WEBVTT - Brad Jacobs Plans to Make Billions in the Building Supply Industry 0:00:10.720 --> 0:00:15.000 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:15.080 --> 0:00:17.440 I'm Joe Wisenthal and I'm Tracy Alloway. 0:00:17.560 --> 0:00:21.120 Tracy Obviously, over the last few years we've done tons 0:00:21.120 --> 0:00:28.319 of episodes about freight logistics, trucking, warehousing, etc. And one 0:00:28.360 --> 0:00:32.040 of the things that has always struck me is just, 0:00:32.240 --> 0:00:35.000 you know, all of this crucial stuff, how sort of 0:00:35.479 --> 0:00:38.960 chaotic and help together with tape and glue. These industries 0:00:39.000 --> 0:00:39.720 often seem. 0:00:39.600 --> 0:00:42.239 To me, Can I tell you something. My husband and 0:00:42.240 --> 0:00:46.080 I are rebuilding the shed in Connecticut and just getting 0:00:46.120 --> 0:00:49.599 the lumber for the shed. Is this massive production that 0:00:49.680 --> 0:00:53.080 involves us like renting a truck and having to like 0:00:53.240 --> 0:00:56.080 negotiate it from some lumberyard and then like bring it 0:00:56.120 --> 0:00:59.040 back and forth piece by piece. The industry of all 0:00:59.280 --> 0:01:03.279 the movement of these physical goods and products, it seems 0:01:03.600 --> 0:01:06.560 so difficult at times, and it also seems sort of 0:01:06.680 --> 0:01:09.520 ripe for opportunity. But then you also hear stuff like 0:01:09.600 --> 0:01:12.760 Convoy going out of business, right, the freight broker that 0:01:12.840 --> 0:01:16.679 was supposed to be using new technology to revolutionize trucking 0:01:16.760 --> 0:01:19.280 and things like that, And so I don't know, there's 0:01:19.360 --> 0:01:23.360 like this tension between moving physical products and then using 0:01:23.440 --> 0:01:26.240 tech to make the whole space more efficient totally. 0:01:26.480 --> 0:01:28.440 It's one of these areas where it seems like, oh, yeah, 0:01:28.480 --> 0:01:30.399 there must be more simple. Like I remember one of 0:01:30.400 --> 0:01:34.119 our first sort of eye opening episodes with Stinson Deane 0:01:34.160 --> 0:01:36.640 talk about how lumber is distributed and so much of 0:01:36.680 --> 0:01:39.640 these communications just on sort of message boards or boards 0:01:39.640 --> 0:01:42.559 that might resemble Craigslist. And then you know, we've talked 0:01:42.560 --> 0:01:45.360 about it with Craig Fuller and Rachel Kremac and freight 0:01:45.360 --> 0:01:47.720 waves and the idea that you know, you look at 0:01:47.720 --> 0:01:51.560 how trucking brokerage works, these load boards and this is 0:01:51.760 --> 0:01:54.480 all this crucial stuff that's sort of at the center 0:01:54.520 --> 0:01:57.080 of how the economy works. And it's like they're in 0:01:57.120 --> 0:02:00.320 WhatsApp groups. Yes, anyone can anyone pick up a load 0:02:00.400 --> 0:02:04.080 in Akron and bring it to El Paso next week, 0:02:04.120 --> 0:02:05.280 and this is how it all works. 0:02:05.360 --> 0:02:07.720 It seems so informal, and then of course it leads 0:02:07.760 --> 0:02:11.440 to these inefficiencies like trucks running around empty basically what's 0:02:11.440 --> 0:02:14.160 it called dead heading? Basically yeah, yeah, and things like that, 0:02:14.320 --> 0:02:17.760 And I guess the question is, like, what is the 0:02:17.800 --> 0:02:21.400 sticking point here? Is there something like fundamental about moving 0:02:21.400 --> 0:02:25.440 physical goods? That is, I guess, resistant to new technology, 0:02:25.680 --> 0:02:28.360 or is there maybe something about the industry where you 0:02:28.400 --> 0:02:31.400 know people are making while they were people are making 0:02:31.440 --> 0:02:34.840 lots of money from lack of transparency in the industry, 0:02:34.880 --> 0:02:38.560 and so they themselves are resistant to new technology. It 0:02:38.639 --> 0:02:40.799 kind of reminds me of the bond market sometimes and. 0:02:40.800 --> 0:02:44.840 Stocks absolutely tracy. It sounds like, given the headaches you've 0:02:44.880 --> 0:02:47.239 had with your new shed, that you could really use 0:02:47.320 --> 0:02:51.960 some efficiency gains in the world of building products distribution, 0:02:52.160 --> 0:02:52.480 could you. 0:02:52.600 --> 0:02:56.480 Not, Yes, especially since I keep messing up the ridgeboard 0:02:56.600 --> 0:02:58.440 on the roof. I can't get it straight, and then 0:02:58.480 --> 0:03:00.360 every time I mess it up, we have to go 0:03:00.400 --> 0:03:03.720 and get more lumber. So yes, yes, please. 0:03:04.240 --> 0:03:08.360 Well, we do literally have the perfect guest, someone whose 0:03:08.400 --> 0:03:11.799 career I think almost is so odd. Lotsye, in all 0:03:11.840 --> 0:03:15.960 of the topics that we discuss. Over the years, he 0:03:16.000 --> 0:03:18.640 has started, depending on how you count, between five and 0:03:18.760 --> 0:03:23.440 seven companies, started an oil brokerage, the founder of United 0:03:23.480 --> 0:03:26.800 Waste Systems, which rolled up waste collection companies sold to 0:03:27.040 --> 0:03:30.720 Waste Management, United Rentals, and then the creator of the 0:03:30.800 --> 0:03:35.720 logistics conglomerate XPO, which also spun off a freight brokerage, 0:03:35.720 --> 0:03:39.720 A logistics company, et cetera. We are speaking, obviously to 0:03:40.120 --> 0:03:43.800 Brad Jacobs, who just a few days before this recording 0:03:43.880 --> 0:03:48.320 announced the creation of a new company called QXO, which 0:03:48.360 --> 0:03:50.920 intends to be a market leader in the space of 0:03:50.960 --> 0:03:54.720 building products distribution. He plans to make billions of dollars, 0:03:54.760 --> 0:03:57.440 and he's the author of a new book, how to 0:03:57.440 --> 0:03:58.680 make a few billion dollars. 0:03:58.880 --> 0:04:00.840 I like how in the press least for the new 0:04:00.880 --> 0:04:03.520 company in qx so he basically says he aims to 0:04:03.560 --> 0:04:06.440 make billions of dollars. So it connects very well with 0:04:06.560 --> 0:04:06.920 the book. 0:04:07.000 --> 0:04:09.520 Well, he has a track record of making billions of dollars. 0:04:09.600 --> 0:04:12.240 I would love to make billions of dollars. So maybe 0:04:12.800 --> 0:04:15.520 we'll learn something. Brad, Thank you so much for coming 0:04:15.520 --> 0:04:16.560 on out laws. 0:04:16.720 --> 0:04:17.520 The pleasure's mind. 0:04:17.760 --> 0:04:20.840 Look, some people think in millions, some people think in trillions. 0:04:20.960 --> 0:04:21.839 I think of billions. 0:04:21.680 --> 0:04:25.520 That's it's a very very reasonable middle ground middle graund here. 0:04:25.839 --> 0:04:28.120 So you say you're going to build a market leader 0:04:28.160 --> 0:04:30.680 in building products distribution. There's a lot to get into, 0:04:30.720 --> 0:04:32.839 but let's just start here. When you look at the 0:04:32.960 --> 0:04:37.000 industry right now of building products distribution in the pre 0:04:37.200 --> 0:04:40.120 QXO world, what does it look like to you. What 0:04:40.160 --> 0:04:42.320 do you see when you look at that industry. 0:04:42.360 --> 0:04:45.080 Something that's really big. First of all, it's eight hundred 0:04:45.120 --> 0:04:49.200 billion dollars between North America and Europe, so it's large, 0:04:49.960 --> 0:04:53.719 and it's very fragmented. You've got seven thousand distributors here 0:04:53.720 --> 0:04:56.840 in North America, you have thirteen thousand in Europe, so 0:04:56.839 --> 0:04:59.400 that's a lot a lot of independent companies and a 0:04:59.440 --> 0:05:02.800 handful of the companies it's mostly privately owned companies. I 0:05:02.839 --> 0:05:05.960 see an industry that's growing. It's been growing at seven 0:05:06.000 --> 0:05:08.600 percent compounded annual growth on the top line for the 0:05:08.640 --> 0:05:12.880 last five years. I see an industry that is rich 0:05:12.960 --> 0:05:16.760 with acquisition targets, so it's an opportunity to scale up. 0:05:17.320 --> 0:05:20.800 And I also see an industry that could use more technology. 0:05:20.800 --> 0:05:23.560 There's a handful of companies doing some cool things in technology, 0:05:23.720 --> 0:05:26.560 but by and large, the industry as a whole is 0:05:27.160 --> 0:05:30.440 behind where logistics is. It's not where the logistics industry is. 0:05:30.839 --> 0:05:32.880 This is exactly what I wanted to talk to you about. 0:05:32.920 --> 0:05:35.120 So in the press release you say I think tech 0:05:35.360 --> 0:05:38.800 enabled company or something like that. What does that mean 0:05:39.080 --> 0:05:43.000 exactly in this context? What is the technological opportunity that 0:05:43.040 --> 0:05:43.920 you see here. 0:05:44.200 --> 0:05:47.240 It's a few things. Number one, it's how you interact 0:05:47.240 --> 0:05:51.599 with the customer. And right now mid single digits percent 0:05:52.360 --> 0:05:57.039 is done over digitally and ninety something percent is done 0:05:57.279 --> 0:06:00.640 face to face, and that really should be reversed eventually, 0:06:00.680 --> 0:06:02.880 over time, not right away. You should see more and 0:06:02.960 --> 0:06:06.040 more penetration of digital on that. So that's number one 0:06:06.080 --> 0:06:10.159 the e commerce penetration. Number two pricing. Pricing could be 0:06:10.160 --> 0:06:14.280 more methodical, could be done electronically, could be done by AI, 0:06:14.400 --> 0:06:18.520 could be done by machine learning, and be interactive and continuous. 0:06:19.400 --> 0:06:23.680 And thirdly, the inventory, so this is a business has 0:06:23.720 --> 0:06:26.960 a big transportation logistics element to it because you're buying 0:06:27.000 --> 0:06:30.359 a bunch of products wholesale, you're storing them in dcs, 0:06:31.160 --> 0:06:36.920 and then you'll distribution side like warehouses fancy word for warehouses, 0:06:37.320 --> 0:06:40.360 and then you're delivering them in delivery trucks to the 0:06:40.440 --> 0:06:43.599 end user. So there's a lot of transportational logistics here. 0:06:44.160 --> 0:06:47.760 And the dcs or warehouses that I visited so far 0:06:48.279 --> 0:06:50.800 not a whole lot of automation, and there they should 0:06:50.839 --> 0:06:54.719 be highly automated. Now handful of companies aren't doing automation, 0:06:54.960 --> 0:06:57.640 but they're the exception, not the rule, and it really 0:06:57.640 --> 0:07:00.880 should be the rule, because as we know from Jexo 0:07:01.000 --> 0:07:03.520 Logistics where we have a couple hundred million square feet 0:07:03.560 --> 0:07:06.320 of warehouses around the world, automation is where it's at, 0:07:06.360 --> 0:07:08.920 that's where it's going, and that's what customers want. It 0:07:08.920 --> 0:07:12.680 takes out costs and increase safety, it's faster, it's more accurate. 0:07:13.360 --> 0:07:13.760 There is a. 0:07:13.760 --> 0:07:16.920 Thousand reasons why automation makes perfect sense for the inventory part. 0:07:17.440 --> 0:07:19.760 And then it's not just the picking and packing that 0:07:19.840 --> 0:07:23.640 needs to be automated, it's the actual inventory management. So 0:07:24.280 --> 0:07:28.400 these distributors have lots and lots of skews and getting 0:07:28.440 --> 0:07:30.600 it just right of not having too much and then 0:07:30.640 --> 0:07:33.200 tying up capital but not having too little and then 0:07:33.240 --> 0:07:36.720 disappointing customers so you can fulfill their demand. This has 0:07:36.800 --> 0:07:40.320 to get right. And GXO, for example, has had a 0:07:40.440 --> 0:07:43.080 client Boeing for years and years and years. It went 0:07:43.120 --> 0:07:46.360 back to a new breed before we bought them, and 0:07:46.880 --> 0:07:49.280 they do the parts management for that all around the 0:07:49.280 --> 0:07:53.000 world on a global basis, and that's done technologically. That's 0:07:53.000 --> 0:07:54.360 done not by people fraging out. 0:07:54.400 --> 0:07:55.000 You know, I think we. 0:07:55.000 --> 0:07:56.960 Need this many parts of this year, and we need 0:07:57.000 --> 0:08:00.200 that many parts there, it's doing it methodically, using lots 0:08:00.240 --> 0:08:02.480 and lots of data and using algorithms to understand that 0:08:02.520 --> 0:08:05.880 to get the inventory just right. And here in the 0:08:06.000 --> 0:08:09.760 billing products distribution space, I think there's a big opportunity 0:08:09.800 --> 0:08:13.080 to optimize the inventory management. And then the last component 0:08:13.160 --> 0:08:18.320 of technology that excites me is basic route optimization, meaning 0:08:18.600 --> 0:08:22.120 you've got delivery trucks and it's still being done the 0:08:22.160 --> 0:08:24.480 way it was done in trucking like fifteen years ago. 0:08:24.520 --> 0:08:26.560 For the most part. There's again there's exceptions to the 0:08:26.600 --> 0:08:29.080 rules and find companies doing good stuff, but by and 0:08:29.160 --> 0:08:32.800 large it's not optimized in a typical distribution company you 0:08:32.840 --> 0:08:34.200 have right now, and I think we can bring that 0:08:34.200 --> 0:08:35.320 to the table pretty quickly. 0:08:35.880 --> 0:08:38.360 So I have a billion questions already, not a million 0:08:38.600 --> 0:08:42.640 or a trillion, just a billion. But just so we 0:08:42.760 --> 0:08:45.800 understand the business. What part of the supply chain are 0:08:45.840 --> 0:08:46.880 you actually targeting here? 0:08:46.960 --> 0:08:47.319 Is it the. 0:08:47.240 --> 0:08:51.240 Wholesalers who supply lumber yards or lumber yards that supply 0:08:51.320 --> 0:08:52.280 builders or both. 0:08:52.600 --> 0:08:57.240 We're buying wholesale selling retail. But there's three different categories 0:08:57.440 --> 0:09:02.120 and markets. There's residential, it's non residential, and it's infrastructure. 0:09:02.240 --> 0:09:05.800 So residential is like you like your apartments, your houses. 0:09:06.240 --> 0:09:09.760 People who need floors and windows and doors and roofing, 0:09:09.800 --> 0:09:14.079 tile and so forth, HVAC. Then there's commercial. Commercial can 0:09:14.120 --> 0:09:15.960 be any kind of building that's not a house. 0:09:15.960 --> 0:09:17.960 It could be a school, could be a church. 0:09:18.040 --> 0:09:21.400 It could be a factory, it could be a town hall. 0:09:21.480 --> 0:09:24.040 It could be just anything that's not people living in 0:09:24.080 --> 0:09:27.400 it but has a roof protecting from the elements. And 0:09:27.800 --> 0:09:35.400 the third category would be infrastructure. So infrastructure is roads, bridges, tunnels, 0:09:35.760 --> 0:09:39.400 all the pipes underneath the ground. And if you look 0:09:39.440 --> 0:09:41.880 at these three sectors, one thing that excites me about 0:09:41.880 --> 0:09:46.360 this is all categories there are old. Houses are over 0:09:46.400 --> 0:09:49.560 forty years old. Commercial facilities are over fifty years old. 0:09:50.080 --> 0:09:53.240 A lot of the infrastructure underneath America is over a 0:09:53.280 --> 0:09:56.720 century old. I mean it really needs to be repaired 0:09:56.760 --> 0:09:59.160 and lots of activity has to be done here. This 0:09:59.240 --> 0:10:03.160 is an industry that's not going to go into the metaverse. 0:10:03.240 --> 0:10:06.319 This is an industry that's not going to be disrupted 0:10:06.320 --> 0:10:08.120 by AI. It's can be enabled by AI. And that 0:10:08.360 --> 0:10:10.760 was important for me when I looked at five hundred 0:10:10.760 --> 0:10:12.880 different opportunities, because quite a lot of them I have 0:10:13.120 --> 0:10:16.160 serious questions about whether they'll still exist in five. 0:10:16.080 --> 0:10:16.600 Or ten years. 0:10:16.720 --> 0:10:19.560 Can I ask a question? So with the XPO and 0:10:19.760 --> 0:10:23.800 that family of companies, I guess, why is QXO a 0:10:23.920 --> 0:10:28.000 separate company that needs to be Okay, it's in building 0:10:28.040 --> 0:10:30.600 supply distribution. If you have a freight company, if you 0:10:30.679 --> 0:10:32.920 have a logistics company, if you have a freight broker. 0:10:33.360 --> 0:10:38.800 Why can't your existing companies simply move deeper into this space? 0:10:38.920 --> 0:10:41.360 Why is it important for it to be focused on 0:10:41.400 --> 0:10:44.679 its own Because when you describe, you say, okay, well, 0:10:44.720 --> 0:10:48.559 the transportation system is like where trucking was fifteen years ago, 0:10:48.559 --> 0:10:50.400 and I want to we'll get into sort of this 0:10:50.520 --> 0:10:54.720 date of trucking. Why is it not that existing logistics 0:10:54.760 --> 0:10:58.200 related companies can just offer services to this industry. 0:10:58.559 --> 0:11:02.360 I mean, we couldn't be a real pure play focused company. 0:11:02.400 --> 0:11:07.920 So the XOS, the GXO, RXO, XPO, they're very focused. 0:11:07.960 --> 0:11:11.320 Now we divided the company up into three very carefully 0:11:11.400 --> 0:11:15.240 designed units. You got GXO being supply chain, being warehouses 0:11:15.240 --> 0:11:17.480 around the world. It's got a thousand warehouses and that's 0:11:17.520 --> 0:11:20.040 all it does. Really, it really does warehouse warehouse warehousing. 0:11:20.280 --> 0:11:23.160 It's an inch wide and a mile deep on warehousing 0:11:23.200 --> 0:11:25.160 does it really, really, really well. And then you have 0:11:25.200 --> 0:11:29.440 on RXO it's the asset light transportations, the tech enabled 0:11:29.760 --> 0:11:32.760 brokerage model, and it also has the last mile delivering 0:11:32.800 --> 0:11:36.600 right people's houses. And then thirdly you have XPO, which 0:11:36.640 --> 0:11:40.240 is primarily an LTL carrier less than truckload carrier that's 0:11:40.360 --> 0:11:43.880 mostly in North America. And we divided the company up 0:11:43.920 --> 0:11:47.120 into those three categories because that's what our owners told us. 0:11:47.120 --> 0:11:49.640 That's what our shareholders told us. Our shareholders told us. 0:11:49.640 --> 0:11:51.679 Look, we don't want all these things altogether. We want 0:11:51.720 --> 0:11:54.400 to have more defined pure plays that we can invest 0:11:54.440 --> 0:11:58.640 in the industrial comeback and then we'll invest in XPO 0:11:58.760 --> 0:12:01.360 for LTL or want to go more consumer, or we 0:12:01.400 --> 0:12:04.200 want to go make a play on e commerce, which 0:12:04.200 --> 0:12:07.000 we'll go more with with GXO. And that's worked really well. 0:12:07.040 --> 0:12:09.959 I mean, we were getting a conglomerate discount for our multiple. 0:12:09.960 --> 0:12:13.640 We were trading like eight times Ebada. Today those three 0:12:13.679 --> 0:12:17.240 different companies trade at double digit multiples of Ibada, and 0:12:17.280 --> 0:12:20.120 that in addition to improving the Ebadah, the multiple on 0:12:20.200 --> 0:12:23.160 Ebadah improved too, so it made sense to split those up. 0:12:23.440 --> 0:12:25.520 So I don't I think we would be going backwards 0:12:25.520 --> 0:12:29.280 from a shareholder perspective if we if we started becoming 0:12:29.280 --> 0:12:47.280 more multifaceted and blended distribution together with the xos. 0:12:48.280 --> 0:12:51.559 Let's talk a little bit more about your plans for QXO. 0:12:51.800 --> 0:12:54.360 And so you mentioned it in the US there's seven 0:12:54.400 --> 0:12:59.120 thousand companies and in Europe there's thirteen thousand, and you 0:12:59.120 --> 0:13:01.360 know you're gonna hit their grown running have billions of revenues. 0:13:01.360 --> 0:13:03.160 You're gonna buy up a bunch of companies and. 0:13:03.200 --> 0:13:03.679 Roll it up. 0:13:04.120 --> 0:13:07.480 My understanding, you know, going back to the United Waste 0:13:07.559 --> 0:13:09.960 days and when you sort of started building that up, 0:13:10.000 --> 0:13:14.920 it was acquiring different types of assets, so distribution but 0:13:15.160 --> 0:13:18.439 also landfills, et cetera. You know, and I think when 0:13:18.440 --> 0:13:21.560 people think about roll ups in the traditional Pe sense, 0:13:21.600 --> 0:13:23.600 they're like, Oh, I'm gonna go out and I'm gonna 0:13:23.600 --> 0:13:27.360 buy twenty you know, h VAC companies and we're gonna 0:13:27.480 --> 0:13:30.040 unify their back end and take out some dead and 0:13:30.040 --> 0:13:32.439 make them all leaner and operation and six sigma and 0:13:32.520 --> 0:13:35.360 all that stuff. It feels like you're thinking much more 0:13:35.360 --> 0:13:38.840 holistically in terms of buying different parts of the supply 0:13:38.920 --> 0:13:40.679 chain to work together. Can you talk a little bit 0:13:40.679 --> 0:13:45.080 about what assets you need to buy to make QXO work. 0:13:46.000 --> 0:13:47.520 So you mentioned it correctly. 0:13:47.559 --> 0:13:52.240 At United Waste, we bought landfills, we bought transfer stations, 0:13:52.240 --> 0:13:56.080 we bought collection companies, and that became one integrated supply chain. Yeah, 0:13:56.160 --> 0:13:59.120 and it worked really well because we took out a 0:13:59.120 --> 0:14:01.080 lot of cost as of doing that. We had an 0:14:01.160 --> 0:14:03.800 end to end solution for customers and they loved it, 0:14:03.840 --> 0:14:06.920 and that's why our earnings compounded a fifty five percent 0:14:07.040 --> 0:14:10.000 kager and not coincidentally, so did our stock price. So 0:14:10.720 --> 0:14:13.160 I get that. So you have to create a company 0:14:13.679 --> 0:14:16.880 that works for the customer, that the customer appreciates the 0:14:16.880 --> 0:14:19.760 service that you're providing so they wire money from their 0:14:19.760 --> 0:14:22.440 bank accounts to yours. So it's very very important to 0:14:22.440 --> 0:14:27.160 do that here in QXO. In our building products distribution company, 0:14:27.840 --> 0:14:33.520 we're going to stay very focused on distribution, meaning distributing 0:14:34.160 --> 0:14:37.640 building materials to the three segments that I was just 0:14:37.640 --> 0:14:40.760 talking about with Tracy in terms of residential, non residential, 0:14:40.760 --> 0:14:43.160 and infrastructure. And I'm going to stay right on those 0:14:43.200 --> 0:14:46.280 three things and I'm going to toggle between them depending 0:14:46.320 --> 0:14:50.080 on opportunities as they arise. Attractive opportunities, We're going to 0:14:50.080 --> 0:14:53.120 be opportunistic, and how we think the five to ten 0:14:53.200 --> 0:14:54.720 year outlook looks for each one of those. 0:14:55.320 --> 0:14:59.720 So you mentioned infrastructure and just connecting this back to 0:14:59.760 --> 0:15:04.280 the landfill business that we were just discussing. Reading your book, 0:15:04.640 --> 0:15:06.880 one of the things you talk about is the reason 0:15:06.920 --> 0:15:09.560 you were able to buy up landfills at that time 0:15:09.920 --> 0:15:13.000 was partly because of new environmental regulations that made them 0:15:13.040 --> 0:15:16.440 more costly for the existing owners to actually run, and 0:15:16.480 --> 0:15:18.840 so a lot of people wanted to get rid of 0:15:18.840 --> 0:15:21.960 their landfills. I guess, at reasonable prices and you snap 0:15:22.040 --> 0:15:26.400 them up. When you talk about infrastructure spending, it seems 0:15:26.440 --> 0:15:29.720 like part of your mo is maybe looking at what 0:15:29.760 --> 0:15:32.360 the government is doing, what the government is spending its 0:15:32.440 --> 0:15:37.040 money on, and taking that opportunity into account. How much 0:15:37.080 --> 0:15:40.680 does that figure into your planning? And the other story 0:15:40.720 --> 0:15:42.560 you tell in the book is at one point you 0:15:42.600 --> 0:15:45.600 bought up a bunch of road rental companies in anticipation 0:15:46.200 --> 0:15:50.000 of six hundred billion dollars of infrastructure funding, but that 0:15:50.040 --> 0:15:52.160 didn't really work out. So I guess, like, how are 0:15:52.200 --> 0:15:54.920 you evaluating the opportunity and the risk here? 0:15:55.400 --> 0:15:59.480 I'm not counting on government handouts, the government handouts or 0:15:59.520 --> 0:16:02.000 the cherry on top. It's extra and it's great and 0:16:02.120 --> 0:16:04.280 we'll take it. But that's not what the business plan 0:16:04.400 --> 0:16:06.400 is based on. The business plan is based on that 0:16:06.480 --> 0:16:10.400 the infrastructure is very aging and there's got to be 0:16:10.440 --> 0:16:13.000 spent about two trillion dollars in order to fix it up. 0:16:13.440 --> 0:16:15.920 Whether that happens at this pace or that pace, or 0:16:15.920 --> 0:16:18.200 from this pocket or this pocket, it doesn't really matter. 0:16:18.320 --> 0:16:21.160 It's going to have to happen. Because so you mentioned 0:16:21.200 --> 0:16:22.880 you have a house in Connecticut, so you know what 0:16:22.920 --> 0:16:24.920 I'm talking about. Driving from Connecticut to the city is 0:16:24.920 --> 0:16:27.640 a bumpy ride. Says these things have to get fixed 0:16:27.680 --> 0:16:31.480 and or later. And then on residential, you look at residential, 0:16:32.000 --> 0:16:34.240 the average house is forty two years old. I mean 0:16:34.280 --> 0:16:35.480 when I was a kid, it was ten years old. 0:16:35.480 --> 0:16:37.560 That was an old house. So it's a lot of 0:16:37.560 --> 0:16:40.240 repair and modeling is going to happen. There nothing to 0:16:40.240 --> 0:16:42.600 do with the government, the governments. I don't think the 0:16:42.680 --> 0:16:45.640 government's not going to pay Tracey Alloway to repair and 0:16:45.800 --> 0:16:46.480 remodel your house. 0:16:46.640 --> 0:16:50.880 They might pair to install heat pumps, insulation and other 0:16:51.080 --> 0:16:53.960 sort of you know, clean energy advances. 0:16:54.080 --> 0:16:57.680 Yeah, and there is one company, Watsco, who specializes in HVAC. 0:16:58.280 --> 0:17:00.440 That's capitalizing on that and making it a ton of 0:17:00.440 --> 0:17:02.520 money doing that. But I'm not counting on that. I'm 0:17:02.520 --> 0:17:05.399 not building a business plan based on government large ass. 0:17:05.400 --> 0:17:07.960 That's nice and it's an extra kicker, but that's. 0:17:07.760 --> 0:17:09.480 Not the guts of the business plan. You know. 0:17:09.520 --> 0:17:11.600 I mentioned in the beginning that one of the big 0:17:11.640 --> 0:17:13.639 eye opening things is Tracy and I have learned more 0:17:13.640 --> 0:17:18.320 about these industries is how load tech communication is, and 0:17:18.400 --> 0:17:21.280 you know, freight brokerages where it's still based on phone 0:17:21.480 --> 0:17:24.560 I think we heard right right, Maybe facts is still 0:17:24.600 --> 0:17:27.000 or maybe in the last few years there's no more facts. 0:17:27.200 --> 0:17:31.080 I'm not sure. These websites and WhatsApp groups that you 0:17:31.119 --> 0:17:35.880 know super retro in building supply distribution. When you talk 0:17:35.920 --> 0:17:39.120 about how load tech it still is, you know, let's 0:17:39.119 --> 0:17:43.639 say Tracy works with some local provider of lumber or 0:17:43.680 --> 0:17:46.440 whatever she needs, Like, what is the process by which 0:17:46.720 --> 0:17:50.639 the current status quo these these goods are delivered to 0:17:50.680 --> 0:17:53.399 a regional distribution center or to her house. 0:17:53.720 --> 0:17:56.200 So a couple things there. Let's start with the beginning 0:17:56.240 --> 0:17:58.959 part of your question about truck brokerage. Truck brokerage is 0:17:58.960 --> 0:18:01.800 not as old fuddy duddy as you may think it's 0:18:01.800 --> 0:18:04.040 evolved quite a bit in the last ten years. 0:18:04.080 --> 0:18:04.320 Now. 0:18:04.880 --> 0:18:08.280 In twenty eleven, when I got into the truck brokerage business, 0:18:08.440 --> 0:18:10.800 it was just as you described. It wasn't low tech, 0:18:10.840 --> 0:18:14.000 it was no tech. It was one hundred percent people 0:18:14.119 --> 0:18:16.760 talking on phones to each other and in very slow 0:18:16.760 --> 0:18:19.080 book way. We didn't have factors. It was still email, 0:18:19.160 --> 0:18:21.920 but it was not very machine to machine. Fast forward 0:18:21.960 --> 0:18:25.680 to today, OURXO which was the truck brokerage spin off 0:18:25.920 --> 0:18:30.200 of XPO that Drew Wicklinson runs that business. Now ninety 0:18:30.600 --> 0:18:34.240 seven percent of their orders are either sourced or covered 0:18:34.280 --> 0:18:38.040 electronically digitally, So that's come a long long way. 0:18:38.080 --> 0:18:40.280 Now. Rxo's at the forefront of that. 0:18:40.280 --> 0:18:42.760 It's been the leader of technology because we invested in 0:18:42.760 --> 0:18:43.520 that right from the beginning. 0:18:43.520 --> 0:18:44.200 That was our vision. 0:18:44.480 --> 0:18:46.960 But even the whole industry, it's not ninety seven percent, 0:18:47.000 --> 0:18:49.560 but it's over half. Over half now he's done electronically. 0:18:49.760 --> 0:18:53.600 So that's brokerage. That's where brokerage has gone. Now. Distribution 0:18:53.800 --> 0:18:56.760 is kind of where brokerage was ten years ago, maybe 0:18:56.760 --> 0:18:58.439 eight years ago, because there are, like I said, there 0:18:58.440 --> 0:19:01.240 are a handful of companies are starting to do this digitally, 0:19:01.560 --> 0:19:04.280 but overall, it's an industry. It's still single digits percent, 0:19:04.480 --> 0:19:06.320 so it's going to penetrate much much more than that. 0:19:06.560 --> 0:19:09.000 There's so many things depending on the type of product 0:19:09.040 --> 0:19:11.800 we're talking about that it should just be ordered on 0:19:11.800 --> 0:19:14.439 your phone or on your website. You should not have 0:19:14.440 --> 0:19:15.960 to go somewhere and stand in line. 0:19:16.480 --> 0:19:17.320 It's not necessary. 0:19:17.880 --> 0:19:21.760 What are the sticking points to technology adoption in distribution? 0:19:21.960 --> 0:19:23.720 Because I imagine, you know, if you went to a 0:19:23.760 --> 0:19:27.200 company and you said, I can make your inventory management 0:19:27.240 --> 0:19:30.800 a lot more efficient using technology, it seems like a 0:19:30.840 --> 0:19:32.920 slam dunk for them. Maybe it costs a lot of 0:19:32.960 --> 0:19:36.000 money and that's the issue. Maybe on pricing, if you 0:19:36.040 --> 0:19:38.240 say I can make your pricing a lot more transparent, 0:19:38.320 --> 0:19:42.040 maybe there's less of an incentive for them to improve that. 0:19:42.080 --> 0:19:45.160 But like, what are the major hurdles that you see here? 0:19:45.560 --> 0:19:48.320 It's really just doing it. It's a question of companies 0:19:49.000 --> 0:19:52.080 putting money there. This is a very low capex business, 0:19:52.560 --> 0:19:56.880 very very low capex. The conversion from EBIDATA free cash 0:19:56.920 --> 0:20:00.639 flow is enormous. In some companies, the cashual is more 0:20:00.680 --> 0:20:03.480 than an income, so there's very little investment in capex. 0:20:03.640 --> 0:20:06.880 I don't mind investing in CAPEX for technology. In fact, 0:20:06.920 --> 0:20:09.320 I want to and I will because that was the 0:20:09.480 --> 0:20:13.240 big driving force of our success at XPO, was being 0:20:13.240 --> 0:20:15.280 ahead of the curve on technology. So we're definitely going 0:20:15.359 --> 0:20:17.200 to do that there, and that's all that's required. 0:20:17.680 --> 0:20:17.880 Now. 0:20:17.920 --> 0:20:20.080 You have a lot of companies that are private equity 0:20:20.119 --> 0:20:23.560 owned private equity because of their structure, their nature, and 0:20:23.560 --> 0:20:25.560 they have to give them money back to their investors 0:20:25.600 --> 0:20:28.800 after seven or so years. Sometimes it doesn't make sense 0:20:28.840 --> 0:20:31.080 for them to invest hundreds of millions of dollars into 0:20:31.080 --> 0:20:33.879 technology because they're gonna be flipping it, so why should 0:20:33.880 --> 0:20:37.320 they do that? I get that, And sometimes companies have 0:20:37.359 --> 0:20:40.160 a lot of pressure on short term earnings the quarter 0:20:40.160 --> 0:20:42.760 of the year and they don't have an investor base 0:20:42.760 --> 0:20:45.200 that's got a long term view of So my investors 0:20:45.240 --> 0:20:47.120 always have been the ones looking for the big kill. 0:20:47.400 --> 0:20:50.000 We're not looking for just like two hundred basis points 0:20:50.040 --> 0:20:50.720 more than. 0:20:50.680 --> 0:20:51.240 We're in the market. 0:20:51.280 --> 0:20:54.760 We're looking for big, big, big returns. So XPO is 0:20:54.880 --> 0:20:58.199 thirty two X and rentals today is more than one 0:20:58.240 --> 0:20:58.760