Speaker 1: Hello, and welcome to another episode of The Odd Loved Podcast.
Speaker 1: Time Joe whysan.
Speaker 2: Thal and I'm Tracy Alloway.
Speaker 1: Tracy, you know, we've been talking about supply chain and
Speaker 1: logistics questions for years and it's nice because we're now
Speaker 1: starting you know, we talked about the bullwhip effect big
Speaker 1: time theme, but we're actually starting to see like the
Speaker 1: opposite sides of these cycles in pretty extreme degrees than
Speaker 1: the first time we started covering them.
Speaker 3: Yeah.
Speaker 2: Well, for those who don't remember, one of our favorite
Speaker 2: things ever, the bullwhip effect is this idea where you
Speaker 2: have these small changes or sometimes large changes in customer
Speaker 2: demand and that sort of ripples through the rest of
Speaker 2: the supply chain, so all the way through to retailers
Speaker 2: and suppliers and manufacturers, and it feels like we are seeing,
Speaker 2: as you said, Joe, the reverse of some of the
Speaker 2: first ripples that we saw. So if you think back
Speaker 2: to the pandemic, there was an expectation that people weren't
Speaker 2: going to buy anything, and so we had a lot
Speaker 2: of retailers and manufacturers who cut back, but in actuality,
Speaker 2: people who were stuck at home did end up buying
Speaker 2: quite a lot, and so everyone had to scramble to
Speaker 2: get things to them so to produce the goods that
Speaker 2: people actually wanted. At that time, we saw inventories start
Speaker 2: to build up. And now there's the question of whether
Speaker 2: we're seeing all of us go into revers.
Speaker 1: Yeah, and you know, we're recording this on May second,
Speaker 1: and I was last week. I was spending a lot
Speaker 1: of both of us were spending a lot of time
Speaker 1: reading through earnings calls, and a lot of my interest
Speaker 1: was sort of like on the inflation consumer pricing standpoint.
Speaker 1: But basically every company I saw said, like, the one
Speaker 1: area where they're definitely seeing easing isn't freight costs. Yeah,
Speaker 1: they all they all said.
Speaker 2: That, although you know, you mentioned pricing, and this is
Speaker 2: something that we've been covering for you know, that we've
Speaker 2: been interested in for a while now. But this idea
Speaker 2: of price over volume, and if companies are sacrificing volume
Speaker 2: in order to jack up prices or making that up
Speaker 2: with price increases, then it suggests there are fewer goods
Speaker 2: moving around, right, which you would think would be bad
Speaker 2: for the companies that actually move and ship those goods.
Speaker 1: I think it definitely has been and I think if
Speaker 1: you look at the lines of any sort of truck
Speaker 1: or freight pricing index and also ocean freight. It's pretty
Speaker 1: far down, so we're going to dive into what's going on.
Speaker 1: We know the lines are down for freight pricing, but
Speaker 1: the question is like, how much of this is a
Speaker 1: trucking or freight specific story over supply leading to undersupply
Speaker 1: leading to oversupply of capacity versus something that says something
Speaker 1: about the broader economy. We have two guests are friends
Speaker 1: from freight Waves. We have Craig Fuller, founder and CEO
Speaker 1: of Freight Waves, who we first talked to I think
Speaker 1: two years ago, and out Rachel Kremac, editorial director of
Speaker 1: Freight Waves, who recently wrote a piece declaring trucking blood
Speaker 1: bath two point zh. Thank you both for joining us. Rachel, wait,
Speaker 1: what was trucking blood bath?
Speaker 4: One point zero?
Speaker 3: Yeah?
Speaker 5: So in twenty nineteen, the trucking industry, when we're recession,
Speaker 5: really as a result of a lot of these Trump tariffs,
Speaker 5: a lot of manufacturing in the US started to really
Speaker 5: slow down, and as a result, that caused this slow
Speaker 5: down more broadly in trucking. This blood bath we're seeing
Speaker 5: right now is more on the I would say more
Speaker 5: on the consumer side rather than strictly on the manufacturing side.
Speaker 5: But yeah, just generally, when we see these big drawbacks
Speaker 5: in various industries, that results in drawbacks in the trucking
Speaker 5: industry as well.
Speaker 2: Yeah, so this is a notoriously cyclical industry. And I'm
Speaker 2: glad we started out with trucking bloodbath one point, oh,
Speaker 2: because that kind of encapsulates the idea. But what are
Speaker 2: we seeing in terms of the data now? Because there
Speaker 2: are all these different cool charts that you know, for
Speaker 2: waves especially, it puts together all these different things you
Speaker 2: can look at, like the outbound tender rejection index, things
Speaker 2: like the contract load accepted volume index. Walk us through
Speaker 2: what you're seeing in terms of the numbers.
Speaker 4: Yeah, you know, if you look at what's happened in
Speaker 4: the trucking industry, and this also happened in twenty nineteen,
Speaker 4: So not only did you see a slow down in
Speaker 4: volume related to for the industrial economy, but you also
Speaker 4: saw an overbuild of capacity. So there was an ELED
Speaker 4: mandate which really regulated the logs or how many hours
Speaker 4: the driver and the monitoring of those hours the drivers
Speaker 4: could have in the truck. And because everyone expected a
Speaker 4: massive capacity crunch. The opposite happened. The market corrected, and
Speaker 4: actually a large capacity build happened in the industry. This
Speaker 4: also happened during COVID, is that there was a massive
Speaker 4: shortage of capacity and everyone sort of, you know, thought, hey,
Speaker 4: I can start a trucking company, I can become a
Speaker 4: you know, an owner operator. I go out and buy
Speaker 4: a truck. And they just flooded the market full of capacity.
Speaker 4: And what we have is a situation where, really, over
Speaker 4: the last you know, since twenty eighteen, we've seen twenty
Speaker 4: eight percent increase of the dispatchable capacities. We've seen a
Speaker 4: massive surge in trucking capacity. Over the last just year,
Speaker 4: there's been an increase as much as eight percent of
Speaker 4: the dispatchable capacity of the market. So this situation where
Speaker 4: it's completely flooded. There's so much capacity out there, and
Speaker 4: because trucking is a capacity constrained market, the market, the
Speaker 4: providers of trucking, the trucking companies, in the fleet operators
Speaker 4: are always trying to add trucks to sort of match
Speaker 4: that demand. Well, what happened is the market just over corrected.
Speaker 4: Classic commodity a boom cycle that has now played out
Speaker 4: the tender rejection index that you mentioned measures the percent
Speaker 4: of freight that is rejected, and the reason that's important
Speaker 4: is it helps us measure the balance of supplying demand.
Speaker 4: So looking at volume is only one aspect of it,
Speaker 4: but you also have to look at capacity to understand
Speaker 4: really the metrics of the industry. So we look at
Speaker 4: the tender rejection index because what it tells us is
Speaker 4: how many loads are getting rejected. So think about an airline.
Speaker 4: You have an airplane and there's a finite number of seats. Well,
Speaker 4: everybody who's ever been on an airplane knows that the
Speaker 4: airlines want to overbook that aircraft. That's the goal. Anybody
Speaker 4: that runs a hotel wants to overbook the rooms and
Speaker 4: they're going to intentionally bump some players in that market.
Speaker 4: And the same thing happens in trucking is the trucking
Speaker 4: companies will over commit, to overcommit to capacity versus what
Speaker 4: they can actually handle, knowing that at times they're going
Speaker 4: to have to reject some freight. So back in the
Speaker 4: peak cycle a year ago, we saw rejection rates as
Speaker 4: high as thirty percent, So that meant thirty percent of
Speaker 4: all truckloads in the market in the contract market are
Speaker 4: being turned down. That rejection rate right now is about
Speaker 4: two point seven percent, which is the lowest it's ever
Speaker 4: been outside the COVID extremes, and it just means the
Speaker 4: market is completely flooded with capacity.
Speaker 5: And Craig mentions an interesting point, which is that in
Speaker 5: twenty eighteen there wasn't enough trucking capacity. It was a
Speaker 5: really hot time in the trucking industry. And that followed
Speaker 5: and as a result, a lot of you know, new players,
Speaker 5: new employees of these trucking firms, started to flood the market.
Speaker 5: And you know, as soon as that capacity really started
Speaker 5: to ramp up, of course that demand for trucking services
Speaker 5: also declines.
Speaker 3: The same thing is sort of happening this time.
Speaker 5: There was an incredibly hot market in at the end
Speaker 5: of twenty twenty through twenty twenty one, you know, even
Speaker 5: beginning of twenty twenty two. And yeah, basically, basically, these
Speaker 5: really hot times follow these incredibly slow times, and a
Speaker 5: lot of this does relate to sort of how we talk.
Speaker 3: About the trucking industry.
Speaker 5: There's a lot of talk of a truck driver shortage,
Speaker 5: and when you keep hearing, oh, there's a shortage in
Speaker 5: this industry, I should jump in, I should you know,
Speaker 5: make a quick box. I should you know, really profit
Speaker 5: off of this? Too many folks get in, and pretty
Speaker 5: soon after that, you know, what goes up must go down.
Speaker 1: I mentioned the sort of like analogy to airlines, but
Speaker 1: I think like the key thing there and sort of
Speaker 1: why we get these cycles that are sometimes like economic
Speaker 1: cycles magnified, is that you can't just add new airline
Speaker 1: capacity trivially. Whereas I think the first time we did
Speaker 1: a trucking episode, like we joke should we start a
Speaker 1: trucking company? Should Tracy start a trucking company? And the
Speaker 1: lesson is like, it really is that simple to get
Speaker 1: into the space.
Speaker 4: There's no bears to entry. So you think about so
Speaker 4: a truck today probably cost you know, brand new trucks
Speaker 4: two hundred thousand, and used truck can be anywhere from
Speaker 4: you know, fifty to sixty thousand to you know, we're
Speaker 4: talking to relatively low mile truck you know, three to
Speaker 4: five years to one hundred thousand dollars. And so it's
Speaker 4: a situation where you know, the banks are happy to
Speaker 4: lend the trucking companies because they have this perception that
Speaker 4: trucking is always needed and because they believe that there's
Speaker 4: a perpetual driver shortage, they increasingly provide capital for would
Speaker 4: beyond our operators to go out and start the down
Speaker 4: trucking company. And because of the ration of load boards
Speaker 4: and digital matching apps, it's never been easier to actually
Speaker 4: access freight and access the brokerage market. And so what
Speaker 4: happens is that you have new entrepreneurs that look at
Speaker 4: it and say, hey, there's no real I don't have
Speaker 4: to be that sophisticated to run a business. This isn't required.
Speaker 4: It's not a very complex job, and it's incredibly easy
Speaker 4: to get started. And so when they see the fundamentals
Speaker 4: of the market really heat up like it was over
Speaker 4: the last couple of years, you know, really during COVID,
Speaker 4: during the code peak cycle, they get very attracted to
Speaker 4: those markets and they're thinking, you know, you think about
Speaker 4: the fact that we're talking at the peak four dollars
Speaker 4: a mile, and to put that in perspective, a truck
Speaker 4: will do approximately two thousand miles a week. So on
Speaker 4: four dollars a mile, we're talking about somebody making approximately
Speaker 4: three fifty to four hundred thousand dollars a year. Wow,
Speaker 4: And without any kind of formal education required, and so
Speaker 4: it attracts a lot of folks that look at it
Speaker 4: and say, hey, I can make a lot of money,
Speaker 4: I can do very well for my family. There isn't
Speaker 4: any sort of requirements of tenure to get into this industry.
Speaker 4: It's a you know, it is a trade, and it
Speaker 4: doesn't require a lot of sort of understanding of how
Speaker 4: the market is constructed. So it tended to attract a
Speaker 4: lot of folks that really weren't cut out or are
Speaker 4: not cut out for the downcycle. And that's what we're
Speaker 4: seeing right now is a situation where a lot of
Speaker 4: people are attracted to the peak of the market that
Speaker 4: went out and bought the expensive trucks. You know, those
Speaker 4: trucks I talked about that were that are used where
Speaker 4: sort of precycle could have been forty thousand dollars at
Speaker 4: the peak of the cycle. Those same trucks that were
Speaker 4: five years old at forty thousand pre COVID, we're going
Speaker 4: for one hundred and forty one hundred and fifty thousand.
Speaker 4: They were actually going for more that we're five years
Speaker 4: old than what you would have bought a new truck
Speaker 4: pre COVID, And so they bought at the top of
Speaker 4: the market, and they anticipated that four dollars a vial
Speaker 4: rate staying perpetual and we're not prepared for the downturn
Speaker 4: which we're facing right now.
Speaker 2: Well, so, just on this point, I mean, it is
Speaker 2: true that we have seen a lot of the smaller players,
Speaker 2: the independent owner op operators, start to get out and
Speaker 2: take capacity out, as evidence by the truck prices that
Speaker 2: you just mentioned, and I guess people giving up their licenses.
Speaker 2: I think it's called revocations trucking authority and you'll have
Speaker 2: to take me through the latest numbers on those. But
Speaker 2: at the same time, it's true that we've seen some
Speaker 2: of the really big players add capacity. What's going on there?
Speaker 2: Is this just like a market share grab or are
Speaker 2: people really scarred from the previous couple of years where
Speaker 2: there was so much demand that they were kind of
Speaker 2: struggling to catch up with.
Speaker 5: Yeah, the problem was through twenty twenty twenty one, early
Speaker 5: twenty two, most of twenty two. Really that usually these
Speaker 5: large fleets prefer to buy new trucks, they don't usually
Speaker 5: prefer to buy use trucks.
Speaker 3: Obviously, through the.
Speaker 5: Early twenty twenties there was no manufacturing capacity. So these
Speaker 5: large trucking fleets, you know, these large public companies, they
Speaker 5: were not able to span capacity. Now, on the one
Speaker 5: to five truck fleet side, we saw that portion of
Speaker 5: the market really start to boom in the early twenty twenties.
Speaker 5: Large fleets on the other hand, group by maybe their
Speaker 5: capacity at like one to four percent I believe was
Speaker 5: the number. So yeah, basically what's going on now is
Speaker 5: there are too many of these small players. In the
Speaker 5: first quarter of this year alone, we saw nine thousand
Speaker 5: trucking fleets have their authorities revoked. At the same time,
Speaker 5: these large fleets are pretty rapidly expanding, pretty rapidly hiring.
Speaker 5: That's kind of how the market is shaped. Is shaking
Speaker 5: up right now.
Speaker 4: And it's not just a access to trucks. So trucks
Speaker 4: is one thing, but it's also the driver. The driver
Speaker 4: population is really the capacity constraint. So you know, truck
Speaker 4: manufacturers can continue to produce trucks and if ultimately the
Speaker 4: larger cares felt like they had demand, they could bid
Speaker 4: up the new trucks and sort of they have a
Speaker 4: lot of power over that. The problem is that if
Speaker 4: they can't get dry rivers to populate those trucks. They're
Speaker 4: not going to go out and buy new trucks. And
Speaker 4: that's what really over the last couple of years, if
Speaker 4: you shoult of look at the COVID cycle is you know,
Speaker 4: from two thousand, late twenty twenty to really twenty two,
Speaker 4: they could not get new could not get truck drivers
Speaker 4: were they were losing a lot of drivers to the
Speaker 4: owner our operating market. So a driver saying, hey, I'm
Speaker 4: making you know, fifty sixty seventy thousand dollars years and
Speaker 4: over the road truck driver says, hey, why am I
Speaker 4: not making the two hundred or four hundred thousand dollars.
Speaker 4: So they went out and started their own trucking company.
Speaker 4: And those trucking companies dealt with what we call unseated trucks,
Speaker 4: whereas there isn't a driver, so they had their own
Speaker 4: sort of driver shortage inside their operation. And because of that,
Speaker 4: really what we end up with is a situation where
Speaker 4: they did not grow in the early part of the cycle,
Speaker 4: and now, because of the conditions in the market, a
Speaker 4: lot of those would be or had become owner operators
Speaker 4: or would be operators are now joining fleets. And that's
Speaker 4: enabling the larger companies to grow market share.
Speaker 1: Just real quickly. So before we move on and I
Speaker 1: forget to ask, at the peak, it was an average
Speaker 1: what four dollars a mile? What do we what's the
Speaker 1: latest freight wave stat on this?
Speaker 4: Yeah, so if you take out four dollars a mile,
Speaker 4: by the way, it includes fuel. If you take out
Speaker 4: fuel out of that equations is about three dollars and
Speaker 4: twenty cents a mile at the peak. But if you
Speaker 4: look at it from sort of net of fuel, you're
Speaker 4: around a dollar fifty six a mile. So we're talking
Speaker 4: about rates going down more than half of what they were.
Speaker 4: And there's a really important factor in this. It's just
Speaker 4: like your own income is a lot of the The
Speaker 4: rate per mile only tells you what the revenue is,
Speaker 4: doesn't tell you a lot about the cost components. And
Speaker 4: so one of the things to look at is the
Speaker 4: cost components. And we go back to that last quote
Speaker 4: unquote blood bath, the freight recession that happened in twenty nineteen.
Speaker 4: You know, the lowest rate ever painted and in our
Speaker 4: data was a dollar and this is net a fuel
Speaker 4: a dollar forty seven. We're to buck fifty six today.
Speaker 4: So you think about a nine cent increase. That sounds
Speaker 4: on the surface, okay, until you realize that the operating
Speaker 4: cost of trucking companies and I'm netting out fuel, I'm
Speaker 4: not including fuel in this equation, but operating costs for
Speaker 4: trucking companies increased by thirty cents a mile. So if
Speaker 4: you look at the net increase or the net decreases,
Speaker 4: we're talking about a situation where fleets are actually in
Speaker 4: a worse situation than the lowest paint in twenty nineteen
Speaker 4: by twenty one cents a mile for every mile they run.
Speaker 4: And that's just when they can get freed. A lot
Speaker 4: of the other sort of thing that hasn't factored into
Speaker 4: the rate because there is a point where carriers will
Speaker 4: just not take a load if it's below their operating cost.
Speaker 4: There's just not enough loads out there. So there's a
Speaker 4: combination of not enough demand combined with a low rate environment,
Speaker 4: which means it's pretty dire for a lot of these
Speaker 4: truck comments.
Speaker 2: So we've been talking a lot about the idiosyncrasies of
Speaker 2: the actual trucking industry. What are we seeing in terms
Speaker 2: of demand. Just to go back to our original framing
Speaker 2: of this, episode, which is, you know, the trucking bloodbath
Speaker 2: two point zero. How much of that is about the
Speaker 2: general economy and maybe demand for goods actually finally going
Speaker 2: down or companies needing to run down their inventories versus
Speaker 2: these industry specific issues that we've been discussing.
Speaker 4: So demand is approximately twenty nineteen levels right now, So
Speaker 4: you know, it depends on your perspective if you look
Speaker 4: at four years of if we went through an economy
Speaker 4: where it didn't grow for four years, because remember, trucking
Speaker 4: is directly correlated to the goods consumption of the economy,
Speaker 4: So you know, when trucking does well or the economy
Speaker 4: does well, trucking will do well, and when trucking's not
Speaker 4: doing well reflects on the sort of conditions of the
Speaker 4: goods economy. But if you sort of think about the
Speaker 4: fact that we're back to twenty nineteen levels that would
Speaker 4: suggest and a normal economy forget that COVID happened, that
Speaker 4: we've basically lost four years of growth or three years
Speaker 4: of growth, and so we're in a situation where twenty
Speaker 4: eighteen levels in terms of volume combined with a real
Speaker 4: surge incity. You know, as I mentioned, you're up twenty
Speaker 4: eight percent from where we were just in twenty eighteen.
Speaker 4: Twenty eighteen was actually a slightly better market by about
Speaker 4: three percent of twenty nineteen levels. And so we're in
Speaker 4: a situation where now we've had so much capacity added,
Speaker 4: so much cost added, and volumes are basically back to
Speaker 4: where they were in twenty nineteen. So we're in a
Speaker 4: situation where there just isn't enough freight, and that I
Speaker 4: think really warns us. You know, trucking will lead the
Speaker 4: broader economy by as much as six months. And you
Speaker 4: saw this last year. We reported in the free Recession
Speaker 4: on March thirty first.
Speaker 2: You got a lot of pushback on that lot of
Speaker 2: I think you remember, Yeah.
Speaker 4: A ton of it. And the reason is that a
Speaker 4: lot of the data that people look at through traditional
Speaker 4: models and trucking are based on lagging data. So we
Speaker 4: use what we call high frequency data, which refetches every day,
Speaker 4: and it looks at the demand, real transactional data from
Speaker 4: shippers to carriers as one of the core data sets. Well,
Speaker 4: that data is way upstream, so it leads the broader
Speaker 4: sort of government data, traditional models by six months. You
Speaker 4: can actually look at it. We called the very early
Speaker 4: part of the cycle in COVID, as early as mid
Speaker 4: April of twenty twenty, at the point somebody on Bloomberg
Speaker 4: TV actually called me the most bullish guy in America
Speaker 4: at one point, because we were incredibly bullish about the
Speaker 4: v shape recovery. And it was really throughout the summer
Speaker 4: of twenty people were there was a lot of vitral
Speaker 4: directed at us because we were very bullish, and people
Speaker 4: couldn't understand how you could be so bullish when all
Speaker 4: the economic data was actually very soft. But the reality
Speaker 4: is that the data we look at, the high frequency data,
Speaker 4: leads those indicators. So when you think about it from
Speaker 4: the perspective, what does this mean for the goods economy?
Speaker 4: And I'm only talking to goods economy, and I'm talking
Speaker 4: about broader GDP, the approximate forty percent economy that's reliant
Speaker 4: upon trucking services to move their products. It does suggest
Speaker 4: that the US goods economy has continuing to slow and
Speaker 4: it doesn't bode well for really the indicators. And we
Speaker 4: saw that last year we called the freight recession, and
Speaker 4: you know the end of the first quarter, it was,
Speaker 4: you know, six weeks later when all of the big
Speaker 4: retailers came out and said they had too much inventory.
Speaker 2: Yeah, I wanted to ask just on this point. When
Speaker 2: it comes to the goods economy, are you seeing specific
Speaker 2: areas of weakness, Like is it those who were most
Speaker 2: affected by the bullwhip effect you know in twenty twenty
Speaker 2: and twenty twenty one, is that where demand is really slumping.
Speaker 4: It's anything really related to consumer outside of auto. So
Speaker 4: auto just because of the lack of being able to
Speaker 4: get access to new cars because it can produce them,
Speaker 4: because of shortages of products. The auto has actually been
Speaker 4: quite resilient even today in terms of freight demand data.
Speaker 4: But if you look at anything exposed to consumer, that's
Speaker 4: where you're seeing particularly weakness. Consumer packaged goods. You know,
Speaker 4: Rachel's written about the cardboard box industry actually having.
Speaker 2: We've never done a cardboard box other types.
Speaker 4: Of boxes, so we just, yeah, we should do it.
Speaker 4: We should. So we actually brought on an analyst used
Speaker 4: to be at a bank, because an analysts studied the
Speaker 4: packaging cardboard industry. He's now part of the Right Ways
Speaker 4: team and he's it's interesting how tightly quardal cardboard shouldn't
Speaker 4: shock anybody. It sort of looks at the economy, but
Speaker 4: how tightly correlated the packaging and cardboard industry is to
Speaker 4: trucking cycles and how much they matched. So one of
Speaker 4: the things that was really interesting is back in January
Speaker 4: of this year, we actually thought that the freight economy
Speaker 4: was starting to recover because it looked like some green
Speaker 4: shoots in January. We injured the first quarter, thinking hey,
Speaker 4: maybe the freight recession is over with, and the fourth
Speaker 4: quarter was sort of the bottom of it. The cardboard
Speaker 4: box the packaging industry saw the very same thing happened
Speaker 4: in January, where they all of a sudden said, wait
Speaker 4: a second, maybe the softness that we saw is actually
Speaker 4: over with and maybe we're starting to see a recover. Well,
Speaker 4: they saw the same thing in January, and then in
Speaker 4: February it got worse, and in March it hours. In
Speaker 4: April it was so bad. It's so bad for trucking.
Speaker 4: So what's really interesting is that January thus far has
Speaker 4: been the best month in trucking and in the packaging industry,
Speaker 4: and that that is an unusual development. Usually January is
Speaker 4: one of the worst months year and it's just not
Speaker 4: happening this year. And I'm talking specifically volume we have.
Speaker 4: You know, we talk a lot about capacity. It's an
Speaker 4: important part of our industry, but as you mentioned, Tracy,
Speaker 4: it doesn't really tell you a ton about the broader economy.
Speaker 4: But what we do know is that volumes are basically
Speaker 4: perverted back to where they were pre COVID, largely because
Speaker 4: retailers have so much inventory.
Speaker 5: Another thing that's definitely challenging or confusing volumes right now
Speaker 5: is these massive floods we're seeing re recently song in
Speaker 5: California that's throwing off the harvest season. Typically, I think
Speaker 5: it was late March early April. That's typically when we
Speaker 5: start picking you know, lettuce, strawberries, these other sorts of
Speaker 5: ground crops. But those fields were so flooded that people
Speaker 5: couldn't even get into the fields to pick those crops.
Speaker 5: That sets everything back a few weeks. Planting a set
Speaker 5: back a few weeks. All these sorts of things are
Speaker 5: just kind of thrown into chaos, and a lot of
Speaker 5: truck drivers view it's called you know one hundred days
Speaker 5: of summer. That's really the hot time in the trucking industry,
Speaker 5: especially for or refer carriers that haul these refrigerated goods.
Speaker 3: So drivers who are really hoping for this.
Speaker 5: Hot period basically right now are finding that things are
Speaker 5: just thrown into chaos and that kind of dependable volume
Speaker 5: is not happening.
Speaker 1: Wait, Rachel, can I back up or actually move ninety
Speaker 1: degrees for a quick question? Did I see something recently
Speaker 1: speaking of floods? Oh, that the barge crisis is back,
Speaker 1: except this time there's too much water.
Speaker 3: New barge crisis.
Speaker 1: So what's going on with the new barge crisis?
Speaker 4: Where?
Speaker 1: Because like we did that last Summer's like, oh, there's
Speaker 1: no water. What's happening now?
Speaker 5: Basically Mississippi River levels are incredibly high and this also
Speaker 5: screws up the baringem marg shipping. It's not quite as
Speaker 5: drastic as it was in the fall, because the fall
Speaker 5: is when all of those crops are moved out and
Speaker 5: all of those crops are you know, that's kind of
Speaker 5: peak harvest season for the Midwest. You're trying to get
Speaker 5: all that weed out, especially to or in markets. So
Speaker 5: it's not quite as bad as last year because the
Speaker 5: timing was so bad last year. But yeah, I don't
Speaker 5: know what's going on with this river.
Speaker 4: And anyone who says supply chain is boring has not
Speaker 4: been listened to the odd last podcast, But these you
Speaker 4: guys have featured how incredibly volatile and sensitive these noices?
Speaker 6: I don't know.
Speaker 2: Yeah, who would say that fly chains are endlessly fascinating? Okay,
Speaker 2: so folks just crazy people say that. Okay, So, just
Speaker 2: going back to the trucking bloodbath idea, I guess two
Speaker 2: interrelated questions. But do we have any ideas of how
Speaker 2: extreme this cycle could be? Would we expect it to
Speaker 2: be worse than twenty eighteen twenty nineteen? And then secondly,
Speaker 2: how will we know when it's over? You talk about
Speaker 2: high frequency indicators, what should we be looking at?
Speaker 4: Yeah, the tender projecting data is going to be the
Speaker 4: first indicator because that is actually highly sensitive. To remember,
Speaker 4: it's it's basically orders that come from large retailers. Large
Speaker 4: manufacturers are sending these transactions electronically to trucking companies, and
Speaker 4: they're going to either accept or reject those loads. And
Speaker 4: it happens within two days so or two days from pickups,
Speaker 4: so they will get you a big Bucks retail off
Speaker 4: Walmart sends over a transaction to a small trucking company
Speaker 4: or a big drug company in the contract market, electronically
Speaker 4: that tender data will see that and then look at
Speaker 4: whether or not the trucking company accept it or rejected it.
Speaker 4: So you'll start to see the tender rejection data will
Speaker 4: start to basically turn around, and you'll see it accelerate.
Speaker 4: If there was a situation in the market that suggested
Speaker 4: that a capacity was starting to tighten, we're not seeing
Speaker 4: any indications of that. There's zero even as volume has
Speaker 4: we've seen it in the last week. We've actually seen
Speaker 4: volume increase. We've seen some really sort of strange many
Speaker 4: surges that look like there may be a directional change,
Speaker 4: could be seasonality. We didn't see it at all in April,
Speaker 4: as Rachel mentions, as things heat up, guardian equipment construction,
Speaker 4: all of that sort of drives beverages sort of drive
Speaker 4: freight demand. So we've seen some level of season out
Speaker 4: in the last week which sort of has broken that
Speaker 4: down cycle, but we've not seen anything in tender rejection
Speaker 4: data which actually suggests that we're still in it for
Speaker 4: a while. And I think, Tracy, this is going to
Speaker 4: be you know, I think if you listen to some
Speaker 4: of the larger carriers, they'll tell you it's probably going
Speaker 4: to get better in six months, the second half will
Speaker 4: be better. I don't buy it. I think this is
Speaker 4: a situation where it's going to take a while to
Speaker 4: get rid of all the excess capacity. And one of
Speaker 4: the things that's really hard to sort of identify is
Speaker 4: how much capacity has been added in the market because
Speaker 4: the government data, while it's accurate, it's very lagged. As ever.
Speaker 4: You know, Elon Musk would say the government data that
Speaker 4: the Fed's looking at is all lagged, and it's right,
Speaker 4: and the same thing exists in trucking is it's not
Speaker 4: the cleanest data. So it takes a while to sort
Speaker 4: of figure out how much capacity has been added and
Speaker 4: how fast it evaporates. But one of the things that
Speaker 4: Rachel did in an articles you did a week ago
Speaker 4: shows bravocations. If you look at the chart of the
Speaker 4: peak cycle sort of peaked during the covide cycle, how
Speaker 4: much higher those increases of fleets in terms of you know,
Speaker 4: eight to nine dollars and new fleets entered the trucking
Speaker 4: market a month. We're only talking about two to three
Speaker 4: thousand a month right now that have left. And that
Speaker 4: went on for as much as fourteen to eighteen, fourteen
Speaker 4: to sixteen months, so sort of peak increases, so we
Speaker 4: have a while to sort of get rid of this
Speaker 4: capacity that's added. And that's assuming that the US economy
Speaker 4: sort of stays at this level and doesn't take another
Speaker 4: downward leg. One thing that I'm looking at and really
Speaker 4: concerned about is what happens when those college loans and
Speaker 4: student financial aid payments resume. Because one of the real
Speaker 4: sensitivities of trucking and freight, particularly the consumer side of
Speaker 4: the economy is consumption. And the people that are consuming
Speaker 4: products tend to be those folks that, in terms of
Speaker 4: just the impact on the market tend to be those
Speaker 4: folks that live, you know, that are younger and sort
Speaker 4: of live paycheck to paycheck, and so the sensitivities of
Speaker 4: that will really impact the freight market. And so we
Speaker 4: could see another downward leg and volume in the second half.
Speaker 5: And going back your question on how bad this could be,
Speaker 5: we saw during the last earnings call, the first quarter
Speaker 5: earning Shelley Simpson, the president of JB. Hunt, you know,
Speaker 5: one of the largest trucking companies in the US, she said,
Speaker 5: you know, this market is reminding us of two thousand
Speaker 5: and nine, and that's certainly not something that I've ever heard.
Speaker 5: I've never heard a two thousand and eight two thousand
Speaker 5: and nine comparison in the six years or so that
Speaker 5: I've been covering the trucking industry. So to me, that's
Speaker 5: a pretty scary sign. I spoke to, you know, on
Speaker 5: the other side of the coin, I spoke to a
Speaker 5: truck driver last week who shut down his authority after
Speaker 5: sixteen years of being in the industry. He also kind
Speaker 5: of agreed that, you know, this could be a two
Speaker 5: thousand and eight two thousand and nine type situation or
Speaker 5: even worse simply because parts are so expensive and so
Speaker 5: difficult to access even now. So yeah, just with that
Speaker 5: cost being incredibly high, that's certainly something that's concerned.
Speaker 1: Yeah, I was actually just gonna ask you. So it's like,
Speaker 1: obviously for the market to come into balance, there has
Speaker 1: to be reduction in capacity and people have to tap
Speaker 1: out and say, like, yeah, the economics are working for me.
Speaker 1: In the people that you speak to about why they're
Speaker 1: leaving the market, whether it's drivers, whether it's smaller fleets,
Speaker 1: et cetera, what are some of the reasons that they're saying,
Speaker 1: or like, what are other commonalities and they're like, yeah,
Speaker 1: I'm out of this.
Speaker 5: Well, diesel and fuel is certainly more affordable than it
Speaker 5: was last year, so that's you know, a positive tailwind
Speaker 5: for these folks. But the parts is definitely an issue.
Speaker 5: Increasing regulations as a frustration. The fact that rates have
Speaker 5: greatly decreased, that's a big issue a few of these companies,
Speaker 5: especially kind of like the mid size fleets, they're seeing
Speaker 5: their contracts either you know, get pulled back or contract
Speaker 5: rates you know, significantly lower. So it's both on the
Speaker 5: spot market that is tends to be more dominated by
Speaker 5: these smaller players, as well as the contract market, which
Speaker 5: tends to be dominated by larger, more established companies. So
Speaker 5: rates on both sides of the equation are certainly lowering,
Speaker 5: and that seems to be the you know, the big
Speaker 5: reason is its basically rates are too low to run.
Speaker 4: It's all cash flow at the end of the day.
Speaker 4: I mean, ultimately, we can talk about insurance increases, we
Speaker 4: can talk about maintenance expenses, we can talk about higher
Speaker 4: driver salaries. You know, think about just the cost of
Speaker 4: mechanics to hire those and how much more that has
Speaker 4: sort of flown through.
Speaker 1: And this is like that other thirty percent. So when
Speaker 1: you talk about like, okay, why is just even setting
Speaker 1: aside gasoline, operating of operating trucks just thirty percent more
Speaker 1: costly than it was at the bottom in twenty nineteen
Speaker 1: to these are the difference, that's right.
Speaker 4: So maintenance is a big increase. You know, parts are
Speaker 4: one side of it, but also just the fact that
Speaker 4: you can't get access to mechanics. There's a mechanic shortage
Speaker 4: across the country that can handle diesel and work on
Speaker 4: diesel trucks. That's a big problem. You look at the
Speaker 4: cost of capital. One of the things that remember is
Speaker 4: the trucking is an industry. It's a capital intensive industry.
Speaker 4: It actually has one of the lowest returns on capital
Speaker 4: of any industry on the planet, but it requires a
Speaker 4: lot of capital. A lot of these trucking companies finance
Speaker 4: their working capital and they finance their trucks. Well, we've
Speaker 4: seen a pretty dramatic increase in cost. You know. One
Speaker 4: of the sort of crazy facts of this industry is
Speaker 4: even if you sort of average the operating ratio, which
Speaker 4: you know, operating ratio reflects on the profitability, so it's
Speaker 4: an inverse of sort of profit operating profitability for a
Speaker 4: trucking company. So an operating ratio right now or on
Speaker 4: average is typically a ninety seven is sort of the
Speaker 4: average for a trucking company. That means they're generating for
Speaker 4: every dollar, they generate three cents in profit. And that
Speaker 4: is across the industry in a normal sort of cycle.
Speaker 4: And so when you're talking about a situation where the
Speaker 4: cost of capital has gone up so much, many of
Speaker 4: these companies just aren't even able to basically pay the
Speaker 4: debt and service their debt on their equipment because their
Speaker 4: cash flow is down so far, and so that is
Speaker 4: what's causing them to basically go under. Now, one thing
Speaker 4: I would point out is the industry got really financially strong,
Speaker 4: balance sheets got incredibly strong because of the real robust
Speaker 4: operating conditions over the last couple of years. So we
Speaker 4: have not yet seen a situation where a large or
Speaker 4: mid size carriers are going out in mass A lot
Speaker 4: of the revocations that Rachel's reported are really single operators.
Speaker 4: They're the ones that are most sensitive to that. But
Speaker 4: I don't think we can call a bottom, or we'll
Speaker 4: call a bottom until we start to see some of these,
Speaker 4: you know, a real wash out of very large companies,
Speaker 4: and we've seen a couple of bankruptcies. Started in March,
Speaker 4: we started to see some sort of increase in bankruptcies
Speaker 4: a couple of one hundred trucks at a time. I
Speaker 4: think there was at least you know, seven or eight
Speaker 4: stories of companies that had you know, more than one
Speaker 4: hundred employees that you know, just suddenly shut their doors.
Speaker 4: We're not seeing what I call hosts sell back. In
Speaker 4: twenty nineteen, we saw as many, you know, at one time,
Speaker 4: we were doing as many as ten sizeable bankruptcies a week,
Speaker 4: with the largest culminating with a company called Seldon, which
Speaker 4: is publicly traded, had four thousand trucks and file bankruptcy.
Speaker 4: And so we're not yet seeing a situation where there's
Speaker 4: been a wholesale wash out. In my opinion, and until
Speaker 4: we see that, I think this is going to is
Speaker 4: going to continue to exacerbate. I will sort of point now,
Speaker 4: you know, not only has Shelley Simpson talked about the
Speaker 4: comparisons of two thousand and nine, I've heard people across
Speaker 4: the industry, both small and big, have said this matches
Speaker 4: there what they experienced in two thousand and nine and
Speaker 4: one of the things that did not happen two thousand
Speaker 4: and nine is not only the inflation, but the freight
Speaker 4: brokerage industry, the sort of cottage industry. It was a
Speaker 4: cottage industry back in two thousand and nine. It was
Speaker 4: a relatively small piece of freight. It has exploded in
Speaker 4: terms of its percent of market share.
Speaker 2: This was going to be my next question, what's going
Speaker 2: on with the freight brokers, you know, speaking of costs
Speaker 2: and also this is one of the things we learned
Speaker 2: at your supply chain conference last year. The freight broker model,
Speaker 2: as far as I can tell, seems to be an
Speaker 2: extremely lucrative middleman industry with profit margins. I mean, we
Speaker 2: heard whispers of like twenty percent when we were in
Speaker 2: Arkansas last year. I don't know if that's still true.
Speaker 2: But what's going on there.
Speaker 4: Well, there's so it depends on what part of the
Speaker 4: market they serve. So it's really interesting because freight brokers
Speaker 4: have one of the highest return on a capital of
Speaker 4: Indians street, so trucking asset has the lowest, and freight
Speaker 4: brokerage and forwarding actually has one of the highest. And
Speaker 4: because they don't actually own anything outside of computers, and
Speaker 4: maybe some real estate. They're not going to just suddenly
Speaker 4: go bankrupt, so they can downsize their operations, their trading floors.
Speaker 4: Just like you would see a trading floor at the
Speaker 4: Chicago Board of Trade in the old days, this is
Speaker 4: what a freight broker floor looks like. It looks like
Speaker 4: a trading floor of commodity because it's effectively what they are,
Speaker 4: and so essentially they depend on sort of two KPIs
Speaker 4: are really important to freight brokers. One is what is
Speaker 4: the spread between spot and contract and that is actually
Speaker 4: as much as ninety cents a mile. It's the widest
Speaker 4: it's ever been. In a normal cycle. It should be
Speaker 4: about thirty five to fifty cents a mile, but it's
Speaker 4: ninety cents right now, which means the spot rate's going
Speaker 4: to continue to pull down that contract rate. But as
Speaker 4: long as that variance is so high, that delta is
Speaker 4: so high, then on a per transaction basis, the freight
Speaker 4: brokers are actually making a lot of money. The problem
Speaker 4: is that there isn't any of a volume for them.
Speaker 4: And when you look at what shippers, shippers being the
Speaker 4: custom of these trucking companies, the customers of freight brokers
Speaker 4: you know, big box retailers, manufacturers, et cetera. They want
Speaker 4: to do business with people who have assets. They want
Speaker 4: to know who is hauling their load, and they want
Speaker 4: to make sure that it's not broker it out to
Speaker 4: somebody who's going to steal the cargo or you can't
Speaker 4: find the cargo. So what's happened is now with shipperds
Speaker 4: is they're saying I want to work with the asset
Speaker 4: based carriers. So a lot of that access volume, that
Speaker 4: overflow that went from the large carriers into the spot
Speaker 4: market and brokers sort of handled it, is starting to
Speaker 4: dry out for a lot of the freight brokers. So
Speaker 4: it's a volume problem for them.
Speaker 6: Now.
Speaker 4: The spreads are incredibly high, but the volume of transactions
Speaker 4: is actually quite low.
Speaker 5: And just to sort of explain what the freight broker
Speaker 5: world looks like and how they managed to take these
Speaker 5: big margins, I actually shadowed a dispatcher slash broker last.
Speaker 2: Week, and so you were on the trading floor.
Speaker 5: I wasn't a trading floor, it was he was more
Speaker 5: of a dispatcher than a broker, but he has his
Speaker 5: broker license, so I was able to kind of look
Speaker 5: at that side of things as well. Basically, Let's say
Speaker 5: Acme Clothing Company says, someone needs to move my truck.
Speaker 3: Who can my load? Who can take it? A bunch of.
Speaker 5: Broker's bien you know, I'll bit take it for a thousand,
Speaker 5: I'll take it for nine hundred, I'll take it for
Speaker 5: eight hundred and ninety nine, and I'll take it for
Speaker 5: eight hundred ninety eight. Lowest bidder wins. That broker then says, Okay,
Speaker 5: I'm going to make eight hundred and fifty dollars on this.
Speaker 5: They post on the load board saying who can take
Speaker 5: this load for five hundred and fifty dollars? And then
Speaker 5: a truck driver is looking through the load board trying
Speaker 5: to figure out their next job.
Speaker 3: They see this for five point fifty.
Speaker 5: They called the broker maybe they ask, hey, can I
Speaker 5: take this for six fifty? The broker says, how about
Speaker 5: you know, six hundred, and that's what they decide on.
Speaker 3: That's what the driver drives for.
Speaker 5: But that broker is taking that was it two hundred
Speaker 5: and fifty dollars in profit?
Speaker 3: So that's what it looks like on the on the
Speaker 3: ground floor. I guess of what this all looks like yeah.
Speaker 1: I remember when we were at the when we were
Speaker 1: at y'all's conference last year and we interviewed Matt Pyett
Speaker 1: that arrived here, and then a few months later I
Speaker 1: got to I went to Arrive's offices in Austin, and
Speaker 1: it really is like a trade of what is it
Speaker 1: called the Chicago model of Uh, it's the Chicago model
Speaker 1: having the shippers side and one side of the room
Speaker 1: and the carrier side and another side of the room,
Speaker 1: and they like sort of you know a wall down.
Speaker 4: Well, so one of them, you know, one of them
Speaker 4: books the freight, yeah, right, and then one of them
Speaker 4: buys the capacity, so it's one is sort of long
Speaker 4: in the market, yeah, short, and essentially a lot of
Speaker 4: the brokers. The reason Chicago has proliferated it is a
Speaker 4: couple of reasons, sort of foundational companies that sort of
Speaker 4: started the Chicago model. But really the reason that it
Speaker 4: has been so successful is the model is they have
Speaker 4: followed what the Chicago Board to Trade and the CEME
Speaker 4: used to do. Is they would go hire people who
Speaker 4: would normally go to the CBOT or the CME and
Speaker 4: go on trading floors and as those things when electronic,
Speaker 4: they realized, hey, this is the same batch of people.
Speaker 4: So they started recruiting the same way that somebody would
Speaker 4: normally go into the sort of the trade bits. They
Speaker 4: started recruiting the same types of folks to go onto
Speaker 4: freight brokerage floors. And that's exactly what they do. The
Speaker 4: difference is that a freight broker, you know, Tracy, you
Speaker 4: mentioned that the margins on it, the margins can be
Speaker 4: you know, twelve to eighteen percent and almost cycle depends
Speaker 4: on sort of what part of the cycle we are.
Speaker 4: Some of those are as high as twenty twenty plus percentage.
Speaker 2: That's why Joe and I went from joking about starting
Speaker 2: a trucking company to starting a freight broker.
Speaker 3: But you know that would be better, I know.
Speaker 1: But you know, then I got the impression from athlet
Speaker 1: It was like a lot of like X big ten athletes.
Speaker 3: All that, Oh yeah, that's hard.
Speaker 6: Yeah.
Speaker 1: So it's like that's not me either.
Speaker 4: Unfortunately.
Speaker 5: I also feel like the median freight broker is like
Speaker 5: twenty five.
Speaker 7: It's a very bro bros. It's a very bro culture
Speaker 7: and it's a I mean, it's a very dominated by
Speaker 7: men typically, is what you'll see in these businesses, and
Speaker 7: it's a very bro culture. Freight brokers as an industry
Speaker 7: used to be a word, you know that that represented
Speaker 7: sort of a very small sort of cottage industry, and
Speaker 7: these are become massively big businesses.
Speaker 3: Yeah, they didn't exist just you know, a few decades ago.
Speaker 4: It was illegal to broker freight. Saint Robinson was actually
Speaker 4: now the largest freight broker, was actually a produce broker
Speaker 4: that fought to allow after trucking deregular lated in nineteen
Speaker 4: eighty They really fought to allow for brokers to exist
Speaker 4: in the market, and that really didn't happen in nineteen
Speaker 4: eighty five.
Speaker 1: All Right, we have to wrap up almost but I
Speaker 1: have one last question and there's so many more questions
Speaker 1: I have, but last question, Craig, you tweeted something about
Speaker 1: load fraud in trucking and how AI is going to
Speaker 1: amplify it, and I'm sure, like you know, this is
Speaker 1: the start of many things.
Speaker 2: Before say, we should just start a new segment every
Speaker 2: All Thoughts episode. We should just ask how is AI.
Speaker 3: King to make this worse?
Speaker 1: But real quickly, can you just explain your concern here?
Speaker 1: And you know one day there will be a separate episode.
Speaker 1: But what's going on.
Speaker 4: So loadboard fraud is a real problem in the industry,
Speaker 4: and what's happening is that the brokers, because of the
Speaker 4: proliferation of broke capacity, the load boards effectively are these marketplaces,
Speaker 4: but they're not really exchanges and the way you would
Speaker 4: think of them for financial exchanges. They're more like Craigslist,
Speaker 4: where a broker will post a load and basically put
Speaker 4: it out into the marketplace and ultimately a driver, you know,
Speaker 4: drivers will call in because they don't even do it
Speaker 4: electronically mostly, but they will call in or email and say, hey,
Speaker 4: I want that load, and they'll do this negotiation process
Speaker 4: on the phone. Well, they come up with a price
Speaker 4: and they pick it up. The problem is that the
Speaker 4: brokers that use those load boards, the load boards don't
Speaker 4: regulate who's actually on their loadboard. So really, much like Craiglist,
Speaker 4: it's posting and you sort of you know, you may
Speaker 4: get a legitimate trucking company and you may get a
Speaker 4: illegitimate trucking company. Well, there's been this proliferation of illegitimate
Speaker 4: trucking companies that you have basically have gone out and
Speaker 4: registered information that's fake with the government and the government
Speaker 4: doesn't regulate it, and so essentially what happens is the
Speaker 4: person that is accepting that load has agreed to a price.
Speaker 4: They'll ask for what they call fuel advance, which means
Speaker 4: that the broker will advance the money. And in the
Speaker 4: market like this, fuel advances are really important because drivers
Speaker 4: need to pay for fuel and they don't want to
Speaker 4: deal with the cash flow collection cycle, so they get
Speaker 4: an advance and then basically that broker is fake and
Speaker 4: does not exist, and we'll just take that fuel advance.
Speaker 4: So that's one form of fraud. One of the emerging
Speaker 4: forms of fraud in double brokering is that some so
Speaker 4: the broker, the fake broker, will then broke it out
Speaker 4: to another broker and what they'll do is a truck
Speaker 4: will pick up and basically, no, there's no chain of custody,
Speaker 4: so nobody knows where that load went. It will pick
Speaker 4: up and go, Or you could have a situation where
Speaker 4: the broker is colluding with a fake trucking company to
Speaker 4: actually go and pick up the load and then walk
Speaker 4: out with the cargo, so that the load never arrives
Speaker 4: at the destination and nobody actually knows what happened. To
Speaker 4: that commodity and it's sold on the black market. So
Speaker 4: freight brokerage fraud or loadboard fraud is a massive problem
Speaker 4: and it's emerging as a big issue, and AI is
Speaker 4: just going to proliferate that because now I'm no longer
Speaker 4: dependent upon humans to sort of execute this fraud. I
Speaker 4: can actually do.
Speaker 3: It right now.
Speaker 5: There's no oversight, you know, and if there's already no oversight,
Speaker 5: that makes me worried for the future.
Speaker 4: The load boards have the only part of the government's
Speaker 4: never going to regulate this. And the problem is the
Speaker 4: fraud we're talking about is typically a couple hundred dollars
Speaker 4: to a thousand unless they steal the cargo. When we're
Speaker 4: talking about sort of traditional loadboard fraud, it's so small
Speaker 4: and they're typically offshore operators that the government is never
Speaker 4: going to investigate these crimes. And so because it's just
Speaker 4: it's happening so rampant that really it's the small carriers
Speaker 4: that end up really sort of taking it off.
Speaker 2: Okay, so this is a new business model idea for
Speaker 2: US Joe instead of freight brokerage. Freight brokerage AI enabled fraud.
Speaker 8: It is a big booming cottage industry trace you just
Speaker 8: have to live outside a lot of Eastern European And
Speaker 8: I think it's also like a lot of the folks
Speaker 8: that are proliferating and actually used to be in trucking,
Speaker 8: there's been this emergence of offshore dispatch operations and offer terior.
Speaker 4: Yeah, so they know the system. And so what's happened
Speaker 4: is the market's gotten so soft that they can't find
Speaker 4: legitimate forms of making money, and they realize, hey, this
Speaker 4: is a really lucrative way to make money. And I'm
Speaker 4: not going to get prosecuted because frankly, it's an fbis.
Speaker 4: It's the FBI's domain to sort of investigate these crimes
Speaker 4: that are overseas, and the crimes are a missed so misunderstood,
Speaker 4: and anyone who can actually understand how all the stuff
Speaker 4: works has got to be in the industry for many years.
Speaker 4: Even as much as I know, I still learn something
Speaker 4: almost every day about how the how different things work
Speaker 4: in the industry. So it's hard for the regular for
Speaker 4: the authorities to sort of understand it, much less investigate it.
Speaker 4: And the crimes are so small in terms of the
Speaker 4: dollar value, they just don't care. And so this crime
Speaker 4: is going to proliferate, and tell the load boards, the
Speaker 4: parties that manage these marketplaces until they actually put real
Speaker 4: systems in place, it's going to proliferate very quickly.
Speaker 2: Is there anything that could be done to reduce the
Speaker 2: cyclicality of the trucking industry and would it be desirable
Speaker 2: to reduce the cyclicality of the trucking industry, Because on
Speaker 2: the one hand, it sounds bad if we're talking about
Speaker 2: trucking blood bath two point zero, But on the other hand,
Speaker 2: maybe it's a good thing that, you know, truckers can
Speaker 2: sort of rapidly build up capacity and then rapidly wind
Speaker 2: it down as needed.
Speaker 5: The number one thing that I think would reduce cyclicality
Speaker 5: industry would be making it harder to open one's own
Speaker 5: trucking company. This is not a point that will make
Speaker 5: me very popular among my readers.
Speaker 4: Actually, I think Rachel, the folks that are in it
Speaker 4: would actually really appreciate it. This myth of a driver
Speaker 4: shortage is proliferates because you read about that and you're like, oh,
Speaker 4: I'm going to go start my own trucking company because
Speaker 4: it's always there. But I think to Rachel's point, you
Speaker 4: have to cut off the supply of new entrants, and
Speaker 4: the only folks that can do that are the banks.
Speaker 4: So when the banks stop lending money and start stop
Speaker 4: financing new carriers to get in the industry, that will
Speaker 4: restrict capacity. But let's just be you know, let's be
Speaker 4: frank here, when the market turns back around and it's lucrative,
Speaker 4: the banks will again resume lending money. So Tracy, at
Speaker 4: one point, trucking, like all transportation, was regulated, pricing was regulated.
Speaker 4: Amazon's business model JIT freight, e commerce would not be
Speaker 4: possible without deregulation.
Speaker 2: I remember, Rachel, we had you on to talk about
Speaker 2: this exact point.
Speaker 5: Yeah.
Speaker 4: So it is a situation where unless we were to
Speaker 4: see a reregulation, which nobody wants, it's just going to
Speaker 4: be a boom and bus cycle. We're just all, you know,
Speaker 4: we're all going to watch this from afar, or if
Speaker 4: you're in the industry, you're going to unfortunately be exposed
Speaker 4: to it.
Speaker 1: Well, there's so much going on, and there's such a fascinating,
Speaker 1: fascinating time I hadnot I mean, it's one thing to
Speaker 1: hear twenty nineteen, it's another thing to hear two thousand
Speaker 1: and eight. Two thousand and nine, which I was not expecting.
Speaker 1: Rachel and Craig, thank you so much to both of
Speaker 1: you for coming back on upline.
Speaker 6: Thanks for having us.
Speaker 1: Tracy always like talking trucking. I think one thing that
Speaker 1: you know, in addition to that sort of megacyclicality, the
Speaker 1: sort of the persistent inflation in the space, and so
Speaker 1: the fact that like, okay, we're back to twenty nineteen
Speaker 1: levels and some measures, but twenty nineteen nominally, you know,
Speaker 1: is like, yeah, parts mechanics, et cetera. It seems pretty brutal.
Speaker 4: Yeah.
Speaker 2: I was also thinking we need to put together some
Speaker 2: of the data points that they both mentioned, get like
Speaker 2: a series of charts going and take a look at that.
Speaker 2: I do think, going back to the big question, the
Speaker 2: sort of macro versus micro, it does feel to me
Speaker 2: like there are some specific things about trucking, including the
Speaker 2: fact that the barriers for entry are still quite low,
Speaker 2: that make what's happening maybe not entirely indicative of what's
Speaker 2: happening in the real economy. But also when you hear
Speaker 2: people talk about two thousand and eight, two thousand and nine,
Speaker 2: the slowdown in volume, which Craig mentioned, I mean that
Speaker 2: is a real thing that is happening.
Speaker 1: Yeah, I mean, it seems like it's obviously real, economy
Speaker 1: rooted and there are issues with demand. It's just that
Speaker 1: it's so it feels so magnified the fact that.
Speaker 2: It's like the bullwhip effect on the bullwhip effect kind of.
Speaker 1: I think that's really I think that's really well put.
Speaker 1: And then, you know, to Craig's point, it's like we
Speaker 1: have seen some departures apparently from the industry, but they're
Speaker 1: still at the small level, whereas past cycles bottomed with
Speaker 1: like serious, like sort of medium sized carriers, including one
Speaker 1: publicly traded company a few years ago going bankrupt.
Speaker 4: So maybe there's more to go.
Speaker 2: Yeah, for sure. Shall we leave it there for now?
Speaker 1: Though, Let's leave it there all right.
Speaker 2: This has been another episode of the All Bots podcast.
Speaker 2: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 2: Tracy Alloway.
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