Odd Lots - Craig Fuller on the Huge Challenge of Getting the Ports To Operate 24/7

Episode Date: October 28, 2021

In recent weeks, the White House has attempted to make a greater effort to improve the functioning of supply chains. One effort includes getting the Port of Los Angeles, and the various companies who operate there, to operate 24/7. But this is going to be a herculean task. On this episode we speak with Craig Fuller, the Founder and CEO of the information and data company FreightWaves to talk about the ports, trucking, and why it's so difficult to modernize these markets.See omnystudio.com/listener for privacy information.

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And I'm Tracy Allaway. So Tracy, we've been covering supply chain issues for quite a long time on Odd Lots. I think probably longer than much of the media. What do you think? I feel like we've been ahead of this. I think that's fair. Like, I feel like we've certainly been talking about it for over a year, like in excruciating detail at times, whereas other people are only just starting to cover it somewhat superficially.

Yeah. All right. So I'm glad we got that shoulder padding out of the way. But it also says one of the nice things about this is about having been talking about it for so long is A, we can have a point of reference because we've talked to some guests earlier in the year and now we can talk about how things evolved. And as you say, like, we can drill deeper because like every time we have one of these conversations, recently we talked to Ryan Peterson of. We recently talked about more of the commodity side with Jeff Curry. Each time we have these conversations, I kind of have more questions that I want so we can sort of drill deeper.

Yeah, it's a really like iterative conversation in some ways because every time we have a logistics or supply shortage episode, like I always come away with additional questions or thoughts. And one of the big ones that came up recently on the last episode with Ryan Peterson was that idea of why there isn't a secondary market for containers and container shipping. And this is something that has sort of come up again and again on these episodes. In many ways, it feels like the logistics industry is like kind of old fashioned. Yeah. So that's kind of what's blowing my mind in multiple ways. It's like people always talk about like the, oh, the economy is over

financialized. And that's kind of this cliche. And oftentimes I would say people who even say that may not have a clear idea of like what they even mean by that. It's just sort of this intuition that people have. But in some ways, I feel like when it comes to logistics, the economy feels under financialized. There is a lack of formal financial instruments. There's a lack of like liquid secondary markets for capacity. There's a lack of hedging tools. It feels like for many of the players in this market. And this, you know, it's all the way down the line from shipping to rail to trucking. And so, like, that's kind of surprised. And then the other thing that is interesting to me, and it's very closely related,

that it's like the B2B market for logistics, it just feels so ancient. Beyond financialization, it's like, like, I'm on this, like, I like join, like, surreptitiously, this, like, WhatsApp group for, like, truck drivers. And it's basically, like, people's like, no, it's like literally. Everyone's going to co-looking for you now. No, I know. But it's like people posting these things like, oh, anyone in Spokane, Washington have capacity. Anyone in Rockville, Maryland, have capacity.

And it's like we're used to like from like a B to C, like consumers. It's like we get this like we can trade UPS and FedEx and it's super like smooth. And when you like sort of look behind the scenes, everything feels like it's sort of so like so glued together and duct tape together. Yeah, it's kind of crazy to think that the supply chain depends on, you know, a random trucker seeing like something posted on a message board or a WhatsApp and going, oh yeah. I'm free next week. I'll take that job. And this kind of gets back. I mean, this is very much related to the conversation we've been having for the past year or so,

which is all about how do you actually solve the supply chain problem. So we are starting to see all these different solutions being proposed right now. Biden was just talking about increasing capacity at the port of Los Angeles. Just last week, we're recording this on October 20th. And so it's getting more and more attention. You're seeing more and more people suggest ways to, to fix it. And of course, the question is, are any of those going to work? Right. And so that is sort of the big news that maybe we can key off our discussion on today.

The White House clearly feeling some urgency on the supply chain stress and making this effort, it's like a multi-company effort with the port of Los Angeles. And yesterday, I believe, the rail company Union Pacific announced that they would be part of it to basically get 24-7 operations out of that port because we know there is this big shipping queue. all these ships waiting out there just to unload. We know there's a traffic jam of the truckers whose job it is to pick up the containers and move them to inland warehouses and so forth. And so one effort that maybe would, you know, if they could get 24-7 operations,

that would be great. But honestly, like, that sounds very complicated, literally just going to 24-7. So lots to talk about and all this. Lots to keep diving into because there's things to drill into and new news. So we have a perfect guest. We actually last talked to him in June. That was a great episode where we had to have him back. We're going to be speaking with Craig Fuller.

He is the founder and CEO of Freightwaves, which is a data and information company on logistics and trucking. So Craig, thank you so much for coming back on. Hey, Joe, Tracy, great to be here. You guys are the OGs of media covering supply chain. Well, you're the OG, OG, but that's nice of you to say. But let's actually just start with that. new news. And in the last week, you know, it's like, okay, we're going to operate 24-7, or they announce it. And just to me, doing everything that we've talked about with, like,

the people who work there, the logistics, even that, just going from like a normal schedule to 24-7 at a port strikes me as like, my guess is that that is no easy task at all, that that is going to be a Herculane effort. It's not just some, you know, switch that you flip. What is your sort of take on the difficulty and the challenges that the White House will face in opening up throughput at that port? Yeah, this is an unorganized orchestra that you have to sort of organize. So you've got all these moving parts. You've got not only do you have the just the idea that you're going to open up the port and all of the sort of inertia that that creates in terms of changing policies and procedures. you have the employment challenges between labor, folks that work at the ports, all of the operational support people that support the ports.

And then you've got all the supporting infrastructure around the railroads, which we did see the Union Pacific announcement yesterday. But you also have trucking companies and warehouse operations. And so you've got all of these moving parts that really have to work together to enable this. And then you have a union with a lot of power that is very reluctant to make big moves. and extend hours. They have historically had a lot of power over how the port is operating. We're talking about the ILWU, the Longshoreman. That's correct. And there's a big union contract that's coming up this summer. And I think it's going to be interesting to, or next summer, to see how much control they have or how much power they have in light of the, you know, all the pressures that are on them.

But that's an entirely different episode in itself. And so with all of that said, it's not as easy as saying, hey, we're going to, to open up and keep the port open up longer because you have all of these moving in an independent parts that have to work together. So, I mean, if there's one thing, I feel that all lots listeners have probably learned at this point in time, it's that trucking has a lot to do with the gridlock that we are seeing at port. So in addition to a shortage of containers and ships kind of going in the wrong way or being out of position, there are these major, major issues with trucking. Maybe just to remind us all, I just remember the other thing all thoughts listeners know is like the importance of Sven in like a random port in Norway and getting onto an actual ship. But anyway, the importance

of truckers, can you just walk us through like their role in the port situation and the supply chain emanating out of the ports? Because I think that's probably going to set the basis for a lot of this discussion. Yeah, so trucking operations handle approximately two-thirds of all freight that moves out of the ports. And typically, dray operators. So if you think of, you go drive down the highway, the interstate highway, you see these 53 foot trailers or these people, you know, these 18 wheelers that people see. It's very different than what you see at the port. Typically, there are chassis that the containers sit on. They're not the big trailers that you would see in sort of the heartland of the United States. The vast majority of freight is actually on trailers. What ends up happening

is the dray operators, the vast majority of those day operators will stay. within a 100 mile radius of the port and basically take a container to a distribution center warehouse and that container is then offloaded and then it goes to a transfer facility and then put into a trailer that would then be shipped across the country. So really what happens is in terms of how the port interacts with the domestic market is all of those dray operators really are local operators, and it's the, the really construction is the amount of dray operators that are able to go into the port and operate at the port, not the overall freight capacity that's across the United States. And so getting those dray operations and those dray operators

to work really means that you need a lot of employment availability for truck drivers in and around the ports, and you need warehouse operations that can accept those containers and offload them in the, you know, metro area wherever that port's located. So if we're talking Southern California or talking to L.A., we're talking about the, you know, San Bernardino Valley. We're talking about, you know, places like Ontario and Fontana, California, where the freight is then offloaded onto a, you know, an inland trailer or inland container that then goes on rail. So I have a very small question. Could you remind listeners what Dre or Dreage means? I'm sorry.

No, no, it's fine. It's great to use. I remember it came up on a past episode, but for those who missed it. Yeah. Dre is just a localized move. It's typically referred to port or even at the railroads where you're taking a container and moving it on a relatively short distance. So let's think of a hundred mile radius.

These are not the over-the-road trucking operations that you would, you know, take a container from L.A. to Chicago or L.A. to Kansas City. Now, that may end up on a railroad on intermodal, but it doesn't end up. You don't see a dray trucker go from L.A. to Kansas City. So the last time we had you on, we actually talked more about the sort of the long-haul truckers and just sort of the way that this current crisis was sort of interacting with like a secular decline. It's not a very long-haul trucking. It's not a particularly appealing job for a lot of people or a lot of health problems associated with it.

you don't get to see your family very much, all kinds of issues. How different is the dray market? How are there drivers who work in both? Can you talk a little bit about how distinct that market is versus the sort of the broader long haul trucking that we talked about last time? Yeah, Dray operations or sort of inland port trucking services, is about 5% of the overall trucking industry. It's a very small piece of the overall trucking industry.

It just plays a very important. important role because it's really the intersection point between the inland cargo or the ocean cargo to the inland cargo. So you think about it, the dray operators have an enormous amount of power versus their relative size of their overall participation in the market. But having said that, they have very different issues. There's been a lot of coverage of dray port operators and trucking operators. These are typically, you know, it's not as fragmented.

They're typically owned by large conglomerates that have. have a lot of power. There's been a lot of labor issues. The ports require newer emissions and newer trucks, so they won't allow, particularly in Southern California, they won't allow trucks that don't meet certain emission standards and they have to be post-2011 in order to operate at the port. It doesn't exist across the country, and that's really related to air pollution controls. But there's a lot of labor issue. These are typically viewed as the companies have a lot of power at the port versus what you see in the over-the-road trucking market, which is sort of the opposite end of the spectra, where the truck drivers have an enormous amount of power over their

employers. And so because it's localized, you also see unions that participate and have a lot of influence over those dray operations. But having said that, it's just an entirely different marketplace. But I think both the, the draage side of things, or I guess, you know, associations represent Dreyage have voiced the same concerns as the longer hall trucking companies when it comes to Biden's focus on the supply chain stuff and the solutions that he's so far proposed. Could you maybe walk us through like what the issues are that they are spotting in this? So, you know, Port of Los Angeles moves to 24-7. It's operating all day and all night. In theory, that should add many, many more hours in which they can load and off.

flowed container ships, and yet you have the trucking associations saying that actually it's not that simple. Yeah, that's right. You can't just have an edict to say, hey, we're going 24-7. This isn't a restaurant that you can decide you and extend hours to. So it is a, you know, this is a massive, massive major employer on any city that it represents, and it's a major economic center for that particular market. And so if we look at Southern California, which is always, you know, it's the most important port to set of ports in the United States. It is, and it's also the one that everyone's sort of focused on because you have 100 ships out today. You have 100 ships outside the coast waiting to get to get unloaded.

And so because of that, you have a lot of attention paid to the dray operators and how they intersect with the port. But the reality is that the overall trucking industry wants more efficiency. They're trying to put pressure on the port operations on the unions because they want more seamless and more flexible hours. Because ultimately, if this is a choke point, there's a hundred ships sitting off the coast of Southern California that have freight that all those trucking operators would love to have their hands on because it just drives a lot of demand.

And a lot of it is the coordination of the trucking industry coordinating with, you know, the federal government who's then trying to put pressure and coordinating with the port operators and the union to really affect this. But this is not as simple as just saying, we're going to operate longer hours, and this is sort of overnight. There's a lot of moving parts that have to be considered. And most importantly,

you have a major labor shortage, people that can actually operate at the port. And because of all of the regulations and all the safety requirements that it takes to be an operator, it's not as easy as saying, hey, we're just going to hire another shift. It just doesn't work that way.

Well, it's funny because, You said, this isn't, is, this isn't like a restaurant deciding it's going to be open 24-7. And I understand it's orders of magnitude more complicated. But my first thought was like in the year 2021, even a restaurant might have a hard time going 24-7 because of the well-known tightness of the service labor market. And so, yeah, I mean, even if you can coordinate the people who are work the ports and the unions at the ports, the dray operators in the warehouses at which they're afraid is going to then be dropped off inland, you still have to figure out like just the actual like who's going to do the hours? Yeah, labor is the, you know, that's the biggest concern is where are you going to get the people.

And think about working after hours or working on the weekends. It's a very different sort of person that would want to do that job. Typically, these jobs are long-tenured. They take a lot of training. I mean, you're dealing with, you know, a very, level, a high level of sophistication and orchestration that needs to take place. And so getting labor is a problem, as you mentioned, for any job today, it's a challenge. It's sort of compounded by the fact that you need people who sort of understand how it is.

And we're not even talking about just the crane operators. You remember that there's a lot of supporting staff that goes into managing the entire port operations. It's in many ways an airport for cargo. And so you think about go to the Dallas airport, Fort Worth Airport, Chicago, Hara, Atlanta. Think of how big this infrastructure is between security professionals, between just operation professionals. You have a lot of people on the ground that are making that happen. And you're trying to do this at a port. It's much the same time, you know, trying to manage that.

And so this is going to take a while before we actually see this go into effect. And it's not something that will happen overnight. And like I said, we haven't even talked about or we barely talked about, fact that you need coordination of the trucking operators and the warehouses who will offload these containers to actually manage it and make sure that it works. So I want to ask you about the warehouses, but maybe before I do, just on the labor side, I mean, Biden did talk about this a little bit. So I think I think I saw that he was talking about maybe making it easier for truckers to unionize and boosting wages and things like that. I didn't

see many details beyond that, but what's your sense of that side of things? Like, is there actually an effort going on at the moment to make trucking a more desirable or palatable profession? Yeah, I think it's, you know, at the Dray operations are much easier unionize and have much more sort of an environment that's much easier to sort of have organized labor because the drivers stay local. They're easier to organize. They're localized. And there's a lot of history of some practices that are less than desirable. And really the trucking operators or the drivers themselves really sort of suffer a lot of the sort of consequences of poor management and a lot of companies that have sort of had abusive practices much more so than you see in the

over-the-road trucking market. It's probably one of the most, in terms of sort of poor labor practices, it's one of the more, we'll say abusive, I think it's a really strong word, but it is certainly not the most favorable climate for a truck driver to operate that. It's just because of the way that, you know, typically they find the trucking operators, finance the truck, they sort of indebt the driver into it, the dray operator, they're sort of subject to it. It's just not an environment that's typically very friendly. You have rules on who can actually enter the port, so they have a little bit of control over

that. It's just a much, it's almost like a taxi. If you think of like the way the taxis work in places like New York, it's much more, it's much more similar to that than it is what you see in the over the road trucking market. The over the road trucking market has its own set of issues, but it's quite different than what you see with the Dre operators. So just getting back to the warehouse point, you talked about the need for coordination between drivers or the trucking companies and the warehouses. Can you talk about exactly like how those two normally interact with each other and what's needed now? Yeah, so effectively, when you think about the dray trucker who goes and picks up the container

at the port, they take it into a warehouse or distribution center to off, to basically offload that cargo. So that container is unlikely to show up at the retailer that you would get your product out, particularly if you're outside of that sort of metro area where that port's located. So this will be translated. The shipment is then they break it down. They take all the cargo. They break it down and they distribute it.

So you may have a container of teddy bears and those teddy bears are then distributed to all of the inland locations that they're going to and they end up on 53 foot trailers. And so the teddy bear boxes will then be mixed with other cargo. So let's say it's going to a Walmart distribution center. Then Walmart will then take maybe it's shoes and maybe it's, you know, maybe it's coffee mugs and teddy bears and all this freight gets mixed in it. to go to the final destination. So they've taken and broken that one container, have sorted all of those sort of locations where those teddy bears are going, and they mix it with a bunch of other freight from other containers.

And that's effectively what those warehouses and distribution centers do. So it's critical that if you want to turn the equipment faster and get faster throughput, it's not so much about hours. It's about, are the warehouses operating efficiently and at capacity to an, enable that freight to be offloaded and turn that container so they can get back to the port and the chassis can get back to the port. If your warehouses are closed and there are places in Southern California, there are cities in Southern California where you're not allowed to make deliveries or pickups after hours, is they have ordinances due to sound and pollution where

they're not even allowed to go into a warehouse after hours. So it's not as simple as, hey, let's just have the port operate. You then need labor inside the warehouses and you need to have the support of the local municipalities that will allow those trucks to come in and out after hours, but because of noise, pollution concerns and pollution concerns, oftentimes that isn't the case. And so this isn't just a simple thing of sort of saying, let's turn the port on and all of a sudden everything is magical. It takes a lot of orchestration. God, I hadn't even thought about that, but every, it just feels like, I feel like we could probably talk six hours about literally, like, the process of getting a container from a port to the warehouse.

Because I hadn't even thought about like this idea that like they're going, you know, okay, the White House says 24-7, but the towns and the cities are going to have rules on all this too. And there's no like it's not like we have some coordination. This is, I mean, California is the one. It's really sort of strange looking at it from afar is that, you know, it's such an important part of our economy and the United States. yet you have all of these really strange sort of political considerations that impact.

You look at a place like Savannah, Georgia, which tends to be very pro-business, a very efficient port. It still has issues. So it's not just the labor problems in Southern California. I think a lot of people like to point to that. But you actually see Savannah, Georgia, that actually is even further backed up. So we have these problems. They exist everywhere.

And there are no easy solutions. And this is not something that the government can just do. and hope that everything works out, it's going to take a lot of coordination and effort and energy among a lot of parties. And the problem is it isn't just, it isn't that easy. Before we move on from the Drey operators,

and there's sort of, there is this other world, although we could keep talking about. I do want to mention, you mentioned this sort of like brutal labor conditions. Reminds me just Rachel Premack and Business Insider whose work I've followed on this. I know she just talked to you. She tweeted about this.

I guess in 2017, seen there was a Pulitzer Prize story about how, like, there was a indentured servitude, some would say, characterize some of these markets because of, as you said, the sort of the way the financing works and the way the drivers are expected to like pay off these loans, kind of like the New York City cab drivers, does seem out pretty brutal. Yeah, that's right. And that piece is something that, remember, we're talking. I think it was a USA Today's story.

Correct. That piece particularly is talking about the port and dray operators, which, like I said, is sort of a segment of trucking, which has, you know, the corporations have a lot more power over the, you know, they've constructed the rules and the set of circumstances that it really favor them. Corporations have a lot more power in the dray operator and dray operations than they do in the sort of the over-the-road trucking market. It's the exact opposite where the driver, the individual driver, has an enormous amount of power over the sort of environment versus the dray operations. So I think this is actually like a good seg into another interesting dimension that happened since the last time we talked. You had a lot of comments on this on Twitter, but I don't know if the stats are official. You might have them, but the vaccine mandate and the requirement that or the sort of executive order from the White House that large companies essentially can put pressure or force their employees to get vaccinated.

I think it's companies that have at least 100 employees, which not many trucking companies do, because most I understand, you know, as we learned last time, are extremely small, but some do. I'm curious, like, how that's unfolded and what we know about, A, tensions that have arisen from that, and B, just the sort of what percentage of truck drivers have gotten the vaccine. Yeah, it's hard to know what percentage. We talked to fleet operators that, you know, have suggested that the number of unvaccinated is anywhere from 30 to 40 percent is a typical answer. I, they've done their own surveys. They won't, they won't share that data with us because obviously they want to keep that pretty close to best. There's a lot of sort of privacy, but from their own assessments, at least a third from what we can gather, if not more, are unvaccinated. And this was, of course, about a month ago that probably has changed.

I would imagine just looking at the broader data that we see some level we bring. but it's hard to know how significant that is. I mean, the big issue is the sort of discrepancy between the mandate saying that if you have over 100 employees, then you have to be vaccinated and under 100 employees you don't. And you think about the fragmented nature of trucking, as you mentioned, Joe, because it is so fragmented and these tend to be a very, a lot of very small operators, you end up in a situation where a truck driver that works for a big company who doesn't want to get vaccinated, could just as well leave the big company and go to a small operator.

And now you have this really weird sort of dichotomy between the big companies and the small company. So a company with 98 employees or 99, I guess 98 employees could easily add one driver, pick off a driver from a big company. And they wouldn't have, that driver would not have to be vaccinated. You take a more extreme example of a fleet with, say, 10 trucks or 10 drivers or 10 employees. and all of a sudden they can add another, you know, 80 trucks to their, to their business and really sort of pick off the big fleets. It just creates this really weird sort of environment where while in practice it may, it may be very valuable to get people vaccinated. The realities in the

trucking industry are quite different. So what is sort of unknown about this is will we see a situation where it becomes that much harder if this actually goes into a. effect or how it goes into effect, how hard it will be for larger carriers to sort of fill their trucks. And the reality is that even though the market's very fragmented, sort of the larger shippers, the one with really efficient supply chains, really are dependent upon the bigger trucking companies to manage their supply chains. So that if you think about the sort of efficiencies that we enjoy in terms of ordering product and getting it on time and the brands and the retailers that do a really good job of that, they tend to be, they tend to work with the larger operators.

because they have the scale, they have the technology, they have the resources and the assets to support the type of missions that those companies require. The smaller operators, because the fragmented nature of it, don't typically pay in that market at a big level. And so it creates these sort of really unpredictable outcomes. I mean, if you think about a large trucking company losing 5% of its population, while on the surface that sounds like a really sort of small number,

it is very significant in terms of what it can mean to capacity. of what it can mean to capacity. I think you guys understand that the marginal producer is the one that sets the price of the market. And you think about a three to five percent degradation and capacity across the industry, that would have a exponential outcome to the overall construction of the freight market. And so the sort of inflationary market or prices that we've seen with freight rates would just continue to accelerate. Well, this is something that I wanted to ask you, because I remember when you first came on, one of the things that stuck out in the conversation was,

I think you pointed to 20, I think it was 2019 as like this terrible year for the trucking industry where like the number of companies that went bust was just astronomical. And part of that from what I remember was the government creating like some sort of new mandate for an electronic logging device. Everyone had expected it, that new requirement to reduce, capacity, but instead it ended up adding a ton of capacity. And then, you know, there were too many

trucking companies. And so a bunch of them went out of business. But like, could you draw a parallel between that and what's going on now with the vaccine mandate? Yeah, it's very interesting because it's hard to know what is actually sort of causing all of the issues around the sort of supply chain crunches and demand. And so consumer demand is certainly an element of a government spending is an element of it. And so you had this sort of inflationary demand market, which is taking place right now in freight. And if you go back to 2018, really two things that were sort of driving the increase in capacity and sort of the bust of 2019, which is in 2018, as Tracy mentioned, the government mandated electronic logging devices. And there was an assumption moving up into that

that drivers would not participate in the electronic logging devices, is that drivers were saying, I'm not going to let Big Brother track me and let the government see what I'm actually doing over the road. And there was this level of paranoia. Well, when that mandate came about, and this had taken, you know, it took about a decade for between all the lawsuits and regulatory changes before it actually went into effect. So it wasn't an unsort of an unexpected outcome. A lot of what actually happened was the opposite is that every fleet operator thought anticipated it was going to be a massive capacity crunch.

And so they sort of overcorrected in terms of adding capacity. At the same time, we saw an economic or an industrial slowdown due to tariffs, sort of the Trump's tariffs that took place in 2018, which just caused a big hangover in 19. So we had an oversupplied market of 19 in terms of capacity and an under demanded market in terms of freight. And that's what we saw in 19, which caused these bankruptcies. And like I said, we're talking about three to five percent sort of change in the market. constructs, which caused a lot of bankruptcies because the marginal producers were really driving

prices down. They were just oversupply. This situation is in many ways different in the sense that back in 19, the labor market was not as tight as it is. It was tight, but not what we see right now. And the jobs that would be fungible to trucking would be construction back in 2019 was good, but not great. Conditions weren't spectacular like they are right now in terms of labor demand. And so what exists today is quite different than what existed then, which is, you know, drivers can easily leave their fleet and go get a construction job and make as much money as they would drive in a truck and not have to deal with the stand out over the road and being away from home. They can also operate in the gray economy through these types of jobs like construction

where they don't have to report that income, and still because of a lot of the government assistance, is benefit from not having to sort of go off some of the government assistance that exist. And so because of all the sort of constructions of the market, it sort of means that if somebody's going to leave a fleet, they probably don't stay in the truck industry. They probably do something else.

And so it's just a lot of sort of unknown factors that take place that are just creating all these really strange environments. One of the things that, you know, when we looked at the vaccine mandate, I pointed out, that this could cause a significant amount of drivers to leave the industry, people challenge that fact. And they said they wouldn't give up their job just for the vaccine. And I say, well, I take exception to that because it's hard enough for them to stay employed or want to stay in the trucking industry as it is. And you're talking about with all of the data around how important it is to be

vaccinated where you're risking your own life and your family, you actually think they're going to keep their trucking job. They're going to get vaccinated because they want to keep their trucking job. It just isn't the way it works. And so you do expect that if this goes into effect or when it goes into effect, that you will see a percent of truck drivers that will leave the industries. We don't know how many will end up leaving, but we do know that some will. So I want to talk a little bit more about the, I guess you say the market structure of this, the trucking economy. And I mentioned in the intro, and I said what's that, but it's actually, I lurk on some telegram groups, and I see things like people posting. Joe's an undercover trucker.

Just, you know, just try to observe and learn. Tracy, Joe, we got to get you guys to run a trucking company. This is how it's going to work. You know, Tracy is going to drive, and I'm going to be like a dispatcher or something like that. But I look in these telegram groups, and I, and all day throughout it's like any cap in Crest Hill, Illinois, which actually I went to. middle school or I went to elementary school for a couple of years at Crest Hill. Any van load from Dallas, Texas, any van cap in Aurora, Colorado. What am I reading, A, when I see these things? And how important are these sort of informal message board postings to, like, the overall market?

So it's a really sort of interesting because it's not just telegram, it's Facebook. You know, you don't really see a lot of activity on Twitter, frankly, but Facebook is a It's actually a really important messaging system for truck drivers. And so you can actually find out a ton of information about what's happened in the industry because it tends to be the first place they go to is Facebook. But what you're actually hearing is when they say van, it's not vans. I mean, this is funny. Because like when we bring in a journalist who's writing about it and they read the word van,

they immediately think a bunch of vans and you're like, no, no, no, no, this is a 53-foot van trailer. It just means that it's not, the van trailer means it doesn't have a refrigerated unit. and it's not, it doesn't have a flat, but it's an enclosed. And I've learned that refrit, reifer is the term for refrigerated. They're not hauling cannabis. They're hauling refrigerated or reefer is the term. So yeah, so what effectively is happening is that truck driver that you mentioned is asking for a van load, for a 53 foot trailer load to go to, I believe you said Dallas and somewhere else.

They want to find a load that goes in that direction. Remember, in the over-the-road trucking market, is these are not planned routes day and day out. So if you're working in and dray at the port, you're going in and out of the port. You may be going to different parts of Southern California, but you're going in and out of the port. That's where your life is. In the over-the-road trucking market, you're sort of nomadic or a gypsy of sorts where you don't know where you're going each day. And if you own your own trucking company, if you're an owner-operator, you get to sort of set your own hours and get to pick where you want to go. So this driver that you've mentioned is looking for a load from Illinois, wherever the town he's in Illinois to Dallas.

And so he's trying to find a load that fits his desire. We don't know why he wants to go to Dallas. Maybe he lives in Dallas. Maybe he's got a spouse in Dallas or a family in Dallas. Maybe he has a girlfriend in Dallas. Whatever. Maybe he wants to go to a sporting event. Drivers do decide they want to go to these different markets for various reasons.

Many of them economic, other just because they want. want to go there, what he's trying to do is find a load that fits his needs that can get him there. And so they use these message boards as sort of an informal marketplace to get access to freight. There are more formal marketplaces. We've seen sort of the emergence of digital apps, which are sort of really new. Uber freight is one. Convoy is one. And as well as sort of traditional freight brokers that have built their own marketplaces.

But you also see what we call load boards, which think of it as Craigslist for freight, or match.com, afraid is probably a better example where a buyer and a seller of capacity. So the broker is looking for, you know, looking for matches and trying to find drivers or truckers that will fit their, it will take the loads that they offer and drivers are trying to find loads that will fit their needs. And so you can search for, hey, I'm looking for a load that originates in Illinois and goes to Dallas. And then they'll match it. Now, one of the really interesting things about that is, The assumption is that the trading would happen online, but much like internet dating, is when you consummate a transaction, you do it through another method. So email or phone, you're not actually transacted inside the platform, which is a really strange sort of environment, which is the reason we think of it as Craigslist more than eBay or Amazon, is that the actual consummation happens offline.

How come no one has, like, cornered this market and created, like, Facebook for truckers and then creating. and then created like some sort of platform where you could actually transact as well. Like find the truckers and then also pay them or book them all in like one network. Yeah. So there's been a lot of attempts. I mean, the load boards are as close to a marketplace as you can get. And that, you know, there's two is DAT and truck stop that sort of have the vast majority of market share, probably 97% market share combined.

And so they are the marketplaces of the spot market. They tend to handle freight that's already been sort of picked apart by the contracted freight. Contracted freight doesn't end up on a load board. It's typically, and then brokers will pick their own freight. They'll end up picking what they can through their own networks. And then whatever's left over, they sort of put into these loadboard marketplaces. What we are seeing, so that's sort of the way things have operated, and they sort of emerged from sort of truck stops. In the old days in 1970s or 1980s, you would go to a truck stop and there would be a board, a screen that would show all the loads.

And you'd have a phone and you'd pick it up and you'd call and say, I want load 1, 2, 3, 4, 5. And that's how you would get the load. Now the internet has sort of enabled this sort of marketplace model. But we don't see binding outcomes or in an exchange that you would identify in financial markets take place in freight. There has been an emergence in the last, say, five years of digital market. is almost like an Uber of freight. In fact, Uber freight is an Uber of freight is a digital marketplace, which enables an owner-operator to basically find freight and source it from a digital

marketplace. All of the consummation happens in the marketplace, and then they're paid. The difference is the freight broker is the principle and the transaction. So effectively, what they have is these marketplaces, but the driver is being paid, or the operator is being paid from the digital marketplace. And so it's not truly an exchange. It's more of a closed network, which is why the Uber example is a better example,

because if you think about an Uber driver, they're getting paid by Uber. Same exists in the trucking market, is that that digital freight marketplace of the matching engine is actually sourced the freight. They have the customer relationship. They're the ones that set the price. Now, it may be set by some type of algorithm.

It may be set by an index of sorts. But at the end of the day, the rules are governed by the principle of the transaction, which is the freight broker and not by a third-party marketplace like you would expect in a large commodity market. And I think one of the things that's really shocking about this. And Joe, you touched on it earlier, is, you know, this is an $800 billion market. It is a massively big market. In fact, if you look at petroleum production and the size of it, we're talking about a market

that's about twice the size of it of what you see in the sort of petroleum market in the United States. And so it is a massively important market to the economy. It has a bigger impact on Finnish goods costs in terms of GDP than what you see in energy. And so it is a, it is just, it has so much power in terms of, of the economic viability of the economy, yet it is an unstructured wild west of sorts. I want to get into that further at a second. But Tracy, I just, I came up with an assignment for you, a post assignment for the blog. Oh, God. Okay. No, no, this is a really good one. You should write a post comparing the unstructured nature of the trucking market to all the unstructured nature, the attempts to electronify the corporate bond market, which is also,

we used to talk about a lot and the similarities and differences, because I'm feeling like, you know, I remember our old episodes with Chris White that we should have, we should have him back on, but I'm feeling in talking to Craig now some similarities in like, okay, here's this gigantic market, corporate bonds, shockingly sort of still, like, difficult to consolidate and, like, Tronify, et cetera. I'm feeling a lot of actual, like, I'm feeling some similarities there. I think you should write a post on it. That's so funny because Chris actually emailed me overnight. So, yes, we will get him back on. But yeah, I can kind of see a parallel. So, you know, there's all these different freight loads and freight types and all these different

routes and nothing is really like interchangeable in the same way that there are all these different types of corporate bonds with different maturities and stuff like that and that kind of makes the market hard to function. Can I ask one more general question before we continue down the sort of financialization theme? But one of the things that stands out from this conversation and also our previous conversation is that clearly the industry has very, very slim profit margins. And I'm just wondering if you could maybe update us on what's going on at the moment with profits, because, like, in a traditional market, you would expect if demand is exceeding supply massively, that prices would go up, and eventually the companies would be able to pay their workers more, and that might solve some of

the labor shortage issues. But my impression is that doesn't seem to be happening. So could we maybe get a little bit more color on, like, how much money trucking companies are actually? actually making at the moment? Yeah, it's, you know, it's interesting you say that because if you look at what's happening in the ocean side, it's the opposite, right? So first trucking is the ocean carriers have never made more money. I think, you know, in one quarter, Mariske made more than the past nine years combined or something insane like that.

So the ocean carriers are doing exceptionally well in this market because they have a lot of pricing power. It's a non-fragmented market. You have basically 10 companies that control something like 90% of the ocean market. Trucking is the exact opposite. And so while trekking companies are enjoying really high pricing power over the market, they also are experiencing massive wage inflation at the same time. And so effectively, and not just wages, there are cost of equipment's going up, their cost of fuels going up, just all the components that they operate their business. And because the quality of driver that they're hiring, just as an aggregate, tends to get less and less, just what happens in a market when you have.

have everybody trying to fill seats to get truck drivers is you start to, and not the big carriers don't get away with this because they just have so much pressure on them from insurance companies and regulators, but the small carriers start to get a little bit more loose on who they hire, which increase the amount of accidents. And so insurance rates tend to accelerate. And so trucking companies are seeing all of their input costs accelerate in this environment, and we're not seeing what you would expect would be super high record profits. It's going to be interesting to see. We haven't seen a lot of quarterly earnings so far.

It's just too early in the month to see it. But over the next couple of weeks, we expect that companies will have really robust revenues, but they will also have a lot of concerns about costs that have also increased. And so there won't be a significant margin expansion that you would see in other commodity markets, which is unfortunate for these carriers because this is the one time or one of the few times where they have all of this pricing power, and yet they have all these cost issues

that they're also faced with. And so it isn't as easy as, hey, everybody's making money hand over the fist because they've done that. The other thing to keep in mind is that particularly the larger sort of asset-based carriers tend to operate the vast majority of their freight through contracted loads.

And those contracted loads are set, basically have set prices or rates to them where they don't get the benefit. of really high acceleration in spot rates. So they're seeing it on the labor side. We're seeing really high increases and cost. Yet if they're locked in those rates for a year, they're sort of stuck with them. And unlike the ocean side where you see the ocean carriers basically say, if you don't pay my

5x rate increase today, I'm not picking up your freight. It does happen that they don't honor contracts, but they tend to do that with the smaller shippers. They tend to do it with rates that are sort of subpart of the market. or people that have very cyclical freight. You don't see them, particularly the larger carriers, have much more contracted freight,

and they tend to be stuck in this cycle where they can't dramatically raise rates into a cycle, yet their cost are increasing. So that actually is like the sort of like good segue to this idea of like, what I characterized in the beginning is what I see is sort of the under-financialization

of this market. And you already sort of talked about a little bit with the fact that there is not, a sort of unified, there's still nothing close to like a unified exchange, like a, you know, a CME or something. And it's interesting because, as you say, you know, arguably, you know, trucking is, well, it's not arguably, trucking is huge, is arguably as or more significant than oil. And of course, oil and certain commodities like that are some of the most financialized assets. Prior to your current endeavor, you tried to build this, right? Like, you tried to create something like a trucking

futures market. Can you talk to us a little bit about like what you see as the opportunities or why, you know, what it will take for something like that to emerge? Like what steps? I have to imagine there has to be more data, more recognized indices that could be serve as reference prices. But like, could that happen? What will it take for there to be like a futures market or hedgeable contracts or hedgible instruments on an exchange in this area? Yeah, Joe, it's interesting. Freightways. started out. That was the original idea behind freightways was to build a futures market for trucking. And it started in 2017 to really go out and build that. What we realized is that, and we actually

launched contracts and, you know, we had the fortune of being the first people and traded a, you know, a couple dozen contracts and by the time we delisted it. So we had attempted to create a futures market because the market is so massive. It is so big and it is so unstructured that it just, it seems like at some point, it should become structure. So the volatility that exists starts to enable instruments that people can hedge it and sort of muted economic exposure that they end up with. The reality is that the market wasn't ready for it, as we learned. And there's a reason that it wasn't ready for it. There wasn't data. That was what prompted us to realize there is no equivalent Bloomberg in freight. So we went out and created freight waves as a data and media

source provider to provide intelligence to the market, because that's one of the things. things that we discovered as we looked at commodity markets is typically these things happen with sort of a backdrop of information services so that people feel they can either arb the market or trade the market and get an edge. This just didn't exist in freight. So we went out and effectively tried to create it. And that's what freightways became was this data provider of the industry. One of the realities of trucking is because of the disparity in fragmented nature of 18,000 origin destination pairs is very difficult to get. You can't trade individual pairs.

You can't do a physically settled a futures market. It just wouldn't work. Even a Ford market is very difficult. There have been attempts at that that we didn't try, but others had, and they've sort of pivoted their business model as well. What I do think we will see in time, you know, maybe it will be freightways that does it or maybe, you know, a couple evolutions beyond us.

In time, there will be a benchmark index. You mentioned the bond market. We could use, you know, Prime or LIBER is sort of a reference to that. is there should be some type of national index where people can at least hedge some of, mitigate some of the volatility that exists in rates. That is, that is probably the likely place that we would see some type of financial structure is a national reference price that's assessed in the market. And that is what everything is based on.

You see it in ocean shipping in the bulk business is there is a, the Baltic has built this, in the Baltic Dry Index has built this reference. price for global ocean, bulk shipping, then everything that's sort of derived off that. They had the lane issues as well. In time, that is where the market will head as to a national index. But what you need enable to, in order to enable that is you need data being fed in daily for assessments and something that everyone sort of recognizes as a market assessment that people will start to build index-link contracts off. And so I think that's probably, going to happen pretty soon is where you'll see an index link contract against the national

average. And people will say this lane is at a 40% premium to the national average during this season. And it's at a 10% premium during the off season. And so you can start to see market construction that way. But I think that's what has to start before you start to see some type of financial structure in the market. And we've learned that the hard way is that not only was the market not ready for futures. It also was a situation. There wasn't a central sort of reference national index that everyone used to sort of build their physical products off of. And that's worthy what you need. So I mean, I mean, again, this seems like building a futures market from scratch, again, we could probably talk about this for hours. But, you know, like one thing I'm curious about

and you can't, as you said, you can't really have a cash settled futures market without agreed upon reference prices. Without indices inherently seem like they have to come first so that there is a reference price that the futures could then trade against, maybe a national average, and maybe like then you start getting maybe futures for some big routes. When going back to those, thinking about those like telegram groups, where it's like, okay, I'm going from Dallas to Crest Hill, Illinois, like, is there transparency? I mean, I guess that's what you're trying to do, but like in that, in the price that gets paid, I mean, there's no like, sense. centralized listing anywhere, right?

Yeah, this is where I was really, like, starting to actually think about the corporate bond market because one of the difficulties there is that actually there's a lot of incentive not to reveal prices. Like, it's not a transparent market because people don't want it to be. And so I wonder if the trucking market is like that, too. I think there's some sense of it. But what's happening now is that Silicon Valley has pumped so much money into the idea of, transparency is everyone recognizes the need for being transparent and all these marketplaces sort of

popped up to deliver that. There's been a lot of movement towards more transparent marketplaces. And so I think the idea that companies have made so much money because the markets are opaque is one that has gotten tired more recently because people recognize that ultimately when you're when you're managing freight, it's not just the price discovery and the price element. It's the ability to physically manage the logistics behind it. And because there is so much attention paid. And remember that unlike the corporate bond market, I don't know a ton about corporate markets.

This may sound incorrect or may be incorrect, is that if you take a company like a Walmart or any big shipper, is 90 to 95% of their freight is managed under contracted relationships. They have a fixed price where they're doing business with a set of carriers. And those same carriers tend to participate in the spot market. So because of that, there's a lot of power that the shippers have, the people that are buying capacity, have a lot of power to sort of affect the market and sort of force some level of structure. The challenge there is that, and so they want transparency. They don't like this volatility.

They don't like the opatiness. The challenge is that because they also have the ability to sort of affect a fixed price is that their less incentive to sort of hedge their spot exposure. We think over time that will take place. But you're right. historically there's been this desire to sort of manage an opaque market and sort of keep it opaque. But I think we're starting to see that become less and less reality where companies, particularly Silicon Valley funded companies, have said, hey, we need to do a much better job of building structure to the market. We need to build a better job to being transparent.

And we're going to create these digital marketplaces to do that. Because of all that capital and technology this poured into it, there is a desire among those participants to create a more transparent marketplace. This is so great chatting with you, and I learned so much. And like I said, we could just keep going down this route. We could talk about the drainage market for hours. We could talk about the complexity of building an index. Index construction is sort of a fascinating thing to me,

and we can talk about that in another episode. But eventually probably just should cut it off and have you back on again in a few months. Craig, so great to catch up with you again. Thank you for coming back on Adlaught. No, Tracy. Really appreciate it. Always fun. Thanks, Craig. That was great. That was great, Craig. Thank you so much. That was great. I wasn't kidding there at the end. I really do feel like we could just have like a six-hour conversation with Craig on any one of the subtopics we hit on.

And it would just, it feels like there's just endless stuff to talk about. Wait, I need to know more about your adventures on like trucking message groups and load boards and stuff like that. Oh, I don't even do anything. I just like, I went on telegram and I did a search because, you know, I was to see. And I just found all these, like, I haven't, it's not too adventurous. I just lurk and I'm trying to figure out what some of this. What's the most interesting thing that you've seen there? No, it's really, those messages that I sent to, they're very, they're not like juicy message board. That's disappointing.

Like those ones that I read, I was like, any load from Las Vegas, any cap and Troutdale, Oregon, like, that is literally what the message boards are. I'll send you the link. So you know what I was thinking about, though, and again, so many different things I'm thinking about now. But, you know, like, and I think we're going to have them on again soon. Like, you know, we did the lumber episode with Stinson Dean. I went down to sort of rabbit hole after that reading about how lumber futures are created. And there's this company called Random Lengths. And they have like this, like very detailed white paper, essentially on how they create a daily reference price for the price of lumber.

And, of course, it involves coloring up lumber yards. And it's sort of like LIBOR where they have to like, like, lop off some like extreme cases and there's all this stuff and thinking about like that's literally just pieces of wood in you know fairly like a standard size and dimensions thinking about like how you know the complexity of creating an index for like the price of wood and then thinking about creating an index for the price of trucking which is like infinite combinations of goods and services and times boy does that seem like uh it's a it's a tough job yeah and i think you You are really spot on with the corporate bond market analogy.

Like, not only do you have all these different, like, trucking prices and contracts, but you have people who are incentivized in different ways and, like, people who might not want to move to a more transparent system. Or even, like, it could just not be about that. Just people who don't want to modernize or change the way things have been working for decades now. Yes. And I might mention that there is a certain company that. has done extremely well in the corporate bond market by serving as a sort of instant messaging service, you know, where brokers and traders send kind of like those, I won't mention the company, no, it's Bloomberg.

I don't know who you're talking about. Where that kind of remind me of like these, like, you know, on some level, it's like a, like, reminds me of those telegram pages where it's like who I have this per sale and who has this and who wants to buy this. And like, just like trucking corporate bonds is sort of like a big part of it is literal like sort of IB or IMs and message boards. And, you know, it's nothing like what I think we think of still as like a sort of like, you know, it's not like the NYSC where everyone knows the price of, you know, Facebook at any given time. Well, this is why I'm sort of surprised that there hasn't been a centralized message board. Like I get that there are a bunch of different load boards, but like I'm surprised one.

network hasn't taken over. But maybe it will one day. Anyway, um, maybe. Should we leave it there? Yeah, so much, uh, we could go on recapping, but let's leave it there. All right. All right. Allot's supply chain spinoff coming soon. I'm sure. This has been another episode of the Allthot's podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allaway. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. Follow our guest, Craig Fuller. He's at Freight Alley. Follow our producer, Laura Carlson. She's at Laura M. Carlson. Followed the Bloomberg head of podcasts, Francesca Levy, at Francesca Today.

And check out all of our podcasts at Bloomberg under the handle at Podcasts. Thanks for listening.