases and gantries. You know, the reality

is that we are clearly driving automation going forward. But are there any sectors that it seems sort of I mean, you mentioned fifty six percent, Like, what are the areas that aren't going to go their way? Or what are other industries in which that is a it's a more difficult proposition to automate a warehouse than others. I see what you're saying. I think you were talking about other

other sectors outside of wares. And if you think about the industrial sector, which isn't a major portion of our book of business because we are largely, as I mentioned, e commerce and consumer technology orientated about fift our sales come from those those lines of business. If you think about the small element of industrial business that we do within our overall mix, it is harder to automate within that because in some in some cases you are dealing

with very heavy hardware. E Commerce tends to be an area where automation is best suited, So too is that the food and beverage market. There's some logical, logical savings that we've made there for customers. I think Day is a very good example of that. Over and lesser in

the UK. But the industrial warehouses tend to have slightly less automation, and our competition clearly is more geared towards those industrial businesses, and therefore that kind of explains partly why you're seeing a differential between someone who's extremely e commerce focused versus maybe more industrial and heavy industries some

of our competitors. I see you're saying. So let's talk a little bit more about labor, and we we've establed that labor markets are type both of the US and Europe. You know, in past episodes, we've heard from people talking about different ways that they're trying to address that. From a hiring perspective. Obviously wages are one area, but also other aspects of flexibility. How are you thinking about this both from a wage perspective but also other other strategies

that have worked in hiring. So we have a significant amount of our workforce that is variable in nature um and therefore we have the capability to flex workforce up and down to allow all changes in volume demand. So with what you're pointing to is actually a revenue positive

for both our industry and our customers. You know, we've seen extremely robust sales momentum, with billions of customer agreements signed in the first four months of this year alone, and these obviously include the fulfillment services and a few tech wins that we've had as well. Revenue being booked until thirty two, So a lot of what you're saying in terms of demands tightness is actually a positive from

a revenue standpoint. There is demand for our customer services and therefore there is demand for our services and intern there is demand for labor, which makes up around three billion dollars. Remember, in the context of the seven to eight billion dollars of revenue that I talked about, makes

about three billion dollars of of our cost base. So when you think about the first point I would make is this is a strong pipeline, high growth industry that has a huge demand for not only our services, but our customers offerings right now, and that's that's a good thing. The question member comes is is how do you reward the workforce and the teammates for providing that service, And

the answer is you reward them very well. In turn, what you do is you also try and make the workplace safer, stronger, and a more fun place to work in a more alternated place to work as well. This isn't a future of people versus robots. This is the people and robots working arm in arm, hand in hand together, and that's really something that we're trying to proliferate through

our warehouses. We're also trying to drive productivity savings of our labor by using smart tools such as our smart system so g x SO Smart saves around five to seven percent on labor productivity and this can be This can be anything from spotting picking rate problems very quickly, all the way through to managing the analytics and the HR data and modeling and planning of any single warehouse. And we've had some amazing impacts with customers with our

smart tool. It's currently deployed around six bur gx SO websites at the moment, so using technology efficiently, using particularly robotics and are smart tools to optimize labor force through peaks and troughs as you discussed, and particularly as we head into as we head into Black Friday, and also and also that Christmas shopping period, we need to make sure that we're extremely intelligent about the way we manage productivity. And that's something that I think that we're best in classes.

How you know you mentioned Christmas, So let's get to the question how frustrating is Christmas going to be? The fear for SHARP I think what we're seeing is early signs of extremely strong demand as we moved towards peak. I don't think there's going to be frustration, so to speak. I think what we'll do in our part of the supply chain is make sure that we run an extremely the operation to make sure that the goods get back

in store very quickly. If you look at some of the items that I mentioned earlier in regards to the one in three, you know customers come to us because reverse logistics is such an integral part of very commerce offering, and what we do best, I feel is we get the product back into store quickly to remove that frustration that you talked about, Joe, and make sure that the consumer's life and the customers life is an easy one.

But from me, so, if I'm a consumer and I'm doing my typical Christmas shopping, do I have to worry about ordering earlier this year than normal because of these supply chain disruptions that, as you said, maybe have another I don't know, six to twelve months ago. I think that the supply chain disruptions will continue. I think that the consumers have to be vigilant about the border supply chain maybe outside the warehouse, But I don't think it's

going to impact consumers by weeks. I think it could. It could be more by hours and days, so to speak, and provide a little bit of the bottom back than a lot of the bottom. Okay, well that that's hopeful. You know, let's look at that broader logistics. Obviously we're just talking about the warehouse, but you have to you know, you're dealing with trucking companies and shipping companies, etcetera. Why has it been so long? Like we're here in mid July getting to be late July one. How would you

describe why we're still dealing with such extreme problems. And when I look at things like say global shipping rates, whether it's from China or Asia to the U S and of forth, it doesn't it's not getting it's not easy. It seems to be just getting. In many cases, it is getting more expensive, getting worse. Why why is it taking so long to adjust? And without one to answer a question with a question, I would pose the question to you, which is, when was the last time that

you went to a cinema? Right? It was December. I start uncut gems in the theater, and as a result, you shifted your buying patterns towards buying things online while and enjoying the experience. That's true, and when when you shift those back, the log jam will be uncold. So it's it's my fault. But I'm not canning blame. But it begins with It begins with me. All right, I'll go to the theater soon to see if I can start a to see if I can get some momentum

behind that and change consumer behaviors. I haven't going to restaurants again, to be fair, Well, that's when when was the last time you took a flight? I took one sometimes and no, it has been a while, but I am taking one in a few weeks, so that in turn has caused an air freight spine, and therefore you've seen that modal shift that I talked about towards towards shipping and people deciding and actually the price is just

too expensive. They weren't even bother shipping it at all. Yeah, there isn't an interesting dynamic this idea that because so talk to it. What was about the sort of the pre crisis mix of vessels shipping versus air cargo shipping, and how is that? How does that look to that.

I'm definitely on an expert and all things container shipping and air freight, but broadly half of the world's capacity is carried in the belly of the plane, and therefore air frace is obviously an integral portion of getting things just in time, because obviously you can get there in twenty four hours. Air froces is booked on a very short short notice. And what happens is going to container

ship cle that you can't do it overnight. So for example that typically the average container shipping life cycle would be abound sixty days. So people tend to ship very different things within both the container ship versus versus a conco CORNGO is is really immediate demand inventory shortage, and therefore that has added to the complexity and the contortion within the system as you can imagine. So back to you, when are you going to be flying again? That will

remove the bottle back? All right? I'm flat, I'm I have a fled scheduled for August. You know you mentioned just in time, and I'm curious, like, is it. One of the things that this crisis exposed is that we live in this era of incredible efficiency and it's pretty amazing and I can order something sometimes and get it delivered that day or twenty four hours later and so forth, but that there are costs when an extreme disruption hits.

And obviously the pandemic was an extraordinary disruption, but we live in an era of climate disruption, and it is reasonable to expect other things. You are there going to be permanent changes in your view to the way companies think about logistics or where you're thinking about logistics, to build in buffers or to build in other uh buffers. I guess. So there we don't have this sort of extreme disruption like we got this time around I think

this really triggers this idea of outsourcing. The outsourcing of the numbers I gave you at the start of the hundred and thirty billion of the market that's already been outsourced versus the three hundred billion it's still yet to be outsourced. I think that this, this crisis, this pandemic, and in the last twenty four months, has really triggered

people to reconsider their supply chain functions. And obviously, you know that the historically been handled in house, that's referred to either the four thirty and you know, with expectations of speed and precision rising, I think supply chains are obviously they're going to become more complex and that drives more business towards the party logistics providers like US. So I think that that's going to be a big theme over not just the next you know, three to six months.

I don't view this is anything other than a secular trend over the next ten years, and I think that will expose some very strong underlying themes in the industry. You've touched on obviously, the automation theme. You've touched on e commerce as well, and a leading tech innovator like US that has a bluechip customer base, will have remarkably

strong visibility and its business model as a result. Speaking of characterizing yourself as a tech innovator, you know you mentioned for example, software that you're developed to uh, you know,

reduce the number of errors and so forth. How much is developed strictly in house in terms of you have your own engineers and coders a software team versus sort of repackage third party technology that's sort of built in conjunction with you know, some household software giant name that we might know, Yes, a good good points a couple of things to be aware of. So on the proprietary software tool which is obviously the smart software that I that I mentioned, it is exactly that about the house

proprietary and nature. So that is that is something that

customers come to us for. For the five to seven percent savings that I mentioned in regards to the robotics side, very exciting because although you would argue that the that the mode so to speak, is is relatively shallow, I would I would argue differently, which is that it's very rare to have a scale provider like us to stack a warehouse the way that we do that have the experience across so many different types of warehouses, the way that we the way that we stack a warehouse from

a robotics standpoint, and I urge you to go and see. You know, so many of our operations, whether it's what we're doing in Indiana for some tech giants, or whether it's what we're doing over in less per as I mentioned for Nestl, these are very much warehouses of the future with huge alternation. I mean, we're going to have roughly three thousand one D robots and advanced automation systems by the end of this year. So it's something our

customers are demanding. And is it less about say, developing the robots per se, and more about the know how of putting it all together, so to speak, within the context of the warehouse, not using robotics for the sake of using robotics. It's about that nohow, It's about that experience. You've done it before, we lived it. You've done it for this customer in that way you say, you say significant game share, so you've you've given them continuous improvement

over a five year period. This is the experience factor that drives the precision for the next contract and that bargaining power and scalability across different customers is something that customers come to uschool. Let's, you know, just talk a little bit about the future. I mean we've talked about okay, so you've identified the big tail winds, including e commerce and automation. I got substance about the total addressable market.

How much is currently automated? What are the you know, like, how many warehouses are are there today, how many much? How fast is this going to grow? How much room does just e commerce itself have to grow? In your view? How much? How much time is left? I think two things are gonna happen. So let's let's give you some

very explicit numbers the e commerce market right now. If you wanted to break it down, you'd say entire retail as as a as a pie chart, you'd say the e commerce represents in the markets that we serve in North American Europe, Roughly around t is e commerce and nature. So in terms of the runway, you couldn't possibly find a more runway between e commerce, automation, and outsourcing. These are very nascent themes. As much as we believe that

e commerce has been around for twenty five years. We are still just getting started in regards to that theme over the course of the next century. So when you think about the growth trajectory there, we view e commerce is growing broadly around ten percent plus and therefore, for an industry and business like ours that has bits of its operation geared towards e commerce, it's very much right place, right time, um and our customers are benefiting from that.

When it comes to thinking about automation, I've given you my view in terms of how what the run way it could be for that, and that's obviously a compounding factor in terms of driving e commerce going forwards. And the reason automation is important is that it helps us serve our customer. Within that e commerce theme, it's particularly on the reverse logistics side, where we were returning goods to the customer storefront that that is giving a differentiation

to our model versus versus o our other competitors. We can do it quicker, I believe we do it with precision and customers come to us for that. And then obviously the outsourcing theme, I think that that's going to set set to accelerate not just post the pandemic, but structurally as people reassess their own supply chains, as we talked about before. And I don't think this is just the commerce element of our customer base. I think it's going to happen across our entire customer base, whether it's

consumer packaged goods, whether it's consumer technology. Our Blue Chick customers are all looking for for for viable three pl players right now. So it's a very exciting time to be in this industry. And these are customers that are fly by night. These are customers. If you look at our top twenty customers, you know they've partnered with us for fifteen years or war. So when they start a partnership,

the switching costs tend to be relatively high. Do you think it is delivery by drone ever going to be a big thing? I think it's going to be an important part at some point. It hasn't had the penetration that I originally thought it would over the last five years. I think the technology still needs still needs to be

adapted for the world that we live in. And you know you mentioned the warehouse capacity is extremely tight right now, what about actually just like physical like more, how many more warehouses and the land available to them like how much footprint are we going to see? How much more construction of warehouses are we going to see in North America and the US. To give you a sense, we've got nine hundred warehouses, we've got about five of the

outsource logistics not to that extent. We're growing, as I mentioned, are at eight to twelve per cent over the next

over the next twelve months. To give you a sense of the e commerce and automation and outsourcing themes that I've talked about earlier, if you were to underpin that growth, and say, if you were to extrapolate so the sixteen percent that we've done over the last twenty years, you can get a sense for the demand of warehousing or at least for the creation of warehouses as we grow our customer base, and all of these themes have the potential to accelerate over the next decade. As I mentioned.

So the demand is definitely there in my view, Whether the space is there on the outskirts of major cities, I think I think it definitely is. Whether when you get closer to the last mile it becomes more and more complicates and include the demand as you know, for customers to get closer and close to the last mile is ever more prevalent, and therefore the need to work with people who have dedicated relationships such as US. So what I mean, I mean this is a problem like

you know, any building in st. New York City, there's all kinds of issues that arise, the cardboard boxes that pile up everywhere, major sorts of frustration. What might change?

You know, if we think about like buying patterns, and I'm sure you think many years ahead, how might be e commerce experience of getting shipped, whether it's twenty four hour shipping or one hour shipping or two hour shipping or whatever it is, um how might it change for a you know, this very intense competitive urban market out a few years of the future. So I think there's a few things you touched on there that really resonated

with me. With me is as a company, and that is you mentioned the couple box, but not I think if there is going to be a change, I think what I'm seeing across a number of our customers right now is it will focus on environmental targets. I know your point was more geared towards the efficient syperiment, and I think that that will be solved over time as well. But I really see this in every contract that we write,

a commitment to achieving some very bold environmental targets. Not only sits with us as the customer providing so this provided, but also with our customers as well and their stakeholders. So we've put out some I believe, very bold targets and we're very focused on attaining those. Those are S two targets and helping our customers in turn and chief

first targets. But that is something that's going to be at the cornerstone of everything that we're seeing in regards to e commerce, making it, as you say, less packaged and more efficient. E s G is going to play a major role within that mark. I think that's a

great place to leave it. I don't know, is there any any other key themes or things that we haven't touchdown that you want to get a crime Joe, You've been incredibly kind and thank you for allowing me to talk about g X, so you can clearly see I'm very excited about the spin that is planned for the second August. I've joined the company as you know, two

months ago. That is a rare breed growing a secular secular tail winds as we've discussed across those three major themes, and with strong revenue growth and strongly bit dark growth and amazing returns, and I hope we're going to do an amazing job for our stakehold. You know you've just from I did me of one one last question I had. So you're you're new to the company. Your title is

c i O Chief Investment Officer. Do you explain what is what is the role of the c IO within a company like this and how much UM is your future like predicated on buying more, buying out other, buying out competitors, buying out space and sort of applying that know how that you've built up to what you perceive as less efficient operations out there. Great, great questions, Joy, So a couple of things I'd be aware of, um. So, firstly, in terms of my role, I think I've got one

of the coolest roles in the building. Quite frankly. I get to work right next door on and arm with with our CFO, who's very judicious when it comes to the capital in particular, has got an amazing background of capital markets as well, and we get on extremely well as friends as well, which is always always a nice

thing in the workplace. When it comes to thinking about the role, very much focused on investment, whether that's external internal, and that can involve everything from the media through to podcasts all the way through to dealing day to day with investors. So there's definitely an investor relations element to

the role. As you said, there will be an element of this which is also strategically orientated as well, whether that's M and A or otherwise, but basically services servicing the purposes of the company, making sure that the spin is a success, making sure that the messaging is heard aloud and clear, and working with the CFO to make sure that we create as much shareholder value on a

sustainable basis as possible. When it comes to at your question on M and A, go back to that point that I mentioned around the five of a hundred and thirty billion dollar out source logistics market. There's two ways you can think about this. One is that as per our history, we've got a strong balantry, we've got a track recording successful M and A, and we obviously therefore sit in the perfect position as a consolidator in the market.

As the right opportunities presented to present themselves come along. I have no doubt that we will look at everything, but it obviously has to attain certain targets in the context of our amazing organic growth tential that we have

as a business. That's clearly that organic growth is clearly going to be the priority for our business and in so many ways if we're making center return on invested capital, we have to believe that any deals that we do have to have a hurdle rate above that, otherwise you

would just go and do organic growth. My senses with this, Joe, is what will happen is is that there will be a lot of inertia in the industry at at the tail of the industry when it comes to contract bidding, and what we'll see is these contracts of our customers migrating towards the scale players over time. So whether it's the top two or top three players, we will see a wave of smaller customer contracts coming to us at the top of the piles. So in essence, I think

the big will getting well. Mark, really appreciate you joining us, Good luck with the spin and thanks for coming our other life, so thanks for me so nice. Absolutely take care remote well, if Tracy were here, this is where we do our chat in our takeaways. Obviously she's not, so I have to monologue a little bit myself. But obviously to me what was interesting is obviously just how under at least according to Mark, how under automated the

space is, which surprised me. I wouldn't have guessed that there's still so much sort of pure as he put in dickensiean warehouses with humans and cardboard boxes moving around. Yeah, that that obviously definitely surprised me. And also, of course just this idea that until consumer buying or consumer consumption

patterns change, we're probably gonna get this disruption. Like I've been looking at these charges of say, shipping rates from Asia to the U S and so forth that do not seem to go down, and I think Mark put it, well, there's no real reason to think they're going to go down as long as consumption pattern is abnormal and things I guess are normal I in some sense, but it is true it's been like over a year and a half since I was in a movie. I've barely taken

any flights. So even though I am going to say like restaurants more often a lot isn't normalizing yet, and as such, you know, it's probably we're not going to see any real form of normalization in logistics, which I thought was made sense, but it's something I hadn't quite put together in that way. So, without further ado, this has been another episode of the Odd Lots Podcast. I'm Joe Wisnthal. You can follow me on Twitter at the Stalwart. Follow my co host Tracy Alloway at Tracy Alloway. Follow

our producer Laura Carlson. She's at Laura. I'm Carlson. Followed the Bloomberg head of podcast, Francesca Leavi at Francesco Today, and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening to year