RXO CEO: AI is a Game-Changer

Bloomberg

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00:00For those who aren't very well versed in, of course, what's going on in truckload dynamics,

00:04talk us through the shift that you see occurring potentially in 2026.

00:09If you look at what's going on right now as we're ending 2025 heading into 2026,

00:14you're seeing a big structural change in the capacity side of our industry.

00:19Right now, based off of English language proficiency and non-domicile drivers,

00:24we've seen a lot of capacity exit. And I'm seeing something that I haven't seen in my 20 years of

00:29doing this. Typically, when demand is down, which if you look right now, based off of cash rate index,

00:35demand is down 7% on a year-over-year basis. You see tender rejections during that time go down.

00:41But because the amount of capacity that has exited the market, you're actually seeing tender

00:46rejections go up. So what we're working our way towards is a supply-driven inflection.

00:51And if you start to get a little bit of demand that comes back in 2026, it sets up for a good run

00:56force. And Drew, just to make sure I'm understanding, so are you saying that you don't

01:00see that capacity necessarily returning to the industry?

01:04At this point, we have not seen any of it come back in. It's something that we're watching every

01:08single week and we pay close attention to what's going on. But longer term, this is good for large,

01:14financially stable providers who have good technology, have good relationships with their

01:18customers, who have a history of vetting carriers that they're working with because those carriers are

01:23representing customers when they're out there. So then, Drew, what does that mean, like heading

01:27into 2026? So let's take the holiday season out of the equation. We're in 2026 going forward here.

01:33So how do sort of your procurement folks, executives and other folks, how do they adjust to that reality

01:39for 2026? Well, you're dealing with a lot less carriers. And by some estimates, you're talking about

01:46overall upwards of 10% of capacity that is coming out of the market. So if you look right now and you

01:52go off the numbers that I told you were cash freight index on demand side is down seven. If you look at

01:58the sonar data, it tells you that your full truckload contract volume loads are down 17%. If you start to

02:04get to just back and normalize to where you were at on a year over year basis, you're at a point where you

02:09don't have enough capacity. And that's where you start to see rates go up. And during that time, that's when

02:14customers lean in on who they trust, who's delivered for them on the past and who has that

02:19capacity for them. I do want to get your thoughts, Drew, just on the inflationary environment that

02:25we've been in. Obviously, we talk a lot about from the perspective of the consumer, but there's also

02:30been a lot of cost pressures on the carriers as well. Yeah, if you look at what's happened right now,

02:36just take the operating costs. Right now, if you look at rates, they're basically in line with what

02:42happened in 2014. But operating costs, what it costs to run a truck is up 34% during that time. So

02:49for your average trucker, there's not a lot of that. So even before English language proficiency

02:54and non-domicile drivers, you were seeing capacity come out of the market because it was hitting a

02:59point from a rate perspective where truckers couldn't make money in this market. And Drew,

03:03I want to talk a little bit about AI and what RxO is doing there, because I'm taking a look at a report

03:09from Borg and Stanley actually in the past week, raising your stock to overweight. The reason why

03:14is that they also see an inflection coming next year, but particularly when it comes to AI

03:19productivity. And they write that RxO could be amongst the leaders in the deployment of AI. And I'm

03:25curious, you know, what does that actually look like as you start to send AI out and incorporate

03:31it into your workforce tangibly? What does that mean? Yeah, so we've been one of the leaders on the

03:37transportation side from a technology perspective for a very long time. All of our systems have

03:42been homegrown, built from the ground up. But when it comes to AI, it's changing the game and it's

03:47changing how we do things. If you take our last mile business, when you're talking about installation

03:53of big and bulky goods, we would take a picture and it used to go to a person who verified that.

03:58Now it actually goes to one of our agentic agents who can verify that the installation was done

04:03properly. When you think about things like check calls, tracking loads, back office work,

04:08all of that can be done by agentic AI bots for us on this side of it. From a pricing perspective,

04:15we've been a leader of being able to adjust in real time what's going on in the market. And we're

04:19using AI to continue to evolve on the pricing side and get better and get faster. And with every load

04:25that goes through our system, the system gets smarter. So longer term, if you look at the brokerage

04:31industry, typically at the bottom of the cycle, which is where we've been, you know, EBITDA margins

04:35are low single digits. At a midpoint in the cycle, it's mid single digits. During an up part of the

04:40cycle, it can be high single digits or even low double digits. And based off of what we're doing,

04:45we expect AI to have a one to two point percentage impact on our business during all parts of the cycle.

04:52you

04:55you

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