Freight Enforcement, Rates, and the Real Capacity Story (with Dean Croke of DAT) | Episode 316

SPEAKER_03: 0:19

Welcome back. It's another episode of the Freight 360 podcast. If you if you listen to us last week, we're going to continue that conversation this week. We are rejoined by Dean Croak from uh DAT. We'll skip our news and sports intro because we want to spend as much time with Dean as possible. So, Dean, welcome back. You just you just uh dealt with the Nor'easter in Nantucket. How'd that work out for you?

SPEAKER_02: 0:42

Yeah, pretty good. I feel like we've been at this for five years, right?

SPEAKER_03: 0:47

Yeah.

SPEAKER_02: 0:48

Haven't we been talking together like for during the pandemic?

SPEAKER_03: 0:51

Yeah. I think that's when we've Ben, what do you think? I think it was 2020, late 2020, right? We first started doing all of our stuff with uh DAT in general, right? With between Ken and Dean.

SPEAKER_02: 1:03

So and someone that's how long we've been talking together. I was just sort of thinking it back to uh when we first started talking together. It's been that long.

SPEAKER_03: 1:12

Yeah, one of our first, I think one of our first conversations on a podcast, we learned all about like your background in Australia and doing those like uh the the train basically like the the multi-trailer train runs, you know, from one side of Australia to the other. So we've come a long way. Yeah, um, but uh good to have you back, Dean. Um Ben, I'll let you kind of kick things off. You know, we're we're gonna we're gonna pick up where we left off talking about what happened in the freight market the last couple of weeks with enforcement and it's getting national attention. So this is kind of a obviously it's it's we're in the spotlight, but um Ben, where do you want to go with this?

SPEAKER_00: 1:51

Yeah, I mean, to be honest, the driver enforcement and just like what's been it's kind of crazy that I'm saying this, that like most of this is what we're seeing on like Twitter and X. But I mean, I was telling Nate this and my wife, it's just like I just I don't know, I have like an aversion to social media. And I realized the other day, I think I know what it is because I was trying to read, and Steven sends me a bunch of stuff, will text me a link and then I'll go read it. And I'm like, oh, most of what people are talking about seems to be here. And it it literally made me motion sick. Like scrolling and doing this, I got up and I'm like, I'm like, I really feel nauseous. Like when you read in the car, right? I'm like, oh, I'm like, this is why I just can't stare at this all day. But I mean, there's a ton of information out there. There's a lot going on, again, with enforcement, the, you know, Secretary Duffy, and they're doing more with the DOT and FMCSA. I'm curious, because you have a ton of experience on both sides of things, right? Not just the freight side, but also literally driving a truck, speaking with drivers, you're out there, you're talking with folks literally being affected by this. Like, I mean, just tell us kind of what you think and where this kind of came from, because I'm just genuinely curious what your point of view is on the enforcement alone and how and where it's being applied. And then we can talk a little bit more on like what the overall effects might be on rates and like the whole market, I guess.

SPEAKER_02: 3:18

Well, also as an immigrant CDL holder, right? So there's another perspective here because there's a there's more than a hint of racism about what's going on behind all of this, because that's how this started back in March. Because remember, this started with English language proficiency. Like, so this didn't start as a federal program to improve the one in five Americans that are considered illiterate, right? This didn't start with let's improve the 65 million Americans who are considered illiterate. Let's didn't let's help lift the standard of a lot of people who are you know problematic with the English language. That didn't, it started with let's slash federal worker numbers. Right? It did that's how it didn't start. It started with some poor trucker who was trying to make a living. And it started on social media of all places, right? So it started in the worst possible place. And I said from the get-go, well, if I'm a trucker and I'm in Arkansas and I have a problem with English language, the last place I'm gonna be is on the road in Arkansas. I'm gonna go to ground. So it's not so so therefore it's not gonna have an impact on rates because I'm gonna I'm gonna go to ground. The effect, so so we so the idea that we're suddenly gonna have all of this enforcement and it's gonna have an impact on capacity, it already had an impact on capacity in early March because everyone went to ground. Right? So so the idea that we were gonna see some sort of impact on capacity in April, May, and June was never gonna happen. It already happened in March. And that's why you never really saw the national rate needle move, and why you're not seeing anything happen now with both English language proficiency or non-domicile CDL holders. The numbers are just too small. And so I'll move to my next point, which is for two and a half decades, we've been recruiting drivers from both here and abroad in great numbers. So is it any surprise most over the road truckers are of a second or third generation? It just turns out they're not the right type. Lo and behold, after recruiting them for the best part of 30 years. So the problem now is that the it's like the squeaky wheel gets the most attention on social media. That's where you kind of started. And I fear that the the people with the loudest voices are starting to win, right? And they're starting to they're starting to have a big effect. And I'm part of me is a shame to say this, but it's actually starting to have a good effect because, and I'll say this as a trucker with a CDL, because the fact that some people have got trucker licenses and they can skate by and not have to go through the same rigor to get a CDL and have a DOT physical that I have to, that really gets under my skin. Because, you know, I have to work hard to keep my blood pressure under, you know, 90 under, you know, one uh 90 over 140, right? That's that's just to hold a one-year card. But these guys that can get by with a CDL and and not have to go through the same standards I do, that's not right. So I think there's some good things that are coming out of this. I just, it's a bit like the equalizer. You have the movie with Denzel Washington. Sometimes we have to do the wrong things to get to the right place. Remember that discussion on the step, right? We have to do the wrong things to get to the right place. Well, I think this is what we're doing here. We're doing the wrong things to get to the right place. And I think what we're gonna end up with is a much better standard of trucker. It's gonna be very hard for companies to get A, into this industry and B to stay in this industry. And it's gonna be very hard with biometrics, with uh all of the things that companies have to do to get through to get a DOT and an MC number, same on the broker side. And then with drivers to get into the industry. So you won't be uh it'll be harder to get into the industry with uh if you come from another country, because now you're gonna have to have a H2A, H2B visa, or an E2 visa. Um but I also think those numbers are very small. I don't think the non-domicile CDL numbers are anywhere near the level that they're talking about.

SPEAKER_00: 7:51

That was the one specific thing I was really curious on your opinion on, because a lot of people would reach out to us. We did some episodes with a bunch of folks that Steven's been working with that have been looking and uncovering. Oh, honestly, like it started mostly with the fraud, chameleon carriers, you know, reusing MCs. Then it was a whole rabbit hole on ELD manipulation in this giant back door where basically all of this data is basically just getting sent to whomever to steal freight. Yeah. And the more we dug in, like, honestly, like I was kind of terrified because I'm like, this is so much worse than I ever would have guessed or expected. So when these crap bounds started coming in, folks were reaching out and asking me, like, well, what do you think the numbers are? And I was talking with Jason Miller about this, I think it's like last week, where he was like, you know, we've never seen capacity, right? A shortage of capacity really affect the rates. Like it's almost always from the demand or the freight side, right? Like, and I was like, okay, well, we saw it temporarily with the ELDs in 2017, where like capacity temporarily shrank for about four or five months, rates went up, and then they kind of came back down. And the question I asked him, which is kind of the same question I wanted your point on, is like, okay, we look at all of the stats and everything Jason Miller puts out and everything that all of us read, right? And I think all that is great information. But the point I was making is like they all have an underlying assumption that everybody's playing by the rules. And I was like, we're literally seeing, again, some of it's anecdotal, some of it is really objective evidence of drivers for sure violating ELDs, driving way longer than the hour service regulations. We're seeing the FMCSA estimating 200,000 drivers they think are non-domicile, that maybe will be removed over the next year. So I'm like, theoretically, just as like a thought experiment, I'm like, if that number is 400,000 drivers that are either driving longer than the legitimate regulated companies playing by the rules are, there is some argument to be made that it could have an impact. It's just how quickly and how many of the violations are really out there.

SPEAKER_02: 10:03

I think the non-domicile CDL number, I think, is I don't I I don't think it's anywhere near as much as what they're making out. Right. I don't think that's I that's that's over two years, right? That that number is sort of and I don't think it's as much as what they're making out, right? I think that's a separate number to the illegal carriers that are swapping MC numbers, DOT numbers, drawing their numbers on the side with crayons, crayola, right? Or fake numbers. There are a lot of trucks out there that I think are not real, but uh whipping up and down the road. So I think what you're what you're getting at, and Stephen's getting at, is there are trucks out there that look like truck companies that are not real. Correct. That is something that I find very hard to quantify because I've seen them.

SPEAKER_00: 10:57

Yeah. But we've all seen it anecdotally, and I'm like, the thing I wanted to say that it kept coming back in my head, and Nate and I, we've talked about this a while, is like I have brokers for the past two years that have argued with me, right, that like the transit times for their loads are wrong because their drivers run 800 to 900 miles a day. And I'm like, I'm like, that like just physics. I'm like, that is an impossibility unless they are driving longer than they should or doing something that shouldn't be happening, right?

SPEAKER_01: 11:29

Oh, you're Australian. Correct. So seriously.

SPEAKER_00: 11:33

Well, I thought about the stories you told us years ago. We were talking about this off air of like literally on the convoys in Australia where you were putting, I think you told us you put hot sauce in your eyes to stay awake because you guys were driving like 15, 20 hours a day. No, you pull your nose hairs out.

SPEAKER_03: 11:47

That's what it was. That'll do it.

SPEAKER_02: 11:50

No, um, no, but seriously, you uh our logbooks allow us to run 14 hours a day. So so 700 miles is table stakes. But seriously, um uh uh this is where this is where you have three drivers in a tr in a cab and you do all sorts of crazy things, but um there is something to this. And I have sat in truck stops when I've been out driving my truck, and I have seen the drivers in the cabs doing this and cooking their own meals in the cabs. And and when you're in a truck and you're talking to other drivers, they let their guards down and they talk to you about what you're doing. And it helps when you've got an accent like I do, because they talk to you, they realize you're not from here, as in the US. And and I have learnt, I've seen some things, and I've thought, holy crap, what are you guys doing? And and like and a lot of them are reefer carriers, they're hauling produce, they're doing cross-country work, and and this kind of gets to what I'm seeing in the rates, because it's not necessarily dry van work, although I do know what happens. We're seeing I'm seeing some stuff happening with dry van rates. And this is this theory that Ken and I've got about road check weak effect that seemed to be mostly with with refrigerated carriers, where we're seeing this road check weak effect with rates. But I think there's something to this where we're seeing a lot of carriers um selling MC numbers. There's there seemed to be some and I'll and I'll I'm I'm kind of all over the place here. I was in a truck stop going to a convention uh in Wisconsin. I was in uh on the west side of Chicago in a truck stop on I-94, and I was listening to a couple of um Middle Eastern carriers uh talking about selling MC numbers in their trucks. And I and I couldn't quite their broken English wasn't good, and I couldn't quite grasp exactly what they were saying, but they were doing a deal about selling their freightliners and uh and they were talking about their MC numbers and a number of$19,000 was discussed. And I kind of thought, holy crap. Yeah, and I thought, holy crap, I'm I'm hearing this real. Like this is what people are and I'm kind of and I'm trying to, I'm not trying not to be a dork, you know, and I was standing behind these guys and I'm trying to eavesdrop without really being so obvious about it. And I thought, oh God, I wish I wish my Russian was better because I'm I gotta insert myself into this deal somehow. Yeah, I'm thinking, holy shit, if I could really get inside this conversation, I've probably untapped the holy grail of what's going on in this industry. And of course, I'm in the epicenter of all of this stuff that's going on in the in the Chicago market that we heard about for like three or four years. And and then lo and behold, out comes this article last week on freight waves from the uh immigration attorney that says to um all of his drivers, uh the the Serbian drivers, don't get on the road this week because they're gonna arrest you.

SPEAKER_00: 15:46

And I thought even if you're legitimate, I think the article he I think his statement was even if you are playing by the rules, right, and have the right documents.

SPEAKER_03: 15:55

Yeah.

SPEAKER_00: 15:55

Just because they have no idea how long you'll be processed, you could be sitting in there for years, I think was the sentence.

SPEAKER_02: 16:01

So the week so two weeks ago, I I spent the week in Salinas. So I've been out in Salinas talking to all of the Punjab seat drivers, meeting with freight brokers, insurance brokers, farmers, growers, coolers, the cooling houses, and uh getting to getting deep into what's going on um in that market. Now, this is just more coincidental that all of this was blowing up. And um and and the and I'm talking to um, of course, the Punjab Sikh drivers are American citizens, and some really cool guys, like just they're great truckers, these these guys can drive, outdrive anybody. And of course, they they're saying, I'm not going anywhere near the border, I'm not leaving Fresno, I'm not leaving Salinas for any money in the world because they don't want to get harassed. Because guess what's guess what's happening to loads out of McAllen? You can you can get$1,000 more for a load out of McAllen back to Los Angeles this week than you could this time last year, right? Because they're not going there. They won't go there. So what you're seeing is so that you're seeing freight rates on backhaul lanes back to the West Coast where the capacity comes from going up.

SPEAKER_00: 17:11

So this is Yeah, like the lane we saw the most that I I was asking Ken about this because I'm like, we again, it's anecdotal. It was like six or seven loads last week, but we saw massive increases from Georgia and South Carolina to Texas. Yep. Like long haul heading back over to the West Coast. We're like, and I'm asking my team, the other thing that I always say is I'm like, that's one transaction, but like, what are you guys hearing? And I'm like, you know, when you've been running this lane for two years, they're like, we would have 30, 40 carriers reach out to us for this load on a daily basis. We're hearing three or four now. So there's less interest and higher rates. And I'm like, again, it's anecdotal, but I'm like, every week I'm looking at the same situation. I'm like, we are seeing huge increases on these types of lanes within us, right?

SPEAKER_02: 18:01

Well, well, then it's like it's like go back to March when the TikTok video popped up about the poor driver that was apparently arrested and fined five grand because he couldn't speak English. Whether it was true or not, no person in their right mind would have been on any interstate, anywhere in Oklahoma or Arkansas ever again. If you couldn't speak English. He would have said, okay, the gig's up. I'm the I'm done. So now so and then apparently I when I was in Salinas, um, the guys said that they that ICE grabbed three of them last week. This this was two weeks ago. So you know, this is a very tight-knit community. They all have very strong social networks, and they would have said, okay, we are not going to McAllen to load produce on across I-8. And and so what that means is that capacity then diverts to other markets. And of course, they were all saying, well, let's run to the Northeast. So plenty of trucks wanted to run to Boston, but no one wanted to run to McAllen or Laredo or El Paso. And of course, on our loadposts on Saturday morning, I'm looking at Nogales. Brokers' loadposts were up 95% last week out of Nogales for loads to the East Coast. Nobody wanted to go to Nogales in the Tucson market. So when I look at our loadposts across all of our border markets, the brokers were really trying to find capacity because no one was wanting to go there.

SPEAKER_00: 19:26

Yep.

SPEAKER_02: 19:27

So that's what I'm finding is that there's you're seeing capacity tightness in those markets where you could almost draw a, you know, throw a net over, it's probably the worst thing to say, where ice is active, right? Where ice is active. I'm sorry, but it was a really word. It's an awful thing to say. Again, we're we're doing, you know, we're doing the wrong thing to get to the right place here. But what what we're finding is that I think wherever you're seeing this enforcement activity, you're finding capacity is is adjusting. And that's where I think the backhaul lanes are uh really.

SPEAKER_00: 19:58

Okay, so I had a question about that, right? And this is one of the things that I was messaging Jason, and I was curious your and Ken's thoughts on. Is it like, I mean, I have a pretty good understanding of DAT's rate data. Like we've literally interviewed almost everybody in your organization, had conversation on what is going into there, what makes up these numbers, that it is the median, it isn't the average, the top and bottom 25 percentile are being excluded on that range. So you get a tighter, more say it should be more likely you will pay within that range, right? Instead of the anomalous ones on the top or bottom. Now, the other thing that I read last week and the week before was everybody saying, like, the larger trucking companies aren't being affected yet. And okay, so the thing that I I was curious, right, is I'm like, that would make sense, right? Because the smaller companies, right, or the people that are driving in ways that they shouldn't, whatever that bucket is, right? Whether it's the CDL, violations of our service, whatever, like that wouldn't affect the larger companies first. And also you have the inverted yield curve, if you will, meaning like contract rates, right, are still higher than spot rates, which has should never happen economically, but has persisted for three and a half years. And I'm like, okay, normally the market will shift and rates go up because the spot market spikes. Contract drivers will jump to the spot market to make a premium and then tender rejections go up. But since we have an inverse economic situation, meaning like spot rates are below contract, we first need them to go back in line, which wouldn't happen with the larger carriers first. It would happen with the smaller carriers or individual either owner ops or very small trucking companies. And I'm like, okay, well, those drivers are one, more likely to work in the spot market with smaller brokers, right? Less of them are reporting their data to anybody. I mean, they are in one way, it's most of it's getting factored. So it's probably eventually making its way into the bigger models. Right. But there would be a time lag to seeing that, and you wouldn't see the impact you would the way you normally do, because it's not happening at that scale, right? Because like literally what you said and what you're seeing is what we're seeing. And I'm like, I was not making the argument that it's going to move the whole market up, but I'm making the argument, or I guess I'm very curious your thoughts on like if theoretically enforcement increased and became more consistent across the country, just theoretically, right? And now you don't have people dodging areas where enforcement is. So you don't see less here and then more here. You would see all of the call it, I don't want to say I don't want to even use the word illegal, but like say like the carriers or the driver.

SPEAKER_03: 22:42

Capacity, those that are at risk of getting, yeah.

SPEAKER_00: 22:45

Right. If they exit the market, like you would likely, I think, see spot rates finally go back above contract rates. And then you would probably see when you have produce, because this shopping season's been terrible. If it was a normal year, you probably would have started to see what we've normally seen in the market for 40 years that we haven't seen for four years, I guess, is another way to ask it. If that even means I know it seemed like a very long question.

SPEAKER_02: 23:13

Yeah. There's something anomalous, right? And I think what you've been seeing is it's almost like the waterfall effect, it's almost like the waterfall's been broken, stopped. Right. And because I think what's happened is uh shippers have uh routing guide compliance has been exceptionally high, tender ejections have been historically low. And what we found with our shippers is they they uh carved out low volume lanes, which historically had high levels of tender ejections, and they went to you guys with a strategic buy. So if they carved out high volume lanes to to their incumbents and and gave them to their prime contract carriers, and they have 98-99% acceptance, right? And and awarded them to the and that was a pan pre pan post-pandemic deal, and that's been pretty well you know ongoing. So and I think uh, you know, if you have like sort of maybe one to one point two routing guide depth, you have very little tender failure.

SPEAKER_00: 24:24

So basically, and for anyone out there that's just from like, as Nate would say, like Barney style, right? 101 level, meaning all of the the shipments that the large companies have said they would give to the trucking companies, the trucking companies are not only taking them, they're not giving them back, which means you have a lot, a lot less problems with large shippers making sure their freight gets picked up, which usually doesn't happen.

SPEAKER_02: 24:49

Right. So so then you've so your waterfall effect, you haven't got loads falling down through your second, third, fourth cheapest carrier and then falling out into the broker market. So so what you've got is then you've got all of these low volume lanes that normally would be high failure lanes going to the broker market. Instead, they were carved out of the bid and just directly going to you guys buy.

SPEAKER_00: 25:17

And I want to add something to it. The other thing that I've heard, I mean, fairly large companies that I've talked to, like literally that are our customers, right? And ask them some of these questions. One of these companies is a very large um uh auto parts like supplier, right, in the US. They are doing no RFPs and like they've never done that ever, but have been for two years, meaning like literally they're just pushing everything onto the spot market. And they're on time expectation, meaning like normally a company that large that has like 25 or 30 distribution centers expects like 97% of their loads picked up on time. Their benchmark, they said, was 96 or 97 for their carrier scorecards. This is three or four years ago. Now their expectation is 80%. And they said we are literally just giving all of our freight into the spot market because we've saved money. So we're literally just not contracting anything. And I'm like, that to me, I thought is pretty crazy for a company that ships probably a thousand loads a week, right? Yeah, and then the other thing I saw was a very large food company in the US, like probably Fortune 200 company. I ran probably a 4,000 lane bid with them. When we got our feedback, we were at the low end of DAT on every pretty much lane we were putting a number on where we had carriers that would run it. Their feedback to us was you're 15% higher than what we're what we're paying. And I'm like, I'm like, the number, right, of them, like just the scale, literally hundreds of lanes and thousands of loads. They're saying we were 15 to 20% too expensive. And I checked, I looked at predictive, I looked at DAT, I look at historic, I'm like, we are on like the low end of the collar, and they're saying every single one of ours are 20% too expensive. And I'm like, how is that even possible? Like, because that's front haul freight. Like, that's not even backhauls. Yeah.

SPEAKER_02: 27:11

Like so now the other thing, the other thing, Benjamin, we haven't talked about is finance companies. So not only, not only have we says the reason that um a lot of companies are out there doing the sort of rates that have been supporting this what what you're seeing, is finance companies have been supporting a lot of these companies that are running these rates that are supporting what you're talking about.

SPEAKER_03: 27:33

When you say finance company, what what kind of companies are you referring to?

SPEAKER_02: 27:37

All the big finance companies that financed a lot of these carriers into the industry in the last three or four years, they haven't foreclosed on them because the trucks have been worth nothing compared to what they financed them.

SPEAKER_03: 27:49

Oh, okay. So the people hold that are that are holding the paper.

SPEAKER_02: 27:54

The notes worth nothing compared to what they financed them for. So that'd be an artist.

SPEAKER_00: 27:59

When all the valuations came down, everyone went, There's going to be a massive foreclosure, and all the banks went, We don't want the property back because we're gonna we're gonna lose our asses. Pardon my French on this. So basically what you normally see is when you don't pay for something, the bank takes it back, and that's not happening with loans on trucking equipment.

SPEAKER_03: 28:17

So there's not PMI when you buy a class 8 truck, unfortunately.

SPEAKER_02: 28:20

So that's the other wrinkle in this debate is that what if that's if they start to call in those notes and say, you know, we're gonna cut our losses, that's when you'll start to see some of this capacity disappear also. So it's it's been part of the reason that we've seen this elongated freight market. Um so yeah, we are we are at a point where there will be a clean out in this market. And um I mean, it can't come soon enough because some of the stuff, those rates you're talking about, that's just absolutely crazy where a large auto parts or a food manufacturer can run with rates so low and accept those sorts of service levels.

SPEAKER_00: 28:58

Like that's yeah, I was literally gonna email it to you. In fact, I think I might have sent you a few of these things a couple months ago when I was really seeing more of it because I'm like, again, I just keep coming back to them, like economically, this makes no sense. I'm like, there is literally no explanation as to how this could occur. And it's like, okay, if it's a load here, it's a lane here, it changes a little bit, like things happen, they're anomalous that you can't understand. But like when you're seeing this on thousands of loads, right? Or hundreds of lanes with a company that like everybody would know their name, right? If I said it, is like probably a Fortune 100 company. And I'm like, three or four of them that like I've now seen at this point. And I'm like, like, it can't economically the math can't not math for years without something occurring that shouldn't be happening.

SPEAKER_02: 29:45

Right. Yeah, the problem we've all got here, of course, is with the the way geopolitic geopolitics are working and uh and diesel prices somewhat being artificially kept low because of geopolitics, that is not helping things either. Right? What you really need is geopolitics doing what they normally do and forcing diesel prices higher. That would really help clean out some of these marginal companies. Of course, they're not. And diesel prices are helping, adding, you know, a real tailwind to some of these companies. It sounds bizarre to say that, but diesel prices have been a real tailwind to a lot of these carriers because they're allowing them to keep their operating costs somewhat lower than what you'd normally expect, given some of the craziness that we've been seeing. So again, we're in really weird times where you would normally see um, you know, you could there's a case, you know, it was only a few years ago where um diesel was$5.80 over the summer. There was a case where you could have said, why aren't we seeing diesel prices so much higher than what we are now? We're in the weirdest of times where diesel prices are in the$3.70 range when they could be much higher.

SPEAKER_04: 30:59

So one of the things I want to put out like not to add a whole bunch of other factors to the conversation. But um like when you talked about the equipment loans, you know, the the PvP loans also came out around that same time, which which were forgiven. And then to add into that, you know, the CAS rating came out and it's the lowest volumes have been um since what, 2020.

SPEAKER_03: 31:23

Oh I mean, 2008, I thought, right?

SPEAKER_04: 31:26

Wasn't it like 2008?

SPEAKER_00: 31:27

It is just the same period. It's basically bouncing off the lowest um number of freight, I think. And Dean could probably talk to the specifics is like right prior to pandemic or right beginning of pandemic and the great recession. So in the past 30 years, the least amount of things being made and purchased or moved in the United States is where we're at, like literally right now, going into the holiday season, and like it should have been picking up and it just fell off a clock.

SPEAKER_04: 31:52

So I guess my question with that is do you think with freight volumes being so low, if if freight volumes had started to come up the same time enforcement was going in, do you think that would have painted a better picture?

SPEAKER_02: 32:05

Oh, yeah, absolutely. Yeah, so so Stephen, here's the problem, right? Because it this is like when the drug enforcement uh deal came in in the start of 2020. We would have had a much more noticeable effect if the pandemic didn't happen. Because the pandemic happened and we really didn't notice the whole deal, right? And here we are, we've got non-domicile CDL, English language proficiency, and and now we've got demand sliding south, and we're not gonna see the effect that I think we would normally expect to see. And that's what I that's what I think is gonna happen. We we've had a big pull forward of inventory in July. We've already had peak season. We're gonna see very flat demand. Manufacturing is the biggest driver of freight demand. It's very flat. Um, I did a presentation yesterday. You know, backlogs of manufacturing backlogs are decreasing. They're a very strong predictor of dry-van rates. Normally, when backlogs of orders go up, dry-van rates go up a couple of months later, but backlogs are going down. So dry-van rates are gonna go down eventually. So um things aren't going in the right direction, and that just means that anything we do that's gonna reduce capacity is it we're just not gonna see the impact of it on freight rates because demand is just gonna undermine all of those things that we're doing on the supply side.

SPEAKER_00: 33:27

So let me ask a question and I want to make I'm gonna I'm gonna approach this from a no, my computer just like stuttered on internet, so finish your thought. Go, sorry.

SPEAKER_03: 33:35

All right. So I'm gonna ask a question, and it's gonna be more of like a a devil's advocate advocate perspective. So earlier you guys were talking about um tender rejection rates being you know one percent or lower, and from out an outside perspective, couldn't a business consultant say, You're running a very efficient operation, this is a good thing, right? And when trucking rates are as low as they are, couldn't you from an outside perspective say this is a good thing for the consumer?

SPEAKER_05: 35:00

Right?

SPEAKER_03: 35:01

Um, so here we are on the end, and I think it's just an interesting uh point to to have because on the inside we're like, yeah, but no one's making money and this can't sustain forever. But on the outside, shippers are like, we're running efficient, our transportation costs are low, and as long as our freight's not getting stolen, what does it matter? Um, so what do you think it I guess if you if you look forward, what what are some potential courses of action that we might see here, whether it's something bad happens and it changes it or economic um activity goes up and that increases the the demand. What are some of the realistic courses of action that we can expect to see in the next year or so?

SPEAKER_02: 35:48

So this is the this is the dangerous game that shippers play. And Derek Leathers tipped his hand to what's coming uh last week at a conference. Um tariffs, he was talking about a 25% increase in the cost of aluminum and steel. And what he was saying was at the bottom of this cycle where everyone's margins are compressed, when we start to buy more trucks to replace the ones we've got, if they start to cost more money when we buy more trucks during the next freight cycle, everyone's rates are going to go up. So what he was saying to shippers was when we start to buy more trucks in the next freight cycle, it's gonna cost you more money. Right. So he was very, it's very interesting discussion. What he was saying is in the next bid cycle to a to a shipper. He wasn't saying it to his shippers, but he's starting to telegraph the discussion in the next bid cycle. He's saying tariffs are going up, cost of trucks is going up, get ready. Um so it's a very interesting discussion.

SPEAKER_03: 36:49

It is going to all come to that at some point.

SPEAKER_02: 36:53

So shippers have had pricing power for three years. New rates coming into routing guides based on recent RFPs are flat to down about 1%. But what what's happening is um so so to answer your question, Nate, um the bottom of the freight cycle where your margins and carrier margins have been compressed to the lowest they possibly can, carriers are saying our costs are going up in the order of range of 3% to 5% in the last couple of years. Our rates, though, have gone down about 1% over the same time frame. We can't absorb any more rate decreases because our costs are going up. The danger for shippers is we could go out of business. So the carriers in that 200 to 700 truck range are an accident or a lost contract away from going out of business, right? That's the real danger here at the bottom of this cycle is capacity could exit rapidly.

SPEAKER_00: 37:48

And you could see it twofold, right? Because you were on our show, we talked about this like two years ago, because I've reiterated what you told us two years ago, where basically what we saw post-pandemic was a carrier market. It was like a tale of two cities, meaning like you had carriers that saved a bunch of money, and you had also carriers that bought cheap trucks really cheap pre-peak in the pandemic. And then you had other carriers that bought trucks late in that cycle spent a lot more money. And you said, this is probably about a year and a half ago. And I remember you're like, what we're likely to see is the coffers are starting to run bare, meaning like the savings are gone. And also all of these trucks are now been driven long enough that they will need full rebuilds. And you're like, you basically have two choices. You buy a new or more expensive truck to keep running, or you rebuild it and the cost for the rebuild went up. And you're like, economically, like, this is going basically the chickens are going to have to come home to roost because like there's no way you can just keep deferring costs. Like as a trucking company, you're making less and it costs you more to operate. There's only a certain amount of time. And like that should have been like a year and a half or two years ago, which is why we were talking about in the first half of this conversation of like, the math hasn't mathed for a very long time. And if this happens, meaning you get rid of everybody driving in unregulated ways and the legitimate companies go out of business at the same time, you could lose giant tranches of the carrier market. Like you're hearing it.

SPEAKER_02: 39:22

And you're hearing it now, the uh Tindernoyer in the cash shipment report talking about carriers deferring maintenance costs, deferring maintenance programs. So you're hearing it now at a national level where fleets are starting to do that. Um Benjamin, at the FTR conference, they were talking about this very thing. Um carriers are talking about an economic recovery not happening until 2027. They were talking about operating costs being cut to the bone. Like so, carriers are actually talking about being in a very precarious situation where current operating costs are unsustainable, absent rate increases. So, Nate, your pro your question is if they don't see rate increases in a material way in short order, there'll be a number of carriers forced out of this industry. And what that means, I think Benjamin, you were getting at, is a flip. So if you don't see a rate increase that starts to lift carrier profitability, you see the market flip quicker where the gap between spot and contract gets the gap closes quickly and you see that rate inflection, and then you see routing guide compliance failures happen faster, and then you see, you know, uh the market take off. And that and that could happen sooner than later.

SPEAKER_00: 40:37

And I would have made the argument that if you if if the tariffs had not happened, if any of that just didn't occur, meaning like we just kept going on as a country, like we were coming out of the pandemic and things were growing, people were building and things were picking up, and then all of a sudden we renegotiate all of global trade in a short period of time and everything just shrinks, right? Because I think if had that not occurred, what we're seeing, if you layer on enforcement with a normal economic cycle, like this would have flipped at the very least a year ago, if not probably beginning of 2025, if not sooner.

SPEAKER_02: 41:16

Well, you you go back and look at Jason Miller's post about two weeks ago where he looked at the aggregation of five Federal Reserve backlog orders. And you look at the last three or four freight cycles where backlogs went up and then dry van rates went up. The start of this year for the they were backlogs were going up and dry van rates were going up, and then Liberation Day happened, and backlogs started to plummet.

SPEAKER_05: 41:39

Yep.

SPEAKER_02: 41:40

April, May, June, July. And then dry van rates went like that. There's no question this market was improving December, January, February, March. No question about it. We were all talking about it. And then, of course, everybody hit the pause button because everyone said, oh crap, we need to start thinking about our worst case scenarios in our business plans that we always had on the back burner, because everyone has a best case, bull case, worst case in our business planning. And uh, even my wife's catering business has a worst-case scenario in their 2025 business plan. And everyone went, oh crap, we need to think about what's the worst thing that could happen this year. And of course, that even wasn't good enough because nobody really knew.

SPEAKER_00: 42:25

It's even worse than that, right? And again, just for anyone listening, right? Like the one example, I was talking with a furniture company that basically sells furniture and stuff for your child's bedroom. So, like the beds that are cartoons or Marvel or whatever, and dressers and things. And they're like, listen, we were buying our furniture in the 90s in the North Carolina area. Like they made it there and we were able to buy it there. But we haven't even been able to buy it in the United States for like 30 years. And Jason put out a post and he went, if you look at the employment in just that industry, right, it was like at 90,000, I think, in North Carolina in the 90s at its peak, and it's half that. So what happened are these companies that are selling products and have been selling them for 25 years that have no choice but to pay, in some cases, a 30% markup on the things they're buying to sell to us. And we're trying to act as if like that wouldn't have an effect on companies. And then someone asked me the other day, they went, Well, why is the stock market up? I'm like, well, the stock market is up because AI spending's up. If you take that out, I think there's an argument to be made that like we are in for what could be like Well, let me give you an example.

SPEAKER_02: 43:42

Um, my wife's catering business uh relies a lot on um large universities here in Boston. Think about the attack on university policies from the current administration over their diversity policies. Right. So one of their big universities here, there's 50 universities in Boston. One of their university customers have cut the number of vendors in catering from 50 to two. They've cut their spend from 10 million on catering to five million in a year. Haven't even spent anywhere near that. Right. So this is so now you're talking about food services, fresh produce, right? So this is this are truckloads of produce, right? Now multiply that by across 50 universities, multiply that across all of the cities in the country where they are afraid to do catering of events just to stay off the radar of the current administration. Right. So this ha this is why you are seeing such a big drop off in truckload volume of just food services, right? And and you multiply this across all the other industries and all the other, you know, whether it be manufacturing, um so there there is so much less volume being moved of all types of commodities because people are doing the bare minimum, with the exception of one area. And it's got to do with AI and it's got to do with data centers. If you've got a flatbed or a drop deck or an extendable without riggers and an RGN, you will be driving the wheels off that bad boy, and you'd be hauling data centers and powered, you know, anything that's wide and high and ugly to the middle of nowhere. Like if I had to come out of retirement, that's what I'd be hauling. I'd be hauling those bad boys all over the country for the next decade. Like, nuclear power generation is going to be the next big thing for like it's it's phenomenal. Um, guys, if you look at our dry uh our flatbed rates, they're about 10 to 12 cents a mile higher. Like, I I've been writing about it for about three weeks. They're tracking 2017. Remember, 2017 was a really strong industrial economy. It's it's more than coincidence that drive uh refer of sorry, flatbed rates are identical to 2017, but it's not the same economy. It's just the it's coincidence the rates are about the same. Uh, but it's because of when you look at the underlying rates, the spot market rates are because um of the uh data center construction boom that's going on, and it looks like that'll be continued for some time. So interesting. Flatbed flatbed is been having a pretty good year this year.

SPEAKER_03: 46:21

So his historically, because I I was looking up the rates earlier, and flatbed is I want to say the national average is like about 240 a mile with fuel. Does that sound about right? And that's for 40 cents higher than dry van. Yeah. Historically, though, if you go back like five, 10 years ago, is is flatbed usually that different compared to dry van?

SPEAKER_02: 46:45

It's a good question. I'd have to pull that up.

SPEAKER_03: 46:47

Uh yeah, I don't think you know when you look at open deck, the more specialized it gets, it totally makes sense for rates, right? Because I mean that's just your basic supply and demand. This some the supply of of specialized equipment is gonna be uh very, very different versus you know a dry van or a standard 48-foot black flatbed.

SPEAKER_02: 47:05

But yeah, I'm I'm no, I'm talking more open deck, not necessarily highly specialized.

SPEAKER_03: 48:29

Just like a flat 48-foot flatbed.

SPEAKER_02: 48:31

Yeah, yeah, drop deck. Maybe drop deck is about as specialized as I'm getting.

SPEAKER_03: 48:35

Okay.

SPEAKER_02: 48:37

But so yeah, they've had a great year. Uh but as for the rest, um, yeah. We're I mean, we're kind of running about three to maybe three and a half percent higher year over year on the dry van and reefer side, but flatbeds probably gonna have a much better year on the spot rate side. Contract rates are running about probably one percent higher year over year. But I think the the bigger the bigger tell is that contract rates entering routing guides are still flat to maybe negative on the dry van and reefer side. They're not carriers are still not getting a lot of joy at the moment.

SPEAKER_03: 49:11

So speaking of flatbed, did you um a little unrelated here? Did you see the Montgomery transport situation? So I'm curious. I I I heard about it, I read a little bit on it. I know it was pending a sale and it didn't go through. Would your analysis on that be that the sale fell through based on their lack of profits, based on the current market and what's going on, or is there is there something else in there that they're a huge it's it was a huge company, right? We're talking like thousand thousand trucks.

SPEAKER_02: 49:41

I think it was I think it was a thousand.

SPEAKER_04: 49:44

Yeah, six hundred drivers, a thousand employees.

SPEAKER_02: 49:46

Yeah, I think Steven's right. Um something else, Nate, because PNS has uh been very astute at rolling up a lot of companies over the years, and there's something else going on there. Um normally PS roll up some pretty good companies, that's a very good operation. There's something else going on there that would normally have said if PNS were involved, that should have been. So I I I don't know enough to tell you exactly why. I saw their name mentioned. So there's something else that's needs to be explored there, and I don't know why.

SPEAKER_04: 50:21

Gotcha. So one of the things I wanted to add, have you ever seen the channel uh Smarter Everyday on YouTube? Brilliant guy. He he worked at NASA. Uh he does like a lot of science videos, whatever. He did a video um right around the time tariffs like with a big talk. And uh he was trying to produce his own like grill cleaner that didn't have the metal wires that you know for people. Uh and it was next to impossible to get done in the States because it was too costly. Um or one of the issues he ran into is the technology for manufacturing, like the tool and die process that um uh just doesn't exist in the States anymore because we've moved so much of this stuff out of the country. Um and one of the other issues we have, I mean the video is like almost an hour long, but it's fantastic to watch. Uh they were talking to Chinese companies where they they had the plans, they would send them to them, and then they would uh produce it for you and send it back. And they found on Amazon where they would take the plans and they would reproduce your product with slightly different material so it's not the same thing, and then they would resell it. So they'd use the same process, they would change a little thing, and then they would sell it. And that was kind of part of the issue that was being addressed with tariffs and all that stuff. So kind of leading into the flatbed and the manufacturing thing, do we think if this tariff thing is a a long-term thing with the administration, data centers being a big thing, are we gonna see a return of manufacturing in the States, or is it gonna be something south of the border that comes up where we start bringing that specialized tooling process and making it?

SPEAKER_02: 52:05

Yeah. It's a great question. I don't I think that I tend to agree with what Jason Miller says. Anything that's highly specialized, I don't think you see it come back here for many, many years. Just the cost of investment. Um if it's if it involves labor, it doesn't come back here. If it involves some big investment, yeah. I think I think over time, Stephen, I think you'll definitely see some of it come back. We're already seeing some of that manufacturing come back. Um I think but labor's the big part of it. So it's maybe where Mexico comes back in because it's got lower labor costs. But wherever you've got um something that involves people, we're always going to struggle with other countries that have lower labor costs. Footwear's a big one. You know, the cunt that you know, uh we're having a big war with the Italian company that makes the handmade pasta in Italy right now. So I think I think it depends on the commodity. But if if we can demonstrate that we can produce lower cost goods here with a big investment in technology, I think our challenge is how do we do so spanning this administration into the next administration? Like I think that's where that's just not this current administration and the United States. That's a global phenomenon. Because that that's been I've I've seen that in my lifetime where I'm from in Australia, where you know you have a two-year window where, you know, where you've got a four-year, you know, period of power, but uh you've you've got two years to make policy work, and then another two years to hold on to the next election period, and nobody really, you know, gets anything done in two years, and and then you're kind of nothing ever gets achieved. So I think that's sort of the the problem that we've got here is that nobody seems to want to make the right decision for the country, as opposed to a decision that benefits them staying in power. I would love to see a decision that's made for the country that spans multiple administrations. That would be the best possible outcome. That might be what we're seeing here. You know, um a lot of people in the country voted for change, and uh we'll we will be um I'll be I'll be pleasantly surprised if we can bring manufacturing back to what Benjamin was talking about that sees manufacturing come back to the south where furniture used to be the big the big thing. Like that would be great. Heck, I was in Salinas for for a week and you know, picking produce is back breaking work. I don't see I don't see people doing that. Like there are some jobs that um are just hard work. I just I don't know, we we need labor for other countries to do that sort of work.

SPEAKER_03: 54:47

All right. So I'm go ahead, Stephen, sorry.

SPEAKER_04: 54:50

I'm in Cincinnati, Ohio. My my in-laws are in Indianapolis, so like one of the things that's like anecdotal to me but odd to see is like the expansion of Indianapolis over the last couple of years is insane. And completely like backwards to the rest of the country. Right. Um but one of the things that I'd be curious, I mean I don't know if anyone has it here, but like has any like Jason Miller or anyone looked at like the margins on products and commodities to predict if that manufacturing would come back first? Like I know like clothing is one of those things where um people have started, you know, American-made brands and and they are here because it's a it's a higher margin that e-commerce, it's like forty-fifty, whatever percent margin. So there's a little enough meat on the bones to like cut that down to 1520 and still be profitable. But I'd be curious if anyone has it like mapped out those commodities to like predict. The other thing I was gonna say, uh you were talking about AI and and the uh the market. Um there was a report that came out today that 80% of the S P 500 was related to AI companies, to growth.

SPEAKER_02: 55:58

Right.

unknown: 55:59

Yeah.

SPEAKER_02: 55:59

You know, uh Stephen, it's been funny. Over the last week, the word bubble has popped up. I have you noticed that. Like we were talking about last month it was all about the AI boom, and now the word bubble has popped up. So I can't wait to see what next.

SPEAKER_03: 56:10

It reminds me of the dot-com era if you go back 25 years ago, right? Um, Dean, I wanted to I wanted to wrap up and um with you know, we're we're just entering Q4 here, and given what you've seen this year, currently, and years past, for brokers and carriers that are tuning in, what would you say to them as far as how to set their expectations for what Q4 and the rest of 2025 should look like? Uh, what would be your your uh explanation or prediction on that?

SPEAKER_02: 56:49

I think uh yeah, I I'm actually really optimistic. I think there's going to be some extreme volatility on regional lanes. So, particularly reefer, right? So I think you'll have your normal volatility for dry van lanes, e-commerce lanes, so Allentown, Boston, you know, any of those e-commerce replenishment lanes where Steven is in the mid in the Midwest lanes, like, you know, Columbus, Chicago, all of those distribution markets like uh Phoenix, you know, anywhere where you've got big warehouse markets, though they'll be all trying to run those e-commerce replenishment lanes. They'll be very, very busy because people have got warehouses that are incredibly packed and those last-minute replenishment uh moves. So they'll be busy. Um I think you'll see a lot of uh high volume uh early uh Thanksgiving moves, hams, turkeys, Christmas trees, as per usual, starting um in November 1. So Pacific Northwest, North Carolina, Minnesota, Joplin. Fresh turkeys start moving early November, Christmas trees out of the Pacific Northwest. So I think all of those typical things will happen. I think you'll see some really good volumes and rates for anybody that's got a refrigerated trailer out of the north, out of the out of the Midwest Joplin, out of uh Minnesota, and out of North Carolina, all the way through to Thanksgiving. So I think you're gonna see some pretty good uh volumes and rates for those carriers because at the bottom of this market where we're at equilibrium, any surge in demand is gonna see some pretty good rate volatility for carriers and brokers. So I think I think we're gonna see some pretty good um seasonality um through the end of this year. I think it's gonna be a pretty good market for carriers and brokers.

SPEAKER_03: 58:32

Awesome. Well, I'm looking forward to it. Yeah. Um cool. Well, Dean, we appreciate it. I don't know what happened to Ben with his technical difficulties, but uh he uh he's no longer in the conversation with us. What's going on? I don't know. He was texting me on this side. I think he uh he had some internet issues and then um who knows? Hurricane season in Florida, even though there's no hurricanes there right now. But anyway, Dean, we're we're happy to have you on. Um we we love what you do every every Thursday in our in our twice-a-week newsletter. We your all your rate data for the market, uh dry flat and and um reefer, we we share that in there, and it's super helpful. So thanks for that. And if you guys aren't subscribed to the newsletter, please do so. Dean does a lot of work to to take all the minutia out there and put it in a digestible form. So make sure to check that out. Um, any other anything else, Dean, you want to wrap up with?

SPEAKER_02: 59:32

Uh it's truck show season. So uh there's a bunch of truck shows on uh here in New England, lots of good causes. So uh if you don't follow me on social media at the Grumpy Pete, um there's a lot of good uh causes that we've got going on to support. Um lot of uh sick kids, there's toys for tots, um, a bunch of things. We're always raising monies, but I think uh Toys for Tots is the big thing we're doing uh this year, as always, raising awareness for all of the underprivileged kids that need help this Christmas.

SPEAKER_03: 1:00:03

Awesome. Yeah. I feel like Toys for Tots has to have been around for a hundred years now. Yeah, yeah. Yeah, and Stephen, when you were uh you were a corpsman, right? And is that like I know that's Navy, but you're attached to the Marines, that was like a thing every year that uh kind of like a uh I don't want to call it forced volunteering, but that was always a big push for the the Marine Corps side of things.

SPEAKER_04: 1:00:27

Soys for Tots. It was what it was with the so I was in the Navy for five years. Yeah, the only time I was on a boat was related to Toys for Todds. Yeah. Uh for two for two weeks. I gotta get my uh dirt.

SPEAKER_02: 1:00:41

I gotta get my uh Peterbilt cleaned up and waxed and polished the next couple of days for a truck show Saturday. So I think we've got truck shows every uh Saturday now for the next six weeks. Kind of like this is kind of peak truck show season in fall up here in New England. It's a pretty big deal for uh raising awareness for um Toys for Tots and all those sorts of events.

SPEAKER_03: 1:01:03

Awesome.

SPEAKER_02: 1:01:04

Yeah, well, cool.

SPEAKER_03: 1:01:06

Thanks again, Dean, for being on with us, and uh we'll we'll definitely catch up with you um, if not later this year, into the beginning of next year, and we'll we'll see if any of our predictions or thoughts were were remotely accurate, right? That's the one thing too that like, you know, we we try to like look at what's going on, what's happened in the past, and predict what the future will look like. But there's the unknown things that can just pop out of nowhere that like COVID, nobody nobody saw that coming six months ahead of time.

SPEAKER_02: 1:01:33

So we have an eerily quiet hurricane season, so that might be very strange.

SPEAKER_03: 1:01:39

Very strange. But all right. Thanks again, Dean. We'll see you again soon. Uh Ben's not here to do his sign off, but uh thanks for listening, everybody. And until next time, go bills.