Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 2: I'm Jill Wisenthal and I'm Tracy Alloway.
Speaker 1: Tracy, it's time to return to our favorite topic of
Speaker 1: supply chains and.
Speaker 2: Free There's no escape. No, you can't escape the supply chain. Yes,
Speaker 2: you're absolutely right. We had I feel like a relatively
Speaker 2: quiet year in twenty twenty three in terms of disruptions,
Speaker 2: but towards the end of the year, yes, and now
Speaker 2: into twenty twenty four, supply chain disruptions are back. They're everywhere,
Speaker 2: everyone's talking about them.
Speaker 1: There is indeed a new acute source of supply chain stress,
Speaker 1: and that, of course, are the attacks from the rebels
Speaker 1: and Yemen the Hoo, the rebels disrupting trade through the
Speaker 1: Red Sea. We're beginning to see the return of those
Speaker 1: maps where this is where the ships were a month ago,
Speaker 1: and this is what the shipping lanes look like today,
Speaker 1: not unlike what was it in the Suez two years ago.
Speaker 1: But yes, supply chain disruptions at least at some level
Speaker 1: are back.
Speaker 3: A little bit.
Speaker 2: Yeah, you know it's bad when people are breaking out
Speaker 2: the maps with the ships and also the container rate charts.
Speaker 1: Yes, container rate charts those.
Speaker 2: Are making the rounds again, so we've seen some container
Speaker 2: rates start to jump, and we can get more into
Speaker 2: that in a few minutes. For the record, Joe, yes,
Speaker 2: I am not shipping anything at the moment, nothing from
Speaker 2: China to Europe, so I am unaffected by this particular
Speaker 2: development so far.
Speaker 1: It's only a matter of time. Also, our listeners should
Speaker 1: know that every time we're in public and people come
Speaker 1: to us, one of the first questions they always ask
Speaker 1: Tracy is usually about that, like do you have any
Speaker 1: furniture stuck at a container ship somewhere? It's either that
Speaker 1: or questions about the coal and Tracy's basement yea fifty.
Speaker 3: Yeah.
Speaker 2: Sometimes I feel like my life is actually a logistics
Speaker 2: company and it's just dealing with commodities like coal and
Speaker 2: lumber and moving furniture.
Speaker 1: Yeah, and we talked to Brad Jacobs recently and we
Speaker 1: talked all about your building supply needsphere House.
Speaker 2: But even before the Red Sea developments, we actually wanted
Speaker 2: to do another Shipping slash Freight episode because if you
Speaker 2: remember this time last year, we did quite a few episodes.
Speaker 2: I think about the coming difficulties challenges blood Bath, who's
Speaker 2: your preferred noun there coming to freight and shipping, And
Speaker 2: the idea was that after the big boom during the pandemic,
Speaker 2: when container rates, trucking rates, basically everything exploded and became very,
Speaker 2: very profitable, that we were now going to see the
Speaker 2: sort of downturn. And I think that has come to fruition.
Speaker 2: I think twenty twenty three was an extremely bad year
Speaker 2: for a lot of shippers and truckers. But we're going
Speaker 2: to get into that as well, because in addition to
Speaker 2: the disruptions, we're at this sort of like weird moment
Speaker 2: in time where we're waiting to see whether or not
Speaker 2: there's a recovery.
Speaker 1: Yeah, you know, it's funny even with out disruptions. As
Speaker 1: you mentioned, No, One of the first things that we
Speaker 1: learned when we started getting interested in this topic is
Speaker 1: that freight trucking in particular is like hyper cyclical. So
Speaker 1: you had this already pretty crazy cycle for the US
Speaker 1: economy between twenty twenty and twenty twenty three or maybe now,
Speaker 1: and it was even crazier for freight. You know, another
Speaker 1: thing that happened last year or two is we saw
Speaker 1: the demise to varying degrees of various freight tech companies
Speaker 1: because like ourselves, we got interested in freight. I think
Speaker 1: a lot of vcs did, and you see a lot
Speaker 1: of there must be a way to, like, you know,
Speaker 1: solve all of these problems with software and AI, and
Speaker 1: I think a lot of these problems continue to persist.
Speaker 1: So there's just a lot of freight stuff we got
Speaker 1: to catch up on.
Speaker 2: Yep, let's do it. Well.
Speaker 1: I'm very excited because a multi time guest, I think
Speaker 1: the first guest we had who talked about trucking, we
Speaker 1: have them back and in studio we're gonna be speaking
Speaker 1: with Craig Fuller, founder and CEO of Freightwave. So Craig,
Speaker 1: thank you so much for coming back on odd lots.
Speaker 3: Joe Tracy, great to be here again.
Speaker 1: It really is a lot to talk about. But why
Speaker 1: don't we start off with the disruptions in the Red Sea.
Speaker 1: What do you characterize, as you see it, the situation
Speaker 1: right now?
Speaker 3: So I think there's the short term, you know, anxiety
Speaker 3: that exists in terms of the safety of the cruise,
Speaker 3: the dependability of the global supply chain. Yeah, it's a
Speaker 3: lot of short term concern, but I think the bigger
Speaker 3: story is going to play out over the next couple
Speaker 3: of years. Is we're now reaching a point in history
Speaker 3: where global trade and global shipping is no longer as
Speaker 3: dependable or as predictable as it has been really since
Speaker 3: the post Cold War period. Civilian ships are being fired
Speaker 3: upon and this is an unusual development that we haven't
Speaker 3: seen for really many decades. Wow.
Speaker 2: So walk us through the importance of the Red Sea route, Like,
Speaker 2: what kind of ships are actually going up and down? Yeah?
Speaker 2: Where are they going? What are they carrying? My understanding is,
Speaker 2: you know, there's containers, there's also tankers, so.
Speaker 3: A lot of oil and gas. Obviously, being in the
Speaker 3: Middle East, it has a lot of exposure to oil
Speaker 3: and gas and the derivative products that come out of
Speaker 3: that portion of the world. But it's also one of
Speaker 3: the major trade lanes for container flows. And so think
Speaker 3: of what moves in container. It's largely manufactured in consumer
Speaker 3: goods that are largely dependent upon containers. A lot of
Speaker 3: these products are coming from Asia and particularly China into Europe.
Speaker 3: Some products going to the United States East Coast, but
Speaker 3: the predominance of the products that move through the Suez
Speaker 3: in the container freight is largely related to products out
Speaker 3: of Asia. Going to Europe for European consumption.
Speaker 2: What other routes are available for that kind of trade.
Speaker 3: Well, you have to go around South Africa, and so
Speaker 3: you're really adding thousands of miles of additional distance when
Speaker 3: you aren't able to cut through the shortcut that is
Speaker 3: the Suez. I mean, Suez Canal has caught out an
Speaker 3: enormous amount of distance that geographically the ships have historic
Speaker 3: had to go around. With the Siuez, it was able
Speaker 3: to sort of expedite trade flow from Asia and particularly
Speaker 3: to Europe. We do benefit from it in North America,
Speaker 3: but a much smaller percent of the freight that we
Speaker 3: depend on in the United States is dependent upon the Suez.
Speaker 1: What is the historical role of the US Navy in
Speaker 1: sort of securing or protecting these some of these routes,
Speaker 1: and what do we see from US defense officials now
Speaker 1: the sort of acute moment.
Speaker 3: You know, there's a lot of conversation in geopolitical circles
Speaker 3: about whether the Navy's role has changed or shifted or
Speaker 3: is no longer effective in the role that it was
Speaker 3: believed to be played for the last really since World
Speaker 3: War Two. So, if you think about it, the United
Speaker 3: States has the largest navy in the world. It's also
Speaker 3: one of the only bluewater navies that can go anywhere
Speaker 3: to find any place on the planet. And that's really
Speaker 3: the call of fan.
Speaker 1: So what does it mean blue water.
Speaker 3: It means that they can go into deep oceans that
Speaker 3: can be anywhere. Basically the name there's no place on
Speaker 3: the on the planet that the Navy and the Marines
Speaker 3: can't actually reach. And so the whole purpose of that
Speaker 3: is to protect trade lanes. Yeah, that that is the
Speaker 3: one of the primary calls of the US Navy is
Speaker 3: its roles to protect commerce uh and ensure global trade
Speaker 3: and really the world and China has mostly benefited from that,
Speaker 3: the US Navy's role of protecting sea from things like
Speaker 3: pirates and state sponsors that want to attack global trade.
Speaker 3: And the question now is in a post you know,
Speaker 3: we're now in this sort of new generation of trade,
Speaker 3: what does it mean there's a lot more protectionism that
Speaker 3: happens with US policy and really to be able to
Speaker 3: defend the you know, the role of the US Navy
Speaker 3: being able to protect all aspects of it. With geopolitical
Speaker 3: tensions in East Asia means that we may not have
Speaker 3: the resources to actually protect all aspects of trade the
Speaker 3: way that we did at one point in time.
Speaker 1: Just real quickly, you said this is a sort of novel.
Speaker 1: I mean pirates and pirate attacks, and you mentioned them.
Speaker 1: There's somewhat common, they're in the news. But what's different
Speaker 1: about this is that it's missiles being fired. These are
Speaker 1: these are It's not pirates, they're not trying to steal
Speaker 1: the cargo. This is these are military attacks on private corporations.
Speaker 3: These are military techniques. Techniques we've seen helicopters actually land
Speaker 3: on tops of ships and actually take take cruise hostage.
Speaker 3: By the way, a helicopter it looks like a squat.
Speaker 3: You probably have seen the video of floating around where
Speaker 3: it looks like a swat video where they're flying in
Speaker 3: and they're basically taking over a ship through use of
Speaker 3: a helicopter. We're seeing situations where as you mentioned, they're
Speaker 3: using missile technology, military grade technologies, which is an unusual development.
Speaker 3: And then with the proliferation of drones, you now have
Speaker 3: a low cost way to actually avoid some of the
Speaker 3: defenses that are set up to protect these ships that
Speaker 3: they're able to reach them without obstruction, and I think
Speaker 3: that has changed the game is now terrorist. And look,
Speaker 3: we can argue whether these are truly state sponsored or not,
Speaker 3: but at the end of the day, they have access
Speaker 3: to military grade technology and they are using this to
Speaker 3: attack civilian vessels and their goal is to disrupt global trade.
Speaker 2: This was going to be my next question, which is,
Speaker 2: you know, even if the Navy said, like, yes, absolutely,
Speaker 2: we're going to go in, We're going to protect all
Speaker 2: the ships, Like, how much can they actually do in
Speaker 2: the face of that kind of threat, which you know
Speaker 2: has new technology that they're clearly using, but is also
Speaker 2: very very flexible in terms of what it can do.
Speaker 3: I think the question is at what cost? Yeah, because
Speaker 3: I think the US has the capabilities to largely defend
Speaker 3: every ship or the ships that we have decided to defend,
Speaker 3: But at what cost. I when you're looking at a missile,
Speaker 3: you know, anti missile technol these a million dollars, We're
Speaker 3: firing these these defense missiles off at a million dollars apiece,
Speaker 3: and you're fighting a drone that cost a couple of
Speaker 3: thousand dollars. I mean, at some point there is a
Speaker 3: mass attacks on US consumers and the US economy for
Speaker 3: US to do this, And the question is for what
Speaker 3: is our appetite to continue to fund this type of
Speaker 3: defense technology when the United States is not the primary
Speaker 3: beneficiary of that type of trade.
Speaker 2: And on a similar note, I'm always curious about the
Speaker 2: decision making process to you know, not go through a
Speaker 2: certain route. So MASK said it wasn't going to go
Speaker 2: through the Red Sea anymore after dismissile was fired. What
Speaker 2: are the factors that go into making that type of decision.
Speaker 2: And then if the Navy were to say, you know,
Speaker 2: tomorrow that we're going to escort all of these ships,
Speaker 2: would that completely address their concerns? Would they be like, Okay, yes,
Speaker 2: we're going to resume this route.
Speaker 3: You know, it's a great question because I don't know
Speaker 3: that the US with all of our other geopolitical commitments,
Speaker 3: particularly around China and what's happened around Taiwan. I mean,
Speaker 3: the Chinese want our navies in the Middle East. That's
Speaker 3: where they want them because they enables them to have
Speaker 3: an enormous amount of power over East Asia. They want
Speaker 3: us moving our assets and being distracted in the Middle East,
Speaker 3: so they actually win geopolitically in terms of their power
Speaker 3: over the region by moving forcing us to be distracted
Speaker 3: in the Middle East. But I don't know that we
Speaker 3: have all the resources to defend every single ship from
Speaker 3: these attacks. And ultimately, what the container lines have to
Speaker 3: really think about is what's the cost of a ship.
Speaker 3: You're talking hundreds of millions of dollars? What's the cost
Speaker 3: of a cargo again measured in probably billions of dollars
Speaker 3: when we took a look at a twenty thousand TEU ship.
Speaker 3: And then you have the insurance companies which are saying, hey,
Speaker 3: we're not going to ensure these ships that go through
Speaker 3: these channels, and that means that ultimately Marisk and others
Speaker 3: have to look at alternative routes. They will obviously protect
Speaker 3: their crews. The cruise do understand that, you know, the
Speaker 3: nature of their jobs is on occasion they put themselves
Speaker 3: in harm's way. And we've seen that with you know,
Speaker 3: the movie with Tom Hanks plays.
Speaker 2: As the Captain Phillips.
Speaker 3: Captain Phillips, you know, it was a true story. So
Speaker 3: these things do happen with pirates. But we're talking about
Speaker 3: military grade technology and we're talking about an escalation, and
Speaker 3: because of it, I think the insurance companies have said, hey,
Speaker 3: we're not willing to ensure these ships that go through
Speaker 3: these contested channels, and I think they container lines also
Speaker 3: don't want to put their crews at risk. They don't
Speaker 3: want to put their you know, substantial investments at risk,
Speaker 3: and also politically and optically putting cruise in harm's way
Speaker 3: if something were catastrophic to happen would be very I
Speaker 3: think demonstrative to these brands and these these organizations that
Speaker 3: really want to stay out of the spotlight.
Speaker 2: So Joe mentioned the maps of the ships, and again,
Speaker 2: you know something's going on in the world when when
Speaker 2: people start breaking out those maps showing the ships diverting.
Speaker 2: But I thought it was interesting. So if you look
Speaker 2: at a map of the Red Sea, the container ships
Speaker 2: are moving, but they're still tankers. What are the decisions
Speaker 2: being made by the tankers that are different to the
Speaker 2: container lines.
Speaker 3: The tankers have been largely unobstructed, So a lot of
Speaker 3: the attacks that we've seen have actually been on civilian
Speaker 3: container vessels and other types of cargo vessels, not on
Speaker 3: bulk tankers. And a lot of that has to do
Speaker 3: with the economic interests of the different countries that are
Speaker 3: in the region. You know, these are countries that largely
Speaker 3: depend on oil and gas exports and the derivative commodities
Speaker 3: that come out of those to fund their economies. I
Speaker 3: don't think that it's in their interest to do that.
Speaker 3: And then also China is dependent upon energy supplies from
Speaker 3: the Middle East, and you know, I don't think that
Speaker 3: the rebels want to invite the Chinese into this conflict,
Speaker 3: and that would certainly do it if they felt like
Speaker 3: their energy supplies, which they are to deed upon, we're obstructed.
Speaker 3: So I think what we're seeing is this is largely
Speaker 3: a container story, and it's really the West that is
Speaker 3: consuming these products, mostly Europe, but certainly the United States
Speaker 3: to a degree, and I think that's where we're seeing
Speaker 3: a lot of the pressure.
Speaker 2: I think it's like they've enacted sanctions on Europe.
Speaker 3: Well, they're certainly obstructing it. And you could argue their
Speaker 3: acting sanctions because their goal is to obstruct trade and
Speaker 3: to cut off the flow of product and really create
Speaker 3: pain on consumers and businesses that depend upon these containers.
Speaker 1: There's so many directions we could take this conversation in
Speaker 1: so many questions, but you know, I find this framing
Speaker 1: to be very interesting that you know, arguably we don't
Speaker 1: we is in the US don't get a ton of
Speaker 1: benefit from the resources that we invest in patrolling those
Speaker 1: that a lot of the benefit goes to China. China
Speaker 1: benefits in theory by the sort of distraction to the
Speaker 1: US Navy pulling assets out of East Asia and towards
Speaker 1: the Middle East. China itself obviously has expanded it's navy
Speaker 1: quite a bit in recent years, and the estimates it's
Speaker 1: going to continue to do so. Do people at some
Speaker 1: point is the expectation that China itself will play a
Speaker 1: more active role in patrolling the region or is that
Speaker 1: in the US interest for China to grow, you know,
Speaker 1: sort of police more parts of the world.
Speaker 3: It's a great question, and I think it's one that's
Speaker 3: probably on the minds of folks that playing these war
Speaker 3: games that it is out is why, you know, one
Speaker 3: of the big questions is if China is a big loser,
Speaker 3: and you could argue why it would lose is that
Speaker 3: if global trade gets obstructed, particularly manufacture goods, which China's
Speaker 3: economy is largely dependent upon, if it gets obstructed, then
Speaker 3: China may be the biggest loser in this. And the
Speaker 3: question is why are they standing down when you talk
Speaker 3: to military experts that are far more versed in this
Speaker 3: topic than I am. What they have told me is
Speaker 3: that China wants the United States to be focused in
Speaker 3: terms of military focus on the Middle East and get
Speaker 3: stuck there, if you will, pulling its attention away from Asia.
Speaker 3: So you know, if you look at the Chinese construct
Speaker 3: and look at she she has. You know, for years,
Speaker 3: China was focused on economic growth at all cost, and
Speaker 3: they were willing to sort of put all of their
Speaker 3: other interests beside to allow their economy to thrive and
Speaker 3: ultimately provide some level of prosperity to their people. We
Speaker 3: have seen in the last really the last five years,
Speaker 3: that's no longer the case, and the orientation of China
Speaker 3: is more politically driven and more power driven, and it
Speaker 3: suggests that China's goal is to create enough havoc on
Speaker 3: the United States and its allies that we are sort
Speaker 3: of forced into these situations. And there's a playbook for this.
Speaker 3: I mean mean, we've seen some of the world's conflicts
Speaker 3: of the last hundred years have been caused by American
Speaker 3: allies and going out to protect its allies getting involved
Speaker 3: in these military conflicts that really don't directly impact our
Speaker 3: goal strategic goals, and so it is an interesting play
Speaker 3: and it's an interesting card. I think the question is
Speaker 3: why does this impact China most importantly? And I think
Speaker 3: from a supply chain question, supply chain professionals are focused
Speaker 3: on mitigating risk. These are jobs that are all in
Speaker 3: risk management. That's ultimately what a supply chain professional does.
Speaker 3: It thinks about cost and it thinks about risk management.
Speaker 3: And for the last couple of years, they had been
Speaker 3: fending off an enormous amount of risks in their supply chain.
Speaker 3: And as Tracy mentioned in twenty twenty three, we sort
Speaker 3: of had a level of room to breathe because all
Speaker 3: of those COVID related disruptions were largely dissipated. We're now
Speaker 3: in a sort of a new generation of issues that
Speaker 3: are quite different than what we saw during COVID. And now,
Speaker 3: as a supply chain professional that's already dealing with questions
Speaker 3: about China's orientation to its economy, to its commitment to manufacturing,
Speaker 3: to its commitment to exports, the question then becomes, I
Speaker 3: now have to calculate this geopolitical risk or military risk
Speaker 3: that did not exist before. I used to as a
Speaker 3: professional be able to depend on trade out of China
Speaker 3: that was unobstructed to if I have dependencies in Europe
Speaker 3: or have customers in Europe, I could largely depend on
Speaker 3: the su AS as a dependable trade lane, knowing that
Speaker 3: it was not going to get obstructed. And now I
Speaker 3: have new sets of risks that exist that did not
Speaker 3: exist before. I mean, the reality is the ships can
Speaker 3: go around South Africa. They can make it. It adds time,
Speaker 3: we're talking, you know, a couple of weeks potentially, it
Speaker 3: adds a lot of cost to it. But there are
Speaker 3: ways that products can still flow, but it increases the
Speaker 3: cost to do so and increases the lead times required.
Speaker 3: And I think supply chain professionals are going to start
Speaker 3: making different calculations of where the source products that they
Speaker 3: don't have to contend with that issue.
Speaker 2: So one of the things that came out of the
Speaker 2: pandemic related supply chain disruptions was this idea of reshoring,
Speaker 2: building more resilient supply chains. Everyone was going to sort
Speaker 2: of reach their operations to make sure that they didn't
Speaker 2: have to worry about the types of disruptions or congestions
Speaker 2: that we had between twenty twenty and call it twenty
Speaker 2: twenty two. So I guess my first question is one,
Speaker 2: did that actually happen? And then secondly, given this new
Speaker 2: bout of disruption, this new geopolitical risk, as you put it,
Speaker 2: are we going to see the same types of decisions
Speaker 2: being made the idea that well, we really need to
Speaker 2: think of alternatives to sourcing things from China or transporting
Speaker 2: things along that route.
Speaker 3: It is happening, but let's just keep in mind. Moving
Speaker 3: a supply chain is not an overnight decision. This stuff
Speaker 3: takes decades, potentially more advanced products which have more advanced dependabilities.
Speaker 3: Because I can't just uproot my supply chain. I have
Speaker 3: to think about my supplier supply chains. If I have
Speaker 3: machinery or equipment that is very specialized, I have to
Speaker 3: think about all the technicians that can support that equipment.
Speaker 3: So I can't just uproot my supply chain. It has
Speaker 3: to be a gradual process. But we have seen that
Speaker 3: take place. Some of this is supported by government funding
Speaker 3: with the Inflation Reduction Act and the Build Back Better
Speaker 3: Plan by Biden. Is actually encouraging domestic manufacturing, probably most
Speaker 3: obvious in the semiconductor area and in the electric vehicle area.
Speaker 3: We're seeing substantial amount of industrial expansion in those parts
Speaker 3: of the economy, and so we are seeing the early
Speaker 3: stages of domestic remanufacturing and near shoring, and so it
Speaker 3: is certainly happening across all aspects and all product classes.
Speaker 3: And the reason is that China. You know, even when
Speaker 3: Donald Trump was attacking global trade, most supply chain professionals
Speaker 3: took that as at tax. They thought of it as
Speaker 3: an economic I'll pay the tax, it's still cheaper. I
Speaker 3: don't have to make tough decisions. The US and China
Speaker 3: are never going to sever trade ties. But what we've
Speaker 3: seen is when she shut down his economy during COVID,
Speaker 3: the late stages of COVID, that really changed the calculus
Speaker 3: for Western decision makers that realize that China was no
Speaker 3: longer going to do things to promote exports at all
Speaker 3: costs and was willing to do things that could destroy
Speaker 3: parts of its economy just to gain and maintain control.
Speaker 3: And I think that calculation scared a lot of executives.
Speaker 3: And then you look at the geopolitical tensions with Russia
Speaker 3: and the Ukraine, and you look at the fact that
Speaker 3: there is seems to be an inevitable course to some
Speaker 3: level of conflict between the China the United States related
Speaker 3: to Taiwan. It's obvious that supply chains can no longer
Speaker 3: look at China as a absolute, dependable source of products.
Speaker 3: This is one but a continuation of a process. We
Speaker 3: talk about the Suez disruptions and the geopolitical issues that
Speaker 3: exist there. This is just another reason for supply chain
Speaker 3: professionals to get a wake up call because we're seeing
Speaker 3: to take place in the Middle East and it's quite effective. Yeah,
Speaker 3: this could easily take place in other parts of the world,
Speaker 3: which is probably the bigger concern is what happens when
Speaker 3: this breaks out in the Strait of Malaca or other
Speaker 3: parts of the globe where it's not just Europe it's
Speaker 3: being impacted, but it's also trade in the United States.
Speaker 1: I want to pivot a little bit. So the last
Speaker 1: time we spoke to was in May of last year.
Speaker 1: You and your colleague got Rachel Premak the title of
Speaker 1: that episode. We're in the midst of trucking Bloodbath two
Speaker 1: point zero. Sometimes we do episodes about something at the
Speaker 1: bottom and then it bounce is Sometimes we do something
Speaker 1: at the top of the falls that one I think
Speaker 1: was very well timed and I think vindicated. But what
Speaker 1: happened with the of the year in free and then
Speaker 1: where are we in the cycle on now?
Speaker 3: So I think you've done at least ten episodes related
Speaker 3: to some level of the side.
Speaker 1: So somewhere we're going to get one right.
Speaker 3: So no, But what's amazing about this is I've known
Speaker 3: you guys since twenty twenty. Yeah, I think we've gone
Speaker 3: through at least three cycles since times it's so crazy
Speaker 3: and so it is, this is why we keep.
Speaker 1: Coming back, because the line is always moving in some direction.
Speaker 3: Is the most volatile and fragmented market we're talking trucking
Speaker 3: specifically on the planet, and because of its fragmentation and
Speaker 3: the fact that there are no bears to entry, it
Speaker 3: suffers from this really violent boom and bus cycle that
Speaker 3: got incredibly exaggerated during COVID. So if we go back
Speaker 3: to where we were a couple of years ago, when
Speaker 3: we first started talking in twenty twenty and twenty twenty one,
Speaker 3: is the market was sort of at the super peak.
Speaker 3: There was massive supply chain disruptions caused by a lock
Speaker 3: of capacity, driver issues and so forth. Now we're in
Speaker 3: twenty twenty three, we've sort of hit the bottom, and
Speaker 3: I would argue that the worst is our in the
Speaker 3: market for trucking, and we are not necessarily on our
Speaker 3: way back. But I don't think we're going to see
Speaker 3: things get worse as it relates to the trucking industry.
Speaker 2: Wait, I think Joe is being a little bit modest
Speaker 2: because at the beginning of twenty twenty three, we did
Speaker 2: have a couple episodes and I think we did publish
Speaker 2: a couple articles as well about how bad the year
Speaker 2: could be for the trucking and also the shipping industry.
Speaker 2: And it did turn out to be an absolute terrible,
Speaker 2: no good, horrible year or whatever the title of that
Speaker 2: movie was. But can you maybe put some numbers around
Speaker 2: it for us, like how bad did things actually get
Speaker 2: last year?
Speaker 3: So it's an interesting conversation because think about the listeners
Speaker 3: to odds mostly focused on macro stories for the economy.
Speaker 3: When they're listening to freight stories and they're hearing me
Speaker 3: talk about a freight recession or the blood bath, they
Speaker 3: oftentimes assume that that means that the broader economy is struggling.
Speaker 2: Yeah, I think the big question was whether or not
Speaker 2: that indicates the consumer demand isn't there.
Speaker 3: Sort of making interesting things? Is we now have we
Speaker 3: bookended twenty twenty three, we're able to actually look at
Speaker 3: the entire year in sort of context, and what we've
Speaker 3: seen is that actually twenty twenty three was a good
Speaker 3: year related to freight volumes. It actually if you took
Speaker 3: out the COVID extremes of two thousand, sort of late
Speaker 3: twenty twenty twenty and twenty one, and even parts of
Speaker 3: twenty two, what you've seen in the freight market is
Speaker 3: that the twenty three was actually a really solid year.
Speaker 3: It continued to build momentum in terms of volume throughout
Speaker 3: the year. But it seems like we're contradicting ourselves in
Speaker 3: the sense that we're talking about how bad it was
Speaker 3: in twenty three, but we're talking about a relatively strong
Speaker 3: consumer and a relatively strong freight market. But the reason
Speaker 3: is that we had this massive expansion of capacity that
Speaker 3: took place during COVID. You know, we saw if you
Speaker 3: take twenty nineteen to the peak of capacity build, which
Speaker 3: really did not end. So the freight recession started in
Speaker 3: March of two thousand and two, twenty two. It wasn't
Speaker 3: until October of twenty two before we started to see
Speaker 3: the market in terms of new capacity entrance plateau. So
Speaker 3: we're still seeing new entrants come in the market throughout
Speaker 3: twenty twenty two until really the third until the fourth quarter.
Speaker 3: And now what we're looking at as a situation where
Speaker 3: we've had this all this excess capacity that's built up.
Speaker 3: And that's why twenty twenty three was such a miserable
Speaker 3: year for the trucking industry is that we had. You know,
Speaker 3: we're talking sixty thousand more trucking companies in the freight
Speaker 3: market today than what we had prior to Covido. And
Speaker 3: these aren't sixty thousand trucks. We're talking sixty thousand independent
Speaker 3: companies that are in the trucking industry that have entered
Speaker 3: the trucking industry, that are out taking freight. And so
Speaker 3: what you have in the trucking market, we've talked about
Speaker 3: it a few times. All aspects of freightwork this way,
Speaker 3: where you constantly have this demand that's driving soply. So
Speaker 3: what happens is the providers of supply are constantly trying
Speaker 3: to catch up to demand because they see the inputs
Speaker 3: in their business, they see demand in their business, they
Speaker 3: see high rates, and so they're constantly trying to add
Speaker 3: new pieces of equipment to sort of soak up that demand.
Speaker 3: And what ends up happening is, because of the fragmented
Speaker 3: nature of the market, they end up overcorrecting. So everybody
Speaker 3: is doing the same thing. The big carriers are adding trucks,
Speaker 3: the small carriers are adding trucks, New entrants are in
Speaker 3: the market, and we just get flooded with total number
Speaker 3: of infants. It's a classic commodity boom and bus cycle.
Speaker 3: And that is what happened in twenty twenty two that
Speaker 3: brought us to a really miserable twenty twenty three. And
Speaker 3: what's happened over the last couple of months, so we
Speaker 3: started to see a number of bankruptcies. Yallow being the
Speaker 3: you know, Yallowy historical LTL carrier file bankruptcy. It actually
Speaker 3: went out of business. And it felt like this is
Speaker 3: a company that for many years felt like a cockroach
Speaker 3: that just wouldn't die. Yeah out. Unions at one point
Speaker 3: had build them out. It constantly just stayed in business,
Speaker 3: and everybody assumed that it would continue to survive in
Speaker 3: spite of the fact that it was not a well
Speaker 3: run company. And it is out of business, and you
Speaker 3: mentioned teas that earlier, Joe, is that we've seen some
Speaker 3: freight tech companies that raised lot capital. That also another
Speaker 3: and this is a function of a lot of excesses
Speaker 3: that got added to the market that the market just
Speaker 3: has to bleed out.
Speaker 1: Well, I'm glad you mentioned the freight tech companies because
Speaker 1: that's where I was going to go next. So we
Speaker 1: already we already know it was bad for a lot
Speaker 1: of companies in twenty twenty three. You know, going back
Speaker 1: to twenty twenty one, twenty twenty two, you know we
Speaker 1: got interested in freight obviously on the Odd Launch podcast.
Speaker 1: That was also a big year for like tech and
Speaker 1: tech investing. A lot of vcs suddenly probably woke up
Speaker 1: to this idea of this world. We're like, oh, the
Speaker 1: freight industry looks like a mess. I'm sure if we
Speaker 1: just apply our software magic, we could solve all of
Speaker 1: these problems. We saw some really huge fundraising, but then
Speaker 1: also at twenty twenty three, we saw the reversal of it.
Speaker 1: So we saw the freight brokerage Convoy just to basically
Speaker 1: completely go out of business. I think we saw a
Speaker 1: pretty big downturn at a Flexport. We've had their CEO,
Speaker 1: Ryan Peterson on the show a couple of times. What
Speaker 1: happened with freight Tech? What were the theses maybe of
Speaker 1: the investors who are going in, we could solve this
Speaker 1: and sort of like what reality did they run into that?
Speaker 1: Maybe it's a bit harder to solve some of these
Speaker 1: problems than they may have assumed.
Speaker 3: You know, they were playing the Uber lift. Yeah, even
Speaker 3: Airbnb playbooks, which is, hey, I have this capacity and
Speaker 3: I can go out and create a digital app sort
Speaker 3: of just if I could disrupt the taxi industry the
Speaker 3: way Uber did, that could also disrupt.
Speaker 1: The It seems like it should be doable.
Speaker 3: Here's the problem is that the investors that really drove
Speaker 3: the high valuations didn't understand freight They didn't understand the
Speaker 3: boom and bus cycle. Convoy arguably had the best roster.
Speaker 3: It had a dream team investors. I mean you had
Speaker 3: Bill Gates, Jeff Bezos, you had pried Hoffmann, you had
Speaker 3: the who's who of sort of Silicon Valley and sort
Speaker 3: of legacy tech that were investors. I mean it was
Speaker 3: the best lineup of investors of probably any company in
Speaker 3: supply chain possibly have. And yet that did not help
Speaker 3: them survive. And the reason is that really the investors
Speaker 3: and the management team when it first raised money and
Speaker 3: got into this business, did not understand how psychical this
Speaker 3: industry is and how fungible the capacity is. So if
Speaker 3: I wanted to disrupt the taxi industry, the reason that
Speaker 3: that works is I have all of these consumers sitting
Speaker 3: at home with their cars that are idle ninety percent
Speaker 3: of the time. That can create incremental capacity in that
Speaker 3: of a market. So as the market surges, you can
Speaker 3: have and Uber has you know, has piloted us with
Speaker 3: their search pricing. You know, they will send out messages
Speaker 3: to their drivers and say, hey, there's a a football
Speaker 3: game in town, or there's a you know, a big
Speaker 3: event in town, please come out and get three to
Speaker 3: four or five x your normal rate. And they've created
Speaker 3: this sort of surge flexible capacity model that works really
Speaker 3: well in a business like Uber and personal transportation. The
Speaker 3: problem in trucking is there is none of that excess
Speaker 3: capacity sitting against the fence that can flex in and
Speaker 3: out of a market. And so what ultimately happened is
Speaker 3: that they were able to apply some digitization to the
Speaker 3: dispatch process and to the driver management process, but that
Speaker 3: was incremental, and one would argue in Brad Jacobs has
Speaker 3: argued that the incumbents were doing the same thing. Is
Speaker 3: that effectively, all of these companies were spending billions of
Speaker 3: dollars to build technology that everyone else was also building.
Speaker 3: And not just existing companies like XBO and H Robinson,
Speaker 3: but you also had all these tech vendors, companies that
Speaker 3: provide software, that were also building technology that they could
Speaker 3: sell to hundreds of companies. All this was happening at
Speaker 3: the same time and effectively. What Convoy did not understand
Speaker 3: early on, which I think they certainly understood that the
Speaker 3: late part of the cycle, a late part of their business,
Speaker 3: is that freightst commodity it's highly fungible. The capacity is
Speaker 3: highly fungible, and no matter how much money I spend
Speaker 3: acquiring the capacity, there is nothing to keep that capacity
Speaker 3: from going to the next highest bidder. And because of that,
Speaker 3: all of the money that they wasted in acquisition costs
Speaker 3: to acquire capacity was effectively meaningless at the end of
Speaker 3: the day because that capacity could be found elsewhere.
Speaker 2: How much of it comes down to incentives as well.
Speaker 2: So I take the point about fungibility of capacity. But
Speaker 2: like I also get the sense that there are industries
Speaker 2: out there that make money from their role as middlemen.
Speaker 2: They make money from a lack of transparency or opacity.
Speaker 2: And so we talk about new technology to make this
Speaker 2: whole process more efficient, but if there are well defined
Speaker 2: losers from doing that, they might not really be incentivized
Speaker 2: to change.
Speaker 3: So, Tracy, let's imagine that we wanted to disrupt the
Speaker 3: gasoline industry, Okay, and we're going to create a gas station,
Speaker 3: and in this gas station, we're going to charge a
Speaker 3: dollar a gallon. We're going to open it up. We
Speaker 3: could build the largest gas station in the world in
Speaker 3: a matter of potentially weeks. A dollar a gallon we're
Speaker 3: going to charge, and we're disrupting the industry. Now, we
Speaker 3: have some neat technology to do this. That's our That
Speaker 3: is what we've told our investors is we're able to
Speaker 3: disrupt the gasoline industry because our technology has made it
Speaker 3: more efficient for us to deliver gallons. Now, you and
Speaker 3: I both know at the end of the day that
Speaker 3: gasoline is a commodity, yes, and doesn't matter what we
Speaker 3: end up creating technology to solve for. At the end
Speaker 3: of the day. All we've actually done is arbitrage. Is
Speaker 3: the market provide consumers an arbitrage. In other words, consumers
Speaker 3: are buying gasoline at a dollar a gallon. We've built
Speaker 3: this billion dollar gas station in middle of New Jersey
Speaker 3: that is the most successful gas station in the world,
Speaker 3: and we're doing tens of billions of dollars, but we
Speaker 3: are losing.
Speaker 2: Right, we're subsidizing full service gas station.
Speaker 3: That's true, it is full service. Well, you're using technology, robots,
Speaker 3: I'm doing this okay. But effectively, that was the thesis
Speaker 3: that they thought. The investors thought that if they could
Speaker 3: increase the throughput of gallons, that their buying rate would
Speaker 3: be cheaper. Oh I see.
Speaker 2: So it was like the volume would make up the volume.
Speaker 3: I'll lose money on every transaction up and volume. It's
Speaker 3: the same, it's the same. Idea here is that they
Speaker 3: were effectively subsidizing early on a lot of their capacity,
Speaker 3: and what they realized really late and this so they
Speaker 3: did change. Ultimately, Convoy realized about twenty eighteen twenty nineteen
Speaker 3: that that model just didn't work. That really all of
Speaker 3: the money that they had spent in subsidizing capacity and
Speaker 3: acquiring the capacity was meaningless at the end of the
Speaker 3: day because it didn't provide any long term resilience or
Speaker 3: sort of commitments among the shippers and among the carriers
Speaker 3: to stay with their platform. That is really what happened.
Speaker 3: And at the same time, using our gasoline analogy, is
Speaker 3: that not only did Convoy have a gas station, or
Speaker 3: we have this gas station New Jersey, but now Joe
Speaker 3: opens up a rival gas station down the street and
Speaker 3: he's charging ninety nine cents, and so now all of
Speaker 3: those gallons that we've sold go to Joe's gas station,
Speaker 3: which is now cheaper. And that is the reason that
Speaker 3: trucking cannot strictly be disrupted through these technology apps is
Speaker 3: that they were trying to disrupt it by lowering the price,
Speaker 3: buying market share, and effectively subsidizing the customers. The customers
Speaker 3: were benefiting from this, the shippers benefited massively from it
Speaker 3: because they were getting cheaper cost and that's how they
Speaker 3: were able to grow so fast. What ended up happening
Speaker 3: is they learned pretty quickly that those commitments were not
Speaker 3: finding that there was no such thing as contract right.
Speaker 1: So this is really interesting because you know, and I
Speaker 1: think when you get the Uber analogy. I mean, there's
Speaker 1: really feels like there's two elements here. One is just okay,
Speaker 1: you can't be the Uber of trucking unless you have
Speaker 1: some capacity, unless you have some guaranteed for ability.
Speaker 2: To turn on capacity when you need it.
Speaker 1: But then the other, right, the ability to get that
Speaker 1: guaranteed ability to turn on capacity. But then the other
Speaker 1: question is why do we need humans as part of
Speaker 1: the freight brokerage process and why can't it be all
Speaker 1: computers like Uber is. And you know, I'm sure I
Speaker 1: want you to weigh in. We recently talked to Brad Jacobs,
Speaker 1: who is on to his new building supply distribution business
Speaker 1: but also founded a freight brokerage and there seems to
Speaker 1: be some dispute because I asked the question is like,
Speaker 1: why are there still humans in this business? And I
Speaker 1: know there's humans, lots of humans because a you know,
Speaker 1: like I've been I went to the Arrival Logistics de
Speaker 1: facto trading floor. We've talked about it. I see your
Speaker 1: community of you know, freight waves fans. They're always posting
Speaker 1: freight brokerage memes. So I know there are a lot
Speaker 1: of people in offices who, you know, have one phone
Speaker 1: up where they're talking to a shipper and someone else's
Speaker 1: talking to a carrier. But Brad was like, you know,
Speaker 1: there's a lot of it's getting on. What is the truth?
Speaker 1: Like why are there still so many just sitting aside
Speaker 1: the capacity aspect? Or are there so many humans or
Speaker 1: how many humans in this process?
Speaker 3: So it's interesting because Brad talked about the fact that,
Speaker 3: you know, when he got in his industry yees ten
Speaker 3: years ago, it was largely humans and then over time
Speaker 3: it had digitized. And you know, I think the statement
Speaker 3: was he had ninety seven percent of its freight was electronic.
Speaker 3: That very well maybe the case for his business. Think
Speaker 3: of xbo's role in the business, it's a big really
Speaker 3: predominantly you know, in its focus on LTL, which means
Speaker 3: it has very very large enterprise shippers, big commitments. It's
Speaker 3: able to digitize a lot of the transactions, and most
Speaker 3: of the bigger trucking companies are digital. Like if you
Speaker 3: go look at night Swift's operation, look at Schneider's operation,
Speaker 3: go look at old dominions.
Speaker 1: So that is like placing an order on a thing,
Speaker 1: and it just.
Speaker 3: That's right, and that's what the big companies want. To do.
Speaker 3: Is they actually want to eliminate human contact as much
Speaker 3: as possible, because that's how they're able to optimize the model.
Speaker 3: They use technology to do electronic transactions, and that is
Speaker 3: that probably represents twenty percent of the business. It's the
Speaker 3: cream of the crop business. It's the business every company
Speaker 3: wants because it's the high volume shippers, dependable volume.
Speaker 1: And standardized lane, standardized ship or your standardized carrier.
Speaker 3: Is it just exactly and highly predictable, highly consistent business.
Speaker 3: And if you're building a network, then that's what you
Speaker 3: want because I can depend on it day in day out.
Speaker 3: That's what the larger companies focus see. And if you
Speaker 3: ask the CEO of Swift, you would probably get a
Speaker 3: similar answer about how much of its freight is electronically tendered.
Speaker 3: H Robinson, the largest freight broker in the country, publishes
Speaker 3: that seventy eight percent of its freight doesn't have a
Speaker 3: human touch. Okay, but the reality is, Joe, is that
Speaker 3: the hundreds of thousands of freight broker people that are
Speaker 3: out there making up at least you know, the numbers
Speaker 3: are as high as registered frate brokers in the sixty
Speaker 3: to eighty thousand numbers we track and think there's about
Speaker 3: five thousand high scale freight brokers that do more than
Speaker 3: about ten million dollars in revenue a year. They're still
Speaker 3: predominantly human based, and what they're dealing with are the exceptions.
Speaker 3: So what happens is a large volume shipper takes ninety
Speaker 3: five percent of its freight and sends it over to
Speaker 3: the xbos and the h Robinson's and the you know,
Speaker 3: the the night swifts, and so they get all the
Speaker 3: electronics stuff dispatched. What's left over is the really hard
Speaker 3: to manage. It's either a laye that nobody wants. It's
Speaker 3: somebody who literally shops price on every single load. It's
Speaker 3: a commodity that nobody wants. And you'll see in the
Speaker 3: meme if you go on Twitter or on x you
Speaker 3: see all the memes and freight making fun of the
Speaker 3: kinds of freight that nobody wants. This is the type
Speaker 3: of frit that's left over.
Speaker 1: What's an example of a type of freight that no
Speaker 1: one wants to deal with? Grocery Okay, have to have
Speaker 1: like al you have to have a special truck.
Speaker 3: Yeah, well you have to. It's typically going to a
Speaker 3: grocery store. It takes a long time to unload it.
Speaker 3: They're miseraboo because they're in a cold trailer and a
Speaker 3: refrigerator trailer. They have to use something called a lumper.
Speaker 3: A lumper is I pay somebody at the dock to
Speaker 3: unload me, or the driver has to unload themselves. They
Speaker 3: can take eight to ten hours to load at a
Speaker 3: like a farm. They go into a farm facility or
Speaker 3: distribution center, it could take eight because they're all handloaded.
Speaker 3: Think of like a crate of tomatoes or oranges or something.
Speaker 3: A lot of it's like loaded, not on pallettes, but
Speaker 3: actually sort of full loaded. So this is undesirable freight
Speaker 3: for a lot of these guys. It has really tight
Speaker 3: transit times. So that's a type of undersers freight flatbed
Speaker 3: which is hauled to project sites. You're not going to
Speaker 3: a warehouse, but you're going to a construction site that
Speaker 3: has to be manually unloaded. It can take sometimes hours
Speaker 3: or longer where the truck's got to sit, and so
Speaker 3: there's a lot of freight that's just undesired, and that's
Speaker 3: where a lot of the freight brokers, the humans still
Speaker 3: take and manage a lot of these sort of long
Speaker 3: tail transactions. That isn't the world that an XBO plays in.
Speaker 3: That is the world that the prejaminance of your freight brokerage.
Speaker 3: The folks that are on freight Twitter that are doing
Speaker 3: the brokerage job, that's where they that's a large.
Speaker 1: Percent of their freight is managing the light bulb moment sense.
Speaker 2: So much of this reminds me of the move to
Speaker 2: electronic trading in the corporate right, Like it takes a
Speaker 2: long time, and like the stuff that starts being electronified
Speaker 2: first is like the standardized trade. It's the easier ones.
Speaker 2: But again, like incentives play a role there.
Speaker 3: You took twenty years before consumers had access to effectively
Speaker 3: trade at very low cost without a broker. Yeah, this
Speaker 3: you saw early in the nineties. You know, sort of
Speaker 3: happened in the early nineties to sort of late nineties.
Speaker 3: The Internet was born, and all of a sudden, I
Speaker 3: could trade for you know myself, I could execute my trades,
Speaker 3: and then all of a sudden you got into low
Speaker 3: cost trading. And then now we're in sort of zero
Speaker 3: cost trading as consumers. But you still have the finance industry.
Speaker 3: High frequency trading has not gone away. You still have
Speaker 3: you know these large trading floors that are people are
Speaker 3: involved in this transaction, involved in these services that extend
Speaker 3: beyond just executing a trade. I mean, I can't remember
Speaker 3: the last time I called a broker to execute a
Speaker 3: standard stock trade. But I may go to a broker
Speaker 3: if I have something that is unusual that I want
Speaker 3: to do, or perhaps the product or that I'm not
Speaker 3: familiar with, or something specialized. And that's really where we
Speaker 3: see the freight brokerage industry. All those humans are really
Speaker 3: helping solve those problems. But you make an interesting point,
Speaker 3: and I use this analogy a lot. It's freight at
Speaker 3: the end of the day, is a commodity. It is
Speaker 3: price sensitive, and it will move at its in a
Speaker 3: best to the lowest cost provider. Ultimately, that's what it's
Speaker 3: trying to search for. Most of the transactions can be
Speaker 3: digitized and electronically, but everyone is investing in the same technology.
Speaker 3: They're all trying to digitize it. And because they're all
Speaker 3: trying to digitize it is no one actually has an advantage.
Speaker 3: There is no equivalent to a New York stock exchange
Speaker 3: where I can put my servers right next to the
Speaker 3: clearing engine and get nanoseconds because this is a market
Speaker 3: that is not centrally cleared or exchanged, and so there
Speaker 3: is no time advantage that I can get in terms
Speaker 3: of being closer in terms of executing. So really what
Speaker 3: we see is companies try to take the highly commoditized freight.
Speaker 3: The big companies that have the balance sheets and are
Speaker 3: asset based are picking off the really highly desirable freight
Speaker 3: that can be electronically managed, and the freight brokers, which
Speaker 3: continue to proliferate and grow, are taking care of this stuff.
Speaker 3: I can't be easily electronically managed.
Speaker 2: I have just one more question, which is again, I
Speaker 2: think the last time we spoke to you in twenty
Speaker 2: twenty three, you were talking about a coming blood bath
Speaker 2: or the bloodbath in trucking looking out to twenty twenty four,
Speaker 2: how would you characterize it.
Speaker 3: I think we're going to trade at the bottom for
Speaker 3: a while. Like I don't think it's getting worse. I
Speaker 3: don't see a situation where things are quote unquote deteriorating further.
Speaker 3: Now to an individual player that's in the market, they
Speaker 3: may feel differently because their balance sheets are probably wrecked
Speaker 3: at this point. They're taking freight that they're not making
Speaker 3: money on. They've been doing this for probably fourteen to
Speaker 3: eighteen months, and so to them it may feel like
Speaker 3: they're at the end of the line, and there will
Speaker 3: be a number of trucking companies that fail over the
Speaker 3: next couple of months. But I think it's the market wide.
Speaker 3: I think we're in many ways on the way back up,
Speaker 3: and so I think it will take a long time
Speaker 3: to turn out this capacity. But I think we'll see
Speaker 3: improving conditions for carriers as capacity bleeds off and as
Speaker 3: demand looks like it's going to stay persistent. You know,
Speaker 3: the consumer has stayed strong for miraculously strong in this cycle.
Speaker 3: It looks like, you know, going back to the conversation
Speaker 3: we had very early on about near shoring and reshoring,
Speaker 3: it looks like that is starting to take place, and
Speaker 3: because that stuff has a long lead cycle, is we're
Speaker 3: starting to benefit from some of that now. And as
Speaker 3: a manufacturing reshoring really take place in our economy, that
Speaker 3: will drive additional freight demand. And so as we continue
Speaker 3: to bleed off carriers and we see improving economic conditions
Speaker 3: in manufacturing and in inventories have bled off, that will
Speaker 3: help promote higher rates. But also higher demand and ultimately
Speaker 3: the industry will heal and sort of will enter a
Speaker 3: new cycle.
Speaker 2: And one could.
Speaker 3: Argue, well, this is the evand to which I think
Speaker 3: this time around is that you know, we do see
Speaker 3: tightening credit, which is the only thing that's going to
Speaker 3: stop the growth of trucking.
Speaker 2: Oh interesting because I guess the last cycle it was
Speaker 2: not only were freight rates going up, but you also
Speaker 2: had extremely low cost of financing.
Speaker 3: You could get it for almost nothing, to borrow money
Speaker 3: for almost nothing, and small banks they were you know,
Speaker 3: fueled with so much cash and the government was putting
Speaker 3: pressure for them to deploy it. That is no longer
Speaker 3: the case. I think, what and it's really the community
Speaker 3: bank model. It's the community banks and the folks that
Speaker 3: are in that sort of small business lending are the
Speaker 3: folks that really control the outcome of the market. They've
Speaker 3: tightened up. They started to look at trucking as a
Speaker 3: riskier business because they chances are almost every community bank
Speaker 3: in America has some trucking asset in its portfolio. And
Speaker 3: because of that, I think they're starting to say, hey,
Speaker 3: these this may not be a desirable industry to invest
Speaker 3: in or to lend money. To the way it was before,
Speaker 3: and that tightening credit standards will make it more difficult
Speaker 3: for small businesses to borrow money and thus make it
Speaker 3: harder for new expansion to take place. And I've talked
Speaker 3: to a number, you know, in Chattanooga. I'll run into
Speaker 3: people even at the airport and other cities, and people
Speaker 3: who know recognize me or know what of me have
Speaker 3: talked about their small trucking comps. At a guy said
Speaker 3: he had a bank deal that fell apart because the
Speaker 3: banker reads freightwaves and he was like, deal. He's like,
Speaker 3: I have a good business, but because you're talking about
Speaker 3: this freight recession, you have to continue to do that.
Speaker 3: I said, well, my job is to inform, and I
Speaker 3: said you should thank me because had you borrow that money,
Speaker 3: you may not you may be in a different financial situation.
Speaker 3: So I think there is more awareness about the issues
Speaker 3: in trucking and that will probably keep the capacity growth
Speaker 3: at least at Bay. But we will be back like
Speaker 3: this will be a really boom market once again. We
Speaker 3: will see higher freight rates at some point. The vibes
Speaker 3: will be really strong on Twitter, where everyone's super excited
Speaker 3: about high freight rates and there will be an argument
Speaker 3: that this time is different, because that's what they'll say,
Speaker 3: this time is different. It's not gonna roll over. This
Speaker 3: is different for all the sorts of reasons. And we
Speaker 3: will talk about that on this show, and we will
Speaker 3: predict when it will fall apart again because it will.
Speaker 1: All right, one last quick question. I'm gonna pivot we
Speaker 1: you know, founder and see you a freight waves. We
Speaker 1: always talk to you about freight. You also have this
Speaker 1: whole other business and aviation media and other aviation assets.
Speaker 1: I want to do like an hour with you at
Speaker 1: some point talk about that. But just real quickly, is
Speaker 1: it really true that there's more airports than McDonald's.
Speaker 3: This is an insane stat that no one, I think
Speaker 3: everyone finds it hard to believe. So if you take
Speaker 3: the total amount of private this includes private airport kayports.
Speaker 3: So most people think of airports and thinking of like
Speaker 3: JFK and Labordia Newark, the predominants. The vast majority of
Speaker 3: airports the United States are actually privately owned airports or
Speaker 3: community owned airports, places that have very small runways of
Speaker 3: one thousand to two thousand, three thousand feet can how
Speaker 3: many even a jet accommodating small aircraft. Yeah, there's nineteen
Speaker 3: thousand of those, and I think the number on McDonald's
Speaker 3: is like sixteen thousand, so there are This.
Speaker 2: Does not surprise me at all at all. Yeah, because
Speaker 2: just where our places in Connecticut there are two McDonald's
Speaker 2: within like a one hour radios. There's at least three airports.
Speaker 2: One of them is for sale. And I've been thinking
Speaker 2: about it.
Speaker 3: An airport.
Speaker 1: Okay, I got to check this out there that episode
Speaker 1: then we know what the next episode.
Speaker 4: One of it.
Speaker 3: But one of the people think that private airports is
Speaker 3: all about jets, and they always think it's like really
Speaker 3: much people. But the predominance of the folks that use
Speaker 3: these small airports are farmers in their agriculture, and our
Speaker 3: entire ag ecosystem is dependent upon airplanes and bees, but
Speaker 3: airplanes to do things like and so a lot of
Speaker 3: the airports are used in places out in the heartland
Speaker 3: for farming. They're also used to things like mining, you know,
Speaker 3: extraction and stuff, and so the vast majority of those
Speaker 3: airports are very small airports that most people will never see,
Speaker 3: will never notice unless they get in a small airplane
Speaker 3: and see all will get.
Speaker 2: They are very unassuming. Some of them are just fields.
Speaker 3: They're literally most of them. The predominance of them are
Speaker 3: grass fields. Yeah, get pilots, buy into it. Frankly, these
Speaker 3: are farmers that keep an airplane in the barn and
Speaker 3: they fly it out.
Speaker 1: So Craig, we could talk to you for another hour,
Speaker 1: but they're just meetings. Grublet have you back before too long?
Speaker 1: Thank you so much for coming on. Thanks, thank you, Tracy.
Speaker 1: I can't believe you didn't tell me that there's an
Speaker 1: airport for sale by you, and now it seems obvious
Speaker 1: that we have to do an episode on the business
Speaker 1: of running an airport. How much that costs.
Speaker 2: I'm definitely up for doing an episode. One thing I
Speaker 2: learned from being an aviation correspondent is I would not personally,
Speaker 2: as an investor, put much money in. We talk about
Speaker 2: like cyclical industries, aviation is also one of those that
Speaker 2: just goes up and down, up and down, up and down.
Speaker 1: Well, yes, but I think the publicly traded airport stocks,
Speaker 1: and we're really getting off topic from where we started
Speaker 1: the episode. I think actually publicly traded airport stocks have
Speaker 1: done really well, even if the plane, even if the
Speaker 1: carriers haven't done so great.
Speaker 2: I can't remember. There was this amazing chart and I
Speaker 2: think it was like everything attached to air travel like
Speaker 2: does reasonably well, like the aerospace manufacturers, although this was
Speaker 2: before the Boeing scandal, so I'm sure it's changed, but
Speaker 2: like the aerospace and the airports do well, and then
Speaker 2: the airlines are just constantly cycling like in and out
Speaker 2: of bankruptcy. But anyway, I severely doubt my ability to
Speaker 2: run a rural airport.
Speaker 1: On the main area that we talked about. That was
Speaker 1: such a good conversation. I love talking to Craig, and
Speaker 1: I feel like we touched on a bunch of things.
Speaker 1: It's particularly interesting, you know. It just started off the
Speaker 1: sort of some of the geopolitical considerations in the US,
Speaker 1: the degree to which we want to make sense for
Speaker 1: these to invest resources in patrolling the Red Sea.
Speaker 2: Yeah, I mean that seems to be a huge topic
Speaker 2: of conversation at the moment. The idea that maybe we
Speaker 2: could get to a place where the Red Sea just
Speaker 2: isn't considered a viable halfway for container shipping at least,
Speaker 2: that's really interesting. I'm also thinking back, do you remember
Speaker 2: when the Suez Canal was like last closed, not during
Speaker 2: the ever given thing. But during the what's it called
Speaker 2: this Six Days War?
Speaker 1: Is that what it was called the sixth Day were?
Speaker 2: Yeah, do you remember that? I mean not like actually
Speaker 2: remember because we weren't alive. But I think there were
Speaker 2: a few ships that got stuck there during that time,
Speaker 2: and they were stuck for like years.
Speaker 3: Wow.
Speaker 2: And there's some really interesting accounts from people who were
Speaker 2: on those ships. I think they started their own trading
Speaker 2: system and postal service where they had little like postage stamps.
Speaker 1: Oh, we gotta do we gotta find a historian to
Speaker 1: talk about that.
Speaker 4: Yeah.
Speaker 2: I can't remember why or how I know that, but
Speaker 2: it seems like a fun topic anyway.
Speaker 1: So many good things also freight tech. I thought that
Speaker 1: was really interesting and that explained so much because I
Speaker 1: know that there's like a ton of brokers, and I
Speaker 1: also you know Brad Jacobs saying no, we do it.
Speaker 1: It's so electronic. So hearing that explanation of like, okay,
Speaker 1: you can electronify the high volume commodity lanes and lines
Speaker 1: and products versus the long tail of weird places and
Speaker 1: undesirable goods. Anyway, so much good stuff telling are well.
Speaker 2: Also just the insight that freight is ultimately a commodity,
Speaker 2: and you have to think of it that way. And
Speaker 2: it's funny that we landed on air travel in the
Speaker 2: end as well, because I remember one of the first
Speaker 2: things I learned when I became an aviation correspondent was
Speaker 2: that error travel was basically a commodity as well. You know,
Speaker 2: you have a set capacity that is leaving at a
Speaker 2: certain time. You either have those seats filled or not.
Speaker 2: And that was always the way that I was taught
Speaker 2: to sort of think about it. Anyway, Shall we leave
Speaker 2: it there, Let's leave it there. Okay, this has been
Speaker 2: another episode of the Adlots podcast. I'm Tracy Alloway. You
Speaker 2: can follow me at Tracy Alloway.
Speaker 1: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 1: Follow our guest Craig Fuller, he's at Freight Ali. Follow
Speaker 1: our producers Carman Rodriguez at Carman Arman, dash Ol Bennett
Speaker 1: at Dashbot and kel Brooks at kel Brooks. And thank
Speaker 1: you to our producer Moses On. For more odd Loots content,
Speaker 1: go to bloomberg dot com slash odd Lots, where we
Speaker 1: have transcripts of blog and a newsletter and you could
Speaker 1: chat about this episode with fellow listeners twenty four to seven.
Speaker 1: In the odd Blogs, discord, we have a Trenisport section
Speaker 1: in there. There'll be a lot of interest in this
Speaker 1: loss of a defense section in there too, so Discord,
Speaker 1: do JG.
Speaker 2: Slash and if you enjoy Oddlots, if you want to
Speaker 2: pull our money together to buy a small rural airport
Speaker 2: in Connecticut, then please leave us a positive review on
Speaker 2: your favorite podcast platform.
Speaker 4: Thanks for listening in in