Speaker 1 [0:00] We have a great treat. This is earnings season. This is an opportunity to talk to the folks that are actually moving the freight. And our first guest, we have Seth Runzer. He’s the president and CEO of ArcBest, one of the most storied LTL carriers, if not overall transportation carriers. Has been around for a long time, for decades upon decades, well pre-regulation, is now one of the— You survivors of pre-deregulation that’s still around. Seth, welcome to FreightWaves Today.

Speaker 2 [0:35] Yeah, thanks for having me, Craig. I appreciate being on. Sorry about those technical issues. I think we got them resolved.

Speaker 3 [0:41] We had—

Speaker 1 [0:42] it gave us the opportunity for Julie and I to catch up on— by the way, technical issues are a part of putting on FreightWaves Today.

Speaker 4 [0:50] Live TV is, yeah.

Speaker 1 [0:51] Live TV has its own set of things, so you’re certainly excused. On that, but let’s talk about an area that you don’t need an excuse, is your earnings. You guys are absolutely rocking and rolling. How does it feel to be CEO of a business in this climate when, you know, you guys are putting up some really impressive numbers compared to historically how this market’s been?

Speaker 2 [1:12] Yeah, it feels great. So you think about our performance normally sequentially from the first quarter to the second quarter, We improved about 300 basis, 350 basis points. That’s really just the seasonality. The first quarter’s always kind of the weakest. And we improved about 650 basis points within our asset-based operation. And then asset light saw a meaningful step up as well. So really proud of the team for them executing. It’s a combination of factors when you think about everything that’s going on with supply, demand, we’re starting to see some early signs there. And then just what we’ve seen in the marketplace as customers are navigating all the disruption and complexity They’re really turning to those trusted providers that have 103 years of experience like us. So it’s been a great feeling to get out there with earnings this week and spend time with our people talking through what we were able to accomplish together in the second quarter.

Speaker 1 [2:07] Well, Seth, let’s talk about demand. You talked about demand feels like it’s recovering, you’re seeing signs of recovery. You know, that is a, I would say in many ways, a lot of folks have not come in with conviction about demand. I think everyone recognizes that this is a capacity-led recovery. I don’t think we dispute that. I don’t think you dispute that at all. But let’s talk a little bit about the demand side. That’s an intriguing perspective that’s different than what a lot of people believe is happening.

Speaker 2 [2:33] Yeah, I think demand, it’s kind of in the early stages, I would say. We’re not anywhere near like a mid-cycle or even an upcycle. It’s really supply-driven, like you said. That’s really what’s driving a lot of the things. So customers are trying to navigate as truckload capacity tightens, They’re looking to logistics companies like ArcBest to help them navigate all those different disruptions. And we saw that come through in results, which was great. But we are seeing some early signs. You know, it’s good to see that PMI has been in expansion territory for the past, you know, 5 to 6 months after 4 years of it being depressed. But what really encourages me is our pipeline continues to be strong. We continue to have great conversations with customers. I feel like as that truckload capacity tightens, it kind of turns the light on, hey, we wanna partner with companies we know, like, and trust that can actually navigate this with us. And that’s what’s been so impactful throughout the quarters. Our pipeline’s only strengthened, but I wouldn’t say it’s robust demand yet. I think it is supply-driven, like you said, but we are kind of seeing some early signs, especially as we’ve seen some of this more truckload-rated freight kind of come into LTL, very, very small amount, but we’re starting to see those early signs of those plus 10,000-pound shipments making their way back into our network. And they just work better in an LTL environment, so. So I’d say we’re early stages, but yeah, definitely supply is what’s driving a lot of the results you’re seeing out of all the carriers who have announced this week.

Speaker 1 [4:03] Seth, we’ve been watching the LTL. We know that LTL recovers a little bit later than truckload typically does. You had any tightness in the truckload market? Because shippers take advantage of direct point-to-points not being handled through a dock network when they can consolidate. And then when the freight market tightens, a lot of that LTL volume, as well as in the earliest parts of the cycle, they’re building out Larger truckloads because larger volume segments. We only recently, you know, Cassis Shipment Index, which is more weighted to LTL than it is truckload, is reflecting the fact exactly what you’re seeing. Do we think that we’re well past the point where this market truly is recovering from a demand side?

Speaker 2 [4:44] Yeah, I think we’re still in the early stages of the market recovering from the demand side. There’s still just, if you look at historical averages, and like you said, we’ve been around a long time, so we’ve seen a lot of cycles. When you look at a lot of the subsectors within that, there’s still weakness in a lot of different places, but there’s also bright spots in a lot of places. I talked about it on our earnings call the other day, the data center buildout, we’re seeing a lot of demand there. Customers who are shipping ATVs, we’re seeing a lot of demand there. But there’s other areas like apparel that we’re not seeing demand. So, it’s uneven, I would say. So I think as demand strengthens, that’s going to ultimately improve results for everybody. But the way we’ve built this company and transformed over the last 10 years is we’re an integrated logistics company. So we can go to market and we try to say yes to our customers regardless if they’re looking to move truckload to LTL or go to a managed solutions or they need a more premium service. That’s really what we’ve designed this company to do is say yes to our customers no matter what’s going on. in the supply or demand environment.

Speaker 4 [5:52] Yeah, congratulations on a near 90% OR on your asset portion of your business. But I do want to talk a little bit more about that asset-light part that you just alluded to. So 28% revenue increase, 15% increase in daily shipments, revenue per shipment up 11% to 12%. So it seems like everything is heading in the right market. Are you feeling the capacity squeeze on the other side of that? How has sourcing been?

Speaker 2 [6:18] Yeah, I think sourcing has been good. When you have the history that we have, we build long-term partnerships with a lot of our partner carriers, which is great. So I’m really proud of the team and the execution. If you look at what happened in asset light in the second quarter, we produced a little bit over $6 million in operating income. And when you compare that to all of 2025, we only made $1.5 million. So that shows you the progress on all the initiatives that we outlined at our Investor Day last September in New York City. Yeah. Really comes around to profitable growth, making sure we’re growing with the right customers, making sure we’re efficient with our resources, and make sure we’re partnering with companies that trust us and we trust them to haul our customers’ freight. And that’s been impactful. So with all the partnerships we have, we haven’t really felt the capacity crunch too much because, like I said, the way we’ve built this company is find a way to say yes. And we have a lot of different partnerships which allow us to do that.

Speaker 4 [7:17] So certainly a culture of trust across all of the business units. Would you talk a little bit about the decision to have Molo, Panther, those other brands move under the ArcBest name?

Speaker 2 [7:30] Yeah, yeah, we, so we went to market as an integrated logistics company back in 2017, and we’ve transformed, and we’ve done some of that through M&A, some of that through organic investments, and that really came from customer feedback. They were telling us, hey, we don’t just have LTL. We have truckload, we have managed, we have expedite, we have all these different solutions. So that really is what we started to do. So the announcement a few weeks ago where we consolidated the brands underneath ArcBest, that was really about simplifying our brand strategy to say, okay, we are ArcBest, that integrated logistics company, and we have solutions underneath, whether it be truckload brokerage, LTL, LTL brokerage, any of those areas. That’s really what it was about, was simplification. and going to market as One ArcBest. And we really heard a lot of that from our customers, from our employees that said, hey, why do we have all these sub-brands? So this is really the next step in that evolution to make it simpler and easier for our customers to access all of the solutions that we have. The feedback I’ve heard from customers and employees alike has been, has been very positive, kind of this long overdue type scenario. So I’ve been really encouraged by everything I’ve heard from the team and from our customers since the announcement came out.

Speaker 1 [8:48] Seth, you guys have been around since 1923. You’ve survived multiple world wars. You’re coming out of the first pandemic, or the major, the 1920 pandemic. You guys have had a storied history. One of the things that we’ve talked about when you guys made the announcements on the Molo and Panther consolidate— brand consolidation, we’ll call it— was the fact that the culture of ARKBEST is this legacy, very structured organization. Is one of the reasons you’re so successful. And we’re big fans of history and your history in particular as a pre-deregulation carrier. Molo had a very different culture. It was the Chicago Central, the Silvers, Andrew Silver, sort of a freight bro from Central Casting. When that announcement was made years ago, from where I stood, it seemed like a very strange or at least a counterculture to the typical Art Bus culture that we know. Is that part of the reason to rebrand is to change the way that business operates? Or what has that been like in terms of the overall integration into the overall ArcBest organization?

Speaker 2 [9:58] Yeah, so I’ll just take a step back to a few years before the Molo integration. So before we even announced the move. So really what we were hearing from our customers was, hey, we really trust you for LTL. You’re doing a great job with Panther and Premium Expedite, but your truckload offering really wasn’t as strong as it needed to be. So we had our own truckload brokerage at the time. It was probably $300 to $400 million, a lot of transactional-type customers. But what Molo brought and what was really attractive about them was, A, it filled a strategic gap for us because our customers were asking for truckload services, and B, what they built was really a service-first mentality. And that’s what ArcBest is known for, a premium experience for our customers. And that’s what made it so attractive to us. So we got to fill a strategic gap. They believed in being customer-led and servicing customers with excellence, and it just really fit perfectly. So as we’ve integrated, really what it’s done is it’s expanded the capabilities because all of our customers, we have about 30,000 active customers, they all have truckload needs. It’s their biggest spend. So by having a really strong offering in what we purchased with Molo, it only strengthens those relationships with customers. And we’re kind of past the integration phase, and I feel great about the progress we’ve made, and the team’s done an excellent job. And I’m really excited that we hired Mack Pinkerton to come in and lead our asset-light operation. He led CHR’s, you know, NAS product, and that’s the largest broker in the United States. So he’s really helping transform us into what we can ultimately be. And I feel like we’re in the second or third inning. We got a long way to go to get to where we ultimately want to be.

Speaker 1 [11:41] Well, that alumni network, the C.H. Robinson alumni network, there’s no denying that it is persistent across this industry. Specifically out of Chicago, that Chicago Central office, the old American Backhaulers office, has written a lot of the success of Chicago. Molo being a Chicago-based broker, I would argue 3rd or 4th generation, Julie, in terms of brokerage. If you start to think of the evolution of freight brokers, sort of the American Backhaulers, US Express was a big American Backhauler, C.H. Robinson Central.

Speaker 3 [12:11] Right.

Speaker 1 [12:12] This evolution, I think I would argue that Molo is sort of the 4th generation maybe.

Speaker 4 [12:16] So what’s the third?

Speaker 1 [12:18] Well, you have Echo. Echo is sort of that third. Command, even you could argue Command.

Speaker 4 [12:23] I mean, it goes from Backhaulers to the original CH, even some of those expansions. Command, uh, maybe even Coyote.

Speaker 1 [12:29] That group, Echo, Coyote would be maybe fourth. And now we’re third or fourth. But, but you’re in this sort of fifth generation, and really Chicago has become such a high concentration of freight brokers, its own culture. Like when you describe to somebody in freight about the Chicago Freight floor. Everybody knows what we’re talking about. What is what is going to change for you guys with Molo becoming an ArcPress? I’m sorry, I haven’t had a lot of sleep this week, so if I fumble my words, it’s but but what is the goal here in terms of of what can customers expect that’s going to change? Where are the where are the investments going to be made?

Speaker 2 [13:07] Yeah, to me, it’s not a matter of what’s going to change; it’s what’s what’s going to strengthen, and that’s really what we’re trying to do with this brand is we’re trying to. simplify our approach to the market, make it easier to access our solutions, and ultimately combine all the capabilities that we have as one ARCBEST into what our customers can get access to. So we really focus on 3 strategic pillars: growth, efficiency, and innovation. And I feel like across each of those pillars, it’s going to only strengthen with the brand. We don’t have to spread out our advertising dollars among 4 different brands. We don’t have to have different teams and different swag and all the different things, right? So ultimately, We want to be that integrated logistics company, and we feel like this is just the next step in the evolution of that strategy that we’ve been embarking on for over a decade. And this change is only going to strengthen and simplify and make us move faster in the market that we live in today.

Speaker 1 [14:02] Seth, if you’re looking for a place to park advertising dollars, just call us up.

Speaker 3 [14:07] Media is a tough environment.

Speaker 1 [14:08] You think trucking’s hard?

Speaker 3 [14:10] Media sometimes can be a little harder. We’d love to We’d love to talk about that.

Speaker 1 [14:14] Panther 2, also a storied name, not a legacy name in terms of the history of ArcBest, but a name that if you know expedite, Panther 2 has been a market leader. You guys acquired it almost, I think, 17, 18 years ago. Is it going to be ArcBest Expedited? What’s the future of that business?

Speaker 2 [14:35] Yeah, it’s also going to be ArcBest. And then underneath ArcBest, the logistics company, we describe it as premium logistics because they don’t just do expedite. They do temperature validated, they do Department of Defense. It’s kind of that premium logistics shipment cannot fail. So it’s not just, hey, we’re going to shut down a product line and we got to expedite that shipment. It’s become so much more than that. And that’s what makes me really proud. So I think what’s going to happen is it’s just going to continue to simplify exactly what I talked about. And what’s been interesting is as we’ve had customer conversations around the branding change, they’re like, well, we already thought Panther was our best. And that’s because it was. We’re all ArcBest team, right? So this just makes it a lot clearer to say, hey, ArcBest is a logistics company, can offer all these different services. What is your problem? What is your solution that you’re trying to find? Because we’ll find a way to say yes, whether that’s truckload brokerage or managed solutions, any solution. We’re able to say yes because that’s really what builds a trusted relationship over the long term and why we’ve stood the test of time.

Speaker 4 [15:41] So Seth, I don’t think we can talk about premium logistics or integrated logistics offerings without talking about technology. So I think I recently read that you just launched a new product called ArcBest View. Can you tell us what that is, what it does, and why now is the right time to roll it out?

Speaker 2 [15:59] Yeah, I think about ArcBest View, it’s something that we started building probably, I want to say, 3 or 4 years ago. And really, when you think about our traditional customer platform, it was our website, it was arcb.com. Well, that was really built based off of an LTL environment because that’s most of our history until we’ve made this transformation over the last decade. So what we heard from customers is they wanted a single source of the truth. They wanted to go to one place and find where they could track, book, quote, optimize their supply chain, get everything. And the old experience that we had, just they had to go multiple places to navigate that. We started building that platform side by side with customers from the very start. And that’s what I think is impactful is because you can build a great product, roll it out and be like, hey, I hope everybody likes this. But if you build it side by side with partners we’ve had for 10, 20, 30 years, they’re going to tell you what’s going to work. And that’s been very impactful for us. So really what that platform is, some people have described it as, hey, it’s just a refresh of arcb.com and it’s not. It is a completely new digital platform that I think is differentiated in the marketplace because now you can track, book, do all of those things across all modes. And that really is differentiating, differentiating for us. We have about 2,500 active customers signed up for it so far, and the feedback has been really incredible. And that’s what makes me feel so good as we roll out further enhancements and continue to refine. we’ll start getting more customers signed up for it. But a lot of customers are saying, wow, this is the best tool I’ve ever used. I have now complete supply chain visibility, which adds to that simplicity that we’ve been talking about, right? We wanted to simplify our customer-facing tools so they can navigate everything that’s going on in their supply chain and not have to pick up the phone and call. They can self-serve or they can pick up the phone and call. So I’m really proud of the team that built that, got it out there, and we’ll continue to make enhancements as we move forward.

Speaker 1 [18:00] Seth, what are you guys doing in Arkansas that is enabling these old school legacy leaders? We covered JB Hunt extensively on the show. They’re killing it on their intermodal business. You guys are, you know, you, you completely transformed the business from an old school, sleepily sort of regulated trucker into one of the most dynamic logistics companies. Is there something special specifically about Arkansas that enables, I mean, when I go through the list, you guys were number 12.

Speaker 3 [18:30] Yeah.

Speaker 1 [18:30] in 1980 according to Transport Topics Top 100. And I go through the list of those carriers that are still around. Most of those carriers, United Parcel, Roadway, Consolidated Freightway, Yellow, McLane, Ryder Truck, North America Van Lines, Specter Red Ball, PIE, Allied, Smith Transport, Arkansas Best. You guys have been around. What is going on down there?

Speaker 2 [18:55] Yeah, well, we always, the way we position the company, like I said, we’re customer-led. And at the end of the day, if you listen to your customers and design solutions around them, that’s what’s going to stand the test of time at the end of the day, right? And we also, leaders before me, present leaders have built an amazing culture at our company. And that’s really, if you look at centurion companies, companies that have been around more than 100 years, really the 2 things that stand out, it’s a great culture and it’s the willingness and adaptability to change. And that’s what we’ve done throughout all the time. So we’re not thinking about next month or this quarter or next quarter. We’re planning 3, 5, 10 years out. That’s really the way we focus. And we always say internally, we have to focus on disrupting ourselves because if we don’t, someone else will. So I don’t think we’re that company that you described, the old school company. We’re focused on technology, we’re focused on AI, all the different things. But at the end of the day, it all comes back to where does the customer find value? And if you stay close to your customers, you have great people, you’re gonna deliver some amazing things in the future.

Speaker 1 [20:06] I think it’s an exception, Seth, to the rule. I mean, the reality is that you guys deserve a lot of credit for going through all of these iterations. I mean, we’re in a new cycle, we’re in a new market, it feels like. I mean, Matt, Dad, you’ve talked about the fact you’ve been in trucking since the 1960s. You talked about the fact that this freight recession and this market is completely different than any that you’ve experienced in your lifetime. But you guys have made it through another cycle, Seth. There must be some formula for that that has just enabled you to thrive so well that I think is really intriguing because so many of your other pre-regulation competitors just never made that transition.

Speaker 2 [20:41] Yeah, I agree. And a lot of that is just paying attention to what’s going on, focusing on what matters the most, and making the right decisions with integrity at the top of your mind. So I think about— I took over ABF and ran our LTL division in 2021 at the height of the pandemic. And I swear, every time I picked up the phone, it was like a new thing was going on. The East Coast ran out of fuel because the pipeline got hacked, or you couldn’t hire drivers, or you can’t buy trucks anymore. The list goes on. And then a 4-year freight recession. So it’s just, you have to know in the back of your head that disruption is the new normal. And if you prepare and build the company on a great foundation, you’re always focused on the future. Good things will happen, and that’s really what we’ve done at this company and what makes us so special.

Speaker 1 [21:26] Well, Seth, thank you so much. I mean, an institution.

Speaker 4 [21:29] Yeah.

Speaker 1 [21:29] Like I love talking to these. Look, I’m a big fan of history. I’m building a history museum in Tennessee. We’d love to have people.

Speaker 2 [21:36] Oh, Spirit, I’ll come down.

Speaker 1 [21:38] Be the largest indoor miniature transportation museum in the world. If the Smithsonian was doing transportation across all modes, it would be the Smithsonian. Real excited about that. Well, I have to have you out there. Also, the International Transportation Hall of Fame, we’re gonna announce that, that will be there as well. Certainly someone along the tenure of ArcBest deserves that.

Speaker 4 [21:57] Yeah.

Speaker 1 [21:58] I mean, amazing. I love these, I love these businesses that have seen so much, Julie, so much history, and yet are talking about new technologies and doing it right.

Speaker 4 [22:09] Yeah, I mean, I think it just shows you that in business and in life, probably the most important skill you can have is adaptability.

Speaker 1 [22:15] And you gotta survive.

Speaker 3 [22:17] You gotta be—

Speaker 4 [22:18] Like the coyote, right? That’s why they’re everywhere, ’cause they’re the most adaptable animals. Did you know that?

Speaker 3 [22:22] Exactly.

Speaker 4 [22:22] I watch Wild Cats with my son.

Speaker 1 [22:24] Most adaptable animals except for in my yard.

Speaker 4 [22:25] No, they are. Like, I think they are.

Speaker 3 [22:26] They figured out how to do it.

Speaker 1 [22:28] Anyways, well, Tessa, thank you so much for coming in to FreightWaves today. Would love to have you back and best of luck in your journey as you continue to build out your technology. And we know that you’ve got a lot going on over there and congratulations on great earnings. And we look forward to reporting next quarter. Hope to have you back.

Speaker 1 [0:08] Okay, today’s Sonar Update, I really want to talk about 5 key pillars that I’m seeing happening in the market and then back those up with sonar data and some information from recent releases we’ve been tracking and we’ll continue to talk about on the show as well. So the 5 capacity— the, the 5 pillars are: 1, capacity is leaving the market. We’ve been talking about that at length length and that carrier exits continue with regulatory enforcement and the FMCSA and DOT revoking invalid CDLs as well as shutting down non-compliant CDL schools. The second pillar is rates are strong and durable. We’re continuing to see spot rates particularly remain elevated and contract rates continuing to rise. Demand is steady even though it hasn’t been increasing and is the third pillar. The fourth pillar is shippers are moving towards asset-based and dedicated capacity. We’ve seen that in some of earnings calls, and that makes a ton of sense based on the current regulatory environment and liability concerns. And then the 5th pillar is that the tightness in the market and lack of available capacity, as well as the raise— the rise in rates and a healthier freight market, is making driver recruiting significantly harder. So to back that up with a little bit of evidence both from Sonar and earnings, so pillar 1, capacity is leaving the market. We can see that in the Sonar Truckload Rejection Index, stri.usa. Okay. On a national level at 14.36%, which is still well above the 6-month average of 10.9%. We’re seeing especially high continued tender rejection levels at 23.5% for flatbed and 19.46% for refrigerated. So, those 2 are running even hotter than the overall national average of all rejections, even though they’ve all cooled a bit from the early summer peak. And I’ll talk a little bit more about why I think some of that is happening in one of the other pillars. But really, we’ve seen elevated rejections sustained over months, not just a spike. So I think that that’s really good evidence the capacity is not self-correcting quickly. To talk about some earnings that, that also back up this thesis of mine, Knight-Swift specifically, their management in their call attributed rapid, rapid tightening to supply-driven dynamics with spot rates exceeding normal seasonality and tender rejections reaching levels that they’ve not seen since 2021. And that’s in their own data, their own tender rejections, not just Sonar. And we talked about that showing up in Sonar data as well. They also specifically called out the FMCSA and DOT efforts to revoke invalid CDLs and shut down noncompliant driving schools to remove some of that low-cost, noncompliant capacity from the market. Werner also pointed to regulatory pressures removing shadow capacity as ELD providers exit the market alongside driver and CDL school removals. So rejections aren’t just elevated. They’ve stayed elevated for months. And that’s backed up by our data as well as to the largest public carriers. Pillar 2 is rates are strong and durable. So the sonar evidence is that the NTI, our truckload National Truckload Index tracking spot rates, has remained incredibly high. It had a mid— a bit of a slump, which is still elevated in mid-June, but it’s beginning to rise again. Even when you back out fuel, which makes really the key durability check to ensure, you know, that the rates aren’t only rising based on fuel costs. We continue to see a strong spot rate and we’re not seeing those diesel prices and that NTI spot rate necessarily move in tandem, which to me speaks to the fact that spot rates are remaining elevated and moving based on lack of capacity and willingness to pay, not just based on diesel rates going up. Rates can rise even when diesel is falling, and we see that in the data and you’ll see that in the graphic. Pillar 3 is demand is steady even though it’s not increasing. In Sonar, you can see our OTVI or our STVI, either index of volume, our volume index, it’s remaining relatively flat to modest rather than surging. And then when we look at our actual Sonar Tender Volume Index of accepted volume, we can see that that’s remained steady. Acceptance is going up a bit, but I believe that is from new higher contract rates starting to come into play, leading to a little bit less rejections and better compliance for tender acceptance as contract rates have risen and new contracts have been put in place. Some evidence of this is that Knight-Swift’s own CEO called this cycle supply-driven rather than demand-driven. You can see in all of our data, you can see that intermodal, like for J.B. Hunt, their volume rose attributed to rising fuel costs and constrained truck blocking supply, which is pushing people towards rail. So where we are seeing the demand increase is intermodal, but again, I don’t believe that’s from massively increased volumes across overall demand. I think it’s from mode shift as supply has left the truckload market, forcing some of that volume onto the rails. The 4th pillar is shippers are moving towards asset-based and dedicated capacity. Um, this one leans more into earnings commentary than sonar data, but I think that it absolutely makes sense in our current regulatory environment with liability concerns. Uh, when we think about JB Hunt’s earnings, they mentioned their dedicated pipeline was at record levels. Um, they pointed to a tight driver market, regulatory pressures, customer demand for reliable capacity. So makes perfect sense. Werner, their CEO Derek Leathers said on their call that organic dedicated business is growing Not just with their first fleet acquisition driving margin improvement, but as a whole. So plenty of evidence there. And then the fifth pillar is driver recruiting is harder, compounded by the regulatory environment. Again, I’m going to lean more on earnings and what we’re hearing from all of those industry experts who we are talking to every day on this show. But Knight-Swift in their call again said spoke to the same CDL revocation and noncompliance plants, school shutdowns, commentary, um, the regulatory environment is shrinking the eligible driver pool. JB Hunt has spoken to the driver market tightening, leading to increased sign-on bonuses and targeted wage increases. They even flagged that as a potential margin pressure point going forward. We’ve heard it from a lot of our guests that recruiting has become harder. Drivers have more options in a healthy freight market and can chase higher pay. We’re seeing some wage improvement for drivers As some have announced driver pay increases. So really every one of these 5 pillars showed up almost verbatim in Q2 earnings calls from the biggest public carriers in the space. They’re describing their own market in the same terms that we’ve been using all year as we’ve been talking about the market. And again, also supported by Sonar data.

Speaker 1 [0:00] Welcome back to FreightWaves Today. John Kingston, all I gotta say is the word oil and you just show up in my monitor. How are you, sir?

Speaker 2 [0:06] You’re my boss. I show up no matter what word you say.

Speaker 1 [0:09] There is some truth there, but I also have magic words. John, you’ve been covering the earnings of all of these different players in logistics. Well, I wanna talk CH ’cause it’s— everyone’s been watching CH for obviously, you know, it’s been the most targeted, we’ll say, in terms of lawsuits. A lot of noise around the stock with the Supreme Court decision, as well as the lawsuit in Texas.

Speaker 3 [0:37] The—

Speaker 1 [0:39] what is the name of that?

Speaker 4 [0:40] Lupus. Thank you.

Speaker 1 [0:41] Lupus Superior. John, tell us about what you’re hearing.

Speaker 2 [0:45] Well, so the earnings call was interesting. First of all, I predicted on X, on Twitter last week, that Dave Bozeman, the CEO, would not be allowed to talk about it because the lawyers would tell him not to. I was totally 100% wrong on that, and he talked about the case quite a bit. The call was interesting because it started out— C.H. Rommerson is just laser-focused on this message about lean AI and all the impact it is having, which there is no doubt about it. Once again, their headcount was down, revenue and profits are up. Obviously, you can see where the impact of AI is in terms of per-employee performance. But I mean, I have to laugh because these are the same analysts who have heard the same message over and over again. I do not know. They are not— CH Ramas’ job is not to write news for me. Anyway, so it started by talking about that. The performance was solid. The financial performance was solid. But then, yes, they did get into the case, the Dallas County case. In it, they repeated that they are going to appeal. Remember, and they reiterated a couple of times that it’s been a week now, and the judge down there has not yet affirmed the verdict. So they’re waiting on that. If she does affirm the verdict, they will appeal. You know, at one point, Dave Bozeman said he expects that this process could take years. There were settlement talks. He would not go into what they were, but they rejected it basically on on the recommendation of their insurers. They rejected that. And you know what, you heard this on several calls, not just C.H. Robinson, but you heard that insurance costs are inevitably going to go up, number one, and everybody will be looking for high-quality capacity. So that is the message that really has come through in the wake of not just Montgomery, because this was the first earnings cycle since Montgomery came down, but also since the nuclear verdict. So there was quite a bit there. The other message that came, I know you said David Parker is going to be on. Their earnings call was yesterday. Our story on it is going to go out as soon as this is over. He just got on, and most of that call was handled by James Grant, who’s the CFO. But when Mr. Parker spoke, he just said, this is unique in my long history, the structural change in the market. Several people on several other calls said, The driver— I guess I was about to say driver shortage. You know, the market for drivers, the market for drivers is definitely tight, no doubt about it. They all had praise for the DOT and actions that the Trump administration has taken. So that was a kind of a, you know, consistent message through the calls that I’ve done.

Speaker 1 [3:26] John, it’s @JohnKingston if you want to send your hate mail about the driver shortage comments, not @FreightAlley, just in case the drivers have strong opinions about that. So John, by the way, Tripp Grant, James Grant, I think is the official name. I went to school with the kid. Zach Strickland, Tripp and I all were in the same class here in Chattanooga at McCauley. So we all went to school. It’s cool to see 2 of the non-truckers. I grew up in it. I didn’t have a choice but to be in this industry. But both Zach and Tripp are in this industry. When we hear about, we think about C.H. Robinson, did we learn anything new? I mean, obviously they’re talking about appeal.

Speaker 3 [4:06] It wasn’t a shock.

Speaker 1 [4:09] They’re talking about, you know, AI. You talked about how persistent this is. Wall Street sold off. We’re down 20% in the last 5 days. But what did we learn on that call, John?

Speaker 2 [4:21] I don’t know that you learned much. There really wasn’t much that they said that they hadn’t said in their statements after the verdict. I will say I’ve been sort of checking every day, and then my guess is this would not come until the judgment was affirmed, to see if Moody’s or Moody’s and/or S&P Global puts them on some credit watch. Because right now, they are going to essentially— if it is affirmed, they have got a $600 million charge that they have got to account for somewhere. Jason Seidel of TD Cowen mentioned that too in his post-earnings call report, that there very well may be a charge taken. Wabash National took a charge. They had that gigantic St. Louis verdict. over $400 million. They eventually— and they did take a charge. I don’t know if they took the full $400 million. And then they knocked that down on settlement. But that settlement was still over $100 million. They had to take a charge on that too. At a certain point, this does become real money. I think that now it just seems so far from when they’re going to have to write a check. You had a verdict last week, still hasn’t been affirmed. You start the appeals process. So, uh, you wonder how much that’s going to impact their bottom line. But someday, unless the whole thing is tossed out, uh, there will be a charge. Let’s remember, this is Texas. The Texas Supreme Court eventually got a hold of that big Werner judgment a couple of years ago and knocked that down to zero. So, uh, I can’t imagine that the C.H. Robinson lawyers aren’t looking at that.

Speaker 1 [5:48] Look, I, I think every defense attorney in the country and every compliance officer is thinking, God blessed Texas Supreme Court, hoping that this thing gets disputed. If you’re running a broker, you got to do it. I got to ask you, when you guys were public, when you were running a public company—

Speaker 3 [6:05] Right.

Speaker 1 [6:05] You have a big, massive lawsuit risk that’s there. Wall Street— I think maybe because these cases are so big, and the lawsuit is so big, that C.H. Robinson doesn’t have a choice but to talk about it. How did you guys handle that in terms of discussing Wall Street? Because you have the The plaintiff’s attorneys are— everything you can will be used against you.

Speaker 3 [6:28] You had to watch anything that you said because like you said, it would be used against you. It’s hard to defend yourself in the public eyes when the other attorneys are trying to find something that you said, one word that you might have said wrong, and they would use that one word to build a whole case around. The judges today are letting a lot of these people run.

Speaker 1 [6:53] You’re talking about plaintiffs?

Speaker 3 [6:55] Plaintiffs. But the judges are letting them run to find anything wrong. It doesn’t have to be anything that really affected the accident, but they’re letting them find something that’s wrong in maybe hiring or something that the company’s done or anything. to create a judgment against them. And it’s really sad. This industry is going to change and change a lot if tort reform doesn’t happen. And it’s got to happen pretty fast because if you look at almost every major trucking company out there, they’re dealing with this type of stuff, whether it’s higher insurance costs or whether it’s their own balance sheet being in jeopardy.

Speaker 1 [7:37] I think Citibank Citibank’s quote was that this lawsuit, the C.H. Robinson lawsuit, the award, that nuclear verdict is an existential threat to brokers and the business model, John.

Speaker 2 [7:54] 2 things. Everybody tends to get focused on the dollar number, understandably, but there are 2 other things in here that are probably even more scary for brokers. Number one, this was not some fly-by-night carrier. They had a satisfactory rating before the accident. Even after the accident, they had a satisfactory rating. The other thing is that the jury found, and this gets into the whole sort of independent contractor law, that the driver was effectively an employee of C.H. Robinson. And their argument is, we’ve never employed a driver in our life. And so this is not just a— the issues here are not just a lot of money. Those are two— those issues have legs. And so you kind of got to watch that too. in any kind of resolution. Let’s remember something, that a few weeks ago, the Transportation Intermediaries Association, the TIA, which is the brokerage trade group, put out, I guess, a formal request for a rulemaking from FMCSA on what constitutes appropriate behavior on the part of brokers. I mean, the C.H. Robinson point of view would be, we hired a guy who’s solid. I think he had 200 power units. And he had a satisfactory rating, and now we’re getting stuck with a $600 million verdict. What else were we supposed to do?

Speaker 1 [9:10] But I think it goes down, John, this idea that Matt Loeffler and I are going to get into this later today on Freight Expectations. And Matt is an attorney, transportation attorney, particularly transportation law, loves these Supreme Court decisions, these decisions that ultimately is going to get appealed. The whole thing, as far as he can tell is the definition of an employee. And in this particular decision, the jury decided for whatever reason that the driver that died— he passed away— was an employee of Sage Robinson. That seems like— and we’re going to get into this later today— but it seems like everything rides on that one issue. And if somehow that gets held up in the court system, if the courts and all the way to the Supreme Court— I imagine this would go all the way to the federal Supreme Court if this this plays out, which is why we’re talking many years. If somehow Texas upholds it, this puts all of the independent contractor services, including Amazon, FedEx, all of these different companies, puts the entire business at risk, John.

Speaker 2 [10:15] But let’s remember something, though, about this driver. He was a W-2 employee of Lupus Superior. So I think it’d be a little more complicated. if he was an independent owner-operator that got hired by Lupus Superior. And then maybe, you know, the whole question of independent contractor status, et cetera, might get a little more cloudy. But this guy got a paycheck from Lupus Superior. So that establishes that he’s an employee. He got a W-2 every year from Lupus Superior. How can you be an employee of somebody else when that’s happening?

Speaker 1 [10:49] I mean, this is in Texas. I can’t imagine, I mean, like my perspective, and again, I wanna get into it, Matt Leffler, we’re gonna get into it deeper. Stay tuned for that. I can’t imagine this holds up on appeal. Like, I think it’s going to get thrown out on appeal.

Speaker 4 [11:03] Yeah, but is the damage already done in their stock price?

Speaker 1 [11:05] Well, look, plaintiff’s attorneys read this, $600 million, it’s just going to attract them that much more. They’re like vultures. They smell it. They attack it. They want it. They taste it.

Speaker 4 [11:17] So, John, I could talk about this.

Speaker 1 [11:20] We have a lot to talk about, Ernie.

Speaker 4 [11:22] Yeah, I was going to say, last final question because we’re out of time. You know, Heartland, Werner, Schneider, lots of other earnings. Anything stand out in any of those to you?

Speaker 2 [11:30] Well, I didn’t do Heartland or Schneider. My colleague Todd Maiden did that. I did Werner. I guess the thing that stood out is like it was good. I probably, after all the talk of higher rates, I may have expected better. I thought one of the more interesting was TFI International. You know, we tend to think of them primarily as an LTL carrier. And the fact is more of their revenue comes from LTL primarily. A lot of it the old UPS Freight arm. Um, their, their truckload did really well, and a lot of what did really well is what they call the specialty group. And the core of that is the old Desky, uh, flatbed unit that they bought. They’re doing really well on that, a lot of AI-related work. Uh, so, you know, normally— I mean, I’ve been doing these calls for TFY for quite a while— the talk tends to focus in on their LTL operations because the ones in the US, the former UPS operations have been struggling. But this call was interesting because there was a lot more talk about truckload, and clearly Alain Bardard wanted to talk about that. And anytime he talks, it’s really entertaining.

Speaker 1 [12:32] Yeah, it’s interesting because people have asked, how do you get exposure to flatbed? There is— Daseke was the only pure-play flatbed public company. It is now part of TFI. And look, if I were If I were running the business, if I were running TFI, we’re talking about a flatbed all the time.

Speaker 4 [12:51] Oh gosh, especially in this market.

Speaker 1 [12:52] So much sexier.

Speaker 3 [12:52] That’s a big word.

Speaker 1 [12:53] The industrial economy is back. John Cason, we’ll have you back next week to talk more oil, energy, and earnings. This rock and roll continues on.

Speaker 1 [0:00] We have a real treat. We have David Parker, the founder and CEO of Covenant Logistics. David, I have a I have a habit of saying Covenant Transport, so I gotta get.

Speaker 2 [0:08] I do. I do too.

Speaker 1 [0:08] Old habits. Did you have you done this to any of your your ever investor calls?

Speaker 3 [0:13] Yes, I have.

Speaker 1 [0:14] So you guys just had your conference call. Congratulations. I understand this is the biggest revenue in your history.

Speaker 2 [0:20] Yes.

Speaker 1 [0:20] Yeah. So what do you? I mean, obviously the market’s helping them out. What do you attribute that to?

Speaker 2 [0:24] I tell you, at the end of the day, it’s what we started eleven years ago and. Refocusing the company and getting into the various segments. You know, we’re not into the OTR segment, very little. I mean, we may have 100 trucks running in the OTR segment, and we have really focused on the 4 areas that we’re involved in, which is expedited, dedicated, freight management, and warehousing. And we’ve been going down that path for a while.

Speaker 1 [0:52] So that’s a— I mean, obviously over the last, you know, 14 years, you’ve talked about just the transition of the company. It is a very different operator.

Speaker 4 [1:01] Yeah.

Speaker 1 [1:01] If you followed it historically, it’s a very different operator than historically has been. But there is something special about the way you guys have repositioned the business. What, what part of the business are you most proud of in terms of the progress that you’re making right now?

Speaker 2 [1:12] Well, I tell you, number one, I’m proud of all 4 of ’em. If I leave one out, I’ll get in trouble.

Speaker 4 [1:17] Love all your kids equally.

Speaker 3 [1:19] That’s right.

Speaker 2 [1:20] I love all my children.

Speaker 1 [1:21] Everyone, which I have 5 kids, it depends on the moment.

Speaker 2 [1:23] I love ’em all.

Speaker 3 [1:24] Be honest.

Speaker 2 [1:24] I love ’em all equally. But, All of them have made some great headway. I look at our Legacy Dedicated that we had them all down yesterday for meetings and they have just done a great job. I mean, they have turned that thing around so well. I’m proud of them. There’s no doubt that the freight management, which is brokerage as well as a small management of freight, It has been, it’s been tough. We went from doing great until you couldn’t find capacity, and then our margins have squeezed. And, and, and so we continue to, we continue to focus on that to make sure that we can either raise rates or find carriers that do it cheaper. And I got a feeling raising rates is easier.

Speaker 1 [2:13] Yeah, well, look, misery loves company because every public truckload carrier that we’ve covered Has had the one part of their business has struggled, and you can go through the list. I, in fact, I don’t think we’ve covered asset-based carrier that’s done well in brokers. No, revenue is doing well despite all the noise. RXO, we’re going to hear from next week. I would suspect that they’re doing well, but it seems that the asset side of the business, these logistics operations, are there to serve the truck. Julie and I’ve talked about that. Usually it’s a the truck is going to win out in terms of how you guys think about the business.

Speaker 2 [2:48] You know, and that’s interesting because that is one spin. Ours really isn’t. Uh, our assets— keep in mind, we do no OTR, so we’re very focused. So our, our asset side only handles about 0.5%—

Speaker 1 [3:02] Wow.

Speaker 2 [3:02] —of the broker freight.

Speaker 1 [3:04] And, you know, why do you think it’s— why do you think it’s underperforming versus some of the other businesses?

Speaker 2 [3:08] Uh, strictly because, uh, capacity rates Got it. Have gone up faster than we’ve been able to raise.

Speaker 1 [3:15] So you have contracted business that longs towards the side of it.

Speaker 2 [3:17] It’s about, it’s about 70/30.

Speaker 1 [3:19] The spread of it’s hard.

Speaker 2 [3:20] It’s hard.

Speaker 1 [3:20] In this kind of environment.

Speaker 2 [3:21] It’s harder. Now eventually it’s gonna catch up.

Speaker 1 [3:24] Well, I mean, we’re still early cycle. I mean, every, Julie and I were talking earlier on this call, every CEO’s talked to, I think they’ve all, they all use the same words.

Speaker 4 [3:32] Yeah. They read each other.

Speaker 1 [3:32] Yeah. We’re in the early innings. Do you agree with that?

Speaker 2 [3:34] Yes, I do.

Speaker 1 [3:35] Derek says that we’re in the 3rd inning. Where would you describe it?

Speaker 2 [3:37] Yes, I, I, I, I believe that we’ve reached 1st base. I use baseball analogies. So we hit the ball.

Speaker 1 [3:41] We still, we’re still We’re still in the innings, okay.

Speaker 2 [3:44] That’s right. We hit the ball last October. It’s when the DOT really started focusing because of the August accident that happened in Florida that we’re all well aware of. DOT took over in October, and to me, that was hitting the ball, and I believe we’re at first base. I think that we’ve got a long runway.

Speaker 1 [4:03] You think it’s a long, big stadium?

Speaker 2 [4:06] You know, I don’t know if— it may have been you all, to be honest with you, but Whoever invented the term supercycle, I believe it. I believe that’s where we’re at.

Speaker 1 [4:17] Yeah, I think FreightWaves was one of the first to actually describe—

Speaker 2 [4:19] I agree with that.

Speaker 1 [4:20] —that world has set in. Because that’s exactly— I mean, there have been— people have used that term in the past. I think we described it simply because you have the setup that’s very unusual. I mean, the reality is that the driver constraint has always been the capacity constraint. It’s interesting, you go back over the decades, everyone talks about the number of truck counts. And I remember as a kid, and I’d listen to the conversations my dad would have about trucking, and a lot of it was how many trucks got produced, because you couldn’t count the drivers.

Speaker 2 [4:46] Yeah, that’s right.

Speaker 1 [4:47] Now, over the last decade, a lot of the capacity constraints have been truck drivers. But the issue has been this massive immigration that has been unrestricted, and the regulatory environment has allowed for— has eliminated all the barriers to entry, has meant that we didn’t have a normal cycle. That’s all gone away.

Speaker 2 [5:08] It’s all gone.

Speaker 1 [5:08] We talked about just the demographics and how old the— The fact that it is harder to recruit fully vetted, fully registered truck drivers today has made it more challenging.

Speaker 2 [5:22] Yes. And it’s interesting, who would ever remember the days that we’re saying now, boy, I’m glad— I’m having a hard time finding professional drivers. I’m having a hard time getting drivers in the seat. But let me tell you, after the last 4 years, I will take that any day. Let that be my problem.

Speaker 1 [5:38] Pricing power, right? Pricing power. That gives you pricing power. Pricing power.

Speaker 2 [5:41] And it’s not abusive pricing power. It’s given me pricing power to be able to cover my costs.

Speaker 1 [5:47] So I’m going to ask you a question.

Speaker 3 [5:48] Is there a truck driver shortage?

Speaker 2 [5:50] You know, my son-in-law and I argue about this all the time. You know, he has his own recruiting company. I say no. He says yes. Only thing I know is I need drivers.

Speaker 1 [6:01] Okay. Well, there you go.

Speaker 2 [6:02] Yeah. That’s all I know. I need some drivers.

Speaker 1 [6:04] I think the pivot has moved from driver shortage to qualified driver shortage. The drivers themselves By the way, you need to send your messages to your son-in-law, Rob. Yes. That they— for those drivers that are upset about the term driver shortage. But I think even the drivers would agree that there is a qualified problem, a shortage of qualified drivers.

Speaker 2 [6:26] Yeah. Yeah. Yeah. We need more of them.

Speaker 1 [6:28] Julie, when we think about this market and think about just what Covenant is known for, you were at U.S. Express, 2 of the largest team operations. How, when you were reading the earnings, what was your perception in terms of Covenant’s performance?

Speaker 4 [6:44] So, I mean, I think certainly, you know, you can break it out by revenue per tractor per week looked excellent based on my experience. I assume inflated based on the amount of expedited freight and team freight you’re doing. But I also noticed the theme that we’re hearing from everyone else as well, that we’re really working on increased utilization, increased profit. not any interest in growing fleets necessarily right now, more in likely shrinking the asset footprint. So that was sort of the theme that I noticed that I had read, not just in the Covenant earnings, but really kind of across the board a lot.

Speaker 1 [7:20] Is it different, right?

Speaker 2 [7:21] Yes, it is. It’s interesting. You know, we took out 150 teams, trucks out of the expedited side in the first quarter. Now, some of that bit us, in the second quarter because there’s a lot of tail on insurance claims and some other costs that happened in December and January that you don’t have enough revenue to be able to support it.

Speaker 3 [7:45] Right.

Speaker 2 [7:45] And all of a sudden your fixed costs are, are not helping you as much as you would like for them to. Uh, but yeah, we took off. But I’m gonna tell you, in my, my meetings yesterday, guys, there is— because I know that we all sensed in the month of July A little pause, whatever you want to call that.

Speaker 1 [8:01] We talked about it.

Speaker 3 [8:02] It happens every year, though. Every year. Every year.

Speaker 1 [8:04] But do you think it’s— did you feel— because we’ve been talking about this pause, this slowdown. Do you feel like this is a normal season calendar thing or do you think it’s unusual?

Speaker 2 [8:13] No, it’s A, normal. But B, I will tell you that let’s say prior to the month of July, we had 3 loads for every truck. Let’s just say that in whatever division, brokerage or expedited, 3 loads for every truck. In the month of July, it’s not that it became negative, it was 1.5. So we went from 3 to 1.5, and we’re thinking we’re in a depression, and I’m loading all my trucks.

Speaker 4 [8:42] Everyone’s worried about the cycle. I mean, everyone’s worried about overcorrection.

Speaker 1 [8:44] We’re at 14.5% rejections, which a year ago we would’ve killed for.

Speaker 3 [8:49] Absolutely.

Speaker 1 [8:49] And I think it’s hard, you know, we, we’re just waiting. Everybody’s waiting for the cycle.

Speaker 2 [8:53] And I will tell you this though, exciting on, on from my standpoint that I’m hoping is showing something, because I really expect that August will start going back the other way. I really do. And I saw numbers today for projected next week’s revenue that will probably be our highest of the year.

Speaker 1 [9:13] Congratulations.

Speaker 2 [9:14] I hope that comes through. Now, that’s just projections. So, you know, we all throw projections.

Speaker 3 [9:19] If it’s a normal cycle, by mid to late August, You’re going to see record numbers.

Speaker 1 [9:24] Well, we are in late— I mean, it seems like early August. Yeah, I mean, you’re right, it keeps growing. It keeps growing. I mean, my, my memory’s a blur. I’m not sleeping these days. I’m doing other stuff. David, you guys had one of the largest, if not the largest, team operations in, in the entire industry. How many teams are you currently running?

Speaker 2 [9:45] We have about 750 that are in that fleet. And I would say we need, we probably need 20 or 30 more right there because of open trucks. So somewhere, somewhere in that neighborhood.

Speaker 1 [9:58] I mean, at peak, how many teams?

Speaker 2 [10:00] Oh, we were at 1,700, 1,800.

Speaker 1 [10:02] And what were you guys running at peak, Dad?

Speaker 3 [10:04] Well, when we started U.S. Xpress, you know, like 20 or 30-some-odd years ago, we were almost 80%.

Speaker 1 [10:11] But what was the number of team count? What did you guys ever peak at? 2,000? 1,500?

Speaker 3 [10:16] Well, probably somewhere around 2,200, 2,300.

Speaker 1 [10:19] Gotcha. ‘Cause you guys were, it was Covenant, US Xpress, CRST.

Speaker 2 [10:23] That’s right.

Speaker 1 [10:23] And that was probably—

Speaker 2 [10:25] It was the 3.

Speaker 1 [10:25] It was the 3 of you guys that dominated. What happened to the team business over the decades?

Speaker 3 [10:29] If you go back and look at the history, my dad was one of the first people to really get into that long-haul market from Southern California points east. So when David started Covenant, he started real heavy with teams. When I started US Xpress, I was real heavy with teams.

Speaker 1 [10:44] Clyde was definitely—

Speaker 3 [10:45] And to a certain extent, we were bootstrapping that whole market.

Speaker 1 [10:49] Yeah.

Speaker 3 [10:49] Because we had teams and hardly anybody else did.

Speaker 2 [10:52] Yeah. I think to answer your question also though, I think what’s happened over the years, and then we’ve also led an effort in that to right-size from a standpoint that I think the Amazon effect, warehouses got closer, you wanted it next day, et cetera. So that took down the team, side somewhat. But at the end of the day, it comes this. To get the ROI on a team operation, you’ve got to be somewhere in the mid-80s ORs. 85, 86, maybe 87. If you want to get a good ROI, and that’s what we started on and says customers, and my customers know I love them to pieces. I don’t make a dollar without my customers. So thank them for the ones, but we’ve actually gone to our customers and we say, listen, if you do not need these teams and do not want to pay me for these teams, I will get rid of them. And the market answered back in 2020 when the world came to an end. And we went from 1,200 teams down to about where we’re at currently. And we’re continuously asking that question, are you willing to pay? Because these teams, guys, let me tell you. Yeah. Every 18 months. Okay, how much is Freightliner or Peterbilt wanting for a truck? Oh, another eight or ten or twelve thousand more dollars. Think about how often I’m having to trade these trucks, and if you don’t get the ROI, I can put them in my chicken business. I can put them in my dedicated business and run these trucks five years.

Speaker 1 [12:34] So many. So the headaches—it’s interesting. We need to get a segment with David called Hug a Customer because we have a hug a hug a I love them. Web Estes. Sent us a pallet. He was the inaugural chauffeur.

Speaker 4 [12:48] We could do a segment just on the chicken business.

Speaker 1 [12:49] That’s right.

Speaker 3 [12:50] Honestly.

Speaker 1 [12:50] We’ll get into the chicken business in a while. We know Clyde and Max aren’t eating chicken. Didn’t— Clyde didn’t. You know, it’s interesting because you talk about the challenges of you’re running these things, you’re high utilization. But the idea with teams is you do get a lot of miles. What you’re saying is a little different. It’s the CapEx side that is— you have to constantly replace them.

Speaker 2 [13:08] That’s right. We’ve got to get the revenue. I mean, these guys, these trucks need to be generating about $10,000 a week. On these trucks, not $8,500 a week.

Speaker 1 [13:17] So I’ve known you guys both for years.

Speaker 4 [13:19] And the drivers work so hard.

Speaker 2 [13:20] They work so hard. It’s a hard job.

Speaker 3 [13:22] Well, and you’re also talking about, you know, you said first quarter was kind of down on teams. Well, that’s every year. So it cycles in and out.

Speaker 2 [13:29] In and out.

Speaker 3 [13:29] So you have to adjust, constantly adjust up and down.

Speaker 2 [13:32] That’s right.

Speaker 3 [13:33] In order to keep that count at the right count.

Speaker 1 [13:35] So I’m going to ask both of you guys, by the way, they are stepbrothers. Clyde Fuller, Frank Caviar did a Fantastic.

Speaker 2 [13:43] It was good.

Speaker 1 [13:44] A fantastic cover on Freight Alley. The credit— this is a Countrywide. There’s Clyde. He’s the bigger than life character, sort of like Boss Hogg is how I describe him. Big old cigars, bigger than life and bigger than reality. But he had these old cabovers that, in my opinion, went hard. Both of you guys growing up, I’ve known you both my whole life. There was this rivalry in Chattanooga of building 2 big companies, 2 big trucking companies, a family The team dynamic plays into it, but the truck count was also a piece of that. Who had the most teams? Who had the most trucks? David, you’ve talked about this change in direction, the fact that you guys have become disciplined. When did you decide that the number of trucks just did not matter?

Speaker 2 [14:29] Yeah, when my profits told me that. You know, I mean, first of all, in 40 years of being in business, I’ve been broke 2 times and just didn’t shut the doors. And every company probably at one time or another has been broke and just didn’t shut the doors. And so you’re continuously looking about how do I revamp the company and how do I make sure that we’re on the— we’re going to be longevity and that you’re going to continue going. And so it was all along those kind of lines that made us make all those kind of decisions that says, here’s who we need to be when we grow up. And so in 2015, when I made that decision, went to the board, and what I told the board that day was this. I’m so tired of the ups and downs of my earnings. Up— let me tell you one good thing about a team operation. When it’s running like a third shift manufacturing, you’re printing money.

Speaker 3 [15:19] Mm-hmm.

Speaker 2 [15:20] But let me tell you, let the weather in January, let the GDP go to 1 instead of 2.5, and you don’t have the freight, you are not making those widgets 3 shifts. And all of a sudden, that cost Took too many people on payroll, too many people, too many mechanics to fix my trucks. The cost just kills you.

Speaker 3 [15:40] It does.

Speaker 2 [15:40] And your margin, you can literally go from 83 ORs to 97 ORs in a week.

Speaker 1 [15:47] Well, Wall Street is awarding you. This is in 2008, your stock was as low as 78 cents a share.

Speaker 3 [15:54] Yeah.

Speaker 1 [15:54] There was a belief, this is 2008, high liquidity price.

Speaker 3 [15:58] Absolutely, we were gone.

Speaker 1 [15:58] You guys might file bankruptcy at some point.

Speaker 3 [15:59] Yeah.

Speaker 1 [16:00] You were on bankruptcy watch.

Speaker 3 [16:01] Yeah, that’s right.

Speaker 1 [16:02] You’ve now got nearly a billion-dollar market cap. Your stock has been— I mean, it’s right up to the right. We’re up and to the right. Wall Street is rewarding you, but you’re a smaller— I mean, revenue’s there, but in terms of total truck count, you’re smaller. When you decided to go on this journey, how painful was it to think, am I making the right decision in terms of getting out of the OTR business?

Speaker 2 [16:23] Yeah, it wasn’t. Again, so in 2015, I went to the board and I said, I don’t know what this means, but here’s what we’re going to do. I’m going to get deeper in the supply chain. Have no idea what it means. Thank the Lord Delta Airlines came up there. And Delta, which we’re still with them 11 years later, Delta wanted our teams to haul their engines and their tires out of Atlanta, Georgia that had to be in LaGuardia, had to be in Minneapolis and Chicago, Detroit next day.

Speaker 3 [16:49] Yes.

Speaker 2 [16:50] But they also wanted me to do Chattanooga, Tennessee and Columbia, South Carolina and Auburn, Alabama. Every location for Delta went to. And so when you land in Atlanta and you look over there where they’re working on planes, we got people in there and have for 11 years. Since then, we’re now operating a warehouse for Delta Airlines. And that started it. It was a blessing. I don’t know if Delta sold me or I sold Delta because they were scaring me when they was telling me what they wanted me to do in 2015. David, if my flight’s delayed or it’s a maintenance problem, the first thing I do is, is this, is this, is this plane because of tires or brakes? Okay, that’s where all of its tires and brakes— tires and brakes. Interesting. If it’s tires and brakes, it’s me.

Speaker 1 [17:35] By the way, we need those. We need tires and brakes. We got to have brakes especially. I’ve had my brakes fail on my own airplane as a pilot. Tort reform is a big conversation. Yeah, um, it, you know, we have been covering back to back. Matt Leffler, uh, And I are going to get into torts. So he’s— he is going to talk about this whole legal situation happening for 8. But this all comes down to the fact that no matter where you’re at in this, you are subject to these massive, massive lawsuits. What are you hoping that the government does about tort?

Speaker 2 [18:07] You know, I heard Max say earlier that if we don’t get tort reform, it’s not going to matter. I’m paraphrasing. That’s right. And it’s true. It’s not going to matter. That’s why I believe we have to get it. I am so happy with what DOT, but I’m happy with what ATA. Chris Spears is doing a wonderful— leading this effort. I have probably been to Washington 6 or 7 times since October, and I’m very blessed in one side to have Ben Carson on my board. That allows me to get some meetings when I need some meetings. And we are running with that effort to get tort reform. And I will tell you, we’ve went from forever, forever, all of our careers, 0% chance of getting tort reform. I got it at 20% only because of Donald Trump, only because he knows it’s affected him in court cases. Yeah. Only because he knows how hard it has been. And we’ve been fortunate enough to meet with him 2 times. We’ve been fortunate enough to meet with the Judiciary Committee 2 months ago. We have met with Jim Jordan 2 months ago. We are— we’re going. We’re going. And I think I’m happy at 20% chance.

Speaker 3 [19:34] Well, look, it’s got to happen. It’s got to happen. If it doesn’t happen, we’re not going to have an industry at all. Yes.

Speaker 1 [19:39] You can’t have this.

Speaker 3 [19:41] The losses are coming on so strong and so hard against these carriers and it’s destroying their balance sheets.

Speaker 2 [19:48] Yes, it is.

Speaker 1 [19:49] Well, the risk is, I mean, the insurance numbers are piling up. How much does insurance cost you more? Are you having to deal with insurance changes over the last—

Speaker 2 [19:56] Let me tell you, thank the Lord, a couple of things. Ours does not expire until next April, but in the last 3 or 4 years, we’ve got 50% of insurance And my costs are up about 300%. 300% cost for 50% of total coverage. And guys, I’m going to tell you, I don’t know what kind of insurance any of us got. I mean, it’s like I’m, I’m naked on this quarter. We’re dividing it by 2 on this quarter. As it goes up, the exposure just gets larger and larger.

Speaker 3 [20:31] Well, the problem is that the courts are awarding such Such large awards that the insurance companies have to continue to increase their charges. And the carriers are having to, in order to keep the costs down, are having to take bigger exposures. And I mean, that’s a big problem for this industry. We’ve got a problem with returns anyway. And then you compound it with that. I mean, it’s got to happen.

Speaker 1 [20:58] I got to tell you, Having been around this industry, grown up in a trucking family, have diesel in my blood, the thought of having to deal with this unknown risk of what this means, the pressure, I just— for any operator who’s got risk out there and these existential risks, it just seems like it’s a lot to stomach.

Speaker 2 [21:21] It is. And as Max can relate to, and all of us can relate to, and that is What’s the first thing we wake up of a morning? The first thing we do is get our phone to see if we had any bad accidents, right?

Speaker 4 [21:32] I used to do that every morning.

Speaker 2 [21:33] Every morning. And the first thing is going to be—

Speaker 4 [21:36] I don’t miss that every morning, like checking if I got any alerts or emails overnight of anything.

Speaker 1 [21:40] What do I need to know? I mean, that, that, look, I, I think there’s an argument that some of the unregulated parties that are out there Having more regulation, more risk management is important. There’s definitely— this industry has gotten too loose. But when you’re talking about the fact that we’ve covered multiple stories, there’s the Utah nuclear lawsuit with now QXO, one of Brad Jacobs’ companies, Beacon Roofing.

Speaker 3 [22:11] Yeah.

Speaker 1 [22:12] The jury decided that the driver was not negligent, or the carrier was not negligent. Still, Matt Leffler, we have Matt Leffler. Matt, that whole story was absolutely insane that the jury decided that the carrier wasn’t negligent, but then still awarded an $86 million nuclear judgment against QXO. What, what was that nonsense?

Speaker 3 [22:38] The key to remember in all this is that juries get it wrong, trial courts get it wrong, and that’s why you have an appellate process. Ultimately, these things take years to unpack. There’ll be the same case with C.H. Robinson in Dallas. So even though you might get a verdict like, that doesn’t make any sense, there’s going to be appeals, there’ll be change. But you might not hear that for a year or 2 years down the road. That’s why it’s so dangerous for motor carriers and brokers right now. You just don’t know where the cards are going to land.

Speaker 1 [23:03] You just never know what the risks are. And that’s the issue. I mean, there’s so many cases in terms of just this unknown risk. And a lot of times, it’s just up to the jury emotion. These plaintiffs’ attorneys get all fired up and get people fired up. It’s a big issue. Matt Loeffler and I are going to dive into that. Stay tuned later for Afraid Expectations. Real quick, I want to ask David a couple more questions. Production, just calm down. We don’t need the music just yet. We’ll get there. David, what is it that you’re most excited about right now in this industry?

Speaker 2 [23:34] Where the cycle is, and quote, the supercycle that I think is at the beginning stages. That’s the most exciting thing.

Speaker 1 [23:41] You think this is going on for years? You think it turns over in a year?

Speaker 2 [23:44] No, no, no. Here’s what I believe. I believe what the DOT has done is unbelievable from a standpoint, and you’ve had Derek Barnes here, and that is we don’t care how much money a trucking company makes. We don’t care how much money the customer makes, a shipper, a manufacturer. Here’s what we do care about is that the motoring public knows that the safety is on the interstate when they pass a truck. That’s their whole goal. And they don’t care about What that means, he is driving that process. Doing that, I believe, has taken out somewhere between 2% and 3% of capacity. Keep in mind, 2% moves the market.

Speaker 1 [24:24] Look, John Kingston, our oil reporter who’s been reporting on commodities his whole life, has argued, and he educated us, it is not the percentage that matters, it’s the incremental. As he says, the incremental barrel of oil sets the oil price. Same thing in trucking. You need to— in any market, if you have one more load than you have a truck, People will pay whatever. And that’s why these markets can flip 20%, 30% in a given hour.

Speaker 2 [24:46] Absolutely. So let’s say that they’ve taken out 2% to 3% of capacity. I’m saying we’re at first base.

Speaker 1 [24:53] Because there’s a lot more coming.

Speaker 2 [24:54] I think there’s a lot more.

Speaker 3 [24:55] And you and I are aligned on that totally.

Speaker 1 [24:58] Yeah, a lot more is coming. The regulators, whether we’re talking state government— and look, we’ve had conversation with Derek Farrars. We’ve had conversation with DOT. The fact is that just like the STB, and we had our rail summit earlier this week, we had the benefit of Union Pacific and Norfolk’s CEOs here in Chattanooga, along with the chair of the STB. What they’ve said is one of their roles as the STB is to stabilize the economics of the rail industry, because they will— and they’ve said this is one of their charters— if they don’t stabilize the economics of the railroads, and we all saw what happened in the ’80s.

Speaker 2 [25:32] Yes.

Speaker 1 [25:33] then you’re going to have safety issues. And so having an economic return, given the benefit of companies that operate safely to make investments— and that’s the other problem. When you can’t operate safe, and you’ve got to deal with a lot of the cost increases, inflationary issues, and you haven’t made a profit because of this excess amount of capacity, even though— look, companies like Covenant, companies like US Express—

Speaker 3 [25:58] Yeah.

Speaker 1 [25:59] The companies that we’re covering, they have no choice but to make these safety investments.

Speaker 3 [26:03] You have to.

Speaker 1 [26:03] But it’s that mid-market carrier that oftentimes will sacrifice the investments in training and in equipment. Matt Leffler likes to remind us that 1/5 of all trucks on the road are not roadworthy because they’re just trying to stay in business. And that is not what you want if you’re a safety regulator. Your responsibility is to keep the truck safe on the road, but the companies must make a return. And you’re talking to— we’re bragging about the fact that— I know this is great, and I don’t mean to dismiss it— a 96% OR, I know, pathetic. Like, that is not great. No, in the world of companies. Congratulations, by the way.

Speaker 2 [26:43] But that’s the fact. I know it’s pitiful. Tells you everything you need to know about how— how hard it is to do better.

Speaker 3 [26:48] Well, yes, what people don’t understand about ORs Is you almost have to make at least a 92 just to break even.

Speaker 2 [26:56] That’s right.

Speaker 3 [26:56] Because you’ve got to pay your working capital. Most shippers think when you say 92 that you’re making an 8% profit. That’s not true. You’ve got interest, you’ve got taxes, you’ve got all kinds of things that gets added to it. And it really takes at least a 92 to break even. You know, and this industry doesn’t break even very often.

Speaker 1 [27:13] I would love to track— we should do this at some point. We’ll have you back, David. to track the history of Covenant and US Xpress and other carriers and how many times you guys actually got to 92. Because like the history is—

Speaker 2 [27:26] All 5 times.

Speaker 1 [27:28] You have these businesses that are among the most successful, have all the benefits in the world, and you’re just struggling to have oxygen.

Speaker 2 [27:37] I know.

Speaker 1 [27:38] It is a difficult, brutal, brutal—

Speaker 2 [27:39] But it’s getting better.

Speaker 1 [27:40] It is getting better. I do hope that—

Speaker 4 [27:42] That’s the closer of that. is that the FMCSA, the DOT, we know that they’ve asked for our data. They use it to ensure freight market health, right?

Speaker 1 [27:50] I got a text. I don’t know if Derek wants me to share this, but I’m going to anyways. I was sitting down here with Weston Walp, our county mayor, Mitch Patel, who runs— he’s one of the local hoteliers in town. And I get a text message from Derek, call me. And I’m like, okay, the guy in charge of the FMCSA, the primary regulator, I probably should step out of this meeting. Like, no offense against Weston Wampler, our county mayor. I thought that maybe Derek Barnes is a little bit more important. So I step out, and I’m like, what’s up, man? He goes, I need to know how rates are today. So I told him the NTI rate. And he goes, what were they pre-regulation? Or I mean, pre-COVID? And I told him the rate, the NTI rate. And I said, Derek, what’s going on? He goes, the White House wants to know. And I think this goes back to the fact that the regulators— and I use the STB as the example of this— understand that when you don’t make a profit, when this industry isn’t making a profit, we clearly know you aren’t making the kinds of investments.

Speaker 4 [28:51] You can’t invest in safety. You can’t invest in quality drivers.

Speaker 1 [28:56] It’s not the big companies that are cutting the corners. It’s the mid-level operators, those family businesses with hundreds— Carol Former went bankrupt. They went bankrupt because there’s too many drivers on the road, and many of them were unregulated. And what’s not What’s not fair, David, is that the government allowed non-regulated entities, non-regulated drivers to make lots of money. Super Ego rented money.

Speaker 2 [29:21] Yeah. Yeah.

Speaker 1 [29:22] They weren’t operating compliantly. You guys are just struggling to survive.

Speaker 2 [29:25] That’s right. Absolutely.

Speaker 1 [29:26] Man, we could do this all day long. But Matt Leffler is in the box waiting to talk about the biggest story in freight, which is all of the regulatory lawsuits. And because we are generous here at FreightWaves Today, we are giving you free legal information, not, not advice, as Matt Leffler likes to remind us. If you listen to— if you’re using Matt Leffler as your attorney and you’re not paying him, you need a real attorney. I mean, you’re a real attorney.

Speaker 4 [30:01] He’s a real attorney. He’s just not working for me.

Speaker 1 [30:03] You’re a real attorney. What was your quote? Your favorite quote?

Speaker 3 [30:06] If you think you need a lawyer, you probably do. And I’m not your lawyer unless you’re paying me, then I’d love to represent you. So yes, I am a real-life lawyer, but I’m not your lawyer. That’s—

Speaker 1 [30:14] No one is paying you on FreightWaste Today, so just use his advice. That’s the disclaimer. Uh, we’ll be right back with Freight Expectations. David, thank you so much for coming in.

Speaker 3 [30:22] Glad to be here.

Speaker 1 [30:23] Always, uh, congratulations on a great quarter. We look forward to, uh, to have you back next quarter to tell us all the great things.

Speaker 2 [30:29] Come back anytime.

Speaker 1 [30:30] It is fun to talk to the two of you guys. I, I, the newspaper, I bought the Times Free Press. For our audience that doesn’t know, it’s the local newspaper, uh, here in Chattanooga. They’re gonna do a story on Sunday. I was talking to the reporter, he’s in this, this conversation about the history of the family. And, uh, we were talking, I was telling him about, um, Clyde and, and David and Max, uh, you, you guys. And, uh, he asked a question, was it always friendly? I said, not so much.

Speaker 3 [30:59] Yeah.

Speaker 1 [30:59] And, uh, so, In the ’90s and the early 2000s, there was a lot more rivalry. You guys were arm wrestling and competing.

Speaker 2 [31:08] You know, the thing is though, Max and I always loved each other. We do. We do.

Speaker 3 [31:12] We always loved each other. If I couldn’t haul the freight, I want him to haul it. That’s right.

Speaker 1 [31:15] I don’t know if that’s true. We’re gonna go back and find some people to dispute that. We’re gonna fact check that all because I know better than that. There’s a story behind it. There’s a great story behind it. We’ll be right back.

Speaker 1 [0:00] But now entering Freeways Today, we’re going to have the one and only Mr. Rob McCray, the VP of Transportation here at Univar Solutions. Rob, hello, sir. How’s it going?

Speaker 2 [0:12] Appreciate it.

Speaker 1 [0:12] Appreciate you.

Speaker 2 [0:13] Glad to be here.

Speaker 1 [0:13] Glad you’re here. How’s, uh, first off, thank you so much for having us here. No, this is great.

Speaker 2 [0:18] We’re in Chattanooga in your backyard, so it’s, uh, it’s the right move.

Speaker 1 [0:21] It’s awesome. It’s fantastic.

Speaker 2 [0:23] Yeah.

Speaker 3 [0:24] So tell us, uh, The event is underway.

Speaker 2 [0:27] Yep.

Speaker 3 [0:28] First of all, how do you feel it’s going so far? Great attendance.

Speaker 2 [0:31] Really well. Surprisingly, this is actually a little bit smaller of a crowd this year by design, but, but it’s going, going really well. As you can see, it’s all about getting everybody out mingling and talking to one another, and that drives that whole shipper of choice mentality. We want people to have the face-to-face connection.

Speaker 3 [0:49] Tell us about the carrier kickoff. For people who aren’t familiar, haven’t been here, why do you guys do it?

Speaker 2 [0:55] Sure.

Speaker 3 [0:55] Do it every year, right?

Speaker 2 [0:57] It’s a— it’s, it’s not cheap. It’s a big investment, as you can imagine. We, you know, the term Shipper of Choice, you guys give the great award out every year. It’s almost become synonymous with, you know, what’s your rating online and how many carriers, you know, look and want to do business with you. But the real, the real kind of connection for us is how we treat our carriers, right? So there’s, there’s typically 2 approaches. You can treat it as a commodity and just kind of chase the rate and go with wherever the wind is blowing, or you can establish some longer-term partnerships. And that last way is typically a little bit more expensive and it takes a lot more investment on the shipper’s part, but it pays dividends in markets like right now. When it contracts and it gets really difficult to find a truck, it’s all about all right. There’s a limited number of them. You have multiple customers or shippers calling into a carrier to say, “I need an asset,” and we operate you know with ninety-ish percent of our volume in the liquid bulk hazmat space. So it’s a very small niche of the registered DOT carriers. It gets very competitive. You know to get those those. those assets. And for us, being able to know who you’re talking to, for us as well as the carrier, putting a face and a name, it’s almost like you’re talking to a friend, you know, or you’re talking to somebody you’ve done business with and you know who they are, you know about their family, and you see them on a regular basis. And it makes it easier to get that asset when other companies, our competitors, aren’t necessarily investing in the carriers. And so when it’s that choice, do they make the short-term chase after rate and a higher margin load? Or do they say, you know what, this has been a long-term partnership for half a decade. These guys were always here consistently paying, you know, a small smidgen of inflation every year, even in deflationary markets. You know what, we’re going to give these guys the asset and it protects our customers and our suppliers. So that’s why we make the investment.

Speaker 3 [2:58] Talk more about why it’s even more important, so important with Baltic Chemical and It’s a bit of a different market than regular van truckload.

Speaker 2 [3:08] Yeah. You know, coming from the CPG space, you know, prior to my time at Univar, I can tell you trying to procure capacity in the liquid bulk space is a completely different animal. Most of the players are in that, you know, 10 to 50 asset range. And the commodities that we move, some are just standard steel drum tankers and you’ve got to worry about housing which are hazard placating, which limits the number of registered carriers, of course, first and foremost. But then as you start to get into your more specialty chemicals like hydrochloric acid, which requires a rubber-lined 53-foot tanker, you know, these are exceptionally expensive assets that require, you know, high utilization rates and require consistent business. And a lot of companies don’t want to make that investment because the market is cyclical. You might have a boom year, and then, you know, 2 years of a bust year, you know, 2 bust years in a row. And that’s very difficult to pay back the investment on that asset. So for us, you know, that’s one more reason why we wanna invest and we wanna make sure that, hey, we’re treating our carriers as best as we possibly can and inviting them here.

Speaker 3 [4:13] Right.

Speaker 2 [4:14] And it does, it does give us a bit of a competitive advantage when we’re going out to our customers. And you know what? Everybody’s competing for that asset. We have a large private fleet. They are fantastic for us, you know, but about 50% of our volume still moves carrier. And we do that by design.

Speaker 3 [4:31] Yeah.

Speaker 2 [4:32] So we can reach out and touch, you know, customers that are outside our normal delivery— excuse me— delivery zones. And the carriers, you know, that we do do business with love our modding.

Speaker 3 [4:42] I really have always believed this, and the older I get, further I get in my career, you really do prefer like actually having a face to put with the person that you’re working with. Sure, wholeheartedly. Absolutely. And meeting them in person makes a big difference, especially When exceptions and issues arise, they’re going to, right? That you have someone you can have a conversation with and you know well enough to be transparent and talk about the path forward and the solution instead of an email that just lays out the problem, if that makes sense.

Speaker 1 [5:12] I want to pick up on that because the intentionality was so easy to lose in this market that we’ve had the last 3 or 4 years. How have you been able with your organization to keep That relationship, like, hey, regardless of win or lose, I’m here because I want a good relationship, an outstanding one where it’s business, but also there’s a care at the end of the day as well.

Speaker 2 [5:33] So I’m going to give a shout out to those in small parcel where I started my career 20-something years ago. Tell me a time you guys or anybody in the audience, you’ve ever seen a UPS driver outside of brown.

Speaker 3 [5:46] Outside of?

Speaker 2 [5:47] Outside of wearing brown.

Speaker 1 [5:48] Outside of wearing the color brown. I can’t name a time. Zero.

Speaker 2 [5:51] Never exists, right? And that perception, you know, as a customer leaves you to like, oh, okay, you notice that. And then you start to talk to the individual and it’s the same driver on that same route over and over and over again. Now, it’s not to say that the other LTL— excuse me, small parcel providers aren’t good, but there’s that consistency of the same driver on the same route, always in uniform. And you begin to establish that rapport and you just begin to trust when you ship that package, you know, that contract or whatever it is that you’re shipping through UPS, you know it’s going to deliver. We try to do the same thing here where we don’t view our carrier partners as anything other than an extension of our brand.

Speaker 3 [6:34] Okay.

Speaker 2 [6:34] We don’t want our customers or suppliers to say, ah shoot, they sent in a carrier as opposed to Rob McRae, the delivery driver for Univar. We want them to say, Oh yeah, it’s James. You know, he’s with you know Univar Solutions, or it’s Rob. He’s with you. They don’t need to know whether it’s a private fleet or a carrier. So we intentionally partner. Yes, we have some partnerships with very large carriers, but you can see by the crowd behind us, we go after these small mom-and-pop companies. We want to do business. We want to be leveraged with them. We want to be an important part. We visit their terminals. We want to talk to the drivers. We encourage the drivers to tell us. Do you see opportunities here? Yes or no? And if so, what are they? Or is something, you know, dangerous that we need to be aware of? It’s all about being the extension of the brand, and that’s helped us grow share.

Speaker 3 [7:21] I think that is wonderful. You’d be surprised by how many executives on either side of the fence, right, that especially shippers will not actually, when they make it to your levels, sir, they’ve not spoken to a driver.

Speaker 2 [7:35] It’s critical.

Speaker 3 [7:37] When I was doing dedicated operations and I would go on site, occasionally I would see that in the office there’d be a sign that drivers can use the bathroom. Like crazy things, right? And so actually understanding that drivers’ lives and what they’re doing and then being able to put a face to you guys—

Speaker 2 [7:53] Absolutely.

Speaker 3 [7:53] And the load that they’re delivering makes them bought in and they wanna provide you a better service. So I think that’s amazing. So on that topic, So let’s talk like very tactically and practically for our viewers who also want to learn from this. What does it mean to you to be a Shipper of Choice? And what are some tactical things that you do that make an employee at the top?

Speaker 2 [8:16] It means the world to me, you know, and, you know, don’t let this raise the ego, but being the first chemical distributor to receive, you know, the Freightways Shipper of Choice Award was an enormous accomplishment. And truth be told, we did not seek this whatsoever years ago when we were initially awarded. It just kind of happened. And I would tell the audience, that’s the best way to go about it. Don’t try to get it. Just, just do the right things and follow the right processes. And I will say there is a process. This is a recipe. This isn’t, you know, it’s a little bit of art to it, but it’s— it starts with hiring the right folks, right? They got to have the right attitude and the right aptitude. And part of that Part of that attitude is, you know, being a service-minded and servant leadership approach and being okay talking to a blue-collar employee, wanting to engage the drivers, not just the sales rep at these companies, wanting to go out and meet the carriers at the facilities, not just bringing them here. Then it’s all right, build the route guide. How are you building that route guide? Is it just cost-focused or is it service-focused? Talk to your commercial counterparts as a shipper. I need to know what lanes I can have a little bit of flexibility on service and chase some price. That price or that margin I then use to offset and buy a lane that I need to have higher service on, right? And then consciously choose those service providers. There’s a stick to it as well, a discipline. If a carrier is not performing at the level you need to, you need to have the heart-to-heart conversation. We do a rack and stack if a carrier gets off track. We give them 90 days to kind of get that positive glide path back. If they don’t, thanks for playing. It’s been wonderful. We’ll move you on. But directionally, it’s long-term partnerships and it’s partnerships with people that we want to do business with, people that take care of our customers. We want to grow with them. You look around this room, some of these carriers in this room had never moved the hazardous material before, but had worked with me at a previous employer, and they’ve now been over here for almost 6 years. they just want to follow. And, you know, a shout out to Shelley Simpson and JB Hunt. You know, I was a young transport manager and did a walkthrough of their facility. This is many years ago. And there’s a sign down there over the owner’s head and it says, good business partners attract good business partners. And I have my career tried to emulate that saying, that little quote, because it works. You want to do business with people that want to do business with you.

Speaker 3 [10:42] I’ll also say I love the racket stack. Like, well, I was over customer success for a long time and it creates like inherent competition. You’ll want to see yourself at the bottom of the rack and stack like guys to service and 10 to 30 seconds, all the things that your shipper is cranky about. So I love a rack and stack.

Speaker 1 [11:01] I agree. Now, a question for you, because chemical is its own ballgame.

Speaker 2 [11:06] It is.

Speaker 1 [11:07] It’s like I’m a sports guy, so it’s like the Euroball versus The NBA. Yeah. How do you get success like this given chemical and just what comes with that? Because there’s so many different things, so many variables that can go left.

Speaker 2 [11:23] I mean, you have to be good before you can be great.

Speaker 1 [11:26] When you step into the chemical space, like, you have to be here. There’s so little room for error.

Speaker 2 [11:33] Turn around, look at the employees that are here. Go on LinkedIn, look at who’s working at Univar Solutions. Univar is a wonderful place. It is a— if you’re a logistician, it is a cornucopia of logistics. We’ve got air freight, we’ve got river barges, we’ve got ocean vessels. We service the North Slip of Alaska. We’ve got liquid tank, we’ve got LTL, we’ve got package truckload, we’ve got rail, we’ve got 3,500 railcars that we like to We do business across every mode of transportation. I don’t know if we have a mule and a donkey somewhere, but we might, right? But it attracts logisticians and we have a very strict vetting process of who we hire. And again, we target folks that have the right aptitude, which is first and foremost, are you data-centric? Can you understand data? Can you apply it? Do you understand math? But are you a people person and can you also have good emotional intelligence and engage? With not just your other supply chain folks, but cross-functionally, right, with our commercial partners or, you know, PMM folks that are purchasing from our suppliers. And then lastly, it’s that attitude. Do you have that drive? Do you love logistics? Like, is this what you want to do as a career? And if you have that passion and you have the aptitude to go along with it, this is a great fit. And fundamentally, that’s how we get the recipe to work that we’re doing. We hire good cooks and the good cooks Our fantastic logisticians.

Speaker 1 [12:59] That is one of the best answers. Julia, I’m so sorry. That was such a good answer.

Speaker 3 [13:02] It is so great. Yeah, I was just thinking, like, not only do I want to work— like, if I’m watching, do I want to work with Univar? Now I want to work for Univar. Okay, so obviously great event, really great attendance. What kind of feedback do you hope to get out of today’s event?

Speaker 2 [13:18] First and foremost, I want to know if the folks like Chattanooga. I love it here. One of my favorite cities.

Speaker 1 [13:22] Best city in the world.

Speaker 2 [13:23] Yeah, shout out to my son in Macaulay. He’s getting ready to start his freshman year there. So we’re genuinely attracted to the market here. It’s a growing town with a lot of logistics in it. Yeah. So, so first, first and foremost, we want to make sure our carrier partners are okay coming here as opposed to Houston or as opposed to Chicago, where historically we’ve done it. The next thing is, you know, we want to understand what’s driving the lower load tender acceptance As you heard me in my opening remarks, that is an issue for us. It’s the leading indicator of service, right? Service for our customers is our differentiator. It’s, it’s our lifeblood. Without, without a product to sell, right, and without a customer to purchase that, there is no logistics department, right? No, this is— we are not the tail that wags the dog. No, the dog tells us where to go. We have to approach the business through that kind of that, that lens. So for us, It really is putting a name to the face. It’s understanding what are the issues. And you’ve heard it, you know, driver issues and capacity is becoming an issue again. It really is. After a couple of years of not being an issue or factor, it’s definitely an issue. And the fuel surcharges, it is hyperinflated right now. And dynamic isn’t the right adjective to use. I mean, it’s, it’s erratic right now where the fuel prices are going. We have to do better. You saw that we adjusted, you know, our fuel surcharge policy and our other asset sales. To try and accommodate the feedback that we are getting, we use this event to solicit additional feedback how we can become a better partner. Because at the end of the day, when we are competing with our you know competitors for that asset to deliver to our customer, we want the trucking company, that carrier, to give us that capacity. And when that happens on a consistent basis, the customer says to our one of our competitors, you know what? We know we can get a truck from Univar Solutions. We’re going to shift the load over here. And now we grow share. With more share means more profit. More profit means we can pay more to our carriers. And it’s that flywheel effect. So any feedback we can get from our carrier partners to help continue that is gold to us.

Speaker 3 [15:28] Sorry, I have a million more questions. So Malcolm, you’re going to have to just interrupt me if you’re going to want to get one in.

Speaker 1 [15:33] All good.

Speaker 3 [15:34] All good. Do you think having a competitive fleet helps you better understand your providers?

Speaker 2 [15:41] Yes, and I think managing on the private fleet side makes you a better logistician as well. And we’ve got a very kind of defined process in how we go about, you know, our progression through the logistics ranks here. You got to know the systems first. You really do. You know, the best private fleet folks, you know, start off as good planners, know how to procure freight and understand, you know, exactly how it flows through that system. They make the best private fleet managers typically. They understand the blue collar. They understand what the fleet drivers are impacted. And then we get into carrier procurement.

Speaker 3 [16:16] You mentioned tight tender rejections, or higher tender rejections, fantastic. So because of full demand, your read on the market currently, do you think the rest of 2026, 2027 should look like?

Speaker 2 [16:28] Man, I am not Nostradamus. I don’t know. What I believe, this is just Rob McRae’s perspective, I believe it’s going to be tight. I believe it’s going to be carrier favorable for the balance of the year. You know, anybody’s guess is as good as mine. But, you know, the geopolitical events that are going on right now seem like they’re going to kind of continue on at least through the midterms. That basically puts you into Q4. Now you’re rolling out the end of the year. The $10 million question to me is, does this continue on through the first half of next year? The higher and erratic fuel prices, does that continue on? And if it does, what does that do to the large shippers as they’re posting Q1 and Q2 earnings and they’re taking price to try and accommodate all of the supply chain hikes that they’re seeing? And then ultimately, what does that do longer term for the marketplace?

Speaker 3 [17:16] Yeah, I think it’s going to remain tight. I just, I don’t see capacity entering. Yeah.

Speaker 1 [17:21] No, no. Rob, is there anything that we need to be aware of? I mean, about this event, anything you’d like to plug about just how awesome this is? I mean, the West, it’s jumping behind us right now.

Speaker 2 [17:31] You can see it. You know, it speaks for itself. We’ve got a fantastic transportation, you know, team here. I would tell you, if you’re, you know, a carrier and you’re looking for a place to potentially get into, reach out to me, reach out to one of my teams and, you know, make your sales pitch. And if there’s a need, we’ll absolutely squeeze you in.

Speaker 3 [17:51] Okay, so I have one final question that I can’t not ask. I know you got a hard out. But you hear from a lot of our customers, you see that many shippers have never been through this sort of market cycle before. They’ve never been through a carrier’s market.

Speaker 2 [18:07] Yeah.

Speaker 3 [18:07] So how do you train your team to deal with Adam Hibbett?

Speaker 2 [18:12] It’s like running a marathon. It truly is. It’s not just difficult for the carriers when you’re on our side and you truly are trying to maintain that partnership relationship. It is exceptionally difficult to continue to pay higher rates and to do what’s right by the carriers when your finance team, your organization is desperately squeezing you for additional capital. It becomes very difficult. So again, it’s like running a marathon. We need the market to swing from time to time just as much as the carriers do.

Speaker 1 [0:00] Welcome back everybody to FreightWaves Today. Of course, we are at the Univar Solutions Carrier Kickoff event here at the Westin in the heart of Chattanooga, Tennessee. Of course, Malcolm Harris as well as Julie Vandekamp. We are now joined by Brad Hadley from Sire. He is the VP of National Accounts. Brad, hello. It’s good to see you.

Speaker 2 [0:19] Is this an incredible event or what?

Speaker 3 [0:21] It’s very cool. Yeah, we’re thrilled to be here.

Speaker 1 [0:23] This is great.

Speaker 2 [0:24] I wish more customers would do something like this. It really, It brings the carrier and the customer together and it’s more educational as well as on our pick-it lots. So good stuff.

Speaker 3 [0:33] Yeah, that’s a great place to start. Talk a little bit more about what it means to you and how this positions Univar as a shipper of choice for you guys.

Speaker 2 [0:40] So we’ve been doing business with Univar for a long time, probably close to 15 years, but it really was like the last 5 years when we saw the relationship grow because of events like this. So we got to know more of their people that are from the different regional transportation people. And get a better idea of kind of the direction they were looking to go. So for us, this, it’s been a great kind of kickoff to the next season with them going into the bid.

Speaker 3 [1:06] Very cool.

Speaker 1 [1:07] Brad, just because I’m a dork, I want to put this in perspective for myself.

Speaker 2 [1:11] Okay.

Speaker 1 [1:12] Why has there been such a transition from a lot of full truckload to now LTL? Why are we seeing this trend across the board?

Speaker 2 [1:19] Well, I think a lot of it has to do with money. Right. So the root of all evil. So basically what we’ve seen is capacity’s tightened, truckload prices have increased, of course. And then they look for shipments that might have been half loads that were cheaper for customers to move via truckload have now shifted back to the LTL side. So that’s kind of what we’re seeing really started probably in the beginning of Q2.

Speaker 3 [1:46] So truckload rates rise, it creates more opportunity.

Speaker 2 [1:50] And customers kind of shift modes over to LTL for some of those half loads or, you know, moves like that.

Speaker 3 [1:57] And is that resulting in more LTL volume that you all are seeing?

Speaker 2 [2:01] Absolutely. Yeah. When you look at it, we’ve definitely seen the weights increase in our average shipment. I mean, you look at our Q2 results, which we released today, it was a record quarter for us for tonnage. So we’ve seen that transition.

Speaker 3 [2:19] Great. I know I didn’t get a lot of time to dig into it because it was— the release came out today after we were already here. Any headlines you want to share?

Speaker 2 [2:26] I’ll leave that to Fritz, our CEO. But you brought it up or I wouldn’t have. Yeah, I understand. But now we’re, you know, we’re pleased with the direction our company’s going. You know, we’re poised for, for what we think going to happen within the industry going forward with what we’ve invested into our company to this point.

Speaker 3 [2:48] Good.

Speaker 1 [2:49] So when it comes down to this, what you just discussed, is this temporary given the current aspect? Or you think this is going to be more so a permanent shift as we continue through this market cycle?

Speaker 2 [3:01] If I had that answer right, I would be a very rich man. But yeah, I think the way we’re looking at it, Is the trend is definitely heading that way. I mean, we’ve basically been in a 4-year freight recession. All right. And what we’ve seen happen in Q2, you know, we think is going to continue. And as I mentioned before, it’s kind of what we’ve been building towards. I mean, you look at Cy as a company in the last 2 years, we put $1.6 billion into CapEx. You know, we’re a $3+ billion a year company. That’s a significant percentage of our revenue going back into CapEx. preparing for this type of expansion. I mean, we opened— we’ve opened 70 new terminals in 7 years. We’ve 26 terminals, not including those 70, another 26 terminals we’ve relocated or expanded. So we’re poised for what we think is coming now.

Speaker 3 [3:55] So with a tight truckload capacity creating more opportunity for LTL, what are you seeing happening in pricing? I read earlier this week, I think it was ARK Invest, maybe, I don’t know, somebody pulled their GRI up 6 weeks sooner than normal. So what are you seeing regarding that and how pricing in the LTL world is reacting to this market?

Speaker 2 [4:17] Yeah, I think, you know, we know that we need to get paid for the services that we’re providing and we’re providing quality service to our customers. We’ve tried to be consistent even through the downside with our you know, with our partner customers like Univar that we’ve been doing business with for a long time. But, you know, I think we’ve seen there’s probably other customers that maybe have taken advantage of the marketplace. And I think what you’re going to see industry-wide, or I should just speak more for Sayes, is just knowing that we need to get paid fairly from those customers.

Speaker 3 [4:50] We say it all the time that for carriers to be compliant, and safe and have safe equipment and have quality drivers, they have to be profitable. And when rates are paying below their costs, it’s really hard to do that. So it’s not that I want, like, that I, like, love, like, sticking it to shippers and want it to be a carrier’s market because I do have a carrier background. It’s because there does need to be balance and that we do need safe roadways. We do need carriers to be able to cover their costs and be safe and compliant with quality drivers.

Speaker 2 [5:23] Absolutely.

Speaker 3 [5:24] And everyone wants drivers to make money. Like, they have the hardest jobs.

Speaker 2 [5:28] Absolutely. There’s nothing better when we do our quarterly meetings and we get out in front of all of our drivers and dock workers. To me, that’s the favorite part of my job. That’s what, that’s what really makes the work happen. But you’re right on the cost side of it. I mean, look at the LTL industry and we talked about earlier our insurance costs, right? And how much that’s gone up and how You know, you drive down the road and you see some more billboards about, you know, looking for trucking companies and stuff with lawsuits. So I think our costs have definitely risen significantly. You look at an average tractor nowadays, it’s up to $140,000 to $160,000 for one tractor.

Speaker 3 [6:10] So yeah, trailers are significantly more expensive. I mean, all of it is. Yeah.

Speaker 2 [6:14] Right. So yeah, I I think to cover that cost, you have to be profitable to provide quality service to your customers.

Speaker 3 [6:22] Right. So in this current market, as we’re seeing some more demand and volume shift to LTL, how do you balance that with choosing the right freight for your organization, being profitable, and then still providing the service you promised?

Speaker 2 [6:34] So I think, I think part of it is trying to partner with customers that are looking to work with you. And just as an example, right? So It’s not just doing LTL. You want to look for those customers that will do more than just the basic LTL with you, and that’s how you stay profitable. So we’ve got a Scia Logistics division now where, where we provide white glove final mile service into the state of Florida. Right. So it’s looking for those customers that will partner into different areas like that in other areas as well, whether it’s, you know, warehousing, final mile. And then maybe also looking at certain segments of the industry that are maybe pay a little higher revenue per bill than others. And also maybe focusing on some of those areas. For a shipper right now, they’re trying to make the decision.

Speaker 1 [7:22] All right, we talked about it earlier. It’s like, hey, like money drives everything, right? This might make more sense into the LTL space. But from your seat, how do you and how would you rather educate a shipper to make that decision On truckload versus less than truckload?

Speaker 2 [7:40] So what we like is the customers that are consistent, whether it’s on the truckload to LTL side, is keeping it consistent. So we know from the customer what we can expect, that we can control costs with their account. So whether it’s that truckload shipments moving to LTL or even certain times customers that might once a year switch the lanes of an LTL carrier with scanning between their, between their different carriers to maybe save a couple of pennies. But what you’re doing is you’re costing more for your traffic, right? Because now you’re going from handling these states to these states and now you’ve got to adjust your system operationally, whether it’s driver headcount, linehaul, that type of thing.

Speaker 1 [8:24] You know, Julie, when I was a young gun in the brokerage space, I used to use SIA quite a bit for my LTL needs as a broker.

Speaker 2 [8:31] And the one thing—

Speaker 3 [8:32] You’re a young guy.

Speaker 2 [8:33] A young guy.

Speaker 1 [8:34] Yeah, I’m saying a 21-year-old young guy. The one thing that was always good was reliability. How has that level of— and we’ve asked this question, but the level of service, but just the autonomy, visibility aspect, like I didn’t have to worry if SIA was the carrier associated with it. How has that always been the case from 2017 to now going into 2027?

Speaker 2 [8:56] And it’s funny you say that. We’re taking that philosophy that we’ve always had and expanding on it. So we just had a recent release of something we call REV, right?

Speaker 1 [9:06] Yeah.

Speaker 2 [9:07] Basically, that is, you know, when some carriers might be struggling, we’re looking to expand what we do with our customers in all those areas that you mentioned. So part of one of those areas is we give the offer now to our customers as we’re rolling out. As far as what I think is going to happen or not, I don’t know. I mean, I think You know, we do some business with Amazon. They’re obviously a great company. They’ve got the financial backing to do whatever they want to do. Right. But at the end of the day, we’re just going to focus on what we do and make sure we’re doing a better job for our customers each day.

Speaker 1 [9:43] Now, I think that’s a great answer for Warren. For sure. It just puts in perspective just how this evolution of transportation in this space and LTL is changing, man. I think it’s providing service at a high level and it’s gonna make everybody play up to this level. And a follow-up question to that is, you know, we talk news articles often. There’s a bunch of articles coming out. I’ve been, of course, listening to CDL news, the drivers and different things kind of entering the space. Is this having any impact on the level of service that you’re still, you know, 10 years ago to now?

Speaker 2 [10:18] Yeah.

Speaker 1 [10:19] providing on a daily basis?

Speaker 2 [10:20] Yeah, I mean, we’re fortunate that, that SIA, it, it, it is in for us. We’ve got a really strong, we call it dock-to-driver program.

Speaker 1 [10:30] Okay.

Speaker 2 [10:31] And that’s how we field into or fill our driver needs for terminal level. So dock-to-driver, so the dock worker is doing a really good job for us, good attendance, right? Good freight handling. And they want to become a CDL driver.

Speaker 3 [10:45] Right?

Speaker 2 [10:45] The terminal manager will put them into the dock-to-driver co-brand, and we pay for everything. You send them to one of our break terminals where we provide them the training, the course. They get their CDL license. They come back to their terminal, right? We don’t just put them right out on the road. Now they kind of do a little bit of dock and driving, and that way we’re filling the need from the driver’s side. But we know we’re filling it internally with with.

Speaker 3 [11:11] I imagine that has a positive impact on turnover as well.

Speaker 2 [11:15] Oh, absolutely. Yeah, absolutely.

Speaker 1 [11:17] And it—

Speaker 2 [11:18] you always want to try to promote from within anyways, and that really helps build our culture.

Speaker 3 [11:23] But you know who you’re putting in your trucks versus the first 30 days is when you lose so many new drivers. So that sounds like an amazing program and a really, really smart move. All right, so I’ve got to ask, where do you live?

Speaker 2 [11:37] You know, there’s certain words I try to stay away from, right? Like car and water and words like that because it just gives away that accent. So yeah, I’m, I’m from Rhode Island.

Speaker 3 [11:47] Okay. I mean, I, I knew it was, yes, Northeastern.

Speaker 1 [11:49] I was gonna guess Massachusetts.

Speaker 2 [11:50] Close.

Speaker 1 [11:50] I was.

Speaker 3 [11:51] So I asked that because I’ve got asked, what do you think of Chattanooga? What do you think of the event being here? Have you got any time to enjoy it?

Speaker 2 [11:58] Uh, yep. So I got in yesterday, so I was able to, uh, to check out the city a little bit and went for a little jog this morning around the city as well. Very impressed. You can see that the city is developing. And in fact, it was interesting that they moved it here this year. 2 blocks away, we just opened up a SCIA Logistics International office. So 2 blocks away. So yeah, so it worked out well. I was able to visit with the team yesterday while I was in town and really like the city. I think it’s definitely up and coming.

Speaker 3 [12:28] There’s just so much transportation and supply chain talent here. Makes sense that you’d open an office here. It’s why we call it Freight Alley. Everywhere I go here, I’ve met, you know, people I’ve worked with over the years, colleagues. It’s great to just go out. And with logistics being so close to my heart, everywhere you look in Chattanooga, it feels like it has a footprint.

Speaker 2 [12:48] Yeah, I hope they keep it here.

Speaker 1 [12:51] It was—

Speaker 2 [12:51] there was a good change.

Speaker 1 [12:52] So it’s a great change. I’m enjoying the sights and sounds so far. And, you know, anything for us that you want to leave with our listeners? for, for Saya, for the organization? I mean, you guys are doing incredible work in the LTL space. I mean, really in the general logistics space.

Speaker 2 [13:08] Yeah, for sure.

Speaker 1 [13:08] I can tell you really, you care about it. And what would you like to leave us with?

Speaker 2 [13:13] So, you know, I’ve been with Saya for 19 years.

Speaker 3 [13:16] Wow.

Speaker 2 [13:16] So, and it’s because of the culture that’s here and what I see the company growing and the people that are here. To me, the most impressive thing with our company is what we’ve invested back into the company for our customers. I mean, I talked about it, you know, 70 terminals in 7 years. I mean, that’s unheard of. And plus the expansion of the other terminals, you know, investing that type of CapEx in the expansion. I mean, we’re betting on the future of our company because of our people for our customers. So to me, I’m excited for what’s going to come in the next couple of years. We are positioned so well for what we see coming with the increase. Now you hear bits and pieces about some carriers recently that may, might be maybe struggling with some increased volumes that have come off from truck roads and stuff. Whether that’s true or not, again, we don’t talk about our competition, but as far as Saya goes, we were in a position to handle whatever that need is. We have the terminals, the tractors, the drivers available to, to handle whatever the need is. So Again, we’re excited for what’s to come. It’s a beautiful thing, right?

Speaker 3 [14:29] All right, final question. Any takeaways so far from the event?

Speaker 2 [14:34] Well, besides the award that we won, which was pretty exciting, right? That’s still up there. We’re pretty excited. The Superior Excellence Award.

Speaker 3 [14:42] So Superior Excellence in Service and Partnership, right? Exactly. Great. Congratulations.

Speaker 2 [14:47] Thank you. But I think that really speaks more to us, but more to Univar because You know, whether it’s, you know, the different people there, Kyle or Dean or whoever that we’re working with, they let us know where the need is. We let them know what we can do, but we’ll also communicate openly if there’s, if there’s certain issues we might be having or, or other opportunities that we might see. And just sharing that is refreshing on the customer level. They really don’t— Univar doesn’t, doesn’t see carriers as a commodity. They really don’t. They see them as partners that help them be successful in the veneer industry. And that’s great for us. So we enjoy, really enjoy working with customers like that.

Speaker 3 [15:30] Great. Well, I think that’s sort of the perfect way to end it. That’s how you be a shipper or how to be a shipper of choice, right?

Speaker 2 [15:38] Absolutely.

Speaker 3 [15:38] If you want to be someone carriers want to work with. Thank you so much for joining us. It’s been a great conversation. I hope you enjoy the rest of the event and your time in Chattanooga.

Speaker 2 [15:46] I enjoyed it as well.

Speaker 1 [15:47] We’re gonna get you down here from Rhode Island more often.

Speaker 1 [0:00] Don’t worry, we’re here at the Unified Solutions Carrier Kickoff Event here at the Westin, Chattanooga, Tennessee. And I visited this man’s city, the Queen City, and now you had to return the favor in the scenic city.

Speaker 2 [0:12] Told you I was coming back.

Speaker 1 [0:13] You told me, you meant it, you were. You meant it, you were. Y’all, this is Brian Riley, for those that don’t know, VP of National Account Sales at RXO. Brian, first off, it’s good to see you as always.

Speaker 2 [0:22] You too. Looking good.

Speaker 1 [0:23] Well.

Speaker 2 [0:24] Looking good.

Speaker 1 [0:24] Trying to keep up with you. No, stop it, stop it.

Speaker 2 [0:26] You got the summer bod going.

Speaker 1 [0:27] I gotta lose a couple. Guilty as charged.

Speaker 2 [0:33] Very nice to meet you officially. Thanks for having me.

Speaker 3 [0:36] All right, so tell us, what do you think of the event so far? Have you enjoyed it? Uh, have you learned anything yet?

Speaker 2 [0:41] Absolutely. So I would say yes to all the above. This is my 3rd year at the U of R Supplier Conference. Um, I think every time it’s gotten— they’ve dialed it in. Uh, I think just the overall— the way they set this up, having all their providers come in, giving a clear concise message to the team, setting expectations, leading with RFP. Not a lot of customers continue to do this, whether it be the expense of having, you know, putting on the event, bringing all their team members in, and then obviously having all of us in the same room. So it’s been, it’s been great. I think I always appreciate Rob and the team kind of giving the insight and their direction going forward.

Speaker 1 [1:18] You know, this is a relationship-based business. We talked about this when you were on with the truck. It’s not necessarily what you know, which that’s important conceptually, what you know, It’s who you know as well. You pride yourself on this. RXO prides itself on this. Why is that continually to be the fabric of what you all do each and every single day you wake up and log into these systems and get the day started?

Speaker 2 [1:40] Yeah, I think that Dorica said it great today during her presentation. You know, you’re in— our carriers are an extension of our brand, of our business. And so, and I think when, when you, when you really look at business in that way, in that You’re not just signing up to perform a task or a contract award. You’re really signing up to be and represent that customer and obviously your own reputation as well. So the communication piece and building that foundation of a partnership, and I would say across the organization, and what this event specifically does that a lot of others don’t do is I have access and we all have access, equal access to all of their stakeholders across the organization. So whereas I may have a strong relationship with someone at a various level or a particular site, site, I have the opportunity now to expand that partnership and discuss opportunities that are specific to each site and location. And so rather than having to physically travel individually to all— to 15 different sites or to have 50 different people trying to talk to one person, I think it just creates a streamlined approach that really does great for the— as a provider and also for as a customer with Eurobar.

Speaker 3 [2:47] Sales guy’s dream. Right. Like you get to expand and see the right people to expand to without having to do their research. They’re already here. You don’t have to make the 27 trips.

Speaker 2 [2:56] That’s— Yep, 100%. And I think, you know, my theory has always been you do prepare for any— you always prepare for something to where you’re providing value. But knowing who all is going to be here, knowing whether it be talking through opportunities or talking through challenges or maybe just talking in an informal setting about what they’re facing at a specific site or location that you might not always get from a corporate leader. That makes a lot of sense.

Speaker 3 [3:19] So in a current— I think we can all agree that capacity is tight in the current market. So in a market like this, what can and should shippers do to continue to preserve those relationships with their providers?

Speaker 2 [3:33] Yeah, I think, you know, we talk a lot about one thing we use a lot of time is win the tiebreak. If all things are equal, what’s the differentiator? That’s why you would choose one thing over another. If price is the same, if services metrics are the same, because in a room of 60 to 70 providers, there’s a lot of equal performance. They’ve had some award winners who outperform some others. But what is it that you do and your company does that separates you to win the tiebreak? And so I think where that comes into play from a capacity standpoint is they have to have the trust and the communication that you’re going to answer the phone in the good times and the bad. You’re not just constantly searching for what can you do for me. Right. Where that win-win collaboration is going to happen. And so I think if customers take that approach of not just looking for a one-way outcome that is maybe just a lower cost, I’m willing to sacrifice on service, but outlining with clear direction as to what their goals and objectives are, holding everybody equal to those performance measurements, rewarding those who perform, and really, I mean, frankly, and they’ve done this over the last 3 years, Not everyone makes it to the party next year. And so very clearly they outlined, like, it’s nice to see a lot of the same faces. And for those that aren’t here anymore, you’ve outperformed them to have the opportunity to be in this room. And so I think customers rewarding their providers that way is really what I think sets to help make people feel a shared sense of ownership for their business.

Speaker 3 [5:05] So you work with a lot of shippers, right? Inevitably in that provider-shipper relationship, there are gonna be breakdowns, there are gonna be exceptions, there are gonna be service issues, there’s gonna be lack of tenders that you expected occasionally because something changes in the network. Where do shippers go wrong in those relationships when there are issues? And then can you give us some examples of how the ones who are doing it right do it?

Speaker 2 [5:28] Yeah, again, the foundation of communication is critical. I think that You know, the capacity and the rate balance has been a struggle and a challenge depending on the timing of when bids were live. I think customers who are either willing to proactively engage in those discussions and say, look, I know everybody’s struggling, let’s come to a realistic— what is the current environment and how can we set a standard that wasn’t the same 3 months ago, 6 months ago, 12 months ago? So I think that the proactiveness of understanding that It— we have to find something that works for both parties. As a shipper, we can’t subsidize a customer’s routing guide. And on the same side, a customer can’t expect to pay a premium like the spot on things that you signed up basically to do through your contract. So if things have changed that dramatic, you have to work together to find what that middle ground is. So specific examples I think of that work good, we’ve had a couple customers that have come to us with proactive increases. Hey, I understand the market is, is really changing. I understand we’re paying a premium, but we’re seeing more rejections, seeing more spot. What if we gave you a proactive increase on your contract lanes? Would that help?

Speaker 3 [6:37] Oh, that’s smart.

Speaker 2 [6:38] That carries a big expectation of service though. Don’t pay me 10% more and expect me to not—

Speaker 3 [6:44] They’re also setting the anchor.

Speaker 2 [6:45] Exactly.

Speaker 3 [6:46] And they’re setting the budget versus not knowing what’s coming.

Speaker 2 [6:48] Exactly. So I think that, that helps because then that allows us to pass that over to our carrier partners as well, to be able to encourage them to pick To take more of that consistency. That’s been a big one. Another thing that we really try to do is implement some technologies to help facilitate more of an automated spot process. So rather than you get a rejection, it goes to a spot board, you got to coordinate a load, you got your operations juggling stuff through the warehouse.

Speaker 1 [7:12] Yeah.

Speaker 2 [7:12] Finding things that works more, maybe an indexed or maybe a cost-plus model to where maybe it’s staging equipment on the customer’s yard that’s only for spot. Don’t use it for contract lanes. Use it for spot to where it gets it off your facility, puts it in a situation, and I’m covering a power-only move. So again, being creative for how you’re bringing a solution to a customer that’s not just, I need more money.

Speaker 3 [7:33] So let’s talk a little bit more about that specifically. We do a segment every week, RXO Capacity Now. Appreciate you having us.

Speaker 2 [7:41] Yep.

Speaker 3 [7:42] Appreciate you being a sponsor. So we, uh, in a market like this, it’s a tight market. What does RXO do to protect their shippers and find that bulk capacity, specialized capacity, those hard things at the last minute? How do you guys do that? How do you go about procuring it? You gave us a few examples of some creative solutions, but—

Speaker 2 [8:05] Yeah, our tagline, massive capacity, cutting-edge technology, is not just a tagline. Like, we honestly and firmly believe that is how— that is what separates RXO. Personally, that’s the way I feel. That’s the way you guys have probably heard Drew say the exact same thing. The the reality is is what does that mean and how you execute it? And I think it goes to extension of the carrier partners that you have, building long-term relationships, rewarding those carriers with contract dedicated business that you can fulfill. And a lot of that comes back to the sales teams of having some very tough, challenging conversations with customers about where we feel confident. and where we don’t. And I think if we can build that synergy to where we’re looking for consistency in lanes that we can basically get— we talk about this at the What the Truck.

Speaker 1 [8:49] We do.

Speaker 2 [8:49] That trilogy of customer, carrier, and provider, you have to make sure that everyone, no one feels left out. And I think as a, is a, from a carrier standpoint, we talked a lot about some of the programs we’re doing such as the RXO Extra program, which is doing things to reward drivers with fuel programs, tires, maintenance, We’ve really doubled down and invested in that to try to attract and encourage people. Fuel prices are soaring. How can we help alleviate some of that burden for more smaller providers who it’s more impactful to? And then in return, we want you taking our loads, winning the tiebreak. So I think those are some of the programs we’ve done to attract and retain carriers that allow us to say, if we have someone fall off, we have someone else who’s there. And I also think the Coyote acquisition was a big lift for us in just overall capacity. A lot of synergy with carrier partners, but we found a lot where we didn’t in certain industries and markets that lifted both of us up to be able to provide consistent coverage, but also surge and flex capacity, which has become very critical in this market now.

Speaker 1 [9:51] Perfect segue to my next question because it feels like, you know, from not only yourself, Drew, so many other folks, y’all figured out the people puzzle very, very early and often at RXL, which is a testament to your leadership. But there’s decisions that are made that are predicated off of data as well as technology. How do you keep this human aspect? Like, it’s, it’s from you, it’s from the leadership there at RXO all the way down to the bottom of the organization so that every single customer that’s touched by somebody at RXO feels what I feel right now here at the Univar Solutions conference?

Speaker 2 [10:24] Yeah, I think one thing we do really well is we’ve embraced the digital, obviously the technology component, and we’ve embraced the digital process. But it never loses the human element. And I would say from Drew through the various levels of management, all the way down to our desk-level operators, I— my personal approach, I never say an account is my account. It’s always our account.

Speaker 1 [10:48] Our account.

Speaker 2 [10:49] And it’s a shared responsibility from whether it be the key account manager, the operator, the carrier procurement team, the branch operations, all the way to the sales leader, all the way to our executive team. that we’re all a shared growth goal and a solution-based approach to selling. And I could call Drew, I could call Corey Klujsza. You talk to Corey a lot of times. Corey’s great. Jared Weisfeld, our Chief Strategy Officer, just joined me at 15-minute notice. I called him, I was like, bro, I need you. He was like, I’m in.

Speaker 1 [11:19] I’m down.

Speaker 2 [11:20] And I think that approach of just, there’s nobody bigger than the customer within our organization. I love that. Everybody is like, it’s about servicing the customer first and foremost. And I’ve never once felt that I didn’t have support. And I also don’t want everybody who works— I hate to say under, but I’m there to support on my team. Anybody else that it’s a collaborative effort through the entire customer process.

Speaker 1 [11:45] Sure.

Speaker 2 [11:47] Definitely shares.

Speaker 1 [11:47] Now, you know, we’re here obviously talking. You kind of gave us the trilogy. Say that one more time because you said it on What the Truck. It was a, it was shipper, carrier, where was one more?

Speaker 2 [11:57] I would say shipper, carrier, and the provider. Like, so if it’s a broker environment, so.

Speaker 1 [12:01] All right, so that triangle, how do you keep a healthy blend amongst everyone so everybody gets the most out of the relationship when it comes to that triangle specifically?

Speaker 2 [12:12] So if we start with the customer, customers obviously, we talked about a lot today, they want us to, they want providers to fulfill their commitments when it comes to contract. They want good communication. and they want to execute the KPIs.

Speaker 1 [12:23] Yeah.

Speaker 2 [12:24] If you’re the carrier, you’re an extension of that customer. So you’re connected in the way you represent yourself on site at their facilities, the way you represent the provider who’s coordinated the load, whether that be your own company or whether it be through a broker or capacity solutions provider. At the same time, the customer is also responsible for everyone. They pride themselves on shipper of choice, providing an environment that wants carriers to want to come to their facility, to be willing to take their loads, to be willing to wait when there’s a time maybe where they had to work themselves their ways in, and the shipper of choice. So customers are also taking a responsibility to create an environment that people want to do business with you. I think a lot of times, like I say this to my daughters all the time, a boy should never— or you should never chase a boy. The boys should be chasing you.

Speaker 1 [13:10] Yeah.

Speaker 2 [13:11] And I think that in that relationship between a customer and a provider, It should be a two-way street where it’s not always the provider wanting to do business, want to do business, want to do business. You have to give me a good reason why I want to do business with you.

Speaker 1 [13:24] Absolutely.

Speaker 2 [13:25] Because there are customers out there that frankly, I don’t want to do business with.

Speaker 1 [13:28] All business is not good business.

Speaker 2 [13:29] All business is not good business. And I think it’s not so much that it’s bad business, it’s that you haven’t found the right partner, the right relationship, or the right method of communication, or maybe just the operation doesn’t fit yours. And that’s okay.

Speaker 1 [13:42] That is okay.

Speaker 2 [13:43] But before you invest time, resources, and money that just wastes everyone’s, like, decide quick, be really good at what you’re good at, and when you’re not, don’t be scared to step back.

Speaker 3 [13:54] Yeah, you don’t ever want to be the shipper where like when the provider’s phone rings, you’re like, oh, like, you know, versus like excited to like talk about business and what’s going on. So we’re here for, it’s really an RFP kickoff event for Univar. So as shippers are entering the back half of the year, how do you think they should be thinking about their networks and What should be allocated to spot versus contract?

Speaker 2 [14:15] So that’s— if you asked me 6 months ago, I’d have given— if you asked me with the truck, I’d have given you an answer. And I would say now, I think the biggest challenge right now and that everyone is facing with it is it’s not your high-volume consistent lanes that run that typically. It’s that the tail has gotten longer. So the tail of smaller infrequent shipments And before the balance was, I have tons of capacity, anybody’s going to sign up, there’s always going to be a truck. Well, if I said if it’s less than 20 shipments a year, no problem. Now you start looking at 5, 10, 15, 20 shipments a year, they’re going to come in inopportune times or maybe all at one time and then none the rest of the time. It’s really understanding where that benefit between spot. I don’t think they’re.

Speaker 3 [15:04] I think contract at that point is paper rates.

Speaker 2 [15:06] It is. It is. Because if you’re given— if I give you a rate in October that you’re not going to ship maybe one time for 6 months, the likelihood of accepting it is going to be extremely thin in the market environment we’re in now. For the last 3 years, everyone’s accepted everything with a high degree and spot has been less. Your spot was a slight premium. Now acceptance being lower, spot is 40%, 50%, 60%, sometimes 70% higher than what you thought your contract rate was going to be. But it’s a paper rate that’s never going to be honored.

Speaker 3 [15:35] What are your thoughts on in those scenarios with less frequent moves like a backup matrix that’s at backup level rates that is contracted versus just straight spot?

Speaker 2 [15:45] I think backup right now is a gamble. Yeah. I mean, it’s— if you’re backup, you’re like—

Speaker 3 [15:51] Different market return rejections aren’t so high. I mean, if you’re a backup at a high— I don’t mean like a backup like you’re the second person on the routed guide and provided a primary rate and you’re awarded it. I mean backup like at a higher rate level than a primary.

Speaker 2 [16:03] I think And I’ve heard a lot of customers doing this, changing their strategy from more of like what we’ll call a traditional waterfall to more of changing the allocations to multiple primary awards, but just adjusting the percent allocation.

Speaker 3 [16:16] Yeah, that’s right.

Speaker 2 [16:17] And I think if for any customer, if they give me what the number is, we’ll work with it. But I don’t think that give me one high-volume primary lane and then a tail of just small lanes that I know it’s going to be extremely challenging to serve. But the customer concern is I can’t predict how high or how aggressive that spot market is gonna run.

Speaker 3 [16:38] Right.

Speaker 2 [16:38] You’ve had shippers for the last 3 years that have done only spot because they’ve been able to be so competitive.

Speaker 3 [16:44] Well, yeah.

Speaker 2 [16:45] And avoid market shifts. That’s totally changed.

Speaker 3 [16:48] I agree. So I’ve gotta ask, I asked earlier, tell us what you think of Chattanooga and the event so far and of being here.

Speaker 1 [16:56] Chattanooga is—

Speaker 2 [16:57] this is only my second time in Chattanooga. My first time was actually at the Division IAA National Championship. I watched Joe Flacco from the Delaware Terrapins.

Speaker 1 [17:08] Yeah.

Speaker 2 [17:09] So I played football at App State and I ran— I did a youth clinic after my senior year that was here. And I would say the turning 30 former college football players loose in downtown Chattanooga, they probably want to rethink that. But so my pace of life has changed a lot since then. But no, we had a great dinner at Scotty’s at the River last night. Had a great dinner. Downtown Chattanooga is amazing. Great people and obviously becoming a booming freight city that I’m very happy to be here.

Speaker 1 [17:37] We’re really happy for you to be here. And again, Brian Riley with RXO.

Speaker 2 [17:42] Thank you so much for being on FreightWaves today.

Speaker 1 [17:45] Fantastic. Where can we find more information, obviously, about you and what the rest of the team at RXO are currently doing right now?

Speaker 2 [17:51] Where can we— where can you find me? Yeah, yeah, try to give me a plug. So, so this is an alley-oop. So August 25th, we’re doing our quarterly state of industry. So Corey Klujsza and Jared Weisfeld will lead the state of industry call. It’s a, it’s an online webinar we host every quarter. Uh, we have our earnings announcement on Thursday, so there should be some good information hopefully we get to announce on Thursday. We’re excited about the earnings announcement, but the state of industry talks— it’s the Curve, but really talking a deeper dive and looking at some of the market forecasts and projections that they see that I think will be very informative for everyone.

Speaker 1 [18:25] So that sounds—

Speaker 3 [18:26] I think they use a little sonar data when they’re coming up with that.

Speaker 2 [18:28] They always do. There’s a lot of FreightWaves sonar in that data. Absolutely.

Speaker 3 [18:32] And I know this by heart at this point. If your routing guide’s breaking down and you’re a shipper who needs capacity, rxo.com/capacity. Capacity now.

Speaker 1 [18:40] That was a perfect way to leave it. Brian, thank you so much.

Speaker 2 [18:44] Thank you both very much.

Speaker 1 [0:00] Welcome back to FreightWaves Today. We are live from the Univar annual carrier kickoff event. It’s been a great show so far. We’ve been joined by 3 great guests and we’ve got 2 more excellent ones coming up to close us out. We’re joined now by Ben Kavlinar, EVP of Operations at LRT Solutions. So Ben, tell us a little bit about what you do both personally at LRT and what LRT Solutions does. Sure.

Speaker 2 [0:26] Yeah, sure. Thanks for having me. I’m excited to be here. A really cool event. So LRT is a logistics company. We’re based in Fort Payne, Alabama, but have a lot of service offerings. We do LTL, we do full truckloads.

Speaker 1 [0:39] Do you think it really helps a shipper position themselves as a shipper of choice when you’re making decisions who you want to do business with and spend your time and resources and capacity on?

Speaker 2 [0:48] Yeah, I think they do. I think it’s very important to, you know, put a name with a face. We have certain gaps, just like any carrier or logistics company has certain gaps we’re looking to fill. So having some of those conversations prior to the bid is important and knowing where we can fit in the puzzle there.

Speaker 3 [1:04] Conceptually, it’s specifically in this city, you know, all of us now, it’s very hard to stick out. I mean, it feels like we all are cousins and we all do the same thing. How are you able to stick out at events like this and in conversations that you had to To add that, I don’t want to say competitive advantage, but it’s like a Chick-fil-A compared to a Burger King. We know that Chick-fil-A I’m probably going to go to over a Burger King.

Speaker 2 [1:27] Yeah, it is difficult to stick out. But I mean, there’s some great partners here, some great logistics companies here. And so you don’t necessarily— we’re competing in the same space. So you’ve got to stick out with service. You got to stick out with customer service. So we tend to lead on those things, those items. And obviously there’s some great carriers here. Safety is super important in our world right now. It always has been. So that’s table stakes for everybody right now. But service is something that we can, we can sort of stand on and stick out with.

Speaker 3 [1:56] Let’s stay on that for a second.

Speaker 1 [1:57] I think he can also lean on his charisma and experience.

Speaker 3 [2:00] He’s got it. He’s got it. He’s got it. I want to stay on safety, you know, for a second because, I mean, we read these headlines every day. I mean, if it’s not cargo theft, if it’s not fraud, it’s not You know, something with, you know, drivers being taken out the market. I mean, this is a whole new ballgame compared to when I first entered, when you first entered. I mean, it’s apples and oranges. What are the conversations you’re having internally right now with your group?

Speaker 2 [2:24] Yeah, it’s pretty scary. We’ve faced a lot of headwinds. All trucking companies have these last 5 or 6 years. It’s been pretty difficult and it’s just one thing after another after another. And then just recently we’re seeing all these verdicts coming across negatively towards our Towards our business, so it’s it’s scary. And no, we’re going to have to do do some things different and pay more attention on certain things where we probably shouldn’t have in the past anyway. But so we’ll we’ll adapt and continue to get better. But there’s a lot of stuff coming at us right now, so we just have to stay on top of it.

Speaker 3 [2:54] Well, for sure. Yeah.

Speaker 1 [2:55] So talking of all of those headwinds, obviously the market was incredibly tough for a four-year called the free recession, right? For four years. It has certainly made a turn as we’ve seen capacity continue to tighten, which if you have assets is great. If you’re brokering, is putting some pressure on it. So what are you guys seeing happening in the market? How are you dealing with it and what do you expect to happen?

Speaker 2 [3:21] Well, with a lot of capacity coming out of the space over the last 4 years, it’s given us an opportunity now that volumes are starting to increase a little bit. But I don’t know if it’s necessarily a volume increase as much as it is a capacity decrease. So we’ll We’ll see. We’ll continue to watch that. But it’s definitely a great time to get out and introduce yourself to new clients or new shippers and be available to them. ‘Cause while we’re not looking for everything, we’re again looking to fill some gaps. And I think we can do that with the right partner. That’s what we’re looking for.

Speaker 3 [3:47] When it comes to, you know, What the Truck, we talk about AI tech 24/7. I’m sure our audience is like, we’re tired of it. But for me and my personal, just, you know, knowledge. How are you leveraging that aspect of the business, but then also keeping what you are doing right now so well, by the way, with us in human interactions and one-on-ones and creating those relationships too?

Speaker 2 [4:11] Yeah, so we, you know, being a smaller company, it’s difficult to have that tech spend that we can kind of devote to a high AI spend or, you know, technology spend. So we focus on leveraging some pieces within our TMS that can you know, a little lower cost, but give us a lot of benefit as far as freeing up some bandwidth on our team. And we’re going to continue to do that and find out where it’s, you know, where it’s necessary to continue to spend those resources. But for us, again, it’s just really being in front of our customers and being available to them and being very responsive.

Speaker 3 [4:43] I think that’s a great answer.

Speaker 1 [4:44] All right. So I also have to ask our very own Sonar’s head of Freight Market Intelligence, Zach, gave a market update earlier in the day. Were you able to watch it?

Speaker 2 [4:54] I was. I was.

Speaker 1 [4:55] Any takeaways?

Speaker 2 [4:58] I would agree with most of what he said. And I think that we’re in that band right now where it’s, you know, we’re just— we’re popping out of it every once in a while. We’re seeing some, some days where it’s strong and very active in the, in the market and some in the last couple of weeks has been a little softer. So I think we still haven’t found where we’re at right now. But it’s— I think it’s working its way to be a pretty active marketplace. Over the next few years, so I’m excited about that.

Speaker 1 [5:22] Zach is a little less excitable than Craig and I are. You know, he’s he’s a little bit more cautious and talking about the market a little bit more. I would say that like it’s absolutely turned capacity has left the market. I don’t see capacity entering anytime soon because there’s new barriers to entry. All of this regulation, the liability and the verdicts that are coming in are terrifying. And yes, it’s been a little little bit softer the last couple of weeks. But it’s July. I think it’ll stay that way in August. But we’re still seeing tender rejections in that 15% range. So like, yes, soft compared to the craziness we saw in the beginning of this year, which was such a quick turn.

Speaker 3 [5:59] Yes.

Speaker 1 [6:00] But really very normal and still elevated compared to the last few years this time of year. So it’ll be fun to watch. Again, like Craig and I are like way more bullish and excited about it than Zach is, which is why Zach is up here like very analytical and giving the market update. But I think we’re all seeing the same thing, just to varying degrees.

Speaker 2 [6:18] I’m very bullish on it too. I mean, you’ve got a couple of things that, that are being tough for new entries into this business. I mean, one of the costs of equipment, we always talk about cost of equipment, it’s continued to skyrocket. But on the other hand, we’ve got all these negative, you know, things coming at us with these verdicts. So insurance is going to be a big, a big thing in the near future. It already is and it’s going to continue to be worse.

Speaker 1 [6:39] Yeah. Any takeaways from the event other than the market update?

Speaker 2 [6:44] Not really. I’m excited to get back out there and meet a few more people and introduce our company. But no, it’s been great. And thank you guys for having me.

Speaker 1 [6:50] Thank you for chatting with us about your experience here.

Speaker 1 [0:00] Welcome back to FreightWaves Today, live at the Univar Carrier Kickoff event here in Chattanooga. It’s been a great event so far, and we have our last guest. We are joined with Tyson Wimberly, Senior Vice President of Sales and Revenue Management at Covenant. Tyson, thank you for coming and sitting in with us. Excited to hear you talk a little bit about what you thought of the event so far and really what it means to you as a carrier when shippers do these sorts of things.

Speaker 2 [0:28] Yeah, I mean, great event. I think Univar does a great job with really collaborating with not only their key decision makers that come in that really we support with transportation operations, also their procurement, their leadership. Anytime you can do that, it’s a great use of time for our organization. You know, it’s really also good to collaborate with our peer competitors who are here. There are plenty. And I would just say that, you know, we’re in a marketplace right now where our competition’s good, but our competition’s also getting a lot better.

Speaker 1 [0:55] Absolutely.

Speaker 2 [0:55] There’s some fierce competition out there. And when we can do that, we learn because I think, you know, iron sharpens iron and we’re able to have great conversations not only with our peer group but our customers.

Speaker 1 [1:05] Yeah. What is it in the market right now where carriers finally have a bit of leverage, right, as capacity has exited the market? What would you say that other— that shippers can do like Univar to be a shipper of choice who you all want to work with and who you would like to give your capacity to or your resources from your brokerage group?

Speaker 2 [1:25] Yeah, super good question. You know, we we are really really dived in deep on visibility to their networks. You know, every carrier, every service provider is slightly different. It’s their job to make sure why we’re uniquely different in a market where we can best serve them, not only from a service standpoint but a rating competitiveness standpoint, but just a whole value creation. So when we can get visibility to their networks, how they operate, where they operate, seasonality, ebbs and flows of freight, so we can properly plan not only for now but really long-term agreements that we’re trying to focus our strategy on at Covenant Transport.

Speaker 1 [2:00] Yeah.

Speaker 3 [2:01] You know, when it comes to it, there’s a lot to love right now at Covenant.

Speaker 2 [2:05] A lot to love.

Speaker 3 [2:07] Something that not a lot of people talk about, which I think is very, very cool. And again, it’s because I study this stuff. Let’s focus on sustainability. Like, people don’t necessarily talk about that. Why is that such a niche specifically for Covenant?

Speaker 2 [2:21] And what y’all been able to do.

Speaker 3 [2:22] Yeah.

Speaker 2 [2:23] You know, I mean, I think you guys probably had Matt McClellan on and Matt’s an ambassador of the industry.

Speaker 1 [2:28] He’s keynote speaker all over the country. He’s been on the show yet, actually.

Speaker 3 [2:30] He’s been on with the truck. Yeah, but it’s been a long time ago. I had a little bit more weight back then.

Speaker 2 [2:35] So a little plug for Matt. Matt and I are boys. We’re out. We’re friends outside of work. And I would just tell you that he brings an immense amount of credibility to our industry and our company that I work with. And by doing that, my customers are very curious right now. And some of the things that we’re doing are really aligned to long-term sustainable solutions with alternative fuels across the network. We’re doing B100 fleets in a couple, couple accounts that we have on our dedicated space now, because at the end of the day, that has to differentiate where we are making investments and where can we deploy our capital for a sustainable piece of business that we can operate successful. So we continue to be very focused on that in our strategy and learn more. You know, at the end of the day, we’re asking our customers, if it’s something that’s important to you, it’s important to us. We would be customer-led. We will go through this journey with you. But at the end of the day, there is some transitioning of cost of equipment versus alternative ways to do it. And it’s not the most costly way. I think at some point in time we’ll get there.

Speaker 3 [3:37] Yeah.

Speaker 2 [3:38] It’s just if and when we get to a point where we can start transitioning some of that, it will be customer-led.

Speaker 3 [3:45] I love that mentality, being customer-led, because you hear organizations, right, Julie, that say like, you know, the customer is first, the customer is always the priority, but it’s shown up and it’s shown up in ways that are public, obviously with earnings and things of that nature. Like it’s showing that this isn’t just coach speak. It’s actually a fabric of our DNA at the company. It shows up.

Speaker 2 [4:03] It is. It is. And, you know, it’s competitive and there’s a lot of headwinds still in the industry and maybe that’s a good transition, but I would just say that whatever headwind we have, we are in a much more favorable marketplace than we were the last 4 years.

Speaker 3 [4:19] Agreed.

Speaker 2 [4:19] That’s a fact.

Speaker 3 [4:20] Wholeheartedly.

Speaker 2 [4:20] So as we kind of think about our balance, our networks, how do we serve customers? How do we not overcommit? How do we do it in a manner where we’re strategically, strategically placing assets in our logistics brokerage support in areas where we can best serve them if and when a shipment comes in that that really is kind of out of network. Developing a yes culture is a little bit different, and Covenant does pride itself on finding solutions for every, every opportunity a customer has.

Speaker 1 [4:47] Yeah, but it can be yes, but that’s beyond my commitment at X rate. It is.

Speaker 2 [4:55] We’re stretched. I mean, and that— I think that’s okay to be stretched. Customers should stretch us. I think we should stretch our customers. really in a manner where we’re working together to solve the most amount of problems with hopefully the fewest amount of, of carriers. And that’s where our value really is on full display.

Speaker 1 [5:12] So I want to talk a little bit more about the freight market, which you alluded to. But first, I want to ask, like, what are you most proud of from your team at Covenant?

Speaker 2 [5:19] We’re pretty resilient.

Speaker 1 [5:22] And I don’t want to steal thunder. David Parker will be on tomorrow to talk about Covenant earnings, which were released today. So let’s not steal his thunder. But what you personally are most proud of?

Speaker 2 [5:30] I want to break it down and really, we’re celebrating our 40th year right now. 1986, David founded the company. Really unique story. You guys will get to hear that. He was on FreightWaves Conference F3 probably 2 years ago. Yeah, that was a great talk.

Speaker 1 [5:43] Great keynote speaker. Yeah.

Speaker 2 [5:44] And I would just say probably what’s most proud for a lot of our associates, including myself, is for the first 30 years of being a 40-year-old company, we were pretty one-dimensional, very one-dimensional. We were an over-the-road asset-based company. And now we’ve really shifted to we’re a logistics company that has a lot of assets and serving our customers differently with assets and our brokerage solutions through dedicated and our warehousing. That’s really our core competency of how we’ve, we’ve been very disciplined the last 10 years by getting deeper with customers to buy and really kind of align ourselves resources to how they, how they purchase transportation from providers.

Speaker 1 [6:22] All right. So let’s talk about the freight market. What are you guys seeing? What do you think’s in store for the rest of 2026 and into ’27?

Speaker 2 [6:29] Yeah, you know, pretty volatile right now. If you look at the stock market, you see, you follow the transportation providers, it’s kind of up and down and all around. And I would just say that it’s really—

Speaker 1 [6:38] The market is not reflecting the strength of the earnings that have— I don’t mean the freight market, I mean the stock market, the strength of the earnings that carriers and logistics providers have been reporting.

Speaker 2 [6:48] Yep. So I think there is a lot of regulation that we’re all well aware of, probably 6 or 7 that are in full deployment right now being enforced on a national level. And there’s probably 3 or 4 or 5 more that are on the docket that we believe is really driving a lot of the economy of what supply looks like to support the number of shipments. The demand is not necessarily massively increasing at a pace that we’re all feeling great about. I do think it comes. I do think it comes. But that’s part of really kind of just making sure that you’re following the regulatory environment because it’s real and it impacts everyone. And then it’s the risk side. So what are we doing with insurance? And I know you guys are talking a lot to providers and shippers and getting perspectives and takes on what does risk look like? What’s the cost of insurance? Is it an increase in inflation number? And the fact is it is. Absolutely.

Speaker 1 [7:39] Yes.

Speaker 2 [7:39] And it’s something we all need to be best positioned to to respond and make sure we understand if we, if we subcontract the shipment, we really do know who’s driving that. Do we have carrier history? Are we properly, you know, vetting those carriers on the front end? Not that it was just a, you know, a Robinson versus, you know, the lawsuit that just kind of went out there. Your best bet. The Montgomery case. We’ve been practicing really a safe environment for decades. We have 4+ years of history of being safer than we were 4 years prior, over and over and over and over and over. Does that mean we get benefit from insurance? Not necessarily. It doesn’t. No one’s immune to the cost of inflation in insurance alone.

Speaker 1 [8:24] So— No, I mean, especially with the most recent, you know, the $604 million judgment, I think you have to know that if you broker a shipment, like, you’re absolutely going to get pulled into that. And I’ve been talking about that a little bit on the show based on my background in that. having assets, having deeper pockets, having that, like, ultimately you’re a bigger target. And so that creates more pressure.

Speaker 2 [8:45] It does.

Speaker 1 [8:46] But I’m confident you guys are doing all of the right stuff and absolutely have a safe future.

Speaker 2 [8:51] We are. And I would say too, Julie, one other thing that, that is probably going to be talked about a whole lot more is the professional driver.

Speaker 3 [8:58] Yes.

Speaker 2 [8:59] Driver pay absolutely has to correct. We’ve been in an environment where professional drivers have not seen the benefit of inflation in that 4-year period where I kind of go back to freight recession, maybe. Yes, in a lot of cases we’ve had a lot of challenges, but the driver’s kind of been the one that’s not been taken care of. We’re seeing driver pay packages come in in a more demanding manner. A lot of it is in really understanding that the work those professional drivers will be doing, how many miles, how are you paying those if you’re not getting the utilization you need on assets? Parry off saying that with a W-2 that satisfies the driver’s income. And that is absolutely probably the number one criteria in attrition of drivers is driver pay. And then we have to make sure we are absolutely understanding what are they looking for with us? How often can they get home? What does it look like with time off? And we want to be good stewards of the professional drivers that we bring out.

Speaker 3 [9:55] So how do we keep this attractive for, I guess, The generation, I mean, you just said 40 years, right, of company, right? So ’86 to 2026, fantastic. To get to, what’s it going to be, 2066? The next 40.

Speaker 2 [10:10] That’s right.

Speaker 3 [10:11] All right. What does this need to look like? I mean, we can talk, take this multiple ways, but for drivers specifically, it’s again DNA of the fabric of company.

Speaker 2 [10:20] Yeah.

Speaker 3 [10:20] How do you keep this attractive for them in the words you said? Yeah.

Speaker 2 [10:25] I mean, it has to be predictable. I think that has to come out is there’s predictability in how they operate week in and week out. If they operate in a solo application and they’re handling 1,800 miles to 1,600 miles, back up to 2,200 miles to 20, right down to 2,000, this paycheck is now moving like in a regular heartbeat.

Speaker 3 [10:44] 100%.

Speaker 2 [10:44] And that’s not healthy.

Speaker 3 [10:45] No way.

Speaker 2 [10:45] So how are we collaborating with our shippers to take out this variability of saying, I really need steady business.

Speaker 3 [10:53] Linear consistency.

Speaker 2 [10:54] Linear consistency. And that’s really why we’re here today with Univar is, is to understand how do we plug in and solve more solutions for them because they’ve got a lot of attractive freight for our networks that we can best support.

Speaker 1 [11:06] I think that was the perfect way to bring it full circle and back to the conversation about this event. I could ask you a million more questions, but I don’t wanna steal the thunder of having David Parker on the show tomorrow to give us all the details on Covenant post the earnings release and I’m sure some great backstory. I’m really excited that I get to be a part of it tomorrow. I think Max is going to be on with Craig as well. So it’s going to be a really, really cool dynamic.

Speaker 2 [11:31] That is a full house.

Speaker 1 [11:32] Yeah, it is. Fuller house. So yeah, it’s going to be great. So again, thank you for joining us and talking a little bit about the event. My neighbor, friend, and industry colleague, Tyson Wimberly, SVP of Sales and Revenue at Covenant.

Speaker 1 [0:00] Uh, we have Josh Fellin up here. Uh, Josh, how are you, sir?

Speaker 2 [0:04] Good. How are y’all doing?

Speaker 1 [0:06] Well. So tell us, you run JB Hunt’s over-the-road business. We’ve been joking about the fact that you’re either the best operator in the business or they give you the stuff that needs the cleanup. So what, what is the— what’s the sentiment in a business that operates so efficiently?

Speaker 2 [0:21] Well, I, I think it’s certainly the latter, Craig. You know that. And by the way, y’all are getting really good at this. Um, it’s good to see y’all even though it’s on a really small screen for, for me. Um, you know, I think it’s, it’s obviously an interesting time for, for being in the media. Um, earnings season, it’s always a fun 3 to 4 weeks. And then, you know, if you compare it to maybe the past, uh, 8 to 12 quarters, maybe there’ll be some more new news this time around. You know, I’d say the trucking market, um, has certainly seen a significant change than where we were prior year. You know this, your audience knows this, spot capacity rates. I think if you look at the NTI measurement, Craig, in June, I think at one point was up 60% year over year, which is a drastic change. You know, from a JVT perspective, our over-the-road segment, we’ve been navigating that marketplace. So, you know, our model is a little different where we have a large fleet of independent contractors that are under our authority, but we also utilize third-party capacity. And so You know, providing drop trailer service for our customers in the heavily contracted marketplace. Obviously, that dramatic increase we saw in spot capacity rates had a negative impact on our short-term earnings. And I think what we’re seeing is, and we’ve talked about this before, certainly the change in the market is driven from the supply side. I think you were talking about how Adam at Knight mentioned that just the continued regulatory enforcement, And how much of that will continue and even strengthen. I think if you talk about the magnitude of the increase we’re seeing on the rate side though, I think that’s really driven from, you know, the direction of it is because of what’s going on with supply. The magnitude, if you go back and where the industry has been really for 4 years on very compressed margins, cost inflation has been up quite a bit. I think if you go back to ’19, you’ll see it quoted anywhere from 48% to 60% on a cost-per-mile basis to operate a truck. And the rate environment that we’ve been in inside the marketplace, same period comparison might be up 5% to 6%. So really compressed margins have led to a whole lot less investment. And then I really think is driving the magnitude of increase you’re seeing because quite frankly, the industry needs it to start reinvesting in their equipment.

Speaker 1 [2:48] So Josh, I think that’s a real important point, is just the lack of investment. And we got the report from Knight-Swift. They’ve talked about the fact that they would prefer to not expand the fleet right now, because they would prefer to operate their trucks more efficiently. We saw that their operating ratio in their over-the-road for-hire business dropped by 300-plus basis points. So significant improvement, but it seems like the The desire is all about operating efficiency. I mean, they’re at 30% tender rejection rates, if you take it twice the industry average, which does suggest that they’re being far more selective, but they’re not leaning into growth. I think a lot of what they’re talking about, what Knight-Swift talked about on the earnings call, was just the lack of driver availability, the inability to recruit drivers. What is it you’re seeing in the market compared to perhaps past upcycles in terms of driver recruiting?

Speaker 2 [3:43] Yeah, I mean, we are seeing the driver market tighten significantly. You know, the first thing we saw was, was the third-party capacity market tighten, and that quickly leaked into our available pool of drivers. I think we talk about our need quite frequently, and we’ve seen our need increase. Part of that’s self-driven, right? If you have growth, growth’s a good thing, that increases your need. But if you start to see more opportunity for drivers to, to jump around, you know, you might see turnover increase. I You know, I can’t speak tonight specifically, but if you go back and think about where we’ve been for 4 years, you know, our concern— and, and we’ve done a really good job of cutting costs, and we’ve talked about that publicly— you know, our concern was, you know, well, we never want to cut into the muscle. And you might have had carriers out there that actually did that because they had to, to survive. If you start cutting into muscle and cutting, it’s, it’s going to create more of a lag of your ability to, to grow when it’s time to grow. I think that’s could be one issue, you know, a carrier’s facing. You know, the second is we still got to get our returns at least on paper and a great line of sight of saying, okay, I have comfort and I have conviction that one, I can reinvest in any of my equipment that’s cycling out and I can get the returns to where they need to be, where I can add CapEx to this. And I still think we’re in that period. I know spot rates are up. I know contract rates are moving up based on the data that we see, but there’s still some room to go to get returns where I think they need to be to have a healthy appetite for growth in the truckload space.

Speaker 3 [5:19] And as part of that driver pay, I mean, as you’re seeing this recruiting and retention environment get significantly harder, are you guys looking at driver pay? What are you seeing in the industry? What are you hearing? Obviously, that increased cost, exactly to your point, before you’re ready to grow. So can you talk a little bit about that?

Speaker 2 [5:37] Yeah, we are seeing increased driver pay. I don’t think we’re— I can’t remember what that index was, Craig, that y’all were talking about a couple days ago. I don’t think we’re seeing it at that level, but we’re certainly seeing advertising pay go up. We do our own channel checks and talk to our friends. Um, how much driver pay is going to go up this year, I don’t know. I think if you went back and looked over the last couple years, that may be one cost that hasn’t increased as much as the rest, but what that would lead me to believe is, um, with supply where it’s at, with the driver pool shrinking as a— as an industry, you, you’re liable to see a pretty good step change, uh, needed in driver pay this year and into 2027, which again can kind of counteract, if you will, the amount of rate, uh, improvement that a carrier might need, because they need improvement to repair their margins. At the same time, uh, cost inflation continues. And so that just compounds the amount of relief we need to go get.

Speaker 1 [6:37] But I think that’s a positive thing, because I think one of the temptations that we see in every upcycle is that the industry overcorrects. They add way too much capacity. We can’t have nice things, as we like to say in trucking, because when the market is soft, you can’t find freight. You have plenty of drivers for your trucks. When the market is strong, you You can’t find drivers. You have plenty of freight, but you don’t have people to have seats. I think the temptation right now would be— and Dr. Jason Miller from Michigan State was on FreightWaves Today on Monday talking about the fact that he thinks that there’s going to be this very quick desire among large fleets to overcorrect. That’s not what we’re hearing as our channel checks. How are you guys thinking about just growth in terms of the business. Is this a market where you think carriers are gonna be far more conservative generally about adding trucks until they see sustained recoveries in driver availability? I mean, the employment number, Julie, I don’t know if you saw the headline this morning, but employment, we’ve had a couple of really great employment data points, which employment’s tight. Everyone’s predicting the AI apocalypse is gonna destroy employment. That’s not what the data says.

Speaker 2 [7:50] Yeah, I think there’s a couple of things to that. You know, we had some of our carriers in last week talking to them, and it was kind of a mixed bag. But the ones that want to grow, uh, there’s 2 things different, uh, well, maybe one thing different than the prior cycle is financing. Financing is way more expensive than it was in 2020, so they’re having a difficult time getting actually money to go invest in new equipment. The ones that have that have had trouble finding the tractors. So I think from a small carrier base, and not to mention what’s going on, Montgomery, and all the regulation impact, I think there’s going to be more headwinds this time on at least the small carriers or new carriers entering in the space and growing their equipment. You know, from a large carrier, again, I still think it will come down to the belief that we are on a more sustainable bull market, if you will, and that the returns can get to the level they need, I think you’ll be more cautious. You know, we— I think Shelley mentioned this when she was on, you know, we’re all about growth, but we’re all about disciplined growth. We’re not going to just grow our top line for sake of our bottom line. So we want to grow, we’re going to be very focused on where we do that, but we’re also going to make sure we put our CapEx in the right spot. So if it still doesn’t make sense to add capacity in the OTR market, we won’t. We’ll add it somewhere else. And I think you might see a little more cautionary investment from large carriers. Never know, you may not. And I think from those small carriers, there’s going to be much more headwind and more barriers to entry, if you were, than they have been in the past.

Speaker 1 [9:27] I mean, I do think it’s interesting that over the last decade, the largest carriers have not been adding trucks. Like, you can look at it as a general consensus. And we have this data inside of Sonar. In trucks above 1,000, if you take the cohort of 1,000 trucks or more in a fleet, That basically is almost flat. It barely has moved in the last decade. And it’s telling us that really large fleets are becoming far more disciplined. Now, some of it’s been the cycle itself has not encouraged them to add trucks. But companies that have all of the advantages, like a JB Hunt, like a Knight-Swift, like a US Xpress when it was an independent company, have chosen to sit out the market and drive operating efficiency. Where we are seeing growth is in the non-core over-the-road business. Josh, we’re giving you a little hard time about— you’re in the most difficult part of the entire enterprise. You guys had this amazing intermodal business that we joke that— I look at J.B. Hunt more as a railroad than I do a trucking operator. And I mean that as a compliment, by the way. It is interesting, because I think where the growth is coming from is in the non-solo OTR business. I think the large fleets have decided that that’s a market they’re willing to cede to some degree, and then focus on other areas of growth.

Speaker 2 [10:52] Yeah. After a long day, I get in my car, I go home, and I always tell myself, I work for intermodal. And it makes me feel better.

Speaker 1 [11:02] You have.

Speaker 2 [11:03] I mean, you haven’t seen much growth in the OTR market. You’ve seen larger carriers transition more to dedicated, which is a much more sustainable economic model. And I don’t know that that— I don’t know if that changes, quite frankly. If we could start to see less volatility in the pure OTR market, I don’t think you’re going to see that grow. Now, we always like to say this time’s different. And I’m not saying that, trust me. But if a few changes to how, you know, the market behaves in less wild swings, you can build a good business. And obviously there’s a lot of great carriers out there, Mike being one, that know how to run trucks. But if you want to see that start growing again, we’re going to have to see less volatility so you can actually plan a business around.

Speaker 3 [11:56] Trucking’s a great lifestyle business. I think that makes so much sense.

Speaker 1 [11:59] It’s a great lifestyle business, Julie. It’s not necessarily the over-the-road business as a public company is much more difficult, which is why I think the big public guys are looking for diversification.

Speaker 3 [12:09] Yeah, I mean, I think, well, so you mentioned earlier that you guys, even in your brokerage and in your over-the-road, highly contractual freight, right? With your large drop trailer network and your 360 boxes for your brokers. So what are you seeing when it comes to contract rates? You mentioned that you’re seeing them finally inch up after spot. What are your anticipations there? For the rest of this year and into 2027?

Speaker 2 [12:34] Yeah, I don’t think they would let me talk about rates. Maybe they would, but I mean, we are seeing—

Speaker 3 [12:39] You don’t have to give your numbers. Directionally, what do you see happening? What are you hearing?

Speaker 2 [12:44] We’re seeing contract rates move. You know, we call it a choppy market, and maybe that’s a cop-out. You know, we’ll have some successes or we don’t have some successes. What we’re focused on, honestly, is making sure that one, we’re taking care of our customers. So we’re going to do what we said we would do. And we’re focused on accepting what we were awarded and honoring our commitments, but doing the best we can to work with the customers where we need relief. And it’s not easy. It’s hard conversations. Shippers are really stressed right now. Obviously, their budgets are being blown up, one, because of what energy prices are doing, and two, what’s happening in the marketplace. And so we’re trying to navigate that the best we can. Obviously, we had We posted a loss inside Q2. We’ve had a successful run inside JVT, our OTR segment. We’ve grown double digits, I think, for the last 5 quarters. So we’ve taken share and our model that we use has really played out. We’re just caught in that flip, if you will, of the inflection in the market. And we’ve got to fix that. And that takes work all the way around, us removing costs, finding better ways to do it, trying to address business where we can the right way with the customer and still focus on creating value for them the best we can in what’s been somewhat of a turbulent market over the past several months.

Speaker 1 [14:08] Josh, one of the things that we had JP Hempstead, who has moved on to, we’ll say, better things than media, now on Wall Street, sort of the intermodal of what we do here, making a lot more money, I’m sure, than than being a— Where’d he go? He’s at Westbrow Capital, which is one of the largest funds, by the way, started by a former Freightways analyst, a market expert. Seth Holm went out and started, now one of the largest holders of trucking and logistics stocks in the entire world, based here in Chattanooga. But JP, his comment was that Hunt is viewed typically as a late cycle beneficiary because of the way that your business model has built. Intermodal tends to have less movement in price. There’s really a big spot market in intermodal. But that’s not what I would say is— I mean, it looks like we’re still in the early innings of the cycle. I mean, everyone— we heard from Knight-Swift about the fact that they’re anticipating continuation of tightening and tighter capacity. In terms of just overall cycle perception, where do you guys currently believe that we are? Are we early? Are we mid? Are we late?

Speaker 2 [15:25] I believe we’re early. Again, I can’t predict how it’ll play out. I think Spencer said on our call last week, the demand for our services is really strong, even though you can debate whether demand in the market is really strong. Um, you know, as you know, even from a spot-to-contract standpoint, that takes a little bit of lag. I think to fix pricing at current cost, um, levels, it’s going to take another bid season, uh, to, to get us there. So I, I think you’re in the early innings. Now, if you’re talking just about the spot market, who knows? Are you in the, uh, the mid, uh, mid innings of what the spot market’s going to do? You know, I know it’s cooled off a little bit, but still, I think, what, 40% higher than it was last year. We’ll see what happens back half of the year as we get into peak season. But I think as it relates to, to where we are, you know, with intermodal, it can be a laggard where we are with contract rates, where we are with dedicated, and really the economics getting back in favor for, for a shipper to dedicate capacity, which would be really good, uh, for our, for our DCS segment. I would say we’re, we’re in the early innings of hopefully what we see and and a freight economic recovery.

Speaker 1 [16:43] So Josh, our audience would like to know, there’s been a lot of conversation about Tesla’s electric semi. You guys have tested all sorts of technologies and powerframes— powertrains. What is your view on electric in terms of the over-the-road segment? Do you think that electric, purely pure-play electric, is going to be a big solution for the long-haul market? Or do you think we’ll see it more regional?

Speaker 2 [17:08] From the long haul, not right now. I think still quite a bit of work needs to be done from more on the capabilities and to the cost. We are testing several different technologies in the ZEV space, and we still think there’s quite— there’s certain applications where it can work and it can work today, and we’re going to continue to participate in those, but I still think it’s quite a ways off from being able to be, you know, a highly utilized piece of equipment specifically in the long-haul market.

Speaker 1 [17:43] Yeah, it feels like your last mile business might be the first, that or dray around the port.

Speaker 3 [17:48] Dray or localized dedicated, something where the infrastructure is readily available and easy and they’re hitting the same spots over and over again.

Speaker 1 [17:56] Years ago, I ordered some theater chairs for my home theater and a JB Hunt truck showed up at my house to deliver those, which I thought was kind of fun. Because it’s bringing not something you would have expected to see certainly 20 years ago. But you guys have a very large last-mile business. And these JB Hunt drivers got out and delivered, did an amazing job. So good. So it’s fun when, you know, we— because we focus on the freight market. It’s fun when you see the trucking, the traditional truckload guys sort of interact with your life.

Speaker 3 [18:30] So, oh, I love it.

Speaker 1 [18:31] Yeah.

Speaker 3 [18:31] And my kids are like, you’re so cringe, Mom. Leave them alone. They’re just here to do a job. And I’m asking them all the questions and want to hear all about everything.

Speaker 1 [18:38] And if you notice when you get in an Uber, I think like half the drivers, the Uber drivers that I get in, have some over-the-road experience.

Speaker 3 [18:45] Really?

Speaker 1 [18:46] Yeah. I mean, I think as my father, as Max has said on this show, is that one of the big competitions that they had for driver availability is just the for-hire Ubers and Lyfts and Instacarts that are competing for drivers, because frankly, you get to stay local, and you kind of set your own hours. A little different environment. But that is— that’s just one more constraint. I think, Josh, to sort of wrap up the conversation, I think the fact that the driver situation is so tight— first of all, drivers deserve more pay. I think everyone in the industry would love to see— when drivers are making more money, everybody’s making more money. So it’s something that I’m always happy to see when drivers make more. But I also think that creates a— a cap on how fast this expansionary cycle will overcorrect. It really will keep us honest, if you will.

Speaker 2 [19:38] Yeah, I agree with that. And again, I think there’s going to be more competition for qualified drivers than there has been based on all these changes. And, you know, driver pay took a really big step up. I guess that would’ve been in ’21 and ’22, which the industry needed. And at that time, the economics certainly supported it. And you’ve seen some gradual increases over the last few years. I do think, Craig, you’re right, it could be a limiting factor. And I do think pay will be addressed again this year to again attract the qualified talent that’s out there, but you just got to have the right economics to get them.

Speaker 1 [20:20] Well, Josh, appreciate you coming on and sharing your comments with us.

Speaker 3 [20:26] Always a good convo. I wish you’d be on once a month. We got to have him on once a month.

Speaker 1 [20:30] I think he’s got the blackout period. You know, we should do— we need to go to Arkansas.

Speaker 3 [20:33] We won’t talk about that.

Speaker 1 [20:34] We can go to— we should go to Arkansas and do it around a game.

Speaker 3 [20:40] I’m serious.

Speaker 2 [20:40] You don’t need to.

Speaker 1 [20:41] We should. We should go. Like, we’ll have to pick a date and we’ll come visit you and we’ll do a whole Northwest Arkansas, which is such a High concentration of fantastic supply chain. It’s sort of the epicenter of North America’s supply chain. You have J.B. Hunt that’s there. You have— and by the way, you have the Hunt School of Supply— I think it’s the Hunt School of Supply Chain at University of Arkansas. You’ve got Tyson Chicken. You have Walmart. And then just because Walmart has such an impressive footprint, you have hundreds of consumer product companies that have operations inside of Northwest Arkansas.

Speaker 3 [21:17] So we’re going to do that.

Speaker 1 [21:19] Put that on the list.

Speaker 3 [21:20] Josh, it was great. Thank you so much. We are going to take a quick break, then we have a little surprise, then we’ll get into the Sonar update.

Speaker 1 [0:08] Good morning. I’m going to fill in for Craig today with our Sonar update, and the story is really about earnings and the implications that that has on the overall trucking market. As you know, last week JB Hunt reported on July 15th. We’ll get the opportunity to talk a little bit more about that, but they showed a 19% year-over-year increase in revenue. They beat their estimates by nearly 10%. And intermodal was the engine there really with 10% volume, operating income up sharply. It was really a great story overall. We were able to get KNX earnings last night. They also beat expectations. Revenue was up 12.6% year over year. They beat consensus by over 20%. Their OR improved from 93.8 to 91.4, and they really attributed a lot of this to the freight market. To the regulatory and compliance issues forcing capacity out of the market and allowing more space for rate to increase for those compliant carriers. And they also spoke to double-digit contract rate gains as well as increased spot rates and increased tender rejections. They specifically talked a little bit about how they were beginning to see contract rate increases in June and are continuing to see that in July. Our data really shows the same thing. Spot rates remain elevated currently at around $3.53 a mile on an annual average of $2.79. So, while they’ve sort of plateaued at that $3.50-ish mark lately and aren’t moving a ton, it’s very normal. It’s July, it is summer, and that’s normal seasonality. We’re seeing the same with tender rejections. They’re sticking right around that 15.5%. They’re at 15.44% currently, which is still elevated when you think about it in context beyond just the last couple of months, and again, very very normal seasonality, but we are seeing contract rates continue to rise. We’re at 269 linehaul in the SONAR Index, and that’s on an average annual rate of 241. And when you think about that and look at it going back to August of 2025, that’s an 18% increase in one year, which is huge for contract rates to rise that much. So we’re really still seeing tightness in the market. Another interesting headline I read this morning was that Brent crude oil hit $100 a barrel after the Red Sea attacks. Um, again, we can look at those fuel indices in Sonar, and we can again see that the retail rates are rising more quickly than the wholesale rates. So we’ll see that gap for a little while until wholesale catches up. So an opportunity for people to play that gap if they are, uh, purchasing wholesale fuel versus retail. Um, and you can see that in the Sonar chart as well. But I think the other big story of the day is that all of the railroads not all, 3 Class 1 railroads reported, um, and really positive earnings overall. Um, we can talk about that more in detail, I am sure, but the basic concept here, the overall, um, is Union Pacific showed 12% revenue growth year over year. CSX showed 10% revenue growth year over year. Norfolk Southern showed 11% revenue growth year over year. Um, both UP and CSX showed respectively 4% volume growth and 6.1% volume growth. So really, again, a really positive story for intermodal. I think we’re seeing mode conversions. I think we’re— I think we’re seeing more volume hitting the rails as truckload rates have risen. And I think an interesting point here is as well that some of the quotes that came from the earnings speak to really strong consumer goods and industrial products. We’ve been talking a lot about the industrial renaissance. And how strong carloads have been. But I think it was also a really positive sign to hear in the conference call the specific callout of the strong volume for consumer goods. And then one last point I really want to make that I think is, is a great one. We’ve been talking a lot on the show about if capacity will come back in the market with this being a market You know, kind of unlike what we’ve ever seen before, where the tight freight market and the rising rates and high tender rejections have come from a decrease in available capacity rather than an increase in demand. So I thought this was a really good quote from Adam Miller and likely speaks to what we’re seeing in some of the other large carriers as well. We’ve talked about it being harder to add capacity back, specifically for small carriers. Barriers to entry have been added. Additional regulation, um, before being able to get a CDL or a DOT number or an MC number. But here’s the quote that I read, uh, in the FreightWaves article, uh, summarizing the earnings report: before adding any new tractors, management noted that there is significant opportunity to enhance utilization, particularly since some trucks remain unseated. So just as we’ve been talking about, not only are we seeing large fleets sort of wait to add trucks to take advantage of this market, we’re seeing it harder for new entrants to come into the market. But then that driver recruiting and retaining is continuing to be incredibly hard, which leaves some trucks continuing to be unseated at those large carriers. So I really believe that this is just another example of why this cycle is likely going to last quite a while, certainly in my opinion, through 2027. And we’ll see from there. But all signs pointing towards a continued really strong freight market where we expect contract rates to continue to rise, spot rates to remain elevated, tender rejections to remain elevated, and a really great opportunity for carriers to get back to being paid rates that allow them to be profitable.

Speaker 1 [0:00] So, Julie, I think bottom line is markets are tight. Capacity is not going to be added quickly due to driver availability. And to talk about the Knight-Swift earnings, we have Todd Maiden, FreightWaves reporter, who covered Knight-Swift’s earnings report. Todd, tell us what is your general takeaway from this earnings report for KNX?

Speaker 2 [0:22] You know, really nice beat, 23% earnings better than expected. But, you know, it’s really confirmation to JB Hunt’s results last week that the cycle has indeed inflected. JB Hunt had some idiosyncratic things going on, taking market share, cost cleanup, that I think some investors were kind of speculative of, can we extrapolate that across all carriers and across the market in general? And Knight certainly delivered last night. And the best part, their commentary was even better and the outlook for the rest of the year. You know, momentum built throughout the quarter. Tender rejections, spot rates, contract rates, all up and to the right April to June. Uh, their tender rejection rate was twice the market average, uh, which speaks to the strength of a large, well-capitalized carrier. Uh, and then it— all of the strength came in truckload. Uh, you know, you look at across less than truckload logistics, intermodal, mixed results there, but truckload drove it all. And the best part is the reason that more is on the come, you know, as far as earnings are concerned, it was achieved through rate. You’re talking about better utilization and cost takeouts, you know, and just starting to see contractual bids that were inked earlier in the year bleed through to results. So as that continues to gain momentum and more of the book is repriced and actually implemented, You know, all that’s gonna drop to the bottom line. There’s not a cost offset to it. So really positive. And I think more so than the result is the forward-looking guidance.

Speaker 1 [2:05] Todd, I think my takeaway, if they’re at 30-plus percent rejection rates in their route, you know, what freight is being tendered, we study the market, obviously Sonar is the place where people are, you know, tender rejection data or OTRI and STRI indexes are the benchmarks of the industry. The obvious answer to a 30% rejection rate is that rate— there’s a lot of rate momentum that is yet to come, because it means that they’re likely underpricing or have these old contract rates that are underpriced to market conditions. If they’re able to achieve those rejection rates, that means a lot of rate increase is coming. That’s clearly the takeaway here.

Speaker 3 [2:47] Well, and they spoke to that a bit. I can’t remember the quote exactly, but I remember hearing saying that they finally saw contract rate momentum starting to really pick up in some of those new bid awards at the increased rates, uh, the back half of June, and are already seeing it in July, I believe, as well.

Speaker 2 [3:03] Yeah, so, and, and they received some pushback from analysts on the call. You know, rate per loaded mile only came in 6% higher year over year, but there, there’s a lot of nuance to that. One, uh, you know, they said the bulk of what was implemented in the quarter was inked in January, February, when the supply side didn’t look anything like this. They’re conducting— they’re seeing a ton of mini bids. They’re also conducting a bunch of rate reviews on contracts that aren’t scheduled to roll until later in the year, and they’re going to bring those up to snuff, to closer to market level sooner than the, the, the annual, uh, bid negotiation. But then you also had, uh, you know, 28% of their fleet’s dedicated, so you have some of that’s just tied to regular, you know, producer price index escalators. So that, you know, that was a little bit of a drag. But right now they’re getting double-digit contract rate increases across the board. And their spot market exposure, if you’re an investor, their spot market exposure has gapped up another 5%. It’s up to 15% now. So they have that optionality to play the market through the rest of the year.

Speaker 3 [4:13] Well, I think one of the things that you see closely managing tender acceptance on their contracts, right?

Speaker 1 [4:17] Clearly, if you’re, if you’re rejecting 30%, and you’re managing, as Julie says, the tender acceptance numbers, you’re at 30% rejections, you can easily take freight from the spot market, which I think is probably, Todd, the takeaway that I— another takeaway is that they are shifting some of the capacity perhaps from the US Express operation, where it wasn’t as tightly managed as the core Knight-Swift business was prior to their ownership in it. And therefore, they’re able to benefit from some of the spot market inflection when there’s such a wide delta between spot and contract.

Speaker 3 [4:53] And then I also wonder— and I don’t know how the interplay is now. I don’t know how it’s changed.

Speaker 1 [4:57] But in terms of disclosure, just to be fair, you ran US Express’s dedicated operations, or you were a part of different operations inside of US Express. Of course, our family office still owns some equity in US Express itself. But in terms of operations, you were saying?

Speaker 3 [5:15] Yeah. And so I don’t know how much of this they do at this point. But my intuition and what I would infer from the numbers is that a lot of that higher paying spot freight that they’re able to pull onto the asset-based trucks is coming from logistics because their logistics load count was down. Revenue per load was up, but their load count was down and they still had a relatively compressed margin in that brokerage group. So I wonder if some of the high paying freight that the broker, that their logistics group books goes on some of the assets to continue.

Speaker 1 [5:43] So that spot market, last minute spot market.

Speaker 3 [5:45] Yeah, to continue to drive that rate per mile up with some of that spot freight.

Speaker 2 [5:49] Yeah, I mean, they don’t, they don’t talk about it specifically, but you’re right, there’s some cherry-picking there. Uh, I mean, I know it occurs on the larger, the asset-based carriers that also have brokerage models. Absolutely. Uh, in a market like this, and like you said, 30% tender rejection rate, they’re— those loads that come across their broker board there and they’ve already transitioned equipment into spot, they’re absolutely jumping on those. Uh, yeah, and I, I think Uh, you know, on the brokerage side, 350 bps of gross margin compression, but that was really in line with, with the rest of the market. And they’ve also had the added headwind. I don’t think they were as far along as like a JB Hunt in their carrier vetting protocols, even though they’re still within the group of brokers that’s considered industry leading and, and kind of at the forefront of, you know, getting out the bad actors over the last year plus. So I think they had a little bit of work to do, and that’s why that load count was off a little bit.

Speaker 3 [6:47] So we talked a lot about— we talked a little bit just now about brokerage, talked a lot about their truckload. Um, what about LTL? We saw shipments down. Um, tell it— tell us, tell us more about their LTL report.

Speaker 2 [6:59] Yeah, tonnage was down, uh, you know, or I’m sorry, tonnage was up 4%, but shipments were down, uh, 4%. So the, the delta all came on an 8% increase in weight per shipment. So some headwinds there. They’re being more selective on their freight mix, which is positive for price, positive for margin. And they also enacted some temporary embargoes at certain facilities, and that was to maintain service levels. So the activity’s out there and they, you know, as that freight, that heavier stuff that was lost to truckload through the downturn to a depressed truckload spot market, that’s starting to bleed back into LTL networks. So I don’t think we can take a ton out of their volume trends. But what I will say is when you look at the other public carriers, your ODs, XPO, SIA, ArcBest, and you kind of aggregate their tonnage trends on a 2-year stack comparison, which, you know, takes out the volatility of what their prior year comps were, they all inflected positively in May and should have done further so in, in June. And we’ll get June results next week when they all report. Um, so LTL for Knight-Swift’s a little bit more state uh, stable. They’re still in the, the early innings of their LTL journey. Um, I mean, you’re talking basically 180 terminals added through acquisition and, you know, organic additions, buying from Yellow Corp’s defunct estate over the past, you know, 5 years, but really a lot of activity in the last 2 years. And it takes 6 to 12 months to get a terminal to break even and another, you know, 1 to 3 years to get it to where it’s actually comping to what the rest of your network looks like on a margin comparison. So their story is a little bit of an outlier, but I think the trends are firming. So stable to firming is kind of how I quantify their LTL trends. But the broader industry is doing better, and we’re talking multiple quarters. Nothing speaks to the health of the industry more than multiple quarters of mid-single-digit contractual rate increases year over year. So high moats, high defensibility in LTL, and nothing’s changed.

Speaker 1 [9:18] So Todd, the intermodal business for Knight-Swift certainly is not as bullish, at least the read on that is not as strong as what we got with JB Hunt and even the intermodal volume. Is there Is there some takeaway that you have on some of the intermodal? I mean, look, there’s been some improvements, but certainly not what we saw with some of the other, you know, JB Hunt blew out their earnings largely because of intermodal. What is it? What is really Knight-Swiss’s challenges with their intermodal business?

Speaker 2 [9:50] So yeah, some of that was comp-driven, you know, between TL and the onboarding of LTL. I think it’s more of a complementary service. It’s not that not that big, not that impactful. I mean, you’re talking about maybe a 5% revenue contributor or something that’s been a drag on earnings. So, you know, as far as, uh, focus intensity, you know, what requires CapEx dollars and attention, it’s all going to TL and LTL. So I, I think it’s, you know, whereas JB Hunt, I mean, you know, as you know, I mean, they’re leading intermodal first, dedicated first. Uh, there’s kind of a race there for JB Hunt between which one will end up being bigger for them, dedicated or intermodal. But so I, I think it’s just, you know, their, their focus. It’s a complementary service. Uh, they, they have some tailwinds. They control most of their dray capacity. They control most of the drivers. Uh, so there are some tailwinds. And, you know, as, as freight continues to convert, uh, to, to rail, they’re certainly going to be able to to, to participate in that, but they’re just not, you know, one of the, one of the top players at this point to where, uh, it’s gonna jump out off the page and, and drive numbers.

Speaker 3 [11:09] Yeah, and while it was very barely profitable, right, I mean, they did see the volume grow in that segment, um, and it was huge improvement in their OR over prior quarters for that segment.

Speaker 1 [11:21] So yeah, I mean, look, I, I, it’s interesting because We’ve talked about this before, is that logistics businesses inside of an asset-based business— JB Hunt’s logistics business is not remarkable. I mean, it’s sort of average. It certainly isn’t as good as some of the pure-play logistics operations. You could argue that for Knight-Swift, it’s the same thing, kind of an average operator in logistics. Logistics is secondary to the truck. I think at the end of the day, if you’ve studied asset-based models, And I think in JB Hunt’s— what Josh said is that he works ultimately for intermodal. That’s what pays his paycheck, not the trucking business. The trucking business for Knight-Swift is certainly the flagship. The trucking business for JB Hunt is sort of the derivative of really empowering global companies.

Speaker 3 [12:15] To have that service to be able to provide all of those things to your customers.

Speaker 1 [12:17] And I think that’s what my read is, is that ultimately Knight-Swift has the highest exposure, highest set of solutions in the over-the-road trucking business, and is a better barometer for the overall market than JB Hunt is, because JB Hunt is so well positioned for their business. That’s why it’s the best operator to own if you’re going to own one, simply because it has such great exposure from all cycles. Now, Swift is a much better signal to the overall freight market. And it tells us— my read on this, Todd, is that we’re early. And I think that is what I would take away, is that this cycle is going to continue. 600-plus trucks that are, you know, down in terms of seated trucks. They’re talking about how tight the driver market is, which does tell us that we’re going to be here for a while.

Speaker 3 [13:03] All right, Todd, final question. What has been, uh, the market reaction to their release last night so far?

Speaker 1 [13:08] I haven’t been able to look much at it.

Speaker 2 [13:11] Investors, uh, maybe entering price for perfection. So I don’t think everybody got the 3rd quarter guide. There was also a little bit of pushback on why is it taking so long for your rate per mile to inflect, which we talked about earlier. But, but here’s the thing I would look at.

Speaker 1 [13:29] All right.

Speaker 2 [13:30] So the guide came in $0.71 in the 3rd quarter or I’m sorry, $0.71 to $0.77, so 4% higher than the consensus estimate. And that’s on numbers that continue to gap higher through the period. So I think there’s a lot of conservatism in the, in the guidance they provide. Their Q2 actual result beat their guidance by 34%. So I’m not saying there’s 34% upside to the number they provided last night, but I think there certainly is some. And the thing is, everything like you’ve talked about is in front of them on the rate side. And I think the most important thing to take away from that that drops through to the bottom line. There’s no cost offset. They don’t even— they’re not even at the point yet in this driver market where they need to raise, uh, wages across the board. They’ll do it in select markets, but they’re going to use better utilization to get more driving time and more loaded miles for their drivers, which will raise their pay. So there’s really no cost offset. They, they have quarters here ahead of them where if we stay kind of where we are get that seasonal improvement in the back half, numbers are really going to inflect nicely. So I think everybody was a little concerned that the guide wasn’t stronger for next quarter.

Speaker 1 [14:46] I think, like you said, everyone’s expecting perfection. And I think if you’ve been around this industry, we can’t have nice things. It’s why everyone’s very conservative. I also think there’s been some softness and softening in July. We’ve been talking about it all last couple of weeks, just the overall market. We’re not seeing the momentum continue. And that’s probably, you know, made management a little bit more conservative just to make sure that the momentum holds. Does tell you have a lot of hope over the next couple of quarters. Well, appreciate it, Todd. Great report. Always great to hear your thoughts. Todd worked on Wall Street. He did the opposite of Rachel Premack, Seth, and JP. He went from Wall Street to FreightWaves, but he’s always a great someone to have on air. We’ll be right back. We have Paul Tonsager to talk about— he’s the CEO and founder of Integrated Multimodal Solutions. We’re going to hear all about multimodal here shortly.

Speaker 1 [0:00] Welcome back. Paul Tonsiger argues the freight industry’s own math doesn’t add up. 20 years of growth stuck near 2.5%, by his account. Joining us now is Paul Tonsiger, CEO and founder of Integrated Multimodal Solutions. Todd, thank you for being here. Thanks for joining us. Tell us a little bit about what you mean about the math not adding up and where that, where that sort of comes from.

Speaker 2 [0:26] Well, thanks for, uh, having me on today. And, you know, it’s a weird day to be a railroader. Uh, there— I’ve never seen so much happen in about a week time period, especially with the announcement last night. But the reality is, you know, I wrote a lot of that a couple of months ago. But even listening to the, uh, the analyst calls, you know, the, the business, you know, they’re getting priced right now Um, it’s a, it’s a supply-driven, uh, situation for them. But, but the key is going to be, you know, how are you going to maintain this? You know, I think I just heard Craig say something that, you know, from a trucking perspective, you know, this is not— well, if you look at a year, is that short-term, midterm, long-term? But, but certainly, you know, the railroads have been handed a gift, um, that, you know, for the next year or so, they’re going to have the ability to bring in new customers. And is that going to be a price situation? Are they really going to dive in and put some meat on the hook and become customer-focused where they’re going to maintain this freight that they’re handling today?

Speaker 3 [1:39] Yeah, I think the announcement for our audience that hasn’t— may not be following the story, you can find it on TrainsPro— is really this merger, this mega merger that we’ve got, one of the largest, if not the largest, merger in transportation history, the Norfolk Southern-UP merger, which by the way, we’re going to cover in depth on Tuesday in our Future of Rail Symposium. We’ve got a jam-packed set of speakers, including the CEOs of both UP and NS here in studio that will be talking about this merger. But really, it’s the idea that CN and UP reached a settlement on the merger. Tell us a little bit about why, Paul, this is a big deal.

Speaker 2 [2:26] You know, I, I worked for CN for 25 years and, and certainly with the Illinois Central Railroad, so I’m, I’m, I’m pretty familiar with all the, the players. And, and, um, the— it was incredibly smart. Um, you know, I mean, up until this point, CN was frankly irrelevant in the conversations that were going on. Uh, in one fell swoop, they became relevant again. And I mean, you know, they’ve talked about Kansas City and St. Louis, but from an intermodal perspective and a transportation perspective, I think the thing to look at is the EJ&E, which the CN bought, I don’t know, 15 years ago. But that’s going to give the UP some fluidity around Chicago that they’ll be able to not have to stop. Um, And I think that will be one of the more underreported pieces of this. But, but certainly if you’re BN and CP— CSX I’ll put off to the side— but if you’re BN and CP right now, um, you, you’re, you’re rethinking things a little bit, I would think. And will this necessarily, um, move the board into a more positive position? I mean, I— and, and there, you know, I’ve supported the merger all along. Um, but I became, you know, less of a supporter over the last couple of months because the reality is, um, you know, they, they’ve moved— the chains have moved, but the ball hasn’t. And, and certainly with the filings and things like that, you know, it became more of a 50-50, uh, situation here. But I think that, that, that this certainly has moved the ball, and now we’ll have to see what the STB says.

Speaker 3 [4:04] But do you think the— you said you’ve been bullish on it Sort of 2 perspectives. One is the likelihood of it actually closing is sort of one perspective. The other question is, is it good for the industry? When you say you’ve been bullish, you’ve been pro it, where on those 2 realms— A, you support it because you think it’s better for the industry and the constituents, and then B, in terms of what you think is likely to happen— I’d love to get your perspective on both those points.

Speaker 2 [4:35] Yeah, I mean, you know, everybody talks about collaboration and I know CP and CSX and BN and CSX, but collaboration has been tried before and it’s not worked. I mean, if you look in the past, you know, IC, WC, CN, now granted that worked just because of the merger situation, but the reality is who owns the customer, how’s the pricing set up, it’s always in the details and frankly you never really get to see them. One thing I’ll say is, you know, part of my, my last full-time job was head of procurement at Maersk. And so I had all of the rail contracts. And, you know, the reality is, um, you know, you’ve got to negotiate with 2 railroads. Uh, in our, in our situation was BN and CSX. Those were our main carriers. But in, in tomorrow’s world, uh, would, would, um, know, the UP, go to Maersk or go to a steamship line and say, hey, my assets are being stuck in LA. I’ll, you know, let’s, let’s talk about moving traffic from Norfolk to Kansas City or Norfolk to Minneapolis. You know, there’s so many more opportunities from a network position that will be out there now. And I think that’s, that’s why I’ve been a supporter. I’m really skeptical on the 2 million truck diversion, you know, going through the the details of that. I don’t know if— but they don’t have to do 2 million trucks of diversion. Um, I think from a network, looking at a network and being able to use St. Louis and Kansas City and other places that aren’t able to be used today as an interchange point, um, will free up congestion and hopefully service customers a little bit better.

Speaker 1 [6:22] Yeah, I think those are all really good points. I want to talk a little bit, um, more about sort of your background and expertise and Talking about the complexity of these railroads and them working together, and you talk a lot about who owns the customer in a relationship. Is that the railroad? Is that an IMC? Is it the carrier? So can you talk a little bit about that and then the role IMCs play in that?

Speaker 2 [6:45] Yeah, I mean, you know, I’ll talk mostly about the US, but the reality is, you know, the railroads are wholesalers. CN has a retail product, that they do up in just specifically in Canada. But for the most part, they’re wholesalers. I mean, you know, their, their customer is Schneider and JB Hunt and Maersk and CMA and Evergreen. Um, you know, they— the, the reality is most of these railroads have BCO-facing groups, which is smart, but they’re tactical. You know, they’re not— you know, they’re, they’re strategic, not tactical, I’ll say, because The reality is they’re not negotiating pricing, um, with the big Home Depots of the world, the Walmarts of the world. I know Amazon’s a little bit different now. BN is doing quite a bit with them, which I think is the right thing. Um, but, but, but the reality is, again, they’re wholesalers. So, you know, you see the bumps and improvement in intermodal, you know, they’ve already, you know, it’s up to JB Hunt, which I know you just had mentioned on the, the, the previous, uh, segment, um, and I would say they are— they’re best in class. But, you know, BN’s relying on them for any kind of volume improvement. So, you know, the railroads themselves don’t have a ton of control over the BCOs. They have control over their service, but the selling point and who owns the customer from an intermodal perspective totally different from the carload side, are the IMCs and the steamship lines.

Speaker 3 [8:20] Yeah, Paul, you mentioned 2 million truckloads. This was in the application. Covering this market, it’s not a lot. I mean, it’s about the equivalent of Knight-Swift’s business. I mean, we’re not talking a lot of truckloads taken off the market. But it does feel like a better product, frankly, from an intermodal standpoint, because you get transcontinental. And the IMCs will certainly benefit from that. But there’s been a lot of pushback from the bulk— rightfully so— the bulk shippers. So where do you think this thing ends up? I mean, we’re going to hear more about that from the STB. Obviously, they’re not talking about the merger on our interview. I had the chance to interview the chair of the STB, Patrick Fuchs. And really, really what he had said that he wouldn’t give any sense of it, but it’s just not a big It’s just not a lot of volume moving off, but the bulk shippers are the sort of the recipients of, uh, of sort of the downside.

Speaker 2 [9:18] Yeah, and you know, I, I know Patrick and I, and I have a lot of faith in him and the STB, even with all the politics and, you know, the Supreme Court ruling and things like that. They will do the right thing. Um, I mean, like you said, this is the biggest deal out there right now, um, unless you look at SpaceX or some of the other things from a technology perspective. This is the biggest deal. I mean, and, you know, 3 or 4 people, you know, unlike other countries in today’s world, those 3 or 4 people will make this decision. It won’t be the Treasury Department. It won’t be the FBI or Justice Department. It will be the STB that will make the final decision. So I think the biggest frustrating part, and this gets back to the 2.2 million trucks, is, you know, used to be Wendy’s. Where’s the beef? I mean, I still haven’t seen any specifics Maybe I’m wrong, maybe they’re out there, but I haven’t seen any specifics like, you know, from Chicago to Kansas City or Oklahoma City to Atlanta, I’m going to take these specific truckloads off and these are the customers I’m going to work with to do it. I mean, as you both know, the devil’s in the detail and it’s a lot of hard work. And so I think that is really my open question on this. You know, I think really with what happened with CN, again, I think maybe it’s, it’s being promoted more than it actually means, but it was incredibly smart. And I think this changes the dynamics a bit. Um, they just need to get moving. I mean, this thing is, is like a slow walk. This has been going on for a year. And, you know, Jim Fennah and, and I mean, all the CEOs and, and C-suite of railroads, they’re pros. I mean, they know what they’re doing. Um, but they— but the ball needs to move forward. So hopefully this last bit of application they give will satisfy the STB and Let the games begin.

Speaker 3 [11:10] Yeah, it’s going to be amazing to watch. As you point out, all these railroad stocks are AI. It’s crazy.

Speaker 2 [11:20] Uh, the only thing on, on the board that’s green is GE and the railroad stocks.

Speaker 3 [11:25] Crazy. Well, they are AI investments. I think they’re frankly better than a lot of the AI companies because they actually generate cash flow. Amazing to own a railroad.

Speaker 2 [11:35] Boy, cash flow, that’s kind of a weird concept, but, uh, thank you for the time.

Speaker 3 [11:39] Well, appreciate it, Paul. We’re gonna be right back.

Speaker 1 [0:00] All right, let’s go to the other great mode of domestic surface freight. We’ve got Bill Stevens who’s going to talk, break down all of the action in the rails. It is absolutely hot. Bill, welcome to Freightways Today again. How are you, sir?

Speaker 2 [0:16] I am well, Craig. Hi, hi, Julie. How are you both today?

Speaker 1 [0:19] Well, we know it’s exciting. You’re going to be down in Chattanooga next Tuesday. We have the Future of Rail Symposium that will be right here in Chattanooga. We got the CEOs of probably the hottest story in freight, Norfolk Southern and Union Pacific. Now, we are told they won’t talk about the merger itself, so it’s going to be in the room. I don’t know if, if, uh, uh, if what you’re expecting to hear from that conversation.

Speaker 2 [0:43] Well, um, our timing is perfect because on Monday they are going to file the supplemental information that the Surface Transportation Board asked for regarding the merger. So that is going to be question number one. What does this additional merger do that can—

Speaker 3 [1:00] or additional information do that can help get your merger across the finish line from a regulatory review perspective? Um, so we’ll, we’ll have a—

Speaker 2 [1:09] we’ll—

Speaker 3 [1:09] they’ll have a lot to say about the merger, I am sure.

Speaker 1 [1:12] So they will talk about it. I, I— that’s, that’s certainly refreshing. I think it’s what our audience wants. We’re going to give them what they want, right?

Speaker 2 [1:18] Yes.

Speaker 3 [1:18] Oh yes. Yeah, absolutely.

Speaker 1 [1:22] I had the chance to interview the head of the STB, the chair of the STB, Patrick Bucks, a couple of days ago related to the virtual symposium. Now, one of my opening questions was, tell me about what your thoughts on the merger was. And he immediately shut me down. He’s like, I can’t talk about that. But it is great. And we’ve got, you know, BN’s gonna be on CSX. We’ve got some of the Canadian railroads. It’s a jam-packed agenda. I’m super pumped about it, Bill.

Speaker 2 [1:52] It is. And we have some, some looks at autonomous trains as well, which is, you know, people say that’s going to be the future of growth in the industry. So it’ll be an interesting, interesting conference to look at. We have earnings reports came out last week and this week, uh, from— actually all this week, it’s been a long week, um, for, uh, 4 out of the, uh, 6 Class 1 railroads. Um, and really the results show what happens when you get a little bit of volume growth.

Speaker 3 [2:28] Um, you know, all of the railroads reported improved financial results. Uh, some had record revenue.

Speaker 2 [2:36] Um, if you look at this chart here, CSX’s volume was up 6%. UP up 2%, NS up 4%, and Canadian National up 5% with an asterisk because that is the way they prefer to count it based on revenue ton miles.

Speaker 3 [2:51] If you look at carloads, which makes it— equates it with the other railroads on that chart, uh, volume was relatively flat at 0.35% growth.

Speaker 2 [3:01] Um, but, uh, what, what’s important here too is these improving volume outlooks and financial outlooks have prompted 3 of the 4 railroads to raise their financial outlooks for the year and in some cases their volume growth outlooks. And intermodal has primarily been driving that, but it’s also broad-based across most of the merchandise carload sectors. Coal depends on the railroad. Norfolk Southern was up quite a bit.

Speaker 3 [3:38] Thanks to exports of metallurgical coal. Union Pacific was down due to high stockpiles at utility plants and also low natural gas prices. Their business is predominantly utility coal.

Speaker 2 [3:52] But, you know, you look at the intermodal figures, you know, CSX up 9%, UP was up 4%. But within that, their domestic intermodal set a 4th straight quarterly record for volume. And they had double-digit growth. Norfolk Southern intermodal was up 5%, and they’re seeing strong truck-to-rail conversions, they say, amid the high fuel prices. And the outlier here is CN. As we’ve talked about on Wednesdays, the intermodal market is different in Canada than it is in the US. And one thing that CN’s Chief Commercial Officer Janet Drysdale said on their earnings call this morning was that truck capacity is not as tight in Canada as it is in the US.

Speaker 3 [4:42] And that’s been a key factor in driving those domestic volumes up in the US.

Speaker 1 [4:48] The regulatory and immigration crackdown is really an American story. And Canada’s got its own situation with immigration issues, but they’re Their orientation on the Canadian truck drivers is quite different than the administration’s orientation. So it certainly makes sense that the Canadian railroads would not be as bullish on intermodal as what you see. Plus you’ve got the whole tariff overhang on this, Bill. Any thoughts there?

Speaker 2 [5:17] Yeah, that’s it exactly.

Speaker 3 [5:19] And CN said that the key here for them is to be adaptable amid ongoing trade tensions and disputes and tariffs that are levied one day and pulled back the next.

Speaker 2 [5:32] Um, and so never-ending story.

Speaker 3 [5:36] Exactly.

Speaker 2 [5:36] And, um, you know, they’ve talked about metals traffic is, is still moving, uh, across the border, um, despite the tariffs because the US can’t produce enough of, of aluminum, for example. Um, forest products traffic not doing well for CN.

Speaker 3 [5:53] Um, that’s partly due to tariffs, partly due to the low uh, you know, the slow housing starts in the US.

Speaker 2 [5:59] Um, but, uh, you know, when you look through, um, the railroad’s outlooks, um, for the various traffic segments, um, you know, they really see broad-based, um, positive outlooks.

Speaker 3 [6:14] Uh, at CSX, the only thing that was really, uh, negative was, uh, automotive and, and chemicals. And I think that might have more to do with the chemical plants that, that CSX serves.

Speaker 2 [6:26] Union Pacific, the only negative thing that they had on their second half volume outlook was, was coal. Um, everything else, uh, was—

Speaker 3 [6:35] they viewed in positive territory in their carload business, which is, you know, industrial products, uh, traffic, the ingredients that go into things.

Speaker 2 [6:44] Um, they believe that theirs is going to be above the rate of industrial production, which suggests market share gains versus truck. Norfolk Southern said industrial activity is a positive for them as well as global energy prices. And in the intermodal side, the truck market tightening is positive.

Speaker 3 [7:06] They were mixed on consumer demand, I think mostly because of the high fuel prices that are affecting everybody at the pump.

Speaker 2 [7:16] And coal, they were kind of neutral. CN was really positive on petroleum and chemicals traffic.

Speaker 3 [7:22] That’s a huge export story for them as well as internally with a new fuel facility in the Greater Toronto Area. Grain continues to be a bright spot for them.

Speaker 2 [7:34] They do believe that their domestic intermodal is gonna grow this year and then automotive traffic as well.

Speaker 3 [7:43] They’re down on intermodal, international intermodal, partly because they’ve been demarketing some of the lower margin traffic.

Speaker 1 [7:52] Hey Bill.

Speaker 2 [7:52] And then, yep.

Speaker 1 [7:53] Go ahead, sorry.

Speaker 2 [7:55] No, no. And then just forest products and fertilizers, they had a negative outlook on. CPKC, the other Canadian-based railroad, they report on Wednesday.

Speaker 3 [8:03] And then BNSF, which is a unit of Berkshire Hathaway, they will report alongside their parent company next month.

Speaker 1 [8:09] So this is a big change in direction. Earlier this year, we’ve covered it extensively. The railroads were pretty bearish on this year, or at least not constructive about this was going to be an off year. I think the industrial slowdown that we saw last year probably prepared them to think the worst. The change is that there’s a massive change in tone, just in terms of perception of the improvements in construction in this year that’s taking place across their business. Are they, do they believe this is really driven by higher demand? I know intermodal is a truck fungible story from a capacity standpoint, but what are they seeing on the demand side, particularly in the economic, the economy?

Speaker 2 [8:51] Norfolk Southern pointed to industrial development efforts and how new plants and plant expansions are coming online in a variety of sectors across their network. I believe they said it was double, uh, what it was last year. It’s a similar story at CSX. So they are seeing that industrial economy, uh, pick up and, and gain steam.

Speaker 3 [9:14] CSX also pointed to construction around data centers as driving, uh, some of their construction-related traffic increases as well. Um, and, um, Union Pacific had similar things to say about the industrial economy and manufacturing.

Speaker 2 [9:29] Um, so I think they were cautious, uh, earlier, earlier on this year because of, um, the length of the freight recession and saying, oh, we see the turnaround, you know, next year or the second half of the year, and then it just not playing out.

Speaker 1 [9:48] The industrial, the industrial economy was a dog last year. We see it in the freight data. It just was absolutely anemic, but it has come back since November, and that’s certainly given everyone— but I think Like many of the trucking companies in the first quarter when there was earnings reports, they were constructive, but still cautious. As we like to say in freight, nobody gets credit when you’re a public company for being wrong. In terms of if things are bad, you’re going to get spanked by the markets. If you are overconfident, and that’s why a lot of the public CEOs, particularly the seasoned ones, tend to be more conservative when they’re talking about market developments. It’s interesting, because We talked to a lot of those folks. They’re more bullish when they’re one-on-one than they tend to be with Wall Street when they’re talking about the market, because they have to be very careful to set themselves up for failure.

Speaker 3 [10:36] That’s it exactly. It’s way better to under-promise and over-deliver than the other way around.

Speaker 1 [10:41] The opposite, you get absolutely obliterated if you’re on the wrong side of that, if you’ve over-promised. As anybody who’s been public knows that that’s a dangerous thing. So Bill, I want to talk about the merger for a second, because it’s obviously the most important story. We have just a number of big announcements this week. You covered the whole story where CN was given— can you explain for those that aren’t real deep into the rail market, why is this a significant development?

Speaker 2 [11:10] Well, a couple of things. First, railroading is all about the map. It’s not the highway network. You can’t just go anywhere.

Speaker 3 [11:16] You can only go as far as your map gets you.

Speaker 2 [11:20] And there were 2 deals that Union Pacific and Canadian National worked out.

Speaker 3 [11:25] One is totally tied to the merger and the other never would have happened without merger discussions.

Speaker 2 [11:31] So the first is, and this is not dependent on the merger, Canadian National gets a haulage rights agreement between Memphis and the Mexican border at Eagle Pass, Texas, over Union Pacific. So in other words, Union Pacific will haul CN’s traffic from Memphis to Eagle Pass. That enables CN to be a better competitor against CPKC, which can offer single-line service between Canada, the US, and Mexico. This, uh, CN deal applies only to Canadian origins and destinations traffic moving to and from Mexico, um, but it’s a faster route and is, and is far superior to, uh, the existing offerings.

Speaker 3 [12:14] They currently hand off traffic to Union Pacific in Chicago, so they get a longer length of haul out of this.

Speaker 2 [12:21] In exchange, Union Pacific, uh, gets rights to run over CN’s Chicago bypass. Back in 2009, they, they bought a railroad called the EJ&E, which basically is, is kind of like a loop road around Chicago, doesn’t go through it.

Speaker 3 [12:39] And Chicago, of course, is congested, notoriously so at times.

Speaker 2 [12:44] And, and it’s inconsistent and long, uh, the transit times through Chicago.

Speaker 3 [12:50] CEO Jim Vena said at times when he was at CN, they could get a train faster from British Columbia to Chicago than it took to get from one side of town to the other.

Speaker 2 [13:00] That’s an extreme example, but you Union Pacific will get this much faster route through Chicago as a result of this. And they want to—

Speaker 3 [13:11] once they put the finishing details on this and reach a final agreement, it’s not contingent on the merger, and they want to start moving this traffic as soon as they can.

Speaker 2 [13:21] The part that’s related directly to the merger involves giving CN access to customers, uh, in basically in, in the Midwest.

Speaker 3 [13:33] There’s only a handful of them that under this merger, since there’s no overlap, would go from the option of having 2 Class 1 railroads serve them and have seen it just go to one. And it’s the same for customers that currently have the option of 3 railroads going down.

Speaker 1 [13:48] Was this just a way of, for those customers that have dependencies, to demonstrate to the STB that they’re trying to find ways to provide some competition?

Speaker 3 [13:57] Yes. And Union Pacific and Norfolk Southern were upfront about this when they filed their merger application. They knew that they were going to have to provide access to enhance competition in that overlapping area in the Midwest, which is primarily in Missouri.

Speaker 2 [14:15] And so CN will get access.

Speaker 1 [14:17] Is it chemicals? Like, what is the— what are the commodities that are impacted?

Speaker 2 [14:21] It’s a variety of carload shippers.

Speaker 3 [14:23] That specific question did get asked on CN’s earnings call today, and they didn’t really answer it.

Speaker 2 [14:29] Um, it’s—

Speaker 3 [14:30] it— but we’re, we’re talking 5, 5 shippers who see their option go from 2 to 1, and it, it’s 2 dozen perhaps who see their options go from 3 to 2, and most of those are in the St. Louis area. Um, so it’s a range of carload commodities and ag, given, you know, the location in Missouri. Um, and, and, um, CN will, uh, get at trackage rights over Union Pacific, which would have, uh, basically 2 parallel routes across Missouri. CN will use one, and they gain access to the Kansas City market for the first time, uh, on their own tracks or with their own trains, controlling their own destiny. And they get to use Union Pacific’s, uh, yard, uh, that is really not used very much today, Neff Yard in Kansas City.

Speaker 2 [15:21] So in exchange for all this, CN said, hey, this solves our competitive concerns about the merger. We get growth opportunities out of it, and as a result, we will not oppose the merger.

Speaker 1 [15:37] Well, Bill, I’m so excited to see you next week. We have the National Model Railroad Association’s convention, their annual convention will be here in Chattanooga. So for those that are interested in model railroads or in trains, it’s the perfect week to be here in Chattanooga to talk about that. And so So much is happening in the railroads. We have the right people coming to the virtual event. It’s a bang-up lineup, by the way.

Speaker 1 [0:00] Eric, how are you, sir, today?

Speaker 2 [0:02] Hey, good morning, Craig. Thanks for having me on.

Speaker 1 [0:04] Do you wanna narrate our F3 video or do you wanna talk home delivery?

Speaker 2 [0:09] Home delivery is my wheelhouse, so I’ll stay there.

Speaker 1 [0:12] All right, you’re not a professional voice actor, but let’s talk about this report that came out from Armstrong and Associates and the National Home Delivery Association, all about growth in the big and bulky and last mile delivery segment. What did you learn?

Speaker 2 [0:29] Well, it’s interesting, you know, as you know, last mile delivery, most people think of that for parcels and your home delivery for packages you get from Amazon and other retailers and they drop it at your doorstep. But, you know, there’s this whole other market when you order bigger things like exercise equipment or furniture and someone comes in a box truck and drops that off. And lots of times you don’t want to deal with it because it’s too heavy. So you have them bring it in the house. You know, instead of dropping it at the curb, and then they install it. So that market’s been growing a lot, especially since COVID It really took off, and, uh, but then it’s slowed down some since then. But, uh, so Armstrong and Associates did some survey and work and research, and they basically saw that the, you know, the growth rate for the market was a little over 10% over the last 8 years or so. But now between last year and 2027, they say the market’s going to grow at about a 5% clip. So it’s, it’s kind of slowing by half. And they attribute a lot of that to the housing market that, you know, home sales have slowed, especially for existing homes because mortgage rates are high. And people who, like you and me, who might have lower, you know, bought homes a while ago with really low interest rates, might not want to trade to another house and get an interest rate that’s, you know, 6 or 7%. And then of course, houses— the housing market’s so expensive right now, so a lot of people are staying put. And that’s just spurring a little less home turnover, spurring less ordering of furniture and things to upgrade homes that, you know, you’ve moved into. So that was kind of the big initial takeaway.

Speaker 1 [2:12] Yeah, I’ve got some real estate on the market right now, and I’m just talking to the agents as just the general state of it. It’s just not It’s not the same market. We hear that from folks in terms of that are in real estate, just how soft housing is. And it’s not a surprise the last mile would be slow and the forecast would drop simply because of it.

Speaker 2 [2:32] Yeah, and, you know, then people are squeezed a little bit with discretionary spending. You know, last year with the tariffs and so forth, a lot of the appliances are made of steel and other things that are hit by tariffs, but a lot of those costs have kind of normalized. So, you know, the big, the big thing is kind of this kind of home, home housing market influence on, on the last mile delivery sector and e-commerce.

Speaker 3 [2:59] Yeah, there’s an interesting— we won’t have time to get into it today, but there is a full Sonar sitrep on the weak housing market and that impact that it has on freight overall. And it touches on a lot of the things that Eric was talking about. Regarding housing starts and new housing starts, and that there are more multifamily housing starts actually happening than single-family housing starts, and then how that affects the flatbed market. And as you see, flatbed is strong, but you can also see that it still follows the same—

Speaker 1 [3:30] it tends to follow single-family home starts. Did you get a sense, because I always heard the number 20% of the trucking market is indirectly, directly related to housing, is there any Certainly, yes, certainly in flatbed.

Speaker 3 [3:45] But then, yes, but that has been muted this year because of all the industrial renaissance and the AI data center buildout. While you would think that would have much more of an effect on freight demand based on the housing market being so slow, a lot of that’s been made up for by—

Speaker 1 [4:01] The flatbed folks are not struggling at all. Eric, what is the final conclusions on this in terms of Obviously, the freight market is difficult for these last-mile providers, not a super bullish growth area. What is the takeaway from here?

Speaker 2 [4:17] Yeah, I mean, the competition’s really fierce. A lot of companies have moved into this space over the last, you know, 5 to 10 years. And so there’s, you know, heavy competition and, you know, it’s hard to differentiate yourself with more specialized, you know, value-added services. So You know, the report said basically it comes down to the people are going to win. It’s going to come down to execution, not new fancy, you know, services that you provide. So, and that means you need more AI-driven technology that’ll help you increase your efficiency and, you know, provide that execution level with, you know, route optimization, predictive ETA, you know, computer vision, you know, damage assessments and so forth. So And then there’s potentially gonna be some consolidation in the sector they predict, you know, ’cause it’s expensive, especially in more rural or suburban areas to provide this last mile service. So, you know, getting some scale or a broader national footprint helps your economics.

Speaker 1 [5:20] Real quick, Eric, go ahead, Julie, did you have something?

Speaker 3 [5:22] I was gonna say, how are you seeing this reflected in earnings of final mile companies like JB Hunt and others that have segments that do this final mile?

Speaker 2 [5:30] I mean, it’s a small segment of a lot of these LTL and truckload carriers. I don’t really have the breakout, you know, it’s a small niche portion of their business, but important.

Speaker 1 [5:41] So Eric, real quick, non-domiciled CDL drivers, my understanding is that some of these, particularly smaller vehicle types, straight trucks, et cetera, is attractive to non-doms who have been put out of market. Is that showing up in any of the data that you look at? You read about?

Speaker 2 [6:02] Um, you know, I, I don’t have any specific numbers, but that is a concern among members of the, the industry that, you know, the regulatory crackdown, as just as in all other segments of the trucking market, is, you know, shrinking the driver pool. Labor avail— labor availability is a big concern going forward for these last mile, um, you know, big, big and bulky providers. So Yeah, I don’t have specific numbers on this, on the pressure, but it is there.

Speaker 1 [6:32] Well, Eric, thank you so much for coming in. Unfortunately, this is a crazy news day, probably the biggest story to hit our newswires in forever. Stay with us.

Speaker 1 [0:00] Well, John Kingston is back with us to tell us all about probably the biggest nuclear lawsuit story that we’ve ever covered, which is CH Robinson. The damages to— in this lawsuit were over $600 million. John, this hit the wires this morning and the article is completely blown up. And I think a lot of people are like, what does this mean? And what— first of all, give us the background of the story.

Speaker 2 [0:28] Well, wait, wait, when you woke up, did you go look right on freightwaves.com and you saw that sitting up there and you said, hey, wait a second, that wasn’t up there when I went to sleep?

Speaker 1 [0:36] No, John, I didn’t even know about it. I think it was at 9 AM when I was alerted to it. Um, I, I, I don’t remember where I first saw it. I didn’t even know we had reported it because I was doing— I was involved.

Speaker 2 [0:46] I will tell you that, that, that I was alerted to it about 7:30 last night.

Speaker 1 [0:51] Okay, so, um, yeah, I didn’t know about it until 9.

Speaker 2 [0:54] I have no idea.

Speaker 1 [0:55] But it’s been something that we have been covering. Tell, tell us about the background.

Speaker 2 [1:01] Well, so this is, this is, as far as we can tell, the second biggest nuclear verdict, but it’s the first one that I don’t count the $900 million one in Florida where the dude didn’t even show up.

Speaker 1 [1:10] Let’s put that one aside.

Speaker 2 [1:12] So this is $600 million against somebody who’s collectible. Of course, part of the blame was, was, uh, by— was attributed by the jury to the driver who was killed in the accident. The other was to this Lupus Superior, who is a very legitimate carrier. You got to wonder if they can withstand, can, you know, survive. And then the rest of it is C.H. Robinson. But the way it works is that C.H. Robinson will basically pick up the blame of the others, the balance of the others. So, you know, they’re looking at most of the $600 million. Obviously, they’re going to appeal. The judgment has not been affirmed yet by the judge, the Dallas County Court judge. Remember, the Werner case was appealed to the Texas Supreme Court, and that was thrown out. That was also pretty high. So you really wonder whether that would be the case here. I mean, I think for the brokerage industry, there’s a couple of— there’s 2 really very— well, 3 very scary things from it. One is the sheer size of the verdict. And that’s not just scary to the brokerage industry. That’d be scary to carriers and everybody. That’s number one. Number 2, this is the first time that you’ve had a big story like that, big verdict like this, where a company could not pull out the Federal Aviation Administration Authorization Act defense because that’s what went down in Montgomery. And the third is the finding, and I really wonder if this will hold, that the driver in the case, who was an employee of the carrier, Loop is Superior, was in fact an employee of C.H. Robinson. So this has to do really with kind of like— I hate to say independent contractor status because nobody was an independent contractor here, but it just, uh, it sort of gets into the whole question of control. And so this is a whole other issue. I don’t know that that’s going to stand. That one just seems like a real reach on the part of a jury. Yeah, I mean, this is obviously—

Speaker 1 [3:03] yeah, I mean, it is a— it’s going to get appealed We’re going to at some point end up with an appeal, and then maybe another appeal. This whole thing is going to go through an appeal process. Whether the appeal court will hear it, I think, is a big question. Sage Robinson certainly is— this is not any near-term risk to the business. They are in this shared fault environment. They’re 23% at fault, according to the jury. But as I have been told by folks, Matt Leffler, who’s the armchair attorney, he’s a transportation lawyer, has told me that the problem that you end up with shared fault states, even if you’re 1%, the fact is that what will happen is the other parties— one is dead. He’s the driver. He was predominantly at fault. The motor carrier is not going to make it. The guy has 50 trucks. I mean, even when we were at US Express, we had a $100 million lawsuit. That was what, at the time, that was the insurance limits. There’s no way that this carrier is carrying And I don’t know what the insurance limits are, and I hate to speculate on things we don’t know, but there’s no way. I can almost assuredly say that this carrier does not have more than a couple million dollars of insurance at most. It’s going to be really C.H. Robinson that, if this thing doesn’t get thrown out on appeal or reduced on appeal, is going to pick up the majority of it. At least their insurance company will.

Speaker 2 [4:24] Yeah, and there’s almost no chance that at this point, They’re going to try for a settlement. It’s just too big. You know, you can’t help but think about the Werner case. And you don’t know— I don’t know this for a fact, okay? Werner never said this. But you got to think that somewhere along the line, they probably tried to settle. And the plaintiffs got real kind of— I hate to use the word greedy, but we’ll say greedy. They thought they were going to get a big payout. And of course, they ended up getting nothing. But it’s too big. The issues here are too gigantic for C.H. Robinson to walk away from this in any kind of settlement, unless the settlement is at some ridiculous level.

Speaker 1 [4:56] You mean C.H. Robinson or the plaintiff’s attorneys? To walk away.

Speaker 2 [5:01] For C.H. Robinson, when I say walk away, I kind of mean, all right, let’s settle this thing for $400 million. That’s not going to happen.

Speaker 1 [5:07] I mean, I understood there was a report this morning that their insurance limits are $130 million per incident. You don’t think that the insurance company would, or C.H. Robinson, say, let’s settle at $130 million?

Speaker 2 [5:21] You know, I don’t know. It’s crazy for me to speculate, but From the people I spoke to last night, I get the sense that they really view this as, I hate to say existential, ’cause as you said, they’re not going out of business, but that the precedence here is so potentially damaging and we’re so early into the post-Montgomery world that you really don’t wanna give up any fights at this point. It’s your, you know, who else is gonna be in position to negotiate or to carry through big legal procedures that set new precedents in a post-Montgomery world? You know, C.H. Robinson, Echo Global, whatever, you know, RSG.

Speaker 1 [5:55] No, I mean, look, I made this argument on air X, that if CH Robinson, with arguably the best-paid law— you would think, I’m making this stretch assessment, but the amount of money that they spend on legal dealing with these types of cases and have unlimited resources relative to the rest of the competitors— if they ended up getting subject to this, you can only imagine what this looks like for a mid-sized broker that’s a $100 million broker. Because now, They can’t— the kinds of legal bills, and we’re not even talking about the $600 issue, we’re talking about the amount of money it takes when you go to trial of this kind of magnitude. You’re talking tens of millions of dollars potentially.

Speaker 2 [6:37] Yeah, well, I mean, I just think what’s interesting is that the Montgomery decision came down very early May. It was like May 1st, May 2nd. We’re not even out of July.

Speaker 1 [6:46] No, and we— look, we talked about it on Freightways Today, is the fact that Every broker, the day after, the rules have changed. And it’s not the lawsuits going forward. Brokers, some of them have created new safety policies, C.H. Robinson included, changed their entire— got rid of a lot of motor carriers. It’s the fact that there are over 6,000 lawsuits currently in the court system. At least a third of those, just statistically, would have a broker of record. Those lawsuits are getting amended. That’s the— that’s perhaps one of the big risks.

Speaker 3 [7:21] Terrifying.

Speaker 2 [7:22] I think one of the other big issues— I’m sorry, did you—

Speaker 3 [7:26] No, go ahead, John.

Speaker 2 [7:27] One of the other big issues here is that, you know, right in the Supreme Court when the oral arguments were made in Montgomery, it was one of the arguments that was made by the brokerage industry, which the lawyers are pretty much paid for by C.H. Robinson, was No broker, not even a CH Robinson, can go out and re-vet every single carrier out there. And that if you’re looking at a carrier with a satisfactory rating, as this company had before the accident and after the accident, we need to be able to say, okay, that’s— we’re going to rely on that to some degree. That should be a defense of ours. Well, they had a times 2 satisfactory rating and it made no difference at all to the jury. So that fear that was raised in the oral arguments and also, you know, in briefs, et cetera, leading up to the Montgomery decision just happened. It really happened. It’s not theory anymore.

Speaker 1 [8:20] So, John, what compelled the jury if, you know, a lot of brokers have argued over the last couple of months that if the carrier is satisfactory and that is the information that the broker has, that the government is saying, the FMCSA in their records is saying that carrier has a satisfactory rating. What did the jury decide that this, uh, that Sage Robinson did, or this, this, that was so negligent in hiring him?

Speaker 2 [8:48] Well, I don’t know, but let’s remember, I think a key factor here in this case is that the driver died. Okay, so we have absolutely no idea why, what happened to him. Did he have a medical, uh, incident? He had been complaining earlier about not feeling well, or was he on his phone, or did he take drugs, or whatever? And so the jury probably had it was in a position to let its imagination run wild. So it would seem to me if the guy survived and, uh, was able to show later that he had some medical emergency, I wonder if that’s going to result in a $600 million verdict as opposed to somebody who said, yeah, you know, well, I was, I was smoking marijuana at the time. I hate to denigrate this case.

Speaker 3 [9:28] Okay, were there not records of any of that? I mean, and maybe they’re sealed in the court case of did he just never touch the brakes? Were there not an onboard recording device?

Speaker 2 [9:39] Uh, nothing that I heard. No, I mean, I, I took a look over. I mean, some, some of CH— obviously, I— we weren’t there in the courtroom for the testimony, but some of CH Robinson’s arguments were in its motion to dismiss, which was obviously didn’t happen. Uh, and I didn’t see anything like that. I mean, I just, I just think truly nobody really knows what happened here. And no, there’s kind of— I don’t think there’s really any sign that he touched the brakes, that he just plowed right in there.

Speaker 1 [10:05] I mean, unfortunately, accidents happen every single day across the country, particularly fatal accidents with trucks. 5,000 people have died through heavy-duty trucks over the past year. I mean, it’s a— these numbers are absolutely astounding. Plaintiffs’ attorneys are just salivating at the opportunity to get one of these very large brokers into their courtroom because they know that these settlements— John, what I’m reading into this is that every broker is now on notice. This is no longer, as you point out, theoretical. That we could be talking about $100 million in nuclear lawsuits. They’re real now. Whether or not this case gets thrown out on appeal, it’s going to make it more troublesome and bring in more plaintiffs’ attorneys. Because even if this gets reduced, or even if it gets settled, the fact is that the attorney responsible for winning this case is going to be able to parade that to every single plaintiff from this point out. And every plaintiff’s attorney in the country is going to use this as the case to convince people to go all the way.

Speaker 2 [11:08] It’s also kind of interesting that the first bit, as far as we know, the first big one of these post-Montgomery happened to a company that had to disclose it to the world. This could have been against some small privately held broker and we might not know about it for weeks. C.H. Robinson had to file a document with the SEC. It’s a significant development. And so there is a document with the SEC saying they did this. Had it been a smaller broker, maybe we might not know about it for a while. But boy, everybody knows about it now.

Speaker 1 [11:38] 30 seconds. What does this mean for the brokerage industry? What’s your takeaway?

Speaker 2 [11:44] It really dried up very quickly. The issues that are going to be involved in a post-Montgomery world, the lawyers are going to have to find a whole new set of defenses. I mentioned in the story, and we wrote about it a few weeks ago, this Home Depot case where they tried to say a shipper was negligent or shipper was partly liable for an accident. Court said no. The whole idea of being, you know, how many steps away from the actual accident you are as a defense. So look for that. And the Home Depot case was in Texas. So look for that Home Depot defense, we’ll call it that for lack of a better term at this point, to very possibly become something that gets used a lot.

Speaker 1 [12:24] Well, John, thank you so much for coming in and talking to us today. This is a crazy story, one that certainly I think is shocking. Maybe it’s not shocking, just maybe the headline is surprising as quick as it’s happened. We’re going to keep you up to date here at Straightways Today. We cover the stories like this every day at noon, starting at noon.

Speaker 1 [0:00] It’s the weekend after the biggest ever nuclear judgment against an operating transportation company, the $604 million nuclear judgment that involves C.H. Robinson. Now, C.H. Robinson is a part of the overall group. It’s not solely responsible for it. But if you look at the way the court system works, if one defendant can’t pick up the bill or pay the judgment, then the other ones must. And so this is a very interesting set of issues that’s going to involve a lot of different parties and a lot of different and substantial impacts. So what we’re talking about here is an accident that happened. There was a 6-car pileup. The truck driver actually passed away. And basically this motor carrier, Lupus Superior, ended up basically in a situation where it’s unlikely to pay out the judgment. And so let’s talk about where we’re at. I think there’s a lot of things here to discuss. One is this is just the start. We’re going to see a lot of these judgments come about over the next couple of years and many times over. The fact is that brokerage is at least a third of all truckload freight handled in the for-hire market. Brokers handle at least a third of it. So just in terms of sample size, at least one-third of all accidents and lawsuits are going to involve a broker. And plaintiffs’ attorneys have figured this out. They are paying attention to the market, they’re watching the market, and they’re looking at how can they go get the biggest dollars. In fact, Matt Leffler says they have a fiduciary obligation now to their clients, i.e., the plaintiffs, to go after brokers. And so you’re going to see these lawsuits pile up. We’re not just talking about the judgments, we’re talking about the legal fees to defend them. And when you talk about years of lawsuits and appeals, you’re talking tens of millions of dollars that are going to be involved in just defending these lawsuits. So brokers are going to have a significant challenge of just navigating this. I’ve talked to a number of brokers over the last couple of days, and what I’ve heard is that plaintiffs’ attorneys are bypassing the smallest operators when there’s an accident and going right to the broker simply because they— that’s where the money’s at. Talked to other brokers that are just trying to figure out what this means for them. Some of them are changing their underwriting criteria to look for bigger motor carriers. 2 reasons for that. One is that motor carrier has bigger insurance policies. The second is, if something happens, the broker’s not likely to just fade away. Remember, if you are dealing with a motor carrier that is non-compliant and just shuts down, a chameleon carrier, then the problem is when there is a judgment against that motor carrier, you’re on the hook because that company may not have active insurance or may shut down the next day. As a chameleon carrier, you’re on the hook if you’re a broker and use them. So this is a big issue. The thing reality comes down to the fact that a lot of brokers, the incentive structure was set up to benefit them in terms of maximizing margin. This is the classic way of, you know, you get your rips, And therefore, when you maximize margin, your, your incentives is to drive to find the cheapest priced motor carriers in the market. Compliance has an expense. Compliance has a cost. The larger enterprise motor carriers were not taking the same levels of risk that the smaller operators did, particularly these chameleon carriers and these low-quality operators were often far cheaper. Than their fully compliant competitors. And therefore, brokers had an incentive to go hire the cheapest motor carrier. And that’s why we’ve seen things like SuperEgo and, you know, the lawsuits involved in C.H. Robinson with those. We’ve seen this Lupus Superior, which reports suggest that it also may have very similar sort of makings of a, of a chameleon carrier network. As we’ve seen in multiple different lawsuits, those carriers are definitely not making the same levels of investment in safety, compliance, technology that you see with the larger enterprise motor carriers. Quotes in terms of what I’ve heard is a lot of the brokers have played as riverboat gamblers. They’re willing to take the risk. Again, it’s about short-term incentives. And if you think that isn’t driving it, go look at Wall Street. As we saw during the financial crisis, Even the largest firms, some of the most established and reputable financial firms— Goldman Sachs, Morgan Stanley, Bank of America, Merrill Lynch, so forth and so on— these guys were doing— playing fast and loose because the incentives were set up to allow them to play fast and loose. That’s what brought the entire financial services industry and created the financial crisis was There was very little regulation and the incentives were set up to basically take advantage of it. So when we think about what we’re talking about here in terms of the flash boys of freight, it’s exactly the same set of scenarios exist in this market that existed then, is that ultimately when you have brokers that have created such scale— one-third of all freight is handled by a broker— and the incentives are set up to maximize margin, and compliance is not as persistent as it should have been, or certainly will be, then you have a lot of exposure now in the brokerage market. And that’s why I think we are going to reach the Flash Boys environment in trucking. This is going to be something that plays out. The lawsuits are just starting. We’re going to see those judgments continue to pile up. Yes, there’s going to be appeals that take place. Many of these lawsuits are going to be reduced in terms of judgments, reduced or settled or completely thrown out on appeal. But the fact is that there’s no longer a federal preemption, which is the strongest defense that brokers had. And because there’s no federal preemption, everyone is on notice. And if you’ve ever been a part of a large motor carrier that has a giant target that’s on its back, I was talking to my brother, who is the CEO of U.S. Express, really right before it sold. And he talked about the fact that in a given year, they could be receiving over 1,000 different legal notices that came in on everything from small fender benders to damage that’s done, driver runs over, damages a dock door, or driver runs over a lamppost, all the way to major accidents, is that the problem is twofold. One is the nuclear lawsuits are absolutely massive. The second, and that’s a massive risk that oftentimes is hard to navigate, the bigger issue is all of the very small judgments. All of the $15,000 to $20,000, get a lawyer, you have to hire a lawyer in the local county or local city to go file and just deal and navigate the paperwork mess. He said that’s the stuff that adds up. And now brokers are going to be subject to those issues as well, simply because now there is no federal preemption. So we’re going to see this story continue to evolve, continue to be an issue, and we’re going to watch it. I want to talk a little bit about Martin’s earnings. And so it wasn’t a real bang-up quarter, probably a little disappointing. The question is, why is Martin, the number one refrigerated public carrier, the only pure-play refrigerated public carrier, just not seeing the same level of upside in terms of performance that you’re seeing in the general over-the-road for-hire market? And it comes back to a couple of things. One is we’re not seeing contract rate movements in refrigerated substantially. Like, if you look at our data, refrigerated contract rates have not moved in the past year. There’s been no forward movement or increase in contract rates in the refrigerated market, unlike the van market, where you have seen our in-market— in terms of van rate increases have actually been quite substantial in that same period of time. 19% increase in van truckload contract rates versus 0% in refrigerated. Now, it’s not to say that you’re not seeing increase in the spot market. We’re up 51% in terms of refrigerated spot rates. Van contract is flat. A lot of the van freight does move by spot, but Martin’s business is largely contracted commitment and largely dedicated. It is not getting the exposure that you get. I think what happened is we had these different periods in time in ’23 and ’24 where it looked like the freight market was recovering. There was sort of some acceleration and momentum in the overall freight market. Tender rejections increased in refrigerated due to some seasonal and weather events. And I think what happened is that Martin and the other contracted refrigerated carriers just got ahead of themselves. And so, this time, they’ve been somewhat reluctant to lock in higher contract rates. And so, that’s why, frankly, it looks like they’re underperforming versus the market. But it does suggest that there will be a lot of operating leverage to come in stocks like Martin and in the overall refrigerated market, simply because things now are very apparent that we have turned tides. And it looks like if you’re Martin or other large refrigerated carriers, that you believe that there’s a lot of operating leverage ahead of you.

Speaker 1 [0:00] Well, our first guest, Dennis McCaffrey. I’ve known Dennis since the first days of the, what is now RXO. Dennis was a part of a company called Segments, which was a bulletin board traded stock that then became part of XPO, that Express One, then XPO. So we’re gonna talk a little bit about the history of this industry. Let’s bring Dennis in. Dennis, how are you, sir?

Speaker 2 [0:26] Hey Craig, great to see you.

Speaker 1 [0:27] You’re the SVP of Enterprise Sales at RXO. I’ve known you for decades, back to the old St. Joe, Michigan, or Niles offices up there at the old Express One. Would love to get the history of your career and how you ended up in this industry.

Speaker 2 [0:47] Well, Craig, when I got out of the Marine Corps, I was looking for a job. I was in college and ran into a a buddy of mine who was, uh, who was at the time, uh, starting a, a small brokerage operation, uh, and trucking operation. And little did I know when I, uh, took that job, uh, as I was going back to college, that, that my whole career would then end up being that. And through a series of events, that company was acquired, uh, and then through another series of events, that company wound up acquiring Express One, um, which ultimately got acquired by Brad Jacobs, and the rest is history. So, um, through, you know, I, I’ve— my whole background has been primarily in the sales role, in a commercial role. Um, faith, you know, I’ve been primarily, uh, customer-focused and growth. Uh, when we first met the Express One guys, I think they were around a $20 million company, and we grew that to about a $175 million company early days before we met Brad. And that’s, that’s when, uh, when I met you, Craig.

Speaker 1 [1:44] Yeah, I mean, it was early days. Mike Welch, uh, was there. Mike Welch I knew when we first started working with Express Express One up in Michigan. It was the National Logistics Management, the NLM business. We put somebody on site, a guy named Chris Harlembopoulos, which has the best name. The dude was bigger than life. By the way, Harlembopoulos has thinned out. He’s a fan of the show and good dude. But he was on site. And the idea was that we would use US Express’s Express Direct capacity to provide on-demand And really guarantee capacity but not guarantee a price. We were one of the first carriers to take advantage of that. Frankly, brokers at that point were more backhaul and really didn’t see the opportunities. Express One was one of the first companies to sort of realize that they could use the truckload assets to provide on-demand capacity. You were right there at the ground floor of that. What was it like seeing, you know, the Welch’s take this business By the way, rest in peace, Mike Welch. Take this business and build it into something, and then sell into or have a bigger-than-life Wall Street investor like Brad Jacobs step in and use that as a platform to— what was that like, really, in the early days?

Speaker 2 [3:06] Well, I think early days, the one thing we recognized, Craig, right away was that, hey, this business is scalable. However, the expedite market was fairly small, especially back then. I mean, there was a very limited number of carriers that had Qualcomm capabilities or real-time track and trace, which was very critical for line-down situations. Majority of the business, just as it is today, was related to the automotive sector. But the one thing we recognized, the reason we partnered with your company at the time was, you know, you couldn’t have a truck available within 90 minutes, uh, of reaction time throughout the entire nation. I mean, even if you had thousands and thousands of trucks, you just couldn’t supply that demand. And there became a bigger, bigger demand for truckload quantities versus the, the cargo van quantities. So partnering with, with, uh, with you guys and other companies allowed us to grow the scale of what was then Express One. Again, Mike and his brothers were just, you know, wonderful leaders. Uh, they, uh, they had essentially was a, a family-run business, but that was public. Um, and they had, uh, they had a great vision of growing, um, that business from the expedite side. But then when Brad came along, it was like, look, this is a very fragmented industry. Um, we can grow this well and beyond. We can use some of the capabilities that we learned in the expedite business as far as just-in-time. Um, you know, one of appropriate topic for today, uh, you know, extreme carrier vetting and making sure that we do, do things the, the right way and deliver to our customers, um, uh, from a, I know, in a time-critical nature. Taking some of those lessons learned and applying those in the brokerage space, I think, as we go today. And just a little-known fact, we still own the NLM platform. It’s our managed expedite platform. We still are probably the largest, um, single-transaction expedite provider today, and we’re looking at ways to leverage that technology now to serve the spot market, which is obviously a massive deal right now.

Speaker 1 [5:04] Yeah, NLM, I remember you guys at the point Express One did not own it. It was at one point an independent company, sort of a dot-com enterprise set up by the automotives, the Automotive Logistics Network, sold to Landstar, and then Landstar ended up selling it to XPO. And of course, it’s lived there. But it was interesting when I think back to those days, I was in my 20s. It was, you know, early 2000s.

Speaker 2 [5:32] You’re both a lot younger, Craig.

Speaker 1 [5:35] What’s that?

Speaker 2 [5:36] I said you’re both a lot younger then, Craig.

Speaker 1 [5:38] We had hair back then too. Yeah, we had hair.

Speaker 3 [5:41] Yeah.

Speaker 2 [5:41] Or different color hair.

Speaker 1 [5:43] Yeah. This business is brutal. But Dennis, I think the thing that was really— brokers were not playing in the on-demand last-minute business. They were mostly either backhaul, you know, doing loads that provide carriers American Backhaulers model of finding freight to load a carrier on a backhaul lane, or really were kind of helping do optimization. Managed trends was starting to become a thing. Companies like TransPlace, the Menlo Logistics, which is a part of RXO, was sort of taking on a role, but it was still a very cottage industry. It really wasn’t until the— really since the financial crisis in 2009, we saw this massive growth of broker’s plane primary routing guide. You were, you know, Express One was very early in that business of using sort of an in-house brokered model to provide relief. I mean, it was instrumental in the growth of what’s now RXO.

Speaker 2 [6:39] Yeah, 100%, Craig. I think the big thing that changed was technology, obviously. In the early days, from a technology perspective, you know, we had to utilize owner-operators, Qualcomm technology outfitted on all the trucks. Um, you know, there wasn’t the MacroPoint, there wasn’t, there wasn’t other, um, abilities to track cell phones. You know, it just wasn’t as accessible to the, to the wide range of carriers, especially smaller carriers. Um, but, you know, as, as things took on with, with the development from, uh, from an XPO, now RXO perspective, our RXO Connect platform, and then connecting with carriers so that we can provide that real-time track and trace. The other thing is we have our Flex Fleet, which is, you know, we have drop and hook capabilities throughout the United States and Mexico and Canada as well. Allows us to have more of an asset feel as a broker, which I think is something that, that has changed dramatically in the industry since I’ve been in it, is that, you know, brokers acting more like assets and being relied upon for just-in-time transportation like we’re talking about, and also high-value transportation, high-value product transportation.

Speaker 3 [7:44] Yeah, I agree wholeheartedly with that, that shippers really love it when you can provide that asset-like service with the flexibility that a broker can provide from a network and service standpoint. So as we talk about RXO’s business today, what would you really call the core of it? We’ve talked about all of the different things that you guys all do as far as managed transportation and brokerage and last minute, certainly CapacityNow. What would you call the core and what are you most proud of?

Speaker 2 [8:11] Well, we’re proud of everything we do, but I think, you know, we’re the 3rd largest freight broker. We’re very proud of that position that we have. And, um, you know, we’re also one of the largest managed transportation providers. Uh, you know, we manage a little over $400— uh, $4 billion in freight under management. Uh, our, our managed expedite platform actually falls underneath that, um, uh, that business unit as well. Um, we also offer dedicated transportation and dedicated contract carriage, which, um, from an asset perspective, which is actually gaining a lot of traction right now with this type of market. Customers want to lock down capacity and looking at dedicated contract carriage a lot more closely right now. Um, but our last mile division is the largest big and bulky last mile provider. Uh, you know, we do well over 30,000+ deliveries to homes each and every day, and that’s a wide-ranging business. And now we’re looking at connectivity between leveraging our last mile hub network with our LTL TMS to offer big and bulky transactional LTL services, which is pretty exciting. And a lot of retailers and customers are very interested in that product. So we really have a wide breadth of servicing and service offerings. And that’s kind of what I think what our competitive advantage in the marketplace is compared to some of our peers. We can really help customers, especially large customers, understand, solve complex problems, complex challenges that they’re having, and be more than just a truckload provider.

Speaker 3 [9:36] So Dennis, we’ve heard a lot. I feel like we’ve been talking a lot about last mile recently. What are you seeing as far as demand there?

Speaker 2 [9:43] Well, you know, it’s a little bit— demand is a little bit soft right now overall because I think if you look at like appliance sales are down, you know, from a year-over-year perspective, and that’s a big driver for us, a big bulky last mile network. However, last mile overall is still a very high demand, very high demand product. We have over 70+ last mile hubs across North America. And, you know, we’re working with just all the biggest, largest customers right now in that space. And I think, you know, we’re having ongoing conversations about how we can get more and more creative with those services, how we can get more and more efficient and leverage technology to maximize stops, maximize utilization, and reduce cost.

Speaker 1 [10:29] Dennis, I’d love you to sort of take us back through history. So Brad Jacobs comes in— by the way, I had stock in XPO Express One at $0.75. My broker, which I’ll never forget this, it got to $1.25, and he talks me into selling it. He also talked me out of— this was in 2009— of putting a put on Citibank right before the financial crisis, which I would have made a lot of money on. But neither here nor there, money that’s not done. But this guy, Brad Jacobs, comes in. He was an unknown commodity, had been successful in waste management in Rental, the rental business comes in. Did you have any— could you have envisioned what XPO would become and RXO would become today? I got to imagine back in 2000— and was that 2012-ish, I think, when Brad Jacobs first arrived? I actually had drinks with Mike Welch right after the Segments deal. And I’m like, dude, what are you doing? You’re selling into this public shell of a company, this bulletin board stock. You had a plan, but then Brad Jacobs comes in a couple of years later, obviously one of the most iconic founders and entrepreneurs that’s ever been in logistics, certainly would be in the Hall of Fame. What was it like in those early days?

Speaker 2 [11:48] Well, Craig, and I’m sorry about your transaction, ’cause I think you probably would be just flying your plane I would be doing something else.

Speaker 1 [11:56] So it was, it was, you know, God’s, God’s mission to make sure that I had to have a job and do some real work. So maybe that’s what this is. Every, every missed opportunity is a door open. But Dennis, what was it like?

Speaker 2 [12:10] Yeah, so I mean, look, Brad comes in, it was actually 2011, and, um, and Brad comes in and, uh, you know, he initially first told us, hey, we’re gonna be, uh, we’re looking to be like a $4 or $5 billion company. We thought that was, you know, crazy because we were only about $175 million at the time. And it was, it was kind of beyond all of our grasp. However, you look at the— we looked at, all looked at the history of Brad’s, um, you know, what Brad did with United Waste, United Rentals, and we all realized, gosh, you know, he’s certainly, he’s certainly the guy to do it if anybody can do it. And, and, uh, after you quickly get to know Brad, um, you know, he is just the— has the highest work ethic or strongest work ethic of, of anybody I’ve ever, ever met. Um, incredible vision. Um, and he’s just really a very focused, uh, individual. Um, there’s, there’s no one I’ve seen that’s more focused once he gets a mission on what he wants to accomplish. And he surrounds himself with incredible talent. Um, I think we’ve, you know, I know you know a lot of our alumni, uh, from an XPO perspective are scattered throughout the industry doing great things. And he, you know, Brad has a, is a great keen eye for talent. He always surrounds himself with A-players. And, uh, and then everyone gets on board and goes after that mission. And he’s just relentless, uh, you know, relentless after that mission. We did 17 acquisitions in 6 years. It, you know, to say that we were all drinking through a fire hose was, um, uh, would be, uh, you know, kind of, uh, would be an understatement. Um, you know, we used to joke around that we’re building the plane, um, as we’re flying it all the time. And, uh, you know, but it was, it was an incredible time. Um, and, you know, it was you know, certainly chaotic at times, but amazing that Brad and the leadership team, and which, you know, I was part of at the time, was able to keep everything on track. And one of the things we forget about with the acquisitions, all the acquisitions we did, we had incredible organic growth during that time, double-digit organic growth every year, even, even with the incredible acquisitions and the synergies and the cost savings that we drove and the incredible shareholder value. Um, we had, you know, really, really strong run on organic growth because we were able to take all those services, put them under one brand, and make them very attractive, uh, for the customer base out there. Which, at the end of the day, you have to sell something. Uh, you know, uh, you know, it’s what I always say, you do nothing happens till you sell something, Craig.

Speaker 1 [14:33] Yeah, no, it’s true. I mean, I remember the early story of XPO was that you were going to roll up freight brokers. Non-asset freight brokers. That was sort of Brad’s vision that he laid out to Wall Street. And there was a massive pivot when he bought Conway. What was the driving force to go from, hey, we’re going to roll up brokerage, which I think in hindsight probably wasn’t as attractive as owning an asset-based operation in a roll-up business. What was that like? What was the evolution? When did that sort of become obvious that that was the direction? Because assets just were not on the radar at the time that he founded what is now the XPO network of companies.

Speaker 2 [15:19] No, you’re 100% right, Craig. When I first met Brad, his vision absolutely was an asset-light model. And we did the 3PD acquisition, which got us in the last-mile space. We did the Pacer acquisition, which again, you could call asset-light because it was mostly owner-operator contractors. On the dray side and owning some containers. And then you had the New Breed acquisition, which was warehousing. And I think that led him to the Norbert acquisition. And when we did the Norbert Duntersangla acquisition, sorry for my poor French there, I think what Brad realized at the time was when he met some of Norbert’s customers globally and the position that they had, they had an asset-based trucking division that was located in all of Europe. I think XPO still owns that division, which handled LTL and truckload. I think he saw the seat at the table that Norbert had with their customers offering that wide range of services. And I think we initially had had some discussions with Menlo on acquiring them because that would’ve fit perfectly in the portfolio from a managed trans perspective. But then when you looked at, you know, the Conway was part of that acquisition because that fell underneath that umbrella. I think we were a little reluctant, but I think when Brad— again, Brad saw that, um, that, that, that the opportunity with Norbert and the opportunity to, to grow market share and really deliver shareholder value, I think that’s where we jumped on it. And then I, I actually led sales on the XPO LTL side, um, you know, after the Conway acquisition for a couple years there. And, you know, it was the biggest driver of EBITDA. And, you know, Mario now has taken that to all new heights and done an incredible job with XPO. And I’m, I’m a shareholder there, so keep going, Mario and team. They do an incredible job. But I think, you know, the big thing was, is you could deliver a lot of shareholder value. That network was, you know, we could be maximized from utilization standpoint, drive the yield and volume through that network and really drive a lot of cash flow and a lot of EBITDA. So I think that was, that was really the big pivot. You know, the shareholders reacted. I think at one point they were a little pushed back a little bit, but I think they were rewarded in the end.

Speaker 1 [17:31] Yeah, I remember it selling off, I think, when there was a realization of that, hey, this is a pivot from brokerage. But one of the more interesting things was CFI was a part of that business at one point. If anyone wants to know about whether truckload asset-based truckload is an investable asset, the most prolific investor in our industry, the only asset that he sold off was CFI’s truckload business. That should tell everybody. Was that a surprise to you guys or was that a part of the original plan?

Speaker 2 [18:02] No, I, I don’t think that was original part of the plan. I think it just, I think it just worked out. I think similarly to, um, you know, the Pacer, uh, when we, we, when we spun off what was the XPO Intermodal, uh, to now STG, I think there was just a good opportunity to sell it in the market. And it really— neither one of those, uh, or I should say the CFI, um, at the time, it, it just didn’t fit as well as the other acquisitions from a truckload standpoint. I think when you have a large truckload brokerage, I, I, I think there’s Sometimes there could be, you know, an overlap in services there, and it just wasn’t crystal clear to the customer the value you’re providing. And as you know, you know, the operating ratios on those is not as attractive as some of the other modes. So I think, you know, we had a lot of small businesses.

Speaker 1 [18:49] Dennis, I know it painfully well. We know it painfully well. I know it painfully well. My dad built, you know, a $2.5 billion corporation. Julie was an executive there. And man, when you’re talking a couple percent on a good year, it’s brutal. And these other businesses are far more attractive. And LTL managed trends, just so much more attractive on return on assets, return on capital. So no surprise, but it tells you everything you want to know about— because there was a question I remember when XPO, when Brad was rolling up stuff, would he roll up the truckload industry? Certainly, my family included, every CEO of a publicly traded truckload carrier or large truckload carrier was hoping he would because he was paying, at the time, top valuations. In hindsight, it looked cheap, but at the time, it was like, yes, let’s go. Maybe he’ll sell it. He’ll buy these things for 12 times.

Speaker 2 [19:43] Yeah, I think the asset-light model, the interesting thing that also, from a pivot standpoint, when you look at the brokerage networks and the companies that were operating brokerage to roll up a bunch of brokers was going to be a bit of a challenge as well, kind of going back to our Conway discussion. Because when you look at brokers, they— when they overlap, you often have a lot of the same customer base. Um, so there wasn’t sometimes a whole lot of value. Now, it was interesting with RXO when we did the Coyote acquisition, we actually had very little overlap with those guys. Um, you know, I think roughly 30%. We were, you know, RXO was very heavily interested in or heavily invested in the automotive sector and retail sector. Retail sector, I think, comes from having that connectivity on the last mile front. You know, our customers look at us, you know, you tend to build those relationships organically through, through kind of those shared service platforms. But when you look at, um, when we had, uh, you know, when you look at the Coyote acquisition, again, we also only overlapped, I think, roughly 30% even on the carrier footprint. They had a whole different carrier footprint than us. So that was kind of unique in the brokerage space, but very difficult to overlap 2 brokers and get the value that you want. So I think, you know, I think that was part of it. And then on the asset truck side, yeah, I don’t think— I think it would be— would have been interesting maybe to go after some more dedicated contract carriage or possibly some other assets that are very maybe niche. But going after full truckload business, I don’t think we wanted to compete in that space.

Speaker 3 [21:13] So Dennis, with all of these acquisitions and this amazing enterprise offering and all of these different service offerings that you all have, how do you communicate that with your actual customers to find the fit in what they need within your organization?

Speaker 2 [21:26] Well, I think, Julie, we have to listen at the end of the day. You really, you know, what I try to do is sit down with customers and understand their supply chain, you know, try to understand what are the biggest challenges they’re dealing with, where are they getting underserved, what does the next 12 to 18 months look like, then what’s on their future radar. And then we, you know, we try to go back and solution something or design something that’ll fit for them. Sometimes it’s a very small service that we’re going to offer, but small but valuable service, like in the case of, say, expedite, for instance. But I think it’s really more about listening and really trying to understand the missing— the different parts of our customer supply chain rather than trying to just, you know, as in the old sales world, show up and throw up about your services. Because, you know, at the end of the day, we need to give them services that fit into their network and provide them value.

Speaker 3 [22:19] All right, Dennis, final question. So what do you see happening in the next 12 to 18 months, both with, with your business and then, uh, in the market, the freight market?

Speaker 2 [22:29] Well, I don’t think it’s gonna— I, I don’t think it’s gonna get any easier. I mean, I think with the regulatory situation, um, that’s going on in the market right now, um, you know, I don’t think the— I don’t think the government’s going to slow down on, on the capacity exits. Um, so I think if the capacity is going to continue to get tighter And, you know, if we get any volume spike whatsoever, then it’s going to be a very big challenge. But we’re, you know, we’re here to— we work in all markets. We work in the downturn. We work in the upswing like this market. And we try to figure out the best ways to help support customers no matter what, you know, what the situation.

Speaker 1 [23:03] Well, Dennis, thank you so much. Great to see you. We’ll have to have you back to tell us more of these war stories from the great archives of the RXO’s lineage. Really appreciate it, Dennis.

Speaker 1 [0:00] Couple of weeks ago, we put on the very first Driver Application Shortage Hackathon. And we put this contest out. We gave everybody access to Sonar’s API. And we had 17 companies that went out and created an application to address the driver application shortage. To talk about that, our winner is Sean Connolly, who serves as the Vice President and Director of Business Development at Vantage Logistics. Sean, thanks for coming in. You, first of all, let’s talk about, you’ve won this, the product is called RateSafe. Let’s talk about what that is. But before I do that, for those that don’t know you, what is your background? What made you decide to join in this hackathon? Yeah, for sure.

Speaker 2 [0:47] First of all, thanks for having me down. Chattanooga’s beautiful. We were just talking about that off air. My background, as you said, Director of Business Development at Vantage Logistics. We’re a third-party logistics company based in Columbus. It’s Sunbury technically. We’ve got offices in Orville, Ohio, and then Fort Myers, Florida as well. And Adam and Jason, the 2 partners, when they founded it in 2014, we actually started as a trucking company as well. So I think that helped me in coming up with the idea behind RateSafe too. And what RateSafe is, essentially, to put it into one sentence, it helps drivers know when to say no. Or in other words, what not to book, right?

Speaker 1 [1:27] So what exactly is RateSafe? You’ve got the— you’re using Stoner’s API. Talk a little bit about what it actually does. Like, what is the— it helps drivers know not to book, but what does it actually— the product do?

Speaker 2 [1:39] For sure. So to give you an example, take you back like 5 years ago when I was account managing. Customer approaches me, hey, I need you to cover this load, right? So then I, at that point, go out to a multitude of carriers and offer this load to them, right? But that individual load means something different to every single one of those carriers, right? And the reason is, is because they might have different fuel economy, they have different profit and revenue goals, they have different home time expectations. So what might look very good to one driver looks very bad to another, and they should not book it. So RateSafe helps cut through that noise and tell them what they should and shouldn’t book in very plain English, right? So it quite literally says take, avoid, or counter. And then also in plain English is explaining why behind that. So it’s taking Sonar’s APIs, which is the backbone of the market analytics within the app, and it’s telling them what is a good area, right? What is, is that rate that you’re being offered good? And then also comparing it to that driver’s own personalized operating costs, home time expectations, and things of the such.

Speaker 1 [2:50] And the idea— I think one of the insights you had here, and I think one of the reasons that I liked it and that the judges liked it, was the fact that you’re— it’s not built from a broker’s perspective. It’s built from a carrier, owner-operator, or driver’s perspective. Exactly. You know, running trucks, I like to quote Doug Wagner, who said this. Maybe he regrets it because I’ve said this a few times. Doug had said at F3 is that brokers, most brokers that he has worked for him or worked in the industry, couldn’t manage a truck if their life depended on it. It’s a very different activity. Brokers typically are not worried about thinking about the driver’s home time, thinking about that. But having been a part of an asset-based trucking operation is built into Vantage. You understood how important the non-rate decisions are because I think so often in a transaction, brokers are all thinking about price. Of course. And all too often, even carriers, all they talk about price. But there’s all these other decisions that go into it.

Speaker 2 [3:49] There’s, there’s so many more that play into it. And yeah, I think there’s always this stigma of, you know, brokers and carriers not getting along. But I think ultimately any good broker should want drivers to make good decisions. You guys know better than anybody. I think you talk about it every day, what has gone on over the past 3 years when market rates have driven down to the floor rate. So, and shippers included, shippers should want their carriers to make good decisions because if you’ve got a really good driver that shows up on time, that’s very communicative, that does the right job. You don’t want them operating in the red to the point where they’re going to ultimately go out of business. Right. So that from my perspective, if we can add value to the drivers that do and add so much value to us as the broker, why would we not want to do that?

Speaker 3 [4:41] Yeah, and I loved that it was personalized for the driver’s home time, what parts of the country they want to go into, what they need to make based on their cost to break even and how they can do that. Not just one load at a time, but looking at it a little bit further along to where they’re going to end up. And where they would get their next load. So you have a real full-time job. What made you decide to do this, to build this app and to, to participate in the hackathon?

Speaker 2 [5:02] Yeah, well, this is just a bunch of firsts for me. I’ve never been to Chattanooga. Building software is new to me. I do it within the walls of Vantage and I’ve found success with that. But when I follow you on X, Craig, and when I saw, I think you were just initially thinking about it like we should do a hackathon and then it turned into DASH, Driver Application Shortage Hackathon. And I was like, well, I’m building software for Vantage. Why not? Because I’ve seen these at other companies, these hackathons, and just personally, I find it neat. So I wanted to participate. And, you know, I sat down and thought about what could add value to drivers, and it led us here.

Speaker 1 [5:45] So, well, I think it was actually— I credit Reed Lustalot, who it was his idea. There was a conversation on X. He said, why don’t we do a hackathon to improve the lives of drivers? Yeah, of course, I was being a little facetious when I called it the app driver app shortage because I got a lot of hate about the fact that there’s so many apps for drivers. But it was a play on the driver shortage, which is always a fun topic.

Speaker 3 [6:10] There’s a lot of apps, but they’re not all for drivers, right? No, they’re not built with drivers in mind. No, drivers have to use for everyone else.

Speaker 2 [6:17] You’ve got brokers, large fleets, back office, and Track and trace. Yeah. Yeah. And when it comes to the driver, oftentimes you find they’re just throwing another dashboard or more rates or things like that. But what I found was the real shortage was decision-making, right? You have so much data. You guys are the kings and queens of it, right? Sonar, you have so much data that I love, but I have time to sit there and learn how to apply it, right? For a driver, you want to stay in your lane as a driver. You don’t maybe want to become a market analyst. You need decisions, you need them fast, you need them that fall in line with what your goals and expectations are to your own success.

Speaker 1 [7:02] So let’s go back a couple of years ago. So you’re in the middle of a freight broker, that is your career, you’re successful at doing that. Did you ever imagine a couple years ago that you’d be coding anything?

Speaker 2 [7:14] No, not a chance.

Speaker 1 [7:15] Had you ever coded before?

Speaker 2 [7:16] No, no.

Speaker 1 [7:17] When did you start coding? Like, what was that experience like?

Speaker 2 [7:20] Yeah, for sure. So when we were looking at upgrading our TMS platform about 2 years ago, and I have just always been personally fascinated with technology, so I keep my finger on the pulse of what’s new within the market, what can we utilize, things of that nature. And it started with a load tender parser. So I went out and I started talking to multiple companies in that space. I won’t name names, but there’s, there’s plenty of them out there that build out-of-the-box load tender parsers, right? Because I saw It’s a load tender parser, right? So our customer hands us over a load tender in whatever form that may be. PDF.

Speaker 3 [7:58] Yep.

Speaker 2 [7:58] Yep. So here is my load that I need you to cover. Right. And we turn around and we manually input that into our TMS system. So if we fat finger a date or a time, that costs us money, right? Because that’s our fault that we can’t push that off onto the shipper, the carrier. So we’re eating that cost to reschedule or what have you. So I was like, okay, well, let’s try to take out the manual input. Started contacting these companies and learned how expensive it is to purchase a load tender parser from one of these SaaS providers. So I hopped on ChatGPT at the time and just started, you had to copy paste code from the, yeah, back in the day, which ultimately is not too long ago with how quickly this stuff’s moving. So I hit some roadblocks when I came to the machine learning part of it, but at the turn of the year, this year, tools like Cursor started coming out and I was able to get a lot farther. And then of course, the improvements in the models overall that you have access to, but that’s where it all started. So that was the first tool that I built. And then I realized that I could build an entire suite of tools. And you’ve had multiple guests on your show that talk about how you kind of have a leg up when you have this domain expertise, right? So I come from this background as an operator, as an account manager, I know what could add value immediately. It’s what AI does is it just lowers the barrier to entry of somebody like myself who can take a concept and then move it into production very quickly. There then becomes their own problems that can come along with that that you got to be careful of. But I’ve also built tools for our accounting department, right? So I’m not going to sit here and ask AI, what does accounting need for a freight brokerage, right? Because it’s not that simple. One, it’s not going to know. And two, it’s not going to know specifically how the accounting folks at Vantage Logistics handles their accounting. So I had to go sit with them for multiple days and learn what they do because, thank God, I’ve never had to work in accounting. But that’s where I think it gets a little dicey with people just trying to build any and everything. You really have to have that domain expertise to leverage tools like this.

Speaker 1 [10:03] I think it gives you an advantage. The interesting thing is we’re in a world where SaaS or software that used to be— you would design a workflow around the software. So you’d buy a new TMS or accounting piece of software. The workflow, the process is built around the software. Today, I think what you’re describing is that the software is built around the human workflow, which is a totally different game.

Speaker 2 [10:27] Yes, that’s 100% correct. And speaking of RateSafe, the reason why I’m here, you know, you start with a UI. I don’t think that there’s any way around starting with a user interface like an app or a website or something like that. But my goal with Vantage and all of the tools that I’ve built there is to really meet people where they’re at, right? I don’t want them to have to go log into another platform. I don’t want them to have to go out of their way to do something else because that’s been a primary focus of mine is to cut down on noise because you’re right, it’s extremely noisy. There’s stuff everywhere. There’s an app for this and data for that. Like you, you should be designing tools to meet people where they’re at so that they can just operate more efficiently.

Speaker 1 [11:12] Are you bullish on SaaS or do you buy into the SaaS apocalypse based on your own experience?

Speaker 2 [11:20] You know, I don’t necessarily buy into the SaaS apocalypse. I think just like anything else, people really need to spend time with these tools, right? I’ve put in, I tried to calculate it just based on how many code deployments I’ve made to these tools and it’s somewhere in the ballpark of 1,500 to 2,000 hours just since middle of January. So like it takes a lot of time to learn how to work these things efficiently. So there’s a lot of crap out there, for lack of a better term. There really is. And when I was even trying to think of an idea for this hackathon, there’s just a bunch of junk.

Speaker 1 [11:54] Yeah, there’s a lot. It’s a race to the bottom in some ways. Mm-hmm. So Harish, who’s at Augment, he’s the founder of Augment, had a customer summit a couple of months ago. I went, and he makes a point that the vast majority— he’s like, I want you to look at your business. And he’s like, everyone talks about AI being— dealing with— is going to replace the billing clerk or something. He goes, that’s the least return on investment. The highest return on investment is software coding. And he’s like, frankly, what you can get out of software coding— something like 85% to 90% of the tokens today, according to Harish, are spent on software and engineering. That’s where the big value is. Because if you think about it, everything we do in software is either reducing expense, things flow easier, or more importantly, adding growth. And that’s really what software is supposed to do is help you grow your business without adding cost. That’s what he was arguing. That’s where AI should be deployed to, not trying to help a billing clerk because there’s very little value in that versus building actually real tools that improve workflows.

Speaker 2 [13:04] Yeah, and you can go down an entire rabbit hole with this, but I’m of the opinion that people overhired during COVID So you see a lot of these— I think a lot of overhiring for sure. Yeah, so you see these people that are letting people go masses and they’re blaming AI. I don’t buy it.

Speaker 1 [13:17] I think it’s because Wall Street rewards you. If you look at companies that have gone out, a couple of months ago, Square announced that they were eliminating 8,000 jobs. And people are like, oh, the AI job apocalypse is here. A lot of that, I think if you look at it, Jack Dorsey, by the way, if you look at this from Twitter, had, I mean, Elon Musk sort of proved this. He got rid of like 70% of the staff.

Speaker 3 [13:40] Yes.

Speaker 1 [13:41] And look, I’m a prolific Twitter user, now X user.

Speaker 2 [13:45] Yeah, I appreciate it.

Speaker 1 [13:45] It was very painful. Like for a couple of months there, things were breaking inside of the Twittersphere, but then it works better now. But he’s still 2/3 reduced on staff. I bet they only have like 100 engineers total. Exactly. This massive business and they had something like 2,000 before. So yeah, I think Elon Musk model of proving that you can be leaner is better. And to your point, I think it was an overhiring situation.

Speaker 3 [14:08] Situation. Yep. Yeah, there’s— it’s called AI washing, right? I mean, that’s— they talk about earnings have AI washing in them.

Speaker 1 [14:13] Yeah, well, stocks are rewarded. It used to be when a company did a layoff that their stock would get beat because people— right, oh, there’s a— I mean, get beaten because there’s a problem in the business. Now it’s the exact opposite, is that companies, Wall Street investors, are rewarding you for being efficient.

Speaker 2 [14:27] Exactly.

Speaker 1 [14:28] So what do you hope to do?

Speaker 3 [14:29] I mean, what’s next with RateSafe?

Speaker 1 [14:30] For sure.

Speaker 2 [14:31] So with all of that said, I think it’s a good segue into this question. And what I’ve learned in building tools at Vantage is that you have to prove value. AI makes it extremely easy for feature creep to happen where it’s so easy to build feature after feature. So you can get lost in that. And I’ve been victim to it too. And you really got to catch yourself. So with RateSafe, I’m fortunate to be in a position where we are a freight brokerage. We know a lot of really good owner operators, right, that I can then get this to a beta very quickly to then give to them to provide feedback to us on does this add to my quality of life daily as an operator, as a truck driver, right? So to get that feedback to then know, are we going in the right direction with this? And at that point, I think it would be easier to then determine, do we turn this into a direct-to-driver SaaS product? Do we turn this into an integration to preexisting applications that the drivers already work within? I think that’s going to come in due time, but I’m a big advocate for proving value before you get too lost in the features that you build.

Speaker 1 [15:38] What is the timeline for that? So the idea is you can upload this to the App Store. By the way, because of the massive surge of apps, anyone who’s— I know Julie knows this painfully— their timelines to approve is a lot longer than it used to be.

Speaker 2 [15:51] Of course.

Speaker 1 [15:52] But what is the timeline that you would like to see the app in a beta for your drivers?

Speaker 2 [15:57] Yeah, first, I’m a big fan of web applications because partly due to— you don’t have to go through the Apple timeline.

Speaker 3 [16:03] Yeah.

Speaker 2 [16:03] So realistically, my plans are to get it into a beta within 2 months to begin testing at that point. And then working with the Sonar team too to maybe enhance and identify some things that maybe I didn’t see in that week-long hackathon where I could leverage Sonar’s data more efficiently. So I’m really excited to work with you guys on that.

Speaker 1 [16:24] When you were showing it, I remember coming up. I was like, hey, there’s some other indicators. Fuel was one of those. They have a whole set of fuel. Sean, tell us about the Sonar APIs. You had never used— you guys were not a Sonar user before, is that right?

Speaker 2 [16:37] Oh, we are.

Speaker 1 [16:38] Yeah. You were, but in terms of actually using the API, you had not used that before. Had you used it before?

Speaker 2 [16:44] I do. I do use them for Vantage’s software that I’ve built as well.

Speaker 3 [16:48] Oh, you had to log out?

Speaker 1 [16:48] Did you find it easy to use?

Speaker 3 [16:50] Yes.

Speaker 1 [16:50] Yeah.

Speaker 2 [16:51] And your API portal is extremely easy to use. And that’s one of the benefits of AI too, where I can say, hey, robot, go in here and I need you to scrub the API endpoints that we need. And then I create my own knowledge base for that to then turn around and build with.

Speaker 1 [17:07] Did it help that you had experience before using Sonar?

Speaker 2 [17:11] Of course, the timing was very beneficial for me because like I talked about, this entire year I’ve been building software for Vantage. So whether or not that gave me an unfair advantage, I don’t know because I did wait because I didn’t know if you guys were going to be checking like my GitHub commits on like timestamps and stuff like that. So I truly waited until the start date to begin this.

Speaker 1 [17:36] Oh, good.

Speaker 2 [17:36] Oh, good. No, I did not. I did not. No.

Speaker 1 [17:39] So drivers will be suspicious that a broker didn’t cheat.

Speaker 2 [17:42] Oh, that’s fine.

Speaker 3 [17:43] Yeah.

Speaker 2 [17:44] Yeah. No, that’s fine. But no, I’m really looking forward to working with you guys more on the development of the app. And hopefully within, like I said, 2 months, I plan to start beta testing.

Speaker 1 [17:54] Yeah, that’s amazing. I love that we had the opportunity to do this and see the different ideas. There were a lot of great submissions. We had 17 different parties that ended up submitting something.

Speaker 2 [18:05] It’s great.

Speaker 1 [18:06] We thought what you were doing was solving a very specific problem, which is making it easy for drivers to pick the right load for them versus, you know, this sort of— I think oftentimes it’s all about rate and oftentimes the best rate isn’t the best load.

Speaker 2 [18:23] Yeah.

Speaker 3 [18:23] Oh, especially if it’s going into a terrible market, right?

Speaker 1 [18:26] Into a terrible market.

Speaker 3 [18:27] Spot on their next load.

Speaker 1 [18:28] You know, you can get a nice length of haul, but then you’re going to Montana and you’re stuck or you’re on a load for 5 days that pays you a lot, but But then by the time you deal with all of that, and there’s a lot of reasons why you shouldn’t take a load beyond price. Of course. So I would be remiss if I didn’t ask you about the market right now and all of the noise and news. You don’t have to comment on the Sage Robinson lawsuit, but I’d love to hear what your general sense of the market is.

Speaker 2 [18:57] Yeah, well, you know, it’s certainly unnerving to see, and I heard in the first part of your show, and you’ve mentioned it before too, that really strikes a chord. It doesn’t really matter, or at least it doesn’t seemingly matter so much what you do on the front end. It ultimately falls down to what the jury is convinced of in any one of these cases, right? So we, we do our due diligence in carrier vetting, but it is certainly unnerving what’s going on. But at the same time, we’ve— we’re a bootstrap company, right? We started from nothing. We’ve never financed growth or anything like that. We’re very nose to the grindstone mentality. So throughout all of the noise, which this is just another noisy area of life in our industry right now, on top of AI, on top of everything else, where I look at it and we need to just keep doing the right job. I mentioned that good brokers should want drivers to make good decisions. You know, that is the mentality that we need to just put your head down, keep doing what we’re doing. Of course, make improvements when we find out new information that can improve how we operate on a daily basis. Um, we really just put our best foot forward.

Speaker 1 [20:08] What do you think the biggest of all of the things that brokers are now having to consider and think about— what is the biggest change you think as a, as an industry that we will see that comes from this?

Speaker 2 [20:20] I think you’re going to see a lot of people that don’t necessarily have their wits about them on, on how you should form relationships and the types of people that you should be working with their cheapest carrier, correct? They’re going to filter themselves out. And, and even, even on the shipper level, you know, I see that on the shipper level too, where a lot of them are in very bad positions right now because they, you know, it’s not even necessarily their fault because you look at the average tenure of an account manager at a freight brokerage or a transportation manager at a shipper, I believe it’s somewhere in the ballpark of 2 years. Yeah, right.

Speaker 1 [20:57] Not seeing— we’ve talked about this almost every show, right, on how shippers Because there’s been— I’ve never seen a carrier’s market. And look, all of this is new to all of us. The whole regulatory market, these lawsuits, and the whole stuff. It’s all brand new. And it requires a brand new playbook that none of us are familiar with. And it just feels like this regulatory compliance thing is just going to continue.

Speaker 3 [21:20] Yeah.

Speaker 2 [21:21] And you’ve got to be able to pivot on a dime and adjust the way that you— I hate the saying, that’s the way we’ve always done it. I was just talking to one of our account managers. We were in North Carolina on a customer visit, and we all were sitting down talking about how so many people— well, that’s just the way we’ve always done it. You cannot have that approach in the way you vet carriers or in the AI space now too. Like, you’ve got to be able to pivot and adapt to the changes that are coming because it’s only going to speed up. Like, we’re living in a very fast-paced world, and it’s only going to get faster.

Speaker 1 [21:52] Well, Sean, thanks for flying into Chattanooga. Send us some photos of your 182. You flew in on a Cessna 182.

Speaker 2 [21:57] Of course.

Speaker 1 [21:58] Definitely a good choice for our winner. I didn’t know that your dad was a pilot. Oh yeah. Maybe taking the most important form of transportation, general aviation. But we’d love for you, as you get this out in market, come give us an update.

Speaker 3 [22:09] Of course.

Speaker 1 [22:10] Tell us what you learned, good, bad. We’re going to go on the software journey and build in public here.

Speaker 3 [22:14] Yeah, we’re rooting for you.

Speaker 2 [22:15] Yeah, I’ll come down whenever. Thank you very much.

Speaker 1 [22:18] Really excited that we had the chance to bring in those. We want to thank all of our supporters, partners that were a part of this. We’ll be right back.

Speaker 1 [0:00] Let’s get into that with Jake Stein. He is the Vice President of Retail Growth at Berk. Berk is an API or an AI-enabled last-mile platform. Jake, welcome to FreightWaves Today.

Speaker 2 [0:14] Thank you so much for having me. Nice to meet you.

Speaker 1 [0:16] Yeah, nice to have you. Now, you were at Uber Direct, which is obviously a major player in the logistics industry. Tell us a little bit about what experience you took from Uber Direct and what you’re doing right now in terms of last mile?

Speaker 2 [0:32] Absolutely. Uh, you know, Uber Direct was a great place to learn about the, the entire ecosystem that drives, you know, last mile delivery, whether it be same day or on demand or next day. Um, an exceptional team, a really broad reach, uh, in terms of their supply globally, you know, obviously with heavy presence in the US and Canada. And tons of retail, grocery, restaurant, pharmacy, you name it, you know, already using that platform. But one of the things that I found was an opportunity really was generally in the retail space, most of the retailers don’t have a single vendor or a single supplier. And even though Uber has a great reliability and great reach, There’s always opportunity for there to be creating competition and improving on your reliability and getting potentially better cost, greater coverage. And really the only way to do that is generally either by building infrastructure to allow that yourself by connecting to multiple providers or working through a platform that already has access to tons and tons and tons of supply across the globe. And that’s really where I decided to make the change because I felt like I could help merchants do better in that last mile space by connecting to a platform that had the opportunity for them to fill the gaps.

Speaker 1 [2:00] Now, Jake, when we talk last mile, you know, a lot of times in our world we’re talking to transportation companies, it’s home delivery, it’s furniture. But I think what you’re talking about is the DoorDash, Instacart world of food delivery and grocery delivery. Is that the way we should be thinking about last mile in your, in your world?

Speaker 2 [2:19] Well, I think the way you think about it includes that in my mind, right? So last mile is really anything getting to the customer, right? So it could be from a DC or from a hub or from a 3PL or from a store. Um, so really any— that all is encompassed in last mile. And there are great gig providers for that, but you also have, of course, in-house fleets and, uh, you know, national carriers and, you know, couriers, parcel providers. So Really, all of that encompasses last mile in my mind.

Speaker 3 [2:47] So you talked a little bit earlier, you alluded to the benefits of having more than one partner or delivery provider when you get to scale, and you just mentioned that hybrid model. Can you walk us through what that looks like and the benefits of it?

Speaker 2 [3:03] Sure. It’s essentially instead of only calling on one provider to do your delivery, And they may still be your preferred provider, but you have lots of other options at the time that the delivery or shipment is being created. So that way, if there’s no supply available, if that system for that provider is down, or if, you know, their performance has dropped, then you have the opportunity to tap into a broader network of providers. It challenges that initial provider to perform better, to potentially have better costs and be more flexible. And you get a chance to then connect via API to dozens and dozens of different providers based on, you know, wherever your delivery needs may be.

Speaker 3 [3:51] So then how does your customer or a retailer or a pharmacy or whoever it is that ultimately is decide which type of provider to go to, and how does your platform help with that?

Speaker 2 [4:01] I think a lot of it depends on what service levels they want to offer. And in today’s environment, it’s not just about the service levels they want to offer, it’s likely the service levels they need to offer. Because just like how for any given retailer or even online marketplace, having strong selection is a huge conversion driver, so is having choice in delivery. So it’s not just having, you know, 5-day shipping or next-day shipping, but also having the ability perhaps to get it same day by the end of the day or on demand or over a very specific 2-hour window because it’s a you know, a high-value item that might need, um, you know, proof of delivery or a signature or even a PIN code at arrival. Um, so I think it’s not just about which carrier it’s really about, or which platform. It’s really about the SLA that they want to provide. And that gets complicated because you may want to orchestrate more across more than just the gig providers. You have your own fleet, you have carriers, and, uh, that you also want to be able to orchestrate across. And you need a system that can really spend the time in analyzing, okay, I’m going to offer these SLAs and it’s going to come from this choice of nodes. And then you need to decide which mode you want to go on and you need the AI intelligence to help you do that.

Speaker 3 [5:20] So I want to talk a little bit about some of the cost and profitability pressures. Certainly retail, grocery are seeing those in their own business. And then when you add in delivery and all of the things that Walmart has done, I imagine cost pressures, which I’ve said it publicly before, my household—

Speaker 1 [5:38] You’re a big Walmart. What do they call that?

Speaker 3 [5:41] Walmart Smile? I use the Walmart Plus.

Speaker 1 [5:43] Walmart Plus.

Speaker 3 [5:44] My household would, if I’m being honest, have set up— Would not operate without it. It would not operate without it. We get our groceries delivered every week. There’s always something that I’ve forgotten that I need in an hour, the kids have to have for school the next day. But that being said, I imagine it creates cost pressures for others, and certainly when it comes to delivery and retail and groceries and all of that. What are you seeing there? Where are the cost pressures coming from? How is that affecting delivery? Um, and what does that look like from a, a margin pressure percentage? Yeah, absolutely.

Speaker 2 [6:14] I mean, you know, whether it’s Walmart Plus or the, you know, Amazonization of, you know, consumer demand, expectations are really high. But there’s been— I don’t think the expectations are remaining just on improved speed. The expectations are shifting a bit more towards, or a lot more towards reliability. And I think that’s where, yes, there’s cost pressure primarily on the speed side, but if a customer is willing to have, let’s say, a 2-hour, a 2-day delivery window, um, or a 2-day promise, as long as it’s coming when they say the provider or the merchant says it’s going to come, that is generally a place where customers Price is always going to be number one in the delivery choices, but it’s shifted. You know, even McKinsey stated in reports that, you know, it used to be, you know, price then speed. Um, now speed is down about number 5, and reliability or accuracy of the delivery, um, is number 2 after price.

Speaker 3 [7:15] So I think where people had to change their expectations, I think that’s just during COVID obviously is when all of this exploded.

Speaker 2 [7:25] And because the demand for speed was so high, it wasn’t easy to do super well, right? And there’s only so much supply out there. So if, if you’re paying a lot for a specific speed delivery and it doesn’t go well, you’re a lot more disappointed than if it’s perhaps free and doesn’t go well. So I think as that has left somewhat of a taste in consumers’ mouths that like, yeah, I might be paying for speed, but I might not always get it, that reliability starts to creep in, or that lack of reliability starts to creep in more, where customers are willing to say, I know when I’m going to get it, regard— instead of having to pay for speed that I may not necessarily get.

Speaker 1 [8:06] I mean, it makes sense. Same-day delivery, or within the next couple of hours, is— it’s a choice between, do I go to the store? Can I go? Do I have the time? If you’re a busy mom like Julia’s, you’re like, I need this in the next couple of hours, my kids’ assignments in the morning, or hey, dinner.

Speaker 3 [8:23] Or hey, watch, put your shoes on and get in the car.

Speaker 1 [8:24] Yeah, I have other things I need to do. We keep you busy here. And the question is, that’s where reliability’s there. I would rather know, like you said, if it’s 2-day, I can sort of tolerate that it’s gonna come between a window sometime today. But if it’s same day, if it’s a food delivery or a grocery delivery, You need it then. Like, like that’s, that’s frankly most people order their groceries or food at the last minute.

Speaker 2 [8:50] So that same, that buying experience is different with, for the same customer depending on what’s going on. Right. 100%. Right. So that’s why, as I mentioned earlier, I think the delivery choice is pretty critical because you should give them the choice of what they want, because it might be that they need it now, or it might be, you know, and they’re willing to pay $15 to get it in the next 2 hours. Or it might be that they’re fine getting it in 2 days as long as it actually comes.

Speaker 1 [9:19] Yeah, I needed some batteries this weekend and I just didn’t have— it was like one of those really weird batteries and I needed it right then. And, you know, I was with my younger children and didn’t want to pack them up and go to Walmart to do it because I inevitably, frankly, and you can spend $300 on whatever other random stuff. That’s the point. Yes. You take the kids to Walmart, they want to hit the toy aisle. I’ll pay the $15 delivery.

Speaker 3 [9:41] I took mine to Target. On Saturday?

Speaker 1 [9:43] Because it’s cheaper than what my kids would drag out of the store, and I didn’t want to deal with the meltdowns.

Speaker 3 [9:48] Yeah, but I think you’re right, the option, right? Am I okay to get it in a 2-hour window tomorrow? Am I going to pay a little bit to get it in 3 hours and pay a little bit more to get it in an hour?

Speaker 1 [9:56] I mean, the convenience is there. Sorry, Jake, what were you saying?

Speaker 2 [9:59] I was just gonna say, and if the retailer doesn’t offer all of those particular shipping options in that particular buying experience, they’re going to go somewhere else.

Speaker 1 [10:08] Well, it’s all top of wallet, top of delivery. If I’m starting to get— I mean, it’s one of the— I think Amazon’s big advantage. I was talking to a retailer in aviation, Sporty’s, which is like the number one retailer in general aviation. I was having this conversation with their president this past weekend at Oshkosh. I’m a pilot. I buy a lot of stuff from Sporty’s. It has everything I’d ever want. The problem is occasionally I’m like, hey, I need something. I’ll just go to Amazon. Because it’s already delivering to my house and it’s easy and it’s in a, you know, I can buy 15 things there.

Speaker 3 [10:41] And so add to Wednesday’s delivery. It’s a disadvantage.

Speaker 1 [10:44] It is. It’s a disadvantage for non— these smaller boutique retailers competing against the majors, because if you’re already buying things, you’re like, I’m just going to go ahead and add it.

Speaker 3 [10:54] So if a retailer is thinking about, all right, I need to rethink my delivery strategy for some of these reasons, where should they start? What should they do?

Speaker 2 [11:04] I think they’re going to have to look first to what your customers are telling them, right? I mean, what is it? Has there been a change in behavior with what they’re currently offering? Are they people buying less standard shipping and buying more increased speed, or is it the opposite? So I think that’s important, but really getting the data is super critical and having a layer in your system that can read all of those signals. What is the consumer clicking on in your page in terms of Are they going deep into the shipping options section? Are they abandoning the cart because, you know, they only see standard shipping or maybe next-day shipping, but they want something faster or vice versa? You need to start with getting an understanding of the data. And really, that’s as simple as having a platform that can read it, right? And tell you back, okay, this customer abandoned the cart because you didn’t have X. If you had X, perhaps that customer would have converted. And then you could start offering that hopefully on your e-com or your app and then follow the data.

Speaker 1 [12:09] All right, Jay, I gotta ask one last question before we go. We could spend the next 30 minutes talking to you, but we don’t— we can’t do that. But drones and autonomous delivery, where are we at in that cycle? I know there’s been some tests, Zipline.

Speaker 2 [12:21] There’s a lot of tests going on. And I think that there’s absolutely space for it. It’s gonna take time. There’s a lot of obviously regulatory rules that apply in airspace control and things like that, there’s going to be a lot of space for speed and honestly a huge space for cost, right? I mean, as they start to become more, you know, commoditized, it’s a lot cheaper to drop off, you know, prescription in your backyard than to have somebody deliver it. Um, I definitely think there’s space. The autonomous delivery vehicles is going to be tougher. Yes, you probably have some experience with them today where you still have to go out and get it out of the vehicle. But that’s not what the convenience that you’re— that a lot of people are paying for. They just want it right on their doorstep. So there needs to be a bridge, and there’s companies looking at that. I think that’ll take longer, but drones, it’s going to happen. It’s just going to take a little bit of time.

Speaker 1 [13:10] Well, Jake, we’re going to have you back to talk about that. That’s a totally different deep conversation. Thank you so much for coming in and joining us today on Freightways Today. We’ll be right back after these messages. We’re going to talk about why this recovery isn’t what it seems with Blake Ezell. He’s the Vice President of Customer Success and Support at IntelliTrends. He’s going to talk about freight market.

Speaker 1 [0:00] Welcome back to Freightways. Today we have the trailer whisperer, Chris Hines himself. He is a man that has not made a trailer he does not like. Chris Hines is the CEO of Repower, but he has been around this industry for too long.

Speaker 2 [0:14] 44 years Friday.

Speaker 1 [0:15] I don’t like to date people.

Speaker 3 [0:16] Friday? You have like a date with it?

Speaker 1 [0:19] Wow, congratulations. How did you get in and why aren’t— what kept you in?

Speaker 2 [0:24] Uh, what kept me in was solving the problems of my customers and the carriers. And, you know, I got the— I got the first time to come see Matt, actually. So it’s a pleasure to be with you today.

Speaker 1 [0:36] And you worked with Clyde too, right?

Speaker 2 [0:38] And I actually worked with Clyde as well.

Speaker 1 [0:40] Clyde, my grandfather, one of the patriarchs of long-haul trucking in Chattanooga.

Speaker 2 [0:44] Very early on, out of Atlanta with TIP. But I got in the trailer space and actually didn’t think I’d be sticking around for 40 years.

Speaker 1 [0:54] No one does. You get in, it’s the Hotel California.

Speaker 4 [0:55] You can check in, You can’t check out.

Speaker 2 [0:59] 40 years on Friday. So it’s exciting and really enjoying being in Chattanooga. It took 6 minutes to get over here, the traffic terrible. But it’s a pleasure to be here.

Speaker 1 [1:10] Now, Atri would disagree with you. Atri says that Chattanooga is one of the most congested cities in the country. I was literally stuck in traffic. That is only 2 sections. That’s the I-75/24 split. And that is to my house, the I-24 section. Max, my dad, lives on the opposite side of town, is always complaining about the traffic.

Speaker 3 [1:28] It’s terrible. Yeah, Max and I come from the same side.

Speaker 1 [1:29] You guys both have to come all the way over.

Speaker 3 [1:31] I was literally just talking about that with Zach Strickland this morning, that I’m enjoying my last week before school starts because it’s not so bad in the summer. And then school starts the end of next week and it will get even worse.

Speaker 1 [1:41] All those soccer moms driving their kids to school.

Speaker 3 [1:44] I love those. That’s me. I love those soccer moms driving.

Speaker 1 [1:46] Yeah. So, so, Chris, you joined Repower. Full disclosure, I’m on the board of Repower. Repower started off as a trailer marketplace to really— a trailer board. It was originally the way I sort of think of it, is helping companies sell that have excess trailers, sell capacity, and companies that need excess trailers or need trailer capacity to be able to find a marketplace. You guys have recently rolled out a new software package, a management system, a trailer management system. Tell us about why did you join Repower, and what is it you hope to do with it?

Speaker 2 [2:20] Well, it was a great opportunity for me. It kind of is a crossroads. I was with a publicly traded carrier for about 5 years, obviously at TIP, but when I left TIP in 2002, we had $150,000 net earning assets. So the whole optimization game has always been really important to me. And when the opportunity came up for Repower, our 2 founders found the business right at COVID. in 2020, literally 2020. We started doing transactions in ’22, and I met with them and I’ve been following them throughout. So when the opportunity came up to take this and expand it beyond just— Utilization of, you know, underutilized assets into the execution layer and automation around the shifting sand for a carrier is always having the trailer in the right place where the freight needs to be. Repositioning is a constant and you have to be good at it. And in order to do that, we built the, you know, why we built that platform. Visibility of the asset is not enough. You need the execution layer and the automation to move the asset to its next location.

Speaker 1 [3:27] So Chris, the trucks get a lot of love.

Speaker 2 [3:29] Trucks get a whole lot of love.

Speaker 1 [3:30] They’re sexy, they’re cool, they got big engines, you can ride in ’em. Trailers are the, in many ways historically been the dumb boxes of the industry.

Speaker 2 [3:39] They absolutely have.

Speaker 1 [3:40] That is changing.

Speaker 2 [3:41] And they, you know, historically trailer sits 30 to 40% of its life empty.

Speaker 4 [3:46] Or more.

Speaker 2 [3:47] Or more. Or more in certain cases. So what we brought to the table is that execution layer to get that optimization and utility. Everything else is optimized in our chain. The gates are optimized, the dock’s optimized, the truck’s optimized, loads, fuel, but the trailers just lag behind that much like it does in the, in the setup. It’s behind the truck. But actually what the shipper cares about is in the trailer. It’s the freight. It’s not the truck. Yeah, it’s the freight.

Speaker 1 [4:17] Now, I know this from my experience at US Xpress, that trailers, you know, US Xpress was not great at managing them, but I suspect it’s true of every asset carrier. It was always a problem because the data entry, a driver goes to the dock, the trailer’s not there, the trailer’s been loaded by the shipper to, you know, the bill of lading doesn’t match the trailer. There’s all those data integrity problems. Chris, that existed when, you know, and I suspect that every carrier has the same problem. What is, what is your experience with it?

Speaker 2 [4:45] Well, and I think that’s the why we built the optimization platform to support, because everybody’s clear, visibility isn’t enough. You’ve got to have an execution layer. How we built it, I think, is the most interesting thing. And we did that in the field. We went and sat down with 6 proof of concept customers. We lived with them in their trailer operations departments. And they helped us design the actual execution platform. So thing— products, I think, are much better if they’re built in the field than built in an office. If you’re out with your client, you’re talking to your client, you can build the best products. And we did this relatively quickly, about 90 days of time with the new tools that are out there from a development standpoint. We had the prototype out and we actually have now converted 2 of those POC customers to And I think it feels like it shouldn’t be so hard to manage trailers, right?

Speaker 3 [5:36] You know where your trucks are. But for all the reasons Craig mentioned, driver picks up the first trailer he sees instead of the one that you ask him to.

Speaker 1 [5:42] You also have shippers.

Speaker 3 [5:43] Shippers load the wrong trailer.

Speaker 1 [5:44] Nonsense.

Speaker 3 [5:45] The unit on it that helps you track it, the battery dies, and it’s parked in the shade, so it’s not recharging with solar, whatever. There’s a million reasons. But the other thing that people don’t talk about and think about is a large carrier Has 2.5 or 3 trailers per truck. So it is a massive number of assets to keep track of, right? So tell us what the optimization— TOP is what it’s called, right? Trailer Optimization Platform. What does it actually do?

Speaker 2 [6:10] So TOP takes the data feeds from the carrier around their assets, either via, you know, via the TMA. The amazing thing is, in going back and going and sitting down with these with our large fleets of people that I know, they were still managing this in multiple disparate systems. Some of it’s in the TMS, some of it’s in spreadsheets, you know, some of it’s on the chalkboard still. And we take all of those feeds and then we just build the short and long markets. And then we can automate. Because we do have a trailer marketplace, we’ve moved over, you know, we’ve paid back $30 million in shared revenue back to the owners of the equipment, beneficial trailer owners. So we have that information, um, and we’ve executed, you know, over 75,000 moves in the platform. So we can take that visibility that they have and now put an execution layer to it and move them automated from short markets to long markets is the gist of the product.

Speaker 4 [7:11] So it sounds like you’re really taking one of the most, uh, underutilized assets in a trucking company and helping them Figure out how to utilize it better.

Speaker 2 [7:21] And it goes even further when you think about, we go through this bid process and we get these bids and you get an award. Now I’ve got to get 25 trailers to service that account. And of course it says you’re going to get 5 a day every day, but you’re going to get 1 a day at the beginning.

Speaker 4 [7:35] Getting into—

Speaker 2 [7:37] And then they want you to get 18 on Thursday.

Speaker 4 [7:39] Right.

Speaker 2 [7:39] So building those pools or breaking down those pools has always been cost. I either send my guy and my truck and I’m paying fuel, and then what do I do with him once he’s there? Or I pay a load-away business and I just pay it to build it up. We give you optionality now how to build that pool in the most optimal manner, the most cost-efficient manner.

Speaker 3 [8:00] So, Chris, it’s also massive driver frustration in those exact examples that you gave. And in a market like this, we need to treat drivers well and they need to be retained. And this is one friction this helps take out.

Speaker 2 [8:12] And the one cool thing that we’ve done, we started at the 30,000-foot level, which was just, you know, Short and long markets. We’ve now taken that down to pools, and we’re now going to be using it to actual pools around the customer to be able to manage that pool. And you know, with the AI tools that are out there, we’ll be able to then even take it a step further.

Speaker 1 [8:33] I know I managed a board. I was a driver fleet manager early in my career. Trailers were always a pain, and they they were one of the biggest sources. There was two things that I remember that all 3 things that frustrated drivers. One is just delays at shippers. Payroll, if you messed up the payroll. Trailers were the most— and that was the most frustrating for me, because payroll was usually just getting with payroll department. Shippers, there’s not a whole lot you could do about shipper delays except pay them attention. And sometimes they enjoyed that, because they could get paid. But the ones that really drove me crazy as a fleet manager was driver-trailer— was the driver— was the trailer issues. That just consistently— I mean, how much turnover, Dad, from your perspective, was caused by trailer problems?

Speaker 4 [9:17] Not sure about how much turnover, but one, you know, keep in mind trailers are costly. And the ratio of trailers, when you’ve got 3 to 1, is much more costly than if you’ve got 1.7. I tried to maintain below 2 and then use the rental companies As a way to supplement during those cycles where you need it. Yes, it created problems, but it also reduced costs. You got to manage them. You got to manage them tight. And what Swift is doing is really bringing a new element that really helps managing that inefficient part of the operation.

Speaker 1 [9:53] One of the storylines around Convoy’s bankruptcy was actually the amount of trailers, 5,000 trailers I think was the number. I mean, it’s astounding.

Speaker 2 [10:03] 8,000 trailers.

Speaker 1 [10:05] They weren’t prepared to manage it. But that was one of the— when we did the story about Convoy going under, one of the sort of storylines was the inability to manage the trailer pools. Brokers have gotten into trailer pools. They’re a big piece of it. What has changed in this market? You’ve been doing it for 40 years. You’ve worked in a number of roles. What is it special about this market in terms of trailers specifically that’s really driving things?

Speaker 2 [10:27] Well, I think it’s just the last step of the optimization. You mentioned the 3-to-1 ratio. And fortunately or unfortunately, either way, I’ve been around long enough to Remember when drop and hook was starting? And drop and hook was considered a technology actually at the time, but it was throughput for the carrier. Now you think about it, you go to some of these large facilities, there’s 100 acres of trailers sitting there of all different colors, shapes, and sizes. And there’s no optimization platform yet for us, what we’ve released to manage that mess. And it creates additional units coming in. You could have hundreds of acres, literally, of empty trailers sitting around these facilities. And it’s suboptimal. When you started drop and hook, drop and hook trailers were $10,000. They were less of a, less of a thought. Now you fast forward to today, depending on what tariffs are in place that moment, you know, it’s a $50,000 asset. So it’s a much more, you know, it needs more optimization, obviously.

Speaker 1 [11:30] In a market, I remember where the hours of service rules were changing, the ELD devices. came out, the ELD mandate, there was a conversation about companies expanding trailer pools. Did that— first of all, did that happen?

Speaker 2 [11:41] Not really.

Speaker 1 [11:42] So there’s really, like many things, people get it wrong in terms of these predictions. What does it look like right now? This market is obviously unprecedented in terms of how fast it’s tightened. But what is the trailer situation on the ground? How are fleets dealing with trailers? How are they planning their trailer operations?

Speaker 2 [12:01] Obviously, the, the, if you have the asset, you can get it loaded right now. So that’s not a problem. But the problem is, are you loading it with the right freight? Are you taking the right loads? So there’s a lot of optimization around trucks and routes, but it’s not optimizing the actual trailer. So that trailer has, you know, a daily cost and a daily depreciating cost. It needs to be in the right place and it needs to be there quickly. And taking the costs out of that move, because that’s the one thing large carriers, even, even you know, mid-sized carriers are constantly doing are moving their trailers to where the best freight is. What’s the most optimal way to do it and provide operating, you know, relief to have the assets ready?

Speaker 1 [12:46] And TOPS, Trailer Operating—

Speaker 2 [12:49] Trailer Optimization Platform.

Speaker 1 [12:50] Optimization Platform.

Speaker 2 [12:51] Optimization Platform.

Speaker 1 [12:52] Is all about optimizing the asset.

Speaker 2 [12:54] All about optimizing the asset, automating that process. Because again, there are multiple people. The bigger the fleet, the more trailers they have, the more people they have doing this. in disparate systems. They can now manage that in one and move their assets from their long positions into their future positions. I know I— if I’ve got 90 days that I know I’ve got to pop up a fleet in the middle of nowhere, I now have an option of how to do that.

Speaker 1 [13:20] And Chris, what is the return on investment? So a fleet that wants to use TOP, what’s it cost? And then what do you hope that they can achieve with it?

Speaker 2 [13:29] It’s basically based on fleet size, right? The number of trailers you have and the number of moves you have. So there’s a little bit, you know, every carrier is not the same. You’ve got dedicated fleets, you’ve got, you know, you’ve got one-way fleets. So it’s going to be a little bit different use case-wise depending on how your operation works. But ultimately, if you just take the cost, we ask them to look at their total cost. What have they spent in loadaway? What have they spent in having their drivers drop empty miles and add all of that up? And the execution layer that we provide with the top platform then takes that cost out. So we can reduce the cost immediately.

Speaker 3 [14:08] So my brain is spinning on all the ways that this is valuable and not just for optimizing your asset and for driver frustration, but also I will tell you, when I was over customer service, every day my conversations with our enterprise shippers were, you’re 5 short at this pool, or I was calling them and saying, You’re 20 over at this pool. I’ve got to get them out there. And then, but then you actually have to execute to that to get them out of there.

Speaker 1 [14:31] They were also using the storage. How many times, I mean, how much percent?

Speaker 2 [14:35] Oh, that never happened.

Speaker 1 [14:36] How much percent?

Speaker 3 [14:37] Yes, or they hadn’t unloaded the right ones. It wasn’t first in, first out. There was a million issues with that. So being able to keep that all in one place. But take that one step further is then I have a group of people managing this enterprise customer who’s fighting to get the 5 at their pool. But then I have another group of people managing this enterprise customer where they’re 7 short and they’re fighting to get the 7. And being able to see that all in one place and optimizing it appropriately would be incredibly valuable.

Speaker 2 [15:00] Well, and I think this is the first step in that. Ultimately, if you think about asset classes, chassis, containers, railcars, all trade pools. And ultimately where this will lead will be regional pools of assets because the color of the asset shouldn’t matter. The utilization of the asset should matter. And, you know, we’re really leaning forward into the future to say, let’s manage regional pools. And in those regional pools, you may have BTOs, the beneficial trailer owner, being carriers may be involved in that. Brokers may be involved in that because brokers are now building up assets. Shippers could definitely be involved in that. But sharing of those assets and the utilization of those assets matters.

Speaker 3 [15:46] So more the way that chassis are managed now.

Speaker 2 [15:48] A lot of the way the chassis are managed now, chassis don’t move as far. But if you think about the pooling concept, it was built around, I don’t want to have to own my own chassis, I want to use it by the drink.

Speaker 1 [16:01] So, Chris, Matt Leffler, my co-host for Freight Expectations, a few weeks ago pointed out this new fraud that’s popping up is people are leasing trailers transactionally through these message boards, WhatsApp, Facebook. not marketplaces, but just some rando on the internet, which you should never trust a rando on the internet, but they’re doing it. We talked about fraud every single day. We talk about some form of fraud. I learn a lot. The criminals are working nonstop. What do you guys do in terms of— what are your thoughts on that and how are you helping companies deal with it?

Speaker 2 [16:36] One of the things is building out the top product was a big priority for us, but we had to build it. In the last year, we have spent ad nauseam amounts of the time around the safety and security layer of the business. We’ve developed great partnerships operating in our platform with people like Highway and Genlogs and Katina, because it’s not enough for the beneficial trailer owner who brings it to the one side of our marketplace to know where that trailer is 80% of the time. They have to know 100% of the time. So that connectivity in our platform now is to keep the bad players out And our demand carriers, the small guys that actually rent the assets and utilize them and reposition, 80% of our moves drop in a different market. It provides, you know, the vast majority of these small fleets are safe, are compliant. We’ve got some bad actors obviously, but there’s a couple hundred thousand of these people. A lot of ’em are talented people trying to build a business.

Speaker 1 [17:32] Yeah.

Speaker 2 [17:32] We believe that this gives them, going through our vetting process before they could ever see an asset, This gives the beneficial trailer owner comfort that we’re tracking both with trailer tracking and ELD, and it gives the demand carrier who is small a leg up. It gives them another option to utilize trailers at a lower cost. They didn’t have the option of going to a leasing company like I ran. They didn’t have that option. They really don’t have good finance options, but now they’ve got usability options. So I can go, I can take the best load that, you know, that fits my footprint. And then move that asset and then pick up another asset to utilize. So we really— we are proud to support the demand carriers and give them some operational cost flexibility.

Speaker 1 [18:22] So, Chris, I got to ask, you’ve been around this market for a long time and I’m not trying to date you. Not as long as the two of you guys have. It’s a lot of experience at the table.

Speaker 4 [18:33] How about truck years?

Speaker 1 [18:34] We just came from this. We’re in the middle of earnings. There’s been, you know, we talked about Old Dominion getting a 70 OR. Feels like a railroad.

Speaker 2 [18:42] But you’re—

Speaker 1 [18:43] you were a public CEO. Any reaction to this earnings so far?

Speaker 2 [18:46] Yeah, I think it’s phenomenal because, again, it needs to get broader. But as a carrier, you have to get the return on invested capital to reinvest in your fleet. And that was a conversation I had with shippers years ago. It’s like, guys, I can’t support this and buy more trucks and keep the cycle moving. So I think it’s very positive. It looks like we’ve got a long run. I hope, because you need that long run of earnings to reinvest in the assets. It’s expensive.

Speaker 1 [19:18] Well, if a mere lip to God’s ear, let’s hope this market stays strong. Chris Hines, thank you so much. And folks, you can learn more about Repower. Where should they go?

Speaker 2 [19:25] And they want to—

Speaker 1 [19:26] if they want to become a part of TOP and take advantage of it, where do they go?

Speaker 2 [19:29] All they have to do is go onto our website. It’s free to sign on, and then we’ll take you through the process. Relatively short and easy.

Speaker 1 [19:36] And by the way, you guys can’t spell Repower correctly. It is R-E-P-O-W-R. There’s no E in it.

Speaker 2 [19:43] There’s no E in Repower.

Speaker 1 [19:44] Yeah, so it is— just so that if you’re looking for Repower, it isn’t spelled right, that is a correct website. Chris, thank you so much.

Speaker 2 [19:50] Thank you.

Speaker 1 [19:51] Appreciate you coming in.

Speaker 1 [0:06] All right. All right, for today’s Donor Update, I want to talk about a couple of things. First, I want to talk about spot rates and diesel prices at the pump diverging a little bit. This is a really interesting and important thing because as we talked about earlier in the year, as spot rates were increasing, a lot of people attributed those increased spot rates to increased fuel and diesel price. Craig and I have disagreed with that and attributed spot rates increasing to lack of capacity, and rather than just increased fuel rates. Really, pricing is supply and demand based. Irregular route one-way pricing and spot rates are not based on underlying costs. So my thesis has always been that carriers are able to recover the rising fuel costs and spot rates right now because capacity has remained tight, not necessarily because they’re, um, trying to recover the cost, right? So even if diesel prices fall, I posited that spot rates would continue to remain strong, and our data is showing this but sort of in the opposite way. So spot rates versus fuel, you can see, are heading a bit in different directions this week. So NTI is sitting at $3.51 a mile. It is climbing back up off of a mid to late June low near $4.90. But DTS, so that’s the actual diesel price at truck stops, is at $3.48 a gallon, and it’s down from a July high near $3.80. But you can see just this last week when you look at the graphic, they are going a bit of different directions. Spot rates are falling very, very, very minimally, but that diesel price at the pump is going up. Now I want to talk a little bit about the overall market when it, you know, comes to a lack of available capacity. Rejections are cooling, but they still are elevated. We can see in our STRI, Sonar Truckload Rejection Index, remains at 14.36%. So it’s down slightly this week, but still well above the 6-month average, which is like 10.9%, but flatbed remains to be the hottest and most volatile mode. We’re back up to 23% tender rejections, which is down from the incredible numbers we saw in June and early July where those tender rejections were in the 40% range. Reefer is still remaining relatively elevated as well, 19.46%. So— Yeah. Easing a bit when it was right at 20%, but still incredibly high at near 20%, or, you know, 1 in 5 loads being rejected on reefer. Van overall is the most moderate, but still nearly 50% above where we were a year ago. So every mode is cooling a bit from its summer peak, but it’s all still tight. We’re seeing a lack of available capacity, so we’re certainly not back to loose. The second thing I want to talk about is really earnings as a whole. We have seen some really great earnings come out so far this quarter. We saw Knight-Swift, and we talked about it earlier this year, where they talked about a rapid tightening in supply-driven dynamics with spot rates going up significantly and exceeding normal seasonality and tender rejections reaching levels that they hadn’t seen since 2021. This is really, again, all still driven by a lack of available capacity in the market. We haven’t seen a strong increase in demand, but we are seeing capacity leave the market. Werner’s earnings, I think, were really perfectly stated this. They talked about directly regulatory pressures removing shadow capacity as ELD providers exit the market alongside ongoing driver and CDL school removals. So impacting capacity and the quality of driver availability. They both referenced really strong rates. Knight-Swift said strategic pricing recovery accelerated in June as recent bids took off and expected more to come in July. Their truckload segment was able to adjust their operating income significantly higher. It was up 69% year over year. And we’re just seeing across the whole, you know, all of the earnings, the improvement in revenue per truck per week and overall rates allowing them to continue to drive better utilization. We’re not seeing trucks necessarily being added to any of these large fleets. They’re just operating better with what they have and at better rates. Again, we’re not really seeing increasing demand. And this showed in all of those earnings that we’re talking about. We’ll talk more in detail about the rest of the earnings today, about Werner and UPS and Landstar and all of the other earnings that have come out, Old Dominion. But the growth carriers are seeing is really coming from mode shift and share shift, not a demand boom. We saw intermodal grow with J.B. Hunt significantly. We’ve seen strong intermodal earnings really across the board with all the earnings that have come out. Um, I think the other interesting point that I, that I want to call out and that Craig and I have talked about over the last couple of weeks is that with all of the new liability issues and judgments coming out, shippers are looking to well-established asset-based carriers to minimize their risk in liability and, and fraud and other things. So, um, they’re also looking to dedicated. So I expect to see carriers who have a large dedicated presence continue to do really well as we go through the rest of this year and next year. Derek Leathers said that the company’s organic dedicated business is growing. Obviously, they acquired First Fleet, which drove part of the margin improvement and certainly added, you know, the truck count. But revenue for both Werner and J.B. Hunt improved in dedicated as well as in their truckload segments. But the other thing that they’re, they’re both citing and that we’re continuing to see is driver recruiting challenges coming from lack of available capacity, a tight market which gives drivers more options, and then also regulatory enforcement. So, um, really this regulatory story can’t just be background noise. It is truly changing our industry. It’s showing up in the availability, you know, the available capacity, but also in our ability to recruit and retrain and retain drivers in our industry. So really all of the things that we’ve been talking about over the last couple of weeks on the show, I was pleasantly surprised to really be reflected in the earnings that we’ll be talking about as well. Carriers are describing their own market in the same terms we’ve been using. as we’ve been going through talking about the market as a whole in the show thus far. So the main points again, demand is remaining relatively stable. Rejections are remaining elevated, even if they’ve cooled a bit. This is July, and we’ll see that in August. And then hopefully we’ll see normal seasonality return and see things tightening as we get into fall. We’re continuing to see capacity exit the market and additional barriers to entry added for capacity being added back in. So I think we are in it for the long haul as far as capacity being tight for quite a while.

Speaker 1 [0:00] Look, you’re in for a treat. We have Brent Nussbaum. He is the CEO of 600-truck operator Nussbaum Transportation, privately held. We always love, we talk about public earnings ’cause this is a big time.

Speaker 2 [0:12] We’re privately held, but we ran out an ESOP.

Speaker 1 [0:14] We, we’ll talk about that in a second. Right. You don’t have, you don’t have to report to public investors on the exchanges. But let’s talk about what an ESOP is. You guys have 600 trucks, been around for, for decades as a generational company. In 2018, you did something called an ESOP or an employee stock Ownership Plan. What exactly is that?

Speaker 2 [0:34] So, uh, in 2018, well, actually before that, we were looking around going, uh, my family is not getting any younger. We’ve gotta figure out how we’re gonna transition this company. Uh, and as I talked to different fleet owners, the one thing that I, uh, discovered was a lot of ’em said, you know, I sold to another company, but just at the, at the end of it, 2 years down the road, it just wasn’t what I thought it was gonna be. And so we didn’t want that to be the same for our employees because my father’s favorite expression was, we take care of your people, everything else takes care of itself. So we started shopping around and actually ended up talking to, uh, you guys may know him, Bill Prevost. Um, he was CEO of, uh, Quickway Transportation out of Nashville. Bill was a big proponent early on of ESOPs. And the idea was you sell your company to your employees so that they ultimately have the ability to build wealth beyond a 401. So we started the process in 2018. Each sold 45% of the company to our employees. And each year we talked to them about stock price. They go, uh, every quarterly, uh, financial meeting we have involves all of our employees, involves all of our drivers. They know exactly how we’re operating. They do a— there’s a valuation of our stock that’s done in, um, late spring. And then we celebrate, uh, the stock, uh, because usually it’s been going up. Now this last year it was flat, which I was thankful it didn’t go down after This market.

Speaker 1 [2:19] Yeah, for sure.

Speaker 2 [2:20] But it was, it was really good. And so our employees are really bought in. We’ve traditionally got low turnover. We’re in the 30, anywhere from 35 to 38, 39 area as far as turnover goes. We believe that an ESOP is a big part of that because it helps them build something for the future.

Speaker 1 [2:44] And a friend of mine who’s in media is going through the ESOP process and he’s explained to me, I, it was not something I was deeply familiar. I’ve heard, you see, uh, you guys have it on your trailers, uh, employee-owned company, something that ESOP companies are very proud of the fact that their employees get ownership. I think UPS at one point was an ESOP before it went public. It’s a different structure than selling to a private equity group or selling, taking the company public or selling to another owner. I mean, you know, Max, Dad, you know this painfully of A business that you’ve operated in, that you’ve built, that, that someone else is taking over. I mean, in many ways you lose your identity.

Speaker 3 [3:19] You do. And, you know, an ESOP, in my opinion, is fantastic because your employees are the ones helping you build the company.

Speaker 2 [3:27] Right.

Speaker 3 [3:27] And it shows, you know, if your turnover is almost unrealistic in this industry.

Speaker 1 [3:32] A 30% turnover.

Speaker 3 [3:33] Yes. Or more turnover basically shows it’s working, working very well. Yeah.

Speaker 2 [3:38] It was working prior to that. So we, we’ve always been in the, in the 30s range, uh, with turnover. And I don’t know if that’s because we were a smaller company, family owned. You know, there’s a, there’s a lot that can be said, um, for, you know, for smaller companies. And I will tell you over the years, you know, drivers have said, man, do we, why do we have to grow? Can’t we just stay small? You know, this family owned. I left the thing and I said, folks, if we don’t grow, we’re gonna die. Because ultimately shippers, when you’re, when you’ve only got so much capacity to offer ’em, they look at you and go, well, you can only give me 5 trucks a day outta that location. I can get US Express to come in and, and give me 20.

Speaker 3 [4:21] Yeah.

Speaker 2 [4:22] You know, so why should I do that? And, uh, so over the, over time we’ve grown, but we’ve grown smartly.

Speaker 3 [4:28] Yeah.

Speaker 2 [4:30] And, and not trying to grow.

Speaker 1 [4:31] You had the opportunity to grow. I mean, you guys could have easily— the nice thing about trucking, it does allow you to grow, but you chose to stay more intimate, we’ll say, small, smaller versus what you could have.

Speaker 2 [4:44] Well, well, let’s, let’s go back to the beginning. We’re an 80-year-old company. So we started off, my dad started off with one truck. We were an LTL and 65% of our business was LTL. And we were a niche carrier, uh, with, uh, in the Midwest. And as we know from deregulation, uh, that just killed LTL, uh, did a number on it. And we had a truckload operation that was all owner operators. And so in 2001, we made the decision to exit LTL because a lot of the big box stores were coming along. They were growing and they were buying in truckload quantities. The smaller mom-and-pops that we used to service with LTL were going out of business. So we recognized that, said we’ve gotta build our truckload operation, but we can’t do it with just all over-the-road. We need to do it with some dedicated as well. And, and I love dedicated until I get into a market like this and I see where returns on over-the-road are going.

Speaker 1 [5:50] Yeah.

Speaker 2 [5:50] Like this, a dedicated’s good, but, uh, it’s an annuity.

Speaker 1 [5:55] Like, we want that dopamine hit.

Speaker 4 [5:57] It’s more demand. It’ll continue to come for dedicated.

Speaker 1 [5:59] But there’s an ebb and flow.

Speaker 2 [6:01] Exactly.

Speaker 3 [6:01] There’s an ebb and flow.

Speaker 1 [6:02] Julie’s a fan of the dedicated. She, she ran your specialty. Julie?

Speaker 4 [6:06] Yeah, I, the dedicated demand will come, right? And then it will remain. And then you’ll get those elevated rates that will come later this year or next year, and they’ll hold for a couple of years versus OTR will be up and down. But I think there’s more to that turnover number. than just the ESOP. There are a lot of things that you do as a CEO to interact with your drivers and training programs and recognition for those drivers. Can you talk a little bit about the culture you’ve created that creates that kind of turnover number?

Speaker 2 [6:31] Again, we’re— there’s a career path for a driver coming in. So they can either train, they could be a driver trainer, which pays really well. They could be a road captain, which is assigned to new drivers that are coming in through orientation. And it, it, those folks can answer questions for driver, for new drivers that are coming in. And then there’s also, uh, somebody who could be a, a certified RED, um, uh, trainer, if you will. So we have a certified RED program and it’s a safety and, um, performance program. So it takes a year to get through it. It’s an, it’s a whole nother level of training. And it, after that year, we’re gonna celebrate that driver. They’re gonna get a special hat. They’re gonna get a special ring. We’re gonna do a big celebration in front of all the employees. Uh, and, uh, and that driver’s gonna get a pay raise. And the next year, uh, if they continue on the, on the safe journey, they can continue to build their, uh, their pay. So in the last few years when pay raises were really scarce, they could still do increases by just growing their Certified Driver Program. So, um, but there’s also, um, along the way we’ve, you know, this year we announced we saw this thing coming out. You guys were doing your reporting and we’re going, we think this thing’s going to really go someplace. And so, um, based on Craig Fuller, let’s— Oh no, that’s, that, that’s—

Speaker 1 [8:07] yeah, I get accused of a lot of things. I wish, by the way, I wish I had the power that I get accused of having because I’m on both sides of that. I’m very flattered that people think I have that kind of power.

Speaker 3 [8:19] But you did make the call in November.

Speaker 1 [8:21] I did make the call in November, but you know, I occasionally get— I’ve gotten that one wrong too, a recession.

Speaker 2 [8:25] No, no, you did well. And so we talked to our people and we said, you know, we’ve got equipment sitting because it made no sense to get rid of it because the market was You know, was tanked as far as equipment values. And then there was, um, we’ve had opportunities, uh, that have come our way. Uh, how does the, you know, you were talking about dedicated, dedicated carried us the last few years financially.

Speaker 4 [8:49] That’s very evident.

Speaker 2 [8:50] Yep. And, and it kept us, uh, it kept us in the, in the green. So, uh, unfortunately our, our irregular route or our over-the-road market did not. But that’s okay. We were still whole. So it carried us through. Now we’ve got opportunities in both over-the-road and in dedicated. And, uh, we’re really trying to figure out where to go because we’ve got so many opportunities that, uh, it’s nuts. So we, we, we decided we were going to start scaling and we’re, we’re scaling as fast as we can this year. And we’re not, you know, we’re not being, uh, shy about it. Uh, as it makes sense.

Speaker 1 [9:32] Brett, what is the constraints on growth? You, you obviously can get freight. Shippers are looking for commitments. They’re looking for capacity. They’re willing to pay up for it. What is actually holding you guys back in terms of growing faster?

Speaker 2 [9:44] Well, uh, we want to do the second ESOP sale in the first quarter of this next year. So we still have some left to sell to our employees, and that will take some financial you know, uh, wherewithal in the first quarter of next year.

Speaker 1 [10:00] So you’re wanting to, you know, we’ve talked to, uh, Mark Scudder. He’s on the, uh, board, a couple of public boards in trucking. He talked about the fact that the companies, particularly the bigger companies, and perhaps you’re the same, are really trying to optimize the business. A couple of years of just absolutely being abused by this market means that you’re also focused on optimization, right? You want to grow, but you also want to grow responsibly.

Speaker 3 [10:23] Right.

Speaker 2 [10:24] We want to grow responsibly because we’ve told our people, you know, we’re an employee-owned company. So the last thing you want to do is show them you’re reckless.

Speaker 3 [10:31] Yeah.

Speaker 2 [10:32] And so we talked to them about that. We talked to them at our quarterly financial meetings. And we’ve had some— we went out to them and we said, guys and gals, we’re going to grow this year and we’re going to grow more than normal. Ordinarily, we might grow 3 to 5% in one year. This year it’s gonna be at least double that because we have a lot of really good opportunities. But before we did that, we went to our sales department and said, we’re gonna grow. We need to get rates back up where they need to be. And so I wanna be careful as I talk about our shippers because some of them are feeling the pain. You know, they’re not, their businesses aren’t great right now. And all of a sudden they’re feeling the heat of rate increases. So I want them to understand that we hear you, we’re sensitive, we’re not insensitive to that. But what we want to do in the meantime, you need to understand, last 3 years there haven’t been many rate increases. And if anything, rates have gone backwards.

Speaker 1 [11:35] I mean, our data supports that. I mean, we’ve seen a drop of at least a quarter in contract rates on a national average. It has— we’ve made up some of that. I think we’re up about half. About halfway to where we were, but we still have a long way to go if you look at where we’ve been the last couple years. Is the is the issue one thing we’ve talked about? Julie and I’ve talked about is a lot of shippers, particularly folks that are running the the bids or making routing decisions. With the exception of COVID a lot of them have never lived in a carrier’s market, and they’re sort of surprised by. I think a lot of people have been surprised about how how how how significant of a bounce back we’ve had. But A lot of shippers just don’t know how to navigate it. Has that been your experience as well?

Speaker 2 [12:17] Yeah, it is. And we’re having to do a lot of explaining, especially when you get into double-digit rate increases. You know, all of a sudden they’re going, you know, we just had this week, as a matter of fact, a large shipper we do business with. We agreed to, to take part of it now, a good chunk of it now, and then a month later come along and, and do the second part of it. Uh, and just to help them, but they called us up and they said, I want the CEO of your company and I want your, you know, your, your chief sales officer, um, to come up and at the end of August and we, I want to talk, I want to, I want to understand from you, not through my logistics manager, what’s going on.

Speaker 1 [13:01] Yeah. I think that’s important. I think that communication’s important. So from you, you know, you, Family-owned business, you guys decide to do the ESOP. One thing that I learned about ESOPs is you have to have an independent board. Uh, so it, and you have an independent valuation that’s out there.

Speaker 2 [13:16] Well, typically, like in our case, we’ve got 3 internal board members. And then we’ve got, uh, right now we’re in the process of putting another one in. Uh, we’ll have to have, generally you have 3 and 3. So the idea is to have 3 internals, you have 3 externals. And then you have a trustee that is not part of the board, but the trustee represents the, the, uh, buyers of the company.

Speaker 3 [13:39] Hmm.

Speaker 2 [13:40] And so it’s up to the trustee and they’re overseen by the Department of Labor to make sure that we’re running, you know, the way we should be and that we’re doing what we should do. That trustee is not involved in the way we operate our business. They don’t tell us what to do. Um, we’ve got a great trustee. stays out of our way. He’s an attorney. Um, but, uh, we just call him and say, well, we either need to put another building up and you just need to be aware of, we’ve got a capital expenditure here that, you know, that we’ve got to—

Speaker 1 [14:13] but, um, what has it been like for you going from a family company where it’s your family that owns this business, you don’t have outside investors, to all of a sudden now you have a responsibility not to just your own fiduciary, your own family and your family members. Now you have a fiduciary to the employees. What has that been like in terms of how you guys operate the business, the shift for you?

Speaker 2 [14:30] It’s always been, you know, it’s always been very much focused on our employees. So it’s never ever been, actually, I could come to work every day and not worry about what I owned, right? If I leave my career someday and all of our employees have done well, I get to walk away proud of what we’ve done for them.

Speaker 3 [14:55] Yeah.

Speaker 2 [14:57] You know, that’s why we did, uh, we did the ESOP. Uh, it’s one of the reasons that we instituted this profit sharing program. So I don’t know how many other carriers are doing that, but ultimately, uh, we decided why not? Um, and we’ve had drivers come up to us and say, man, that is one of the best things you’ve ever done for us. Now they haven’t collected a check yet, but this Friday—

Speaker 3 [15:19] Well, when they do. Yeah, when they do.

Speaker 2 [15:21] Profit sharing checks are going out this Friday.

Speaker 1 [15:23] Congratulations to the drivers of Nussbaum on getting a profit sharing check. And of course, this market is such a— offers the opportunity to generate profits. Drivers know that companies are doing better, they’re doing better. When you talk about the whole package, you guys have announced that you’re, you know, John Kingston reported earlier this year that you guys are doing pay increases to truck drivers.

Speaker 4 [15:48] Yeah.

Speaker 1 [15:49] What does the package look like that’s really driving retention?

Speaker 2 [15:52] Well, there’s also a, uh, uh, we call it early exit option. So, uh, drivers make a commitment to come to us and ultimately we want them to feel good about the decision that they’ve made. So what we do is we just say, hey, look, within the first 90 days you’re here, as long as you’re here 30 days to give us a chance to show us, you know, how to, how to How to make it the best for you. And as long as you return your truck to our facilities and you leave in good standing, we’ll give you a $2,000 bonus if you decide that we’re not for you. So, you know, that’s one thing that we’ve done. Again, think about in the ESOP world, think of it in the way of, and we did cover this a few moments ago, But think of every year somebody giving you 4 to 6% of your salary in ESOP shares for you to continue to build your wealth with. That happens in the ESOP world. That doesn’t happen in a non-ESOP world. There are, I mean, there are safety bonuses, there are performance bonuses, there’s things that you can do as I mentioned, as a trainer. One, a couple of things that I do. You could call it our secret sauce, if you will. But I do. I didn’t full you know full disclosure. I didn’t do it prior to this year. But if every week recruiting sends me a list of all the drivers that are coming to work at New Spot, I pick up the phone to each one of them and I say, “Look, here I hear you’re coming in a couple weeks.” Wanna walk walk away? And I’m. And I’ve had drivers say, I’ve had drivers laugh and they’ll go, I go, what are you laughing for? And they go, I have never had a CEO call me before. Never. I don’t even know who the CEO of my company is.

Speaker 1 [17:45] Was that, was that, was that awkward initially? Because you, because there’s always, companies do have a pretty significant divide between management and sometimes it feels, I think just the awkwardness. Was that, was that awkward?

Speaker 2 [17:58] Not in our company. Not at New Smile. It’s very, if you came and you got to know our people, we’re very much, uh, we hire for character. We don’t hire for skills. We can teach what they need to know as far as skills, but we hire for character. We want those people to care about drivers.

Speaker 1 [18:15] It’s probably why you have a 30% turnover as well, because you get the bad apples. Hiring’s always a, there’s a risk that you make a bad judgment. Early exit means that you get the people who don’t want to be there.

Speaker 3 [18:26] Right.

Speaker 1 [18:27] have a reason to leave and it causes a lot less headaches.

Speaker 2 [18:29] But it’s rare.

Speaker 4 [18:29] If you can make it through the first 30 days. Yeah.

Speaker 2 [18:32] You can make it through the first 30.

Speaker 3 [18:34] That’s true.

Speaker 1 [18:35] That’s a great point.

Speaker 2 [18:35] Yeah. It’s, it’s, it’s, it’s a rare, rare day that we would ever have to pay that out because most people come and stay. Maybe at the 6-month mark they might decide, you know, I don’t know if that’s for me. If they’re over the road, they might want dedicated. We don’t have a dedicated position open for them. Then, you know, ultimately, uh, they might decide that, hey, I’m gonna leave because I’ve got an opportunity. That helps to do something that’s really, really crazy. And that’s, uh, I get a list every week of trucks that are in the shop. And the last thing we do is a cleanliness inspection on the truck. Now, if they’re in there 3 or 4 times a year, they’re only gonna get one phone call, but I will pick up the phone every week and call drivers if they get an exceptional On their, on their equipment report. And, uh, and I’ll have drivers that’ll say, yep, saw that. Just waiting for you to call.

Speaker 1 [19:26] Amazing. Well, look, I, yeah, Brent, you’re doing it right. And you’re doing, congratulations. Congratulations to the employees. Love stories. We talk a lot about the issues and the challenges in this industry. And, and look, this is just the nature of what we do. We don’t get the opportunity to celebrate as much as we would like companies that are doing it right. Um, congratulations to you, what you built, and your employees.

Speaker 4 [19:49] Yeah.

Speaker 2 [19:49] Can I just end with one thing? I think there’s a little bit of a misconception out there, and this, I’m not, this is not criticism towards those who think this, um, at all, that if you give drivers a raise, they’ll want to work less. And we have not seen that ever. Yeah. Every time we’ve given a raise to our drivers, we have not had to worry about them saying, well, I think I want to run 100 less miles this week.

Speaker 3 [20:15] There is a group that, that will work less, right? But it’s not a big percentage.

Speaker 2 [20:20] Yeah. And I think, I think Max, you’re right. One last comment to that. It makes me wonder if some of that was related to the age of the drivers. So our drivers’ average today, our average age is 49.

Speaker 1 [20:34] Wow.

Speaker 2 [20:35] It used to be 55 and, you know, we thought it was neat. Yeah.

Speaker 3 [20:39] They only needed so much, right? So they only wanted to work at that level.

Speaker 1 [20:43] Right.

Speaker 3 [20:43] You know, hats off to what you’re doing. You know, that personal relationship with the driver does make a big difference. But then, you know, the one thing we didn’t talk about is your technology. And I always push technology in trucking. You do too. And a lot of times I’d read the articles on what you were doing. He’s ahead of it.

Speaker 1 [21:04] Brett, what is, just real quick, ’cause we only have a few seconds and we gotta go to Bill Stevens. We’re gonna talk rail and the AAR report, my favorite part of the week. What is the technology that you’re most excited about that’s, that’s going into fleets?

Speaker 2 [21:15] Oh my gosh. Well, right now the most exciting one is something that Max won’t be, well, he might be excited about, is we have a separate technology company, uh, and it’s got a product called BidRight. And, you know, most people do pricing with spreadsheets, right? So BidRight takes all the information that comes in from a shipper, consolidates it, puts it in the right format, adjusts it to the right fuel, fuel program. And when they get done with it, ultimately they can, they can do a bid in seconds.

Speaker 3 [21:49] That’s great.

Speaker 1 [21:50] And is this something that is offered, sold as a subscription to the, to other companies?

Speaker 2 [21:54] Yes, actually right now it’s being sold through KSM and KSM is Chris Henry’s running it, and Chris has got a product called Freight Math, and it’s being sold along with Freight Math to, and they’ve got a group of carriers, probably 100 carriers or so that are a part of that. So we did, we went to them as a reseller because we’ve got 5 developers that have, we actually developed it for our own use. And then we said, should we sell it? No, we don’t want to do that. Finally, I came around and I said, we need to get the industry, we need to get pricing in industry up because we look like we’re, we’re pillaging people when we go in with these rates and they go, they’re 10 or 15% lower than you are. And we need to, we need to get everybody to the, to the same plane.

Speaker 1 [22:46] Transparency is a good thing. I mean, we’ve argued—

Speaker 4 [22:48] Your dumbest competitor, right?

Speaker 1 [22:49] Like, well, that problem, the dumbest guy in the industry sets the price is the sort of old adage. Look, what are the things you know whether or not you like transparency? One of my arguments is that everybody can make better decisions when they know what’s happening, right? And that’s one of the reasons we have Freightways today, and one of the reasons we have Brent Nussbaum here in studio is to provide that insight. So appreciate so much for coming in.

Speaker 2 [23:11] Thank you. Appreciate it.

Speaker 1 [23:12] Yeah, we’ll be right back with Bill Stevens. Our favorite day of the week, Wednesday, with the ATR about better work. I want to hear, and he’s going to tell us what he learned yesterday as a new future of Ransom host.

Speaker 4 [23:23] Stay with us.

Speaker 1 [0:00] Starting with our very own Bill Steeves, the editor of Trains Magazine. Let’s talk about the AAR numbers, Bill. I had a moment to glance very briefly in the break since they don’t come out until noon. And it looks like, again, everything’s up year to date except coal, with grain being up really pretty significantly at 13%.

Speaker 2 [0:18] All year really for grain, it’s been a banner year, partly due to comparisons with last year’s tariff impacts. Um, but when we look, uh, at a top level at week 29 AAR traffic for the North American railroads, uh, carloads were up 3.8%. Um, that’s stronger than the last 4 weeks, which was 2.7%. Um, intermodal was up 2.6%. That is a deceleration, uh, compared to the last 4 weeks where it was up 6.5%. And then overall North America up 3.1%, down slightly from 4.7% over the last 4 weeks. So still growth, just slowing down a little bit. But then we drill down more and look at the US volumes. Carloads in the US for week 29 up 1.2%. That is identical to the pace, 1.2% for the last 4 weeks. Intermodal is 3.5% growth year over year in week 29, but that’s quite a bit down from the 9% pace that we saw over the last 4 weeks. So overall, US volume was up 2.5% for the week, and that’s down from 5% over the last 4 weeks. So this is entirely due to the intermodal slowdown. And we’ll see in the coming weeks what direction that winds up going.

Speaker 3 [1:51] You say, when you say slowdown, this is, this is just July, is the July doldrums? Yeah, there’s something else to read into this. We’ll see.

Speaker 2 [2:00] I mean, you know, obviously, the fuel prices remain high, rail service levels remain pretty good. And, you know, everybody on the earnings call so far was really bullish on intermodal and the prospects. Um, but 3.5%, I think if, you know, you ask most railroads if they’d take that, they would say sure. What’s interesting is a little bit of a breakdown, um, you know, by, by railroad. Union Pacific, uh, they were up 8.2% this week. That’s more than double anybody else. Um, and they’re up 8.3% over the last 4, which was stronger than anybody but CSX, which is up about So there is some noise underneath the surface there, right? When you break it down on a railroad-by-railroad basis.

Speaker 1 [2:49] So because we’ve talked a lot about the East Coast railroads really driving a lot of the volume for the earnings we’ve seen so far, right, with carriers and others with large intermodal sectors. So what’s driving that UP volume? Is it all out of California?

Speaker 3 [3:04] Yeah, it’s the Transcon. Just for our audience that may not be as deeply familiar with intermodal and rail networks, EOP is a West-East railroad, not an East like CSX and Norfolk Southern. So Bill, what do you attribute that to, to Julie’s point?

Speaker 2 [3:23] Well, they did mention on their earnings call that their domestic had set a record for, I think it was the 4th straight quarter with private asset moves up, rail-owned container moves up. and also parcel moves up. So that’s pretty much the trifecta, right? But they also gained some additional international business as well that had been moving on BNSF. And so there’s that competitive dynamic at play as well, which I think it would explain for this week their, their overperformance compared to the rest of the railroads. And when you look Down into the carload data, which would be, you know, the industrial products things. Petroleum and petroleum products stood out this week. They were up 11.8%. Lumber and wood, again, another strong showing, 16.8% up compared to last year. And that’s within an overall forest products category that’s down 0.7% for the week. And that’s, you know, continuing the long-term trend there. Metallic ores and metals, again, up 6.8%. And that’s due to the strength of coke that goes into steelmaking, shipments of metals, you know, finished products, and then also scrap, which fuels steelmaking as well for the mini mills. And then autos showed some strength this week, up 2.9%. And they were down 2.2% in the last 4 weeks.

Speaker 1 [4:55] I thought that was an interesting one also. While the number of shipments for the Mexican rails is small in comparison to overall North America, they were up the most significantly, right? 18% in total intermodal units, 11% in total traffic, and it was the largest in auto parts.

Speaker 3 [5:15] But how much of that is— I mean, last year on a year-over-year comp basis, Liberation Day tariffs were playing havoc on industrial supply chains. We’ve got it in the IOTA data. We’ve got it in— last year, it’s really hard to have comps year over year because of the noise that was last year. We also have the USMCA, the fact that the administration does not want to renew that and has now put new tariffs on Canada. Bill, any insights on earnings? Did any of the railroads, particularly the Canadian railroads, have comments on this?

Speaker 2 [5:48] Well, CPKC reports this afternoon, so I’m sure they’ll have something to say. CN did have comments in their call. And, you know, I think both Canadian railroads feel that this will get settled in a rational way and it may take longer than anybody wants because—

Speaker 3 [6:10] Do they have to say that, though? Because the last thing you want to do as a CEO of a company that depends on the United States is to Get on the wrong side of the Trump administration. That’s not talking out of turn. Donald Trump punishes any company that says anything out of line. But do the railroads sincerely believe that, or is that just a narrative to stay out of trouble?

Speaker 2 [6:32] I think that is consistent when, like Keith Creel, for example, the CEO of CPKC, talks about it. He says that the these supply chains in North American trade are just so intertwined, the 3 countries, that it’s really hard to unwind that. And it just makes so much economic sense for all 3. That’s his take. Of course, he just put together the only railroad that links Canada, the US, and Mexico.

Speaker 3 [7:01] He is a USMCA or NAFTA 2.0 beneficiary. As you said, go deep into Mexico and all the way up into deep into Canada. It’s obviously in their vested interest to see that there isn’t trade tensions that are going to cause problems and disruptions, but the administration put on significant tariffs that do impact a lot of the commodities that go over rail. I’m just curious how the railroads are going to navigate that.

Speaker 2 [7:28] Well, one of the things that the Canadian railroads want to do, and the Canadian government as well, is diversify their trade as much as they can away from the US. And so they’re They are looking at driving volumes to ports, particularly on the West Coast, and also using their railroads in the US as a land bridge between Mexico and Canada and trying to increase trade between those countries because of the tariff situation. You have Canadian companies and you have Mexican companies who have been reliant on the US market. Now, you’re never going to replace that, but can we do more trade with each other? And that’s what both CN and CPKC have been talking about. And in some instances, aluminum would be the poster child here. Even though there’s high tariffs on aluminum, we don’t make enough of it. And so that traffic is still moving across the Canadian border into the US.

Speaker 3 [8:24] Yeah, trying to explain that to the administration, that you’re going to come through the United States for trade, but you’re not going to stop to trade those products is always going to be fraught with some narrative violations, at least according to the administration. Bill, you were here in office yesterday. We had some fantastic conversations, probably most notably the CEO of Union Pacific and Norfolk Southern. Everybody wants to know, by the way, it was a great conversation and a great event. It was the first event that trains magazine, which I’ve got a copy of Trainings right here. Please subscribe, support Bill and his efforts to bring clarity to the rail industry. You had the first virtual event. Any takeaways from just your conversation with the 2 CEOs about the merger or just in general about that event?

Speaker 2 [9:16] Yeah, thanks, Craig, and thanks for the plug for the magazine. Always appreciate it. Yeah, Jim Vena, the CEO of Union Pacific, and Mark George, the CEO of Norfolk Southern, made their first comments yesterday after, um, Monday’s filing of supplemental merger information. And they, they really said that, you know, these are shipper-friendly proposals that they have, um, to expand committed gateway pricing, which affects interchange traffic. Um, they’ll double the number of shipments that are eligible for that. They’ll allow unit trains, which typically in this case would be grain and other commodities that move bulk moves and open it up to those shippers. And in the event that there’s service problems related to a merger implementation, if it’s approved, they created a mechanism that would allow shippers to access to another railroad if their service suffers. And one of the things they said too was market share comes from increased competition and customer choice for single-line service. not from diminished competition. Now, of course, BNSF and CPKC and the coalition to stop the merger, they disagree. They see it very differently. And they say that this filing was just more of the same. It’s difficult to understand, comes with caveats, and it’s available to very few customers and only for a short time, is what BNSF CEO Katie Farmer said in a statement yesterday regarding the interchange protections that UP and NS are proposing. And then she also said it does nothing to change the impact of a railroad that would have 50% market share of US rail traffic. So as the merger review unfolds, that’s going to be a debate that we’re going to hear, you know, quite a bit about is these differing views of the merger. And elsewhere, you know, in the Future of Rail Symposium, you had a chat with Patrick Fuchs, the chairman of the Surface Transportation Board. I had a really interesting discussion with the leaders of Intramotive and Parallel Systems. They are developing autonomous railcars and where that could go in 5 years. Chatted with Tom Tisa of Patriot Rail. He’s their chief commercial officer. And part of that discussion centered on how railroads can grow by being more than a railroad, really by getting into transloading and warehousing and distribution and doing more than just moving freight cars for their customers. Spoke with the analyst Rick Patterson about the operating ratio focus that Wall Street has on— for railroads and how that can, in his view, affect service and volume growth negatively for both. And CanDo, a Canadian company, spoke with their Chief Commercial Officer Mike Miller about how they have a solution to this. through helping the Class 1 railroads and their customers with first and last mile service, making it more frequent, more reliable, more dependable car supply, and then you can grow the volume. And we had an in-depth feature on them in our August issue of Trains. And then also spoke with officials from the Federal Railroad Administration and the Association of American Railroads on what they’d like to see happen so that railroads have an easier job of implementing new technology like automated track inspection, automated equipment inspection, and even autonomous vehicles like Parallel and Intramotive are developing.

Speaker 3 [13:05] Congratulations. It was an amazing event. All those videos are available on demand. But I want to go back to the Union Pacific, Norfolk Southern conversation. Jim Bennett was absolutely bullish on the fact that this merger, I think in his exact words, this is going to get approved. And he makes the case that this is better for consumers. His case is it’s gonna improve service, therefore lowering the cost for— and I don’t know that he said trucking, but he certainly was implying versus trucking and competition versus trucking. What is— I mean, he was very confident. Maybe that’s what you say of someone that submitted thousands of pages to the STB. And obviously, you’ve got a lot riding on it. But Is this just— was this just his positioning? It seems like he clearly sincerely believes that this is going to get approved, but was he just talking his book, or was he actually, uh, like, what was your take on that?

Speaker 2 [14:01] I think Jim believes what he says, um, and at the same time, is he talking his book? Of course he is. He wants to see this merger get approved, um, but, uh, I don’t think it’s mutually exclusive. But yeah, the whole central argument here is that shippers prefer single-line service. You deal with one railroad, one invoice. If you have a problem, you call one place. And the stats back that up where, you know, you’re 2 to 3 times more likely to see a rail move when it’s single-line versus interchange because of those— the friction that exists there. And they note that single-line service is, you you know, 25 to 35% less expensive than a joint railroad move because those costs come out. Um, and, and so that is their argument, that that will save shippers $3.5 billion a year, um, in terms of bringing trucks off the highway to this new transcontinental railroad. Um, and then, um, you know, that’s a stronger argument.

Speaker 3 [15:09] I mean, we’ve talked Their application talks about the fact you’re going to remove 2 to 2.2 million truckloads. When we do the math, it’s the size of Knight-Swift. It’s just not that big in our world.

Speaker 2 [15:18] Right.

Speaker 3 [15:19] But I think the cost savings, the significant savings, the improved transit times, the fact that you can now have, as you said, one line across the whole country— I mean, that’s obviously why BN is against it and some of the competitors, because they don’t like that service, because it would be superior in many ways. to what they’re offering their clients. So it’s going to be interesting to watch. Bill, any reads? Again, Patrick gave me nothing in terms of whether, how he’s feeling or what the STB is feeling, but any reads on it in terms of state of play?

Speaker 2 [15:49] I think what was important was the merger agreements that UP reached with Canadian National last week that solved some of the overlap issues in the Midwest. And then also expand CN’s reach into, you know, places like Kansas City and into Mexico. That is helpful for making the argument that we’re enhancing competition. Whether that flies at the STB, well, we’ll have to wait and see. But that would be a big thing. And also BNSF, I think, would tell you that alliances can be just as effective as a merger in taking trucks off the highway. which is something that they’ve shown with CSX, especially.

Speaker 3 [16:33] But some of the posturing seems to contradict that argument when you say, hey, we have great service, but then they come out in some of the narrative, at least in terms of this STB competition concerns. So I don’t know, Bill, it’s a story that’s going to keep on giving where it’s not going away. Like many things we do here on Freightways Today, it is a recurring theme. By the way, if you love Bill Stevens, and we do here at Freightways Today, Please go subscribe to Trains. He deserves it. He’s earned it. And he’s a great person to come here every single Wednesday and celebrate the industrial economy. Bill Stevens, thank you so much for coming into FreightWaves today. We’ll be right back.

Speaker 1 [0:00] Welcome back to FreightWaves Today. It is earnings season. We’re on a roll, not just the railroads. We have OEM earnings. We’ve got big transport earnings. And the person to break it down for us is Chris Frusciante. He is the portfolio manager at TheStreet Pro. He’s the chief investment officer at Tematica. Chris, welcome to FreightWaves Today. Second, by the way—

Speaker 2 [0:24] Nice to be back, fellas.

Speaker 1 [0:26] Welcome back. Thank you.

Speaker 2 [0:29] Thanks for having me back.

Speaker 1 [0:30] Let’s talk earnings. UPS has reported. Their stock sold off. I think some of it was guidance. Obviously, the Amazon story has been overhanging their stock. What’s your general sense of UPS right now?

Speaker 2 [0:43] Well, UPS to me has been a tough one to contemplate owning as an investor. Having said that, I get packages all the time, you know, but from an investor, you know, we have to always assess a few things. One is the competitive landscape. Clearly Amazon, not only on the retail side, but the Flex that it announced earlier this year by moving into business freight and delivery, that’s raised a lot of questions. And when we talked about UPS’s earnings, they didn’t really guide the back half of the year higher for the domestic business, which is kind of counterintuitive if you think about it, given what we’re seeing in terms of the consumer being resilient, the lead-up to the holiday shopping season, and just overall demand for freight. So it’s a bit of a puzzle to me.

Speaker 1 [1:36] And it’s just, I guess, so much— it’s just, it’s hard right now knowing all the different impacts, the regulatory environment, container flows are really robust compared to where they’ve been. I think our data actually channel checks say that the consumer is doing quite well. At least the freight part of the consumer supply chain is doing quite well. But it looks like this Amazon story with UPS, it feels like that’s the biggest factor. Chris, am I reading that incorrectly?

Speaker 2 [2:03] Yeah, I think that’s right. I mean, you have to remember too that UPS has kind of been a restructuring story. And, you know, a lot of folks are still waiting for the payoff in that to the extent that it is taking longer than expected or these other competitive challenges that we’re talking about are going to take it— make it even longer to show progress that people are hoping to see. I think that’s really what’s weighing on the shares and really the company’s business. To me, it’s very much a wait and see. But at the same time, given the seasonal dynamics, especially in the consumer freight delivery business or consumer package delivery business, to the extent that Amazon is taking more share out of UPS, Flip it around, UPS is not exactly guiding for a much stronger second half of the year compared to the first half. That’s a little worrisome to me.

Speaker 1 [2:57] Yeah, it is interesting. We do a lot of channel checks, not only on the show, but certainly on the show. Consumer, the freight market, at least the channel checks that we’ve gotten, the interviews have all talked about how robust it is. But it was like a UPS story. I think you talked about the fact that it is a sort of, I wouldn’t call it a turnaround, but a restructuring post-Amazon. As well as when Carol has come in and divested a lot of their businesses, Coyote, which we’ll hear from RXO in a couple of weeks about how they’re performing. I guess that is next week. Oh my gosh, I can’t believe we’re the last week of July.

Speaker 3 [3:32] We have a guest from RXO tomorrow too.

Speaker 1 [3:34] Yeah, we have a lot of guests.

Speaker 3 [3:36] Yeah, I agree, Chris, with what you said regarding— I think they tried to do damage control by saying if you ignore Amazon and the volume we intentionally made available to the market, we actually grew our volume in the second quarter. But then just the 3rd quarter outlook felt so weak that it felt like a little bit of a—

Speaker 1 [3:53] Was that weakness just by Wall Street’s expectations because everybody else had been so robust, Chris? Or was this a weakness that they actually felt across their network?

Speaker 2 [4:01] I think it’s a little bit of both. And the point about blah, blah, blah, but the reality is that you can talk about underlying strength, but relative to what Wall Street is looking for, it’s the overall numbers that really matter most. So if UPS is saying, oh, on an adjusted basis, if we strip this out, strip that out, you know, oh, we would have done this, that’s not really what happened. And I think that’s kind of trying to, as some might say, put lipstick on a pig. Not exactly what you want to hear. But again, you know, the outlook wasn’t quite as robust as Wall Street was looking for. I will say, that a lot of what we’re seeing in the larger stock market today is companies that are even putting up good numbers, maybe falling short of some of those whisper expectations that the market might have had given the run-up in the overall stock market from earlier this year, certainly off the April lows. And I think to the extent that companies are not able to deliver not only a beat for the quarter they’re reporting, but a raise That is weighing on shares. And I think we’re seeing some of that play out in the shares of UPS.

Speaker 1 [5:11] Well, the market got so elevated. And even the transportation, the truckers, have one of the best— up until really the last month or so, best performing sector, one of the best performing sectors. I mean, truckers specifically, which we haven’t been able to say that in a long time, just how strong things are.

Speaker 3 [5:29] Well, even ARK Best, after their report of the OR that we talked about at 70, their stock fell.

Speaker 1 [5:34] You mean Old Dominion?

Speaker 3 [5:35] Oh, I’m sorry.

Speaker 1 [5:35] Old Dominion.

Speaker 4 [5:36] Although we are going to talk about ARK Best.

Speaker 1 [5:39] Old Dominion, Chris, 70OR. I mean, everyone in transportation and trucking looks good. Old Dominion looks best. They did look best.

Speaker 2 [5:49] Well, I mean, so I have to be honest, I haven’t dug deep into that report. What I can say is this, is that we are seeing demand from the rails be very strong. We are seeing tight capacity utilization for the truck fleets. And there are some very specific reasons for that, both demand side and supply side. But at the same time, we’re also seeing, and this is something that we touched on the last time I was on, we are seeing OEMs and owner operators open up their wallets for replacing, you know, heavy trucks. You take a look at what PACCAR said the other day, you know, 105,000 heavy trucks in the first half of the year, 145,000 expected for the second half. of the year. That’s a big jump. So I do think that while we are talking about areas of, you know, some call it frustration, other areas where companies may not be achieving what was expected, there are others, and I would put PACCAR in this camp, that the outlook continues to look very favorable into the back half of the year.

Speaker 1 [6:59] So Chris, I get, you know, I want to bring my dad in. He’s bought more trucks than all of us combined. PACCAR is Kenworth, Peterbilt is really the portfolio there. What in this market— whom do you think of the OEMs that has the best product lineup? Does PACCAR have the right product lineup for this market? Or do you think that Daimler or Volvo are better positioned, or International?

Speaker 4 [7:30] I think they’re all positioned pretty well for this type of market. But, you know, PACCAR has been pretty innovative in a lot of their products, you know, especially having Peterbilt, which a lot of truckers think is probably one of the better driver-type trucks in the market. Kenworth has been pretty innovative in a lot of their fuel economy.

Speaker 2 [7:52] Yeah.

Speaker 4 [7:53] But PACCAR is a very strong company. You know, they bring a lot to the industry and they’ve helped redefine this industry Quite a bit over the last probably 30, 40 years. That doesn’t mean Freightliner and Volvo are very strong too, though.

Speaker 1 [8:10] You mean that they are very strong?

Speaker 4 [8:11] They are very strong.

Speaker 1 [8:12] Chris, any thoughts on that?

Speaker 2 [8:14] You know, I’m just going to say what he said, pretty much.

Speaker 1 [8:18] Well, our audience, especially on X, has an opinion on what they call plastic trucks. And they’re really knocking the Freightliner trucks because they like the whole They like to go old. The old Peterbilt is the deal. I’m personally— I think Mack has got the best looking truck on the road. But nobody asked my opinion on which truck to get.

Speaker 2 [8:37] And yet nobody’s mentioning a name from the past known as Western Star.

Speaker 1 [8:41] Yeah.

Speaker 4 [8:42] Yeah.

Speaker 1 [8:44] So it is— I mean, it is interesting just how all of the OEMs are coming in with real strong guides. How much of this, Chris, is the pre-buy, or how much of it is— Are you getting a sense that this is replacement or expansion?

Speaker 2 [8:58] I think it’s a little bit of both, obviously. You know, the pre-buy is something that we’re gonna be talking about over the next several months, you know, and PACCAR, I thought, had an interesting comment about the way— how the way they’re gonna attempt to try and smooth out the pre-build into 2027. We’ll see how that happens. But at the same time, if we listen to, you know, rising CapEx levels from some of the logistic companies, Werner, for example, TFI, you know, it speaks to them them, you know, replacing existing capacity potentially for ones that are, you know, more fuel efficient and obviously ahead of that mandate. So again, I think it’s a little bit of both.

Speaker 3 [9:38] So I did think I read that as well, and I thought that was a really interesting comment, the way they talked about to dig into the EPA mandate a little bit more, that they’re going to continue selling their current engines through 2026 and then gradually phase in the compliant 2027 engines because they don’t want to have that pre-order cliff.

Speaker 1 [9:52] Are they allowed to sell if they have a ’26 engine in stock? Are they allowed to sell it into ’27, or do they have to actually Do they have to actually have the 27 engines when that goes into effect?

Speaker 2 [10:03] Yeah, my understanding is that the cutoff point is when they— or historically it’s been when they introduce the new model year. And I think PACCAR tends to have, in particular PACCAR tends to have an annual event where they reveal the new model. And I think that’s when it is. The question is, is that early in the first quarter, late in the first quarter, or do they push it even to a little bit later in order to accommodate maintaining the 2026 engine for a little further.

Speaker 1 [10:33] Now, what are you expecting beyond obviously the emissions? Any cool technology that the OEMs are talking about, or is this going to be a year that the drivers themselves are going to be a little disappointed in their product rollout?

Speaker 2 [10:43] I think primarily the drivers from an industry order, industry delivery mechanism is going to be more influenced by that EPA mandate than anything else. I’m sure we’ll see some incremental new features, but I haven’t seen anything that is Jumping out at me that says, “Wow, this this is cool.

Speaker 1 [11:05] This is the new toy, right?

Speaker 2 [11:07] Right, right. That this is cool. This is the must have. This is what’s gonna you know if this was the iPhone, we’d be talking about oh what’s gonna drive the upgrade cycle. I I haven’t seen anything out there that jumps at me to that degree.

Speaker 1 [11:20] Although Chris, much like the OEMs, Apple’s gotten criticized because their release feels like much of the same. In fact, Steve Jobs’ daughter is a great. tweet a couple of years ago where she’s like, this is exactly— like, all the features are the same. Dad, when you look at OEMs rolling out things, obviously, you’ve got the new engines. But is there anything that you got really excited about? Like, what was that like when they would do new features? What were the things that you were looking for? Was it more fuel economy? Obviously, it’s important. Total cost of ownership. Was there anything that you’re like, whoa, that would be amazing?

Speaker 4 [11:53] Well, total cost of ownership is probably the number one.

Speaker 1 [11:57] Yeah.

Speaker 4 [11:57] Because you have to be able to afford it. Number 2 is, you know, when you’ve got a truck that gets better fuel economy or a truck that basically has a better ride for the driver, better safety. I mean, there’s a blend of things that you’re looking for when you buy a truck.

Speaker 1 [12:13] Very different than consumers buy cars. I’m a pilot, and if you’ve looked at a Cessna 172 from 1960, it looks the same. And so the joke is, Seston’s going to release the same thing. If they upgrade the upholstery in the airplane, that’s an innovation for Tesla.

Speaker 2 [12:29] So—

Speaker 3 [12:30] I’m sorry.

Speaker 1 [12:30] Go ahead, Chris.

Speaker 2 [12:31] I was going to say it’s all about those creature comforts. The one thing I didn’t hear your dad mention is kind of the setup for the driver in the back. I think to the extent that there can be some incremental room or other creature comforts, I think that’s a plus.

Speaker 4 [12:44] Yeah, for sure.

Speaker 3 [12:45] So did anything else stand out in PACCAR’s earnings to you, Chris, that we haven’t touched on?

Speaker 2 [12:50] Just the fact that production levels are poised to go higher, that The build level, if you look at it, the slots are really filling up for the balance of this year. And I think that bodes well for some incremental pricing, which in my opinion, you know, when we tie it together with rising volumes and better pricing, that’s great for margins in the back half of the year. That and the reason I talk about this is we took our price target up on PACCAR shares because of that incremental profit expectation in the back half of the year. So I am very bullish on those shares.

Speaker 1 [13:28] Chris, Derek Leathers, the CEO of Werner, talked about how tight the driver market is, how difficult it is to find qualified drivers that can meet the standards. And that’s really putting a cap on capacity growth. And he thinks that we’re in the 3rd inning. Obviously, there’s 9 of those, which I think is promising for the cycle. Dad, when you’re hiring drivers, when you have a tight market, how much is new truck important? So that’s important to attract drivers. And do the new drivers get the new trucks or does it go to the more veteran drivers to retain them?

Speaker 4 [13:58] Well, usually your veteran drivers get the new trucks first, you know, and new drivers come in, they get the older trucks. But you’ve got to have a fleet that’s relatively new anyway. We try to keep our average age below 2 years. Yeah. Yeah. Which basically meant you didn’t have hardly anything over 4 years old. But at the same time, Drivers always like getting the new equipment, especially a lot of the new technologies that were coming out.

Speaker 1 [14:26] Yeah, for sure.

Speaker 4 [14:26] Made their jobs a lot easier, a lot more comfortable in the process.

Speaker 1 [14:30] Chris, any closing thoughts on earnings? TFI’s earnings, Old Dominion Art Gas?

Speaker 3 [14:35] So many.

Speaker 1 [14:35] I mean, like, it is the problem of this week is it just one after another after another.

Speaker 2 [14:39] Well, that’s so— that’s a problem for some. For me, that’s great because you get to sit back, kind of connect the dots. And piece it all together for— and that helps kind of improve the outlook for the back half of the year, greater clarity in other words. So the one thing I would say just to touch on is as long as the industry remains— has tight capacity, excuse me, and we do see some incremental demand, I think that’s going to allow for more favorable pricing. And if you just take my comments for PACCAR and follow it through, tight capacity, demand, Pricing, better margins, better earnings potentially in the second half of the year.

Speaker 1 [15:17] Well, it feels like we’re really in the third inning. Companies can improve. We’ll see how good Old Dominion can make that $70. Appreciate it, Chris. Thanks for joining us. Always great to get an update as we have earnings.