DC Velocity - August 2016

dramatic drop in jet fuel prices, which has allowed airlines to keep more fuel-guzzling planes flying when they might otherwise have been grounded. In June, the spot, or noncon-tract, price for a gallon of jet fuel stood at $1.38, according to the U.S. Energy Information Administration (EIA), a unit of the Department of Energy. In June 2014, a gallon on the spot market was priced at more than $2.88.

Jet fuel prices have recovered from the multiyear low of 93 cents a gallon set in January. Still, most respondents to the IATA survey expect operating costs to remain unchanged or fall further for the next 12 months. This is due in part to the carriers’ practice of fuel “hedging,” where they place bets on commodity markets to protect themselves against an expected price move in the product.

Low fuel prices depress cargo yields by reducing the revenue that is captured by jet fuel surcharges. According to estimates by Chicago-based aircraft manufacturer Boeing Co., fuel surcharges affect 40 percent of world aircargo prices.

In the latest edition of its biennial world aircargo forecast, which was published in 2014, Boeing said it expected global traffic to climb by 4. 7 percent a year through 2034, spurred in part by increasing consumer and business demand in far-flung markets away from traditional trade lanes. However, those markets today offer more potential than they do results, and any growth there does not offset weakness in the traditional aircargo trade lanes.

—Mark Solomon

XPO on track to save $300 million over next two years, exec says

XPO Logistics Inc. will achieve $300 million in total cost savings during 2017 and 2018 by identifying pockets of inefficiencies beyond what it planned to extract from the former Con-way Inc., which XPO acquired last fall for $3 billion, according to one of the company’s top executives.

At the time of the acquisition—the largest in the trucking industry’s history—Greenwich, Conn.-based XPO said it would boost Con-way’s annualized profits by between $170 million and $210 million over a two-year period through synergies and operational improvements. Since then, however, it has uncovered millions of dollars in additional savings, partly through more efficient procurement activities, according to Scott B. Malat, XPO’s chief strategy officer.

Malat said the projected $300 million in savings do not include what XPO expects to pull out of the former Con-way in 2016. Much of the additional savings will come from other parts of the XPO organization, Malat said.

In a recent interview, Malat affirmed In February, XPO Chairman and CEO Bradley S. Jacobs said the company planned to rationalize about $3 billion in enterprisewide spending in 2016 by renegotiating legacy linehaul contracts and leveraging its burgeoning size to enhance its buying power. Jacobs said at the time that XPO had put out bids on about $500 million in linehaul business handled by outside carriers on behalf of the former Con-way Freight, the less-than-truckload (LTL) unit that XPO absorbed when it bought its parent. The former Con-way Freight generated about $3.3 billion of the $5.8 billion in overall revenue at the time of the XPO acquisition. Some of those contracts had not been rebid since 2009, Jacobs said then.

Jacobs told analysts in early May that XPO had saved “tens of millions of dollars” through the rebidding process because linehaul rates had declined significantly over the past few years. “It is a good time to be bidding freight,” Jacobs said at the time. XPO retained most of the old Con-way’s carrier partners, he said.