State of the Industry

E8: State of the Industry Podcast with John Elliott - The Economy Is Reeling. What About Trucking?

We’re now seven episodes deep into the “State of the Industry Podcast, with John Elliott” and the eighth installment has already been polished and shined as the April showers continue to lay the groundwork for their May flowers. So, set some time aside and prepare for the next episode!

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Transcript:

Brandon Baxter: Welcome to the State of the Industry podcast with John Elliott. I'm your host, Brandon Baxter. This is a monthly series dedicated to discussions pertaining to the trucking industry and featuring commentary by the CEO of Load One, and Immediate Past Chairman of the TCA, John Elliott. John, thanks so much for joining me.

John Elliott: Thanks for having me back, Brandon.

BB: Well, we're doing it again, aren't we? We last left off, we were talking about truck shows and start of truck show season, and really what that means to the industry. So, let's pick it up from there. In a certain sort of way, John, the Mid-America Trucking show, and we were both there, kicks off the beginning of the second quarter in trucking. And I'm putting you on the spot right away, but what are we seeing so far here in the second quarter?

JE: Well, I think MATS was a good show. I mean it seemed like it was well attended. I didn't see the official numbers yet, but it sure seemed like from day one when we parked that it was definitely busier than it's been in the past couple of years, because we had to park a lot further out than what we had to.

BB: That's an indication.

JE: Yeah, that's probably the strongest indicator or barometer I could find. That or the line for the pork shop sandwiches, I guess.

BB: And I missed out on mine, I'm sorry.

JE: Both were very busy, very busy. But we had a good show. We talked to a lot of drivers, owner operators and that, interested in the company. Some of the other expedite companies were there, so I think as an industry we were pretty well represented in that. And again, it is kind of the kickoff to the second quarter.

I don't think it's a big secret that this year has not probably went according to what anyone's dreams or plans were hoping for in trucking in general and transportation. I think we're, a lot of people say freight recession, I mean it's definitely slowed down. How long that lasts is a good question. Everybody's crystal ball is pretty foggy and a lot of people don't realize it's not just expedite. I mean, truckload is off dramatically, rail volumes are down, ocean containers are down. You're seeing international air cargo lines park planes where nine months ago they were desperately buying every plane they could, or trying to get new planes into production, modifying old planes.

So the part I think is really unusual to me is, I've seen these ups and downs over my career for sure, but I've never seen a downswing this hard this fast on volumes and rates. If I was a betting man, which I guess every businessman is to some extent, I feel like we've kind of hit towards the bottom of it all and that we're still seeing a lot of pricing pressures. Unfortunately I think sometimes trucking is its own worst enemy. When things were really good over the last couple of years they were too good maybe to some extent, they weren't sustainable. And people should have realized that and known that, but a lot of people didn't. Jumped into the market, bought equipment that was overpriced, bought insurance they couldn't afford during normal rates, and then you got the other problem of the compounding factor of the interest rates keep rising.

The companies borrow money to operate and have credit lines to operate. Well that cost of business doing the same thing last year versus this year for big trucking companies can be hundreds of thousands to millions of dollars difference just in interest carrying costs. So when you look at the rates going down and the volumes going down, you've got pricing pressures on the other side, or cost pressures on the other side, offsetting that and making it even more difficult. I think it's going to be a challenge. I think the Fed's going to hit us with another quarter rate point still, but I think they might even end up giving back a little bit towards the later half of this year. But unfortunately, I think you've seen a lot of small carriers or carriers that maybe tried to grow too fast during a good time that are now struggling financially. We've seen a number go out of business or downsize, or closing offices, and that laying off staff and doing things, which I understand they have to do.

Unfortunately sometimes though, they're focused very short term on making sure they generate enough revenue this week, even if it's not profitable revenue, to put the money in the cash register to be able to pay their bills next week or pay their people next week. Unfortunately, a lot of what they do is not sustainable in that, they're basically buying time until they either cease operations or go out of business, or shut down, or are forced to shut down. Unfortunately, I think it hurts the good carriers, because we're forced to price against that. And customer's like, "Well, this guy's offering this rate." And again, sometimes people don't realize it can be a race to the bottom.

So I think it's been challenging as a company. I think it's very challenging for owner operators and fleets right now. We're all in it together. I mean, nobody's winning over someone else right now. Unfortunately, I think it's just the times that we're in, the economy and all this free money for a long time, and those things have caught up with us. The inflation factors and the things the Fed had to do so, and we're going to get through it. It's a storm. I mean it's not like we haven't been how many storms before in this industry.

People have very short memories in that, but we've done it before, we're going to do it again. Expedite is a lead indicator. So again, if I had to bet, I think we've got 60, maybe 90 more days of turmoil. But I think the second half of the year is going to, I think we're going to be steady at these numbers for the next 60 days or so. Then my gut tells me the nose of the plane's going to come up a little bit and we're going to start to improve through the balance of this year, 2023.

BB: Now, using those numbers, the math that you just threw out there, and I don't mean to say look into a crystal ball or anything, but do you feel like we're technically smack in the middle of it right now?

JE: I think we're further into it than what a lot of the other experts will say. And again, I say that based on transportation. Again, especially expedite, we've always been a lead indicator. It's always very confusing when you see consumer confidence is up, consumer spending is up, wholesale spending is up, and then you're not moving freight. So there's definitely some disconnects, and those disconnects tell me that we're not refilling warehouses, we're not doing things at the rate of what they're selling things. So I think they're reducing inventories. Suppliers are, and I understand that too. I mean, inventories are a carrying cost. Carrying cost is not interest. So they need to try to skinny their inventories somewhat. I think some of the inventories were bloated.

BB: Going into this, yeah.

JE: Yeah. Well, you know what? You couldn't get anything for so long, so then when you suddenly could get stuff, they bought everything they could not knowing how long it would last during that. And a lot of times the problem was that they had inventories, but it wasn't the right stuff. Retailers had too many bikes and they needed TVs or couches, or things like that. But again, when you were having to order stuff 18 months in advance hoping to get something, you're ordering all kinds. Anything you thought you could get, you needed something on the shelves, or something when people walk in the stores to be able to look at. Nobody wanted to see an empty store. We saw that during the pandemic, empty shelves.

So I think buyers were in a very precarious position and they did the best they could in that, but if you look at the manufacturing side, the automotive industry is still chugging along. Heavy Truck is still chugging along, and the real estate market is still moving along.

BB: Yeah, that is true.

JE: I mean the real estate's market is good for trucking. People buy homes, they buy furniture, they remodel them, they outfit them. They sell their home, they do stuff to spruce it up. So there's a lot of dollars tied to the transportation industry that is tied to the real estate market.

BB: I don't think a lot of people think about that, John. I don't know if anyone noticed the light bulb that just went on over my head just now? But, to be honest ...

JE: I thought it was really funny.

BB: I've got a poltergeist here. But I had never really given it that type of thought before. But you're right, there are so many more things that the transportation industry really is connected to that many, many people don't understand or realize. I mean, we've talked about it before. This industry really was placed in the forefront of the public eye during COVID, and there was a lot of outcry and support for trucking and truck drivers, and the industry altogether. Are we still seeing that or are there now bigger fish to fry that you're not really seeing that support behind our drivers and owner operators now?

JE: I think we lost a little bit of the momentum. I think unfortunately, as a country we have a short memory. If you look back, medical professionals were heroes, truck drivers were heroes. We need to quit buying everything from overseas, we need to near shore it, we need to bring it back. We need to buy American, we need to control our supply chain. And do I think some of that'll happen? Yes. Do I think the respect level for drivers is greater or medical professionals in different fields was highlighted during that? Yes. But I also think unfortunately as a country and as a species apparently, we have not the longest term memory. We tend to slowly revert in that.

So as an industry, it's our responsibility to make sure we do everything we can to market the industry and publicize the positive things that trucking does. I mean, things like the Highway Angels program that TCA has highlighting drivers to do heroic things and save lives and place themselves in danger and risk, to save lives. To tell those stories. And we need to get those things out. And trucking companies and small trucking companies and that. When your company does good things, it's good to contact the media, get them involved.

BB: Sure. Absolutely.

JE: Get them out there. Spread the word. There's plenty of billboard attorneys out there that want to talk about everything bad this industry ever does. It's our fault that we don't do as good a job as we should counteracting that with all the positives that we do, because as an industry we do a lot of good for this country.

BB: And John, I want to stick with that for a second because that is a topic of conversation that I know myself in the recruiting world, I've had that conversation with many people over the last several weeks, whether it was at Mid-America Trucking Show or the Tenstreet User Conference. The talking point has been, and we might have even broached the subject a couple of times too, but the industry itself in finding drivers to fill empty seats, there's been this driver shortage for years now. I've been in the industry now 15 years and feels like it's been there the whole time. But you hinted at just a moment ago, the idea of better marketing. Is that something that we need to take a harder look in the industry as we have to do a better job of marketing ourselves towards maybe a younger group, because let's be honest, a lot of drivers in the industry are aging out right now. And so that deepens that hole. Am I right in saying that?

JE: Oh yeah, for sure. We have a demographic issue without a doubt. I think there's things we do as an industry like Trucking Moves America Forward, the media campaign there. Some of the lobbying efforts that TCA and ATA and other organizations do. There's some other organizations, Next Gen in Trucking in that for instance, that are trying to market or expose the younger generation to this industry and help put it back into high schools, into more vocational programs, and things like that. We have the younger driver apprentice program. That has not launched I think as well as what people had hoped.

BB: I know, we had talked about that in one of our first episodes, John. I was curious and I'm glad you brought that up. We haven't really heard anything out of that.

JE: Yeah, I don't remember the last numbers I saw, but they weren't, I think, what anyone was hoping for in that, for participation. And I think it's a struggle because there's just this mental perception of having an 18, 19 year old behind the wheel that, are you irresponsible? And I don't think that's the case, but unfortunately I think that the public has a perception there. And at times we can put them in an M1 Abrams tank, and with proper training send them into combat, in that handling a multimillion dollar piece of equipment in warfare, and that with lives at risk. I mean, if we can do that, how can we not train them to drive a truck?

And so I see both sides of the argument, but I think realistically, again, as far as I know, the only two jobs in this country you can't do until you're 21 is drive a truck across state lines and work in a nuclear power plant. I'm not sure that that rule makes sense compared to a lot of other jobs. And unfortunately, I think, unless the kid wants to do nothing from 18 to 21, which it's a different generation nowadays. We were kids lined up. The day we could get a job, we wanted a job or two jobs, we were greedy.

BB: Yeah, that's true.

JE: But unfortunately, ideally they're going to get some kind of work or occupation, and then the thing is after they turn 21, that they decide to come to trucking. Well that makes us the career of second choice. And we shouldn't be that. Especially because a lot of people, they want trucking to be their career of choice, so they shouldn't have to go find something else and then come back to it.

BB: Is there something that, and I don't know, maybe I'm even grasping at straws, because I've spent a fair share of my life working in and around marketing, advertising and trying to be creative and that sort of thing. Is there, and I'm not suggesting there's an easy fix, but is there something that can be approached or done in terms of the image of the American truck driver that might help to entice a younger individual into getting their class A, or even getting their class B?

JE: I think we're trying as an industry. I think we're marketing the positives through a lot of programs, a lot of things that companies are doing individually, a lot of our charitable efforts, in that I think the younger generation is more attracted to technology. And I think a lot of trucking companies such as ourselves are putting a lot of money and a lot of effort in the developing technology for their drivers. As well, it's creating an income level that makes it attractive as well. I mean during the pandemic and when things were really good, you saw the average driver wage and owner operator settlements rise quite a bit.

BB: Absolutely. Yeah, I remember.

JE: And rightfully so, and they deserve to do so. As an industry I think we deserve as companies to make a fair margin as well. Unfortunately, when it goes the other way, that puts a lot of pressure on companies to be able to sustain that compensation level. And I think that's going to be a challenge, especially if it keeps going. And I think if you talk to most trucking company CEOs or executives, they were very happy to be able to afford to be able to raise driver pay and owner operator compensation like that. And I think they would've liked to have seen it gone further. But again, you can only work with the pie that you're given, and unfortunately the pie has gotten a little smaller as the market has toughened up.

BB: And you're absolutely right. Like I said, not necessarily trying to grasp at straws, but sometimes it's just a matter of trying to either try something new or find an answer out there. Let's go back to what you were just saying about your technology. Obviously we've talked about that several times with Load One and what you're doing for your drivers and your owner ops and your fleet. Anything new you want to discuss, or that maybe a previous listener or a watcher wasn't privy to beforehand?

JE: Probably the most recent things we brought out was our driver app for our fleet owners to be able to monitor their fleets and be able to help manage their fleets. Again, I believe information is key to making good informed decisions, and good informed decisions generally lead to better profitability. So I think that's good.

We just recently launched our own carrier load board and that's gone off very well. So as much as we are an asset-based carrier, we're also a very sizable freight broker in the expedite world. So that technology and interfacing with other carriers and giving them a seamless network to be able to work with and a seamless platform to be able to work with efficiently, I think is good. We want to be the carrier or broker of choice for those other carriers. Because as many trucks as we have, we clearly don't always have enough, or the right size in the right place with the right hours, with the right certifications, with the right weight and platform.

BB: Which is bound to happen, right?

JE: Exactly.

BB: It's part of the game.

JE: Exactly. So yeah, it's part of the game. So it's part of us having a holistic technology platform all the way across. Because we have to be good to our fleet, but as much as no one wants to have to broker and use other carriers, we will always have to. And that also though, makes sure that we can take care of our customer. If we can take care of our customer, then that's good for our fleet. And we always look to put the freight on our fleet first. So versus what some companies will call optimizing, and they'll choose whether to broker or to use their own truck first based on what they feel is the better profit scenario for them.

BB: Well when I was out at MATS, obviously we had a chance to touch base for a little bit, but I saw your large iPhone that you had on display there, and had a chance to talk with the wonderful team, and I believe that was their truck that was in the booth, correct?

JE: Yes.

BB: Okay.

JE: Yeah, Mike and Heather.

BB: I'm sorry?

JE: Mike and Heather.

BB:  Yes. And tell you what, I probably had a conversation with them for at least a good 15 minutes and they couldn't say enough wonderful things about Load One and their experience with the company. And of course Mary was there showing off the iPhone. It was a good experience, and I would imagine that most other drivers that came through your booth felt the same.

JE: The giant iPhone, we'll call it, it's really a pretty nifty tool to be able to real time display the technology. And I love having drivers operate it for other drivers and to show them and explain. It's much more powerful I think, when someone talks colleague to colleague or professional driver to professional driver, than a recruiter telling you or some executive who walks around at a truck show booth like myself, tells you how it works. But I thought you just came for the candy, but that's great.

BB: I did. I think I might have had a Tootsie Roll.

JE: That and the big bag. The giant Load One bags are very popular.

BB: Yes, they are. Trick or treat normally starts at one o'clock on Friday there if I remember, or Thursday.

JE: Yep, correct.

BB: If I remember correctly. But all in all, it was a good experience and obviously we're moving forward into the second half of the year here coming in July. And speaking of July, Load One is going to be hosting the barbecue at the Expedite Expo this year. Let's talk a little bit about what we're looking forward to at the barbecue.

JE: Yeah, well, you know guys approached us with the revamped schedule and different opportunities. We've always been a long-term sponsor of the Expo. I mean all the way back to my first Expedite Expo, I don't remember the year, but it was when it was still at the Detroiter Truck Stop in Woodhaven, Michigan, outside. And we sponsored Joey Holiday, and I thought that was a big thing back then.

BB: I know I had one of his CDs somewhere, I don't know what happened to it, but ...

JE: I did not. But, super nice guy, but I mean I remember it was a thing back then, it was Joey Holiday kind of thing. So it's definitely been interesting to see the evolution of the expo from Wilmington to Lexington, now to Fort Wayne. And again, I think the team there tries to revamp and refresh it and how to move things around, and what works really well, what doesn't, what can we expand the educational series or things like that, to bring in the crowd and make sure that it's not only a good time for them entertainment wise or camaraderie wise, but also a choice to have educational experiences, learn about equipment, and of course visit with different carriers.

And I think this year it's going to be pretty busy. I think there's going to be a lot of people talking to carriers and that, and making sure are they with the right carrier for them, especially going through a challenging time, I think you learn a lot about the carrier's capabilities. Because like any business, when things are great, everyone can do okay and operate and do a pretty good job. But when the going gets tough, that's when you really see what a carrier's made of financially, the resources, and freight. Again, we're one of the bigger carriers that has a large sales force out there that is primarily direct shipper. A lot of smaller, medium size expedite carriers are much more reliant upon brokers and bid boards, and three pl's, and things like that. And that freight tends to fluctuate a lot more, and compensation with that freight tends to fluctuate quite a bit. It's a very, very spot market, and it's opportunistic freight is what I like to call it. When things are busy as heck, carriers are able to charge really, really high rates and we are forced to pay it.

Unfortunately, when a pendulum swings the other way like it is now, it's payback time. And unfortunately those rates tend to sometimes be some of the lowest. The direct shipper tends to be a more stable long term in the middle kind of rate in that. And I tell anyone, you got to think about the long term in this business. You're not in it for a week, you're not in it for month, or six months, or a year. Ideally, especially if you're an owner operator, you bought a piece of equipment, you should be thinking three, four or five, 10 years kind of thing. It's all about what is the average at the end of the day. You can ride it up, you can ride it down, but where did you average it out at, really? What was your average revenue?

BB: It makes a lot of sense. When you think of things, and maybe you try to equate it to somebody who maybe is just getting into the industry or wanting to learn or try and have a better understanding, I think you can equate the expedite and trucking industry as a whole, very similar to life in general. You have your ups and downs as you said. When the times are good, that's fantastic, but just know that there's going to come a time where it's going to come down again and you just got to weather that storm until you can come back up out of it again.

JE: Exactly. I mean, not saying anything bad about drivers, but drivers need to keep in mind and remember the trucking companies don't like this downtime either. Financially it is not good for them. I talk to our drivers all the time. We don't want you sitting, we don't make any money. It costs us money when you sit. We only generate revenue when you're loaded and rolling. So we have every incentive to make that happen.

It's funny, sometimes you talk about, I've watched companies lay off staff and downsize and things like that, and sometimes we find it's the opposite. We've got to work even harder when it's a tougher market. So you can't downsize staffing, because the majority of your staffing is operational and that's really a revenue generation point. But again, it goes back to view of the financial wherewithal to be able to push forward into a storm instead of bunker down.

BB: And that's the prep time that needs to go into it at the very beginning, especially when you're targeting, as you said, five, 10 years down the road.

JE: Yep. Well if you're in it for the long term, like you said, I mean that's our 20th year in business, so we kind of got this figured out a little bit by now.

BB: You're doing something right. You're doing something right.

JE: I thought so myself.

BB: Well John, I think that's probably going to about wrap things up for us this time around. Is there anything else you want to touch on before we sign off on this episode and prepare for the next one?

JE: Nope. I wish everyone has safe journeys out there. Stay safe. Obviously we're always looking for good owner operators and drivers at Load One, so we'd love to have a conversation with you.

BB: You hear that everybody? If we had phone lines, they'd be lightening up right now, right?

JE: I'm sure.

BB: There you go. Well John, thank you so much for another episode, and thank you so much for joining us for the State of the Industry podcast with John Elliot. I've been your host, Brandon Baxter, so join us again next time as John and I will continue our discussions, all topics transportation. And don't forget to check out ExpeditersOnline.com, and JustCDLJobs.com for access to over 150 carriers who are actively hiring and that includes Load One.

Until next time.