Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Hallaway. So, Tracy, we've
Speaker 1: been covering supply chain issues for quite a long time
Speaker 1: on Odd Lots. I think, probably longer than much of
Speaker 1: the media. What do you think, I feel like we've
Speaker 1: been ahead of um. I think that's fair. Like I
Speaker 1: feel like we've certainly been talking about it for over
Speaker 1: a year, like in excruciating detail at times, whereas other
Speaker 1: people are only just starting to cover it somewhat superficially. Yeah,
Speaker 1: all right, So I'm glad we got that shoulder padding
Speaker 1: out of the way, but in all sorts. Is one
Speaker 1: of the nice things about this is about having been
Speaker 1: talking about it for so long is a we can
Speaker 1: have a point of reference because we've talked to some
Speaker 1: guests earlier in the year, and now we can talk
Speaker 1: about how things evolved, and as you say, like we
Speaker 1: can drill deeper because like every time we have one
Speaker 1: of these conversations. Recently we talked to Ryan Peterson a flexport.
Speaker 1: We recently talked about more of the commodity side with
Speaker 1: Jeff Curry. Each time we have these conversations, I kind
Speaker 1: of have more questions that I want so we can
Speaker 1: sort of drill deeper. Yeah, It's it's a really like
Speaker 1: iterative conversation in some ways, because every time we have
Speaker 1: a logistics or supply shortage episode, like I always come
Speaker 1: away with additional questions or thoughts. And one of the
Speaker 1: big ones um that came up recently on the last
Speaker 1: episode with Ryan Peterson was the idea of why there
Speaker 1: isn't a secondary market for containers and container ship bing,
Speaker 1: And this is something that has sort of come up
Speaker 1: again and again on these episodes. In many ways, it
Speaker 1: feels like the logistics industry is like kind of old fashioned. Yeah,
Speaker 1: so that's kind of what's blowing my mind in multiple ways.
Speaker 1: It's like people always talk about like the oh, the
Speaker 1: economy is over financialized, and that's kind of this cliche.
Speaker 1: And often times I would say, people who even say
Speaker 1: that may not have a clear idea of like what
Speaker 1: they even mean by that. It's just sort of this
Speaker 1: intuition that people have. But in some ways, I feel
Speaker 1: like when it comes to logistics, the economy feels under financialized.
Speaker 1: There's a lack of formal financial instruments, there's a lack
Speaker 1: of like liquid uh secondary markets for capacity, there's a
Speaker 1: lack of hedging tools. It feels like for many of
Speaker 1: the players in this market and this you know, it's
Speaker 1: all the way down the line from shipping to rail
Speaker 1: to trucking and so like that's kind of surprised. And
Speaker 1: then the other thing that is interesting to me, and
Speaker 1: it's very closely related to this, like the B two
Speaker 1: B market for logistics, it just feels so ancient beyond financialization.
Speaker 1: It's like like I'm on this, like I like join
Speaker 1: like surreptitiously, this like WhatsApp group for like truck drivers,
Speaker 1: and it's basically like people's like no, it's like literally
Speaker 1: it's like it's for you now, No I know. But
Speaker 1: it's like people posting these things like oh, anyone in Spokane,
Speaker 1: Washington have capacity, and you learn in Rockville, Maryland have capacity.
Speaker 1: And it's like we're used to like from like a
Speaker 1: B two C like consumers just like we get this,
Speaker 1: like we can track ups and FedEx and it's super
Speaker 1: like smooth. And when you like sort of look behind
Speaker 1: the scenes, everything feels like it's sort of so like
Speaker 1: so blued together a duct taped together. Yeah, it's kind
Speaker 1: of crazy to think that the supply chain depends on
Speaker 1: you know, a random trucker seeing like something posted on
Speaker 1: a message board or what'sapp and going, oh, yeah, I'm
Speaker 1: free next week, I'll take that job. And this kind
Speaker 1: of gets back. I mean, this is very much related
Speaker 1: to the conversation we've been having for the past year
Speaker 1: or so, which is all about how do you actually
Speaker 1: solve the supply chain problems. So we are starting to
Speaker 1: see all these different solutions being proposed right now. Um
Speaker 1: Biden was just talking about increasing capacity at the part
Speaker 1: of Los Angeles. Uh, just last week. We're recording this
Speaker 1: on October and so it's getting more and more attention.
Speaker 1: You're seeing more are more people suggest ways to fix it,
Speaker 1: and of course the question is are any of those
Speaker 1: going to work? Right? And so that is sort of
Speaker 1: the big news that maybe we could key off our
Speaker 1: discussion on today. The White House clearly feeling some urgency
Speaker 1: on the supply chain stress and making this effort. It's
Speaker 1: like a multi company effort with the Port of Los Angeles,
Speaker 1: and yesterday, I believe the rail company Union Pacific announced
Speaker 1: that they would be part of it to basically get
Speaker 1: twenty four seven operations out of that part because we
Speaker 1: know there's this big shipping queue, all these ships waiting
Speaker 1: out there just to unload. We know there's a traffic
Speaker 1: jam of the truckers whose job it is to pick
Speaker 1: up the containers and move them to inland warehouses and
Speaker 1: so forth, and so one effort that maybe would you know,
Speaker 1: if they could get twenty f seven operations, that would
Speaker 1: be great. But honestly, like that sounds very complicated literally
Speaker 1: just going to seven. So lots to talk about and
Speaker 1: all this lots to keep diving into because there's things
Speaker 1: to drill into a new news So we have a
Speaker 1: perfect guest. We actually last talked to him in June.
Speaker 1: That was a great episode where we had to have
Speaker 1: him back. We're gonna be speaking with Craig Fuller. He
Speaker 1: has the founder and CEO of Freight Waves, which is
Speaker 1: a data and information company on logistics and trucking. So Craig,
Speaker 1: thank you so much for coming back on. Hey, Joe Tracy,
Speaker 1: great to be here. You guys are the o G
Speaker 1: S of media covering supply to you're you're the you're
Speaker 1: the o G O G. But that's nice of you
Speaker 1: to say, um, but let's actually just start with that
Speaker 1: new news and in the last week, you know, it's like, Okay,
Speaker 1: we're gonna operate, and they announced it and just to me,
Speaker 1: doing everything that we've talked about with like the people
Speaker 1: work there, the logistics, even that just going from like
Speaker 1: a normal schedule to a port strikes me as like,
Speaker 1: my guess is that that is no easy task at all,
Speaker 1: That that is going to be a curricul and effort.
Speaker 1: Is not just some you know, switch that you flipped.
Speaker 1: What is your sort of take the difficulty and the
Speaker 1: challenges that the White House will face in opening up
Speaker 1: throughput at that port. Yeah, this is an unorganized orchestra
Speaker 1: that you have to sort of organize. So you've got
Speaker 1: all these moving parts. You get not only do you
Speaker 1: have the just the idea that you're going to open
Speaker 1: up the port and all of the sort of inertia
Speaker 1: that that creates in terms of changing policies and procedures.
Speaker 1: That you have an employment challenges between labor folks that
Speaker 1: work at the ports, all of the operational support people
Speaker 1: that support the ports, and then you've got all the
Speaker 1: supporting infrastructure around the railroads, which we did see the
Speaker 1: Union Pacific announcement yesterday. But you also have trucking companies
Speaker 1: and warehouse operations and so you've got all of these
Speaker 1: moving parts that really have to work together to enable this.
Speaker 1: And then you have a union with a lot of
Speaker 1: power that is very reluctant to to make big moves
Speaker 1: uh and extend hours. They have have historically had a
Speaker 1: lot of power over how the port is on trying
Speaker 1: about the the I l W I l W the longshoreman,
Speaker 1: that's correct, And they've got there's a big union contract
Speaker 1: that's coming up this summer, and I think it's going
Speaker 1: to be interesting to our next summer to see how
Speaker 1: much control they have or how much power they have
Speaker 1: in light of the you know, all the pressures that
Speaker 1: are on them. But that's an entirely different episode in itself. Uh.
Speaker 1: And so with all of that said, it's not as
Speaker 1: easy as saying, hey, we're going to open up and
Speaker 1: keep keep the port open up longer because you have
Speaker 1: all of these moving and independent parts that have to
Speaker 1: work together. So, I mean, if if there's one thing
Speaker 1: I feel that all lots of listeners have probably learned
Speaker 1: at this point in time, it's that trucking has a
Speaker 1: lot to do with the gridlock that we are seeing
Speaker 1: at ports. So in addition to a shortage of containers
Speaker 1: and ships kind of going in the wrong way or
Speaker 1: being out of position, there are these major major issues
Speaker 1: with trucking. Maybe just to remind us all I just
Speaker 1: remember the other thing all thoughts listeners know is like
Speaker 1: the importance of spen in like a random port in
Speaker 1: Norway and getting onto an actual ship. But anyway, the
Speaker 1: importance of truckers, can you just walk us through like
Speaker 1: their role in the port um situation and the supply
Speaker 1: chain emanating out of the ports, because I think that's
Speaker 1: probably going to set the basis for a lot of
Speaker 1: this discussion. Yeah, so trucking operations handle approximately two thirds
Speaker 1: of all freight that moves out of the ports and
Speaker 1: so UM and typically dray operators. So if you think
Speaker 1: of you go drive down the highway, the Interstate highway,
Speaker 1: you see these fifty three foot trailers of these people,
Speaker 1: you know, these eighteen wheelers that people see. It's very
Speaker 1: different than what you see at the port. Typically there
Speaker 1: are chassiss that the containers sit on. Uh, they're not
Speaker 1: the big trailers that you would see. And in sort
Speaker 1: of the heartland of the United States, the vast majority
Speaker 1: of freight is actually on trailers. What ends up happening
Speaker 1: is the DRE operators. The vast majority DRE operators will
Speaker 1: stay within a hundred mile radius of the port and
Speaker 1: basically take a container to a distribution center warehouse UH
Speaker 1: and that container is the offloaded and then it goes
Speaker 1: to a transfer facility and then put into a trailer
Speaker 1: that would then be shipped across the country. So really
Speaker 1: what what what happens is in terms of how the
Speaker 1: port interacts with the domestic market is all of those
Speaker 1: DRAY operators really are local operators, and it's the the
Speaker 1: really construction is the amount of drey operators that are
Speaker 1: able to go into the port and operated the port,
Speaker 1: not the overall freight capacity that's across the United States.
Speaker 1: And so getting those DRAY operations and those dray operators
Speaker 1: to work really means that you need a lot of
Speaker 1: employment availability for truck drivers in in around the ports UH,
Speaker 1: and you need warehouse operations that can accept those containers
Speaker 1: and offload them UH in the you know, metro area
Speaker 1: wherever that ports located. So we're talking in southern California,
Speaker 1: we're talking l A we're talking about the San Bernardino Valley.
Speaker 1: We're talking about you know, places like Ontario and Fontana, California,
Speaker 1: where the freight is then offloaded onto a you know,
Speaker 1: an inland trailer or inland container that then goes on rail.
Speaker 1: So I have a very small question. Could you remind
Speaker 1: listeners what dre or drege means. I don't know. It's fine,
Speaker 1: it's fine. I remember it came up on the past episode.
Speaker 1: But for those who missed it, yeah, dre is just
Speaker 1: a localized move. It's typically referred to port or even
Speaker 1: at the railroads, where you're taking a container uh and
Speaker 1: moving it on a on a relatively short distance, so
Speaker 1: let's think of a hundred mile radius. These are not
Speaker 1: the over the road trucking operations that you would, you know,
Speaker 1: take a take a container from l A to Chicago
Speaker 1: or l A to Kansas City. Now that may end
Speaker 1: up on a railroad on intermodal, but it doesn't end
Speaker 1: up You don't see a dre trucker go from l
Speaker 1: A to Kansas City. So the last time we had
Speaker 1: you on, we actually talked more about the sort of
Speaker 1: the law long haul truckers and just sort of the
Speaker 1: way that this current crisis were sort of interacting with
Speaker 1: like a secular decline. It's not a very long haul
Speaker 1: trucking is not a particularly appealing job for a lot
Speaker 1: of people, or a lot of health problems associated with it.
Speaker 1: You don't get to see your family very much, all
Speaker 1: kinds of issues. How different is the DRAY market, how
Speaker 1: are the are their drivers who work in both? Can
Speaker 1: you talk a little bit about how distinct that market
Speaker 1: is versus the sort of the broader long haul trucking
Speaker 1: that we talked about last time. Yeah, DRE operations are
Speaker 1: sort of Inland port trucking services is about five percent
Speaker 1: of the overall trucking industry. It's a very small piece
Speaker 1: of the overall trucking industry. It just plays a very
Speaker 1: important role because it's really the intersection point between the
Speaker 1: inland cargo or the the ocean cargo to the inland cargo.
Speaker 1: So you think about it, the DRE operators have an
Speaker 1: enormous amount of power versus their relative size of their
Speaker 1: overall participation in the market. But having said that, there
Speaker 1: they have very different issues. There's been a lot of
Speaker 1: coverage of grade port operators and trucking operators. These are
Speaker 1: typically you know, it's not as fragmented there, typically owned
Speaker 1: by large conglomerates that have a lot of power of
Speaker 1: who's been a lot of labor issues. Um, the ports
Speaker 1: acquire newer emissions, a newer trucks, so they won't allow,
Speaker 1: particularly in southern California, they won't allow trucks that don't
Speaker 1: meet certain emission standards and they have to be post
Speaker 1: two thousand eleven in order to operate at the port.
Speaker 1: Doesn't exist across the country, and that's really related to
Speaker 1: air pollution controls. But there's a lot of labor issue.
Speaker 1: These are are sort of the typically viewed as the
Speaker 1: companies have a lot of power at the port versus
Speaker 1: what you see in the over the road trucking market,
Speaker 1: which is from the opposite end of the spectru where
Speaker 1: the truck drivers have an enormous amount of power over
Speaker 1: their employers. And so because it's localized, you also see
Speaker 1: unions that just paint and have a lot of influence
Speaker 1: over those dre operations. But but but having said that,
Speaker 1: it's just an entirely different marketplace. But I think both
Speaker 1: the drage side of things, or I guess, um, you know,
Speaker 1: associations representing dra Edge have voiced the same concerns as
Speaker 1: the longer haul trucking companies when it comes to uh
Speaker 1: Biden's focus on the supply chain stuff and the solutions
Speaker 1: that he's so far proposed. Could you maybe walk us through,
Speaker 1: like what the issues are that they're spotting in this.
Speaker 1: So you know, part of Los Angeles moves to UM
Speaker 1: it's operating all day and all night. In theory, that
Speaker 1: should add many, many more hours in which they can
Speaker 1: load and offload container ships. And yet you have the
Speaker 1: trucking associations saying that, actually it's not that simple. Yeah,
Speaker 1: that's right. You can't just have it eat it to
Speaker 1: say hey, we're going on seven is in a restaurant
Speaker 1: that you can decide you will extend hours too. So
Speaker 1: it is a you know, this is a massive man,
Speaker 1: a major employer on any city that it represents, and
Speaker 1: it's a major economic center for that particular market. And
Speaker 1: so if we look at Southern California, which is always
Speaker 1: you know, it's the most important ports to set up
Speaker 1: ports in the United States. It is, and it's also
Speaker 1: the one that everyone is sort of focused on because
Speaker 1: you have a hundred ships. Else today you have a
Speaker 1: hundred ships outside the coast waiting to get to to
Speaker 1: get unloaded, and so because of that, you you have
Speaker 1: a lot of attention paid to the drey operators and
Speaker 1: how they intersect with the port. But the reality is
Speaker 1: that the overall trucking industry wants more efficiency. They're trying
Speaker 1: to put pressure on the port operations, on the unions
Speaker 1: because they want more seamless and more flexible hours. Because ultimately,
Speaker 1: if this is a chuck point, there's a hundred ships
Speaker 1: setting off the coast of southern California that have freight
Speaker 1: that all those trucking operators would love to have their
Speaker 1: hands on because it just drives a lot of demand.
Speaker 1: And a lot of it is coordination of the trucking
Speaker 1: industry coordinating with you know, the federal government who's then
Speaker 1: trying to put pressure and coordinating with the port operators
Speaker 1: and the UH union to really affect this. But this
Speaker 1: is not as simple as just saying we're going to
Speaker 1: operate longer hours and UH this is sort of overnight.
Speaker 1: There's a lot of moving parts that have to be considered,
Speaker 1: and most importantly, you have a major labor shortage people
Speaker 1: that can actually operate at the port, and because of
Speaker 1: all of the regulations and all the safety requirements that
Speaker 1: it takes to be an operator, it's not as easy
Speaker 1: as saying, hey, we're just gonna hire it out the shift.
Speaker 1: It just doesn't work that way. Well, it's funny because
Speaker 1: you say, this isn't is this isn't like a restaurant
Speaker 1: the side it's gonna be open seven, And I understand
Speaker 1: its orders of magnitude more complicated, but my first thought was,
Speaker 1: like the year one, even a restaurant might have a
Speaker 1: hard time going seven because of the well known uh
Speaker 1: tightness of the surface labor market. And so yeah, I
Speaker 1: mean even if you're even even if you can coordinate
Speaker 1: the people who are work the ports and the unions
Speaker 1: at the ports, of the dre operators in the warehouses
Speaker 1: at which they're phrase is going to then be dropped
Speaker 1: off inland, you still have to figure out like just
Speaker 1: the actual like who's going to do the hours. Yeah,
Speaker 1: labor is the you know, that's the biggest concern, is
Speaker 1: where you're gonna get the people and and think about
Speaker 1: working after hours or working on the weekend. It's a
Speaker 1: very different sort of Each person that would want to
Speaker 1: do that job typically These jobs are long tenure, they
Speaker 1: take a lot of training. I mean you're dealing with,
Speaker 1: you know, a very level, high level level of sophistication
Speaker 1: orchestration that things to take place. And so getting labor
Speaker 1: is a problem, as you mentioned for any job today,
Speaker 1: it's a challenge, and started compound it by the fact
Speaker 1: that you you need people who sort of understand how
Speaker 1: it is. And we're not even talking about just the
Speaker 1: crane operators. You remember that there's a lot of supporting
Speaker 1: staff that goes into managing the entire port operations. It's
Speaker 1: in many ways an airport for cargo, and so you
Speaker 1: think about go to the Dallas are for the airports,
Speaker 1: Chicago here or Atlanta, think of like how big this
Speaker 1: infrastructure is. Between security professionals, between um just operation professionals.
Speaker 1: You have a lot of people on the ground that
Speaker 1: are making that happen, and you're trying to do this
Speaker 1: at a port. It's much the same trying you know,
Speaker 1: trying to manage that. And so this is going to
Speaker 1: take a while before we actually see this go into effect,
Speaker 1: and it's not something that will happen overnight. And like
Speaker 1: I said, we haven't even talked about or we barely
Speaker 1: talked about the fact that you need coordination of the
Speaker 1: trucking operators and the warehouse who will offload these containers
Speaker 1: to actually manage it and make ensure that it works.
Speaker 1: So I want to ask you about the warehouses UM,
Speaker 1: but maybe before I do. Just on the labor side,
Speaker 1: I mean, Biden did talk about this a little bit,
Speaker 1: so I think I think I saw that he was
Speaker 1: talking about maybe making it easier for truckers to unionize
Speaker 1: UM and boosting wages and things like that. I didn't
Speaker 1: see many details beyond that, But what's your sense of
Speaker 1: that side of things, Like, is there actually an effort
Speaker 1: going on at the moment to make trucking a more
Speaker 1: desirable or palatable profession. Yeah, I think it's you know,
Speaker 1: at the dre operations are much easier unionized and have
Speaker 1: much more an environment that's much easier to sort of
Speaker 1: have the organized labor. Because the drivers stay local, they're
Speaker 1: easier to organize their localized And there's a lot of
Speaker 1: history of some practices that are less than desirable and
Speaker 1: and really the trucking operators or the drivers themselves, uh
Speaker 1: really sort of suffer a lot of the sort of
Speaker 1: consequences of poor management and a lot of companies that
Speaker 1: have sort of had abuse of practice. Is much more
Speaker 1: so than you've seen the over the road trucking market.
Speaker 1: It's probably one of the most, uh, in terms of
Speaker 1: sort of poor labor practices. It's one of the more
Speaker 1: um will say abusive. I think it's a really strong word,
Speaker 1: but it's certainly not the most favorable climate for a
Speaker 1: truck driver to operate that it's just because of the
Speaker 1: way that you know, typically they find the trucking operators
Speaker 1: finance the truck, they sort of in debt the driver
Speaker 1: into the dre operator, the sort of subject. It's just
Speaker 1: not an environment that's typically very friendly. You have rules
Speaker 1: on who can actually enter the ports, so they have
Speaker 1: a little bit control over that. It's just a much
Speaker 1: it's almost like the taxi if you think of like
Speaker 1: the way the taxis work and is like New York,
Speaker 1: it's much more it's much more similar to that than
Speaker 1: it is what you see the overthroad trucking market. The
Speaker 1: overroad trucking market has its own set of issues, but
Speaker 1: it's quite different than what you see with the dre operators. So, uh,
Speaker 1: just getting back to the warehouse point, you talked about
Speaker 1: the need for coordination between drivers or the trucking companies
Speaker 1: and the warehouses. Can you talk about exactly like how
Speaker 1: those two normally interact with each other and what's needed now. Yeah,
Speaker 1: so effectively, when you think about the drey trucker who
Speaker 1: goes and picks up the container at the port, they
Speaker 1: take it into a warehouse or distribution center to off
Speaker 1: to basically offload that cargo, so that container is unlikely
Speaker 1: to show up at the retailer that you would get
Speaker 1: your product out, particularly if you're outside of that sort
Speaker 1: of metro area where that port is located. So this
Speaker 1: would be translated the ship bent is then they break
Speaker 1: it down, They take all the cargo, they break it down,
Speaker 1: and they distribute it. So you may have a container
Speaker 1: of teddy bears, and those teddy Bears are then distributed
Speaker 1: to all of the inland look cations that are going
Speaker 1: to and they end up on fifty foot trailers, and
Speaker 1: so the teddy Bear boxes will then be mixed with
Speaker 1: other cargo. So let's say it's going to a Walmart
Speaker 1: distribution center, then Walmart will then take maybe it's shoes
Speaker 1: and maybe it's you know, maybe it's coffee mugs and
Speaker 1: teddy bears and all this freight gets mixed in it
Speaker 1: to go to the final destination. So they've taken and
Speaker 1: broken that one container, have sorted all of those sort
Speaker 1: of locations where those teddy bears are going, and they
Speaker 1: mix it with a bunch of other freight from other containers,
Speaker 1: and that's effectively what those warehouses and distribution centers do.
Speaker 1: So it's critical that if you want to turn the
Speaker 1: equipment faster and get faster through put, it's not so
Speaker 1: much about hours, it's about does the where are the
Speaker 1: warehouses operating efficiently and act capacity to enable that freight
Speaker 1: to be offloaded and turn that container so they can
Speaker 1: get back to the port and the Chassie can get
Speaker 1: back to the port. If your warehouses are closed, and
Speaker 1: there are places in Southern California. In Southern California where
Speaker 1: you're not allowed to make deliveries or pick ups after hours,
Speaker 1: is they have ordinances due to sound and pollution where
Speaker 1: they're not even allowed to go into a warehouse after hours.
Speaker 1: So it's it's not as simple as hey, let's just
Speaker 1: have the port operate. You then need labor inside the
Speaker 1: warehouses and you need to have the support of the
Speaker 1: local municipalities that will allow those trucks to come in
Speaker 1: and out after hours. But because of noise pollution, noise concerns,
Speaker 1: uh and pollution concerns, oftentimes that isn't the case. And
Speaker 1: so this isn't just a simple thing to sort of saying,
Speaker 1: let's turned the port on and all of a sudden
Speaker 1: everything is magical. It is. It takes a lot of orchestration. God,
Speaker 1: I hadn't even thought about that, But every it just
Speaker 1: feels like, I feel like we can broad talk six
Speaker 1: hours about literally like the process of getting a container
Speaker 1: from a port to the warehouse, because I hadn't even
Speaker 1: thought about like this idea that like they're gonna you know, okay,
Speaker 1: the White House seven, but the towns in the cities
Speaker 1: are gonna have rules on all of this too. And
Speaker 1: there's not like it's not like we have some this
Speaker 1: is this is I mean, California is the one. It's
Speaker 1: really sort of strange looking at it from so far,
Speaker 1: is that, you know, it's such an important part of
Speaker 1: our economy and in the United States, yet you have
Speaker 1: all of these really strange sort of political considerations that
Speaker 1: impact if you look at a place like Savannah, Georgia,
Speaker 1: which tends to be very pro business with a very
Speaker 1: efficient port, it still has issues. So it's not just
Speaker 1: the labor problems Southern California. I think a lot of
Speaker 1: people like to point to that, but you actually see Savannah,
Speaker 1: Georgia that actually is even further backed up. So we
Speaker 1: have these problems that exist everywhere. Uh, and there are
Speaker 1: no easy solutions. And this is not something that the
Speaker 1: government can just do uh and hope that everything works out.
Speaker 1: It's going to take a lot of coordination and effort
Speaker 1: and energy among a lot of parties. And the problem
Speaker 1: is it isn't just isn't that easy? Before we move
Speaker 1: on from the dre operators and you know, there's sort
Speaker 1: of there is this other world. Although we could keep
Speaker 1: talking about, I do want to mention you mentioned the
Speaker 1: sort of like brutal labor conditions reminds me just Rachel
Speaker 1: Prematic business insider whose work I've followed on this. I
Speaker 1: know she's talked to you. She tweeted about this. I
Speaker 1: guess seen there was a Pulitzerprise story about how like
Speaker 1: there was a indentured servitude some would say characterize some
Speaker 1: of these markets because of, as you say, the sort
Speaker 1: of the way the financing works and the way the
Speaker 1: drivers are expected to like pay off these loans, kind
Speaker 1: of like the New York City cab drivers does seem
Speaker 1: about pretty brutal. Yeah, that's that's right. And that piece
Speaker 1: is something that remember we're talking about with the USA
Speaker 1: Today's story, correct. Uh. That piece particularly is talking about
Speaker 1: the ports and DRE operators, which, like I said, is
Speaker 1: a sort of a segment of trucking which has you know,
Speaker 1: the corporations have a lot more power over the you know,
Speaker 1: they've constructed the rules and the set of circumstances that
Speaker 1: it really favored them. Corporations have a lot more power
Speaker 1: than in the Drey operator and DRE operations, and they
Speaker 1: do in these sort of over the road truck market's
Speaker 1: exact opposite where the driver, the individual driver has an
Speaker 1: enormous amount of power over the sort of environment versus
Speaker 1: the DRE operations. So I think this is actually like
Speaker 1: a good seg into another interesting dimension that happened since
Speaker 1: the last time we talked. You had a lot of
Speaker 1: comments on this on Twitter, but I don't know if
Speaker 1: the stats are official you you might have them, But
Speaker 1: the vaccine mandate and the requirement that or the sort
Speaker 1: of executive order from the White House that large companies
Speaker 1: essentially can put pressure or force their employees to get vaccinated.
Speaker 1: I think it's companies that are have at least a
Speaker 1: hundred employees, which not many trucking companies do. Could most
Speaker 1: I under you know, as we learn last time, are
Speaker 1: extremely small, but some do. I'm curious like how that's
Speaker 1: unfolded and what we know about a tensions that have
Speaker 1: arisen from that, and be just the sort of percentage
Speaker 1: of truck drivers have gotten the vaccine. Yeah, it's hard
Speaker 1: to know what percentage. We talked to fleet operators that
Speaker 1: you have suggested that the number of unvaccinated is anywhere
Speaker 1: from the typical answer I. They've done their own surveys.
Speaker 1: They won't they won't share that data with us because
Speaker 1: obviously they want to keep that pretty close to best.
Speaker 1: There's a lot of sort of privacy. But they're from
Speaker 1: their own assessments at least a third from what we
Speaker 1: can gather, if not more are unvaccinated. And this was
Speaker 1: of course about a month ago, that's probably has change.
Speaker 1: I would imagine just looking at the broader data that
Speaker 1: we see some level improvement, but it's hard to know
Speaker 1: how how significant that is. I mean, the big issue
Speaker 1: is the sort of discrepancy between the mandate saying that
Speaker 1: if you have over a hundred employees then you have
Speaker 1: to be vaccinated, and under a hundred employees you don't.
Speaker 1: And you think about the fragmented nature of trucking as
Speaker 1: you mentioned, Joe, because it is so fragmented, and these
Speaker 1: tend to be a very a lot of very small operators,
Speaker 1: you end up in a city way should where a
Speaker 1: truck driver that works for a big company who doesn't
Speaker 1: want to get vaccinated could just as well leave the
Speaker 1: big company and go to a small operator. And now
Speaker 1: you have this really weird sort of dichotomy between the
Speaker 1: big companies and the small company. So a company with
Speaker 1: ninety eight employees or ninety nine against ninety eight bloys
Speaker 1: could easily add one driver, pick off a driver from
Speaker 1: a big company, and they wouldn't have that driver would
Speaker 1: not have to be vaccinated. You take a more extreme
Speaker 1: example of a fleet, let's say ten trucks or ten
Speaker 1: drivers or ten employees, and all of a sudden they
Speaker 1: can add another, you know, eighty trucks to their to
Speaker 1: their business and really sort of pick off the big fleets.
Speaker 1: It just creates this really weird sort of environment where
Speaker 1: while in the practice it may it may be very
Speaker 1: valuable to get people vaccinated, the realities in the truck
Speaker 1: and industry are quite different. So what is sort of
Speaker 1: unknown about this is will we see a situation where
Speaker 1: it becomes that much harder if this actually goes into effect,
Speaker 1: or how it goes into effect, how hard it will
Speaker 1: be for larger carriers to sort of feel their trucks.
Speaker 1: And the reality is that even though the market is
Speaker 1: very fragmented, sort of the larger shippers, the one with
Speaker 1: really efficient supply chains, really are dependent upon the bigger
Speaker 1: trucking companies to manage their supply chain. So that if
Speaker 1: you think about the sort of efficiencies that we enjoy
Speaker 1: in terms of ordering product and getting it on time,
Speaker 1: and the brands and the retailers that do a really
Speaker 1: good job of that, they tend to be they tend
Speaker 1: to work with the larger operators because they have the scale,
Speaker 1: they have the technology, they have the resources and the
Speaker 1: assets to support the type of missions that those companies require.
Speaker 1: The smaller operators because the fragmented nature of it don't
Speaker 1: typically pay in that market at a big level, and
Speaker 1: so it creates these sort of really unpredictable outcomes. I mean,
Speaker 1: if you think about a large trucking company losing five
Speaker 1: percent of its population. While all the surface that sounds
Speaker 1: like a really sort of small number, it is very
Speaker 1: significant in terms of what it could mean a capacity.
Speaker 1: I think you guys understand that the marginal producer is
Speaker 1: the one that sets the price of the market, and
Speaker 1: you think about a three to five percent degregation and
Speaker 1: capacity across the industry, that would have a exponential outcome
Speaker 1: to the overall construction of the freight market. And so
Speaker 1: the sort of inflationary market are prices that we've seen
Speaker 1: with freight rates would just continue to accelerate. Well, this
Speaker 1: is something that I wanted to ask you because I
Speaker 1: remember when you first came on. One of the things
Speaker 1: that stuck out in the conversation was I think you
Speaker 1: pointed to twenty I think it was nine, as like
Speaker 1: this terrible year for the trucking industry, where like the
Speaker 1: number of companies that went bust was just astronomical, and
Speaker 1: part of that, from what I remember, was the government
Speaker 1: creating like some sort of new mandate for an electronic
Speaker 1: logging device. Everyone had expected it that new requirement to
Speaker 1: reduce capacity, but instead it ended up adding a ton
Speaker 1: of capacity. And then you know, there were too many
Speaker 1: tracking companies and so a bunch of them went out
Speaker 1: of business. But like, could you draw a parallel between
Speaker 1: that and what's going on now with the vaccine mandate. Yeah,
Speaker 1: it's very interesting because it's hard to know what is
Speaker 1: actually sort of causing all of the issues around the
Speaker 1: sort of supply chain crunches and demand. So consider demand
Speaker 1: is certainly an element of a government spending is an
Speaker 1: element of it, and so you have this sort of
Speaker 1: inflationary demand market which is taking place right now, and freight.
Speaker 1: If you go back to two eighteen, really two things
Speaker 1: that were sort of driving the the increase in capacity
Speaker 1: and sort of the bust of two thousand nineteen, which
Speaker 1: is in two thousand and eighteen, as Trace mentioned, the
Speaker 1: government mandated electronic logging devices, and there was an assumption
Speaker 1: moving up into that that drivers would not participate in
Speaker 1: the electronic logging devices. Is that drivers were saying, I'm
Speaker 1: not going to let big brother track me and have
Speaker 1: let the government see what I'm actually doing. Over the road,
Speaker 1: and there was this level of paranoia. Well when that
Speaker 1: me and date came about and this had taken you know,
Speaker 1: it took about a decade for between all the lawsuits
Speaker 1: and regulatory changes before it actually been into effects. It
Speaker 1: wasn't an unsort of expected outcome. A lot of what
Speaker 1: actually happened was the opposite. Is that every fleet operator
Speaker 1: thought anticipated there was gonna be a massive capacity crunch,
Speaker 1: and so they sort of overcorrected, uh in terms of
Speaker 1: adding capacity. At the same time, we saw an economic
Speaker 1: or an industrial slowdown due to tearips sort of the
Speaker 1: Trump's tariffs that took place in two thousand eighteen, which
Speaker 1: is caused a big hangover nineteen. So we had an
Speaker 1: oversupplied market at nineteen in terms of capacity and under
Speaker 1: demanded market in terms of freight. And that's what we
Speaker 1: saw a nine team which caused these bankruptcies. And like
Speaker 1: I said, it's we're talking about three to five sort
Speaker 1: of change in the market constructs, which caused a lot
Speaker 1: of bankruptcies because the marginal producers were really driving prices down.
Speaker 1: They were just oversupplied. This situation is in many ways
Speaker 1: different in the sense that back in nineteen the labor
Speaker 1: market was not super was not as tight as it is.
Speaker 1: It was tight, but not what we see right now,
Speaker 1: and the jobs that would be fungible or to trucking
Speaker 1: would be construction. Back into does A nineteen was was
Speaker 1: good but not great. The conditions weren't spectacular like they
Speaker 1: are right now in terms of labor demand, and so
Speaker 1: what exists today is quite different than what existed then,
Speaker 1: which is, you know, drivers can easily leave their fleet
Speaker 1: to go get a construction job and make as much
Speaker 1: money as they would drive in a truck and not
Speaker 1: have to deal with the stand out over the road
Speaker 1: and being away from home. They can also operate in
Speaker 1: the gray economy through these types of jobs like construction
Speaker 1: where they don't have to report that income, and still
Speaker 1: because of a lot of the government assistances, benefit from
Speaker 1: from not having to sort of go off some of
Speaker 1: the government assistants that exist. And so because of all
Speaker 1: the sort of construction of the market, it sort of
Speaker 1: means that if somebody's gonna leave a fleet, they probably
Speaker 1: don't stay in the truck in industry. They probably do
Speaker 1: something else. And so it's just a lot of sort
Speaker 1: of unknown factors that take place that are just creating
Speaker 1: all these really strange environments. One of the things that
Speaker 1: you know, when we looked at the vaccine mandate, I
Speaker 1: pointed out that this could cause a significant amount of
Speaker 1: drivers to leave the industry. People challenge that fact and
Speaker 1: this that they wouldn't give up their job if just
Speaker 1: for the vaccine, and I'd say, well, I take exception
Speaker 1: to that, because it's hard enough for them to stay
Speaker 1: employed or want to stay in the trucking industry as
Speaker 1: it is. And you're talking about with all of the
Speaker 1: data around how important it is to be vaccinated, where
Speaker 1: you're risking your own life and your family, you actually
Speaker 1: think they're going to keep their trucking job. They're gonna
Speaker 1: get vaccinated because they want to keep the trucking job.
Speaker 1: That just isn't the way it works. And so you
Speaker 1: do expect that if this goes into effect, or when
Speaker 1: it goes into effect, that you will see a percent
Speaker 1: of truck drivers that will leave the industries. Is we
Speaker 1: don't know how many end up leaving, but we do
Speaker 1: know that some will. So I want to talk a
Speaker 1: little bit more about the I guess you say, the
Speaker 1: market structure of this, the trucking economy and I mentioned
Speaker 1: in the intro and I said, what's that? But it's
Speaker 1: actually I learned on some Telegram groups and I see
Speaker 1: things like people posting Joe is an undercover trucker. Just
Speaker 1: you know, Tracy, Joe, we gotta get you guys to
Speaker 1: run a trucking company. This is how it's gonna work.
Speaker 1: You know, Tracy, get drive and I'm going to be
Speaker 1: like a dispatcher or something like that. But I look
Speaker 1: in these telegram groups and I all day throughout it
Speaker 1: like any cap in Crest Hill, Illinois, which actually I
Speaker 1: went to up middle school, or I went to elementary
Speaker 1: school for a couple of years in Cryst Hill, any
Speaker 1: van load from Dallas, Texas, any van cap in Aurora, Colorado?
Speaker 1: What am I reading? Hey? When I see these things?
Speaker 1: And how important are these sort of informal message board
Speaker 1: postings too? Like the overall market. So it's a really
Speaker 1: sort of interesting because it's not just Telegram, it's Facebook.
Speaker 1: It's you know, you don't really see a lot of
Speaker 1: activity on Twitter, frankly, but Facebook is that it's actually
Speaker 1: a really important messaging system for truck drivers, um and
Speaker 1: so you can actually find out a ton of information
Speaker 1: about what's happened in the industry because it tends to
Speaker 1: be the first place they go to is Facebook. Um,
Speaker 1: but what you're actually hearing is when they say van,
Speaker 1: it's not vans. I mean this is study because like I,
Speaker 1: when we bring in a journalist who's writing about it
Speaker 1: and they read the word van, they immediately think a
Speaker 1: bunch of vans and like, no, no, no no, no, this
Speaker 1: is a fifty three ft van trader. It just means
Speaker 1: that it's not the van trader means it doesn't have
Speaker 1: a refrigerated unit, and it's not. It is have a flatboat.
Speaker 1: It's a it's an enclosed uh. And I've learned that
Speaker 1: reefer is the term for refrigerator. They're not mowing cannabis,
Speaker 1: they're hauling refrigerated A reefer is the term. So yeah,
Speaker 1: So what what effectively is happening is the truck driver
Speaker 1: that you mentioned is asking for a van load, for
Speaker 1: a fifty three ft trailer load to go to I
Speaker 1: believe you said Dallas and somewhere else. They want to
Speaker 1: find a load that goes in that direction. Because you
Speaker 1: remember in the over the road trucking market is these
Speaker 1: are not planned routes. Day and day out. So if
Speaker 1: if you're working and dre at the port, you're going
Speaker 1: in and out of the port. You may be going
Speaker 1: to different parts of southern California, but you're going in
Speaker 1: and out of the port. That's where your life is.
Speaker 1: In the overthroad trucking market, you're sort of nomadic or
Speaker 1: a gypsy of sorts, where you don't know where you're
Speaker 1: going each day. And and if you own your own
Speaker 1: trucking company, if your owner operator, you get to sort
Speaker 1: of set your own hours and get to pick where
Speaker 1: you want to go. So this driver that you mentioned
Speaker 1: is king for a load from Illinois wherever the town
Speaker 1: he's in Illinois, to to Dallas, and so he's trying
Speaker 1: to find a load that fits his desire. We don't
Speaker 1: know why he wants to go to Dallas. Maybe he
Speaker 1: lives in Dallas. Maybe he's got a spouse in Dallas,
Speaker 1: or a family in Dallas. Maybe he has a girlfriend
Speaker 1: of Dallas. Whatever, maybe he wants to go to a
Speaker 1: sporting event. Drivers do decide they want to go to
Speaker 1: these different markets for various reasons, many of them economic,
Speaker 1: other just because they want to go there. What what
Speaker 1: he's trying to do is final load that fits his
Speaker 1: needs that can get them there, and so they use
Speaker 1: these message boards. Is sort of an informal marketplace to
Speaker 1: get access to freight. There are more formal marketplaces. We've
Speaker 1: seen sort of the emergence of digital apps which are
Speaker 1: sort of really new Uber Freight as one Convoy is one,
Speaker 1: and as well as sort of traditional freight brokers that
Speaker 1: have built their own marketplaces. But you also see what
Speaker 1: we call load boards, which think of it as Craigslist
Speaker 1: for freight, where or a match dot Com for freight
Speaker 1: is probably a better example, where a buyo or and
Speaker 1: a seller of capacity. So the broker is looking for,
Speaker 1: you know, looking for matches and trying to find drivers
Speaker 1: or truckers that will fit there will take the loads
Speaker 1: that they offer, and drivers are trying to find loads
Speaker 1: that will fit their needs. And so you can search
Speaker 1: for hey, I'm looking for a load that originates in
Speaker 1: Illinois and goes to Dallas, and then they'll match it. Now,
Speaker 1: one of the really interesting things about that is the
Speaker 1: assumption is that the trading would happen on online, But
Speaker 1: much like internet dating is, when you consummated transaction, you
Speaker 1: do it through another method, so email or phone you're
Speaker 1: not actually transacting inside the platform, which is a really
Speaker 1: strange sort of environment. Which is the reason we think
Speaker 1: of it as Craigslist more than eBay or Amazon, is
Speaker 1: that the actual consummation happens offline. How come no one
Speaker 1: has like cornered this market and created like Facebook for
Speaker 1: truckers and then created like some sort of platform where
Speaker 1: you could actually transact as well, like find the truckers
Speaker 1: and then also pay them or book them all in
Speaker 1: like one network. Yeah, so there's been a lot of attempts.
Speaker 1: I mean, the load boards are as close to a
Speaker 1: marketplace as you can get, and that you know there's
Speaker 1: two is d A T and truck stop sort of
Speaker 1: have the vast majority of market share, probably nineties seven
Speaker 1: percent market share combined, and so they are the marketplaces
Speaker 1: of the spot market. They tend to handle freight that's
Speaker 1: already been uh, sort of picked apart by the contracted
Speaker 1: freight contractor. Freight doesn't end up on the load board,
Speaker 1: it's typically and then brokers will pick their own freight.
Speaker 1: They'll end up picking what they can through their own networks,
Speaker 1: and then whatever is left over they sort of put
Speaker 1: into these loadboard marketplaces. What we are seeing. So that's
Speaker 1: sort of the way things have operated, and they sort
Speaker 1: of emerged from sort of truck stops in the old days,
Speaker 1: in the nineteen seventies or nineteen eighties, you would go
Speaker 1: to a truck stop and they would be a board
Speaker 1: a screen that would show all the loads and you
Speaker 1: could have a fine. You pick it up, and you
Speaker 1: call and say I want load one, two, three, four five,
Speaker 1: and that's how you would get the load. Now it's
Speaker 1: the Internet has sort of enabled this sort of marketplace model,
Speaker 1: but we don't see binding outcomes or an exchange that
Speaker 1: you would identify and financial markets take place. In freight,
Speaker 1: there has been an emergence in the last say five
Speaker 1: years of digital marketplaces almost like an uber a freight.
Speaker 1: In fact, uber freight is an uber a freight is
Speaker 1: a digital marketplace which enables an owner operator to basically
Speaker 1: find freight and source it from a digital marketplace. All
Speaker 1: of the consummation happens in the marketplace UH and then
Speaker 1: they're paid. The difference is that the freight broker is
Speaker 1: the principle and the transactions. So effectively, what they have
Speaker 1: is these marketplaces, but they're the driver is being paid
Speaker 1: or the operator is being paid from the digital marketplace,
Speaker 1: and so it's not truly an exchange. It's more of
Speaker 1: a closed network. Which is why the Uber example is
Speaker 1: a better example, because if you think about an Uber
Speaker 1: driver and they're getting paid by Uber, same existing the
Speaker 1: trucking market is that that that digital freight marketplace matching
Speaker 1: engine is actually sourced the freight, they have the customer relationship.
Speaker 1: There are the ones that set the price. Now it
Speaker 1: may be set by some type of algorithm, it may
Speaker 1: be set by an in depth of sorts, but at
Speaker 1: the end of the day, the rules are governed by
Speaker 1: the principle of the transaction, which is the freight broker,
Speaker 1: and not by a third party marketplace that you would
Speaker 1: expect in a large commodity market. And I think one
Speaker 1: of the things that really shocking about this, and Joe
Speaker 1: you touched on it earlier, is you know, this is
Speaker 1: an eight hundred billion dollar market. It is a massively
Speaker 1: big market. In fact, if you look at petroleum production
Speaker 1: and the size of it, we're talking about a market
Speaker 1: it's about twice the size of it of what you
Speaker 1: see in the sort of petroleum market the United States,
Speaker 1: and so it is a massively important market to the economy.
Speaker 1: It has a bigger impact on finished goods costs in
Speaker 1: terms of GDP than what you see in energy, and
Speaker 1: so it is a it is just has so much
Speaker 1: power in terms of of the economic viability of the economy,
Speaker 1: yet it is an unstructured wild West of sorts. I
Speaker 1: want to get into that further at a second, But Tracy,
Speaker 1: I just I came up with an assignment for you,
Speaker 1: a post assignment for the blog. Okay, well, this is
Speaker 1: a really good one. You should write a post comparing
Speaker 1: the unstructured nature of the trucking market to all the
Speaker 1: unstructured and the attempts to electronify the corporate bond market,
Speaker 1: which is also we used to talk about a lot
Speaker 1: and the similarities and differences because I'm feeling like, you know,
Speaker 1: I remember our old episodes with Chris White that we
Speaker 1: should have we should have them back on. But I'm
Speaker 1: feeling in talking to Craig now some similarities in like, Okay,
Speaker 1: here's this gigantic market corporate corporate bonds shockingly sort of
Speaker 1: still like difficult to consolidate and like trying to find etcetera.
Speaker 1: I'm feeling a lot of actually, like, uh, I'm feeling
Speaker 1: some similarities there. I think you should write post on it.
Speaker 1: That's so funny because Chris actually emailed me overnight, so yes,
Speaker 1: we will get him back on UM. But yeah, I
Speaker 1: can kind of see a parallel. So you know, there's
Speaker 1: all these different freight loads and freight types and all
Speaker 1: these different routes and nothing is really like interchangeable in
Speaker 1: the same way that there are all these different types
Speaker 1: of corporate bonds with different maturities and stuff like that,
Speaker 1: and that kind of makes the market hard to function.
Speaker 1: Can I ask one more general question before we continue
Speaker 1: down these sort of financialization theme, But one of the
Speaker 1: things that stands out from this conversation and also our
Speaker 1: previous conversation is that clearly the industry has very very
Speaker 1: slim profit margins. And I'm just wondering if you could
Speaker 1: maybe update us on what's going on at the moment
Speaker 1: with profits, because, like in a traditional market, you would
Speaker 1: expect if demand is exceeding supply massively that prices would
Speaker 1: go up and eventually the companies would be able to
Speaker 1: pay their workers more and that might saw of some
Speaker 1: of the labor shortage issues. But my impression is that
Speaker 1: doesn't seem to be happening. So could we maybe get
Speaker 1: a little bit more color on like how much money
Speaker 1: trucking companies are actually making at the moment. Yeah, it's
Speaker 1: you know, it's interesting you say that because if you
Speaker 1: look at what's happening on the ocean side, it's the opposite, right,
Speaker 1: So first, trucking is the ocean carrs have never made
Speaker 1: more money. I think, you know, in one quarter, Marisk
Speaker 1: made more than not past nine years combined or something,
Speaker 1: and saying like that, So the ocean carriers are doing
Speaker 1: exceptionally well at this market because you have a lot
Speaker 1: of pricing power. It's a non fragmented market. You have
Speaker 1: basically ten companies that control something like the ocean market
Speaker 1: trucking the exact composite. And so while trucking companies are
Speaker 1: enjoying really high pricing power over the market, they also
Speaker 1: are experiencing massive wage inflation at the same time and
Speaker 1: and so effectively, and not just wages, that's their cost
Speaker 1: of equipments going up, their costal fuels going up, just
Speaker 1: all the components they operate their business. And because the
Speaker 1: quality of driver that they're hiring, just as an aggregate,
Speaker 1: tends to get less and less. Just the just what
Speaker 1: happens in the market when you have everybody trying to
Speaker 1: fill seats to get drivers, is you start to not
Speaker 1: not the big carriers don't get away with this because
Speaker 1: they just have so much pressure on them from insurance
Speaker 1: companies and regulators, but the small carrors start to get
Speaker 1: a little bit more loose on who they hire, which
Speaker 1: increase the amount of accidents, and so insurance rates tend
Speaker 1: to accelerate, and so trucking companies are seeing all of
Speaker 1: their input costs accelerate in this environment, and we're not
Speaker 1: seeing what you would expect would be super high record profits.
Speaker 1: It's gonna be interesting to see where we haven't seen
Speaker 1: a lot of quarterly earnings so far. It's just too
Speaker 1: early in the in the month to see it. But
Speaker 1: over the next couple of weeks, we expect that companies
Speaker 1: will have really robust revenues, but they will also have
Speaker 1: a lot of concerns about costs that have also increased,
Speaker 1: and so there will be there won't be a significant
Speaker 1: margin in expansion that you would see in other commodity markets,
Speaker 1: which is you know, is unfortunate for these carriers because
Speaker 1: this is the one time or one of the few
Speaker 1: times where they have all of this pricing power, and
Speaker 1: yet and yet they have all these cost issues that
Speaker 1: they're also faced with, and so it isn't as easy
Speaker 1: as hey, everybody's making money hand over the fist because
Speaker 1: they've done that. The other thing to keep in mind
Speaker 1: is that particularly larger sort of asset based carriers tend
Speaker 1: to operate the vast majority of their freight through contractored loads,
Speaker 1: and those contracted loads are set basically have set prices
Speaker 1: or rates to them where they don't get the benefit
Speaker 1: of really high acceleration and spot rates. So they're seeing
Speaker 1: it on the labor side, they're seeing really high increases
Speaker 1: and costs. Yet if they've locked in those rates for
Speaker 1: a year, they're sort of stuck with them. And unlike
Speaker 1: the ocean side, where you see the ocean carriers basically
Speaker 1: say if you don't pay my five x rate increase today,
Speaker 1: I'm not picking up your freight. It does happen that
Speaker 1: they don't honor contracts, but they tend to do that
Speaker 1: with the smaller shippers. They tend to do it with
Speaker 1: rates that are sort of sub part of the market,
Speaker 1: or people that have very cyclical freight. You don't see
Speaker 1: them to the larger carreers have much more contracted freight,
Speaker 1: and they tend to be they tend to be stuck
Speaker 1: in this cycle where they can't dramatically raise rates intracycle
Speaker 1: yet their costs or increasing. So that actually is like
Speaker 1: the sort of like good seg to this idea of
Speaker 1: like what I characterized in the beginning is what I
Speaker 1: see is sort of the under financialization of the of
Speaker 1: uh this market. And we already sort of talked about
Speaker 1: a little bit with the fact that there's not a
Speaker 1: sort of unified there's still nothing close to like a
Speaker 1: unified exchange like like a you know, a CME or something.
Speaker 1: And it's interesting because as you say, you know, arguably
Speaker 1: you know trucking is well, it's not. Arguably trucking is huge.
Speaker 1: Is arguably as are more significant than oil, and of
Speaker 1: course oil and certain commodities like that are some of
Speaker 1: the most financialized as it. Prior to your current endeavor,
Speaker 1: you tried to build this, right, like you tried to
Speaker 1: create something like a trucking futures market. Can you talk
Speaker 1: to us a little bit about like what you see
Speaker 1: as the opportunities or why you know what it will
Speaker 1: take for something like that to emerge, Like what steps
Speaker 1: I have to imagine there has to be more data,
Speaker 1: more recognized indices um that could be served as reference prices,
Speaker 1: but like could that happen? What will it take for
Speaker 1: there to be like a futures market or hedge double
Speaker 1: contracts or hegible instruments on an exchange in this area. Yeah, Joe,
Speaker 1: it's interesting. Freightways started out, it was the original idea
Speaker 1: behind Freightways was to build a futures market for trucking, uh,
Speaker 1: and then it started in two thousands seventeen to really
Speaker 1: go out and build that. What we realized is that
Speaker 1: and we actually launched contracts and you know, we had
Speaker 1: the fortune of being the first people and traded a
Speaker 1: you know, a couple of dozen contracts and by the
Speaker 1: time we delisted it. So we had attempted to create
Speaker 1: a futures market because the market is so massive, it
Speaker 1: is so big, and it is so unstructured that it
Speaker 1: just it seems like at some point it should become
Speaker 1: structures so that the volatility that exists starts to enable
Speaker 1: instruments that people can hedge it and UH sort of
Speaker 1: muted economic exposure that they end up with. The reality
Speaker 1: is that the market wasn't ready for it, as we learned,
Speaker 1: and there's the reasons it wasn't ready for is there
Speaker 1: wasn't data. That was what prompted us to realize there
Speaker 1: is no equivalent Bloomberg in freight. So we went out
Speaker 1: and created freight Waves as a data and media source
Speaker 1: provider to provide intelligence to the market, because that's one
Speaker 1: of the things that we discovered as we looked at
Speaker 1: commodity markets is typically these things happen with the sort
Speaker 1: of backdrop of information services so that people feel they
Speaker 1: can either are the market or trade the market get
Speaker 1: an edge. It just didn't exist in freight. So we
Speaker 1: went out and effectively tried to create it, and that's
Speaker 1: what freight Waves became, was this data provider of the industry.
Speaker 1: One of the realities of trucking is because of the
Speaker 1: despair and fragmentedate fragment nature of eighteen thousand origin destination
Speaker 1: pairs is very difficult to get. You can't trade individual pairs,
Speaker 1: you can't be like physically settled futures market just wouldn't work.
Speaker 1: Even a ford market is very difficult. There's been attempts
Speaker 1: at that that we didn't try, but others had and
Speaker 1: they've sort of pivoted their business model as well. What
Speaker 1: what I do think we will see in time? You know,
Speaker 1: maybe it will be breakways that does it, or maybe
Speaker 1: you know a couple of evolutions beyond us. In time,
Speaker 1: there will be a benchmark index. You mentioned the bond market,
Speaker 1: we could use you know, Prime or Library is sort
Speaker 1: of a reference to that is, there should be some
Speaker 1: type of national index where people can at least hedge
Speaker 1: some of the mitigate some of their the volatility that
Speaker 1: exists in rates. That is, that is probably the likely
Speaker 1: place that we would see some type of financial structure
Speaker 1: as a national reference price that's assessed in the market.
Speaker 1: And that is what everything is based on. Seeing an
Speaker 1: ocean shipping in the bulk business is there is a
Speaker 1: Baltic has built this in the Baltic Drag index has
Speaker 1: built this reference price for global ocean bulk shipping than
Speaker 1: everything that sort of derived off that. They have the
Speaker 1: lane issues as well. In time, that is where the
Speaker 1: market will head is to a national index. But what
Speaker 1: you need enable to in order to enable that is
Speaker 1: you need data being fed in daily for assessments and
Speaker 1: something that everyone sort of recognizes as a market assessment
Speaker 1: that that people will start to build index link contracts off.
Speaker 1: And so I think that's probably going to happen pretty
Speaker 1: pretty soon. Is where you'll see an index link contract
Speaker 1: against the national average and people will say, this lane
Speaker 1: is at a premium to the national average during this season,
Speaker 1: and it's at a ten percent premium during the off season,
Speaker 1: and so you can start to see market construction that way.
Speaker 1: But I think that's what has to start before you
Speaker 1: start to see some type of struct financial structure in
Speaker 1: the market. And we've learned that the hard way is
Speaker 1: that not only was the market not ready for futures,
Speaker 1: it also was a situation there wasn't a central sort
Speaker 1: of reference national index that everyone used to sort of
Speaker 1: build their physical products off of. And that's reorthly what
Speaker 1: you need. So I mean, I mean again, this seems
Speaker 1: like building a futures market from scratch. Again, we could
Speaker 1: probably talk about this for hours, but you know, like
Speaker 1: one thing I'm curious about, and you can't, as you said,
Speaker 1: you can't really have a cash settled futures market without
Speaker 1: agreed upon reference prices, without indusseries inherently seemed like they
Speaker 1: have to come first so that there is a reference
Speaker 1: price that the futures can then trade against, maybe a
Speaker 1: national average, and maybe like then you start getting maybe
Speaker 1: futures for some big roots. When going back to those
Speaker 1: thinking about those like telegram groups where it's like, okay,
Speaker 1: I go from Dallas to Crystill, Illinois, Like is their transparency?
Speaker 1: I mean I guess that's what you're trying to do,
Speaker 1: but like in that in the price that gets paid,
Speaker 1: I mean there's no like centralized like listing anywhere. Right. Yeah,
Speaker 1: this is where I was really like starting to actually
Speaker 1: think about the corporate bond market because one of the
Speaker 1: difficulties there is that actually there's a lot of incentive
Speaker 1: not to reveal prices, Like it's not a transparent market
Speaker 1: because people don't want it to be. And so I
Speaker 1: wonder if the trucking market is like that too. I
Speaker 1: think there's some sense of it. But but what's happening
Speaker 1: now is that Silicon Valley has pumped so much money
Speaker 1: into the idea of of transparencies. Everyone recognizes the need
Speaker 1: for being transparent, and while these marketplaces sort of popped
Speaker 1: up to deliver that, there's been a lot of movement
Speaker 1: towards more transparent marketplaces, and so I think the idea
Speaker 1: that companies have made so much money because the markets
Speaker 1: are pay is one that has gotten tired more recently
Speaker 1: because people recognize that ultimately, when you're when you're managing freight,
Speaker 1: it's not just the price discovery and the price element
Speaker 1: is the ability to physically manage the logistics behind it.
Speaker 1: And because there is so much attention paid. And remember
Speaker 1: that unlike the corporate bodom market, I don't know a
Speaker 1: ton about corporate markets, so this may sound incorrect, may
Speaker 1: be incorrect. Is that if you take a company like
Speaker 1: a Walmart or any big shipper, is of their freight
Speaker 1: is managed under contracted relationships. They have a fixed price
Speaker 1: where they're doing business with a set of carriers, and
Speaker 1: the same carriers tend to participate in the spot market.
Speaker 1: So because of that, there's a lot of power that
Speaker 1: the shippers have. The people that that are are buying
Speaker 1: capacity have a lot of power to sort of affect
Speaker 1: the market and sort of force some level of structure.
Speaker 1: The challenge there is that, and so they want transparency.
Speaker 1: They don't like this faltility, don't like the opaqueness. The
Speaker 1: challenge is that, because they also have the ability to
Speaker 1: sort of affect a fixed price, is that their lessons
Speaker 1: sent to sort of hedge their spot exposure. We think
Speaker 1: over time that will take place, but you're you're right.
Speaker 1: Historically there's been this desire to sort of manage and
Speaker 1: opaid market and sort of keep it opaque. But I
Speaker 1: think we're starting to see that become less and less reality,
Speaker 1: where companies, particularly Silicon Valley funded companies, have said, Hey,
Speaker 1: we need to do a much better job of building
Speaker 1: structure to the market. We need to build a betch
Speaker 1: better job of being transparent, and we're going to create
Speaker 1: these digital marketplaces to do that. Because of all that
Speaker 1: capital and technology is pouring into it, there is a
Speaker 1: desire among those participants to create a more transparent marketplace.
Speaker 1: This is so great chatting with you, and I learned
Speaker 1: so much, and like I said, like we could just
Speaker 1: keep going down this route. We could talk about the
Speaker 1: dredge market for hours. We could talk about the complexity
Speaker 1: of building an index. Index construction is sort of a
Speaker 1: fascinating thing to me, and we can talk about that
Speaker 1: in another episode, but eventually probably just should cut it off.
Speaker 1: And have you back on again in a few months. Craig,
Speaker 1: so great to catch up with you again. Thank you
Speaker 1: for coming back on ID Love Joe Tracy really appreciated
Speaker 1: always fun. That was great. That was great, Greig, thank
Speaker 1: you so much. That was great. I wasn't kidding there
Speaker 1: at the end. I really do feel like we could
Speaker 1: just have like a six hour conversation with Craig on
Speaker 1: any one of the sub topics we hit on, and
Speaker 1: it would just it feels like there's just endless stuff
Speaker 1: to talk about. We I need to know more about
Speaker 1: your adventures on like trucking message groups and loadboards and
Speaker 1: stuff like that. Oh, I don't even do anything. I
Speaker 1: just like I went on Telegram and I did a
Speaker 1: search because you know, I wanted to see what people
Speaker 1: and I just found all these like I haven't it's
Speaker 1: not too adventurous. I just learned and I trying to
Speaker 1: figure out what some of this. What's the most interesting
Speaker 1: thing that you've seen there? No, it's really those messages
Speaker 1: that I said to uh, they're very They're not like
Speaker 1: juicy message boards like those ones that I read. I
Speaker 1: was like Edny load from Las Vegas, any cap and
Speaker 1: trout Dell Oregon. Like that is literally what the message
Speaker 1: boards are. I'll send you the link, so you know
Speaker 1: what I was thinking about though, And again, so many
Speaker 1: different things I'm thinking about now, but you know, like uh,
Speaker 1: and I think we're gonna have them on again soon.
Speaker 1: Like you know, we did the lumber episode with stincon Dean.
Speaker 1: I went down this sort of rabbit hole after that
Speaker 1: reading about how lumber futures are created. And there's this
Speaker 1: company called Random Lengths and they have like this like
Speaker 1: very detailed white paper essentially on how they create a
Speaker 1: daily reference price for the price of lumber. And of
Speaker 1: course it involves calling up lumber yards and it's sort
Speaker 1: of like library where they have to like lop offs
Speaker 1: and like extreme cases, and there's all this stuff, and
Speaker 1: thinking about like that's literally just pieces of wood in
Speaker 1: you know, fairly like a standard size and dimensions, thinking
Speaker 1: about like how you know the complexity of creating an
Speaker 1: index for like the price of wood, and then thinking
Speaker 1: about creating an index for the price of trucking, which
Speaker 1: is like infinite combinations of goods and services and times. Boy,
Speaker 1: does that seem like it's a it's a tough job. Yeah,
Speaker 1: And I think you you are really spot on with
Speaker 1: the corporate bond market analogy, Like not only do you
Speaker 1: have all these different like trucking prices and contracts, but
Speaker 1: you have people who are incentivized in different ways, and
Speaker 1: like people who might not want to move to a
Speaker 1: more transparent system or even like it could just not
Speaker 1: be about that, just people who don't want to modernize
Speaker 1: or change the way things have been working for decades now. Yes,
Speaker 1: and I might mention that there is a certain company
Speaker 1: that has done extremely well in the corporate bond market
Speaker 1: by serving as a sort of instant messaging service, you know,
Speaker 1: where brokers and traders send send kind of like those
Speaker 1: I won't mention the company now, it's I don't know
Speaker 1: who you're talking about. That kind of reminds me of
Speaker 1: like these like you know, on some level, it's like, um,
Speaker 1: like reminds me of those telegram pages where it's like
Speaker 1: who I have this for sale? Who has this? And
Speaker 1: who wants to buy this? And like, just like truckting,
Speaker 1: corporate bonds is sort of like a big part of
Speaker 1: it is literally like sort of ib or I ams
Speaker 1: and message boards and uh, you know, it's nothing like
Speaker 1: what I think we think of still as like a
Speaker 1: sort of like, no, it's not like the n Y
Speaker 1: I see, where everyone knows the price of you know,
Speaker 1: Facebook at any given time. Well, this is why I'm
Speaker 1: sort of surprised that there hasn't been a centralized message board.
Speaker 1: Like I get that there are a bunch of different
Speaker 1: load boards, but like, I'm surprised one network hasn't taken over.
Speaker 1: But maybe maybe maybe it will one day. Anyway, Um,
Speaker 1: maybe should we leave it there? Yeah? So much. We
Speaker 1: could go on recapping, but let's leave it there, all right.
Speaker 1: All Thoughts Supply Chain spinoff coming soon. I'm sure this
Speaker 1: has been another episode of the All Thoughts podcast. I'm
Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy
Speaker 1: Alloway and I'm Joe wi Isn'tal. You can follow me
Speaker 1: on Twitter at the Stalwart. Follow our guest Craig Fuller,
Speaker 1: He's at Freight Ali. Follow our producer Laura Carlson, She's
Speaker 1: at Laura M. Carlson. Followed the Bloomberg head of podcast
Speaker 1: Francesca Levie at Francesca Today, and check out all of
Speaker 1: our podcasts at Bloomberg under the handle at podcasts. Thanks
Speaker 1: for listening.