Speaker 1: Hi everyone, this is Lee Clasgow when We're Talking Transports.
Speaker 1: Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host,
Speaker 1: Lee Clasgow, Senior freight transportation logistics Analysts at Bloomberg Intelligence,
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Speaker 1: the Bloomberg terminal, on LinkedIn, or on x at Logistics. Lee,
Speaker 1: I'm very excited to have with us today. Indeed, grow
Speaker 1: principal analyst at dat. Dat is owned by Roper Technologies,
Speaker 1: with trades under the ticker rop and as a market
Speaker 1: cap of over thirty six billion dollars. Welcome to Talking Transports. Dean.
Speaker 2: Great to be with you, first time on the show.
Speaker 1: Yeah, I'm glad you're here. We've known each other for
Speaker 1: quite some time and I've always enjoyed doing, you know,
Speaker 1: various panels with you at some industry events. I didn't
Speaker 1: give much about your backgrounds because I wanted you to
Speaker 1: tell people because I think you have a very interesting
Speaker 1: background that only you you could probably tell the story
Speaker 1: better than I can. So why don't you tell us
Speaker 1: what you do with the dot and kind of how
Speaker 1: you got there.
Speaker 2: Yeah, I'm probably the only market analyst in the country
Speaker 2: that's got a CDA license and still drives a truck
Speaker 2: and still owns a truck, and it's got a few
Speaker 2: million miles under my belt. So it's a unique experience
Speaker 2: that I've been able to fuse the two. I'm a
Speaker 2: fan believer that when you do data analytics, you've got
Speaker 2: to understand the context and how the data came about
Speaker 2: in the first place. So all of my operational experience
Speaker 2: really can help me look behind and get a sense
Speaker 2: of whether they're real or not and what story they're telling. Because,
Speaker 2: as you know, it's such a nuanced market, the truckload market,
Speaker 2: knowing how it all fits together is really important. So
Speaker 2: I've been here twenty six years. Prior to that, I
Speaker 2: lived in Australia and did a few million miles driving
Speaker 2: road trains and hauling cattle all around the country. And
Speaker 2: I grew up in a family cattle hauling business in
Speaker 2: the outback of Australia and then in the latter part
Speaker 2: of the nineties moved to the US take up an
Speaker 2: opportunity to work with the Harvard professor who I met
Speaker 2: at a conference. So that sort of led me into
Speaker 2: the data science and data analytics piece, which was and
Speaker 2: it Cicadian. We were designing twenty four to seven workforce
Speaker 2: management scheduling programs in trucking. So my experience being an
Speaker 2: over the road driver and manager of large fleets enabled
Speaker 2: me to help help the data scientists build predicted models
Speaker 2: to predict things like sleep and accident severity, and build
Speaker 2: models that could actually help fleets figure out which schedules
Speaker 2: in the fleet had the most tired drivers, for example.
Speaker 2: So very interesting twenty six years that I've been here,
Speaker 2: but the last ten years they've been in freight market analytics.
Speaker 2: Five years at Freight Waves and then five years here
Speaker 2: at DAT but sort of all on the market analytics
Speaker 2: side of the business in more recent times.
Speaker 1: And I also know you did some great work with
Speaker 1: a wreath across America. Can you just talk about that
Speaker 1: data organization?
Speaker 2: What do you do? Yeah, I've got a big reachs
Speaker 2: Across America tribute on the back of my Peterbelt truck.
Speaker 2: It's on the fifth worel cover. So I get asked
Speaker 2: about it. A lot Reach across America is comes from
Speaker 2: the organization up in Columbia. Fall's main really started a
Speaker 2: couple of decades ago when the Wooster family had an
Speaker 2: ex of wreaths. The Worcester family up in Columbia falls
Speaker 2: make They have a reef company, and they decided that
Speaker 2: rather than throw the reefs away, they would take them
Speaker 2: to Arlington and place them on some headstones. That has
Speaker 2: grown into an event, an annual event, reeth Across America
Speaker 2: Reserve five our one c Every year they place wreaths
Speaker 2: on headstones of our fallen heroes all over the country,
Speaker 2: in fact, all over the world. LEE. The numbers are staggering.
Speaker 2: Last year they moved about eight hundred truck loads in
Speaker 2: this three week period to fifty four hundred destinations across
Speaker 2: the country. Each truck's got about maybe ten to twelve
Speaker 2: deliveries per trailer. They'll load about six thousand wreaths in
Speaker 2: every fifty three foot van and when you go to
Speaker 2: Columbia falls main to the driver lounge, which is what
Speaker 2: they call it. Some foods do all the catering, and
Speaker 2: then truckers come in and out. They cycle in and
Speaker 2: out of the driver's lounge, which is kind of a
Speaker 2: massive truck stop, but it's just dedicated solely to this
Speaker 2: three week period when Reads across America load all these
Speaker 2: wreaths and then ship them to all of the areas.
Speaker 2: And these truckers that do it do it every year.
Speaker 2: Large fleets, you know, large fleets that you would know
Speaker 2: Werner and Schneider always allocate a few trucks to go there,
Speaker 2: and it's a huge cost, but it's all donated services.
Speaker 2: There's a couple of million in freight that's donated by
Speaker 2: all the carriers and it ends up in Arlington is
Speaker 2: the main focus for Roots, where we go each year
Speaker 2: to place a few hundred thousand wreaths on the headstones
Speaker 2: of all of the fallen heroes there. So that's Reads
Speaker 2: across America. It's in December each year, is the main event.
Speaker 1: All right, great, you know that that's great work that
Speaker 1: you do for that organization. So dat you know they're
Speaker 1: kind of moved. Not just a load board, I guess anymore.
Speaker 1: Can you talk about it about what, you know, the
Speaker 1: evolution of DT and the services you guys provide today.
Speaker 2: Yeah, from the Dialer Truck in nineteen seventy eight, it's
Speaker 2: now become you know, DAT freight natalist.
Speaker 1: I always laugh when I hear that. I always like
Speaker 1: because for a long time I had no idea what
Speaker 1: DAT stood for. And then Dialer truck that's, you know,
Speaker 1: using the old phone.
Speaker 2: There you go. Yeah, I when I before the Internet,
Speaker 2: when I traveled to the US, I'd be in a
Speaker 2: truck stop and you'd hear this ding, And the ding
Speaker 2: was when a new load popped up on the screen.
Speaker 2: And back then they had TV monitors all around the
Speaker 2: truck stop and drivers could sit and look at the
Speaker 2: loads that brokers were posting. So that's sort of synonymous
Speaker 2: with DAT. Of course, now with the Internet and phones,
Speaker 2: that's all very mobile. But Dialer Truck is sort of
Speaker 2: the largest load board. We have about three million loads
Speaker 2: get posted on in our load board every week. We
Speaker 2: see about one hundred and fifty billion in freight spend
Speaker 2: every year, of which fifty is contract one hundred billion
Speaker 2: is spot. So we see about a third of the
Speaker 2: truckload market each year from a loads moved and rating perspective.
Speaker 2: But there's two parts. One is the freight match where
Speaker 2: we match carriers and loads, and the other is the
Speaker 2: rating engine, which is the historical rates going back a
Speaker 2: decade to twelve years now of all of the rates
Speaker 2: that have been carriers have moved loads on various lanes
Speaker 2: over that time, and then of course we forecast where
Speaker 2: rates would be and those rates are instrumental in shiper RFPs.
Speaker 2: For example, when a carrier or a broker would bid
Speaker 2: on a shipper's freight network and provide a commitment at
Speaker 2: a certain rate, and they use our product to do
Speaker 2: their bids and figure out where rates would be, and
Speaker 2: brokers use it to negotiate with carriers and carriers use
Speaker 2: it to negotiate with brokers.
Speaker 1: Great, and you know, we have some select data from
Speaker 1: DT on the Bloomberg terminal, which is critical and the
Speaker 1: research that I do that's again available on the Bloomberg terminal.
Speaker 1: So you know, I wanted to have you on because
Speaker 1: it seems like things are actually getting better in the
Speaker 1: trucking market, something we probably haven't said in four years.
Speaker 1: I was just at a an industry conference at the
Speaker 1: Arkansas Trucking Association conference, and the mood was, I would say,
Speaker 1: you know pretty good. I think people are pretty optimistic.
Speaker 2: So can you.
Speaker 1: Tell talk to us about what you're seeing, you know,
Speaker 1: with the data on det about you know, how is
Speaker 1: the spot market evolving and what does that mean for
Speaker 1: the contractual market.
Speaker 2: Yeah, normally we would say that spot leads contract by
Speaker 2: four to six months, and that hasn't been evident in
Speaker 2: the last three years because both have been relatively flat
Speaker 2: because it's been a multi freight recession. But this is
Speaker 2: a very It's the first time I've ever seen this happen,
Speaker 2: and this is sort of this capacity led market in
Speaker 2: we're not seeing demand change the narrative just yet, but
Speaker 2: spot rates are up and holding at about twenty to
Speaker 2: twenty five percent higher than they were a year ago,
Speaker 2: not because we've got more loads on trucks, but simply
Speaker 2: because there's fewer trucks to haul the same loads. And
Speaker 2: that means that we've seen a structural removal of capacity
Speaker 2: that's affecting both the contract and the spot market. And
Speaker 2: I'll sort of give you a sense of what that
Speaker 2: means if contract rates are up, well, spot rates are
Speaker 2: up about twenty to twenty five percent. Contract rates in
Speaker 2: the last few weeks have just started to rise from
Speaker 2: new rates and new rates entering routing guides based on
Speaker 2: a carrier and a broken negotiating with a shipper have
Speaker 2: been really flat for a year. Carriers haven't been able
Speaker 2: to get substantial rate increases on their bids. But in
Speaker 2: the last six weeks we have seen a noticeable trend
Speaker 2: upwards where last week new contract rates in drive and
Speaker 2: coming into routing guides for the very first time based
Speaker 2: on a recent up four to five percent than they
Speaker 2: were a year ago. Now the twelve month average is
Speaker 2: zero percent, like flat, but we're starting to see this
Speaker 2: inflection where drive a flatbed and reefer contract rates are
Speaker 2: starting to rise. Now we'll know a little bit more
Speaker 2: when the ISMPMI comes out Monday how domestic manufacturing is
Speaker 2: really faring, because that'll be the first read after the
Speaker 2: Middle East war. But demand is sort of going through
Speaker 2: this seasonal inflection. We always see there's a lot more
Speaker 2: volume in building construction nursery planting season, so that's driving
Speaker 2: more volume into the market. But because there's a structural
Speaker 2: removal of capacity that has meant that as spring seasonality hits,
Speaker 2: we're seeing far few available trucks to move those loads.
Speaker 2: And that's what's underpinning this. Now why, I mean, the
Speaker 2: bigger question is why. And this is this structural removal
Speaker 2: of capacity that we're seeing because of what's going on
Speaker 2: in the government world. So we're seeing this sort of
Speaker 2: eye think the biggest wave of regulatory change in a
Speaker 2: generation going on right now, and I think this is
Speaker 2: structural for all the shippers. This is not a cyclical
Speaker 2: seasonal thing. This means that the driver pool is going
Speaker 2: to shrink noticeably because of what the industry is doing
Speaker 2: with things like English language proficiency enforcement, non domicile CDL revocations,
Speaker 2: all the training school work that's been done around changing
Speaker 2: their requirements, making sure they meet standards. So we're seeing
Speaker 2: this tightening of rules around who can drive and how
Speaker 2: they train and how they're tested. It's resulting in a
Speaker 2: shrinking driver a qualified driver pool. So if you fast
Speaker 2: forward this too later in the year and next year,
Speaker 2: it means that it's going to be harder to get
Speaker 2: into this industry as a broker, carrier and a driver
Speaker 2: and it's going to be harder to stay in the industry.
Speaker 2: And what that means is the industry loses its see
Speaker 2: lessticity when it comes to ramping up demand. So a
Speaker 2: lot of contract carriers are going to find it harder
Speaker 2: to find qualified drivers because of the higher standards. Now
Speaker 2: you could add drug testing onto that, where they're looking
Speaker 2: to bring in hair follicle testing, which will pick up
Speaker 2: five times the number of drivers that currently gets through
Speaker 2: with urine testing. What that means if you sort of
Speaker 2: forecast this out, it means that with an aging population,
Speaker 2: you know, maybe for first time ever, we do have
Speaker 2: a legitimate driver shortage. Because that's where we're heading is
Speaker 2: to a shrinking available driver pool that is driven structurally,
Speaker 2: not by a market cycle necessarily. So that's where we are.
Speaker 2: We haven't been able to say that Lee for three years,
Speaker 2: maybe four years, that things are actually improving. I would
Speaker 2: not have thought things would be improving for any reason
Speaker 2: other than demand. There was a demand catalyst that the
Speaker 2: market took off. Well that's not the case. This is
Speaker 2: a supply driven market correction and here we are.
Speaker 1: So I'm dat. You know, you mentioned a lot of
Speaker 1: things that are driving this. You know driving some of
Speaker 1: this capacity to be leaving the market. Is there are
Speaker 1: there any numbers, facts and figures that you can share
Speaker 1: with us that kind of illustrates we?
Speaker 2: Yes, so there are, there are a couple. I'll give
Speaker 2: you a sense of what that looks like. So we've
Speaker 2: got you know, it's timely that we're talking now. We've
Speaker 2: got road check week next week and what's eleventh and twelfth,
Speaker 2: so it'll be the week after that. But they did
Speaker 2: in Florida, just to give you a sense of how
Speaker 2: much this how big of a problem this is, the
Speaker 2: federal government did how to think call operational safe drive
Speaker 2: in January this year, where they are across twenty six states.
Speaker 2: In January went and did all of these inspections around
Speaker 2: non domicil city or English language proficiency immigration checks and
Speaker 2: of the they found about six point eight percent of
Speaker 2: those drivers fail the English language proficiency test. And out
Speaker 2: of that came this sort of we started to see
Speaker 2: this exodus of capacity that the cold weather in January
Speaker 2: was masking it. But what we were seeing around certain
Speaker 2: areas was a noticeable decrease in truckload capacity. And I
Speaker 2: can't put numbers on in terms of how many trucks exited.
Speaker 2: But what we saw in January across this twenty six
Speaker 2: state sweep was and I think it's more than coincidence
Speaker 2: that when the weather started to improve, we started to
Speaker 2: see spot rates start to lift but hold at an
Speaker 2: elevated level. Normally, when you see cold weather events, rates
Speaker 2: go up and then they come down. Well, they went
Speaker 2: up when winterwstorm Fern hit, but then they remained elevated,
Speaker 2: which coincides with this rapid escalation in enforcement by the
Speaker 2: federal government and state transport agencies. So we saw this
Speaker 2: capacity ex and rates held higher during the first quarter,
Speaker 2: which is normally a pretty weak quarter, and then just
Speaker 2: a few weeks ago, the Florida Law Enforcement Group did
Speaker 2: a inspection on thirty three hundred trucks and put fifty
Speaker 2: four out of service because of English language. They were
Speaker 2: about thirty that were arrested, and there was a whole
Speaker 2: lot of crazy stuff. But I think that what we
Speaker 2: haven't seen before is this state and federal driven enforcement
Speaker 2: safety blitz on immigration status and driver qualifications. I haven't
Speaker 2: seen that outside of road check week, So that's the
Speaker 2: big difference. We're seeing the number of drivers that post
Speaker 2: their trucks on our load board each week, which is
Speaker 2: a measure of capacity. We're seeing that at the lowest
Speaker 2: level we've ever seen like so normally when capacities loose,
Speaker 2: lots of drivers are putting their truck on our load
Speaker 2: board to try and find freight. We are seeing and
Speaker 2: I'll just give you the numbers. Our number of trucks
Speaker 2: on our load board now down about thirty percent compared
Speaker 2: to last year. That's the number of trucks posting their
Speaker 2: equipment for loads. Volume of loads, they're probably about thirty
Speaker 2: percent higher than last year because brokers are scrambling to
Speaker 2: find trucks, so that's load posts, which is kind of
Speaker 2: a measure of desperation to find trucks. So if you've
Speaker 2: got more loads being posted on a load board and
Speaker 2: fewer trucks posting their trucks, you get this massive inflection
Speaker 2: in spot rates. And so if you look at our
Speaker 2: equipment post numbers, they have been steadily declining all year,
Speaker 2: which again is consistent with this exodus of capacity, notwithstanding
Speaker 2: some of the stuff we've seen on sixty minutes. More recently,
Speaker 2: there's been a lot of capacity out there that's added
Speaker 2: capacity to the market because they've been running a lot
Speaker 2: more miles than would be legally allowable now, so that
Speaker 2: comes out of the market. We bring a lot of
Speaker 2: drivers out of the market that shouldn't be in the
Speaker 2: market for a number of reasons. And then lee you've
Speaker 2: got this other phenomenon where you go to anything on
Speaker 2: the southern border. We are seeing incredibly tight capacity for
Speaker 2: a lot of Mexican produce that's coming across. We're in
Speaker 2: the peak at that season right now, because a lot
Speaker 2: of the capacity on the southern border, particularly for westbound
Speaker 2: loads back to Los Angeles, comes from California in the
Speaker 2: first place. So those rates when you look at McCallen
Speaker 2: in the Rio Grande Valley back to Los Angeles, from
Speaker 2: exactly the time that ICE and DHS set up shop
Speaker 2: on the southern border in Texas, rates started to rise
Speaker 2: for that lane, back to the fifteen hundred mile lane
Speaker 2: back from Mcallon to Los Angeles. The carriers now on
Speaker 2: that lane are getting double what they were a year ago.
Speaker 1: Double and that's because of the crackdown on the cabitage
Speaker 1: of those drivers trying to get more free while they're
Speaker 1: in the.
Speaker 2: It's not so much. This is where if you listen
Speaker 2: to enforcement numbers, you don't really see what's going on.
Speaker 2: Because this is a behavioral change. It's not they're not
Speaker 2: getting picked up on the road side. They're just electing
Speaker 2: not to go there. They don't want to leave California.
Speaker 2: And so here's where the inflection point for the produce season.
Speaker 2: Most of your long haul produce carriers out of California
Speaker 2: are minority carriers and they run teams. So where you
Speaker 2: and I sit on the East Coast, any of our
Speaker 2: produce coming out of California is going to be hauled
Speaker 2: by minority truckers in teams the vast majority. And they've
Speaker 2: been very selected about the lanes they run. So when
Speaker 2: you look at all of our produce lanes out of
Speaker 2: California right now, they're all sitting at about twenty percent
Speaker 2: higher year over year. And the produce season hasn't really
Speaker 2: started yet off the West coast. So there's to answer
Speaker 2: your question, there's everywhere I look in the market, I'm
Speaker 2: seeing spot rates sitting at about twenty to twenty five
Speaker 2: percent high than they wear a year ago across all
Speaker 2: of these major freight lanes because of the structural removal
Speaker 2: of capacity. It's about the best way we could put
Speaker 2: numbers around what this looks like.
Speaker 1: Yeah. I was talking to a CEO of a large
Speaker 1: trucking company the other day and they mentioned there was
Speaker 1: a back hall lane where they were getting forty percent
Speaker 1: increase in rates just because the shipper is just really
Speaker 1: looking to secure capacity. You know, I think it was
Speaker 1: interesting to think that you said about the sixty minutes piece,
Speaker 1: and there was also another piece that highlighted truck safety
Speaker 1: on CBS. You know, so not only are you getting
Speaker 1: a federal government that's cracking down on the supply side,
Speaker 1: these issues that are plaguing the trucking company and kind
Speaker 1: of really hurting the good players, because there's plenty of
Speaker 1: good players in the trucking market.
Speaker 2: You know.
Speaker 1: It's coming to the forefront of you know, the conversation
Speaker 1: that people are having, and it just seems that the
Speaker 1: industry is right for some good regulation that'll take a
Speaker 1: lot of these bad players out, that'll have that structural
Speaker 1: change on top of the things that we're seeing today.
Speaker 2: Yeah, I can't imagine what this market will be like
Speaker 2: when demand starts to materially improve. I think that's going
Speaker 2: to be you know, I think the freight recovery is
Speaker 2: still a second half of this year discussion. But you know,
Speaker 2: in prior years, we really weren't sure we had you know,
Speaker 2: the tariff, you know, the trade war sort of come
Speaker 2: in last year Liberation Day last April, then the market
Speaker 2: kind of went flat for the rest of the year.
Speaker 2: This year we've got you know, the Middle East war
Speaker 2: has caused diesel prices to rise sharply. That's put a
Speaker 2: lot of pressure on our small spot market carriers. In fact,
Speaker 2: it's accelerated the exodus of carriers out of the market,
Speaker 2: the more marginal ones. So that sort of steepens this
Speaker 2: rate inflection because of the reduction in available capacity. If
Speaker 2: the enough manufacturing side of our business starts to improve,
Speaker 2: and we've got this structural removal capacity going on, you
Speaker 2: get to a point where rates do start to rise materially. Now,
Speaker 2: the flip side of that is higher rates will attract
Speaker 2: more capacity into the market, so you'll have and I
Speaker 2: think they'll be the right carriers though, so if you've
Speaker 2: got new capacity coming in, there'll be different types of carriers.
Speaker 2: This year, I think we get to a more stable
Speaker 2: freight market cycle coming into twenty twenty seven. But I
Speaker 2: think the point for shippers will be at a much
Speaker 2: higher cost base because I think what you're seeing now
Speaker 2: is the inflationary effect of it's rising costs overall tariffs
Speaker 2: on steel, aluminum, things like that that go into the
Speaker 2: manufacturing of truck's the base cost. You add an EPA regulations,
Speaker 2: the base cost of a truck is rising, and then
Speaker 2: you've got the inflationary effect of all the other variable costs.
Speaker 2: So we'll end up with a higher cost base to
Speaker 2: run equipment in the next year or so. I think
Speaker 2: that's important to remember as we start to think about
Speaker 2: where rates might go. Carriers we read the recent earnings calls,
Speaker 2: they are all getting their adjusting their earnings expectations. I
Speaker 2: think from low single digits to maybe mid to you know,
Speaker 2: higher double digit rate increases. Based on some of the
Speaker 2: last earnings calls we read last week, I haven't seen
Speaker 2: them talk more positively about the market like they are
Speaker 2: this quarter than in the last two or three years.
Speaker 1: Yeah, just anecdotally. I was actually also at this Arkansas
Speaker 1: Trucking Association conference, which is which is a great show
Speaker 1: if you're ever in the area, you know, I was
Speaker 1: talking to somebody that leases trucks and they were expecting,
Speaker 1: you know, use prices to start really going down because
Speaker 1: so many of these I guess trucking companies that don't
Speaker 1: pass the mustards or drivers are going to be returning
Speaker 1: their trucks. And also the average age is pretty old
Speaker 1: right now.
Speaker 2: Yeah, yeah, I think you'll see new truck orders will
Speaker 2: start to rise, people will start to add capacity. But
Speaker 2: I also think there'll be good demand for low Miley's
Speaker 2: used trucks. I think there's still there's a strong appetite
Speaker 2: for those, but those higher mileage, you know, used trucks
Speaker 2: that are coming out of those fleets that you've seen
Speaker 2: we've all seen on the highways with multiple DT and
Speaker 2: MC numbers on the side and you know, handwritten numbers
Speaker 2: that that cohorta trucks will be out there, and those
Speaker 2: prices should drop fairly substantially.
Speaker 1: So we have, like you know, all intense purposes, like
Speaker 1: tepid demand right now. It's really a supply side correction
Speaker 1: that we're seeing. So you know, when you look on
Speaker 1: the Bloomberg terminal, GDP isn't really expected to grow much
Speaker 1: from where we are around two percent, So it's it's
Speaker 1: unless something exciting happens, you know, demand is probably going
Speaker 1: to be where it is today in your mind, like,
Speaker 1: how is this upcycle going to be? Is this going
Speaker 1: to be a longer upcycle because of the supply and
Speaker 1: maybe can you talk about, you know, what the cycles
Speaker 1: have been in the past and where you think they're
Speaker 1: going to go you know today.
Speaker 2: Yeah, I think it's going to be a longer up cycle,
Speaker 2: more sustained. I think you'll probably see, you know, the
Speaker 2: elasticity that we saw in the recent cycle where we
Speaker 2: flexed up in the pandemic, we double the number four
Speaker 2: higher carrier authorities and it's been gradually bleeding off ever since.
Speaker 2: I think that goes away, and I think so, I
Speaker 2: think the ability for fleets to flex up in terms
Speaker 2: of capacity is going to be They're going to have
Speaker 2: a lot of friction, a lot more friction this time
Speaker 2: around because the driver pool is shrinking dramatically because of
Speaker 2: the new standards that are being put in front of them.
Speaker 2: So I think that's that's going to drive a lot
Speaker 2: more sustained rate increases, I think in the next year,
Speaker 2: because you have to at some point, this economy has
Speaker 2: to start improving and we have to start you know,
Speaker 2: getting better. That's sort of hopefully, yeah, hopefully it's the
Speaker 2: next year discussion. But I think that the overarching thing
Speaker 2: is that there's there's fewer available trucks in the market
Speaker 2: right now, and I think that's just going to get
Speaker 2: worse in the spot market. So that means that carriers
Speaker 2: that are in the spot market it gat to be
Speaker 2: do an exceptional well. We should see tender rejections and
Speaker 2: tender acceptant rates change dramatically as contract carriers take available
Speaker 2: or make themselves available to the spot market to take
Speaker 2: advantage of the highest spot rates. So that sort of
Speaker 2: drives that next contract rate rise that we typically see
Speaker 2: when you see that routing guide failure start to take over.
Speaker 2: So I think that's inevitable. We're already seeing our acceptant
Speaker 2: rates start to fall across our contract shipper market. I
Speaker 2: think it's a more sustained rate cycle this next one.
Speaker 2: I don't think we see the wild swings we saw
Speaker 2: during the pandemic. But again, I think we see what
Speaker 2: we saw back in twenty eighteen in terms of the
Speaker 2: rate increases, so fairly strong bull market for carriers and brokers.
Speaker 2: Shippers paid the price for that at the end of
Speaker 2: that year, But I think that's more likely cycle that
Speaker 2: I think I'm going to expect in the next year.
Speaker 1: Right, So do you think that you know, we are
Speaker 1: everyone's saying that the market's going to get tight, and
Speaker 1: we're all saying that rates are going to move higher.
Speaker 1: But do you think we're underestimating how tight it can be?
Speaker 2: I do. Chris Pickett from Coyote said at a conference
Speaker 2: he thinks spot rates will be up for I think
Speaker 2: it was forty percent. I could be wrong, but it was.
Speaker 2: It was a crazy number at the time. And this
Speaker 2: was at the JP Morgan event in Washington, and I said,
Speaker 2: I said to him, really, are you sure that's that's
Speaker 2: what his modeling shows? And I thought, Wow, that would
Speaker 2: be extraordinary. So now a couple of months away from
Speaker 2: that discussion, and I think it's highly likely we could
Speaker 2: see those sorts of spot rate changes year over year.
Speaker 2: I think that becomes a reality in the spot market
Speaker 2: because I think the the the reduction in capacity, you know,
Speaker 2: demand can move pretty quickly, but the adding more drivers
Speaker 2: takes a lot more time, Like capacity takes a lot
Speaker 2: more time to come back into the market, and I
Speaker 2: think that's where you're going to see this year higher
Speaker 2: spot rates because even if demand improves slightly, the exodus
Speaker 2: of all of this surplus capacity is going to mean
Speaker 2: that spot rates, I think will start to rise more
Speaker 2: rapidly the further we get into this year. Got ya.
Speaker 1: And when we're when we're talking about the supply coming
Speaker 1: back in, you know, obviously there's this you know, there's
Speaker 1: going to be just less people to want to come
Speaker 1: back in because of the you know, the whole pool
Speaker 1: has been cut. You know, when you're when you're looking
Speaker 1: at supply and demand dynamics, you know, outside of the
Speaker 1: seasonality of like growth, the growing season and things like that,
Speaker 1: are there certain regions that you know you expect will
Speaker 1: be tighter than others.
Speaker 2: The oil field permanent basin oil field volumes, so you know,
Speaker 2: it's one of our biggest freight lanes is Houston to
Speaker 2: Lubbock in the Permian basin, where about half of our
Speaker 2: drilling rigs are located. Drilling rigs are down something like
Speaker 2: drill the rig counts down something like seven to eight
Speaker 2: percent year over year. Loads moved on that lane. They
Speaker 2: have flatbed loads of drill pipe and casing are down
Speaker 2: about twenty percent year over year, right which maps like
Speaker 2: fewer drills, fewer drilling rigs, less loads. Rates they are
Speaker 2: up forty percent year over year because there's fewer flatbed
Speaker 2: trucks to move those reduced number of loads. So I
Speaker 2: think Texas is a big flatbed market. We're seeing anywhere
Speaker 2: where there's data centers being built, we're seeing incredibly high
Speaker 2: demand for flatbed and specialized trailers. So that's sort of
Speaker 2: underpinning a lot of the flatbed demand. The other area,
Speaker 2: I think this is going to be incredibly difficult for
Speaker 2: shippers and brokers to find capacities California for some of
Speaker 2: the reasons we just mentioned. We're not even seeing California
Speaker 2: produced seasons come online. Rates are already higher. We're about
Speaker 2: to see I think historic rates out of Miami. We're
Speaker 2: what two weeks away from Mother's Day, where ninety percent
Speaker 2: of our flowers come in from South America into Miami.
Speaker 2: Rates are already up twenty year over year out of
Speaker 2: Miami and we're not even into the peak of shipping
Speaker 2: of flowers, and flatbed rates are about to hit a
Speaker 2: record high, like the highest we've ever recorded in the summer.
Speaker 2: So there's there's areas I think that are going to
Speaker 2: see a lot of tight capacity. But I do think
Speaker 2: our headline at the start of the year was constraint,
Speaker 2: sort of stabilizing demand meets constrained supply, and that's kind
Speaker 2: of where I think this market will end up in
Speaker 2: this equilibrium situation. But as soon as you get a
Speaker 2: spike in demand, you're going to see incredible rate volatility.
Speaker 2: So that's what we expect with Mother's Day coming up.
Speaker 2: When you start to get into produce season, any of
Speaker 2: those produce season, you're going to see extraordinarily high refrigerated
Speaker 2: rates this year as soon as demand hits, because produce
Speaker 2: mostly moves on the spot market, and I think tied
Speaker 2: to your port markets, when you start to see imports
Speaker 2: start to improve around some of those seasonal peaks, you'll
Speaker 2: see incredible, incredibly tight demand their tight supply for those
Speaker 2: loads to move. There's a really strong correlation between imports,
Speaker 2: say in New York or Savannah and Los Angeles and
Speaker 2: drive and rates. They tend to you know, the spot
Speaker 2: rates tend to run on a three to four week
Speaker 2: lag when after the volumes hit. So again, I think
Speaker 2: that's another market we're watching given.
Speaker 1: These structural changes. You know, how do you think shippers
Speaker 1: should be behaving right now with capacity.
Speaker 2: Yeah, I think doing the same thing they've been doing,
Speaker 2: which is locking in capacity with their incumbent carriers, but
Speaker 2: thinking more about not thinking less about rates and more
Speaker 2: about capacity, which is not what they've done. I think.
Speaker 2: So any shipper that's still thinking about rate reductions will
Speaker 2: be very disappointed. So I think my advice to any
Speaker 2: shipper would be, you've got to be if you're chasing
Speaker 2: lower rates, be very concerned about the survivability of that carrier.
Speaker 2: But I would be thinking more about now this is
Speaker 2: no longer about taking rates. It's about securing your capacity
Speaker 2: on those core lanes. And in our ship at World,
Speaker 2: eighty percent of their volume moves on twenty percent of
Speaker 2: the lanes, and that would be where I would focus
Speaker 2: is make sure I lock in capacity on my core
Speaker 2: volume and have a good working relationship with those carriers,
Speaker 2: and then deal with build in a structured spot market,
Speaker 2: buy with a broken network. For the remaining volume that
Speaker 2: we're you got one load a week or one load
Speaker 2: a month, and typically those loads would have a higher
Speaker 2: reject rate probability because large carriers don't necessarily have trucks
Speaker 2: where one load a week might originate, whereas a spot
Speaker 2: market broker or carry a network is more likely going
Speaker 2: to pick that up. So that's what I would be
Speaker 2: recommending for shippers is pricing power has shifted to carriers.
Speaker 2: That's evident. But for three years ship has had all
Speaker 2: the pricing power, and now I would be thinking very
Speaker 2: much about carriers survivability if you're looking for cheap rates,
Speaker 2: but if you're looking to lock in capacity, then be
Speaker 2: prepared to pay more for it this year.
Speaker 1: So do you think, like you know, the industry is
Speaker 1: getting more and more digitized. You know, we have digital brokers,
Speaker 1: we have traditional brokers that are really leaning into AI
Speaker 1: like a H. Robinson, you know, because of the rise
Speaker 1: of digital brokers and pricing transparency, you know, is this
Speaker 1: do you think this is going to have an impact
Speaker 1: on like the cycles going forward, at least the rate
Speaker 1: cycles talking.
Speaker 2: About Yeah, I think it speeds up the cycles. So
Speaker 2: it speeds up any inflection in the cycle because people
Speaker 2: have more transparency and they can react quicker. I think
Speaker 2: that's one of the reasons we've seen the market cycles
Speaker 2: have a shorter duration but a higher amplitude. Carriers can
Speaker 2: now react to the market more quickly. Because they've got
Speaker 2: more visibility into the market, they can negotiate better. They
Speaker 2: can use AI tools to help them negotiate what lanes
Speaker 2: to bid on and how aggressively to bid on them.
Speaker 2: I've got to outeroperate friends of mine that take my
Speaker 2: weekly report, feed it into clawed aio, then they go
Speaker 2: into rate view and they build this matrix of what's
Speaker 2: my week look like and what are the rates on
Speaker 2: all of these lanes, and that kind of sets their
Speaker 2: bid strategy. I did hear though, that AI has sort
Speaker 2: of gone past the very helpful stage too. Now it's
Speaker 2: creating a lot of noise and now I have to
Speaker 2: find a way to filter out a lot of the
Speaker 2: stuff that we're seeing in the market. Just an evolutionary
Speaker 2: phase that we're going through. But I do think it's
Speaker 2: helping brokers in particular with automating, so you know, we've
Speaker 2: got our convoy platform that automates those loads where there's
Speaker 2: a clean match. But what surprised me is carriers adoption
Speaker 2: of AI, and they were I thought they'd be much longer,
Speaker 2: especially the small carriers, in bringing this to market, but
Speaker 2: a lot of them have figured out that it's fairly easy.
Speaker 2: You can just talk to your AI tool and feed
Speaker 2: at information and it'll spit back something that might not
Speaker 2: be perfect, but it's better than what you had, which
Speaker 2: was nothing, which was you know, a phone and a
Speaker 2: negotiation and no real knowledge of what the market was
Speaker 2: doing in terms of rates.
Speaker 1: And so, you know, you've seen a lot of cycles.
Speaker 1: Just given all your experience, you know what's the one
Speaker 1: lesson you think the industry forgets during these cycles?
Speaker 2: I think the carriers tend not to have well shippers
Speaker 2: probably drive this. They tend not to have good memories
Speaker 2: because I think they play they they make the mistake
Speaker 2: of chasing the market down and chasing cheap rates, and
Speaker 2: of course what that does when you chase the market down,
Speaker 2: you kind of drive capacity out, and that creates the
Speaker 2: sharper inflection, which is not what It's not the reason
Speaker 2: we're seeing it now, but it's a factor. So I
Speaker 2: think the thing that a lot of people forget is
Speaker 2: that carriers need predictability in their rates. They need good partners,
Speaker 2: and a cheap rate doesn't necessarily work with them. So
Speaker 2: I think that's it's the memory. Thing that a lot
Speaker 2: of shippers tend to forget is that they need to
Speaker 2: carry a network, and cheap rates only help, you know,
Speaker 2: for a certain period of time, and then the market
Speaker 2: inflex and now they're scrambling. And that's what's happening right now.
Speaker 2: They're scrambling to find capacity to move these loads, even
Speaker 2: on the contract market. And that'll be another bit of
Speaker 2: lesson that they'll go through this year. But you could say, well,
Speaker 2: didn't you learn that from twenty eighteen and twenty sixteen
Speaker 2: and twenty fourteen, And the answer is no, because they
Speaker 2: don't think like that.
Speaker 1: And you know, what would you say, given you know
Speaker 1: the all the data that you see, what is the
Speaker 1: most misunderstood data point in the trucking industry.
Speaker 2: It's a great point, I think load posts, right, So
Speaker 2: a lot of people say, oh, load posts are you
Speaker 2: know people double post overposts, and yeah, absolutely, But it's
Speaker 2: a market signal and I watched it for five years.
Speaker 2: I've watched these load posts across all of our equipment
Speaker 2: times and it's a really good indicator of where the
Speaker 2: spot market is going. I think people misunderstand it and
Speaker 2: discount it because of the fact that you know, brokers
Speaker 2: might post the same load or a shipper might send
Speaker 2: out a load to five brokers, so it's got five posts. Well,
Speaker 2: when you actually look at the relation between the rate
Speaker 2: movement and the overposting is a very strong signal that
Speaker 2: comes from that. Like, so the more overposting you see,
Speaker 2: the more pressure there is to find trucks, and you
Speaker 2: see rates mapping to that. That's the inverse. When you
Speaker 2: see fewer load posts for the same load, you've got
Speaker 2: plenty of capacity and rates tend to go down. So
Speaker 2: I think it's misunderstood and discounted too quickly, But to me,
Speaker 2: it's a really good signal about where the market's at.
Speaker 1: So you know, you mentioned you're one of the few
Speaker 1: folks that cover the space from an analytical standpoint with
Speaker 1: the CDL, and you know you used to drive trucks
Speaker 1: for a living. You know what is the one thing
Speaker 1: you miss about being behind a wheel full time?
Speaker 2: It's kind of the freedom. It's just being out moving
Speaker 2: around the scenery. It's hard to describe once it's in
Speaker 2: your blood. It's really hard to describe why you do
Speaker 2: it because it's the hardest job I've ever done in
Speaker 2: my life, not because of the driving piece, but all
Speaker 2: the other stuff that goes on the the delays, the weather,
Speaker 2: the traffic, the dock time, all of that stuff. I
Speaker 2: just I miss the What I really miss is the
Speaker 2: sense of achievement you have with moving something like it's
Speaker 2: a Truckers take a lot of pride in their ability
Speaker 2: to put a load on a trailer in a van
Speaker 2: and deliver it in a reasonable period of time in
Speaker 2: one piece. And you might say, well, that's table stakes.
Speaker 2: That's actually pretty hard to do for a lot of
Speaker 2: freight types and roads we drive on. But I kind
Speaker 2: of miss that piece because there's a real sense of
Speaker 2: achievement when it comes to doing that and doing it successfully.
Speaker 2: Especially flatbed is that's a whole other animal.
Speaker 1: Yeah, it's a little more lever intensive a little bit. Yeah,
Speaker 1: all right, Dean, I think we're coming up on our time.
Speaker 1: I really want to thank you for your insights today
Speaker 1: and I really appreciate your friendship over the years.
Speaker 2: Yeah, thank you, Lee.
Speaker 1: Great to be with you, and I also want to
Speaker 1: thank you for tuning in. If you like the episode,
Speaker 1: please subscribe and leave a review. We've lined up a
Speaker 1: number of great guests for the podcast, so please check
Speaker 1: back to hear conversations with C suite executives shippers, regulators
Speaker 1: and decision makers within the freight markets. Also, if you
Speaker 1: want to learn more about the freight transportation markets, check
Speaker 1: out our work on the Bloomberg Terminal at Bigo and
Speaker 1: on social media. But I'd also like to thank our
Speaker 1: producers Miriam Trore and Aditia Somani for helping to pull
Speaker 1: this podcast together. This is Lee Clasgow signing off and
Speaker 1: thanks for talking transports with me. Talk to you next week.
Speaker 1: Bye bye.