WEBVTT - Morgan Stanley on Transport Disruption Risks 0:00:07.240 --> 0:00:09.800 Hi everyone, this is Lee Claskal when We're Talking Transports. 0:00:09.840 --> 0:00:13.119 Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host, 0:00:13.200 --> 0:00:17.120 Lee Klaskow, Senior Freight transportation logistics analysts at Bloomberg Intelligence, 0:00:17.120 --> 0:00:20.280 Bloombergs and House research arm of almost five hundred analysts 0:00:20.280 --> 0:00:23.840 and strategists around the world. A quick public service announcement 0:00:23.880 --> 0:00:26.720 before we dive in. Your support is instrumental to keep 0:00:26.760 --> 0:00:29.560 bringing great guests and conversations to you, our listeners, and 0:00:29.640 --> 0:00:32.360 we need your support, so please, if you enjoy the podcast, 0:00:32.600 --> 0:00:34.960 share it, like it and leave a comment. Also, if 0:00:34.960 --> 0:00:37.680 you've got ideas, feedback, or just want to talk transports, 0:00:37.840 --> 0:00:39.720 I'm always happy to connect. You can find me on 0:00:39.720 --> 0:00:43.159 the Bloomberg terminal, on LinkedIn, or on x at Logistics. Lee, 0:00:43.400 --> 0:00:46.559 I'm very excited to have with us today. Robbie Schanker 0:00:46.800 --> 0:00:49.760 back onto the podcast. Robbie is a managing director and 0:00:49.880 --> 0:00:53.640 lead analyst for North American Freight transportation and Airlines for 0:00:53.760 --> 0:00:56.360 Morgan Stanley. He's been with Morgan Stanley for over twenty 0:00:56.480 --> 0:01:00.240 years and has been covering transports since twenty sixteen. Prior 0:01:00.280 --> 0:01:04.080 to covering transports, Robbie led coverage of the North American 0:01:04.120 --> 0:01:07.320 auto sector. Welcome back to the podcast, Robbie. 0:01:07.560 --> 0:01:09.440 Thank you Lee. It's always a pleasure to be here 0:01:09.480 --> 0:01:10.000 and chat with you. 0:01:10.520 --> 0:01:13.440 Yeah, and I want to congratulate you because you are 0:01:13.560 --> 0:01:16.679 the first guest to make four appearances on the Talking 0:01:16.959 --> 0:01:20.160 Transports podcast, and just to let you know, after ten, 0:01:20.360 --> 0:01:22.760 we're going to give you a free sub so, so 0:01:22.880 --> 0:01:24.360 congratulations on that honor. 0:01:25.400 --> 0:01:28.319 It is an honor indeed, and yes, looking forward to 0:01:28.480 --> 0:01:30.680 making that ten. If I can get a key short 0:01:30.720 --> 0:01:31.520 as well, that'll be great. 0:01:33.480 --> 0:01:34.960 I probably that's what I need to get made up 0:01:35.760 --> 0:01:40.600 a T shirt absolutely. So, as we're talking earnings season 0:01:40.680 --> 0:01:43.520 for one, key was pretty much winding down for most transports. 0:01:43.520 --> 0:01:46.679 There's a couple of stragglers left. There's been some crazy 0:01:46.720 --> 0:01:50.320 announcement this week, so let's just dig into it. You know, 0:01:50.440 --> 0:01:52.720 I just want to hear your thoughts on Amazon's announcement 0:01:52.760 --> 0:01:55.560 around their new supply chain services. Do you think this 0:01:55.640 --> 0:01:58.440 is a real threat to the legacy players, especially the 0:01:58.440 --> 0:01:59.440 publicly traded ones. 0:02:00.240 --> 0:02:04.280 I think every company in my coverage needs to sit 0:02:04.400 --> 0:02:07.240 up and take notice here. I think, you know, every 0:02:07.280 --> 0:02:11.040 every CEO should have called an all hands meeting on 0:02:11.160 --> 0:02:14.119 a Monday morning with that Presley is dropped. I think 0:02:14.160 --> 0:02:20.320 the h the potential impact is probably varied by UH 0:02:20.520 --> 0:02:25.840 scale and end market exposure and what transportation modality you're 0:02:25.880 --> 0:02:26.440 exposed to. 0:02:27.040 --> 0:02:27.440 UH. 0:02:27.720 --> 0:02:33.360 But I think when someone of the UH scale resources 0:02:33.400 --> 0:02:39.359 and ambition of Amazon UH enters and industry, there are 0:02:39.560 --> 0:02:42.639 very few toes that it doesn't step up, right. I mean, 0:02:42.760 --> 0:02:47.120 just to put this in context, Amazon's market cap is 0:02:47.320 --> 0:02:51.000 two x the TAM of the entire freight transportation industry. 0:02:52.000 --> 0:02:55.160 Amazon's cash from their balance sheet is about six x 0:02:55.800 --> 0:02:58.440 UH my entire coverage universe combined. 0:02:59.000 --> 0:02:59.240 UH. 0:02:59.360 --> 0:03:04.000 That's a lot of resources, and so it's hard to 0:03:04.040 --> 0:03:07.720 see who is not impacted by this coming. 0:03:07.520 --> 0:03:10.160 Forward, right. You know, there's a lot of end markets 0:03:10.160 --> 0:03:12.760 that they're supposedly going after, or you know they've been 0:03:12.800 --> 0:03:14.640 involved in over the last two or three years, whether 0:03:14.680 --> 0:03:18.520 it's LTL brokerage, forwarding, warehousing, fulfillment. You know, on the 0:03:18.639 --> 0:03:21.600 LTL side, you know, if they were serious about being 0:03:21.680 --> 0:03:23.320 a player, you would have thought that they would have 0:03:23.480 --> 0:03:26.720 maybe purchased some yre C facilities when they became available, 0:03:27.120 --> 0:03:29.600 or maybe bid on some of the assets that Night 0:03:29.639 --> 0:03:34.520 Swift recently acquired. So would you agree or disagree that 0:03:34.639 --> 0:03:37.440 the likelihood of them going head to head with the 0:03:37.480 --> 0:03:40.360 old dominion SAIA and art best of the world is 0:03:40.400 --> 0:03:41.120 probably low. 0:03:41.720 --> 0:03:43.520 I would actually have a different view here. 0:03:44.000 --> 0:03:47.120 I think everything we have seen from Amazon Logistics so 0:03:47.200 --> 0:03:51.720 far has shown that they like to take a relatively 0:03:51.800 --> 0:03:56.280 asset light approach to building capacity, and they have adopted 0:03:56.320 --> 0:04:00.960 this hybrid model on the trucking side, where they. 0:04:02.560 --> 0:04:04.280 Own very few, if any trucks. 0:04:04.560 --> 0:04:06.920 I don't think they employ any drivers in their own network, 0:04:07.680 --> 0:04:11.760 but they effectively round up a network of owner operators 0:04:12.160 --> 0:04:15.160 who work exclusively for them, and so it's sort of 0:04:15.560 --> 0:04:18.440 a hybrid of an asset light and act heavy approach. 0:04:19.160 --> 0:04:21.880 And so I would have actually thought it would be 0:04:22.560 --> 0:04:25.440 counter to their mo of the last ten years and 0:04:25.520 --> 0:04:28.200 Amazon Logistics to go out there and buy a bunch 0:04:28.240 --> 0:04:34.800 of LTL real estate. And from our understanding, Amazon LTL 0:04:35.080 --> 0:04:37.719 is going to adopt a fairly hybrid approach to growing 0:04:37.760 --> 0:04:40.719 in the LTL world as well. That will allow them 0:04:40.760 --> 0:04:44.360 to grow much quicker and with a much smaller capital 0:04:44.400 --> 0:04:47.360 footprint any of their peers. So I do think they're 0:04:47.440 --> 0:04:50.560 going to be a competitor in the space. Are they 0:04:50.600 --> 0:04:53.120 going to be a competitor at an ODFL level of 0:04:53.200 --> 0:04:57.880 service TBD. Maybe not out the gate, but I think 0:04:57.960 --> 0:05:01.080 if you were any kind of kind of relatively mass 0:05:01.120 --> 0:05:04.840 market LTO player, you're probably going to see Amazon in 0:05:04.920 --> 0:05:06.520 your UBI mirror relatively. 0:05:07.600 --> 0:05:10.719 Yeah. Absolutely, But it just seems that Amazon doesn't really 0:05:10.720 --> 0:05:14.960 have the crosstocks a typical traditional LTL cross docks. You know, 0:05:15.000 --> 0:05:17.960 they have their fulfillment and warehousing facilities that they're going 0:05:18.000 --> 0:05:20.240 to leverage. So it will be, to your point, interesting 0:05:20.279 --> 0:05:23.400 if they can leverage their network into into high service 0:05:23.400 --> 0:05:25.720 where they're just going to go after commoditized freight that 0:05:26.040 --> 0:05:28.280 a lot of the publicly traded guys just don't want 0:05:28.279 --> 0:05:33.680 to touch. Anyway. Do you see Amazon impacting more sub 0:05:33.720 --> 0:05:36.760 segments of the market that you cover, you know, is 0:05:36.800 --> 0:05:38.840 it going to be more on the broker side, more 0:05:38.960 --> 0:05:41.680 on the fulfillment side. Where do you think they're going 0:05:41.760 --> 0:05:44.680 to be the toughest competitor to the legacy players. 0:05:45.240 --> 0:05:48.159 I think it will be an end market that are 0:05:49.480 --> 0:05:57.200 relatively small, relatively concentrated, and I'm probably as close as 0:05:57.240 --> 0:06:00.840 possible the Amazon's core competence, which is e commerce and 0:06:00.920 --> 0:06:03.560 kind of retail B two C sort of thing, And 0:06:03.640 --> 0:06:06.240 so I think parcels probably closest to what they do, 0:06:06.320 --> 0:06:09.440 and we already know what they've done in the parcel side, 0:06:09.920 --> 0:06:13.200 I would say brokerage and forwarding, just given that it's 0:06:13.240 --> 0:06:16.560 acid Light. Again, what you saw on Monday was Amazon's 0:06:16.920 --> 0:06:20.679 uh kind of very aggressive ambitions and going after Acid Heavy. 0:06:20.680 --> 0:06:22.760 If that's what they're doing in Acid Heavy, then acid 0:06:22.839 --> 0:06:28.800 Light should be absolutely within their crosshairs as well. And 0:06:30.520 --> 0:06:35.040 I would say LTL as well. Again what I hear 0:06:35.160 --> 0:06:38.240 you on. You know, hey, they may start by going 0:06:38.240 --> 0:06:41.960 after the kind of commoditizeder mass market part of the business. 0:06:41.960 --> 0:06:44.640 I mean, keep in mind that Yellow was a significant 0:06:44.640 --> 0:06:47.520 player in the industry that kind of catered to those 0:06:47.600 --> 0:06:50.560 kind of customers. And while Yellow did see share for 0:06:50.600 --> 0:06:54.440 many years, kind of few think of Yellow with money 0:06:54.480 --> 0:06:58.280 without the union. That's probably effectly what what Amazon's going 0:06:58.320 --> 0:07:00.240 to be. So I think they can kind of take 0:07:00.320 --> 0:07:04.839 some share, uh kind of maybe even quickly and maybe 0:07:04.880 --> 0:07:09.359 even from the large players in the industry. So yeah, 0:07:09.720 --> 0:07:14.640 we think so so so Parcel brokerage forwarding lt L, 0:07:14.920 --> 0:07:19.080 I think is kind of probably the closest to to 0:07:19.120 --> 0:07:22.640 what they do, or or maybe kind of relatively easier 0:07:22.640 --> 0:07:26.760 to break into given their approach. I think t L 0:07:27.000 --> 0:07:31.120 is an industry that is very large and very fragmented. UH, 0:07:31.160 --> 0:07:34.280 and so even someone with the scale and ambition of 0:07:34.320 --> 0:07:36.560 Amazon may have a hard time making us flash there 0:07:36.680 --> 0:07:37.760 kind of relatively quickly. 0:07:38.280 --> 0:07:38.559 Uh. 0:07:38.640 --> 0:07:40.680 Warehousing is an interesting one. UH. 0:07:40.720 --> 0:07:43.840 And obviously you saw the stock a reaction for g 0:07:44.040 --> 0:07:46.880 XO on on Monday end came out. 0:07:47.400 --> 0:07:47.679 Again. 0:07:47.720 --> 0:07:51.320 We think that obviously Amazon's been doing FBA for years. 0:07:52.160 --> 0:07:56.240 But at the same time, in a while, retailers and 0:07:56.320 --> 0:08:01.320 shippers may be happy to have Amazon uh run their 0:08:01.360 --> 0:08:05.560 transportation services. Are they going to give them access to 0:08:05.680 --> 0:08:09.680 their warehouse and a full look at their inventory picture 0:08:09.800 --> 0:08:13.000 up and down their supply chain? Maybe they will several 0:08:13.200 --> 0:08:17.320 large Tier one customers already have done so, or or 0:08:17.520 --> 0:08:19.360 maybe that's a little bit of a mode for the 0:08:19.480 --> 0:08:20.240 independent guys. 0:08:20.480 --> 0:08:22.520 That's a little more of their debate my view. 0:08:23.160 --> 0:08:25.160 Yeah, you know, I've heard a lot of pushback from 0:08:25.200 --> 0:08:27.800 some of the conversations I've had with with players that 0:08:27.840 --> 0:08:30.760 do you really want Amazon to have access to all 0:08:30.800 --> 0:08:34.559 that information? Because as we know, they're very good at 0:08:34.679 --> 0:08:38.240 leveraging information for their for their own advantage. You know, 0:08:38.080 --> 0:08:40.840 you mentioned the parcel industry. I know you cover FedEx 0:08:40.880 --> 0:08:44.240 and UPS. Can you talk about you know, the implications 0:08:44.280 --> 0:08:47.960 to them and kind of broader your your kind of 0:08:48.000 --> 0:08:51.200 investment thesis on both companies, And you know, I'm not 0:08:51.240 --> 0:08:53.880 sure if you have if you know what your ratings 0:08:53.920 --> 0:08:56.280 are on both, but if they're if they're different, like 0:08:56.320 --> 0:08:57.760 why do you like one versus the other? 0:08:58.080 --> 0:09:00.679 Sure, so we have an undergrade rating on both FedEx 0:09:00.679 --> 0:09:03.560 and UPS. So we've been somewhat cautious in the space 0:09:03.920 --> 0:09:08.160 for some time now, and there are a few drivers 0:09:08.559 --> 0:09:13.040 to our thesis. Primarily I would say, you know, hey, 0:09:13.120 --> 0:09:16.400 kind of we are all conditioned to getting quote unquote 0:09:16.600 --> 0:09:20.440 free shipping. Now you're telling me, hey, nothing's free in 0:09:20.480 --> 0:09:22.120 this world, and I really agree with that. But at 0:09:22.120 --> 0:09:26.880 the same time, the intermedity retailers have been subsidizing us 0:09:26.880 --> 0:09:29.400 to the tune of ten dollars a box for the 0:09:29.480 --> 0:09:33.160 last twenty years. As e commerce becomes a larger and 0:09:33.240 --> 0:09:37.200 larger part of their of their volumes, and as that 0:09:37.240 --> 0:09:39.319 ten dollars a box goes to twenty dollars a box, 0:09:39.880 --> 0:09:43.040 that subsidy is going to be more and more untenable. 0:09:43.679 --> 0:09:46.560 And so we are seeing shifts in the e commerce 0:09:46.559 --> 0:09:50.959 supply chain to adjust for that. You're seeing large e 0:09:50.960 --> 0:09:53.920 commerce players, you know, like Amazon, go out there and 0:09:53.960 --> 0:09:58.319 build their own captive networks. You're seeing brick and mortar 0:09:58.360 --> 0:10:02.559 retailers who do e commerce adopt omni channel fulfillment out 0:10:02.600 --> 0:10:06.920 of local stores or encourage click and collect. And you're 0:10:06.960 --> 0:10:12.000 seeing SMB customers leverage the platforms of the bigger guys 0:10:12.000 --> 0:10:17.280 in FBA or Walmart Marketplace or Target Marketplace, eBay, Shopify 0:10:17.320 --> 0:10:20.040 and those kind of platforms to try to get enterprise 0:10:20.120 --> 0:10:23.280 level pricing even though they are SMBs. At the same time, 0:10:24.040 --> 0:10:26.800 you need to invest very, very heavily in the network 0:10:26.920 --> 0:10:29.560 for higher service levels. I mean, what used to be 0:10:30.760 --> 0:10:33.439 a four day delivery window for a five day service 0:10:33.559 --> 0:10:36.400 is now a same day delivery window for seven days 0:10:36.400 --> 0:10:39.240 a week service. That calls for a lot of investment. 0:10:40.000 --> 0:10:43.360 And so we think this effectively puts pressure on parcel 0:10:43.400 --> 0:10:47.080 delivery as a standalone business over time. Obviously won't happen 0:10:47.080 --> 0:10:48.760 in the straight line, but kind of, you know, we 0:10:48.800 --> 0:10:51.280 think kind of that as a long term trend, and 0:10:51.480 --> 0:10:55.400 I think you have seen that shift, especially kind of 0:10:55.480 --> 0:10:59.839 with e commerce going to one day, same day, and 0:11:00.160 --> 0:11:04.240 you know, biasing more towards a small light, low value 0:11:04.280 --> 0:11:10.199 goods grocery. That's not the core of UPS and FedEx's 0:11:10.920 --> 0:11:13.720 you know networks that that's that's not that's not what 0:11:13.760 --> 0:11:14.200 they were. 0:11:14.080 --> 0:11:18.000 Built for originally. So they need to adapt. Uh. They 0:11:18.080 --> 0:11:18.560 have it apting. 0:11:18.600 --> 0:11:20.800 They've been taking out a lot of cost obviously, UH, 0:11:20.920 --> 0:11:24.600 to shrink the business. They have been investing in last 0:11:24.640 --> 0:11:28.959 mild capability. But the market's also getting a lot more competitive, 0:11:29.000 --> 0:11:31.679 not just with the emergence of people like Amazon reading. 0:11:31.720 --> 0:11:33.280 The Post Office also will be a. 0:11:33.200 --> 0:11:36.000 Credible player in personal delivery in the in the media 0:11:36.040 --> 0:11:36.840 of the long term. 0:11:37.080 --> 0:11:37.360 UH. 0:11:37.440 --> 0:11:40.480 There are a number of regional players uh that are 0:11:40.600 --> 0:11:45.840 a credible delivery options as well, especially for uh, you know, 0:11:45.920 --> 0:11:48.120 within a radius of local stores. 0:11:49.240 --> 0:11:50.480 And obviously this will all. 0:11:50.400 --> 0:11:54.640 Beit transformed with technology, whether it's drones or autonomous delivery 0:11:54.720 --> 0:11:56.520 vans or humanoid robots over time. 0:11:57.520 --> 0:11:57.880 And so. 0:11:59.440 --> 0:12:04.640 We think that traditional long haul, middle mile focused business 0:12:04.679 --> 0:12:08.120 model for parcel delivery for a two day delivery window 0:12:08.280 --> 0:12:11.719 is changing very rapidly and everybody here needs to adapt. 0:12:11.679 --> 0:12:14.880 Right, Okay, you know, I just want to make just 0:12:14.920 --> 0:12:17.480 a point of clarification. You said you're you're underweight both 0:12:17.480 --> 0:12:20.400 those names. That's necessarily a self. Can can you give 0:12:20.480 --> 0:12:22.920 us just a definition of what underweight means it? 0:12:23.000 --> 0:12:26.800 Morgan Stanley, Oh, sure, So we do relative rankings across 0:12:26.800 --> 0:12:30.000 our coverage, so we don't have traditional bihole cell ratings, 0:12:30.040 --> 0:12:33.240 and so an overweight stock would be kind of biased 0:12:33.600 --> 0:12:34.120 towards a. 0:12:34.080 --> 0:12:35.600 Larger portion of a portfolio. 0:12:36.080 --> 0:12:38.640 Equal weight would be kind of equal weight or kind 0:12:38.640 --> 0:12:41.600 of effectively equal into a hold, and underweight would be 0:12:41.640 --> 0:12:43.520 kind of a smaller portion of your portfolio. 0:12:44.280 --> 0:12:47.760 Okay, great, And so what would it take for you 0:12:47.840 --> 0:12:51.199 to be more constructive on these large parcel carriers? 0:12:52.880 --> 0:12:55.720 Look, I mean it changes in some of these structured developments, right, 0:12:55.720 --> 0:12:58.160 I mean, uh, Look, I mean obviously, if you see 0:12:58.200 --> 0:13:03.199 a significant acceleration and consumer consumption on e commerce specifically 0:13:03.400 --> 0:13:08.840 goods uh, e commerce spending, uh, that will be a 0:13:08.920 --> 0:13:09.839 rising tide. 0:13:09.559 --> 0:13:11.040 That lifts all the boats in the industry. 0:13:11.720 --> 0:13:16.000 But specifically you know, well, we need to see some 0:13:16.240 --> 0:13:20.679 changes in uh the way of the direction uh that 0:13:20.800 --> 0:13:25.520 e commerce supply chains are heading to again move closer 0:13:25.679 --> 0:13:30.920 to the kind of secret sauce of an incumbent parcel carrier, 0:13:31.800 --> 0:13:38.040 rather than moving towards new companies that are developing B 0:13:38.080 --> 0:13:42.199 two C networks in urban areas from scratch, and I'll 0:13:42.200 --> 0:13:44.120 look at the the Ultimately, at the end of the day, 0:13:46.000 --> 0:13:49.520 you and I need to be comfortable starting to pay 0:13:49.559 --> 0:13:52.120 for something that we've got for free for twenty years. 0:13:52.200 --> 0:13:55.559 Which is the biggest challenge here because if the end 0:13:55.600 --> 0:13:59.240 customer has you know, determined, you know, hey, this is 0:13:59.280 --> 0:14:02.640 going to be something that needs to be free, it's 0:14:02.679 --> 0:14:04.280 going to be hard to get pricing power in the 0:14:04.320 --> 0:14:04.679 long term. 0:14:04.760 --> 0:14:08.600 Like, yeah, I recently bought something online and whatever I 0:14:08.600 --> 0:14:10.200 forgot what it was is shoe or something like that. 0:14:10.240 --> 0:14:12.000 It didn't fit and I wanted to return it and 0:14:12.440 --> 0:14:15.240 there was like no free returns that I was like, wait, 0:14:15.280 --> 0:14:18.640 what this is crazy? Ex five dollars, So I ended 0:14:18.679 --> 0:14:20.760 up paying it. You know, you mentioned earlier you talked 0:14:21.040 --> 0:14:24.680 touched about technology was released to the parcel industries. You know, 0:14:24.760 --> 0:14:28.360 we're bombarded with AI, autonomy, all this stuff that you know, 0:14:28.440 --> 0:14:30.720 the future, the future is now. Kind of who do 0:14:30.760 --> 0:14:33.640 you think is in your coverage universe is leaning into 0:14:33.760 --> 0:14:36.720 technology and who do you think stands to benefit the most. 0:14:37.360 --> 0:14:38.600 Look, I think. 0:14:40.200 --> 0:14:45.680 This entire industry is going to be very impacted by AI, 0:14:46.880 --> 0:14:50.960 some in a positive way, some where it might even 0:14:50.960 --> 0:14:54.400 be a challenge of rewrote. I believe the first report 0:14:54.440 --> 0:14:57.920 on Wall Street on AI and freight transportation back in 0:14:57.960 --> 0:15:02.400 May of twenty twenty three, where we kind of pointed 0:15:02.440 --> 0:15:07.040 out AI could be the last piece of the automation 0:15:07.200 --> 0:15:13.000 puzzle on the brokerage and straightforwarding side, where we've been 0:15:13.040 --> 0:15:16.359 writing about the digitization of that business for ten years. 0:15:17.160 --> 0:15:21.520 But to achieve the holy grail of ninety percent automation 0:15:21.720 --> 0:15:26.160 of ninety percent of the transaction, to get to eighty 0:15:26.200 --> 0:15:30.120 percent overall automation, kind of you sort of needed a 0:15:30.240 --> 0:15:37.960 step up in technology and effectively have AIB that kind 0:15:38.000 --> 0:15:41.480 of last piece of the puzzle there. So again, just 0:15:41.600 --> 0:15:45.160 to kind of take a step back here, freight transportation 0:15:45.240 --> 0:15:47.440 is a one and a half trillion dollar TAM in 0:15:47.520 --> 0:15:50.680 the US alone, like a five trillion or five dollar globally. 0:15:51.640 --> 0:15:53.680 We are the largest industry in the world that doesn't 0:15:53.720 --> 0:15:57.560 make anything. We just moved stuff from point data point B, 0:15:58.440 --> 0:16:02.960 and so this industry is one giant process function and 0:16:03.120 --> 0:16:08.360 technology UH can be very very beneficial to process functions 0:16:08.400 --> 0:16:14.120 in enabling the UH efficiency and productivity and visibility and 0:16:14.160 --> 0:16:20.680 security and obviously cost and reliability of of a process 0:16:20.680 --> 0:16:24.000 function like transportation. And that's why, even though UH this 0:16:24.080 --> 0:16:26.680 industry gets a bit of a bad rap of being 0:16:26.680 --> 0:16:29.600 a very traditional industry, I think that's somewhat unfair. I 0:16:29.600 --> 0:16:32.760 think this industry has been an early adopter of technology, 0:16:32.800 --> 0:16:36.560 whether it's everything from you know, cloud to IoT to 0:16:36.800 --> 0:16:44.360 API integration to blockchain UH and now AI and so again, 0:16:44.560 --> 0:16:47.120 we've companies across my courage have been using AI m 0:16:47.240 --> 0:16:51.080 L for pricing and UH kind of route management for 0:16:51.440 --> 0:16:54.880 years now, and so we think there is going to 0:16:54.920 --> 0:16:58.920 be significantpedition of AI. But I think we need to 0:16:58.960 --> 0:17:01.440 differentiate between AI because not all of it is the same. 0:17:01.520 --> 0:17:08.240 I think gen AI and ergenic AI could become commoditized 0:17:08.720 --> 0:17:12.879 in this industry as early as this year, especially on 0:17:12.920 --> 0:17:17.240 the brokerage forwarding side, because in our surveys, almost all 0:17:17.520 --> 0:17:21.919 brokers and forwarders, whether they are a small or large 0:17:22.000 --> 0:17:27.439 public or private acid Heavier, acid Light, are using AI 0:17:27.600 --> 0:17:31.600 tools to kind of achieve reasonably similar outcomes. 0:17:32.440 --> 0:17:32.880 And so. 0:17:34.760 --> 0:17:40.679 I'm not necessarily sure that this is It will drive productivity, 0:17:40.680 --> 0:17:43.439 but I'm not sure how sticky that productivity will be 0:17:43.480 --> 0:17:46.760 over time. On the other hand, we are very bullish 0:17:46.800 --> 0:17:53.360 physical AI, represented by autonomous trucks, humanoid robots. We think 0:17:53.440 --> 0:17:55.800 that it's harder to do. We think that could potentially 0:17:55.920 --> 0:17:58.440 drive more value in this industry in the immediatem to 0:17:58.480 --> 0:18:02.840 long term, and we think that's where the edge of 0:18:02.880 --> 0:18:06.120 AI is going to be going into the next few years. 0:18:06.160 --> 0:18:09.800 We actually published our fifth report on AI and Fate Transportation, 0:18:10.200 --> 0:18:12.840 which was a global insight of our global colleagues earlier 0:18:12.880 --> 0:18:14.880 this year, where we came up with what I think 0:18:14.960 --> 0:18:18.320 is a very very unique framework of how to evaluate 0:18:18.400 --> 0:18:21.919 companies across our coverage in terms of their AI exposure. 0:18:22.400 --> 0:18:24.879 And we think if you have physical assets, if you 0:18:25.000 --> 0:18:31.160 have a network that is hard to rep hit, and 0:18:31.560 --> 0:18:37.400 if you can convert those physical assets to be physical 0:18:37.440 --> 0:18:40.520 AI assets, we think AI is likely to be the 0:18:40.520 --> 0:18:41.760 most beneficial for you over time. 0:18:42.080 --> 0:18:45.400 So over the past on this podcast, you know, we've 0:18:45.440 --> 0:18:48.560 had people that are very very bullish about autonomous trucking. 0:18:48.600 --> 0:18:52.520 We had the CEO of Kodiak on a couple episodes ago. 0:18:53.040 --> 0:18:55.680 We've had some you know, a lot of trucking professionals 0:18:55.960 --> 0:18:58.840 that weigh in on how they feel, you know, the 0:18:59.200 --> 0:19:02.480 pace of the adoption will be. I mean, you seem 0:19:02.480 --> 0:19:04.879 pretty bolish on it. So where do you see the 0:19:04.880 --> 0:19:07.879 pace of adoption for autonomous trucking and kind of are 0:19:07.920 --> 0:19:10.520 there certain applications where you think it's going to work, 0:19:10.560 --> 0:19:13.920 in certain applications where it's really a distant future. 0:19:14.200 --> 0:19:18.480 Look, I don't see autonomous trucks driving through downtown Manhattan 0:19:18.480 --> 0:19:21.879 anytime soon. But when you consider that ninety five percent 0:19:21.920 --> 0:19:23.800 of the miles driven of a classic truck or on 0:19:23.840 --> 0:19:29.160 a highway, I think that can be automated. I'd say 0:19:29.200 --> 0:19:34.679 pretty quickly out the gate, multiple OEMs, multiple autonomous technology 0:19:34.680 --> 0:19:38.720 providers are planning to start civil commercial production at some 0:19:38.800 --> 0:19:41.400 point in twenty twenty seven. That's pretty much around the corner. 0:19:42.080 --> 0:19:47.080 We're starting to see the first big commercial orders placed 0:19:47.119 --> 0:19:51.600 by early adopters who've been testing this technology for years 0:19:51.600 --> 0:19:54.760 and they see its promise, and so I think the 0:19:54.800 --> 0:19:57.239 second half of this year is going to be a 0:19:57.440 --> 0:20:03.359 very very key inflection point that sees autonomous strucking transition 0:20:03.600 --> 0:20:07.560 from so far being somewhat of a science experiment to 0:20:07.640 --> 0:20:12.040 something that is very real and commercial. I think the 0:20:13.040 --> 0:20:17.760 ROI of this technology should speak for itself, not just 0:20:17.800 --> 0:20:20.240 in terms of cost savings, but also in terms of 0:20:20.800 --> 0:20:23.560 productivity gains. If you can run at truck twenty four 0:20:23.600 --> 0:20:28.600 to seven and far more efficiently than you did before. 0:20:29.400 --> 0:20:34.480 And so I think the limit of penetration is going 0:20:34.520 --> 0:20:37.280 to be how many of these can you make? And 0:20:37.359 --> 0:20:39.560 that's going to come down to the OEMs and how 0:20:39.640 --> 0:20:44.760 much capacity they assigned to manufacturing these trucks, especially in 0:20:44.840 --> 0:20:48.800 the first kind of five or ten years, because again, 0:20:49.640 --> 0:20:53.320 I think even the biggest critics kind of acknowledge that 0:20:53.359 --> 0:20:58.040 the technology works. I think we just need a kind 0:20:58.040 --> 0:21:00.959 of real world validation of a latt of the on 0:21:01.160 --> 0:21:03.800 paper benefits of the truck. And like I said, you 0:21:03.800 --> 0:21:05.960 know what, once you can prove the r O Y here, 0:21:07.160 --> 0:21:09.200 it's it's going to be hard to stop the penetration 0:21:09.240 --> 0:21:09.600 of the stack. 0:21:09.600 --> 0:21:13.080 Am gotcha? Any You mentioned your underway on the on 0:21:13.160 --> 0:21:16.760 the two large US parcel carriers, So what what sub 0:21:16.840 --> 0:21:20.840 segments are you kind of more bullish on within the 0:21:20.840 --> 0:21:22.080 transportation markets. 0:21:22.680 --> 0:21:25.480 Look, we like pretty much all of trucking and so 0:21:25.680 --> 0:21:31.159 TL trucking select LTL truckers. Obviously we've been waiting for 0:21:31.200 --> 0:21:34.600 an upcycle for at least two years now. It looks 0:21:34.640 --> 0:21:38.200 like that upcycle is upon us, driven by the supply 0:21:38.320 --> 0:21:42.000 side on the t L kind of given given these 0:21:42.240 --> 0:21:45.399 new regulations. UH. That should be a rising tide that 0:21:45.520 --> 0:21:48.440 lifts all the boats and all the UH. 0:21:48.480 --> 0:21:51.600 Transport mortalities across the the industry. UH. 0:21:51.640 --> 0:21:55.639 And so night Swift is our top ranked stock and 0:21:55.680 --> 0:21:59.320 our coverage, but pretty much all of the acid based 0:21:59.359 --> 0:22:04.280 tls select ltls where valuation is reasonable in our view, 0:22:05.080 --> 0:22:09.040 We like Canadian rails as well. We like some of 0:22:09.040 --> 0:22:12.679 the autonomous trucking companies. We like GXO writer so some 0:22:12.760 --> 0:22:18.080 of the adjacent names to traditional transportation. So yeah, any 0:22:19.000 --> 0:22:24.160 physical truck based kind of company that should be exposed 0:22:24.200 --> 0:22:26.440 to the upcycle should do pretty well. 0:22:26.440 --> 0:22:27.400 The next couple of years might. 0:22:27.400 --> 0:22:31.600 Be So, as you mentioned, I believe g XO is 0:22:31.640 --> 0:22:34.200 one of your favorite names, and obviously that it took 0:22:34.200 --> 0:22:37.600 a hit on Monday with the whole Amazon announcement. So 0:22:38.320 --> 0:22:41.320 I'm assuming Monday you're pounding the table telling people this 0:22:41.359 --> 0:22:44.120 is a great opportunity. Why do you think g XO 0:22:44.320 --> 0:22:46.920 has a mote because I would have thought that out 0:22:46.920 --> 0:22:51.199 of all the players, they might be more susceptible to 0:22:52.200 --> 0:22:54.680 facing direct competition from Amazon. 0:22:55.200 --> 0:22:58.280 I think, as we discussed earlier, right, I think having 0:22:58.320 --> 0:23:04.399 Amazon run your transportation needs UH is kind of is 0:23:04.480 --> 0:23:08.680 a bridge that I see shippers crossing. But giving Amazon 0:23:09.440 --> 0:23:12.840 visibility and access to your entire supply chain, having them 0:23:12.920 --> 0:23:16.000 run your warehouse and run your inventory for you, uh, 0:23:16.280 --> 0:23:18.840 maybe a step too far. Again, I think there will 0:23:18.880 --> 0:23:21.400 be some customers who will absolutely adopt it. And Amazon, 0:23:21.400 --> 0:23:24.640 like I said, has been doing FBA for SMB customers 0:23:24.640 --> 0:23:25.240