Freight 360

Trump Tariffs & Cross-Border Freight (with Dean Croke of DAT) | Episode 284

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Ben and Dean break down recent US-Canada tariff changes, covering their impact on freight volumes, rates, and carrier challenges. Dean shares insights on operating costs, a possible freight recession, and long-term trade policy effects. They also discuss market volatility, strategies for navigating tough conditions, and the importance of strong partnerships. The episode wraps up with predictions for future trends and advice on staying adaptable in a shifting market.

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Speaker 1:

Hey, welcome to this week's episode of Freight 360. This is episode 284. Nate is still out on National Guard active duty, so it is going to be. We got a special guest today, dean Croke from DAT, and we're going to be digging into the tariff situation, what's happening on the ground, go through some stuff that maybe we're seeing on an anecdotal level as well as what they're seeing on the rate side of things, and really looking forward to just kind of breaking down what is happening here. They just went into effect this morning, so might as well, just jump right into it.

Speaker 2:

What a day to be in the freight business, exactly.

Speaker 1:

So what are you seeing from your standpoint, Dean?

Speaker 2:

Yeah, so we've been shippers anxious, calling brokers in the Canadian side of the border last night, calling writing, to say did my load make it across? At midnight, at 11.59 PM, did it make the border crossing? Because otherwise tariffs would have been in play, carriers being told that loads would have been rejected if they weren't shipped in time. So there's been a massive push by shippers to get freight into the US and vice versa since November 5 or 6. So we've seen a kind of a super seasonal effect where freight volumes have gone up.

Speaker 2:

Usa to Canada freight volumes have gone up 21%, since the election rate per mile is the highest in two years. So if you take into account normal seasonal peak season shipping in December, that was sustained all the way through January and February. In particular the last two weeks we saw rate increases that were fairly substantial on both outbound inbound sites. So I think the net of it, benjamin, is there was a lot of shippers moving a lot of freight to get it out of Canada into the US and vice versa, particularly in the last two weeks, the last two weeks, once it became pretty certain that they were going to go into effect, because I think a lot of us thought this was just a bit of a head fake and it wasn't truly a serious thing they were going to do Some fostering?

Speaker 2:

Yeah, but when it became obvious that it was going to go into effect, people panicked and grabbed every truck and train they could to move freight. Anecdotally, we were hearing people last week rates were doubling was a common phraseriers renegotiating loads after they'd accepted them, falling off loads and chasing higher paying loads. So that was pretty common last week. Ltl carriers looking for any sort of truckload capacity they could get Round-trip rates were becoming a big factor in last week's increase in freight rates because when you get uncertainty about whether you can load back out of the US because of cavitage laws, you had to get a round-trip rate. So there's a lot of opportunistic pricing, I think.

Speaker 2:

Going on I fully expect freight volumes to tank this week and I think it's a bit like the problem we've got on the ocean side where we had a record volume of imports in January, december, november and September and October got on the ocean side where we had a record volume of imports in January, december, november and September and October. What we've done is we've moved a lot of that imports from peak season during the summer into Q1 or late last year. So we kind of moved a lot of our import freight into the country. It's sitting in warehouses already, and I think the same has happened on the cross-border volumes, even though it's not a big part of our national freight task for domestic US carriers.

Speaker 2:

I talked to a steel carrier this morning out of Tilbury and he said some of our big steel shippers are trying to absorb a 200% increase in inventory in their warehouses because they've been stockpiling so much of it in the US ready for demand. So the problem we've got is that when you start to move demand or volumes around like this, these sort of peaks and troughs become devastating. They're hard to manage for carriers in particular. I'm not sure how brokers are going to handle this, because volumes are going to fall right away once this freight is moved absent demand. So it's not like we've got a pandemic buildup and a bloated inventory scenario because everybody's buying stuff online. We haven't got that demand. In fact we've got quite the opposite We've got declining demand.

Speaker 1:

So that's the worry is that we see this thing take, and that's the thing too that I'm curious to from your perspective, because I know you get to dig into a lot of this data. One is our brokers. We have quite a few customers that move right out of Canada. We have quite a few raw metal, raw material shippers that we work with and when we saw them announced, we saw orders in domestically starting to go down and they were telling us, you know, a lot of them were supplying raw materials into, like auto parts manufacturers and they're like hey, everybody's kind of just in a holding pattern. So we saw some of those volumes dip but we saw exactly what you saw in Canada leading up to I mean, literally what last it would have been yesterday.

Speaker 1:

So a bunch of Canadian shippers, just huge load volumes coming over orders, not necessarily open checkbook, but let us know what it costs. We've got to get it in by the deadline and I'm really curious what it's going to look like. To your point, you would expect it to kind of fall, because it's not like we were using more of this product. It's more of just pen up inventory, get it into the U? S ahead of this, but now there's going to be less shipping into the future because you have that slack in the line where they got a whole bunch in. And now what does it look like? And with manufacturing down in the US? I know Jason Miller put something out that I think January we were still manufacturing expansionary like 55. And I think February we fell to 48. So it immediately went from expansion to retraction in US manufacturing.

Speaker 2:

New orders did a U-turn. So that's the real concern is that we're about to see volumes fall right away, which is a real concern for brokers and shippers. I'll give you one example to your point about steel Data point. I was watching the flatbed carriers who were moving coiled steel. Toronto to the Great Lakes is a big flatbed steel lane. They'd been at about $2.09 a mile all of last year, excluding fuel. Last week they were $3.20, so they were up a buck a mile in the last it's like 50%.

Speaker 2:

In the last four or five weeks moving coiled steel across the border and the problem they had was there was no complementary balance of freight north back across the border and the problem they had was there was no complementary balance of freight north back across the border.

Speaker 2:

These carriers had already been sitting for days, most of last year, trying to get loads back. So there's been this big shift in where manufacturing is done between Canada and the US and it's created this imbalance of freight that was already in play beforehand. So if you start to see this decimation of cross-border volumes, what does that do for carriers that rely on that? We already know that about 75% of Canadian carriers are involved in cross-border trade. So if you start to flood the domestic Canadian market with trucks because they're not running across the border, you can imagine what goes on to freight rates on the insurge side. Right, and I think, Benjamin, I think you see the same on our side. Now it's not like it's a massive part of our freight economy, the cross border piece. It's important and significant regionally, but we've already got excess capacity in the US market. It just means that we've now got even more trucks looking for fewer loads and that's why we're worried about the outlook.

Speaker 1:

What are your thoughts? Again, and nobody knows how long this will take, I mean, for anyone out there. Curious, at least from what I read even today this afternoon, was that the main reason for this was fentanyl related deaths, and I think the White House said that if those declined they will roll them back. Right, but no specific numbers on what they're already kind of declining. It seems more of a negotiation tactic to some degree. Who knows what or when they end. But what do you see as kind of, if they stay in place, what is the likely scenario for the spring, even just March, April? Let's just look at flatbeds, for example, right, and then maybe look at some other equipment types. What are you going to kind of expect to see in the market?

Speaker 2:

I think what you see is a repeat of 2023, 2024, very flat. Any peak season will look more like a speed bump, so you'll see some. So, when you get down to this level of equilibrium where we're trying to find, as capacity continues to exit and find the bottom, if demand is continuing to move and be elusive out into the horizon, what you've got is capacity is trying to chase itself down to a level where it meets demand. Now, if demand is continuing to be weak and soft and decreases, what you'll find is this market will stay flat all year round, because what happened in the last two years is this excess capacity has dampened demand every time there's been a surge in volume. And that's what you see when you get down to equilibrium. When you see road check week hurricanes, polar vortex it didn't move the market much at all. They go up and come down, right, so that's what happens when you get to equilibrium.

Speaker 2:

I think what this does is this might accelerate a few of the marginal carriers in terms of their exodus out of the industry. Right, because I don't know that this is sustainable. Carriers have been on the ropes for a while. They've been operating at fairly high operating costs. My numbers show they're operating at about 18 cents a mile higher than 2019, but rates are only 4 cents a mile higher than 2021.

Speaker 1:

What's that number? I was curious. I wanted to ask you that. So $1.80 is the number you're looking at. Breakeven costs. Does that include driver pay, Everything?

Speaker 2:

$60,000 a year. $60,000 a year pay, $14,000 a year maintenance, $10,000 a year insurance, $3,000 a month for lease costs, or your average costs for a typical owner-operator running 100,000 miles loaded, 15,000 empty. It's everything at cost, yeah. So just for everyone out there, right?

Speaker 1:

$1.80 a mile is what you're figuring for a driver making $60,000 a year with, I'm guessing, average age on the vehicle, average lease insurance costs running. You said 100,000 miles a year, right.

Speaker 2:

Loaded, loaded, loaded miles and 15,000 empty.

Speaker 1:

Yep, okay. Now the second question I want to ask is what are you seeing as the average pay rate across the country?

Speaker 2:

Right. So for independent contractors it's about 63,000 is what we see. That data comes from ATBS, todd Amon's ATBS data. So on the company driver side it's less than that, obviously, but it's heading. It's going down like it's sort of going down slowly over the last few years.

Speaker 1:

So, on a rate per mile basis, what would you expect in the spot market for, like a small carrier, to be averaging on the income or the revenue side? What are you seeing?

Speaker 2:

About $0.60 a mile on the independent contractor side. Wow, yeah. So here's the thing, though. Right, this is a really good discussion point. Sorry to interrupt, but this itself if the average is $1.80, what we're seeing this time around is, for the first time ever in my time studying this market in 25 years is a new cohort of owner operators who paid off their lease and all of their debt during the pandemic because it was the most profitable period in history, and they can now run for $1.50 a mile because finance is $0.30 a mile.

Speaker 1:

So they're $1.60 cost as $1.30 if you paid off your equipment during the pandemic. Well, it's $1.80.

Speaker 2:

If you take $0.30 a mile out of $1.80, I could run for $1.50 today and still earn $60,000 a year. So this is why rates have been held down so much, because for the first time ever you've got this big split in operating costs.

Speaker 1:

Between new and carriers that have paid off that debt.

Speaker 2:

The carriers that paid triple for those used trucks last time we were on the show.

Speaker 1:

They need two bucks ten a mile that is what I wanted to get to, because we had a comment.

Speaker 1:

We broke this down recently in an episode, and we've had multiple carriers comment both sides. Right, like, our operating costs are 210 a mile, our operating costs are a dollar 80 a mile, and I was going costs are $1.80 a mile, and I was going to email you and I was like that's why I was curious to dig into this, because this explains it right If you paid triple the cost when it was very hard to get a truck, but you're at the tail end of the pandemic and you still have debt on that, you're looking at an operating expense of $2.10 a mile. If you were able to pay your truck off and you were able to basically get the benefit of the high rates for most of the pandemic, you don't have a loan on your truck, so you can operate at a lower margin. The next question, though, is right, there's a finite time, because the truck doesn't last forever. How many years or months can you operate with that vehicle where it's paid off, before maintenance either catches up with you or you've got to replace it?

Speaker 2:

We're coming very quickly to the end of that runway because a lot of this equipment's aging. We're five years past the pandemic, right, you know they were already buying trucks that were out of warranty then. So you're looking at a $30,000 in-frame rebuild that's imminent on a lot of these aged trucks. And the problem is, if you're running at break-even you're not generating any cash to pay for those big maintenance bills. The smart operators that paid off a lot of their assets. They're already got cash in the bank to sustain that. So this is sort of the phenomenon. We've got what I call it latent capacity. We now have a cohort of carriers that look and behave like Landstar BCOs, but they're not in the Landstar network. They're very selective about when, where and for how much they run.

Speaker 1:

Yep.

Speaker 2:

As opposed to a normal down cycle where your mileage goes up and you're driving the wheels off it. Yeah, they're not. There's a lot of carriers now that don't have to go anywhere because they're quite comfortable, and that's why we've seen an elongated freight cycle in the spot market in particular, and rates have been fairly flat for the most part of last year it's like two different, two story lines right, like two different sides of the carrier market operating in the same thing, which made it longer for some to go out of business from the one side of it.

Speaker 1:

the other side is in more pain, which is likely to get affected by what's happening to tariffs in the short run. So the question and the next thought I have is right is there a scenario right where, if the deflated amount of freight being moved right and what you just alluded to is that, like, the carriers with higher operating costs are going to be likely to be pushed out sooner Is there a scenario where we see enough exits on the carrier side that that equilibrium gets met at a lower side and if the tariffs get released, you get a whiplash on the other end, which is literally what happened in the pandemic?

Speaker 2:

Yeah. So if that happened in the second half of this year, that's exactly what would happen. You'd see the market turn really quickly, because I think what will happen is this next quarter to first half of this year. We'll see. If the trade war goes on, you will see a lot of carriers squeezed out of this market quicker than they would have expected.

Speaker 1:

What do you think that timeframe is? Again, and I get. No one has a crystal ball, but based on what we're talking about, do you think within 45 days to a quarter of this say it's three months you would see a significant portion of these carriers starting to leave the market?

Speaker 2:

If this trade war goes on, you're going to see demand destruction, possibly start to enter into recessionary territories for the macroeconomic economy definitely a freight recession, because we've been on the cusp of that for a while. You will see a significant exodus of those marginal carriers in the next few months. Without doubt They've already been exiting, even though the rate's been slowing. We had a big exodus of carriers in December because the last quarter just didn't pan out. It was fairly mediocre from a volume perspective.

Speaker 2:

So we're seeing the patterns of guys hanging in waiting for things to improve and then not improving and then bailing. I think that'll happen in the second quarter of this year.

Speaker 1:

I just don't see how, if the tariffs stay in place, I don't see how we avoid recessionary like because predictions are showing revised GDP number predictions like are literally went from like 2.8 or around three down to like 1.5, like in the past 48 hours like they've dropped significantly.

Speaker 2:

So, if you see and I think everybody's this, what you mentioned at the top right wait and see. A lot of people have hit the pause button, and I think it takes time for people to ramp back up those decisions to build a new production line, buy a new plant, buy a new truck, invest more capital. That takes time, even if things changed overnight and somehow miraculously during the state of the nation. Tonight, trump says it was all a joke and the tariffs have gone away, which is a possibility. You can't rule that out. It would still take time, and I think the bigger problem, though, is I think people, it's like the boy who cried wolf.

Speaker 2:

At some point, just like China did during the 2018-19 period, they said you know what we need to buy more agricultural products from Brazil and less from the US. So now the biggest consumer of Brazil products is China. Right, the US is second now. So I think what you'll see is Canadians and Mexicans will find ways to de-risk, if that's possible, if this becomes an extended trade war. So you see, the long-term effects of this start to affect our trucking freight task. But I think, benjamin, what you're seeing is a complete reorganisation of how freight moves, which for in the non-asset side of the business. That's probably good news, right? Because it's going to create all of these new lanes and imbalance in markets where carriers are going to have trucks where loads aren't and shippers are going to have loads.

Speaker 1:

where there's no trucks, bids will go out the window. All the routing guides, all the RFPs. I was on a call right before this where two of my account managers were like just got in touch with my customer All the lanes we were looking at this week. They said we're looking to source from new materials. Here's all the new lanes we're looking at this week.

Speaker 2:

We saw that at the start of the pandemic, remember? Yeah, that's why we saw load post volumes go through the roof, because suddenly you had some cities in lockdown not producing but consuming, and vice versa. So you had loads in, none out, and I think that's what you start to see here if this becomes a longer process.

Speaker 1:

So we talked a little bit about the Canada side and to just I don't want to say put a bow in it, but like most of the stuff coming in from Canada right, Like I know, like a ton of the auto part industry is moving back and forth between Canada and the US A lot of steel comes in from there. I saw that the energy market is going to be drastically affected. You're going to see gas prices in the Northeast go up. I saw anywhere from 10 to 40 cents in like Maine and some of these areas, because most of that stuff I know that a lot of the crude that even BP produces, they said, is coming from Canada. What else is coming from Canada? And then I want to hear your thoughts a little bit on like what you see on maybe the Mexico side border A lot of produce, right.

Speaker 2:

So there's a lot of grains that you know. Canada's big in the grain market but a lot of produce, right. So we consume a lot of. Probably about 5% to 6% of our US truckload volume every week comes from Canada. But a lot of the potatoes, some commodities you'll see all of the lobsters, right. So Prince Edward Island lobsters, right. So I know a bunch of carriers that run out of the Maritimes down to New York and Boston every night with a million-dollar load of lobsters. They'll be affected because I think it's a luxury item. People will cut back on buying lobster Now. Maybe the top end of the market that's wealthy, doesn't. But there's a lot of carriers I think are dependent on US demand. So I think some commodities will feel this in particular.

Speaker 1:

Yeah, To that one. I saw an interesting thing last week that for like the first time, I think maybe ever, 50, it was over 50. I think it was around 58% of consumer spending was attributed to like the top one or 2% income households, which has never occurred. And then the thing I saw is like if the stock market takes a long term hit, they're going to stop spending and middle class and working class have already brought back that in. Credit card debt was up. You're going to see to your point. Million dollar loads of lobsters are at least going to slow down, if not-.

Speaker 2:

And lumber. So a lot of our lumber comes from I think about 30% of our dimension framing lumber, the softwood lumber that's used in building homes comes from Canadian markets. You see, a lot of it come from Quebec, a lot of it comes from British Columbia, so you'll see a hit there. Now that's sort of tied to the housing market here in the US, which is not exactly going gangbusters at the moment. So lumber is another one.

Speaker 1:

I wanted to ask you too, because I think the only thing that I've seen that was call it a silver lining in the situation. Situation is that 10-year treasury yields on US debt is going down, which affects real interest rates. Like people think, the Fed changing the rates changes your credit card or your mortgage, it doesn't. It's really the government debt and the demand for it that's down, I think like 50 basis points in the past month or two. So real interest rates are coming down because the belief I guess that I've read is that the market believes that if you crush the demand in the country, inflation is going to drop to where it needs to be, which makes us better to lend into as a government. That could spur more home building and more mortgages. Is there a silver lining where you see, maybe on the other side of this home building starts to pick up and you see a?

Speaker 2:

huge demand there, and I hope so. I'm this sort of the eternal optimist. I always look for the good in this, but I have to be honest I'm struggling. I'm struggling to see any rational reason why this has happened. Because you were talking about fentanyl earlier on. 98% of it comes from China via the Mexico border. Like 1% of it comes from Canada, and that's government numbers. So it's kind of this 25% tariff on Canada seems disproportionate, so it doesn't make a lot of economic sense, unless, of course, you're shorting the market, Most of it coming in on US citizens as well.

Speaker 1:

I it was I saw like a stat that it wasn't even coming from Canadian citizens.

Speaker 2:

Well, we've heard the stories about the you know ocean containers being loaded with you know drugs Like. So we don't check every single container that comes into our ports?

Speaker 1:

Yeah.

Speaker 2:

We don't check every single truck. So I think to you know, mexico is one thing right because a lot of freight has come in blame. You know Mexico is one thing right because a lot of freight has come in from you know we put a tariff on China, you know, back in 2018. Well, a lot of companies just moved their warehouses from China to Southeast Asia and then sent it via Mexico and next thing, the strongest, fastest-growing freight lane is China to Mexico on the ocean side. And then, of course, you've got trucks bringing it across from warehouses that were just repackaging. So we kind of just move things around a bit and I think maybe some of that will stop, but I think growth on the southern border is probably here to stay.

Speaker 1:

So you don't expect to see as much of an effect between Mexico and the US as you do with Canada.

Speaker 2:

Then yeah, I think so. I think that it's a bigger part of the freight task. We've got like 75% of freight comes across the southern border by truck, so it's a much bigger economy. There's a bigger freight volume coming across there.

Speaker 1:

And to your point, right on the back end of the supply chain issues during COVID there was so much nearshoring. I mean there were like hundreds of billions of dollars spent in plants in Mexico to be able to not have the time lag to get something from Asia to the US to be able to manufacture it there or get the raw materials in Mexico, get them closer to finished goods and get them into the United States. But that amount of infrastructure you're just not going to shut it off just because the price went up. But that does mean someone's paying that bill. It's going to get passed on.

Speaker 2:

Yeah, I think you've seen you'll definitely. I mean those prices will get passed on. I just think there's been so much investment by overseas countries not just Chinese companies but European companies in building manufacturing centers in Mexico. That's not going to stop, nor will the broker 3PL's investment in logistics cross-stocking facilities north of the border. Like that's not going to slow down anything. You might see volumes slow down a bit, but I don't see much change short of the border being shut down from an immigration perspective, like that's. Our biggest risk, I think, is we take away CBP resources, like we did during the pandemic, and move them around and it just has less people to process trucks. That was one thing that we saw during the pandemic. That's a real risk.

Speaker 1:

And just share with people from a high level what that actually means. Right, You've got less people on the border being able to get trucks through, doing inspections, being able to clear customs, which means they're moving slower. You saw backups of hundreds of trucks sitting there for days to get across Like. If something like that happens, what can you expect to see as a broker or a carrier or a shipper working in that scenario?

Speaker 2:

Well, more volatility, right. So what you end up with is lane balance. You get imbalance in lanes, so you get dislocation in the freight market because the flows are different. They're not there on a given day. They're surging in because the trucks all arrive on one day as opposed to trickling in over the course of the week. So that creates more volatility, more spot market opportunities because you've got less consistency in the freight volumes. So more spot market opportunities because you've got less consistency in the freight volumes. So that's what we saw during the pandemic was the imbalance? Part of it created opportunities.

Speaker 1:

And it's like you said. I'm like I really struggle to try to find some silver linings and to try to find the upside, and it's like I can't come up with a rationale as to why we're doing this with Canada, like it. Just I'm not really. I get the Mexico piece.

Speaker 2:

I get that. Like we've got a cross-border problem, like you know, like that's a big, open border. Canada's a bit different, like it's you know, it's a much smaller population. I just don't understand the Canadian piece. I think that's largely because we've got so much of an integrated supply chain on the automotive side. Yeah, so what I don't understand is back in 2020, we made a big deal about the USMCA and the rewriting of NAFTA and now suddenly that's not good enough. Like I can't. I don't understand the logic there, because I'm not seeing a complimentary statement that says we want to stop the border issue and we're going to employ another 50,000 CBP people to the border. We're not going to hire another group of people. I'm not hearing that right. So it's like we're not saying well, we're going to scan 100% of containers that come into our ports instead of 5%. We're not hearing that. So that's what I don't get is we seem to be around the edges of this problem without really getting to the heart of it.

Speaker 1:

That's what I want to be curious really to see. Right is, that is the thought that I've had this entire time. So I'm like something is happening that I think no one is aware of. This is leverage to get something that no one's aware of, that isn't being disclosed, because it's like there's no counter side of it, like we're asking for this and they're not providing it. It's just seems like you're asking for something that there isn't really a solution to, doesn't seem to be a clear solution to, or even a clear problem that can be addressed. So what are we hoping to get from the scenario? Is it like, do they think the tax revenues from the tariffs is justified? Like I don't even know what the other side of it is.

Speaker 2:

I think that's part of it, right? Is there a belief that tax revenue, tariff revenue, could help fund tax cuts? But I don't see how that works because of the demand destruction that's going to occur in the interim.

Speaker 1:

Yeah, I saw. I heard somebody make the point that they were talking that the United States was primarily revenue driven from a tax perspective on tariffs until, like the Civil War, right.

Speaker 2:

And before we had an income tax.

Speaker 1:

And then they said you know well, since there's an income tax, like they've rolled those back. And I'm like, hey, that don't make sense, except for the fact that, like one, we didn't have refrigeration back then, so, like we didn't transport food from other countries to other countries, the supply chains weren't integrated whatsoever and the only way to protect a country back then was in these ways, because there wasn't really anything else you could do. I'm like everything is so integrated from a supply chain standpoint that imposing these things just creates friction and cost everywhere. You're going to be having less goods to tax anyway. So even if you did get more of a tax on something, there's far less of it being purchased, and that affects everybody's job, everybody, whether it's a service or a good that you purchase.

Speaker 2:

You're already seeing it now, with even people that are not federal workers being laid off. Anyone associated with any government program in the private sector is being laid off in. Anyone associated with any government program in the private sector is being laid off in certain areas and there's less people to buy stuff.

Speaker 1:

That is the other thing and I said this to somebody recently, right, because we were talking about this last year we were trying to break out the government spending from GDP because there was an argument that technically we probably could have been in a recession two years ago and maybe one year ago if you rolled back a lot of the government spending, right? So when you, when you looked at it like gdp is kind of artificially inflated because of tax dollars basically just going and funding jobs and it kept the economy up right, regardless of motives, how or why that happened like it's obvious that it occurred but if you roll that back, at the same time you destroy demand or increase cost to everything. Isn't that like a double negative effect on the economy? Like you're getting like punched in the face twice, one after another and I just don't see the other side that is supposed to bring this back up right.

Speaker 2:

So maybe we just haven't been told, maybe we can't see it. Hey, maybe it's as simple as people just shorting the market to make a few billions. Right, I don't know. None of it makes any sense to me, but what I do know is that we were struggling to get off the ropes post-pandemic. We had an elongated freight recession. We're now in a position where we were thinking we were going to see some green shoots in this market in the spring. Benjamin, I think at most you might see rate movement at speed bump level. I think our forecasts were for rates to go up maybe 3% to 5% year over year by the end of this year. I'm not even sure we'll get there because I just think you're going to find volumes are going to be really flat all throughout the year.

Speaker 1:

Now, because of all this uncertainty and we did see that again Anecdotally at least I've seen with clients and in our brokerage around the fall, definitely around the holidays, thanksgiving and November we were seeing volatility within a week, right Like you would see a rate change five, 600 bucks Monday to Tuesday on some lanes. No trucks, a lot of trucks are day-to-day. So you were seeing more of the volatility and you're like, okay, well, it's kind of balancing out the number of carriers, so the number of loads in a way that like you kind of need. That point that you were making earlier is like you need the volatility to be able to change it. That pushes rates up, it allows the spot market to influence contract rates, it makes those go up, but without the volatility it's just a tepid flat pool and if you see that the freight volumes drop, we are going to likely see more downward pressure on freight rates the rest of this year.

Speaker 2:

Yeah, and I think dry band's one thing. Reef is probably a little bit more exposed and so is flatbed. So what I'm seeing? There's excess capacity in the contract market for flatbeds, right, but it's tightening in the spot market, right. So when you look at replacement rates coming into routing guides for the large contract shippers, their carriers are reducing their rates for contract freight, but in the spot market rates are going up seasonally because a lot of that one-off freight has a lot of accessorials and empty miles. It's not dedicated roof shingles back and forward, right, and so it's different. So I think there's excess capacity in the flatbed market in the contract large carrier side. There's certainly excess capacity in the large fleet reefer side of the market because replacement rates from recent RFPs carriers aren't increasing those rates, they're holding them. They're pretty much flat In flatbed. They're dropping about 4%. So what it means is rates from RFPs just recently are coming in 4% lower than the ones that are replacing from the prior year.

Speaker 1:

So again, I want to break that down. I want to understand that a little better, right? So, like you're seeing, rfps and contract rates come down about 4% from last year, flatbed, yep and flatbeds.

Speaker 2:

What are you seeing on the reefer side? Reefer's down about 3% at the moment, but bouncing between 0% and 3%, but it's still heading south and dry van is just coming off the bottom.

Speaker 1:

Okay.

Speaker 2:

So when you talk to shippers, they're awarding some bids higher, some lower. It's a mix.

Speaker 1:

So what are you saying? If you correlate that? And for everyone out there, what I'm trying to visualize right is contract rates, and the way we always explain this is like, if you have something predictable, right that rate and if I'm going to book a truck a month from now and you know where that truck's going to be, you should be giving me like a discount on that rate because you get reliability, you know where you're going, you get predictability, mileage, dwell time, loading time, delivering time. If I try to book you on that same load to pick up in two hours, I should pay more, just like, if you plan to ship something a month from now versus needing something delivered right now, you pay a premium in the short run, right.

Speaker 1:

But the the covid flipped that upside down the inverted yield curve where the contract rates went up. Because shippers like we can't get trucks to pick up our loads on time. We will pay you a premium to just guarantee us a truck. They paid above the spot market to make sure they had assured capacity, right, and we've been waiting for these things to go back in line for three years now. Give or take, Right. Is this now getting us back to the market, at least where you're seeing contract rates below spot rates yes, um well, not there, we're not.

Speaker 2:

We're not quite there yet or we're at least moving towards where we're moving towards it.

Speaker 2:

but so here's the, here's the big. But when you look at um, the Journal of Commerce Truckload Capacity Index I don't know if you follow Bill Cassidy's TCI, but he has a benchmark or an index that's been going since 2006 of the average of the large fleet public companies' trucks on the road each quarter as they publish their earnings calls. So what he's seen is that large fleets have been slashing their truck counts for nine quarters right Wow, down about 9% last year. So big fleets Werner Schneider, all the big carriers that are public have been reducing their fleet counts right For nine quarters post May 2022 was when it peaked and it's been dropping. But in the last quarter the steep drop started to flatten out a bit.

Speaker 2:

So Bill Cassidy wrote an article last week where he said after slashing their truck counts, they're now trimming their fleet counts. So what that means is they see a turning point on the horizon, but they're still not there yet in terms of where the number of trucks equals the number of loads in the contract market. So that's why when you hear that some shippers are awarding bids at a higher rate than last year and a lower rate, there's still. Shippers have still got a little bit of pricing power and we're still not at equilibrium. On the large contract side of the market, which is 80% of the loads, and in the spot market, which is 20% of the loads, rates are still kind of flat to not going anywhere north. So what it tells you is the overall market is still not there in terms of equilibrium.

Speaker 1:

And I think so. If you're a carrier out there, right, say you're the, you know the majority of the spot market carriers, the less than 20 trucks, right, what can you do or what advice would you give the owner, ops and the smaller trucking companies for this year? What are the things or their markets to look at? What advice would you give them?

Speaker 2:

Slow down. First thing I'd do is slow it down like slow down your mileage, your miles per hour, because the name of the game is cost control. This year You're not going to see upside. On the revenue side, rates are going to be fairly flat year over year. The only way you'll be able to hold on the margin is doing a few things. One is slowing down because fuel is going to be your biggest cost, but also doing things differently, like building better partnerships, finding new partnerships with new brokers to run new lanes, not be afraid to go into markets.

Speaker 2:

One of the questions I asked a carrier owner operator. I said what would you give advice to yourself 20 years ago when you started? He said don't be afraid, don't be scared to try a new market, work with a new broker, don't be scared. So I think a lot of folks get caught up in the complacency of repetition, of working certain lanes, certain relationships. I think what you're going to see this year, to your point about shippers sourcing products from different markets what we're going to see emerge this year a whole set of new lanes that aren't in routing guides and a lot more opportunity for carriers and brokers to build new partnerships.

Speaker 2:

So I would say widen your gaze. To use the analogy from Sherlock Holmes. When the guy's in if you know the movie he says Sherlock, widen your gaze. What I think that means is you've got to use the spot market to find better opportunities to do something differently. We had Saritha Willingham on our IQ show yesterday and she said this is going to be a year of grinding it out just to survive, and that's a small fleet carrier with a logistics focus. I think that's going to be the case for the rest of this year. If you can hold on this year, there are good times ahead next year. But, benjamin, there's a lot of rough road ahead of us, I think.

Speaker 1:

What advice would you give to shippers that are approaching this market right, I mean RFPs tons of them were going out. I mean we're doing a handful a day sometimes. What advice do you give to shippers? Do you think they start shortening bids now in preparation for it, or do you think they wait till it hits them?

Speaker 2:

No, I think you've got to realize that carriers are on their knees as it is. They can't haul freight for any cheaper than it is, otherwise you won't have any carriers left to haul that freight. So I think that what they're doing is the right thing. They're locking in capacity on 80% of their volume that comes from 20% of the lanes. That's what they'd been doing for the last two years. I would say continue doing that. But on the transactional side, build really good relationships with your brokers, because they're going to have access to the capacity to move that surge volume when it hits. So that's the advice I've been giving them is don't chase this market down, because all you'll do is accelerate the exodus and the turning of the rates.

Speaker 1:

Yeah, it's the thing I've had that conversation with more customers than any other conversation of like. The more you push this lever, eventually it comes back and hits you in the face. Like you keep pushing it down, your service rate's going to go down and you eventually don't have anyone to work with and then you're going to start yelling because you don't have any product.

Speaker 2:

Right, right. So remember 2018, when we had all the earnings calls come out in December and big companies were missing their earnings calls, like the big food manufacturers. Two words they were citing as the reason for the miss transportation costs. Yep, they were citing as the reason for the miss transportation costs, benjamin. People are losing their jobs because the spot market absolutely crushed them, and 2018 wasn't as wild as what we went through during the pandemic.

Speaker 2:

So I think we've seen a big change on the shipper side. So I think there's a lot more transparency, a lot more technology this time around. I do work with a lot of shippers and they have access to our Benchmark IQ product where they can look at every lane, every dollar they spend versus their peers. They can look at it by broker, by carrier, by lane. So I think shippers are a lot more savvy these days in terms of how they buy capacity. Brokers have also got a lot more tools. They've got a lot more data. So I think everybody's there's a lot more transparency in the market. So I think that's why I come back to the partnership piece, like now's the time to be really locking in those partnerships, because when this turns, it's going to turn quickly.

Speaker 1:

And I think too, it's in for brokers, right too, and I want your thoughts on brokers and I'll kind of add mine, but like anything different from the carrier side versus the shipper side, that that you would advise brokers to be doing different outlooks, or how you would approach this year as opposed to the past few years.

Speaker 2:

Again, it's the same sort of partnership battle. Find good carriers and look after them, especially for your high-volume lanes with those big shippers where you've got margin. Carriers are already hauling as low as they can haul freight, for their operating costs are $0.18 a mile higher than where they were in 2019. You can't. Carriers are already hauling as low as they can haul freight, for their operating costs are 18 cents a mile higher than where they were in 2019, right, so they're already at the bottom of where they can run. But I think I would say to carriers for the first time ever, we've seen operating costs operate in a fairly wide band, as we talked about earlier in the show. I think.

Speaker 2:

Work with carriers and start to think about now, what do you really need? Because it's not like oh, it costs $1.80 to run a truck. No, that's not what it is. No one's truck runs for $1.80 a mile. But build a relationship with a carrier where maybe they've got a head haul rate coming one way and you can supplement it on the way back. Build good relationships with carriers, but I would say, never sugarcoat the bitter pill. If you want to end up on the four-letter word list, don't tell the whole story. That's the quickest way to end up on that list. So I would just say that if, from a carrier's perspective and a broker's perspective, lay it all out on the table, carriers are pretty, pretty smart. They'll know what they can accept and what they can't. But that's built on trust.

Speaker 1:

So I think that the long-term play here is about trust and building good relationships and I think, to add to that right, trust only comes on the back of transparency, right, like you need to be honest, you need to be open and, like we talk about lots of scenarios where, if a shipper is working and is transparent with a broker, let's just just say in a broker transaction and you can understand what is what they're expecting to happen and what might happen in uncertainty. Right, like, hey, this is where we think we're supplying from, this is where we might be, we don't know. Let's work on this. If a broker can understand what should and what could happen, right, then they can go and start to build relationships with carriers on both of those options. Right. And if they're transparent with the carrier, then the carriers can try to line these things up. And if you ask the right questions, you understand, like, what routes work good for you, which days of the week, which times are. Then you can start to build these options in place ahead of time.

Speaker 1:

Because when it moves volatile right, like to your point, like shippers need to rely on brokers the more volatile their lanes change. They're not gonna be able to source direct relationships with carriers. Switching things in the middle of the week, the middle of the season. Carriers are also going to need to be able to trust and work with brokers to your point in different markets, because what markets exist now are going to be different, because all of the shippers are looking at where they're going to be sourcing goods differently than where they are now, based on what costs are and no one knows how that's going to shake out.

Speaker 1:

Yet they're all trying to figure it out, as this is happening, yeah.

Speaker 2:

I think the other thing I'd say is rate per mile is part of the discussion, but revenue per truck day is the bigger piece. Yeah, so if you're talking to carriers from a broker perspective, it's not the rate per mile that they're interested in. It perspective, it's not the rate per mile that they're interested in, it's how much revenue per truck day am I getting? Because I've got fixed costs and I've got to run that truck.

Speaker 1:

so I I hear far too often a rate per mile negotiated and next thing you're stuck under the load for two days I can you really quickly and briefly before we wrap up, because we answered a question last week on the faq section where somebody was like I can't. The carrier was arguing, saying like if a, if a load is less than my break, even it, we shouldn't run it. And we're like okay. But like we also got to look at like not just that, but like is it a head haul versus back haul? What is the time you're waiting to load? And also, like nate and I broke down like how much do you need to make per day? To your point, right, like you might be getting three bucks per mile, but to your point, you might be under that load for three days and end up making 600 bucks a day when it's all said and done, instead of what you expected to. How can they look at this other than rate per mile?

Speaker 2:

very simply, from the carrier side to being honest and transparent about when does the load unload, like what's? Is the appointment time real or is it really the day after? If I get there in the afternoon, are they going to unload me or am I going to get held over? So that's that transparency and the honesty piece, because that's where time can eat a big hole in your pocket and it's because you've now got a finite amount of hours to run in a day and you're looking for about $1,200 to $1,500 per truck day revenue, right. So a 600-mile load at $2 a mile is a great day's work, but not for two days. I need to get that thing unloaded and reloaded the next day, right, because then it becomes $4 a mile for the 600-mile run, yep. Or if I'm under it for two days, it's like a buck a mile, like you could do the math.

Speaker 1:

It's the opposite side. Yeah, it's half of it.

Speaker 2:

So time now is and it's morning afternoon Like it's a big deal, like it's not just an appointment window, it's the time of day to get yourself positioned to reload out of the next market. So there's a lot of moving parts to this, but I would say the biggest thing that carriers suffer from is this the big black hole. When you get into a shipper or a receiver like the appointment time window, that's where you can blow most of your time and that's why you don't know how to factor that in, because you may not know that you might have an appointment time at 2pm but they don't get to you till 11pm at night.

Speaker 2:

And that's common, like that happens all the time. So especially with food, food and Bev.

Speaker 1:

Oh yeah, and I think that's where again, like you were saying, trust and relationships between carriers and brokers, transparency and what to expect, negotiating based on the situation the broker should be aware of, what is pretty standard at their customers, on both the pickup side and the delivery side. And the one thing we say very often right, it's like if you're a carrier working with a broker for the first time and you're negotiating, the load everyone wants to to your point, go to the rate per mile or the all in spot, right. And it's like you should also ask the accessorial questions. Hey, like, what is the average loading and unloading time? What are they paying at detention? Get that up front so you at least have an idea. So, on the other end, you're not just trying to figure this out while you're sitting there to your point, going like I've been here four hours and haven't gotten in my truck yet. I burned half of the day here.

Speaker 2:

Right, and even if I'm off duty, I'm still out of position, like I'm out of sequence, for loads in that market, because each market has its own characteristics in terms of when you've got to get in, when you've got to get in, when you've got to get out, what traffic's like, what weather's like. So most of your owner-operators are going to be, you know, your savvy ones are going to run 600, 700 miles a day. It's pretty easy math. If I've got a target of $1,400 a day truck revenue, I need $2 a mile. If I run 700 miles, like it's pretty easy. Now you were talking about some lanes, a head haul, back haul I might get $3 a mile on a head haul but only $1.50 on the other At the end of the week. I've got a revenue target that I've got to get to pay my pickup costs and my pickup four-wheel drive lease costs, my fuel, my wages, my accommodation, my cell phone, all that stuff and the profit.

Speaker 1:

Yeah, and we're going to be excited. Nate and I are going to be doing an episode, I think in about a month we're going to break down like heat maps on DAT tools to be able to show carriers like this is how to be able to look at the markets, the head hall versus the back hall. Because, again, like to your point, like just an easy example, just say, when Florida's upside down and you're getting a buck 50 to go in but you're getting 350 to go out, even if you're just running Florida to the Carolinas, by the end of the week you should be averaging at like 220 a mile. When it's said and done, it's not just the way in, it's the way out. And then to your point, really paying attention to how long has it taken you to load, how long has it taken you to unload and are you able to reposition yourself to get the next load without losing three quarters of a day in between those two things?

Speaker 2:

It's absolutely critical Challenge is, in soft markets, like the shippers are going to hold you, there's no real reason to get you moving especially shipping receivers who aren't paying the freight.

Speaker 1:

It's a tough market, yes, and hopefully again. I think maybe one of the bright sides is that maybe this somehow creates some pressure on the shippers and maybe, with some of the carriers leaving the market, that the market gets pricing influence back over shippers so they're more incentivized to treat carriers better, to be able to get them loaded, unloaded, faster. They were improving those things when they couldn't get their loads picked up and then all of a sudden they get all the pressure and then all of that incentive goes out the window again.

Speaker 2:

It's crazy to think we had a four or five year period of absolute turmoil in the during the pandemic and now, like it's 2025, and we're still struggling to to come out of this.

Speaker 1:

It's literally night and day, right, I mean, we've, we've. We were having this discussion every year since the pandemic and I like talking about, like you know, kind of the second half of the year might look like we're going to be pulling out of it. Here we are. Three some years later, we might be looking at moving in the opposite direction before we go in the upward direction.

Speaker 2:

I laughed when someone said 2026 will be the recovery year, the bounce back year, and I laughed. This was in January and I thought, no, there's no way in the world. We have to be off to the races by the spring. And then, of course, here we are talking about tariffs and demand, destruction and a possible recession. Wow, 2026 might be a stretch.

Speaker 1:

It might be. I mean, I'm really hopeful, to your point. Like I'm an optimist, I try to find the positives even in the situation. I'm really hopeful that this ends sooner than later and that we all find out what the upside is that we're all going through this for, and what the motives are, and hopefully that's.

Speaker 2:

I just hope that tonight in Washington the president says that I got it wrong, like there's no tariffs. I hope.

Speaker 1:

Yeah, we'll see. I mean, if enough people get upset, who knows. I mean I listened to somebody else said they basically have like a 48-hour clock on what comes out of the administration. Now they're like I listen and then I wait 48 hours to see if it sticks and then I kind of make up a judgment.

Speaker 2:

Yeah. Well, that's why we saw so much freight move in the last couple of weeks, because when people realized they were serious, they thought we've got to get as much volume across the border as we can. Yeah.

Speaker 1:

Well, always a pleasure. Anything you want to add before we wrap up, this is a great conversation.

Speaker 2:

No, I just think stay close to your partners, build. You've got to have good partners in this business, whether it's a data provider like us, or a broker or an insurance carrier. Those that are left standing at the end of this are going to be the real people that know what they're doing. I think there's going to be a bit of M&A activity or continue. There'll be a lot of carriers go out of business. So I think now's the time to be locking down those relationships because, when it turns, it's going to be pretty significant, I think.

Speaker 1:

Yeah, I do want to ask you one last question while I have you here is on like ratecast and things like at what point in time will some of this information start to be incorporated into what we think predictively Because I mean, it's clearly just happened, right, but like when, and will that start to be incorporated into what we're getting out of the platform, being able to look at like predictable rates?

Speaker 2:

for this year. You've still got a lot of historical seasonality that's influencing the rates. So it's not. You know, if you had maybe two or three years of this kind of stuff, you know, maybe by next year year you'd start to see seasonality change. It's the oscillation when it comes to its long-term rate forecast. So because ratecast is weighting long-term seasonal trends far more heavily than any short-term inputs, so I think it takes a few years for that to materialise, because what it's got to see in the data is a new normal, you know, a new pattern of seasonality. So, for example, if you started to see if we saw a pull forward of peak season again for the third year this year on the import side so it was June instead of October then you'd start to see a pattern in the seasonality where ratecast would be picking up. That peak season's moved. Got it that makes sense.

Speaker 1:

I think it takes time peak season's moved, got it.

Speaker 2:

That makes sense.

Speaker 1:

I think it takes time that's my non-data nerd answer to how the smart people do. I like the practical, yeah, the candid answers. I'm like I don't know getting into the data science, but I'm like I use the tool every day.

Speaker 1:

We're looking at it again this morning and I'm like I'm the same it's gonna be really, yeah, at the very least it's gonna be an interesting ride this year. I think, yeah, yeah, good to be really, at the very least it's going to be an interesting ride this year, I think, yeah, good to be with you, as always.

Speaker 2:

Thanks for having me on.

Speaker 1:

Looking forward to catching up again this year. Dean, always appreciate you having on and whether you believe you can or believe you can't, you're right.

People on this episode

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Benjamin Kowalski

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Nate Cross

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