Ken Adamo’s Deep Dive into Freight Broker Margins and Trucking Analytics| Episode 225

Nate Cross: 0:19

All right, welcome back for another episode of the Freight 360 podcast. It's our first one of 2024, so happy New Year everybody. And I apologize, you have to hear my nasally voice today. I'm getting over some kind of whatever the hell's been going around that everyone and their brother are getting lately. So but bear with us. We have a great special episode today with a guest. We'll get to him in just a second.

Nate Cross: 0:44

If you are brand new or newer to the Freight 360 community. There's over 200 other full length podcast episodes. We've got some Q&A, specific episodes and you can check out our YouTube, our website, and you can check out all kinds of blogs full length, short length content, everything in between. Leave us a question or comment through YouTube or the website and share us with your other friends and colleagues throughout the industry. And if you'd like to learn more about Freight 360 and our training, go to the Freight360. Frey360.net website and you can check out the Freight Broker Basics course to learn more about our educational offerings. So, without further ado, we've got Ken Adamo from DAT Freight and Analytics back on with us. Ken, welcome back, man. It's been a hot minute since we had you on the show. How's it going? It's like an annual thing.

Ken Adamo: 1:33

Thanks for having me. It's like a once a year, you know. It's like you go to Olive Garden or you go to Hibachi Steakhouse it's once a year. You know what I mean. That's right More than that. You're just wearing out your welcome.

Nate Cross: 1:44

Well, it's good because we always we try to do, you know have somebody from DAT come on at various times throughout the year to get a different perspective A lot of times, especially when it comes to like rates and analytics. Like we had Dean on earlier, we had Tamir and their CEO this year.

Nate Cross: 2:01

And yeah, we had your CEO on, we had Tamir we had a whole bunch of DAT reps, ken's just the one wrapping up the year, I guess, kicking off the year for 2024. So, yeah, love to have it. Ben, how you doing man.

Benjamin Kowalski: 2:14

Doing well, enjoying a little bit of Christmas break.

Nate Cross: 2:18

Awesome. So, Ken, for those who maybe haven't heard of any of our episodes before with you, just give a quick rundown on your role with DAT, what you do there, and that'll give a good context to why we you know we value your professional opinion here.

Ken Adamo: 2:34

Yeah, sure, so I'm Chief of Analytics over here at DAT. I've been here a little over four years now. I joined from FedEx, where I was a customer for quite a while. I managed and oversee all of our analytics, as the title would suggest our data science, our IQ products and our industry analysis. And I'm a resident tall person as well, so a lot of boxes checked on my job description, but that's my general story.

Nate Cross: 3:00

I love it. I love it. Well, hey, I can't go any further without getting into a little sports banter here. You and Ben are both yinzers, I guess is the correct term right Correct Pittsburgh folk. There, there's actually a shot that the Steelers making in the playoffs. Have you seen that?

Nate Cross: 3:19

Yeah, they need a couple of things to happen, and I believe that would include the Buffalo Bills not making the playoffs. So it's been a wild for the AFC in general. It's been a wild year. No one I mean Baltimore's had a pretty good run, but no one really has stuck out as like a super stellar team this year, like in the past. You'd see like 13, 14, 15 win teams with like Kansas City or some other teams around there and it's a whole bunch of like nine and sevens, 10 and sixes right now and the it's going into week 18. We don't know who's going to be in the playoffs yet. It's kind of wild. But you guys have a chance. We'll see how it pans out.

Ken Adamo: 3:57

But a lot of charity and poor officiating truthfully has been, I think, the story of the NFL this year.

Nate Cross: 4:02

I yeah, I think a lot of people would agree with you on that one too. There is absolutely been games that were decided off of poor officiating. Everyone always says, like it's all about the script. Right yeah, they got their script and what they want to see happen and they're going to do whatever it takes to make that happen.

Benjamin Kowalski: 4:18

I was going to ask two questions about that. One is do you think that when you've got you know, call it like tighter records, Like, as you pointed out, when you don't have outliers, that are, you know, like 15 wins, 16 wins? Do you think the overall viewership of the NFL goes up just money spent into the organization overall?

Nate Cross: 4:36

I think at the end of the season it's going to definitely go up, like you think about. Literally this Sunday night the bills are playing the dolphins and that game could be in the bills or the two seed, or the bills are not in the playoffs at all. That's insane to be the last game over the regular season, but I would think, yeah, you probably get more of that, but you also might lose some fan base from like your bandwagoners who are like, oh, my team's only like middle of the road now and they used to be dominating, so I don't know.

Benjamin Kowalski: 5:03

There's a lot of that about the Steelers this year. I mean it was hard to watch the games but you couldn't not watch them because they were finding ways to win when you didn't expect them to. And I'm like it's kind of crazy that attendance is that high. At least it was for most of the season for the Steelers.

Ken Adamo: 5:18

They were not playing well, but for the first time in a long time you can get not off of directly from the Steelers but resales PSLs that are not Accra sure stadium or within. I think what you get truthfully is probably a more steady viewership. But people love excellent teams. People love even non. The college football does better when Georgia or Ohio State or Alabama are tearing it up in years where you've got kind of you know, more parody. I don't know that there's as kind of it was the impetus behind the flex model. Right, it was to get the right team. But now who do you flex?

Nate Cross: 5:51

Yeah, that's true, that's available. Yeah, and on a college, you know, we know, obviously the championship. I think that's Monday night, right Coming up. It's going to be Washington and the cheaters Washington. Did you, did you see the? Did you watch both games on? Was it Sunday night, the, the semi finals with the cotton or the orange? I don't even know the name very more.

Ken Adamo: 6:18

It was the Rose Bowl and I don't know exactly. It was the. I don't know what the other team played at, what Washington with the Washington and Texas played in. Technically the Cotton Bowl was the high that Ohio State snoozer against the Mizzou. So I don't know exactly the.

Nate Cross: 6:34

The the Longhorns game was crazy because it came down to like a fourth down at the end of the game, to literally like they were down by six at like the three yard line and they just absolutely like screwed it, like just fell down, didn't get any positive yardage and and that was the game, but by a lot of, a lot of tears being shed in in Alabama this past week as well. But it is what it is. What else we got going on? The, the world of sports? Oh, actually, ken, I do. I do want to ask you this because you mentioned the cheaters. Is it true, because you're obviously a Ohio State fan. Is it true what I've heard about Michigan, when you guys play every year, that you guys of are, you omit the letter M out of everything. Have you ever heard this?

Ken Adamo: 7:23

Oh no, I was. So I went to grad school, to Ohio State, and every street sign, every men's restroom, every letter M is taped over on pretty much the entire city of Columbus.

Nate Cross: 7:34

So I'm not born.

Ken Adamo: 7:35

I'm born and raised in Pittsburgh right like I don't like Michigan. If they weren't cheating, I'd be honestly rooting for them. I know I can't believe I'm saying this on camera, but if I hate cheaters, right. So like I don't think Barry Bonds and Mark McGuire should be in the Hall of Fame, I don't think the Astro should have a World Series title. Like my general rule, longstanding rule, is if you cheat, you shouldn't be ball and Jack and Brady do?

Nate Cross: 7:54

they fall in that category.

Ken Adamo: 7:55

That's a different one right because even if they nullified all games they were caught cheating in, they would have still made the playoffs and probably still won. Like Michigan would have vacated even one win this season, they wouldn't have made the playoffs right so it's a little different. But yeah, you do my. My best friend is born and raised diehard. He won't say the word Michigan, he calls them ton, the team up north.

Nate Cross: 8:17

You know, I've heard that one too. Yeah, but no way.

Ken Adamo: 8:19

I'm stirring hate week, Like he'll specific. When he's typing a text he'll put the X emoji every time. You know how different, how many words have M in it. You know, like I mean yeah, so you got to go to Ohio State and every classroom every again, and how many men's rooms are on campus? They're all got the men's and women's rooms. They all have the M crossed off. That's wild.

Nate Cross: 8:42

Crazy, well good, yeah, we'll see. We'll see how this week pans out and hopefully next week I'll be talking about the bills, seating and the playoffs as AFC East champions and not sulking over my team missing the playoffs. So we'll see.

Ken Adamo: 8:58

Yeah, rooting for your bills? I don't think that's do. I hate this idea of you squeaking into the playoffs and get. Remember the year we just snuck in and got blown out by the chiefs like we fell completely backwards in. It's like what's the point of that? I'd rather throw my money behind the bills. Who can make some noise? We'll see.

Nate Cross: 9:12

Well, I appreciate that that support there.

Ken Adamo: 9:14

Ken, you know I'm a I'm a Krogeria supporter of other teams.

Nate Cross: 9:18

There you go, so let's get into. I want to talk a little bit about rates today, but before we get into that, there's been we talked about it, I don't know. In the last couple of weeks there's been some chatter on social media, twitter. Well, really, twitter now acts in the freight spaces with discussions about freight broker margins, and I know that you were involved somewhat in a lot of the tweeting, and it all started because you put out a. You basically put out just a statement about hey, I did some research on freight broker margins and here's what I came up with, right, you have to use. It was a little bit of background of how this all started.

Ken Adamo: 10:00

Yeah, I mean. So broker transparency is a real thing, right, and we're not going to go all the way back. But if you go back and do the research, the reason that these transparency regulations exist were originally protected broker right, because brokerages started after deregulation, largely like they became popular after deregulation as outsourced sales agents for carriers. Right, I'm a carrier. I don't have a way to handle a sale, hire a salesperson, I'm going to go to a broker and they're going to sell for me. And, as you can imagine, a lot of those agreements were based on commission and to know accurately how much commission I should get as a broker, I needed to know. So if you read the transparency regulations, it basically says all parties to the transaction have a right to know the pertinent financial information.

Nate Cross: 11:50

I'm paraphrasing and we literally and we said this like two weeks ago I brought this up this is when we went with TIA and lobbied the last two years about this. The whole CFR 1.3C or whatever the regulation is about transparency. You're absolutely right. The reason that that regulation was created 40 plus years ago was to protect brokers, and now it's being used almost against brokers in a way that it was never intended to be used. But not to cut you off, but continue. So yeah, that's where this all started.

Ken Adamo: 12:25

And so some folks who like to stir the pod a little bit proclaimed there was a raid right, and the government and their infinite wisdom they can't raid any other illegal activity that happens, like the trash, the torn up home down the street from you. They don't raid them, but apparently they were ready to go guns blazing in a TQL's headquarters in Cincinnati to demand one rate con right, one One. And look if they have the right to it. They should get it right. If you want to change the regulations, change the regulations right. You should comply with the regulations as they're stated in my opinion.

Ken Adamo: 13:02

But what I was trying to push against a little bit was selective transparency is really really bad for any industry, right, and I use this example with Lefler a couple of weeks ago it was like if you were doing a study on average male height and the one example you plucked out of the billions of men that exist in this world a Shaquille O'Neal you'd have a pretty skewed version of what average male height looked like and you know when you. So transparency and aggregate I'm a massive fan of because there's tens, if not hundreds, of millions of shipments that flow through brokerages and small carriers every single year, and some of them are going to have really, really high margins. I mean, who in this call has lost money as a freight broker on a particular ship? It's like anyone who's?

Benjamin Kowalski: 13:48

done it right, yeah, Anyone who's ever shipped anything.

Ken Adamo: 13:50

Yeah, who's made more than 15% on a shipment, right? Yeah, all of us.

Nate Cross: 13:55

And we broke this down right. You have to look at your median at the end of the day, on all of us instead of, you know, handpicking whatever best makes your case.

Ken Adamo: 14:04

Yeah, and I think, like again you come down to selective transparency isn't transparency, and I would caution. That was kind of point one. Point two there's a lot of carriers that don't have the means to actually study, even if they've aggregated all of their shipments. So your average carrier might be hauling 10 loads a month, 120 loads a year. That wouldn't pass muster as a representative sample of anything right, because typically you're going to be constrained to a certain geography or different shippers and brokers. So I think it started as a way to bring actual aggregate level transparency that says look, yeah, there's probably 50,000 shipments a year that move at 40% plus margins, but there's probably 50,000 shipments a year that brokers lose 40% margins on right. If there's a distribution and it looks normal like a bell curve, like we're all familiar with seeing, then there's probably just as many people losing 40% as there are making 40%, and that's actually pretty much exactly what the data showed.

Nate Cross: 14:59

Yeah, and there's a reason for that too, that the way that we're as brokers and intermediaries that were able to give our customers consistent freight spend throughout the year, they like that and we're like, yeah, there's sometimes the other day we're going to be taking a huge hit, but on the flip side then there's other times of the year that we're going to be having that those hits made up for with larger, fatter margins, and then in those transition periods just have an average middle of the bell curve, like you said, maybe 15, 16, whatever that percentage might be.

Nate Cross: 15:31

So yeah, this whole this Twitter war Ben, you're going to add something in here.

Benjamin Kowalski: 15:35

Even. Furthermore, like there's just even more exaggerated examples of this, I think, to both of your points that people are just unaware of. I think what really fuels most of this, right, it's the anecdotal, it's the story, it's my buddy does this, I talk to him and this is what they're getting. That can't be right, and I think that's literally what happens, right, and then everybody just starts yelling. But when you get into these large data sets like I remember when I'd work at TQL, we would look at some of the things like even really big bids against like CH at the time.

Benjamin Kowalski: 16:05

We would look at lanes like how in the world are we getting beat when we're running these? At like, some of the lanes we would quote on like a big bid, maybe like 5, 6%, just to get the spot loads that would get us 35%. But it's such a small portion, right, you might be running 30 loads a week that are barely breaking even with your cost. You make like 50, 60 bucks, but on Friday afternoon you make 10 grand helping this customer, right, get out of the holes they were in because of what happened in their operations. Right, like that's the business model. It isn't. Every load is created equal, and I think that is also another huge misconception, just in the industry. Oh, this load went from here to there at this many miles. It should be quoted the same as this, and like there's so many other variables that go into all these two that just don't ever appear in the conversations and everyone acts like oh, they're all just the same right, and I just think none of that's true. I have a really hard time.

Ken Adamo: 16:59

I think what it comes down to right is like it's hard to parse, especially on social media like LinkedIn was my home for a long time because at least you can have like civil long form discourse there and you get into like Freidex and I don't even dare tiptoe into meta. But what's he gonna do to Twitter is kind of startling because it's kind of hard to parse what's grift and what's general lack of knowledge, right. So like there's a world where you believe that there's a cabal amongst the largest brokerages to and the largest financial statement auditing firms like PricewaterhouseCoopers, at a level that would make Enron look like a lemonade stand to falsify financial statements. So there's like a contingent that apparently believes that. And then there's a contingent that believes like wow, you know, this one customer, this one carrier, got a Raycon and it was 48%. I mean it couldn't have been worse. Luck right, because that's what it is right Plucking one.

Ken Adamo: 17:49

So how many loads does Tiki all move? A year they move like $8 billion worth of freight. I haven't kept up on their transport. Yeah, so they're moving $8 billion worth of freight, which is probably I don't know 8 to 10 million shipments probably a year, if not, maybe a little bit more, and the one that got pulled is allegedly a 40% margin. Right, it couldn't have been one that they helped a carrier out to get back home and they lost 30% on. So it's bad luck for them. Right, they got the bad end of selective sampling.

Nate Cross: 18:17

That would have been hilarious.

Ken Adamo: 18:20

You'd never heard about it. You would have never been reported on by a carrier. You would have never heard about it. Yeah, you wouldn't. Now it's, but it's not well understood. I mean to the point you guys are making. Like people get cost per mile, like DAT has been doing it forever. You've got new companies out there that are trying to do it. You know Freight Waves has been reporting on it. Like people understand generally and they've got a level of comfort around. They might not like it during these markets. They like it during 2021.

Benjamin Kowalski: 18:48

Oh yeah.

Ken Adamo: 18:49

But this whole concept of the gross margin isn't super well understood and it's why it's caused me like it's good muscle to build right. If you're head of analytics at a data company, it's kind of good muscle to keep, to keep working to help make that understood, Because if I can't explain it to the lowest common denominator, then I probably need to do a better job of explaining it.

Nate Cross: 19:12

So let's look at. I want to start off with I'm good on the Twitter discussion, unless you guys want to hop back into that at all, but I wanted it to kind of get into the market overall, because you mentioned 2021 a minute ago and you're right, everybody you know trucking companies were probably making fat margins in 2021 compared to how they are now, even if they had inflated prices on truck notes and whatnot for over, you know, overpaying for a truck, things like that. But if you look at about 18 months ago or so, we saw the spot and contract markets flip and Ben, we've been kind of tracking it since, like last what March or April where all of a sudden bought rates got cheaper than contract rates.

Benjamin Kowalski: 20:00

And I'm curious, ken, do you know what I'm sure you do? When did they invert? And the other question I have is I think it happened prior to the pandemic, but it maybe happened once. Has it ever happened? And when did it happen for the recent memory? Oh yeah, it happened right.

Ken Adamo: 20:16

It happened, commensurate with the Ukraine invasion, like same month I think it was March of March 22. Yes, okay, okay.

Ken Adamo: 20:23

So, it happened last, right after the summer peak of 18. We all remember what that was like, right Like right after summer peaked, and then things started to really really cool back down. If you went back even further, you'd go back to like right around the turn of the year of 2015. Right after that you kind of got into that industrial recession type period that predated the ELD driven upcycle. So it's like that's the pit of your stomach going over the hill of a roller coaster. That happens at the end of every freight cycle.

Nate Cross: 20:51

It's unusual for it to last this long is it not.

Ken Adamo: 20:57

It's unusual for it to also last as long as it did in the other direction. Okay, that's fair. Yeah, so you know it's. We use the term overbought and oversold a lot internally, but it's to the extent of the market became way overbought on the high side it's we're feeling the effects of it being oversold, if you want to just kind of torture that vernacular On the downside. So you know, fuel spiked when Russia invaded Ukraine, kind of one, two punch of that in the market softening. And we've been on this, this wild ride since that.

Nate Cross: 21:33

Yeah, so okay, so that that makes sense. I guess I didn't put it into perspective of. I always would have thought because, ben, you and I were talking about like, yeah, you know it's the spot market's cheaper right now. This is a great time to go out there and try to you know prospect business and go out from that angle where you can. You can literally get a truck for cheaper than what these folks are contracted on. And we're like it's not going to last for long and then we fast forward. We're like it lasted throughout the entire rest of 2022 and then all of 2023.

Benjamin Kowalski: 22:04

Well, here's the other PR in 24.

Nate Cross: 22:06

Ben go ahead.

Benjamin Kowalski: 22:07

I was just going to say at the beginning of that right. The other thing too. I think that happened was right like shippers were terrified. They literally couldn't get trucks to move their goods to meet their sales numbers, right. So they were going back to their carriers and going listen, we'll pay you more, guarantee us capacity this year. And I think that also helped push the contract market farther away from the spot market was just recency bias, who just fear that they couldn't get the capacity when they needed it. They had a problem to get an inventory and then you have problems getting a truck. So it's like, well, if you can't buy the products you need to sell and you can't ship it, you don't have a business. I think that also contributed to it. Or do you think that was far less impactful into why they split in the first place?

Ken Adamo: 24:05

No, I think that was part of it. I think the other thing too you got to realize and I know that you both do, but we don't always think about it is almost every contract load has a fuel surcharge or fuel recapture program. So the main event that at least kicked off the tumbling of the spot market actually probably resulted in increased profitability of contract carry. Most contract carriers if they're running more well let me say it this way any contract carrier that's running more efficient than your average fuel surcharge program is at least the fuel surcharge program is a creative to their bottom line. That's probably the most politically correct way to say it. So the big orange trucks driving down the street weren't sweating the increased fuel prices because their fuel surcharge floats a long top market and they're also hedging fuel on the backside. So I think it's a lot of different factors, but wholesale, across the board contract immediately became the more advantageous place to be for everyone involved. Frankly, like all of a sudden in all at once.

Benjamin Kowalski: 25:05

And the small carriers without the relationships weren't even at the table, and then they just got farther and farther from the table because they didn't have the resources, like you pointed out, they don't have sales teams, they don't have the ability to go and start establishing them, and I feel like that also contributed to them getting farther and farther.

Ken Adamo: 25:21

Yeah, and I will say, like, if you want to look at another reason why it's going to most likely be a more prolonged downturn than prior times, it's because they built up such a bank right. You had publicly traded trucking firms running 68, 67% ORs. Right, that's like a four minute mile, like it's unheard of for those kind of profitability.

Nate Cross: 25:42

Is that a lot? I'm curious is that one of the things that you track at your level is the profitability of publicly traded companies like that, or just a random stat that you're pulling out?

Ken Adamo: 25:54

Oh no, we look at all of that, right. And it's also like old Dominion always runs a more profitable LTL firm than yellow did, right? So we're looking at all of that to say as a proxy, because there are still a lot of really large private trucking companies that we can't peek into their financials, right? So just like we look at CH Robinson and RXO and Coyote and Uber Freight to proxy what Echo might be doing right, because Echo went private, jordan Company bought them. We do the same thing on the trucking side. I will say it's a lot easier on the brokerage side because not everyone operates differently, right? Old Dominion's operational and pricing excellence sets them aside from you know, you name it ArkBest or anyone else.

Nate Cross: 26:37

Okay, so the takeaway on what really your point is you're saying they were able to run so fat for years, which affords them the ability to run thin now to try and weather. This. Is that the takeaway?

Ken Adamo: 26:49

Oh yeah, that's 100%, and that's not even the bit. So any carrier that wasn't like running through Vegas after they delivered like a month's worth of great freight was able to ride this longer than expected, frankly.

Benjamin Kowalski: 27:02

Right, and I want to reiterate to everybody because we've talked about that a lot and it's something simple, but it's profound, right? The companies that when things were going well saved more money had more money saved for when things aren't going well, so they didn't have to make as many poor decisions, right, yes, and it's simple, but it's not easy to do, right, because I think when you're in the market even myself included when you're in a hot market, it kind of feels like it'll last forever, right, so you get a little bit looser with what you're. Hey, let's fix this truck up. Hey, we've wanted to add to this, we wanted to add to staff.

Benjamin Kowalski: 27:37

If you're a brokerage, this happens in every business, right? The point is to. What I think you said and I think it's really worth understanding for everybody is you've got to be able to weather the shitty storms when it's good times and if you're not putting money away, it's inevitable. Right? The market always cycles. It goes up and down and up again. Right, they never stays in one side or the other, and I think a lot of personal responsibility should fall under this, and most people just never look at this.

Nate Cross: 28:05

Well, I also think too, before Ken says that, think about the average of the average right, the average, like 10 year, of someone in transportation because of all the new entrants that came in in 2020 and 2021, they didn't have like hindsight or like previous knowledge, or did they care to like even think, to do research, to be able to project it like, oh, this doesn't last forever. You know what I mean. So that's, just as an aside, my take on it. No, it's extremely high.

Ken Adamo: 28:29

It turned over industry too. Right, your average rate brokers a kid right out of college with a division one school that sees the ability to earn six figures their first year if, once they go off stipend, right. So like, yeah, you know, turn over side the point I was going to make. It's a it's an unfortunate truth, but it's a truth worth understanding the market, because the question we get all the time, especially from small carriers and it's kind of a heartbreaking question is how can the market as a whole go below the cost to operate a truck? Doesn't seem fair and the unfortunate answer there is in a very short term maybe a couple of months, maybe a quarter or two is that the market will go to the variable cost to operate a truck and unfortunately there's a lot of uneven and unexpected fixed costs that pop up and that's why you see kind of up and down attrition.

Nate Cross: 29:21

What I mean by that. Break that down Barney style for anybody that's like fairly newer, to the end of the day.

Ken Adamo: 29:27

So if I'm a truck driver and my total cost to run my truck right now is a buck 90, right, that's all in as paying myself, that's setting aside money for when I need new tires and brakes and engine rebuild, I'm probably only. My only direct expenses are my monthly truck payment, my fuel, my insurance. I'm doing monthly, yeah, anything insurance like. So that's my only truly variable cost and maybe let's say that's at a buck 60 or a buck 65. So you'll continue running because on a the miles I ran today, like on an odometer basis, I'm making or breaking even on that, but I'm not paying myself.

Ken Adamo: 30:06

And you know, god forbid if I blow a head gasket. I'm assuming diesel engines have head gaskets, but just go with me here. If I blow a head gasket and I go pull into the mechanic, what do I do? Park the truck, contact the leasing company or contact the finance company and say I'm out of money. And that's why when you look at the FMCSA authority revocations it's lumpier than you would expect. Because when does it get lumpy Quarterly insurance payments? If that's the plan, you're on maintenance license license and your registration.

Ken Adamo: 30:35

So over the long arc of time, it's absolutely true that the market won't go below the long term cost to operate a trucking company. That's 100% true. But it's a very short term market, right? What happens whenever the cost of oil dips below the cost to produce? They shut the wells off. But that doesn't happen in trucking, right? They actually dip down below the variable cost and even sometimes below right. Because if you've got 10, 15 grand in the bank and you can afford to lose a little money on fuel for a month or two, you might do that until you're officially out of money, right?

Nate Cross: 31:11

How long do you think that period can last before it's not sustainable?

Ken Adamo: 31:15

It can't be more than a couple quarters right, Because at that point you're turning over like how long, and that feels so long to me.

Nate Cross: 31:21

Like multiple borders. Well, they've got a savings perk up right.

Ken Adamo: 31:23

That's exactly what goes back to the other point. They built up some savings and fuel has come down right. So their cost to operate has edged down in the tail half of last year as fuels come back down to earth. So you know we look at that as optimistic. But then how often do you look at it as like prolonging the inevitable, because what actually needs to happen and then it just sounds cruel. But what needs to happen is enough capacity needs to exit the market, to rebalance supply and demand, to start rates back up. It's just a fundamental truth.

Nate Cross: 31:53

Yes, and don't you think that part of that company's operating below that variable level is what's going to force certain small carriers to exit right? Yep, that's how we get a capacity approach every time right, because all of a sudden, then all at once National correction, exactly, yep.

Ken Adamo: 32:09

All of a sudden, then all at once. And again, I think it's an admirable quality with truck drivers that they run to the very end. Like how many truck drivers or small owner operators do you know? They're like. You know, the next couple quarters doesn't look real great. I'm going to sell my truck and get into something else. They're like I'll be damned if I'm not going to keep turning these wheels until I can't turn them anymore. And again, that's the admirable quality we all love about the American truck driver. But at the end of the day it leads us to a point where the correction necessarily becomes violent.

Nate Cross: 32:38

So where are we? In your opinion, no one's got a crystal ball, but where are we in that process right now? We're starting off the year, it's the first week of January. Are we at that soft bottom now per se, or in that variable level now, or do we still have further to go?

Ken Adamo: 32:54

Because Ben and I have arguments.

Nate Cross: 32:56

We have made the argument, or I have at least, that I think that we've already hit what you could call the soft bottom, but you're the expert, not me, so I'm curious.

Ken Adamo: 33:07

Yeah, I think we're off bottom, to be frank with you, and like adjusted for fuel, you have to adjust for fuel prices. I think adjusted for fuel we're at, if not a little bit up from bottom, and that's exactly what we said a couple weeks ago.

Nate Cross: 33:19

Yeah.

Ken Adamo: 33:21

Now, unfortunately I don't think we've yet cleared that all in cost to operate, which means annual titling, annual inspections, all of those things that happen. And then the annual freight slowdown. You guys have all been in this industry quite a while. February is a really really slow month for freight, like really really slow, especially on the asset side. So I think we'll weather that and then, as we pick up this spring, we should handle the spring shipping peak. This is going to be a controversial statement, so I think we'll handle the spring shipping season at a bit of a capacity deficit for the first time since the market turned down.

Benjamin Kowalski: 34:03

Question I like that Does. Is that at all contingent on what happens with the supply of freight in the market and what the Fed's going to do?

Ken Adamo: 34:13

I think yeah, Are you factoring it into?

Benjamin Kowalski: 34:14

that side of it.

Ken Adamo: 34:16

I'm not. I'm actually factoring. Even I'm not factoring. So an election year is typically a a melasical year for freight. Like things don't. People aren't placing best. They're not typically starting construction on massive warehouses in an election year. That doesn't. It is typically a little bit bearish. So if you couple an election year with a couple modest rate decreases and let's just say demand stays flat, ish, so you have macro demand and then you have freight demand, I do think depleted inventories through peak will offer some tailwind heading into the spring, which is going to be good.

Ken Adamo: 34:49

This was the big thing I cautioned against and I'm not again like a typical. I wouldn't do what you would call it an alarmist. But the one thing that I was really worried about was a lot of people ran with a random clipping here and there that Walmart was done with restocking. The restocking was done. Everything that was going to be on the shelf for Christmas needed to be shipped and that just proved wholesale did not be true. You had record Black Friday and Christmas e-commerce and brick and mortar commerce and yet not record shipping. Was that tell you? There was a bunch of crap in the warehouse, yeah, yeah. So again, I'm sure someone in the supply chain department passed a note on to investor relations and said say this at the investor call. And that's what got said.

Ken Adamo: 35:28

But in reality what happened was there's still a lot of inventory out there floating around, so I think that has been depleted now. I think it's very expensive to carry inventory which, on a real time basis, is good for freight, because you'll see a little bit more just in time. Right, high interest rates means it's more expensive to carry the inventory. So I think this spring will be a trend. So don't expect like oh wow, it's crazy this spring. I just think that'll start to feel some pressure. But then H2 of next year, I think, is when we'll start to see more actual recovery Things that we're familiar with?

Nate Cross: 36:00

Is there an excluding a global pandemic? Is there a massive event that you could see in 2024 that could accelerate that process? There's already multiple wars going around around the world.

Ken Adamo: 36:19

Could speed limiters do it Right, I mean. So what was the?

Nate Cross: 36:21

big deal.

Ken Adamo: 36:22

Yeah, it's a good point so if it was ELDs and that reduced just what a couple hundred basis points worth of capacity. Right, Because it took away the bumper hours that you could fudge with logs If speed limiters became a real serious thing in the next year.

Nate Cross: 36:37

Is that on the docket for 2024?

Ken Adamo: 36:39

Or is that still like they're taking a plan out, unless, again it's an election year? Man, I think would you be surprised at all if polls were trending and again, this is an apolitical statement, I'm not telling you this is a no endorsement of either party. If polls are trending red, would you be surprised that all of federal marijuana legalization became all of a sudden on the table before the election? I wouldn't be Right. So like there's a lot of levers and Buddha said just been pretty quiet as it. Like I know a lot of people don't like him for a lot of different reasons, but in terms of like policy, I don't know that he's been as active as he could have been. But we'll see.

Ken Adamo: 37:16

I think mainly you're going to look at demand pressures as a result of interest rates and levels of investment. Like, do new if, if, if, if lending rates for a 30 year mortgage go below 5%, nice little tailwind, not crazy. Nice little tailwind, why? Because people start moving. Who's moving today? Like, you're comfortable in your house, you're at a 2.9% interest rate, why would you ever move?

Benjamin Kowalski: 37:38

The housing market's crushed right now because of the inverted relationship. The only counter argument I would make, I think, to everything you said, ken, is that I think, for the same reason that you were talking about over buying, to being oversold in the carrier market, I think we're seeing that play out in the economic market and I think it's still that wave is kind of dwarfing what would be traditionally more macro economic things. I do think that is true and I think you always tend to see that I still think there's a lot that's going to play out. So, like you pointed out about inventory, what did the end of the year look like too? Because I know I was watching the rates coming up into Christmas and it seemed like they stopped spiking about a week or so before the end of the year, but I didn't see them up to the end of the year?

Benjamin Kowalski: 38:20

Did they play out the rest?

Ken Adamo: 38:21

of the way they finished, right about where you'd expect they normally did. I did a little poll on social media, like $1.75 is where a lot of people thought they were going to settle, and that's about where they settled. But that's more of like an out of service kind of deal, right, where you're just shrinking. There's not a ton of stuff that needs shipped on December 30th, right. It's more of like who's there to haul it? You're right, though, about macro Demand is the bigger hammer, right. If you look at supply and demand, we're still buying services.

Benjamin Kowalski: 38:47

We overbought services to the point where we saw the economy still do very well and it kind of nobody believed it should. And we spent more money, but we didn't buy as many goods because we still had the hangover from services, from the pandemic, at least that's reported right. More increase in spending to travel People didn't travel for so long more vacations None of that stuff ships in a truck. I think, though, consumer budgets are down and we have no idea what they'll be next year. But to the point of the overall economy, if people just start buying more stuff again for whatever reason and I think interest rates fuel that in some way I think, you see, that maybe move in our favor. I don't know, maybe it's hopeful or wishful thinking that I'm just really hopeful that, like it spurs the economy and enough that we get a bit more of an uptick when the market does shift. But I don't know.

Ken Adamo: 39:39

It's always hard to tell right.

Benjamin Kowalski: 39:41

What would you say Proportionately, if you're talking about the amount of freight versus the amount of carries in the market? What would you wait as the larger impact?

Ken Adamo: 39:50

Oh, so I don't know. It's hard to think about gross numbers right, because ultimately they're met right. Ultimately, the amount of freight that needs to move like freight moves.

Nate Cross: 39:57

That's one of the first things we're taught in the industry.

Ken Adamo: 39:59

Right, I do think that, like demand effects cast a heavier impact on the market than supply, like a macro level, like look when there's a hurricane and there's no trucks.

Ken Adamo: 40:08

Natural disaster, yeah, yeah so like on a regional scale, a bridge goes down in North Atlanta or whatever you know on the perimeter, like that's different, I think. On the high level scale, if the economy is doing really really well and we have too many trucks, the market will outrun that right. The market will still run hot If the demand, if we reach equilibrium on the number of trucks coming out of this down cycle and the economy totally crafts the bed next year for some reason, right, let's just say our credit rating gets down. I have no idea what that would be, but let's just say something bad happens in the economy. There's no amount like we'll have to probably lose another 10,000 trucks to make up for that.

Ken Adamo: 40:51

Because the problem is and the reason that happens is because, whether we're saying it overtly or not, we're talking about the spot market and you've got this massive ballast or counterweight, which is the 90% of freight that moves on contract and private and dedicated, and 1% changes in those acceptance rates have massive changes downstream and I think right now what we don't know is how much capacity driver capacity I'm talking about now shifted to private and dedicated through the pandemic and won't come back, because if you go work construction when trucking gets really really bad and then it gets really really good again. You can come back If you've got two nice clean, pressed uniforms to go drive for Dollar General in your home every night and you're driving in a nice new truck. You're not coming back. And Dollar General and all these other firms have introduced, have increased their private fees by 10%, 15%, 20% and that's big. Let me ask you about that, you guys track?

Nate Cross: 41:50

you were talking about acceptance rates. Do you guys track tender rejections through DAT? Say more Okay, so contracted lanes for asset based carriers. Do you guys track the amount of freight waves? Right, they're going to have a tender rejection index that says, hey, 6% of tenders are being rejected from contracted lanes, where it was like upwards of 30% and the peak of the pandemic, it was 10% as a baseline three years before that. Do you guys because I know you track a lot of the rates Do you track anything as far as the amount of freight that gets?

Nate Cross: 42:34

basically not accepted by that carrier or no?

Ken Adamo: 42:40

No so we don't. That is not a data set that we work with, so I will tell you a couple of things.

Nate Cross: 42:46

Because that'll impact, like you said, that'll have downstream impacts on the spot market. I was just curious if there's any sort of data set, that DAT track. But no worries, no.

Ken Adamo: 42:55

So, like the one, I'll say that is 2023. Ken may have had a quip about freight waves in there, but I'm better. This year I've got a resolution. I'll say I think the tender rejection data is good and I will tell you that the market happens so fast that when we look at low detract data in the spot rating data, it's not like that tender gets rejected today and then it appears in a different data set tomorrow. Once that tender gets rejected through the routing guide, where does it go? Spot?

Ken Adamo: 43:19

It either sits, it's not over here, yeah, or it went to the spot market, and once it comes to the spot market we see it. So I think maybe you're getting an extra hour of latency. And again, I don't even know if FreightWaysData updates intraday. My guess is, if you're looking at just a daily, if I look at yesterday's outbound tender every 24 hours, yeah, okay, so if I can say this pretty confidently, then I think that's a statement. But if you look at yesterday's outbound tender rejection index and our outbound motor truck ratio for a specific market, or even today's, you're going to see it.

Ken Adamo: 43:53

It might not be exact. There might be certain markets and certain commodities that and again, lord help me for saying this there might be certain areas, like if you're moving retail out of Harrisburg I'm just picking something totally random, I have no knowledge of this the outbound tender data might be better for you. If you're moving FAK out of Houston, low to truck ratio might be better for you. But my guess is, when you even out the puts and takes, both are going to have probably generally a similar story to tell. Okay, so I have a question.

Ken Adamo: 44:19

And they both lead rates by a couple of days, right? So if you have elevated rejection rates in a market or elevated low to truck ratios in a market for more than a day or two, you're going to see rates start to creep up. The correlation is like 75%. So I have a question for my data anyway.

Benjamin Kowalski: 44:32

One of the things that I've seen a lot this year and this is definitely anecdotal, that's why I really was looking forward to your take on this is on a lot of the bids that I've seen and a lot of the bids that I've gone through with some of our clients or that they've just referenced right and again anecdotal, but stories of, like you know large major shippers, right, and they're going through bids and I've seen this too where it's like it looks like 40% of the lanes like you just absolutely couldn't cover, just way below market rates, and then a few of the shippers that I've talked to right, just in conversation throughout the year have told me like, yeah, we're absolutely doing this on purpose. We are pushing rates as far down as we can to get as much back as we lost in the previous years. We're going to push them as far as we can. When I'm hearing from the brokers and the other people in the market are you know, historically that would have created paper rates? You're you know you're securing capacity at rates that nobody's ever going to actually pick that load up for right?

Benjamin Kowalski: 45:28

The question I've had and that I kind of felt like was happening was, it seems like the shippers and again it's economics. They are going to pay the least amount they can at some level of service to maintain that. Are they overplaying their hand? Are they pushing it farther than they normally do? And if that's true, I feel like that could create a much harder bullwhip on the other side of the market. If you have all these large shippers with large portions of rates and the spot market moves at all and the opportunity cost is, I'm not going to pick up this contracted load. Can't you see like a massive shift back to the spot market, where you're going to see that happen much faster? Or do you think the shippers are not able to have as much influence individually into those things?

Ken Adamo: 46:11

So I think it's important to take our advice that we started the show, which, as much as we laughed about our friend wherever they live, I think there are certainly some shippers doing that right, because, especially the ones where the person is still in the seat who was totally torched in 2021 and 2022, I'm sure they're out for blood. I think with other people, like at a macro level, we talked to a lot of shippers. We had our annual conference in Houston in October and got to speak with about 100 shippers I'd say at least half of them and again, these are big enterprise that know us and come to our show. Probably like half of them were new and roll in the last 12 to 18 months. You could be buying toilet paper or stationary one day and then get put on the freight procurement side and then, right, like good shippers don't do that, but not every shipper is a good shipper, so let's just kind of level set and say that's part of it.

Ken Adamo: 47:00

You see a massive outsourcing of bids too. So there's a huge tranche of the market that gets outsourced either to small private consultancies or the big ones like TMC or now Uber Freight. The old transplace bid management and now you're seeing tech players like Load, smart and Emerge come in that I almost said you're seeing Emerge, emerge, but good branding. So you think you're seeing a fragmentation of how shippers go to bid the long and short of what I'm trying to say here and are some of them out for blood? Sure, I think a lot of them are realizing they cannot damage their carrier relationships and dip their toe in the spot. They're seeing voluntary spot market participation up in a way that we haven't seen before. It's not huge, but it typically doesn't happen. That's normally like an old wives tale, to be truthful with you, like for a shipper to dip their toe deliberately into the spot market just to save money doesn't happen a lot, and they over the last. Well, if you do not, a money saver on the whole right.

Ken Adamo: 47:54

Yeah, but for the last year, to the point. You know, bringing this whole thing full circle, they can get some of that savings. Doing it that way, I don't. If anything, I'll leave you with this one point. We are seeing them move back to longer bid cycles. After all of the talk, the mini bid is here to stay.

Ken Adamo: 48:07

We all insurance mini bid for life. You know everyone's about the mini bid and you know what All of the big big box retailers, all of the big CPG firms are saying now 12 month bids back, baby I was going to say.

Nate Cross: 48:18

That's something that I noticed at the end of 23, like October, when bid season started to open up for 2024. It was the first time in like two years that I saw annual bids going through and I'm like it's been a long time since we've had to project rates out 12 months. But that's a good sign, I think.

Ken Adamo: 48:36

Yeah, I remember during the peak of the madness I think I'll remember this as long as I've been in the industry I was dealing with a tuna supplier and this woman was telling the crowd that she was running bi-weekly bids and she staggered them so that every week they had a bid they ran their. All of the inbound was refrigerated because it was raw tuna and all the outbound was shelf stable. So she was running her inbound refrigerated bid one week for two weeks and then the next week would run the outbound shelf stable for the canned and foil packed tuna. So imagine running a bid every week for a year.

Benjamin Kowalski: 49:09

It's got to be expanded. That's insane. Like I can't.

Ken Adamo: 49:13

So back to like well, yeah, you know, and then you talk to some of these big box retailers and they have eight people working for them and each eight manage a billion each of logistics spend. And that's just like wild to me, you know, like that's a scale that none of us really think I have an appreciation for. That's a huge number.

Nate Cross: 49:32

Wow, well, I guess, if I guess, to kind of put a bow on this conversation, what, what would you say is a key takeaway from 2023? And and then, to piggyback off of that, what would you give as advice to anybody in the industry moving forward this year?

Ken Adamo: 49:54

I think it's an awful cliche, but it's true and that history doesn't repeat. It rhymes and you know we cautioned that the worst thing that could probably happen in 2023 at the start of the year was it looked exactly like 2019. 2019 was my last year in the industry and it sucked. It was worse than 15 because it just didn't move. It got to bottom quick and it sat there and that's what that year felt like to me. I think it's a story of resiliency, though I think it's a story of Chris Jolly.

Ken Adamo: 50:21

The freight coach says this a lot you can make money in any market. It's something I just completely wholesale agree. Especially, the brokerage community is fortunate enough to have variable control over their expenses and revenues and some of those relationships can certainly last market cycles. Looking at 424, it's the same advice. Right, we dug out of 19. We dug out of the 15, 16, which was really really rough, especially if you were in the Midwest hauling for the automakers. The tier one's just got absolutely beat over the head, if you remember that cycle. But it comes back and it has every couple of years. It cycles since deregulation up and down.

Ken Adamo: 50:59

The one thing I'll kind of close on we're now stretching to the somewhat long timers. Right, you may not have just entered the industry, but all you saw was 18 and 21,. Right, they're not all like that. Right, I was there for the three cycles prior to that and they were much, much more muted. Right, it was a cruise ship, not a dinghy. Right, like it marked up, up, up, up up. You turned around and you're like, oh crap, rates are up 20% over the last year and a half. What the heck happened? Yeah, rates are up 80% over the last 12 months. So if you're maybe a three to five year level of experience in this market, understand that it might not be like it was during 18, 17, 18 and 21, 22. But certainly, good times are here to come again. It's just timing them and taking advantage of them.

Nate Cross: 51:48

That's a really good point and, ben, you and I have talked about this before. There's a lot of people that listen to this show that didn't know a pre-COVID freight market, so they didn't understand why is the market today the way that it is? When it just two years ago it was red hot. And, ken, you make a good point because if you look back in that hindsight, if you go back 10, 15 years, we've seen this cycle over and over and over and I do think that it was an exaggerated I shouldn't say was it is. This cycle right now is an exaggerated. It was very long with its red hotness and it's been very long with its contracted side of kind of the whiplash effect.

Ken Adamo: 52:38

So and I remember in 18, nate, I'll tell you, like I was sitting there, I was running a pricing department at FedEx. We had the asset and the non-asset division and I won't out the name of the company, but we priced it. We were declined to price it. It came back. We declined to price it. It came back, we declined to price it. It came back and they said look, folks, it was a project. I don't care what you write on this check, but I'm sending you a blank, if you know, I'm sending you a blank check. I want you to haul this freight and I don't think this is getting too specific. It was for a monster truck tour, monster jam tour, and successfully executed on the project and out. Everyone who was in the industry at that time knows that your annual sales conference that next year was absolutely bonkers.

Ken Adamo: 53:21

Like we ran out of stream song in Florida like running out the whole clubhouse. And in the hand to God truth, there was a monster truck out front of the stream song clubhouse when we ran it out this year because they were so thankful. I would never thought I'd see a market like that again.

Benjamin Kowalski: 53:35

Yeah, three years later, you did.

Nate Cross: 53:36

I want to use today that because I remember we had the brokerage I worked for before the one I met now. Obviously, 2018 was great. We had a Key West trip for the sales team that next February. So then the boss was the owner of the company, who wasn't very embedded with logistics or transportation, he just owned the company. He's like if you could do it last year, we could do it again this year. So he set like loftier goals. He's like we're going to send you guys to Italy next year if you get the goals this time. And we're like it's just not possible. Like what just happened was a wild year. It can happen again, but it's not going to happen this year.

Ken Adamo: 54:15

So FedEx ran on fiscal years June to May. So think about, for how good 18 was if you captured that, how bad 19 would have been going from June of 18 to May. So we went from being in stream song in Florida to the embassy suites off of Canton Road in Ohio. That encompasses the freight market.

Nate Cross: 54:37

my friend the embassy suites where they gave you a free breakfast and a free happy hour included in it. Yeah, one free drink ticket, yep, yeah, well, hey, I think the takeaway is and I don't want to skip this part you mentioned Chris Jolly, the freight coach. You can make money on your market, agreed, and Ben and I talk about this a lot. There's a different approach and a different need that customers have, and customers problems change, whether it's price sensitivity or just the ability to secure truck for a shipment. There's always an opportunity, just about the way you approach it.

Nate Cross: 55:11

So I think, just to be cognizant, that we're not going to be living in a steady freight market. It might seem like it spends steady, but a low study the last 12 months, but it will change. It will go up and it will come back down again and it's going to rinse and repeat. Like you said, history rhymes. I like that. I've never heard that one. It's pretty good, but that's a good way to look at it. So, ken, we appreciate having you on If you got anything else you want to share with the audience before we wrap it up here.

Ken Adamo: 55:39

No, like I said, I wrapping up a longer form white paper on the broker margin stuff. I'll be sharing that on LinkedIn. It's just under my name, ken Atamo, and I'm the freight nerd on Twitter, so, if you want to, that's usually shorter form analytics and memes, so engage with me there and I'm happy to answer any questions.

Nate Cross: 55:58

I got to say I do like your Twitter presence, but make sure we put a link to your. We'll do your LinkedIn as well as your Twitter handle and the show notes. So make sure everyone follows Ken Atamo on there. So I appreciate it. Thank you, yeah, our pleasure, Ben. You got anything you want to add in for Ken before we put a lid on it?

Benjamin Kowalski: 56:17

I don't. I think there were a lot of really good takeaways. I think the most important is the market cycles. It's a circle. Wherever it is now, it'll be again, and where it isn't, it'll be there soon enough. Right? And as long as you do the right things, you ask the right questions, if you have a competitive advantage of understanding and trying to understand the needs of your customer, you can make money. Where the market goes up, down or stays the same, right, it's $700 to $800 billion. No company out there is trying to grab the entire market share. You need to do a very small percentage of that to be very successful. There's plenty of business out there, no matter where you're at in the market, for sure.

Nate Cross: 56:52

Definitely. Well, ken, hopefully we get you on before next January. I'm in, all right, sounds good, Ben.

Benjamin Kowalski: 57:00

Final thoughts Whether you believe you can or believe you can't you're right.

Nate Cross: 57:06

Until next time, go Bills.