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Speaker 1: Hello, and welcome to another episode of The Odd Loved Podcast.

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Speaker 1: Time Joe whysan.

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Speaker 2: Thal and I'm Tracy Alloway.

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Speaker 1: Tracy, you know, we've been talking about supply chain and

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Speaker 1: logistics questions for years and it's nice because we're now

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Speaker 1: starting you know, we talked about the bullwhip effect big

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Speaker 1: time theme, but we're actually starting to see like the

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Speaker 1: opposite sides of these cycles in pretty extreme degrees than

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Speaker 1: the first time we started covering them.

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Speaker 3: Yeah.

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Speaker 2: Well, for those who don't remember, one of our favorite

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Speaker 2: things ever, the bullwhip effect is this idea where you

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Speaker 2: have these small changes or sometimes large changes in customer

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Speaker 2: demand and that sort of ripples through the rest of

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Speaker 2: the supply chain, so all the way through to retailers

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Speaker 2: and suppliers and manufacturers, and it feels like we are seeing,

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Speaker 2: as you said, Joe, the reverse of some of the

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Speaker 2: first ripples that we saw. So if you think back

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Speaker 2: to the pandemic, there was an expectation that people weren't

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Speaker 2: going to buy anything, and so we had a lot

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Speaker 2: of retailers and manufacturers who cut back, but in actuality,

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Speaker 2: people who were stuck at home did end up buying

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Speaker 2: quite a lot, and so everyone had to scramble to

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Speaker 2: get things to them so to produce the goods that

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Speaker 2: people actually wanted. At that time, we saw inventories start

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Speaker 2: to build up. And now there's the question of whether

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Speaker 2: we're seeing all of us go into revers.

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Speaker 1: Yeah, and you know, we're recording this on May second,

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Speaker 1: and I was last week. I was spending a lot

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Speaker 1: of both of us were spending a lot of time

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Speaker 1: reading through earnings calls, and a lot of my interest

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Speaker 1: was sort of like on the inflation consumer pricing standpoint.

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Speaker 1: But basically every company I saw said, like, the one

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Speaker 1: area where they're definitely seeing easing isn't freight costs. Yeah,

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Speaker 1: they all they all said.

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Speaker 2: That, although you know, you mentioned pricing, and this is

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Speaker 2: something that we've been covering for you know, that we've

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Speaker 2: been interested in for a while now. But this idea

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Speaker 2: of price over volume, and if companies are sacrificing volume

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Speaker 2: in order to jack up prices or making that up

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Speaker 2: with price increases, then it suggests there are fewer goods

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Speaker 2: moving around, right, which you would think would be bad

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Speaker 2: for the companies that actually move and ship those goods.

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Speaker 1: I think it definitely has been and I think if

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Speaker 1: you look at the lines of any sort of truck

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Speaker 1: or freight pricing index and also ocean freight. It's pretty

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Speaker 1: far down, so we're going to dive into what's going on.

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Speaker 1: We know the lines are down for freight pricing, but

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Speaker 1: the question is like, how much of this is a

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Speaker 1: trucking or freight specific story over supply leading to undersupply

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Speaker 1: leading to oversupply of capacity versus something that says something

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Speaker 1: about the broader economy. We have two guests are friends

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Speaker 1: from freight Waves. We have Craig Fuller, founder and CEO

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Speaker 1: of Freight Waves, who we first talked to I think

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Speaker 1: two years ago, and out Rachel Kremac, editorial director of

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Speaker 1: Freight Waves, who recently wrote a piece declaring trucking blood

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Speaker 1: bath two point zh. Thank you both for joining us. Rachel, wait,

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Speaker 1: what was trucking blood bath?

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Speaker 4: One point zero?

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Speaker 3: Yeah?

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Speaker 5: So in twenty nineteen, the trucking industry, when we're recession,

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Speaker 5: really as a result of a lot of these Trump tariffs,

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Speaker 5: a lot of manufacturing in the US started to really

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Speaker 5: slow down, and as a result, that caused this slow

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Speaker 5: down more broadly in trucking. This blood bath we're seeing

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Speaker 5: right now is more on the I would say more

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Speaker 5: on the consumer side rather than strictly on the manufacturing side.

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Speaker 5: But yeah, just generally, when we see these big drawbacks

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Speaker 5: in various industries, that results in drawbacks in the trucking

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Speaker 5: industry as well.

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Speaker 2: Yeah, so this is a notoriously cyclical industry. And I'm

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Speaker 2: glad we started out with trucking bloodbath one point, oh,

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Speaker 2: because that kind of encapsulates the idea. But what are

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Speaker 2: we seeing in terms of the data now? Because there

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Speaker 2: are all these different cool charts that you know, for

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Speaker 2: waves especially, it puts together all these different things you

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Speaker 2: can look at, like the outbound tender rejection index, things

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Speaker 2: like the contract load accepted volume index. Walk us through

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Speaker 2: what you're seeing in terms of the numbers.

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Speaker 4: Yeah, you know, if you look at what's happened in

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Speaker 4: the trucking industry, and this also happened in twenty nineteen,

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Speaker 4: So not only did you see a slow down in

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Speaker 4: volume related to for the industrial economy, but you also

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Speaker 4: saw an overbuild of capacity. So there was an ELED

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Speaker 4: mandate which really regulated the logs or how many hours

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Speaker 4: the driver and the monitoring of those hours the drivers

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Speaker 4: could have in the truck. And because everyone expected a

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Speaker 4: massive capacity crunch. The opposite happened. The market corrected, and

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Speaker 4: actually a large capacity build happened in the industry. This

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Speaker 4: also happened during COVID, is that there was a massive

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Speaker 4: shortage of capacity and everyone sort of, you know, thought, hey,

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Speaker 4: I can start a trucking company, I can become a

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Speaker 4: you know, an owner operator. I go out and buy

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Speaker 4: a truck. And they just flooded the market full of capacity.

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Speaker 4: And what we have is a situation where, really, over

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Speaker 4: the last you know, since twenty eighteen, we've seen twenty

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Speaker 4: eight percent increase of the dispatchable capacities. We've seen a

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Speaker 4: massive surge in trucking capacity. Over the last just year,

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Speaker 4: there's been an increase as much as eight percent of

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Speaker 4: the dispatchable capacity of the market. So this situation where

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Speaker 4: it's completely flooded. There's so much capacity out there, and

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Speaker 4: because trucking is a capacity constrained market, the market, the

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Speaker 4: providers of trucking, the trucking companies, in the fleet operators

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Speaker 4: are always trying to add trucks to sort of match

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Speaker 4: that demand. Well, what happened is the market just over corrected.

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Speaker 4: Classic commodity a boom cycle that has now played out

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Speaker 4: the tender rejection index that you mentioned measures the percent

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Speaker 4: of freight that is rejected, and the reason that's important

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Speaker 4: is it helps us measure the balance of supplying demand.

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Speaker 4: So looking at volume is only one aspect of it,

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Speaker 4: but you also have to look at capacity to understand

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Speaker 4: really the metrics of the industry. So we look at

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Speaker 4: the tender rejection index because what it tells us is

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Speaker 4: how many loads are getting rejected. So think about an airline.

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Speaker 4: You have an airplane and there's a finite number of seats. Well,

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Speaker 4: everybody who's ever been on an airplane knows that the

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Speaker 4: airlines want to overbook that aircraft. That's the goal. Anybody

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Speaker 4: that runs a hotel wants to overbook the rooms and

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Speaker 4: they're going to intentionally bump some players in that market.

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Speaker 4: And the same thing happens in trucking is the trucking

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Speaker 4: companies will over commit, to overcommit to capacity versus what

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Speaker 4: they can actually handle, knowing that at times they're going

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Speaker 4: to have to reject some freight. So back in the

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Speaker 4: peak cycle a year ago, we saw rejection rates as

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Speaker 4: high as thirty percent, So that meant thirty percent of

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Speaker 4: all truckloads in the market in the contract market are

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Speaker 4: being turned down. That rejection rate right now is about

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Speaker 4: two point seven percent, which is the lowest it's ever

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Speaker 4: been outside the COVID extremes, and it just means the

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Speaker 4: market is completely flooded with capacity.

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Speaker 5: And Craig mentions an interesting point, which is that in

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Speaker 5: twenty eighteen there wasn't enough trucking capacity. It was a

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Speaker 5: really hot time in the trucking industry. And that followed

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Speaker 5: and as a result, a lot of you know, new players,

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Speaker 5: new employees of these trucking firms, started to flood the market.

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Speaker 5: And you know, as soon as that capacity really started

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Speaker 5: to ramp up, of course that demand for trucking services

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Speaker 5: also declines.

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Speaker 3: The same thing is sort of happening this time.

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Speaker 5: There was an incredibly hot market in at the end

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Speaker 5: of twenty twenty through twenty twenty one, you know, even

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Speaker 5: beginning of twenty twenty two. And yeah, basically, basically, these

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Speaker 5: really hot times follow these incredibly slow times, and a

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Speaker 5: lot of this does relate to sort of how we talk.

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Speaker 3: About the trucking industry.

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Speaker 5: There's a lot of talk of a truck driver shortage,

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Speaker 5: and when you keep hearing, oh, there's a shortage in

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Speaker 5: this industry, I should jump in, I should you know,

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Speaker 5: make a quick box. I should you know, really profit

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Speaker 5: off of this? Too many folks get in, and pretty

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Speaker 5: soon after that, you know, what goes up must go down.

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Speaker 1: I mentioned the sort of like analogy to airlines, but

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Speaker 1: I think like the key thing there and sort of

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Speaker 1: why we get these cycles that are sometimes like economic

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Speaker 1: cycles magnified, is that you can't just add new airline

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Speaker 1: capacity trivially. Whereas I think the first time we did

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Speaker 1: a trucking episode, like we joke should we start a

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Speaker 1: trucking company? Should Tracy start a trucking company? And the

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Speaker 1: lesson is like, it really is that simple to get

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Speaker 1: into the space.

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Speaker 4: There's no bears to entry. So you think about so

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Speaker 4: a truck today probably cost you know, brand new trucks

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Speaker 4: two hundred thousand, and used truck can be anywhere from

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Speaker 4: you know, fifty to sixty thousand to you know, we're

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Speaker 4: talking to relatively low mile truck you know, three to

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Speaker 4: five years to one hundred thousand dollars. And so it's

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Speaker 4: a situation where you know, the banks are happy to

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Speaker 4: lend the trucking companies because they have this perception that

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Speaker 4: trucking is always needed and because they believe that there's

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Speaker 4: a perpetual driver shortage, they increasingly provide capital for would

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Speaker 4: beyond our operators to go out and start the down

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Speaker 4: trucking company. And because of the ration of load boards

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Speaker 4: and digital matching apps, it's never been easier to actually

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Speaker 4: access freight and access the brokerage market. And so what

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Speaker 4: happens is that you have new entrepreneurs that look at

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Speaker 4: it and say, hey, there's no real I don't have

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Speaker 4: to be that sophisticated to run a business. This isn't required.

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Speaker 4: It's not a very complex job, and it's incredibly easy

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Speaker 4: to get started. And so when they see the fundamentals

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Speaker 4: of the market really heat up like it was over

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Speaker 4: the last couple of years, you know, really during COVID,

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Speaker 4: during the code peak cycle, they get very attracted to

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Speaker 4: those markets and they're thinking, you know, you think about

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Speaker 4: the fact that we're talking at the peak four dollars

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Speaker 4: a mile, and to put that in perspective, a truck

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Speaker 4: will do approximately two thousand miles a week. So on

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Speaker 4: four dollars a mile, we're talking about somebody making approximately

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Speaker 4: three fifty to four hundred thousand dollars a year. Wow,

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Speaker 4: And without any kind of formal education required, and so

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Speaker 4: it attracts a lot of folks that look at it

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Speaker 4: and say, hey, I can make a lot of money,

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Speaker 4: I can do very well for my family. There isn't

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Speaker 4: any sort of requirements of tenure to get into this industry.

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Speaker 4: It's a you know, it is a trade, and it

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Speaker 4: doesn't require a lot of sort of understanding of how

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Speaker 4: the market is constructed. So it tended to attract a

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Speaker 4: lot of folks that really weren't cut out or are

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Speaker 4: not cut out for the downcycle. And that's what we're

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Speaker 4: seeing right now is a situation where a lot of

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Speaker 4: people are attracted to the peak of the market that

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Speaker 4: went out and bought the expensive trucks. You know, those

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Speaker 4: trucks I talked about that were that are used where

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Speaker 4: sort of precycle could have been forty thousand dollars at

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Speaker 4: the peak of the cycle. Those same trucks that were

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Speaker 4: five years old at forty thousand pre COVID, we're going

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Speaker 4: for one hundred and forty one hundred and fifty thousand.

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Speaker 4: They were actually going for more that we're five years

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Speaker 4: old than what you would have bought a new truck

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Speaker 4: pre COVID, And so they bought at the top of

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Speaker 4: the market, and they anticipated that four dollars a vial

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Speaker 4: rate staying perpetual and we're not prepared for the downturn

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Speaker 4: which we're facing right now.

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Speaker 2: Well, so, just on this point, I mean, it is

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Speaker 2: true that we have seen a lot of the smaller players,

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Speaker 2: the independent owner op operators, start to get out and

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Speaker 2: take capacity out, as evidence by the truck prices that

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Speaker 2: you just mentioned, and I guess people giving up their licenses.

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Speaker 2: I think it's called revocations trucking authority and you'll have

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Speaker 2: to take me through the latest numbers on those. But

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Speaker 2: at the same time, it's true that we've seen some

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Speaker 2: of the really big players add capacity. What's going on there?

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Speaker 2: Is this just like a market share grab or are

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Speaker 2: people really scarred from the previous couple of years where

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Speaker 2: there was so much demand that they were kind of

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Speaker 2: struggling to catch up with.

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Speaker 5: Yeah, the problem was through twenty twenty twenty one, early

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Speaker 5: twenty two, most of twenty two. Really that usually these

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Speaker 5: large fleets prefer to buy new trucks, they don't usually

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Speaker 5: prefer to buy use trucks.

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Speaker 3: Obviously, through the.

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Speaker 5: Early twenty twenties there was no manufacturing capacity. So these

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Speaker 5: large trucking fleets, you know, these large public companies, they

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Speaker 5: were not able to span capacity. Now, on the one

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Speaker 5: to five truck fleet side, we saw that portion of

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Speaker 5: the market really start to boom in the early twenty twenties.

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Speaker 5: Large fleets on the other hand, group by maybe their

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Speaker 5: capacity at like one to four percent I believe was

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Speaker 5: the number. So yeah, basically what's going on now is

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Speaker 5: there are too many of these small players. In the

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Speaker 5: first quarter of this year alone, we saw nine thousand

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Speaker 5: trucking fleets have their authorities revoked. At the same time,

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Speaker 5: these large fleets are pretty rapidly expanding, pretty rapidly hiring.

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Speaker 5: That's kind of how the market is shaped. Is shaking

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Speaker 5: up right now.

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Speaker 4: And it's not just a access to trucks. So trucks

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Speaker 4: is one thing, but it's also the driver. The driver

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Speaker 4: population is really the capacity constraint. So you know, truck

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Speaker 4: manufacturers can continue to produce trucks and if ultimately the

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Speaker 4: larger cares felt like they had demand, they could bid

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Speaker 4: up the new trucks and sort of they have a

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Speaker 4: lot of power over that. The problem is that if

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Speaker 4: they can't get dry rivers to populate those trucks. They're

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Speaker 4: not going to go out and buy new trucks. And

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Speaker 4: that's what really over the last couple of years, if

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Speaker 4: you shoult of look at the COVID cycle is you know,

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Speaker 4: from two thousand, late twenty twenty to really twenty two,

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Speaker 4: they could not get new could not get truck drivers

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Speaker 4: were they were losing a lot of drivers to the

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Speaker 4: owner our operating market. So a driver saying, hey, I'm

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Speaker 4: making you know, fifty sixty seventy thousand dollars years and

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Speaker 4: over the road truck driver says, hey, why am I

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Speaker 4: not making the two hundred or four hundred thousand dollars.

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Speaker 4: So they went out and started their own trucking company.

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Speaker 4: And those trucking companies dealt with what we call unseated trucks,

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Speaker 4: whereas there isn't a driver, so they had their own

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Speaker 4: sort of driver shortage inside their operation. And because of that,

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Speaker 4: really what we end up with is a situation where

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Speaker 4: they did not grow in the early part of the cycle,

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Speaker 4: and now, because of the conditions in the market, a

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Speaker 4: lot of those would be or had become owner operators

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Speaker 4: or would be operators are now joining fleets. And that's

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Speaker 4: enabling the larger companies to grow market share.

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Speaker 1: Just real quickly. So before we move on and I

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Speaker 1: forget to ask, at the peak, it was an average

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Speaker 1: what four dollars a mile? What do we what's the

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Speaker 1: latest freight wave stat on this?

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Speaker 4: Yeah, so if you take out four dollars a mile,

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Speaker 4: by the way, it includes fuel. If you take out

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Speaker 4: fuel out of that equations is about three dollars and

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Speaker 4: twenty cents a mile at the peak. But if you

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Speaker 4: look at it from sort of net of fuel, you're

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Speaker 4: around a dollar fifty six a mile. So we're talking

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Speaker 4: about rates going down more than half of what they were.

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Speaker 4: And there's a really important factor in this. It's just

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Speaker 4: like your own income is a lot of the The

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Speaker 4: rate per mile only tells you what the revenue is,

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Speaker 4: doesn't tell you a lot about the cost components. And

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Speaker 4: so one of the things to look at is the

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Speaker 4: cost components. And we go back to that last quote

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Speaker 4: unquote blood bath, the freight recession that happened in twenty nineteen.

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Speaker 4: You know, the lowest rate ever painted and in our

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Speaker 4: data was a dollar and this is net a fuel

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Speaker 4: a dollar forty seven. We're to buck fifty six today.

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Speaker 4: So you think about a nine cent increase. That sounds

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Speaker 4: on the surface, okay, until you realize that the operating

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Speaker 4: cost of trucking companies and I'm netting out fuel, I'm

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Speaker 4: not including fuel in this equation, but operating costs for

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Speaker 4: trucking companies increased by thirty cents a mile. So if

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Speaker 4: you look at the net increase or the net decreases,

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Speaker 4: we're talking about a situation where fleets are actually in

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Speaker 4: a worse situation than the lowest paint in twenty nineteen

302
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Speaker 4: by twenty one cents a mile for every mile they run.

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Speaker 4: And that's just when they can get freed. A lot

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Speaker 4: of the other sort of thing that hasn't factored into

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Speaker 4: the rate because there is a point where carriers will

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Speaker 4: just not take a load if it's below their operating cost.

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Speaker 4: There's just not enough loads out there. So there's a

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Speaker 4: combination of not enough demand combined with a low rate environment,

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Speaker 4: which means it's pretty dire for a lot of these

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Speaker 4: truck comments.

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Speaker 2: So we've been talking a lot about the idiosyncrasies of

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Speaker 2: the actual trucking industry. What are we seeing in terms

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Speaker 2: of demand. Just to go back to our original framing

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Speaker 2: of this, episode, which is, you know, the trucking bloodbath

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Speaker 2: two point zero. How much of that is about the

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Speaker 2: general economy and maybe demand for goods actually finally going

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Speaker 2: down or companies needing to run down their inventories versus

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Speaker 2: these industry specific issues that we've been discussing.

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Speaker 4: So demand is approximately twenty nineteen levels right now, So

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Speaker 4: you know, it depends on your perspective if you look

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Speaker 4: at four years of if we went through an economy

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Speaker 4: where it didn't grow for four years, because remember, trucking

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Speaker 4: is directly correlated to the goods consumption of the economy,

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Speaker 4: So you know, when trucking does well or the economy

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Speaker 4: does well, trucking will do well, and when trucking's not

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Speaker 4: doing well reflects on the sort of conditions of the

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Speaker 4: goods economy. But if you sort of think about the

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Speaker 4: fact that we're back to twenty nineteen levels that would

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Speaker 4: suggest and a normal economy forget that COVID happened, that

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Speaker 4: we've basically lost four years of growth or three years

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Speaker 4: of growth, and so we're in a situation where twenty

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Speaker 4: eighteen levels in terms of volume combined with a real

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Speaker 4: surge incity. You know, as I mentioned, you're up twenty

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Speaker 4: eight percent from where we were just in twenty eighteen.

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Speaker 4: Twenty eighteen was actually a slightly better market by about

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Speaker 4: three percent of twenty nineteen levels. And so we're in

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Speaker 4: a situation where now we've had so much capacity added,

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Speaker 4: so much cost added, and volumes are basically back to

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Speaker 4: where they were in twenty nineteen. So we're in a

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Speaker 4: situation where there just isn't enough freight, and that I

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Speaker 4: think really warns us. You know, trucking will lead the

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Speaker 4: broader economy by as much as six months. And you

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Speaker 4: saw this last year. We reported in the free Recession

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Speaker 4: on March thirty first.

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Speaker 2: You got a lot of pushback on that lot of

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Speaker 2: I think you remember, Yeah.

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Speaker 4: A ton of it. And the reason is that a

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Speaker 4: lot of the data that people look at through traditional

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Speaker 4: models and trucking are based on lagging data. So we

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Speaker 4: use what we call high frequency data, which refetches every day,

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Speaker 4: and it looks at the demand, real transactional data from

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Speaker 4: shippers to carriers as one of the core data sets. Well,

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Speaker 4: that data is way upstream, so it leads the broader

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Speaker 4: sort of government data, traditional models by six months. You

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Speaker 4: can actually look at it. We called the very early

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Speaker 4: part of the cycle in COVID, as early as mid

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Speaker 4: April of twenty twenty, at the point somebody on Bloomberg

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Speaker 4: TV actually called me the most bullish guy in America

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Speaker 4: at one point, because we were incredibly bullish about the

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Speaker 4: v shape recovery. And it was really throughout the summer

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Speaker 4: of twenty people were there was a lot of vitral

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Speaker 4: directed at us because we were very bullish, and people

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Speaker 4: couldn't understand how you could be so bullish when all

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Speaker 4: the economic data was actually very soft. But the reality

365
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Speaker 4: is that the data we look at, the high frequency data,

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Speaker 4: leads those indicators. So when you think about it from

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Speaker 4: the perspective, what does this mean for the goods economy?

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Speaker 4: And I'm only talking to goods economy, and I'm talking

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Speaker 4: about broader GDP, the approximate forty percent economy that's reliant

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Speaker 4: upon trucking services to move their products. It does suggest

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Speaker 4: that the US goods economy has continuing to slow and

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Speaker 4: it doesn't bode well for really the indicators. And we

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Speaker 4: saw that last year we called the freight recession, and

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Speaker 4: you know the end of the first quarter, it was,

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Speaker 4: you know, six weeks later when all of the big

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Speaker 4: retailers came out and said they had too much inventory.

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Speaker 2: Yeah, I wanted to ask just on this point. When

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Speaker 2: it comes to the goods economy, are you seeing specific

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Speaker 2: areas of weakness, Like is it those who were most

380
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Speaker 2: affected by the bullwhip effect you know in twenty twenty

381
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Speaker 2: and twenty twenty one, is that where demand is really slumping.

382
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Speaker 4: It's anything really related to consumer outside of auto. So

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Speaker 4: auto just because of the lack of being able to

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Speaker 4: get access to new cars because it can produce them,

385
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Speaker 4: because of shortages of products. The auto has actually been

386
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Speaker 4: quite resilient even today in terms of freight demand data.

387
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Speaker 4: But if you look at anything exposed to consumer, that's

388
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Speaker 4: where you're seeing particularly weakness. Consumer packaged goods. You know,

389
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Speaker 4: Rachel's written about the cardboard box industry actually having.

390
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Speaker 2: We've never done a cardboard box other types.

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Speaker 4: Of boxes, so we just, yeah, we should do it.

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Speaker 4: We should. So we actually brought on an analyst used

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Speaker 4: to be at a bank, because an analysts studied the

394
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Speaker 4: packaging cardboard industry. He's now part of the Right Ways

395
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Speaker 4: team and he's it's interesting how tightly quardal cardboard shouldn't

396
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Speaker 4: shock anybody. It sort of looks at the economy, but

397
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Speaker 4: how tightly correlated the packaging and cardboard industry is to

398
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Speaker 4: trucking cycles and how much they matched. So one of

399
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Speaker 4: the things that was really interesting is back in January

400
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Speaker 4: of this year, we actually thought that the freight economy

401
00:20:16,320 --> 00:20:18,440
Speaker 4: was starting to recover because it looked like some green

402
00:20:18,480 --> 00:20:21,720
Speaker 4: shoots in January. We injured the first quarter, thinking hey,

403
00:20:21,800 --> 00:20:24,119
Speaker 4: maybe the freight recession is over with, and the fourth

404
00:20:24,200 --> 00:20:27,000
Speaker 4: quarter was sort of the bottom of it. The cardboard

405
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Speaker 4: box the packaging industry saw the very same thing happened

406
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Speaker 4: in January, where they all of a sudden said, wait

407
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Speaker 4: a second, maybe the softness that we saw is actually

408
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Speaker 4: over with and maybe we're starting to see a recover. Well,

409
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Speaker 4: they saw the same thing in January, and then in

410
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Speaker 4: February it got worse, and in March it hours. In

411
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Speaker 4: April it was so bad. It's so bad for trucking.

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Speaker 4: So what's really interesting is that January thus far has

413
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Speaker 4: been the best month in trucking and in the packaging industry,

414
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Speaker 4: and that that is an unusual development. Usually January is

415
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Speaker 4: one of the worst months year and it's just not

416
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Speaker 4: happening this year. And I'm talking specifically volume we have.

417
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Speaker 4: You know, we talk a lot about capacity. It's an

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Speaker 4: important part of our industry, but as you mentioned, Tracy,

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Speaker 4: it doesn't really tell you a ton about the broader economy.

420
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Speaker 4: But what we do know is that volumes are basically

421
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Speaker 4: perverted back to where they were pre COVID, largely because

422
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Speaker 4: retailers have so much inventory.

423
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Speaker 5: Another thing that's definitely challenging or confusing volumes right now

424
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Speaker 5: is these massive floods we're seeing re recently song in

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Speaker 5: California that's throwing off the harvest season. Typically, I think

426
00:21:32,359 --> 00:21:34,679
Speaker 5: it was late March early April. That's typically when we

427
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Speaker 5: start picking you know, lettuce, strawberries, these other sorts of

428
00:21:37,960 --> 00:21:41,639
Speaker 5: ground crops. But those fields were so flooded that people

429
00:21:41,640 --> 00:21:44,880
Speaker 5: couldn't even get into the fields to pick those crops.

430
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Speaker 5: That sets everything back a few weeks. Planting a set

431
00:21:48,400 --> 00:21:50,760
Speaker 5: back a few weeks. All these sorts of things are

432
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Speaker 5: just kind of thrown into chaos, and a lot of

433
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Speaker 5: truck drivers view it's called you know one hundred days

434
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Speaker 5: of summer. That's really the hot time in the trucking industry,

435
00:21:59,240 --> 00:22:04,280
Speaker 5: especially for or refer carriers that haul these refrigerated goods.

436
00:22:04,880 --> 00:22:07,320
Speaker 3: So drivers who are really hoping for this.

437
00:22:07,280 --> 00:22:11,800
Speaker 5: Hot period basically right now are finding that things are

438
00:22:11,840 --> 00:22:14,399
Speaker 5: just thrown into chaos and that kind of dependable volume

439
00:22:14,480 --> 00:22:15,280
Speaker 5: is not happening.

440
00:22:15,480 --> 00:22:18,439
Speaker 1: Wait, Rachel, can I back up or actually move ninety

441
00:22:18,440 --> 00:22:21,560
Speaker 1: degrees for a quick question? Did I see something recently

442
00:22:21,800 --> 00:22:25,760
Speaker 1: speaking of floods? Oh, that the barge crisis is back,

443
00:22:25,800 --> 00:22:27,480
Speaker 1: except this time there's too much water.

444
00:22:28,119 --> 00:22:29,200
Speaker 3: New barge crisis.

445
00:22:29,400 --> 00:22:31,159
Speaker 1: So what's going on with the new barge crisis?

446
00:22:31,200 --> 00:22:31,360
Speaker 4: Where?

447
00:22:31,400 --> 00:22:33,320
Speaker 1: Because like we did that last Summer's like, oh, there's

448
00:22:33,320 --> 00:22:34,720
Speaker 1: no water. What's happening now?

449
00:22:35,240 --> 00:22:41,040
Speaker 5: Basically Mississippi River levels are incredibly high and this also

450
00:22:41,840 --> 00:22:46,119
Speaker 5: screws up the baringem marg shipping. It's not quite as

451
00:22:46,560 --> 00:22:50,160
Speaker 5: drastic as it was in the fall, because the fall

452
00:22:50,280 --> 00:22:52,600
Speaker 5: is when all of those crops are moved out and

453
00:22:52,680 --> 00:22:55,080
Speaker 5: all of those crops are you know, that's kind of

454
00:22:55,080 --> 00:22:57,600
Speaker 5: peak harvest season for the Midwest. You're trying to get

455
00:22:57,640 --> 00:23:00,800
Speaker 5: all that weed out, especially to or in markets. So

456
00:23:00,880 --> 00:23:03,199
Speaker 5: it's not quite as bad as last year because the

457
00:23:03,240 --> 00:23:06,760
Speaker 5: timing was so bad last year. But yeah, I don't

458
00:23:06,760 --> 00:23:07,800
Speaker 5: know what's going on with this river.

459
00:23:08,080 --> 00:23:10,119
Speaker 4: And anyone who says supply chain is boring has not

460
00:23:10,200 --> 00:23:12,240
Speaker 4: been listened to the odd last podcast, But these you

461
00:23:12,240 --> 00:23:17,280
Speaker 4: guys have featured how incredibly volatile and sensitive these noices?

462
00:23:17,400 --> 00:23:17,800
Speaker 6: I don't know.

463
00:23:18,320 --> 00:23:22,439
Speaker 2: Yeah, who would say that fly chains are endlessly fascinating? Okay,

464
00:23:22,520 --> 00:23:27,639
Speaker 2: so folks just crazy people say that. Okay, So, just

465
00:23:27,680 --> 00:23:31,280
Speaker 2: going back to the trucking bloodbath idea, I guess two

466
00:23:31,359 --> 00:23:34,719
Speaker 2: interrelated questions. But do we have any ideas of how

467
00:23:34,920 --> 00:23:38,720
Speaker 2: extreme this cycle could be? Would we expect it to

468
00:23:38,760 --> 00:23:42,680
Speaker 2: be worse than twenty eighteen twenty nineteen? And then secondly,

469
00:23:43,200 --> 00:23:45,800
Speaker 2: how will we know when it's over? You talk about

470
00:23:45,880 --> 00:23:49,200
Speaker 2: high frequency indicators, what should we be looking at?

471
00:23:49,320 --> 00:23:51,239
Speaker 4: Yeah, the tender projecting data is going to be the

472
00:23:51,240 --> 00:23:55,080
Speaker 4: first indicator because that is actually highly sensitive. To remember,

473
00:23:55,119 --> 00:23:59,160
Speaker 4: it's it's basically orders that come from large retailers. Large

474
00:23:59,320 --> 00:24:03,560
Speaker 4: manufacturers are sending these transactions electronically to trucking companies, and

475
00:24:03,600 --> 00:24:05,560
Speaker 4: they're going to either accept or reject those loads. And

476
00:24:05,640 --> 00:24:08,680
Speaker 4: it happens within two days so or two days from pickups,

477
00:24:08,720 --> 00:24:11,480
Speaker 4: so they will get you a big Bucks retail off

478
00:24:11,520 --> 00:24:14,240
Speaker 4: Walmart sends over a transaction to a small trucking company

479
00:24:14,320 --> 00:24:17,200
Speaker 4: or a big drug company in the contract market, electronically

480
00:24:17,680 --> 00:24:19,879
Speaker 4: that tender data will see that and then look at

481
00:24:19,880 --> 00:24:22,560
Speaker 4: whether or not the trucking company accept it or rejected it.

482
00:24:22,640 --> 00:24:26,440
Speaker 4: So you'll start to see the tender rejection data will

483
00:24:26,480 --> 00:24:30,359
Speaker 4: start to basically turn around, and you'll see it accelerate.

484
00:24:30,480 --> 00:24:34,000
Speaker 4: If there was a situation in the market that suggested

485
00:24:34,040 --> 00:24:37,400
Speaker 4: that a capacity was starting to tighten, we're not seeing

486
00:24:37,440 --> 00:24:40,720
Speaker 4: any indications of that. There's zero even as volume has

487
00:24:41,040 --> 00:24:42,840
Speaker 4: we've seen it in the last week. We've actually seen

488
00:24:42,880 --> 00:24:46,680
Speaker 4: volume increase. We've seen some really sort of strange many

489
00:24:46,680 --> 00:24:49,159
Speaker 4: surges that look like there may be a directional change,

490
00:24:49,280 --> 00:24:51,240
Speaker 4: could be seasonality. We didn't see it at all in April,

491
00:24:51,280 --> 00:24:55,119
Speaker 4: as Rachel mentions, as things heat up, guardian equipment construction,

492
00:24:55,240 --> 00:24:57,760
Speaker 4: all of that sort of drives beverages sort of drive

493
00:24:57,800 --> 00:25:00,600
Speaker 4: freight demand. So we've seen some level of season out

494
00:25:00,600 --> 00:25:03,040
Speaker 4: in the last week which sort of has broken that

495
00:25:03,119 --> 00:25:06,320
Speaker 4: down cycle, but we've not seen anything in tender rejection

496
00:25:06,480 --> 00:25:09,480
Speaker 4: data which actually suggests that we're still in it for

497
00:25:09,520 --> 00:25:11,439
Speaker 4: a while. And I think, Tracy, this is going to

498
00:25:11,440 --> 00:25:13,359
Speaker 4: be you know, I think if you listen to some

499
00:25:13,400 --> 00:25:15,320
Speaker 4: of the larger carriers, they'll tell you it's probably going

500
00:25:15,359 --> 00:25:17,480
Speaker 4: to get better in six months, the second half will

501
00:25:17,520 --> 00:25:19,399
Speaker 4: be better. I don't buy it. I think this is

502
00:25:19,440 --> 00:25:22,080
Speaker 4: a situation where it's going to take a while to

503
00:25:22,080 --> 00:25:24,560
Speaker 4: get rid of all the excess capacity. And one of

504
00:25:24,560 --> 00:25:26,679
Speaker 4: the things that's really hard to sort of identify is

505
00:25:26,720 --> 00:25:29,640
Speaker 4: how much capacity has been added in the market because

506
00:25:29,680 --> 00:25:34,000
Speaker 4: the government data, while it's accurate, it's very lagged. As ever.

507
00:25:34,119 --> 00:25:36,479
Speaker 4: You know, Elon Musk would say the government data that

508
00:25:36,520 --> 00:25:39,480
Speaker 4: the Fed's looking at is all lagged, and it's right,

509
00:25:39,560 --> 00:25:41,520
Speaker 4: and the same thing exists in trucking is it's not

510
00:25:41,640 --> 00:25:43,360
Speaker 4: the cleanest data. So it takes a while to sort

511
00:25:43,359 --> 00:25:45,040
Speaker 4: of figure out how much capacity has been added and

512
00:25:45,040 --> 00:25:47,520
Speaker 4: how fast it evaporates. But one of the things that

513
00:25:47,680 --> 00:25:49,520
Speaker 4: Rachel did in an articles you did a week ago

514
00:25:49,600 --> 00:25:52,240
Speaker 4: shows bravocations. If you look at the chart of the

515
00:25:52,320 --> 00:25:54,879
Speaker 4: peak cycle sort of peaked during the covide cycle, how

516
00:25:54,960 --> 00:25:59,239
Speaker 4: much higher those increases of fleets in terms of you know,

517
00:25:59,280 --> 00:26:01,679
Speaker 4: eight to nine dollars and new fleets entered the trucking

518
00:26:01,720 --> 00:26:04,640
Speaker 4: market a month. We're only talking about two to three

519
00:26:04,640 --> 00:26:06,520
Speaker 4: thousand a month right now that have left. And that

520
00:26:06,560 --> 00:26:09,399
Speaker 4: went on for as much as fourteen to eighteen, fourteen

521
00:26:09,440 --> 00:26:11,960
Speaker 4: to sixteen months, so sort of peak increases, so we

522
00:26:12,000 --> 00:26:14,280
Speaker 4: have a while to sort of get rid of this

523
00:26:14,359 --> 00:26:18,000
Speaker 4: capacity that's added. And that's assuming that the US economy

524
00:26:18,040 --> 00:26:20,639
Speaker 4: sort of stays at this level and doesn't take another

525
00:26:20,800 --> 00:26:23,880
Speaker 4: downward leg. One thing that I'm looking at and really

526
00:26:23,880 --> 00:26:28,960
Speaker 4: concerned about is what happens when those college loans and

527
00:26:29,119 --> 00:26:32,920
Speaker 4: student financial aid payments resume. Because one of the real

528
00:26:33,000 --> 00:26:36,680
Speaker 4: sensitivities of trucking and freight, particularly the consumer side of

529
00:26:36,680 --> 00:26:40,280
Speaker 4: the economy is consumption. And the people that are consuming

530
00:26:40,400 --> 00:26:43,840
Speaker 4: products tend to be those folks that, in terms of

531
00:26:44,040 --> 00:26:46,360
Speaker 4: just the impact on the market tend to be those

532
00:26:46,359 --> 00:26:49,400
Speaker 4: folks that live, you know, that are younger and sort

533
00:26:49,440 --> 00:26:53,200
Speaker 4: of live paycheck to paycheck, and so the sensitivities of

534
00:26:53,240 --> 00:26:56,399
Speaker 4: that will really impact the freight market. And so we

535
00:26:56,400 --> 00:26:58,879
Speaker 4: could see another downward leg and volume in the second half.

536
00:26:59,400 --> 00:27:02,480
Speaker 5: And going back your question on how bad this could be,

537
00:27:02,800 --> 00:27:06,240
Speaker 5: we saw during the last earnings call, the first quarter

538
00:27:06,320 --> 00:27:09,080
Speaker 5: earning Shelley Simpson, the president of JB. Hunt, you know,

539
00:27:09,119 --> 00:27:12,639
Speaker 5: one of the largest trucking companies in the US, she said,

540
00:27:12,840 --> 00:27:15,399
Speaker 5: you know, this market is reminding us of two thousand

541
00:27:15,440 --> 00:27:18,400
Speaker 5: and nine, and that's certainly not something that I've ever heard.

542
00:27:18,480 --> 00:27:20,560
Speaker 5: I've never heard a two thousand and eight two thousand

543
00:27:20,560 --> 00:27:23,720
Speaker 5: and nine comparison in the six years or so that

544
00:27:23,800 --> 00:27:26,400
Speaker 5: I've been covering the trucking industry. So to me, that's

545
00:27:26,440 --> 00:27:29,399
Speaker 5: a pretty scary sign. I spoke to, you know, on

546
00:27:29,440 --> 00:27:31,280
Speaker 5: the other side of the coin, I spoke to a

547
00:27:31,320 --> 00:27:34,760
Speaker 5: truck driver last week who shut down his authority after

548
00:27:34,840 --> 00:27:37,720
Speaker 5: sixteen years of being in the industry. He also kind

549
00:27:37,720 --> 00:27:39,560
Speaker 5: of agreed that, you know, this could be a two

550
00:27:39,600 --> 00:27:41,840
Speaker 5: thousand and eight two thousand and nine type situation or

551
00:27:41,880 --> 00:27:45,480
Speaker 5: even worse simply because parts are so expensive and so

552
00:27:46,000 --> 00:27:49,600
Speaker 5: difficult to access even now. So yeah, just with that

553
00:27:49,680 --> 00:27:52,399
Speaker 5: cost being incredibly high, that's certainly something that's concerned.

554
00:27:52,480 --> 00:27:54,639
Speaker 1: Yeah, I was actually just gonna ask you. So it's like,

555
00:27:54,800 --> 00:27:58,920
Speaker 1: obviously for the market to come into balance, there has

556
00:27:58,960 --> 00:28:01,840
Speaker 1: to be reduction in capacity and people have to tap

557
00:28:01,880 --> 00:28:04,919
Speaker 1: out and say, like, yeah, the economics are working for me.

558
00:28:05,000 --> 00:28:08,800
Speaker 1: In the people that you speak to about why they're

559
00:28:08,880 --> 00:28:11,600
Speaker 1: leaving the market, whether it's drivers, whether it's smaller fleets,

560
00:28:11,640 --> 00:28:14,080
Speaker 1: et cetera, what are some of the reasons that they're saying,

561
00:28:14,119 --> 00:28:16,560
Speaker 1: or like, what are other commonalities and they're like, yeah,

562
00:28:16,600 --> 00:28:17,199
Speaker 1: I'm out of this.

563
00:28:17,640 --> 00:28:20,000
Speaker 5: Well, diesel and fuel is certainly more affordable than it

564
00:28:20,160 --> 00:28:23,400
Speaker 5: was last year, so that's you know, a positive tailwind

565
00:28:23,440 --> 00:28:27,240
Speaker 5: for these folks. But the parts is definitely an issue.

566
00:28:27,600 --> 00:28:31,760
Speaker 5: Increasing regulations as a frustration. The fact that rates have

567
00:28:31,880 --> 00:28:35,280
Speaker 5: greatly decreased, that's a big issue a few of these companies,

568
00:28:35,359 --> 00:28:37,720
Speaker 5: especially kind of like the mid size fleets, they're seeing

569
00:28:37,720 --> 00:28:41,320
Speaker 5: their contracts either you know, get pulled back or contract

570
00:28:41,440 --> 00:28:45,080
Speaker 5: rates you know, significantly lower. So it's both on the

571
00:28:45,200 --> 00:28:48,040
Speaker 5: spot market that is tends to be more dominated by

572
00:28:48,040 --> 00:28:50,720
Speaker 5: these smaller players, as well as the contract market, which

573
00:28:50,760 --> 00:28:54,960
Speaker 5: tends to be dominated by larger, more established companies. So

574
00:28:55,480 --> 00:28:58,000
Speaker 5: rates on both sides of the equation are certainly lowering,

575
00:28:58,040 --> 00:29:00,800
Speaker 5: and that seems to be the you know, the big

576
00:29:00,840 --> 00:29:03,080
Speaker 5: reason is its basically rates are too low to run.

577
00:29:03,680 --> 00:29:05,080
Speaker 4: It's all cash flow at the end of the day.

578
00:29:05,120 --> 00:29:08,000
Speaker 4: I mean, ultimately, we can talk about insurance increases, we

579
00:29:08,040 --> 00:29:11,320
Speaker 4: can talk about maintenance expenses, we can talk about higher

580
00:29:11,400 --> 00:29:14,280
Speaker 4: driver salaries. You know, think about just the cost of

581
00:29:14,320 --> 00:29:16,480
Speaker 4: mechanics to hire those and how much more that has

582
00:29:16,520 --> 00:29:17,280
Speaker 4: sort of flown through.

583
00:29:17,600 --> 00:29:20,040
Speaker 1: And this is like that other thirty percent. So when

584
00:29:20,080 --> 00:29:22,520
Speaker 1: you talk about like, okay, why is just even setting

585
00:29:22,560 --> 00:29:26,800
Speaker 1: aside gasoline, operating of operating trucks just thirty percent more

586
00:29:26,840 --> 00:29:28,800
Speaker 1: costly than it was at the bottom in twenty nineteen

587
00:29:28,800 --> 00:29:29,840
Speaker 1: to these are the difference, that's right.

588
00:29:29,880 --> 00:29:32,880
Speaker 4: So maintenance is a big increase. You know, parts are

589
00:29:32,880 --> 00:29:34,320
Speaker 4: one side of it, but also just the fact that

590
00:29:34,320 --> 00:29:37,480
Speaker 4: you can't get access to mechanics. There's a mechanic shortage

591
00:29:37,520 --> 00:29:40,000
Speaker 4: across the country that can handle diesel and work on

592
00:29:40,080 --> 00:29:42,600
Speaker 4: diesel trucks. That's a big problem. You look at the

593
00:29:42,600 --> 00:29:44,720
Speaker 4: cost of capital. One of the things that remember is

594
00:29:44,720 --> 00:29:48,320
Speaker 4: the trucking is an industry. It's a capital intensive industry.

595
00:29:48,720 --> 00:29:50,880
Speaker 4: It actually has one of the lowest returns on capital

596
00:29:50,880 --> 00:29:53,360
Speaker 4: of any industry on the planet, but it requires a

597
00:29:53,360 --> 00:29:55,640
Speaker 4: lot of capital. A lot of these trucking companies finance

598
00:29:55,720 --> 00:29:58,000
Speaker 4: their working capital and they finance their trucks. Well, we've

599
00:29:58,040 --> 00:30:00,800
Speaker 4: seen a pretty dramatic increase in cost. You know. One

600
00:30:00,880 --> 00:30:03,360
Speaker 4: of the sort of crazy facts of this industry is

601
00:30:03,400 --> 00:30:06,080
Speaker 4: even if you sort of average the operating ratio, which

602
00:30:06,480 --> 00:30:09,280
Speaker 4: you know, operating ratio reflects on the profitability, so it's

603
00:30:09,280 --> 00:30:12,000
Speaker 4: an inverse of sort of profit operating profitability for a

604
00:30:12,040 --> 00:30:15,320
Speaker 4: trucking company. So an operating ratio right now or on

605
00:30:15,400 --> 00:30:17,560
Speaker 4: average is typically a ninety seven is sort of the

606
00:30:17,600 --> 00:30:20,040
Speaker 4: average for a trucking company. That means they're generating for

607
00:30:20,120 --> 00:30:23,200
Speaker 4: every dollar, they generate three cents in profit. And that

608
00:30:23,320 --> 00:30:26,200
Speaker 4: is across the industry in a normal sort of cycle.

609
00:30:26,600 --> 00:30:28,880
Speaker 4: And so when you're talking about a situation where the

610
00:30:28,920 --> 00:30:31,560
Speaker 4: cost of capital has gone up so much, many of

611
00:30:31,600 --> 00:30:34,920
Speaker 4: these companies just aren't even able to basically pay the

612
00:30:35,040 --> 00:30:37,480
Speaker 4: debt and service their debt on their equipment because their

613
00:30:37,520 --> 00:30:40,360
Speaker 4: cash flow is down so far, and so that is

614
00:30:40,400 --> 00:30:42,840
Speaker 4: what's causing them to basically go under. Now, one thing

615
00:30:42,880 --> 00:30:47,920
Speaker 4: I would point out is the industry got really financially strong,

616
00:30:48,040 --> 00:30:50,840
Speaker 4: balance sheets got incredibly strong because of the real robust

617
00:30:51,160 --> 00:30:55,200
Speaker 4: operating conditions over the last couple of years. So we

618
00:30:55,320 --> 00:30:59,320
Speaker 4: have not yet seen a situation where a large or

619
00:30:59,440 --> 00:31:02,080
Speaker 4: mid size carriers are going out in mass A lot

620
00:31:02,120 --> 00:31:05,960
Speaker 4: of the revocations that Rachel's reported are really single operators.

621
00:31:06,080 --> 00:31:08,160
Speaker 4: They're the ones that are most sensitive to that. But

622
00:31:08,240 --> 00:31:10,040
Speaker 4: I don't think we can call a bottom, or we'll

623
00:31:10,040 --> 00:31:12,040
Speaker 4: call a bottom until we start to see some of these,

624
00:31:12,320 --> 00:31:15,760
Speaker 4: you know, a real wash out of very large companies,

625
00:31:15,800 --> 00:31:18,160
Speaker 4: and we've seen a couple of bankruptcies. Started in March,

626
00:31:18,600 --> 00:31:21,880
Speaker 4: we started to see some sort of increase in bankruptcies

627
00:31:21,920 --> 00:31:23,920
Speaker 4: a couple of one hundred trucks at a time. I

628
00:31:23,920 --> 00:31:26,480
Speaker 4: think there was at least you know, seven or eight

629
00:31:26,520 --> 00:31:28,760
Speaker 4: stories of companies that had you know, more than one

630
00:31:28,800 --> 00:31:32,320
Speaker 4: hundred employees that you know, just suddenly shut their doors.

631
00:31:32,840 --> 00:31:34,840
Speaker 4: We're not seeing what I call hosts sell back. In

632
00:31:34,840 --> 00:31:38,280
Speaker 4: twenty nineteen, we saw as many, you know, at one time,

633
00:31:38,320 --> 00:31:41,840
Speaker 4: we were doing as many as ten sizeable bankruptcies a week,

634
00:31:42,320 --> 00:31:44,880
Speaker 4: with the largest culminating with a company called Seldon, which

635
00:31:44,920 --> 00:31:49,560
Speaker 4: is publicly traded, had four thousand trucks and file bankruptcy.

636
00:31:49,680 --> 00:31:53,120
Speaker 4: And so we're not yet seeing a situation where there's

637
00:31:53,160 --> 00:31:55,200
Speaker 4: been a wholesale wash out. In my opinion, and until

638
00:31:55,240 --> 00:31:57,560
Speaker 4: we see that, I think this is going to is

639
00:31:57,600 --> 00:32:00,280
Speaker 4: going to continue to exacerbate. I will sort of point now,

640
00:32:00,720 --> 00:32:02,600
Speaker 4: you know, not only has Shelley Simpson talked about the

641
00:32:02,640 --> 00:32:05,880
Speaker 4: comparisons of two thousand and nine, I've heard people across

642
00:32:05,880 --> 00:32:08,720
Speaker 4: the industry, both small and big, have said this matches

643
00:32:08,800 --> 00:32:10,880
Speaker 4: there what they experienced in two thousand and nine and

644
00:32:10,920 --> 00:32:12,600
Speaker 4: one of the things that did not happen two thousand

645
00:32:12,600 --> 00:32:14,560
Speaker 4: and nine is not only the inflation, but the freight

646
00:32:14,640 --> 00:32:17,520
Speaker 4: brokerage industry, the sort of cottage industry. It was a

647
00:32:17,520 --> 00:32:19,160
Speaker 4: cottage industry back in two thousand and nine. It was

648
00:32:19,160 --> 00:32:23,360
Speaker 4: a relatively small piece of freight. It has exploded in

649
00:32:23,480 --> 00:32:25,280
Speaker 4: terms of its percent of market share.

650
00:32:25,360 --> 00:32:28,360
Speaker 2: This was going to be my next question, what's going

651
00:32:28,400 --> 00:32:30,840
Speaker 2: on with the freight brokers, you know, speaking of costs

652
00:32:30,880 --> 00:32:32,920
Speaker 2: and also this is one of the things we learned

653
00:32:33,160 --> 00:32:38,080
Speaker 2: at your supply chain conference last year. The freight broker model,

654
00:32:38,240 --> 00:32:40,080
Speaker 2: as far as I can tell, seems to be an

655
00:32:40,160 --> 00:32:45,360
Speaker 2: extremely lucrative middleman industry with profit margins. I mean, we

656
00:32:45,440 --> 00:32:48,240
Speaker 2: heard whispers of like twenty percent when we were in

657
00:32:48,360 --> 00:32:50,800
Speaker 2: Arkansas last year. I don't know if that's still true.

658
00:32:50,800 --> 00:32:52,200
Speaker 2: But what's going on there.

659
00:32:52,320 --> 00:32:54,520
Speaker 4: Well, there's so it depends on what part of the

660
00:32:54,560 --> 00:32:57,160
Speaker 4: market they serve. So it's really interesting because freight brokers

661
00:32:57,640 --> 00:32:59,440
Speaker 4: have one of the highest return on a capital of

662
00:32:59,560 --> 00:33:02,960
Speaker 4: Indians street, so trucking asset has the lowest, and freight

663
00:33:03,000 --> 00:33:06,160
Speaker 4: brokerage and forwarding actually has one of the highest. And

664
00:33:06,200 --> 00:33:08,760
Speaker 4: because they don't actually own anything outside of computers, and

665
00:33:08,800 --> 00:33:11,400
Speaker 4: maybe some real estate. They're not going to just suddenly

666
00:33:11,400 --> 00:33:14,920
Speaker 4: go bankrupt, so they can downsize their operations, their trading floors.

667
00:33:14,960 --> 00:33:16,360
Speaker 4: Just like you would see a trading floor at the

668
00:33:16,400 --> 00:33:18,720
Speaker 4: Chicago Board of Trade in the old days, this is

669
00:33:18,760 --> 00:33:20,880
Speaker 4: what a freight broker floor looks like. It looks like

670
00:33:20,880 --> 00:33:23,480
Speaker 4: a trading floor of commodity because it's effectively what they are,

671
00:33:24,000 --> 00:33:27,560
Speaker 4: and so essentially they depend on sort of two KPIs

672
00:33:27,560 --> 00:33:30,000
Speaker 4: are really important to freight brokers. One is what is

673
00:33:30,040 --> 00:33:33,880
Speaker 4: the spread between spot and contract and that is actually

674
00:33:33,920 --> 00:33:36,520
Speaker 4: as much as ninety cents a mile. It's the widest

675
00:33:36,520 --> 00:33:39,040
Speaker 4: it's ever been. In a normal cycle. It should be

676
00:33:39,040 --> 00:33:40,959
Speaker 4: about thirty five to fifty cents a mile, but it's

677
00:33:41,040 --> 00:33:43,800
Speaker 4: ninety cents right now, which means the spot rate's going

678
00:33:43,840 --> 00:33:45,600
Speaker 4: to continue to pull down that contract rate. But as

679
00:33:45,640 --> 00:33:48,480
Speaker 4: long as that variance is so high, that delta is

680
00:33:48,520 --> 00:33:51,120
Speaker 4: so high, then on a per transaction basis, the freight

681
00:33:51,120 --> 00:33:53,680
Speaker 4: brokers are actually making a lot of money. The problem

682
00:33:53,800 --> 00:33:55,600
Speaker 4: is that there isn't any of a volume for them.

683
00:33:56,120 --> 00:33:59,400
Speaker 4: And when you look at what shippers, shippers being the

684
00:33:59,640 --> 00:34:03,200
Speaker 4: custom of these trucking companies, the customers of freight brokers

685
00:34:03,440 --> 00:34:06,640
Speaker 4: you know, big box retailers, manufacturers, et cetera. They want

686
00:34:06,680 --> 00:34:08,920
Speaker 4: to do business with people who have assets. They want

687
00:34:08,920 --> 00:34:10,879
Speaker 4: to know who is hauling their load, and they want

688
00:34:10,920 --> 00:34:12,440
Speaker 4: to make sure that it's not broker it out to

689
00:34:12,520 --> 00:34:14,719
Speaker 4: somebody who's going to steal the cargo or you can't

690
00:34:14,719 --> 00:34:16,920
Speaker 4: find the cargo. So what's happened is now with shipperds

691
00:34:16,960 --> 00:34:18,760
Speaker 4: is they're saying I want to work with the asset

692
00:34:18,760 --> 00:34:21,279
Speaker 4: based carriers. So a lot of that access volume, that

693
00:34:21,360 --> 00:34:23,879
Speaker 4: overflow that went from the large carriers into the spot

694
00:34:23,960 --> 00:34:26,640
Speaker 4: market and brokers sort of handled it, is starting to

695
00:34:26,719 --> 00:34:28,160
Speaker 4: dry out for a lot of the freight brokers. So

696
00:34:28,160 --> 00:34:29,600
Speaker 4: it's a volume problem for them.

697
00:34:29,640 --> 00:34:29,879
Speaker 6: Now.

698
00:34:29,960 --> 00:34:33,440
Speaker 4: The spreads are incredibly high, but the volume of transactions

699
00:34:33,520 --> 00:34:34,359
Speaker 4: is actually quite low.

700
00:34:35,400 --> 00:34:38,280
Speaker 5: And just to sort of explain what the freight broker

701
00:34:38,360 --> 00:34:40,479
Speaker 5: world looks like and how they managed to take these

702
00:34:40,520 --> 00:34:45,200
Speaker 5: big margins, I actually shadowed a dispatcher slash broker last.

703
00:34:45,000 --> 00:34:47,760
Speaker 2: Week, and so you were on the trading floor.

704
00:34:47,920 --> 00:34:50,319
Speaker 5: I wasn't a trading floor, it was he was more

705
00:34:50,360 --> 00:34:52,560
Speaker 5: of a dispatcher than a broker, but he has his

706
00:34:52,640 --> 00:34:54,480
Speaker 5: broker license, so I was able to kind of look

707
00:34:54,520 --> 00:34:57,319
Speaker 5: at that side of things as well. Basically, Let's say

708
00:34:57,440 --> 00:35:02,160
Speaker 5: Acme Clothing Company says, someone needs to move my truck.

709
00:35:02,200 --> 00:35:04,640
Speaker 3: Who can my load? Who can take it? A bunch of.

710
00:35:04,600 --> 00:35:06,800
Speaker 5: Broker's bien you know, I'll bit take it for a thousand,

711
00:35:06,840 --> 00:35:08,480
Speaker 5: I'll take it for nine hundred, I'll take it for

712
00:35:08,520 --> 00:35:10,000
Speaker 5: eight hundred and ninety nine, and I'll take it for

713
00:35:10,040 --> 00:35:14,839
Speaker 5: eight hundred ninety eight. Lowest bidder wins. That broker then says, Okay,

714
00:35:14,880 --> 00:35:16,920
Speaker 5: I'm going to make eight hundred and fifty dollars on this.

715
00:35:17,719 --> 00:35:20,239
Speaker 5: They post on the load board saying who can take

716
00:35:20,280 --> 00:35:23,560
Speaker 5: this load for five hundred and fifty dollars? And then

717
00:35:23,800 --> 00:35:26,480
Speaker 5: a truck driver is looking through the load board trying

718
00:35:26,520 --> 00:35:27,799
Speaker 5: to figure out their next job.

719
00:35:28,200 --> 00:35:29,600
Speaker 3: They see this for five point fifty.

720
00:35:30,080 --> 00:35:32,080
Speaker 5: They called the broker maybe they ask, hey, can I

721
00:35:32,120 --> 00:35:35,000
Speaker 5: take this for six fifty? The broker says, how about

722
00:35:35,120 --> 00:35:38,480
Speaker 5: you know, six hundred, and that's what they decide on.

723
00:35:38,560 --> 00:35:39,799
Speaker 3: That's what the driver drives for.

724
00:35:40,040 --> 00:35:42,800
Speaker 5: But that broker is taking that was it two hundred

725
00:35:42,840 --> 00:35:43,920
Speaker 5: and fifty dollars in profit?

726
00:35:44,560 --> 00:35:46,480
Speaker 3: So that's what it looks like on the on the

727
00:35:46,480 --> 00:35:49,000
Speaker 3: ground floor. I guess of what this all looks like yeah.

728
00:35:49,000 --> 00:35:50,719
Speaker 1: I remember when we were at the when we were

729
00:35:50,719 --> 00:35:54,360
Speaker 1: at y'all's conference last year and we interviewed Matt Pyett

730
00:35:54,360 --> 00:35:56,279
Speaker 1: that arrived here, and then a few months later I

731
00:35:56,280 --> 00:35:58,960
Speaker 1: got to I went to Arrive's offices in Austin, and

732
00:35:58,960 --> 00:36:00,480
Speaker 1: it really is like a trade of what is it

733
00:36:00,480 --> 00:36:03,239
Speaker 1: called the Chicago model of Uh, it's the Chicago model

734
00:36:03,840 --> 00:36:05,839
Speaker 1: having the shippers side and one side of the room

735
00:36:05,840 --> 00:36:07,759
Speaker 1: and the carrier side and another side of the room,

736
00:36:07,800 --> 00:36:09,680
Speaker 1: and they like sort of you know a wall down.

737
00:36:09,680 --> 00:36:11,640
Speaker 4: Well, so one of them, you know, one of them

738
00:36:11,680 --> 00:36:13,719
Speaker 4: books the freight, yeah, right, and then one of them

739
00:36:13,840 --> 00:36:16,200
Speaker 4: buys the capacity, so it's one is sort of long

740
00:36:16,320 --> 00:36:20,200
Speaker 4: in the market, yeah, short, and essentially a lot of

741
00:36:20,200 --> 00:36:22,480
Speaker 4: the brokers. The reason Chicago has proliferated it is a

742
00:36:22,480 --> 00:36:24,560
Speaker 4: couple of reasons, sort of foundational companies that sort of

743
00:36:24,560 --> 00:36:27,800
Speaker 4: started the Chicago model. But really the reason that it

744
00:36:27,880 --> 00:36:31,080
Speaker 4: has been so successful is the model is they have

745
00:36:31,200 --> 00:36:33,279
Speaker 4: followed what the Chicago Board to Trade and the CEME

746
00:36:33,480 --> 00:36:35,480
Speaker 4: used to do. Is they would go hire people who

747
00:36:35,480 --> 00:36:37,960
Speaker 4: would normally go to the CBOT or the CME and

748
00:36:38,000 --> 00:36:40,799
Speaker 4: go on trading floors and as those things when electronic,

749
00:36:40,920 --> 00:36:43,400
Speaker 4: they realized, hey, this is the same batch of people.

750
00:36:43,440 --> 00:36:45,959
Speaker 4: So they started recruiting the same way that somebody would

751
00:36:46,000 --> 00:36:48,080
Speaker 4: normally go into the sort of the trade bits. They

752
00:36:48,120 --> 00:36:50,640
Speaker 4: started recruiting the same types of folks to go onto

753
00:36:50,680 --> 00:36:53,520
Speaker 4: freight brokerage floors. And that's exactly what they do. The

754
00:36:53,560 --> 00:36:55,680
Speaker 4: difference is that a freight broker, you know, Tracy, you

755
00:36:55,719 --> 00:36:57,960
Speaker 4: mentioned that the margins on it, the margins can be

756
00:36:58,080 --> 00:37:01,040
Speaker 4: you know, twelve to eighteen percent and almost cycle depends

757
00:37:01,040 --> 00:37:02,640
Speaker 4: on sort of what part of the cycle we are.

758
00:37:02,840 --> 00:37:05,120
Speaker 4: Some of those are as high as twenty twenty plus percentage.

759
00:37:05,120 --> 00:37:07,280
Speaker 2: That's why Joe and I went from joking about starting

760
00:37:07,360 --> 00:37:09,360
Speaker 2: a trucking company to starting a freight broker.

761
00:37:09,400 --> 00:37:13,880
Speaker 3: But you know that would be better, I know.

762
00:37:13,960 --> 00:37:15,840
Speaker 1: But you know, then I got the impression from athlet

763
00:37:15,920 --> 00:37:18,880
Speaker 1: It was like a lot of like X big ten athletes.

764
00:37:18,680 --> 00:37:20,279
Speaker 3: All that, Oh yeah, that's hard.

765
00:37:20,360 --> 00:37:20,560
Speaker 6: Yeah.

766
00:37:20,640 --> 00:37:21,959
Speaker 1: So it's like that's not me either.

767
00:37:22,080 --> 00:37:22,640
Speaker 4: Unfortunately.

768
00:37:22,680 --> 00:37:24,840
Speaker 5: I also feel like the median freight broker is like

769
00:37:24,920 --> 00:37:25,600
Speaker 5: twenty five.

770
00:37:25,680 --> 00:37:30,520
Speaker 7: It's a very bro bros. It's a very bro culture

771
00:37:30,680 --> 00:37:33,759
Speaker 7: and it's a I mean, it's a very dominated by

772
00:37:33,880 --> 00:37:36,719
Speaker 7: men typically, is what you'll see in these businesses, and

773
00:37:36,800 --> 00:37:40,600
Speaker 7: it's a very bro culture. Freight brokers as an industry

774
00:37:40,880 --> 00:37:43,719
Speaker 7: used to be a word, you know that that represented

775
00:37:43,800 --> 00:37:46,320
Speaker 7: sort of a very small sort of cottage industry, and

776
00:37:46,320 --> 00:37:48,360
Speaker 7: these are become massively big businesses.

777
00:37:48,480 --> 00:37:51,560
Speaker 3: Yeah, they didn't exist just you know, a few decades ago.

778
00:37:51,760 --> 00:37:54,560
Speaker 4: It was illegal to broker freight. Saint Robinson was actually

779
00:37:54,880 --> 00:37:57,320
Speaker 4: now the largest freight broker, was actually a produce broker

780
00:37:57,440 --> 00:38:01,080
Speaker 4: that fought to allow after trucking deregular lated in nineteen

781
00:38:01,320 --> 00:38:05,640
Speaker 4: eighty They really fought to allow for brokers to exist

782
00:38:05,680 --> 00:38:07,720
Speaker 4: in the market, and that really didn't happen in nineteen

783
00:38:07,719 --> 00:38:08,160
Speaker 4: eighty five.

784
00:38:24,920 --> 00:38:26,759
Speaker 1: All Right, we have to wrap up almost but I

785
00:38:26,760 --> 00:38:29,880
Speaker 1: have one last question and there's so many more questions

786
00:38:29,880 --> 00:38:32,560
Speaker 1: I have, but last question, Craig, you tweeted something about

787
00:38:32,640 --> 00:38:35,520
Speaker 1: load fraud in trucking and how AI is going to

788
00:38:35,560 --> 00:38:37,800
Speaker 1: amplify it, and I'm sure, like you know, this is

789
00:38:37,880 --> 00:38:39,279
Speaker 1: the start of many things.

790
00:38:39,239 --> 00:38:42,000
Speaker 2: Before say, we should just start a new segment every

791
00:38:42,000 --> 00:38:44,560
Speaker 2: All Thoughts episode. We should just ask how is AI.

792
00:38:44,400 --> 00:38:45,480
Speaker 3: King to make this worse?

793
00:38:46,440 --> 00:38:48,839
Speaker 1: But real quickly, can you just explain your concern here?

794
00:38:48,840 --> 00:38:51,200
Speaker 1: And you know one day there will be a separate episode.

795
00:38:51,239 --> 00:38:51,919
Speaker 1: But what's going on.

796
00:38:52,000 --> 00:38:56,000
Speaker 4: So loadboard fraud is a real problem in the industry,

797
00:38:56,040 --> 00:38:59,120
Speaker 4: and what's happening is that the brokers, because of the

798
00:38:59,160 --> 00:39:03,680
Speaker 4: proliferation of broke capacity, the load boards effectively are these marketplaces,

799
00:39:03,719 --> 00:39:05,839
Speaker 4: but they're not really exchanges and the way you would

800
00:39:05,880 --> 00:39:08,880
Speaker 4: think of them for financial exchanges. They're more like Craigslist,

801
00:39:08,920 --> 00:39:11,920
Speaker 4: where a broker will post a load and basically put

802
00:39:11,960 --> 00:39:15,520
Speaker 4: it out into the marketplace and ultimately a driver, you know,

803
00:39:15,680 --> 00:39:17,640
Speaker 4: drivers will call in because they don't even do it

804
00:39:17,680 --> 00:39:20,759
Speaker 4: electronically mostly, but they will call in or email and say, hey,

805
00:39:20,760 --> 00:39:23,200
Speaker 4: I want that load, and they'll do this negotiation process

806
00:39:23,239 --> 00:39:25,320
Speaker 4: on the phone. Well, they come up with a price

807
00:39:25,400 --> 00:39:27,040
Speaker 4: and they pick it up. The problem is that the

808
00:39:27,040 --> 00:39:29,600
Speaker 4: brokers that use those load boards, the load boards don't

809
00:39:29,680 --> 00:39:33,799
Speaker 4: regulate who's actually on their loadboard. So really, much like Craiglist,

810
00:39:33,800 --> 00:39:36,520
Speaker 4: it's posting and you sort of you know, you may

811
00:39:36,560 --> 00:39:39,719
Speaker 4: get a legitimate trucking company and you may get a

812
00:39:40,000 --> 00:39:43,680
Speaker 4: illegitimate trucking company. Well, there's been this proliferation of illegitimate

813
00:39:43,680 --> 00:39:46,120
Speaker 4: trucking companies that you have basically have gone out and

814
00:39:46,160 --> 00:39:49,480
Speaker 4: registered information that's fake with the government and the government

815
00:39:49,480 --> 00:39:52,880
Speaker 4: doesn't regulate it, and so essentially what happens is the

816
00:39:52,880 --> 00:39:55,320
Speaker 4: person that is accepting that load has agreed to a price.

817
00:39:55,840 --> 00:39:58,280
Speaker 4: They'll ask for what they call fuel advance, which means

818
00:39:58,320 --> 00:40:01,520
Speaker 4: that the broker will advance the money. And in the

819
00:40:01,560 --> 00:40:04,280
Speaker 4: market like this, fuel advances are really important because drivers

820
00:40:04,320 --> 00:40:06,040
Speaker 4: need to pay for fuel and they don't want to

821
00:40:06,040 --> 00:40:08,480
Speaker 4: deal with the cash flow collection cycle, so they get

822
00:40:08,520 --> 00:40:12,719
Speaker 4: an advance and then basically that broker is fake and

823
00:40:12,760 --> 00:40:15,920
Speaker 4: does not exist, and we'll just take that fuel advance.

824
00:40:15,920 --> 00:40:17,880
Speaker 4: So that's one form of fraud. One of the emerging

825
00:40:17,920 --> 00:40:20,719
Speaker 4: forms of fraud in double brokering is that some so

826
00:40:20,800 --> 00:40:23,680
Speaker 4: the broker, the fake broker, will then broke it out

827
00:40:23,719 --> 00:40:26,800
Speaker 4: to another broker and what they'll do is a truck

828
00:40:26,800 --> 00:40:31,040
Speaker 4: will pick up and basically, no, there's no chain of custody,

829
00:40:31,120 --> 00:40:33,160
Speaker 4: so nobody knows where that load went. It will pick

830
00:40:33,280 --> 00:40:36,040
Speaker 4: up and go, Or you could have a situation where

831
00:40:36,080 --> 00:40:39,680
Speaker 4: the broker is colluding with a fake trucking company to

832
00:40:39,760 --> 00:40:43,560
Speaker 4: actually go and pick up the load and then walk

833
00:40:43,600 --> 00:40:45,960
Speaker 4: out with the cargo, so that the load never arrives

834
00:40:46,040 --> 00:40:49,120
Speaker 4: at the destination and nobody actually knows what happened. To

835
00:40:49,160 --> 00:40:51,799
Speaker 4: that commodity and it's sold on the black market. So

836
00:40:52,200 --> 00:40:56,440
Speaker 4: freight brokerage fraud or loadboard fraud is a massive problem

837
00:40:56,520 --> 00:40:59,680
Speaker 4: and it's emerging as a big issue, and AI is

838
00:40:59,680 --> 00:41:01,880
Speaker 4: just going to proliferate that because now I'm no longer

839
00:41:01,880 --> 00:41:05,040
Speaker 4: dependent upon humans to sort of execute this fraud. I

840
00:41:05,040 --> 00:41:05,600
Speaker 4: can actually do.

841
00:41:05,600 --> 00:41:09,640
Speaker 3: It right now.

842
00:41:09,680 --> 00:41:13,760
Speaker 5: There's no oversight, you know, and if there's already no oversight,

843
00:41:13,800 --> 00:41:15,040
Speaker 5: that makes me worried for the future.

844
00:41:15,239 --> 00:41:17,440
Speaker 4: The load boards have the only part of the government's

845
00:41:17,480 --> 00:41:19,480
Speaker 4: never going to regulate this. And the problem is the

846
00:41:19,520 --> 00:41:22,160
Speaker 4: fraud we're talking about is typically a couple hundred dollars

847
00:41:22,200 --> 00:41:24,759
Speaker 4: to a thousand unless they steal the cargo. When we're

848
00:41:24,800 --> 00:41:27,400
Speaker 4: talking about sort of traditional loadboard fraud, it's so small

849
00:41:27,480 --> 00:41:31,319
Speaker 4: and they're typically offshore operators that the government is never

850
00:41:31,400 --> 00:41:34,719
Speaker 4: going to investigate these crimes. And so because it's just

851
00:41:34,880 --> 00:41:38,080
Speaker 4: it's happening so rampant that really it's the small carriers

852
00:41:38,080 --> 00:41:40,160
Speaker 4: that end up really sort of taking it off.

853
00:41:40,200 --> 00:41:42,600
Speaker 2: Okay, so this is a new business model idea for

854
00:41:42,680 --> 00:41:47,200
Speaker 2: US Joe instead of freight brokerage. Freight brokerage AI enabled fraud.

855
00:41:48,120 --> 00:41:51,360
Speaker 8: It is a big booming cottage industry trace you just

856
00:41:51,400 --> 00:41:55,600
Speaker 8: have to live outside a lot of Eastern European And

857
00:41:55,640 --> 00:41:57,600
Speaker 8: I think it's also like a lot of the folks

858
00:41:57,600 --> 00:41:59,960
Speaker 8: that are proliferating and actually used to be in trucking,

859
00:42:00,000 --> 00:42:04,120
Speaker 8: there's been this emergence of offshore dispatch operations and offer terior.

860
00:42:05,760 --> 00:42:07,439
Speaker 4: Yeah, so they know the system. And so what's happened

861
00:42:07,520 --> 00:42:09,879
Speaker 4: is the market's gotten so soft that they can't find

862
00:42:09,960 --> 00:42:12,279
Speaker 4: legitimate forms of making money, and they realize, hey, this

863
00:42:12,360 --> 00:42:14,960
Speaker 4: is a really lucrative way to make money. And I'm

864
00:42:15,000 --> 00:42:18,040
Speaker 4: not going to get prosecuted because frankly, it's an fbis.

865
00:42:18,120 --> 00:42:20,560
Speaker 4: It's the FBI's domain to sort of investigate these crimes

866
00:42:20,600 --> 00:42:24,400
Speaker 4: that are overseas, and the crimes are a missed so misunderstood,

867
00:42:24,560 --> 00:42:26,840
Speaker 4: and anyone who can actually understand how all the stuff

868
00:42:26,880 --> 00:42:29,279
Speaker 4: works has got to be in the industry for many years.

869
00:42:29,320 --> 00:42:32,160
Speaker 4: Even as much as I know, I still learn something

870
00:42:32,200 --> 00:42:34,719
Speaker 4: almost every day about how the how different things work

871
00:42:34,719 --> 00:42:36,560
Speaker 4: in the industry. So it's hard for the regular for

872
00:42:36,640 --> 00:42:39,680
Speaker 4: the authorities to sort of understand it, much less investigate it.

873
00:42:39,719 --> 00:42:41,719
Speaker 4: And the crimes are so small in terms of the

874
00:42:41,760 --> 00:42:44,640
Speaker 4: dollar value, they just don't care. And so this crime

875
00:42:44,719 --> 00:42:46,960
Speaker 4: is going to proliferate, and tell the load boards, the

876
00:42:47,080 --> 00:42:51,960
Speaker 4: parties that manage these marketplaces until they actually put real

877
00:42:52,160 --> 00:42:55,720
Speaker 4: systems in place, it's going to proliferate very quickly.

878
00:42:56,400 --> 00:42:59,000
Speaker 2: Is there anything that could be done to reduce the

879
00:42:59,040 --> 00:43:02,840
Speaker 2: cyclicality of the trucking industry and would it be desirable

880
00:43:03,040 --> 00:43:06,080
Speaker 2: to reduce the cyclicality of the trucking industry, Because on

881
00:43:06,120 --> 00:43:09,040
Speaker 2: the one hand, it sounds bad if we're talking about

882
00:43:09,120 --> 00:43:11,760
Speaker 2: trucking blood bath two point zero, But on the other hand,

883
00:43:12,160 --> 00:43:15,040
Speaker 2: maybe it's a good thing that, you know, truckers can

884
00:43:15,120 --> 00:43:19,520
Speaker 2: sort of rapidly build up capacity and then rapidly wind

885
00:43:19,560 --> 00:43:20,640
Speaker 2: it down as needed.

886
00:43:20,840 --> 00:43:23,640
Speaker 5: The number one thing that I think would reduce cyclicality

887
00:43:23,640 --> 00:43:26,839
Speaker 5: industry would be making it harder to open one's own

888
00:43:26,880 --> 00:43:29,719
Speaker 5: trucking company. This is not a point that will make

889
00:43:29,760 --> 00:43:32,000
Speaker 5: me very popular among my readers.

890
00:43:32,239 --> 00:43:34,480
Speaker 4: Actually, I think Rachel, the folks that are in it

891
00:43:34,520 --> 00:43:37,400
Speaker 4: would actually really appreciate it. This myth of a driver

892
00:43:37,560 --> 00:43:41,480
Speaker 4: shortage is proliferates because you read about that and you're like, oh,

893
00:43:41,520 --> 00:43:43,040
Speaker 4: I'm going to go start my own trucking company because

894
00:43:43,040 --> 00:43:45,279
Speaker 4: it's always there. But I think to Rachel's point, you

895
00:43:45,320 --> 00:43:47,520
Speaker 4: have to cut off the supply of new entrants, and

896
00:43:47,560 --> 00:43:49,200
Speaker 4: the only folks that can do that are the banks.

897
00:43:49,560 --> 00:43:52,840
Speaker 4: So when the banks stop lending money and start stop

898
00:43:52,920 --> 00:43:56,080
Speaker 4: financing new carriers to get in the industry, that will

899
00:43:56,160 --> 00:43:58,480
Speaker 4: restrict capacity. But let's just be you know, let's be

900
00:43:58,520 --> 00:44:01,520
Speaker 4: frank here, when the market turns back around and it's lucrative,

901
00:44:01,600 --> 00:44:05,400
Speaker 4: the banks will again resume lending money. So Tracy, at

902
00:44:05,440 --> 00:44:09,719
Speaker 4: one point, trucking, like all transportation, was regulated, pricing was regulated.

903
00:44:09,920 --> 00:44:13,520
Speaker 4: Amazon's business model JIT freight, e commerce would not be

904
00:44:13,600 --> 00:44:14,920
Speaker 4: possible without deregulation.

905
00:44:15,040 --> 00:44:17,080
Speaker 2: I remember, Rachel, we had you on to talk about

906
00:44:17,120 --> 00:44:17,799
Speaker 2: this exact point.

907
00:44:17,880 --> 00:44:18,120
Speaker 5: Yeah.

908
00:44:18,840 --> 00:44:22,480
Speaker 4: So it is a situation where unless we were to

909
00:44:22,480 --> 00:44:25,440
Speaker 4: see a reregulation, which nobody wants, it's just going to

910
00:44:25,440 --> 00:44:27,120
Speaker 4: be a boom and bus cycle. We're just all, you know,

911
00:44:27,880 --> 00:44:29,879
Speaker 4: we're all going to watch this from afar, or if

912
00:44:29,880 --> 00:44:31,960
Speaker 4: you're in the industry, you're going to unfortunately be exposed

913
00:44:31,960 --> 00:44:32,160
Speaker 4: to it.

914
00:44:33,080 --> 00:44:36,080
Speaker 1: Well, there's so much going on, and there's such a fascinating,

915
00:44:36,320 --> 00:44:39,360
Speaker 1: fascinating time I hadnot I mean, it's one thing to

916
00:44:39,440 --> 00:44:41,840
Speaker 1: hear twenty nineteen, it's another thing to hear two thousand

917
00:44:41,880 --> 00:44:44,040
Speaker 1: and eight. Two thousand and nine, which I was not expecting.

918
00:44:44,640 --> 00:44:46,440
Speaker 1: Rachel and Craig, thank you so much to both of

919
00:44:46,480 --> 00:44:47,880
Speaker 1: you for coming back on upline.

920
00:44:48,120 --> 00:45:01,000
Speaker 6: Thanks for having us.

921
00:45:01,880 --> 00:45:05,879
Speaker 1: Tracy always like talking trucking. I think one thing that

922
00:45:05,960 --> 00:45:09,480
Speaker 1: you know, in addition to that sort of megacyclicality, the

923
00:45:09,560 --> 00:45:12,319
Speaker 1: sort of the persistent inflation in the space, and so

924
00:45:12,400 --> 00:45:14,640
Speaker 1: the fact that like, okay, we're back to twenty nineteen

925
00:45:14,760 --> 00:45:18,960
Speaker 1: levels and some measures, but twenty nineteen nominally, you know,

926
00:45:19,120 --> 00:45:22,400
Speaker 1: is like, yeah, parts mechanics, et cetera. It seems pretty brutal.

927
00:45:22,560 --> 00:45:22,880
Speaker 4: Yeah.

928
00:45:23,080 --> 00:45:25,440
Speaker 2: I was also thinking we need to put together some

929
00:45:25,560 --> 00:45:27,960
Speaker 2: of the data points that they both mentioned, get like

930
00:45:28,000 --> 00:45:30,239
Speaker 2: a series of charts going and take a look at that.

931
00:45:30,840 --> 00:45:34,120
Speaker 2: I do think, going back to the big question, the

932
00:45:34,160 --> 00:45:38,040
Speaker 2: sort of macro versus micro, it does feel to me

933
00:45:38,680 --> 00:45:43,040
Speaker 2: like there are some specific things about trucking, including the

934
00:45:43,040 --> 00:45:46,520
Speaker 2: fact that the barriers for entry are still quite low,

935
00:45:46,640 --> 00:45:51,600
Speaker 2: that make what's happening maybe not entirely indicative of what's

936
00:45:51,640 --> 00:45:54,520
Speaker 2: happening in the real economy. But also when you hear

937
00:45:54,560 --> 00:45:56,560
Speaker 2: people talk about two thousand and eight, two thousand and nine,

938
00:45:56,920 --> 00:45:59,719
Speaker 2: the slowdown in volume, which Craig mentioned, I mean that

939
00:45:59,840 --> 00:46:01,480
Speaker 2: is a real thing that is happening.

940
00:46:01,800 --> 00:46:04,759
Speaker 1: Yeah, I mean, it seems like it's obviously real, economy

941
00:46:04,840 --> 00:46:07,040
Speaker 1: rooted and there are issues with demand. It's just that

942
00:46:07,360 --> 00:46:10,080
Speaker 1: it's so it feels so magnified the fact that.

943
00:46:10,400 --> 00:46:13,040
Speaker 2: It's like the bullwhip effect on the bullwhip effect kind of.

944
00:46:13,160 --> 00:46:15,239
Speaker 1: I think that's really I think that's really well put.

945
00:46:15,320 --> 00:46:17,840
Speaker 1: And then, you know, to Craig's point, it's like we

946
00:46:17,960 --> 00:46:20,680
Speaker 1: have seen some departures apparently from the industry, but they're

947
00:46:20,680 --> 00:46:23,640
Speaker 1: still at the small level, whereas past cycles bottomed with

948
00:46:23,719 --> 00:46:27,319
Speaker 1: like serious, like sort of medium sized carriers, including one

949
00:46:27,360 --> 00:46:29,840
Speaker 1: publicly traded company a few years ago going bankrupt.

950
00:46:29,920 --> 00:46:30,920
Speaker 4: So maybe there's more to go.

951
00:46:31,200 --> 00:46:33,040
Speaker 2: Yeah, for sure. Shall we leave it there for now?

952
00:46:33,040 --> 00:46:34,399
Speaker 1: Though, Let's leave it there all right.

953
00:46:34,560 --> 00:46:37,400
Speaker 2: This has been another episode of the All Bots podcast.

954
00:46:37,480 --> 00:46:40,040
Speaker 2: I'm Tracy Alloway. You can follow me on Twitter at

955
00:46:40,080 --> 00:46:40,880
Speaker 2: Tracy Alloway.

956
00:46:41,080 --> 00:46:43,840
Speaker 1: And I'm Joe Wisenthal. You can follow me on Twitter

957
00:46:43,960 --> 00:46:47,720
Speaker 1: at The Stalwart. Follow Craig Fuller on Twitter at Freight Alli,

958
00:46:47,880 --> 00:46:52,480
Speaker 1: and Rachel Premac on Twitter at Our RPR. Follow our

959
00:46:52,520 --> 00:46:56,480
Speaker 1: producers Carmen Rodriguez at Carmen Arman and Dashel Bennett at

960
00:46:56,560 --> 00:46:59,560
Speaker 1: dashbot and find all of the Bloomberg podcasts under the

961
00:46:59,560 --> 00:47:03,960
Speaker 1: handle podcasts. And for more Oddlots content, go to Bloomberg

962
00:47:04,000 --> 00:47:06,440
Speaker 1: dot com slash odd Lots, where we blog, we have

963
00:47:06,480 --> 00:47:09,520
Speaker 1: a transcript, a newsletter that goes out every Friday, and

964
00:47:10,080 --> 00:47:13,200
Speaker 1: hang out with other oddlocks listeners in our discord. It's

965
00:47:13,200 --> 00:47:15,640
Speaker 1: really fun. We talk about all this stuff all the time.

966
00:47:16,040 --> 00:47:19,600
Speaker 1: Twenty four seven. Go to discord dot gg slash odd

967
00:47:19,680 --> 00:47:22,680
Speaker 1: Laws join the conversation there. Thanks for listening.