Freight Market Turning Point (with Dean Croke from DAT) | Episode 329

SPEAKER_03: 0:19

Welcome back. It's another episode of the Freight 360 podcast. We're going to have a uh bit of a discussion about what's going on in the freight market lately. We've got Dean with us uh back from from DAT. Dean, welcome back to the show. How are you?

SPEAKER_00: 0:34

Great to be with you guys. Yeah, miss you guys. Awesome. It's always a pleasure, man.

SPEAKER_03: 0:38

We've introduced you many times before. And if anyone hasn't cut caught one of our episodes with Dean, check them out. They're really good and informative. We get into the nitty-gritty um when it comes down to um you know what impacts the market and kind of what rates are doing. But if you're brand new, make sure to check out all of our other content. Leave us a review, check out the Freight Broker Basics course if you're looking for educational option. Share us with your friends, all the good things. Um, this episode is brought to you by Send TMS. It is a the thefreetms.com. Oftentimes you might have heard of them as that. It is a preferred TMS by Freight360 for new and growing small and medium-sized freight brokers. You can get 90 days absolutely free of the uh of their full version. Just make sure you use the uh promo code down in the description box and you'll get three months for free. Um all right, it's Super Bowl weekend coming up here. Who do you guys have? Who be taking? You got Patriots and Seahawks.

SPEAKER_00: 1:36

Go pets.

SPEAKER_03: 1:37

I know, I was gonna say, Dean, that's it. That's your knock of the woods, right?

SPEAKER_00: 1:40

Yeah, I'd be thrown out of town if I didn't say that. Like there's people listening everywhere. I'm sure.

SPEAKER_03: 1:45

I think the um, I'll be honest, I think the if you're not a Patriots fan, I think the rest of the NFL is kind of sick of seeing New England in the uh in the Super Bowl all the time. But hey, if you didn't make it, you didn't make it. Like Bills didn't make it serious.

SPEAKER_01: 1:59

I'm curious where you are at with it, Nate, because to be honest, like, I mean, Steelers and Bills, like, there's definitely no goodwill in Pittsburgh, I think, or Buffalo towards the Patriots over the past 25 years. However, like I really like Drake May. I really like watching them play, and I'm like, the funny thing is now that Bilichek's gone and like the whole thing.

SPEAKER_03: 2:21

Everything too, I really like him.

SPEAKER_00: 2:23

Love Vandy Brayball. I loved him as a player, I thought he was great, but watching him coach, man, he's great.

SPEAKER_03: 2:29

Like he took Tennessee to the playoffs like year after year after year.

SPEAKER_02: 2:34

Yeah.

SPEAKER_03: 2:34

Um, but yeah. Yeah, I mean it's it's mixed here. You get a lot of Bills fans that like they were like, I'm not watching the Super Bowl. It's honestly it's because they just don't like Stephon Diggs because he was on our team and he was you know, whatever. It is what it is.

SPEAKER_01: 2:49

But and obviously, like Ben, to your point, you know, for years Tom Brady and company like just owned the AFC East, and it was like, all right, another year of this Yeah, and like in the past week, right, with Belichick and Kraft both getting the you know snub for the first ballot hall of fame, which really was a lot related to the Steelers era when there was the was it the sign stealing and deflate gate on I think those were both situations against the Steelers, actually.

SPEAKER_03: 3:20

Oh we're I didn't know who the who was against. I just knew it was I remember like Deflate Gate, right? Brady even got like suspended for a few games. This the sign there was a sign stealing, and someone what was that? Someone was telling me the there's always like uh communication issues for the visiting team at Gillette. Like they're like, I can't hear, I can't hear in the in the when I'm doing play calling or whatever. And I've heard like certain coaches say, like, yeah, it's just we just expect to have issues when we go to to uh Foxboro. So anyway, maybe that's just if you're not a Patriots fan, you find a reason to to like my wife is like, they're such cheaters, and I'm like, they have the same rules and reps as the rest of the league. They just put together a much better team with Tom Brady and company, and now they got you know a really good team again.

SPEAKER_01: 4:09

So yeah, that's the thing I was kind of laughing about. I was curious your opinion, it because like clearly all my buddies from Pittsburgh. I mean, my dad still hates the cowboys from the 70s and the Raiders. So I mean, like, they don't get over things quickly, but it's funny because like I'm doing a bunch of work with White Shark up in Boston, so everybody I'm working with pretty much all day is huge Patriots fans, and I'm like, yeah, like I'm kind of rooting for him. I'm like at least leaning that way. I think Seattle's probably gonna take it, but I don't know, four and a half points is a pretty big spread.

SPEAKER_03: 4:36

It's a close enough spread, though, that like you know, all it takes is a turnover. So like it's you know, it is we'll see. We'll see. I think it would be really cool to have a second-year quarterback and a first-year coach win a Super Bowl. Um that would be interesting. Also, I mean, regardless of who wins, it's gonna be a good story because if the Seahawks win, like Sam Darnold, literally like every team, he played for like every team in the NFL. Like he he'll also be if if he were to win it, he'd be the first um the first quarterback from the 2018 draft class. That's like your Lamar Jackson, Baker Mayfield, Josh Allen, and nobody's won a Super Bowl yet. So um yeah, either way, you know, and I think like Drake May, he's gonna have a he's gonna have an awesome career. He's so good. Well, Dean, we'll uh we'll we'll think we'll be thinking about you on Sunday night. Anything in the news before we get into the market?

SPEAKER_01: 5:31

The market has pretty much been the news. The market is the news. All right.

SPEAKER_03: 5:34

Dean, what's going on here? I it's been I think Ken was the last one of you that we had on, and that was probably five months ago. So I I feel like I'll kind of set the stage here. The last time that Ben and I really uh addressed the market, we were talking about um, this is probably like last fall, maybe the end of summer, really when when Secretary Duffy um, you know, you started to see him in the news more, right? We start hearing things like Engl English language proficiency and non-domiciled CDLs and enforcement, right? We start hearing about all that stuff. So can you kind of take us through what we've seen the last couple of months um as far as you know capacity, loosening, tightening, etc.? It's been very, it's felt very loose and flat for like four years, but um overall, but can you kind of take us through the last couple of months and Dean?

SPEAKER_01: 6:30

Before you start, I just wanted to read uh Ken's post from literally, I think it was from today or yesterday, because it's a really good segue into this, right? If you're wondering why the freight market feels different right now, it probably has a lot less to do with vibes than you think. This chart does a great job of illustrating the long slog of carrier attrition we've been experiencing for years. We're finally hitting a point in January where the total pool of interstate motor cares has returned to pre-COVID linear growth trend. I still maintain that demand is a far more powerful lever compared to supply when it comes to systematically moving the market. But overall, this is a great sign that we're poised for recovery.

SPEAKER_00: 7:09

Right. Okay. Yeah, that was yes. I think um some of our numbers that show uh it's very interesting. I did some numbers on the number of revocations that came out on the FMCSA database, which is, you know, there's a little bit of noise in that data. But what was interesting on the January numbers is we still lost about uh close to 7,000 carriers again, but there was a real surge in December. So that was very noticeable that the number of carriers that left the market in December was up about 34% over the last five December. Right? So you always see a surge in carriers leave in December. But last year I think there's a seasonal aspect to it. 1231 is a common renewal date for insurance contracts. A lot of carriers take advantage of the, you know, the holiday season, freight rates. I I I think there's something to let's give it one more go at the end of the year, and if we make some money, then we'll get out. Or if we don't, we'll bail. Yeah. Yeah, I think there was some, there's some of that. So we saw a real surge, and I think on top of that, a lot of the regulatory pressure that was being put on a lot of the marginal capacity forced carriers out. So there was that. But the more important data point in the January's number was the number of new carriers joining the market. I think that was something that I took away from this is that the number of new carriers that uh joined the market in uh January was only down 2% from December. But more importantly, it's down 37% since last April. Oh so so what so when you look at the graph, right? It since last April, the number of new carriers entering has been slowly decreasing. And when you draw a straight line from where it is today, it's back to pre-pandemic levels. So the massive influx of carriers. I was gonna say that.

SPEAKER_03: 9:06

Well, mine's a thousand carriers less than the peak.

SPEAKER_00: 9:10

Yeah, so mine's kind of a similar I mine's a different chart to that. But that's essentially what what Ken's saying is that we're now seeing a return to pre-pandemic levels of A carriers joining the market, but on the bottom side of the chart, we're still sort of seeing this washing out of this excess capacity. So we're almost at a point where we're at this level of equilibrium in the market where a lot of this marginal capacity that was flattening out spot rates has has disappeared. I think it's disappeared mostly.

SPEAKER_01: 9:45

I have two or three questions, and I'm curious your thoughts on this. The first question I have is um how much of that impact do you think is specifically related to like we'll call it enforcement under one bucket. So ELP, you know, the non-domicide impact, what they're doing on immigration, trying to tighten these things down. So like that specific aspect, how much of that do you think is weighing on it? And the second bucket that I'm curious too is like we saw massive amounts of ELD manipulation where a lot of those same carriers were driving 15, 20 hours a day, right? When they were also driving rates down because they're just driving more than they were legally allowed. And I'm curious which of those two you think maybe had more of an impact or any of an impact? Maybe just your thoughts on those two questions.

SPEAKER_00: 10:31

I think it's all of I think it's all of the above. I don't know how you quantify this. I I know out on the roads I see all of those things. I see you see drivers who have no English language proficiency, you see drivers speeding, you see drivers clearly not insured, you see drivers with handwritten MC D OT numbers on the side in literally crayon, you see drivers, you know, reposting uh like covering up their names on the side in truck stops, like you see all of that stuff going on. So clearly I think it's all of those things. But what I don't think it is is in the actual enforcement numbers. Right? So I I don't think you can say, oh, it's it's enforcement on the road side that's causing the capacity to exit.

SPEAKER_01: 11:18

Aaron Ross Powell So you think it's the fear of the enforcement that has the greater impact than the actual people getting put out of service?

SPEAKER_00: 11:24

Aaron Ross Powell It's it's not so go back to the CBS story on YouTube where um uh Mr. Dillon, his first name escapes me, the head of the association in California, where he said that our constituency is afraid to leave California. And he was referring to his um his uh all of his drivers, the the Sikh population of drivers who um by the way, we're American citizens and it and who've been here for decades, and he was referring to these drivers who happen to do a lot of long-haul produce out of California, where a lot of our produce comes from, and he was saying they're afraid to leave California for very good reasons. So it's kind of the unintended consequences of this. And I'd heard anecdotally from a lot of our brokers that they were having trouble finding capacity on the backhaul lanes for capacity that normally comes out of California and goes to places like McAllen and Laredo. And of course, you go to RateView, and they're in-saught last week.

SPEAKER_01: 12:24

Yeah, last week I was telling Nate this. Um, we have a pretty large client and they predominantly do produce, right? Like$25 million company. So, like a decent amount of volume, and they are all produce lanes. I was looking at their lanes with them for some bids, and I was in ratecast, and I was telling Nate this, I'm like, there were like three or four like really common produce lanes, like Nigales, Laredo, SoCal, right? Some of the stuff going up to the northwest. And I'm like, they were flat all last year, like five grand. When I looked historic, I'm like, this year it's like some of them, again, it was related to the storm. I saw 8,200, 8,500, but rate cast for this year was showing like it's only falling to like 67. So that's like a 50 percent increase at some points in time over a flat rate that didn't change almost all last year, which I was like shocked.

SPEAKER_00: 13:09

Trevor Burrus, Jr. So I've been on record as saying um, and I think it's gonna happen, this could be the wildest produce season we've seen in probably a decade, maybe more, largely driven by this enforcement phenomenon that we're seeing that started last September. Because when you look at rate view rates starting last September when ICE and DHS started setting up camp on the southern border in particular, you saw a massive increase in rates. Rates on out of Laredo and McAllen are up about 50 percent since September, and they've kind of held there, especially for the backhaul lanes back to the West Coast where that capacity comes from. But but when you look at McAllen to all the East Coast cities, those rates are holding up also. So clearly, now what's important, uh Benjamin, is that produce season out of Mexico is just starting. Now, so I I made I made a statement uh four weeks ago, and I said there's four things I'm watching avocados ahead of Super Bowl, avocados on limes, uh Valentine's Day flowers out of Miami right now, berries out of Lakeland right now, now the cold weather has slowed that right down, as you both would know. Yeah, um and then produce season in March-April when the transition happens from Yuma of iceberg lettuce back to Salinas. So you connect all the dots and you look at what's been happening to all of the produce haulers out of California, and and if if any of this is true around non-domicile CDL, English language proficiency, and we've just had a whole lot of drivers say, you know what, I don't need the harassment. I'm just getting out of this industry. Yeah. That hasn't shown up in the enforcement numbers. And it won't. Because people have just said, I'm just not going to do this anymore. What that means for your rates, and that's why your spot rates, because remember, produce is a spot market time-sensitive one truck, one trailer, spot market commodity. That's why your spot rates are holding a new rate floor at about 25% higher year over year. We haven't even got into produce season yet.

SPEAKER_01: 16:16

So I have that's another question I wanted to ask you, like from a driver perspective. The first is like, what is just your personal like opinion, I guess maybe related to safety or as a driver on the roads? Because we did talk to you last summer, because I remember you telling us off-air the stuff that you were seeing, like literally in your truck at truck stops that were just like for sure not safe, and definitely didn't make you feel warm and fuzzy being out on the road. Right. But I'm just your here's your take personally on that.

SPEAKER_00: 16:46

Yeah. So I just spent two weeks out at uh Truckee with my son. We we all went to Christ, we spent Christmas in Truckee, where my son lives. And so, because of my social media platform, I spent a lot of time out at the the chain up pad at the old ag station at the bottom of Donner Pass. So, and of course, California's not enforcing non-domicile CDL, English language proficiency. So all the Cali drivers are coming up and down Donner Pass and clueless when it comes to putting on chains. Like we're talking life-saving.

SPEAKER_01: 17:21

Well, Donner Pass is named Donner Pass for a very good reason. If anyone wants to Google why it's called Donner Pass, you'll know why the weather is the way the weather is there.

SPEAKER_00: 17:30

I'm there watching this. I'm in the traffic watching this stuff, and I'm crawling along and I'm watching how people chain up and I'm watching them go up and down the hill. You could go onto my social media platform and watch some of the chaining proficiency. Like, talk about forget English language proficiency. You should look at chaining up proficiency and look at chains flying off trailers hitting cars. Like Wow. It is staggering to watch how unsafe driving behavior is in California in some of the most dangerous conditions. So there's there's a whole level of skill and training that goes that's not going on that's got nothing to do with English. Well, maybe it's got to do with English language because but I mean I think that's a training issue generally around trucking. So I think um uh there there's something about there's something to this, right, around training and drivers in California that needs to be addressed. Because what I saw was a level of skill that's frightening. And and so I'll give and I'll paint a little picture here because we're one of my favorite spots is Vista Point on Donner Pass eastbound. And Vista Point is a spectacular spot where you pull up, and it's called Vista Point because you get to pull up and look at Donna Lake eastbound. Well, I I don't look at the lake, I look at I pull up at Vista Point and look at all the trucks coming down the hill. I'm the only idiot looking up the hill, right? But what I'm looking at is I'm looking at the freight market through the lens of a camera. I'm looking at every driver and the truck and what they're hauling if I can figure it out. And you can see the produce haulers. You know exactly what a produce hauler looks like. They have a very distinct look. And the flatbed carriers, of course, you can see the industrial economy on the back of a flatbed. You can see every hog hauler, every bull hauler. You know exactly what's going on. And but more importantly, you watch how they come down the hill. And Vista Point is only two miles from the top. Now, from Sacramento, it's 40 miles up and it's two miles down. And so you ask yourself, well, how do you have smoke coming out the back of your trailer brakes after 40 miles up and just two miles down? That takes an incredible level of incompetency to smoke your brakes up within two miles. I can't tell you the number of drivers I see do that. Now, so that's a that's an incompetency on a whole nother level. So I see this stuff and and you you shouldn't shake your head, and then you see other drivers come down at 70 miles an hour down Donner Pass, fully loaded, in the hammer lane, overtaking people in the snow, and you think this is an accident waiting to happen. So I so you ask me what sort of stuff I see out there on the roads, and it is absolutely crazy what goes on on the roads. And a lot of this has got nothing to do with color of skin or English language. There's a level of skill out there on the road that is wide and varied, and and I think it's got to do with the fact that a lot of drivers are driving trucks in between other jobs. It's it's just that a lot of people don't take this as a career that's something that I need to work very hard at. Because a lot of trucks, don't forget a lot of trucks these days have a technology safety net around them. It's like a bubble that gives drivers a false sense of security.

SPEAKER_01: 20:51

Trevor Burrus, Jr. Well, to that point, right, my next door neighbor's a fireman. And I remember even just talking to him. I think we were just talking about like just road trips. He's like, I don't take road trips anywhere. He's like, for a living, I drive to crash sites. He's like, it's horrifying. Like if you saw the worst things every day, like you would be terrified. And like, I don't think we think about it as much because like you only see it on the news or occasionally. But to your point, when you're literally sitting there watching this over and over again, it's horrifying. Like it really is unsettling.

SPEAKER_00: 21:18

Well, there's some I won't name the truck companies, but if I see a truck with a certain trailer design or painting on it, I give them a wide berth. Because when you watch this stuff over the years, you there's a certain type of behavior that's associated with a certain rate per mile that drivers get paid.

SPEAKER_03: 21:37

I'm gonna say Amazon. Whenever I see Amazon, Amazon relay.

SPEAKER_00: 21:42

Like you get what you pay for, right? And um I I just think that it's and this is what we're talking about, right? Is the the cheap rates over the last few years has bred a level of competitiveness that's led to people cutting corners and rushing and paying drivers. You know, I don't I don't necessarily fault the drivers. I fault the drivers for not taking it seriously and risking their lives, but they're a they're a they're the last thing that happens in this whole business ecosystem that's been created around the driver shortage narrative that's been created over multiple decades, CDL mills that's allowed drivers to come in with inadequate training. So, you know, we're at the tail end of this whole crazy multiple decade problem that's been created. And and of all the years that this could be fixed, this has to be the year. Because if all of the rhetoric in Washington doesn't end up with change, I don't know that we'll ever get it changed. This has to be the same. That's a very good point.

SPEAKER_01: 22:42

That's why I felt late summer. Like I was when we started diving into this, and then we were doing stuff with like Steven and Danielle and some of the folks and working and looking at the FMCSA and really digging in this. I'm like, there was like a good couple weeks, like I was just terrified and on like every day. I was just like, this is so much worse than I ever thought. And I remember telling Nate, I'm like, Yeah, the thing that scared me the most is I'm like, the government kind of has to at least be involved in fixing this. And that scared me the most because I'm like, Right, even if they try, they usually give up. Are they gonna be able to stick with this long enough to make an actual impact on the safety issues on the road? Are people angry enough and will they be angry enough long enough? Like most stuff in the news cycle is 48 hours. Like there's an assassination attempt, and three days later, no one's Talking about. I'm like, is this going to stay top of mind long enough for them to actually implement some of these things?

SPEAKER_00: 23:30

One of my favorite movies is the Denzel Washington movie. What is it called? The Equalizer?

SPEAKER_01: 23:36

Great movie.

SPEAKER_00: 23:37

Right? Remember he's sitting on the step with his old boss, and she says, sometimes we make the wrong decisions to get to the right place. I feel like that's what the government's doing. I don't agree with some of the decisions they're making, but I think we'll get to the right place, which is a better, safer industry for everybody because we'll make it harder to get into the industry and harder to stay in, both at a broker level, at a carrier level, and a driver level. I think that's where we're going to get to because we need that from a road user perspective. I need it as a driver because I don't like the idea that people can skate by and get into the industry and get a CDL at a lesser standard than I have to go through. I think the fact that you can get into the industry without having to prove who you are, that's just scandalous. And the government should be able to. Because what this is this is a capacity that's uh we are starting to structurally see leave the industry. And I still think that's the big question I think you're getting to is is it structural or just temporary? I feel like it's uh structural because it it doesn't feel like it's coming back. Because no the you know, a year ago we could have said, yeah, there's a lot of guys that made a lot of money and they're sitting on the sidelines. Well, you look at just look at Landstar's BCO count. That's down to its lowest level since 2012. Um I don't know that a lot of those guys are coming back. Like I think there's a there's a structural sense to that, that a lot of those guys have left the industry. Do you have rough numbers on what that what what they're at and what it peaked at? 12 is the Landstar BCO count. I can tell you exactly how much that's down since their peak in um uh it's a it's a staggering chart when you look at it.

SPEAKER_03: 25:56

I feel like the peak was probably somewhere around the 22 to 23 era.

SPEAKER_00: 26:02

It was they were 11,000. So Nate, this is fascinating. They were 11,089 in the peak in uh I can tell you exactly when the peak was. In Q1 of 2022, they were just over 11,000. It's down 30% since then. And it's at 7,712. And um yeah, so it's down, it's down a long way since then. So it's the lowest since way back in 2012.

SPEAKER_01: 26:32

So I have two questions, and then one kind of segues into the other is like again, years ago, like I think the sentiment was drivers would kind of move back and forth with construction jobs or being able to jump over to that. Right. But so home building's down, home buying's down, manufacturing's down. Like there's not anything I think that we make in this country that is up other than government spending, maybe healthcare and data centers, right? Which is basically funding all of GDP growth, right? Right. So, where are these drivers going to work? And the segue into that is like, I then I want to kind of talk about like the freight side of it, like the economic side, not just the supply of carriers, but obviously the demand. But I am curious from a driver perspective, like where are these folks going to get employment? Or like, is there a niche where they're going? Or like what does that look like?

SPEAKER_00: 27:21

Right now it's a tough, it's a tough one because I don't know that anybody's hiring in great numbers because the large truckload carriers aren't necessarily growing their fleet counts, because right now they're still at that bottom level trying to find bottom. Because if you've you've been hearing in the latest earnings calls that the fleet counts are still sort of bottoming out. That's the that's the trend. But I do think we're at the bottom, right? So I do think we're going to start to see truck orders start to improve and fleet counts start to improve over the course of this year. The Landstart BC out BCO count is kind of bottoming out. Um, so remember spot rates are a leading indicator of contract rates over four to six months. I feel like we're starting to see that market bottom out. The other data point that's worth talking about is the inflection point between when you can go from leased on to independent, we're there. Right? So the leased on, the average leased on owner-operator rate's about a buck seventy-five. You need 50 cents a mile to go independent. So$1.75 plus 50 is$2.25. We're there. So you could go independent now and be better off. So you say, where do they go? Well, you could go out and buy your own truck and trailer now and become independent and be no worse off. Now, but I don't think you'd make that jump now because there's not enough certainty. So I don't know that you'd you'd make that same jump you did in 2021 or 2022, 2021, certainly, because money was falling from the sky then. But now I think this time around you'd want a lot more certainty in the market. So maybe that's the second half of this year decision. But I think we're certainly heading in that trajectory where we're going to see a lot more independent contractors come back into the equation later this year if the demand continues to improve. So I think that's a that's a reality for your side of the equation where you're gonna see more capacity come back in, independent contractors, as large fleets add more capacity back into the market.

SPEAKER_03: 30:53

So I want to share, I'm gonna reference rate view here. Because Ben, it it ties into this, and you and I have talked about this for years. So let me share. Actually, your face is gonna be on there, Dean. Let's see it here. Okay. So look at it. Here we are. This is this is like national average on rate view, and here's here's Dean down on the bottom. Um, but here's this is a uh net national dry van rates, right? So the blue line up top is the shipper contract, and the yellow is the broker spot market. And Ben, we we've looked at this over the years, and the spot market should be more expensive than the contract market. Yet for the last three years or so, it has been cheaper to book a truck in the spot market than the contract. And it looks like it's finally come back and crossed over. Yeah, right. So that's where is that kind of that equilibrium you're referring to? And imagine, do you think that continues where the the contract rate becomes much lower than the spot rate, the way that it historically has been for a very long time?

SPEAKER_00: 32:06

Contract rates are projected to go up another low single digit, so up about five to seven percent the rest of by the end of the year. So the contract rates will go up. The question is will contract will spot rates grow faster? Okay.

SPEAKER_01: 32:17

The yellow one will get bigger, the blue one will probably go up a little bit. Because in a typical market, like he was alluding to is like the spot market is what pulls contract rates up. Because if I'm a carrier and I'm getting two bucks a mile to run this load every Tuesday, then I get a phone call next Tuesday to go 250 a mile and I don't take it. Then the next week I get a 250 a mile. I start giving my loads back to my shipper at two bucks a mile, take the 250 a mile, then the load I gave back to my shipper hits the spot market, now they paid 250 a mile. And then little by little it ratchets up.

SPEAKER_00: 32:47

So so Nate, here's my thought is that if if this turns out to be a crazy produce season that I think it's going to be, you can imagine every reefer carrier that's in the dry-van market thinking, I know where I'm going, and that's going to tighten dry van rates also, which means that the spot market becomes a fairly good proposition for even contract carriers, like large contract carriers.

SPEAKER_01: 33:11

Or least bond drivers, to your point. Like you're working contract, you're leased on, you're seeing the guys making more money as owner ops, you're going, well, maybe I put that truck order in and two, three months I'd pop on the phone.

SPEAKER_00: 33:21

Trevor Burrus, that's where tender rejections start to come in. And you see, you see the you know Thomas Watson and Henry Byers and the freight waves guys talking about tender rejections and how there's a new sort of flaw of merging there. You know, we're in this precarious position at the start of February where we're starting to see a bit of spring seasonality come into a lot of our forecasts. It's not inconceivable to see us head into a new market that's seeing spring start to lift this market to a new new level. That's that's not just Q1 winter volatility. Like I this is because in my rate forecast on the IQ show that I did on Monday, uh my rate forecast has now got early March forecast seasonality in it, and it's absolutely 25% higher than a year ago. And it's really interesting to see that start to emerge. And you think about well, capacity, we know capacity is exiting, it's thinning, and demand isn't crashing, and the ISM PMI came out this way, and there's like it's not a flip-the-switch moment, but it's like start your engines, right? So it's like and it's like there's some interesting things happening that are telling us that maybe the worst is over and the market is bottomed out, and this could be a very interesting year. So I I don't know, like I'm I'm sort of we've had so many false starts and black eyes and uppercuts, right? Yeah, the last three years.

SPEAKER_03: 34:46

Very true.

SPEAKER_01: 34:47

So well, let me ask you this. So, like again, the two things I'm also really curious on is like the things that need moved for listeners, right? Like, there's two things the number of trucks that can move anything on any given day, and the number of loads that need moved that day, right? Spot market, right? So we kind of alluded to like most of what we make in the United States is not growing manufacturing, home building, home renovations. Those numbers are all down. And one of the big reasons GDP was up in the fourth quarter projections at like three and a half percent, I think, or maybe it was five and a half, was like a big chunk of that is the difference between what we import and export, right? So when you put tariffs on everything that comes to the country, that reduces the stuff coming in, which makes GDP look bigger because if you ship the same amount out, but you bring less in, it looks better in the accounting side. It doesn't mean you actually grew. However, right, those things that we used to import were then changed into other products and then sold in the US, which is not there. So the two things I'm very curious is like, what impact do you think it will kind of have in the short term? And then like the follow-up question is like, I keep wondering if they repeal the tariffs and those just go away overnight, you could see both whiplash. Demand jump while supply of carriers is falling, and you could see what we saw around COVID, maybe not to the same degree again.

SPEAKER_00: 36:13

Um throw throw in the the supreme uh throw in the Fed a new Fed chair. Yes, and interest rate. That's right. So you we could have one of the wildest freight markets that we've seen in decades here. Like that that's sort of a whole nother scenario that it's hard to fathom how crazy this year could get with supply being constrained. So you started talking about, you know, Jason and Ken talking about may, you know, we've never seen supply be the catalyst. Well, it's sort of it's kind of shaping up like supply is actually starting to make a difference in the spot market, not so much in the contract market, but I mean, but it has because of the EPA regulations have only just been clarified, and large fleets have been reducing their fleet numbers. So they have in a way, because we've just seen what is it, 10, maybe 11 quarters of large fleets reducing their fleet counts. Um they're trying to be modulating their numbers to meet where demand is. That's why contract rates have been largely flat for the last two or three years. And they're only just starting to come into routing guides showing some positive upward movement. So they've kind of been bottoming out and coming up. So this could be a wild year. Um I don't know. But this is the this is kind of a crazy year. Um I mean that one of the data points that I think is really interesting is um take data centers, take flatbed, for example, like data centers. It's been one of the, you mentioned it earlier, it's one of the things that's been propping up this freight economy. But it's been propping up the flatbed market more than anything. Because year over year, flatbed contract rates have been flat to down single digits, right? Contract rates. Spot rates in the flatbed market are up 12 to 15 percent year over year. Well, how could two flatbed markets be so vastly different?

SPEAKER_01: 37:58

It's all contract, right? It's all construction, which means none of that is contract freight, so all of it goes to the spot freight. Every data center, every flatbed going there is negotiated on a project basis, not on a new.

SPEAKER_00: 38:08

It's in the middle of nowhere, it's got accessorials, it's got cranes, and it's got a big deadhead out of there. It's in the middle of the middle of nowhere.

SPEAKER_01: 38:14

Yep.

SPEAKER_00: 38:14

Well, I looked at the I did a I did a uh uh AI large language model data search and I said, tell me where all the data centers are. And it came up with 18, 18 uh five-digit zips. So I went to our data and I said, tell me about the inbound loadpost volumes compared to everything else. I love AI, right? It's far smarter than I up 18% year over year into the 18 KMI KMAs versus 2% to all KMAs. So like you can't ignore that data point, give it a haircut. Like it's still a lot of volume. And so so you think about the two economies. One's AI data centers driven, right? And one is general contract freight that's tied to the broader macro economy, which is not doing so well, right? Roofing shingles, dimension framing lumber, all that stuff. So you can understand how this freight economy has been very different for trucking companies. So go one step further. Look at um look at caterpillar, for example. Like so, think about I was at a truck show, the the Big Iron Classic, and the and the RGN drop deck crowd was saying where I'd normally be hauling one combine, uh two combine harvesters on the city.

SPEAKER_01: 39:30

Caterpillars down, all the major equipment manufacturers are down, the oil field works down because oil prices have been flat, all that stuff that they used to move, all the pipe to all those plates, all of it is just flat.

SPEAKER_00: 39:41

Caterpillars, caterpillars. So think about caterpillars think about data centers, right? So data pen data centers, one of the big problems with data centers is electricity. Well, caterpillar sales are up. They aren't up because of wheel loaders, bulldozers, and backhoes, but they're up 28% year over year in gas-powered generators for electricity in data centers. And when you look at the specs of these big V16 diesel generators, they fit right in the back of a dry van. Or they'd fit right on the back, you'd fit a couple of them on a drop deck. And I thought, holy crap, I never thought about the diesel-powered or gas-powered generator sales because in their earnings calls they said they're doing and then and this goes to Cummins, all of the people that make generators are actually doing incredibly well. So you think about caterpillar, like wheel loaders and all of those other big drop deck over-dimensional stuff is down for those carriers, but generators are up.

SPEAKER_01: 40:43

They're up in sales, but the bigger piece, if you it was a big pie, a huge percentage of it is smaller equipment that doesn't need to be over-dimensional, hauled on RGNs and hauled.

SPEAKER_00: 40:53

So think about how that affects you guys and your and your carriers who are out there thinking like they were specializing in RGNs and drop decks and all of this stuff, and thinking, oh, revenue's down, it sucks. Like the next thing, they're not thinking about the switch in the market, and they're not thinking about data centers and and all of this other stuff that's going on. Because this has been happening for a couple of years now, and I don't know when the whole data center revolution slows down, but I'd never thought about the alternate diesel power generation or a gas-power generation piece.

unknown: 41:27

Yeah.

SPEAKER_00: 41:27

I've been focusing on nuclear power.

SPEAKER_01: 41:30

That's what I was looking at because I was down this rabbit hole last year with the client. We were doing a bunch of um HVAC returns, the big, huge, over-dimensional things that go on top of the building and doing RGN stuff. And like it was a really interesting niche. But I was talking to the real estate developers and the guys on the project management side, and they I spent like hours with them explaining to me the power side of it, right? Temporary during construction, which is like you said, generators. But then the whole other side of it is like they're building like very small nuclear power plants that are like self-sustained for these data centers. And I was really surprised at how quickly they repealed enough of the regulation to allow them to do that. Because I was like, that's always been a huge issue. They've been talking about it for years. And they're like, no, like they're doing that now, like basically self-sufficient nuclear plants that are able to power these.

SPEAKER_00: 42:18

The I think is for all of us here and everybody listening is I think the old freight market that we knew is now very different. I think you've got to think very differently about how markets evolve and how they change. Because we've just talked about a few examples. Like, think about now the the backhaul market out of McAllen to Los Angeles is very different than now. I think that'll change forever. Um, you're now getting so this morning out of Miami, you're getting$1,200 more per load for a load of flowers to Brooklyn than you were a year ago. And and we haven't even started the peak in flowers out of Miami for Valentine's Day. They're already$1,200 a moral for a load. Now remember, go back to September when ICE converted every uh scale house into an immigration enforcement center. We haven't even started the floral surge yet. Right? I don't know how you're going to find trucks to move berries out of Lakeland. But this is gonna be this is gonna set up, you think about Florida's produce season, you get into the southeast, you get into peaches. Like I don't know how this all shakes out, but if if capacity has been exiting the market and the marginal capacity really starts to tighten, and then you start to get into the refrigerated season, like this sets up a really interesting in March, April. You get to the Vidalia onion season and in April, like that's the starting line. I can't wait to see what the market looks like then.

SPEAKER_03: 43:44

I think a good uh discussion point too, because you know, a lot of a lot of the folks that listen to us are um newer into brokerage, right? And there's a there's a level of expectation management to have with your customers when it comes to pricing, right? For you know, let's say, you know, because there's there's natural turnover and progression in people's careers when they work at a you know manufacturing company, specifically in the the transportation side of it. But let's say, for example, you know, your customer, the traffic manager that you you're dealing with, they've been there for two years, three years, and they really haven't seen a whole lot happen with rates on a on a massive scale. And I think like the you know, having that that conversation that like you guys have as a customer have have really been getting a good deal the last few years because it hasn't been uh there hasn't been a lot of fluctuation and there hasn't been a big spike in in rates overall. And when that comes, you get like you know, you you get some customers that are like, why is the rate higher now? So I'm I'm curious what your thoughts are on what what kind of level of change do you foresee throughout this year when it comes to spot rates, um, like on a percentage basis. Because what I just saw on rate view, I just looked at like Van, the national one that we shared on the screen, and it was up like over the last few months was up like almost 40 cents a mile.

SPEAKER_00: 45:11

Yeah. Yeah.

SPEAKER_03: 45:12

Not including fuel.

SPEAKER_00: 45:13

Chris Pickett said the other day on his uh on his uh flock freight freight uh post, 25 to 30 percent year over year on spot rates. There's a there's a good chance you're gonna see a massive spike in refrigerated spot rates this year. You the conversation you want to be having with shippers right now is that last year's spot rates, year over year change won't be any, I don't think, anywhere close to the ref uh a reflection on what you're gonna see this year. Because you're about to see a fundamental shift in supply this year.

SPEAKER_01: 45:43

I agree too. And the other thing that I want to to Nate's question and to like what Dean is saying is that like the thing that is very different about the economy now than I think maybe ever is that like the stock market is up, but it's very centralized. Like if you take out like the top seven companies that are mostly focused on AI, the rest of the SP is like flat or down. And normally when the stock market is going up, all of the economy is growing, which means everybody is selling more, making more money, and doing better. So like the growth kind of is in line with inflation as things get more expensive. However, like if you see a very small portion of our economy growing and the rest of it, people aren't making money. The thing that I'm concerned with is as freight rates go up, shippers pay more money. As shippers pay more money, they start lobbying the government, going, we need to get this down because the government is so worried about inflation. To your point about the new Fed chair, he's he at least previously was a inflation hawk. So if that number starts creeping up because of transportation costs, the thing I'm concerned with is that the government takes their foot off the gas, if you will, and says, We got to slow down on enforcement because all these companies and inflation's going up, and we're more worried about inflation than we are against people's safety on the road, is the thing that I'm concerned with, I guess. Or I think is possible.

SPEAKER_03: 47:05

Well, I I'll add in there. I I don't think anyone's expecting to see like peak COVID type of rates, right? But more so just um more normalized to what the cost of like the reality is if drivers can't make a reasonable living and you're gonna continue to see them exit and go do something else, like the the rates have to get to a point where you drivers are willing to haul for those rates, right?

SPEAKER_00: 47:33

So I think so Nate, I your conversation with shippers, like if you're a uh 3PL talking to a shipper, the conversation has to be this year. I think carriers are gonna be much pickier about freight and rates. They're gonna hold stronger on their negotiating positions. And I think shippers should expect earlier than expected pressure to replace contract rates this year. I think that's absolutely what's gonna happen. So uh because I'm already seeing it. I'm already hearing it from carriers and they're because they are very anxious to get away from the downward pressure that they've been seeing in the last few years. They sense it. Because a lot of this is about psychology, isn't it?

SPEAKER_01: 48:12

Yeah. Oh, more so than it is the economic market. It's always the psychology of it. Like you were saying before, like the larger impact on the carrier market is probably not the people actually pulled out of service. It's the fear that you were that is making more of them leave.

SPEAKER_00: 48:25

And they feel it. So they feel the market is switching back in their favor. And it's like they sense this that the market is switching. And I I talked to a good friend of mine who runs Reefers in the Southeast, and he said he noticed that he noticed the shift last October. And I thought, oh, that's interesting because I I I wondered about how far how how long ago they noticed the shift in the capacity that was exiting the Southeast. And that's coincidentally when enforcement really started to ramp up. And that's when that's when I think a lot of that minority-driven capacity started to disappear when enforcement started to ramp.

SPEAKER_01: 49:00

We saw that too. I saw it with drive-ins with one of our clients in the southeast in the fall, where like for years they were getting transit times that were like 850 miles a day. Stuff that like I didn't think was possible, which I now know is related to ELD manipulation, because I'm like, how are you driving 900 miles a day and every one of these loads is being covered at this, and they're a dollar 20 a mile? So like that kind of like started disappearing on like days of the week basis. Like it would be loose Monday, Tuesday, and then they're losing money on a lane they were making 15% on Tuesday, they're losing 20% on Wednesday.

SPEAKER_00: 49:39

Imagine being a broker with track and trace and having that data in your database known and knowledgeable, and there's a and there's an accident.

SPEAKER_01: 49:47

So because it's a data point that's discoverable. Correct. And I pointed that out. I would Nate and I were talking about this about two years ago because I started seeing it. And the reason I noticed it was because a couple people in trainings we ran like argued with me. And like they were arguing, like, no, man, like our shipper, like their transit times are 900 miles in 24 hours. And I went, I went, are they in like the middle of North Dakota? Like, where are your shippers? Like, how is that even feasibly possible? And I'm like, I'm like, okay, even if the speed limit is 75, which I think it is in like very small places in remote areas, I'm like, yeah, you would have to load at like six in the morning, not hit a traffic light, not hit traffic, drive straight through, and you still don't get 900 miles. I'm like, how are you doing this from like Atlanta to like Tennessee? And they're like, oh, every one of our loads are scheduled that way. And I'm like, okay, like that doesn't at most men at most.

SPEAKER_00: 50:40

I I know drivers that can routinely do 690, 700 in 11 hours. Like, but you've got to be got to have a good run and be really good at making miles. But 900 is ludicrous for solar. Yeah.

SPEAKER_01: 50:52

And they were arguing, going like, this is the new normal. And I'm like, well, there's something very wrong. And that was what led us into like looking at the ELDs and this stuff, because I'm like, this just makes absolutely no sense. Like, there has to be another explanation how this is happening so much that multiple people are telling us that like this is like the new norm.

SPEAKER_00: 51:07

I'm like, being on the road, that's the craziness you see on the road. That man that's driving through construction sites at 100 miles an hour, like not literally 100 miles an hour, but that's the craziness that we've been seeing over the last few years. That's the madness. And you're seeing those half a dozen or so companies being thrown out of the FMCSA ELD scheme, the jailbroke ELDs.

SPEAKER_03: 51:30

So yeah. Yep.

SPEAKER_00: 51:31

Well, we're in for the year that this stuff changes.

SPEAKER_03: 51:35

Yeah. I think the bigger, the bigger part of it too, because like a lot of brokers are like, you know, they think, oh, if rates go up, I'll make more money. Um, the real and to Ken's post that Ben that you referenced earlier, like the the bigger contributor to brokers being more successful across the board tends to be um when we've got the demand side pushing up too. And that's where I'm curious with like a new Fed chair, right? If you see if you see consistent decrease in interest rates, right, that typically correlates with companies, you know, investing more into growth and things of that nature. So um anything else that you would you could uh throw out there that would contribute to the demand side this year? Absolutely.

SPEAKER_00: 52:22

Um so one of the things I watch for, and that we've again been on the record as saying this, is the ISM PMI has like a 90 uh an R value of 92, so it has a very strong positive correlation to dry van rates. So the headline number the ISM purchasing managers index.

SPEAKER_03: 52:38

Oh, okay.

SPEAKER_00: 52:38

Yep. So the ISM PMI came out at 52.6 uh yesterday. And so when you track the uh dry van spot rate to the ISM PMI number over the last decade has a very strong positive correlation to the direction of dry van rates. Um one month's number doesn't create a trend, but if I see the ISM PMI and new orders start to go up for the next three months, then you can say, yeah, demand is starting to improve. Okay.

SPEAKER_01: 53:09

I just want to break that down because again, those are pretty much all standard that if they're above 50, they're growing. If they're below 50, they shrink, right? So what you're saying is basically companies are buying more than they did. And you're saying that if you see for three months in a row the aggregate of all companies in the United States buying more than they did before, the number of loads to move is going to be continually increasing enough to make an impact on driving rates.

SPEAKER_00: 53:33

They're manufacturing more. They're making more. So they're making more. So remember, domestic manufacturing is probably 50 to 60 percent of truckload demand. So what you're looking for is an indicator of demand for truckload, because manufacturing kind of underpins all of our volume and our lane density. And then you've got you know, retail sales on top of that and export and imports and exports, but it's really domestic manufacturing that underpins a lot of those contract dense lanes that we all like to run. And yeah, the IST and PMI is strongly correlates to drive and rates and demand.

SPEAKER_03: 54:10

I just pulled up the chart on TradingEconomics.com has a really nice chart of it, and you could see like it goes down consistently 21, 22, and to 23, very you know, correlated with what we saw with rates. And then it just kind of like it's hovering in like the the 40, the upper 40s range for like the last three years, and then yeah, it popped up to 52 and change last month, which is the highest it's been since mid to late 2022. So that is an interesting data point.

SPEAKER_00: 54:45

And we need we need two or three months of that, and then you can say, yep, this is uh this is a trend, and that tells us that demand is on the improve. So yeah.

SPEAKER_01: 54:54

The other thing that I think is worth pointing out, right, is I think it was last spring. I think you were on the show where we were talking about this. We were also talking with Jason about this, or at least I was, was like pre-tariff, that inflection point we were showing before on the contract rate versus spot rate, like it should cost more money to book a truck today than it does to give the load to that truck every Monday for the rest of the year, right? Like, same thing as if you tend to pay more to get something delivered today than in three days, right? Like less notice should be more expensive. But they've been opposite for almost four years. But I remember like right around the spring pre-tariff, we started to see that inflection point, and we thought the market was going to turn. And as soon as the tariffs kind of were imposed, they went right back to kind of where they were for the past three years. Was that yeah correct?

SPEAKER_00: 55:43

Yeah, absolutely. Yep. It's the it's the psychology.

SPEAKER_03: 55:47

Is where it ticked up and then crashed. Yeah. Yeah.

SPEAKER_00: 55:52

Everyone hit the pause button because the un was the uncertainty. Everyone said, Oh, we need to pull back and stop hiring, do the bare minimum, slow our production down, get rid of that excess shift, let's wait and see. Because nobody really knew whether they were going to be in the bullseye or not of the tariff.

SPEAKER_01: 56:09

And the other thing too is like you can't do long-term projects with short-term uncertainty. Like, you can't build a new manufacturing plant. You can't build almost anything. You don't even do like commercial real estate's been down because like when the future's so uncertain and you don't know how you'll be impact, you're not making bets that are taking five to ten years to realize. So, to your point, the psychology has almost a much larger effect sometimes than what's actually happening day to day.

SPEAKER_00: 56:35

Right. And and so so here we are now almost 12 months later, and people have said, you know, the world hasn't collapsed, our worst fears haven't materialized, and we've kind of readjusted our supply chain on the fly. And paying for tariffs hasn't meant we're less competitive. Um we're still getting by, and um some people have nearshored, reshored, you know, built a new production line, done other things. So people have found a way to get around tariffs. And so I think I think they've said, okay, we can we can live with this, we can find a way to deal with this as much as painful as it might be. So I think that's where we're at. We're kind of at the we're now coming back out. That's what it feels like. So if you had to say what's the psychology, it feels like we're coming out of the darkness of this, and there's some light now in 2026.

SPEAKER_01: 57:28

It's like anything else, right? It's the normalization, right? Something hurts really bad as soon as it happens, it happens every day. After a couple months, it just becomes the norm, and then you just start operating as if it wasn't like that way before, anyway, right?

SPEAKER_00: 57:41

That's what it feels like. Yep. Yeah. And when you read the sentence, I mean the the the the interesting part of the ISM PMI are the respondents' comments at the end. I love reading those because they break them down by industry and they kind of give you a sense of how they feel and how they think. And it's always good to take, copy all that test text, and put it into an analytics model and say, what's the general sentiment of people that go into that index? And and uh and a lot of it's cautious optimism, you know. So they're still cautious, but there's optimism there.

SPEAKER_01: 58:11

Interesting. That's all good news. I mean, I'm super excited. I mean, I think we say this every year that it looks like this and it's almost there, and we've kind of again had a bunch of head fakes, but I mean, barring some crazy things like this does look like we're returning back to a traditional market where drivers can earn a living and like people are paying fair rates to get fair work done safely and within expectations.

SPEAKER_00: 58:35

This has to be the year. Like if this if this doesn't happen this year, yeah. I don't know what I'll do. I get run out of town.

SPEAKER_03: 58:44

Yeah, agree. Well, good discussion, Dean. Thank you for for joining us. We'll make sure we gotta do like a mid-year check-in with you and see yeah, see if our expectations uh I think we're gonna do it produce season.

SPEAKER_01: 58:58

Right around, I think, March, April, we gotta do the we gotta do the follow-up and see how this played off between this and in the next two months. Because I think that you're right. I think this is where we'll see it.

SPEAKER_00: 59:08

The good thing with AI is we can go into this text from this and say, what did Dean say on the 4th of February? And then we can compare it. What did he exactly say was gonna happen?

SPEAKER_03: 59:21

Very good. Yeah. All right, cool. Dean, any any last uh thoughts uh you want to share with the audience here?

SPEAKER_00: 59:28

Uh no, I think we've said enough. I got myself into a deep enough hole as it is, so all right.

SPEAKER_03: 59:34

Well, we'll get you on the next time and uh we'll see how how accurate we're Ben, any final thoughts?

SPEAKER_01: 59:39

Whether you believe you can or believe you can't, you're right.

SPEAKER_03: 59:44

And until next time, they're not playing in the Super Bowl, but go Bills.