Odd Lots - The Trucking Episode: Why the Industry Is Such a Mess

Episode Date: June 21, 2021

You can't talk about the problems in logistics and supply chains right now without talking about trucking. Once goods are unloaded from ships, trucks are the dominant mode of domestic freight. However, unlike shipping, the trucking industry was something of a mess even before the pandemic: prone to extreme labor problems and rapid boom/bust cycles. On this episode, we speak with Craig Fuller, the CEO of the information and data firm FreightWaves, to discuss the current and long-term state of the industry.See omnystudio.com/listener for privacy information.

Hello and welcome to another episode of the Oddlots podcast. I'm Joe Wisenthal. And I'm Tracy Allaway. So Tracy, we've obviously been talking a ton on this show about supply chain bottlenecks, logistics, and so forth. Probably, you know, we've talked about all of it, but we've had a pretty emphasis on ships, vessels, the sort of like international freight aspect of global supply chains. I think that's right. Although I feel like we're getting. more and more specialized. So we started with container shipping,

and then we got into breakbook a little bit on our previous episode, and we're thinking about doing a barge episode now. We haven't gone into, I guess, like, land transport. But it does feel like we're working our way through all the different modes of transport. Like, I wonder if we're going to end up doing a sort of Oddlots coracle episode at some point, like the wackiest modes of moving goods. Yeah, I mean, that's the way to do it.

Zoom out, go global, and then start to drill down to all the different nooks and crannies. But as you mentioned, we did sort of the bulk shipping episode a couple weeks ago. And at the end, we're like, okay, we got to go trucking next. And so now it's time for now we've got to talk about trucking. All right. The truck driving episode, it's time has come. I cannot contain my enthusiasm for this episode because I think, I think I mentioned this before, but one of my dream jobs that I used to fantasize about was being a truck driver.

I think, like, I'm sure I have a romanticized notion of what it is. And obviously, part of our conversation is going to be about how difficult driving and the job actually is for those doing it on a day-to-day basis. But I have a personal interest in this industry. And I'm really curious to hear what exactly is going on at the moment. I also have a personal romanticized interest, not because I ever aspired to be a truck driver per se, but I'm a big fan of country music. And there's lots of songs about truck driving. And I was a huge fan as a kid of that movie, Convoy, which also has a great soundtrack of songs about truck driving, six days on the road, another good song. So I'm also very interested in this. And I'm very excited for this episode.

So after we did that last episode, we're like, we got to do the truck driving episode. Today's guest, multiple people reached out and said, you got to get on this guy. He's the obvious next one for it. Yeah. And I think it's going to be interesting. I mean, one of the reasons this has come up is because we hear these reports of a shortage in truck drivers, which is, again, feeding into the supply chain issues that we've been discussing on all thoughts for the past year now.

But there's a big question mark over whether or not that's actually happening. And again, to that point about you and I both romanticizing the job, like there's a disconnect there, isn't there? If there is indeed a shortage and yet people like you and I are thinking, oh, it'd be nice to drive a truck around and, you know, have an opportunity to eat junk food and listen to country music and be like Chris Christofferson and Ali McGraw and convoy, something's going on. So I'm really interested by this dynamic and I'm looking forward to this conversation. Exactly right.

So as I mentioned, everyone said you've got to reach out to this guest. So I'm very excited. We're going to be speaking with Craig Fuller. He is the founder and CEO of Freight Waves, which is kind of like the Bloomberg terminal for transport. Could be said. They cover transport from a news perspective. They also have data, all that stuff. and he is going to tell us all about domestic truck industry

and how stuff gets around after it's unloaded from the port. So Craig, thank you very much for joining us. Hey, Joe, Tracy. Great to be here. Craig, so excited to talk to you. Obviously, there's lots to cover, and of course we're going to get into all the supply chain messes that we're seeing right now. But as always, you know, it sort of helps,

and I think it's especially true in trucking to talk about what the pre-crisis environment looked like. Because if I recall from seeing the reporting, there was a lot of very intense boom and bus cycles just in the last few years leading up to 2020, periods where it was very good, periods where it was weak. How would you describe the sort of health of the industry pre-crisis? Yeah, so this is an industry that runs on very thin margins.

So if you take the industry hours, in terms of profitability, typically in a good year, the industry will generate 3% gross profits. And so it is not an industry that is typically very profitable. There's a lot of, there's very few barriers of entry. And it's a very cyclical industry. And so it's, and there's reasons of when the market's good, where costs go up significantly because the input costs go up. And when the market's really bad, obviously revenue, you know, dries up when the economy dries, it's sputtering.

And so because of all those reasons, it's a very cyclical industry. And so as you mentioned over the past five years, we've had two freight recessions in the past five years and two big boom cycles. And that was pre-COVID. So you have fuel costs that are a big input cost. You have labor costs that are a big input cost. You have driver turnover. That's a massive issue for the industry. You have a regatory environment, which continues to be more and more restrictive on home you can hire.

And then you have a whole set of liabilities that the trucking companies have to accept because of, you know, the way that they manage their drivers and a responsible for them. So if those drivers end up in an accident, those trucking companies can be sued for tens of 20. 30 millions of dollars. And so it's an industry that has a lot of structural challenges, but it has no barriers of entry. So anytime you see the market become really strong, like every other commodity market, there's a massive, massive boom cycle. And then when the economy slows down, because you've overbuilt the capacity, the market crashes. So when you say there's no barrier to entry, could you maybe describe what that means exactly in? practice and what the players in the trucking market actually are at the moment?

Like, are there a few companies that dominate this form of transport in the U.S., and are there also smaller players that might be enticed into it at times when they can get paid a lot of money for doing it? Yeah, so the market is incredibly fragmented. So I know you guys have done a lot of shows on the global shipping market. the differences between global shipping and trucking is that 10, if you take the top 10 shipping carriers, they represent 85% of the capacity. So it's a very concentrated market. In trucking, it's completely different. If you take the top 10 trucking companies, you'll come up with about 12% of the total

capacity. So there's no like MERSC equivalent? None. And so like the largest asset based trucking company is a company called Knight Swift out of Phoenix, Arizona. It does about five and a half, six billion dollars in revenue on an industry that does about 800 billion. So if you sort of look at it, it is a very, very fragmented market. And for those reasons, you have a lot of independent decision makers out, drive in a lot of the issues in the market. So Tracy, if you wanted to go start a trucking company, you could do that today. You would go buy a truck, you would get a CDL, and then you would be off to the races. There's very little that you would have to do beyond that. And so it's an industry that allows people who

are looking for a level of independence and who want to own a company to go start a trucking company. The challenges is that oftentimes those people don't have strong business acumen or experience. And so you have this massive boom bus cycle. I was just looking at the number of new trucking companies that entered the industry in the last 30 days. And we had 11,000 new trucking companies that entered the industry within the past month. Okay, that's a, okay, now I feel like I want to just like do an episode on this alone. But actually, I want to follow up on this point. So let's say Tracy followed her dream and wanted to be a trucker. And all she would have to do is buy a truck, get a driver's license, and she's in business. The other question is,

Is there a plug-in-play network that allows her to immediately get jobs? Like, what is the process? So if 11th, obviously, it can't be too much of a relationship-based business where you need to have connections. If 11,000 companies, I have to imagine many of them extremely small, maybe one or two people, can enter. So when someone starts one of these companies, is there just some sort of automatic way where they can start bidding for jobs?

Yeah, it's essentially like selling e-commerce on the internet. And so there are what they call load boards, which work a lot like Craigslist, where I can take transactions. Think of it, you know, probably the best analogy is almost like an internet dating site like Match.com where buyers of capacity, so brokers, freight brokers, are essentially posting loads. And then the trucking companies, the Tracy in this example, would be looking for loads wherever she wants to go for a load. that meets her, you know, what she's looking for and pays her what she wants to get paid, she would take those loads and be able to fulfill those orders. So that's a load board marketplace, typically ran by brokers. And then over time, she would get a couple of really close shipper relationships.

And shippers in our lexicon are the people that move, that buy freight services. So these are the Walmarts and the P&Gs and the Amazon's that are a buying capacity in the market. And so over time, if Tracy really wanted to get out of the sort of low end side of the market, the spot side of the market, she would move into developing close relationships with one or two really good shippers that can keep her trucks moving at all times. And so typically when you start in the industry, you're either going to start as a truck driver as an employee driver, so you go work for a trucking company. It doesn't require you to go buy a truck. You would become an other path that's become an owner-operator

and signed up under a trucking authority. So a big trucking company would contract you and you would be contracted to them and they would help find loads for you. And now we have this sort of digital marketplaces that are both the traditional load boards or electronic apps where you can just download like an Uber. And if you're an Uber driver, you can get loads from that app. It's a very similar

set of marketplaces in trucking where you can find orders that will allow you to keep moving. So effectively, Tracy, you know, if you decided you want to get become a, start a trucking company, within a couple of weeks, you could have a truck, you could have your CDL, and you would be off to the races. And in this market, probably making $200,000 a year in gross revenue and your cost of goods sold or your operating costs be about $100,000. So you would make in profit today about $100,000. Now, here's the challenge. The market, if it collapses, and it will at some point, this is a boom and bus cycle. So at some point, you would go from making $200,000 to probably in revenue to about $80,000, and your operating cost would say consistent. So you would actually

end up losing. And that's what causes this bankruptcy cycle that we see a lot. So I have so many questions, but I mean, number one, this idea of drivers choosing a load or a route that they want to take. It reminds me a lot of the way airline pilots bid for individual schedules, like typically at the airline that actually employs them, but they do kind of have the system where they can choose where they want to go. And then I guess my big question based on that is, is there actually a trucker short? If we have 11,000 new trucking companies being created, it seems like things are moving. It seems like truck drivers have some flexibility in the routes that they're choosing to take. I guess I'm curious, like, is it an actual shortage or are truck drivers just avoiding certain routes or certain types of work in the market?

Tracy, I'm so glad you asked this question because oftentimes people talk about a quote-unquote driver shortage without really exploring what that means. And so I don't like the word driver shortage because it's a term that is actually doesn't really explain much in terms of what's actually taking place. And so the way I think of the industry constructs are a driver shortage is really a trucking company, a fleet that doesn't have. have a driver. They have a truck, but they don't have a driver for that truck. That's a driver shortage the way we would describe it at freightwaves. And then you have capacity shortages, which are imbalances between supply and demand. Now, you can have a driver shortage and a capacity shortage at the same time. So a fleet or across the entire industry, you can have driver shortages. So we have more trucks than we do drivers to drive them. That does happen. And then you can also

have capacity shortages, which means there's more freight demand than there are trucks to haul it, or you can have a capacity glut at the same time. So if you think about it from the perspective of what's happening right now is there is a capacity shortage because the demand is so high. And so just using the term driver shortage at times doesn't really describe what's happening, because back in 2019, we had a capacity glut, but some trucking companies had, didn't have drivers to fulfill the trucks. But they didn't need to because there wasn't enough freight to actually create demand on those trucks. I have a sort of very quick question. And it just, again, goes back to Tracy's company that she's going to launch.

Are there actually trucks for sale? Yeah, so there's a used market. Now, you can't today get a new truck. So the issue is that this is an asset. So the other thing creates real economic issues for trucking companies, typically that own assets. If you think about owning assets, if you own a building or a warehouse, that asset over time should appreciate. And over time, you're going to hold on to that for 30 years. Even in the shipping industry, as you guys have covered, those ships have life cycles of 20 to 30 years.

And so if I go buy a ship, I'm able to operate that ship for 30 years. In trucking, I'm only going to be able to operate that truck for three years. And so really, as I run that truck and put as many miles as I can, there is a secondary market for that. And so typically what happens is the larger fleets or the owner operators that run nationwide will end up running the truck for three years. And after the three-year cycle, they will end up selling it. to a secondary market, which will end up going to more localized operations, port operators, people that don't have as strenuous sort of over-the-road long-haul demands. And so because of that, the trucking companies have to go out and buy new trucks every three, you know, they're constantly

buying new equipment. So you have this really big issue where the, you know, trucks don't hold their value. So based on what cycle we're in in terms of boom or bust, depends on how well they do. And so that's a pretty significant issue. But right now, used trucks have gone up about 40% in the last three months. So it's good if you own equipment and you can sell that equipment. If you have too many trucks and not enough drivers, you're doing quite well because your balance sheets have really, really improved. And so we're actually seeing a lot of that. But order in a new truck, you're about nine months out to get it.

If you ordered a truck today, it would take you approximately nine months to get it. And that is assuming that they will even take your order. Right now, a lot of the OEMs are not actually accepting new truck orders. Just going back to truckers for a second because, you know, my new trucking company, we obviously care about the equipment, but we care very much about our human capital as well. But my understanding is that there's a lot of turnover among drivers, too. So, you know, trucks might get worn out after three years. drivers might get worn out in even less time and leave the industry altogether. Could you maybe

describe how desirable is being a truck driver as an occupation at the moment? So Joe and I talked about how we both have this sort of romanticized view of it. Could you maybe tell us what it's really like and how it stacks up against the money that you're actually being paid to do it at the moment? The realities are quite different than your romanticized view of the industry. It is a tough job. So if you're an owner-operator, you will make in this market because the demand is so high, you would do quite well. You know, you probably wouldn't net $100,000.

As a employee driver, you're probably going to be making about $55,000 to $60,000 as an employee driver per year, and you're going to be paid on a per mile basis. You're going to run your truck or drive. or work about 56 hours on a given week. So it's not a 40-hour week. You're actually working 56 hours. But here's the reality is you're not at home every single night for the vast majority of the drivers. You're actually out.

And so while you may not be on duty for that 56 hours in a given week, you're still at a truck stop. You know, you're still dealing with sort of being out over the road. So it's really, it creates a lot of strain on families. It creates a lot of strain on people. It takes a special kind of person to want a life where they're out in the road. It's a job that's very dangerous. It's one of the most dangerous jobs in America. It's a job that has very high occupational issues in terms of health.

You're sitting in a truck, you know, you're driving for 11 hours a day. You're sitting, which, you know, drivers have high incidence of obesity and diabetes. So it's not a great lifestyle. And for all of those reasons, it's not a desirable job for a large percent of the population. And unfortunately, the industry salaries have not kept up with a lot of the competitive industries, which they compete for labor, like warehousing, construction, other types of industries which tend to pull the same labor force. So I'm curious, like, on this, like, what were the, and you alluded to. to this at the very beginning, the workplace trends. But what was the trajectory of sort of people entering the workforce, making their careers as truck drivers? And then in this particular spike,

has there been any like pay dynamic or any increase in wage that has perhaps brought people off the sidelines, either to get back into trucking or to get their CDL? Yeah. So let's talk about two things. One is there's effectively two separate markets between the employee drive. market, which is someone who goes and gets a job at a trucking company, which is actually seeing a three, there's three percent less truck drivers today that work for fleets than there were pre-COVID. So we actually lost three percent of the industry, that the driving force of employees. And then we've seen an increase in 11,000 trucking companies in the last month.

Those are not employees. those are essentially fleet operators that are in that. So we've seen a lot of growth in the owner-operator market or the spot market because they can make a lot more money. And we've seen a shortage in the employee drivers. And so turnover typically in a trucking company is 115 to 120% because a lot of people enter the industry but don't really know what they're getting into. They have this sort of idle, you know, Tracy has this sort of idolized view of how great this is going to

be and she enters the industry. She goes to a trucking school and is excited about her career for the first couple of weeks and then realizes just how tough it really is to be a truck driver. And so she ends up quitting and deciding it's not a great job for her. And so she ends up going to work at a warehouse or ends up going to do construction where she can make today more money than she can be for can be a truck driver. And so there's just a lot of structural issues that are there. Just for the, how long is truck driving school? How long would it take an average person to go from never having driven a truck to being licensed? Six to eight weeks. And it depends. And this is, in a COVID world, 25% of trucking schools have shut down. So this is the other issue is that if you sort of look at it, a lot of states didn't treat trucking as a critical job or a truck driving schools as a critical job. So they were basically a lot of them were mandated to be shut down.

And so a large percent of the people that enter the industry that become employee drivers enter through the truck driving schools. And we've lost 25 percent of them. And even the ones that did have survived were actually shut down for months, a couple of months. And so there was this big shortage of bringing new people into the industry for those jobs. And that's what's really created this capacity and strength. that we see right now. So one thing I've been thinking about is, is there a way aside from

raising wages? Because you mentioned this is a slim margin industry and, you know, maybe giving truck drivers a massive pay rise doesn't really work economically. But is there a way to make the job more, I don't want to say enjoyable, but maybe less stressful or make the lifestyle less onerous so that you attract more people, particularly women? and maybe some other minorities who aren't necessarily interested in truck driving at the moment so that you entice them into the job and you have a bigger pool of potential drivers? Every trucking company is trying to figure that out, and no one is sort of figured out the secret to it. There are certainly initiatives to bring women.

Some fleets have as much as 25% of their fleet are women. Automated transmissions, sort of removing the stick, if you will, actually attract a lot of women. A lot of the OEMs have designed trucks that are in seats that are more comfortable for women are allowed for someone who's shorter as a smaller body to fit inside the cab. And typically, the trucks were built for men, you know, big, sort of big oversized environments. And now they've sort of focused on the aesthetics to attract more women to the industry. And so there certainly is an element of that. But the industry is not figured it out. Now, we do see large investments around recruiting Latino drivers, recruiting African-American drivers, recruiting,

one of the largest population of truck drivers has been very successful, has been Indian populations. In trucking is actually a very respected industry in India. And so a lot of the trucking companies have figured out that they can bring in, you know, bring in immigrants from India that have a pedigree in trucking, and they will bring their families and their friends to join their fleet. And so there's this very large population of Indian American truck drivers that have been very successful. So there is a effort to diversify the industry, but it's still an industry that is not attractive to a lot of people when they can

find alternative work. You know, one of the issues that you have in sort of as you diversify is Latino populations tend to want to stay close to families. So the lifestyle of being a truck driver doesn't work great for someone who wants to be with their family on a, you know, every night basis. And so you have sort of these constraints that exist in the industry. And there really isn't an easy answer. The job itself requires you to be out over the road. You know, freight has to move.

It is inconsistent. You don't have a consistent schedule. you're not hauling a consistent route. And so there's a lot of structural issues that are not easily addressed. So first of all, I hope if we do get a lot more Indian or Indian American drivers that they bring the Indian tradition of decorating the trucks with them, because... They do. Oh, good.

There are some awesome YouTube videos, which are bodywood style. And they're incredible because they're dancing. in front of their rigs and they've outfitted these beautiful rigs. It is, and the job itself is one of pride. It is one that they're very proud of the job. And it is an unusually, there's an esteem associated with becoming a truck driver. And it's an industry or a group of population that the industry has been very successful recruiting and challenges because of the American immigrant.

policy doesn't allow us to import hundreds of thousands of folks from India to take these jobs. And so we're sort of stuck with a small portion of the industry that fits that demographic. Yeah. So I've seen some of those trucks in India and Pakistan and they're absolutely beautiful. And I think I've spent like a lot of time photographing them myself. But the other thing I want to ask is so if you think that being away from home, is a major downside for potential truck drivers. Is there any way to try to fix that problem? Could you organize some of the trucking routes more efficiently?

Could you develop some sort of handoff system where instead of having a single driver drive from the west coast to the east coast, they could maybe pass on their loads from like midway through the journey or something like that so that they wouldn't have to spend so much time away from their home or their home base? Or does that not just work economically or logistically? It's very difficult. It is tried in, you know, it is tried and successful in sort of parcel operations and what they call LTO, which are small pallets or small parcel, where I'm running a terminal to terminal network and it's sort of a closed loop, if you will, where the same set of drivers are going back and forth. So it does work in very limited cases. But supply chains,

the issue is that the customer demands, the supply chain demands, are very different than the driver and trucking demands. And so what supply chains want are products there as fast as possible. They want them efficient. You know, they want to move. There's all liquidity demanded in the supply chain. And so you can't optimize the trucking market or network to agree that you would want to if you, if everything else is created equal. So for those reasons, you know, freight tends to run what we call head hole and backhaul. So you see places like Southern California, L.A., which, you know, is the largest port in the United States. You know, a lot of freight enters L.A., but very very little freight is imported into Southern California from the rest of the country.

So what you have is this massive headhole market out of Southern California that goes all over the country. And then basically very little freight's coming from the other parts of the country back to L.A. So there's just a lot of inefficiencies in how supply chains work that create these issues. And frankly, customers want things as soon as possible. Businesses want them as soon as possible. And for those reasons, you can't optimize, as you mentioned, sort of these handoff scenarios. Companies have tried it.

It just doesn't work very well. So that perfectly leads to where I was going to go next because, you know, we've talked about a lot about some of the big structural issues facing this industry, but also the current moment for supply chains. And we've touched on it a little bit has some unique challenges. And I think that's a good place to start the gap between outbound shipments from the port of Los Angeles, elsewhere versus insolns. inbound, which was already very, you know, there's already a big disparity for years, but that's really grown massively in this crisis because of all the goods imported and how little is being exported. And that has created its own unique challenges for shipping, you know, because the ships aren't taking back as many containers and so forth. We've talked about that.

So let's talk about like, other than just the pure, like, overwhelming sort of like supply demand mismatch. How else? are the sort of like new imbalances making this moment even worse and exacerbating some of the structural problems for this industry? Well, you know, this is interesting because I listen to a couple of your podcasts, particularly around shipping. And people are now aware of all of the things that can go wrong in a supply chain where before no one cared. And so for someone who does this, this is, you know, something that I do full time. it's a really interesting time because all of a sudden people are very aware and very concerned about all of the stuff that's taking place across the global supply chain, whereas before no one cared. I would often get asked, can you actually build a media and data business for freight?

It seems like a very small niche. And I'm like, well, it's 12% of the global economy. And 40% of the global economy is our in logistics dependent industries. But everybody sort of ignored it because they all assumed it all worked because they did. didn't, they didn't experience these issues. So these issues that we're seeing have always existed, just not to the degree that the market was already strained and stretched that we see right now. And frankly, most people were not aware of it. We've always had hurricanes that have disrupted supply chains. We've had at times pipeline issues. We've had, you know, presidents that shut

down borders that create massive disruptions, just just out of, you know, sent out of tweet. and all of a sudden I'm going to shut down the Mexican border because I don't like the fact that you're not paying for my wall. And if you do that, then all of a sudden, the auto suppliers have to put a lot of inventory into southern Texas so that they have it available. These things are always playing out. And now we're really aware as a society how vulnerable you are to supply chain disruptions, which have always existed just not at the degree they are and not back to back. And so a lot of this is sort of, I think, a new awareness and new level of respect that people have. There's all this interdependency. So you look at what's happened in shipping.

It certainly impacts the trucking market. And it's both ways because what ends up happening is the trucking market, as much as one-fifth of trucking volumes, are tied directly to imports. And for those reasons, when you see this massive amount of imports hit the freight market, it creates an enormous amount of strain in terms of trucking capacity or trucking demand. And for those reasons, we're seeing a lot of issues and just look at tight inventories and look at the lack of labor supply. All of this stuff is playing out. And now people are experiencing that only in their business life, but they're experiencing their personal life. So you mentioned the idea that even though the trucking industry is in a boom now and people can

make a lot of money that it's almost certainly going to end up in a bust and overcapacity at some point in time. And this is something that keeps cropping up in all of our discussions about shipping. And I'm just wondering, what is it about the transport industry that seems to make it so cyclical in nature? So you mentioned the low barriers to entry for trucking. And I could see how you would get a bunch of people who start trucking companies when times are good. And they think it's an easy way to make money. And then when things get a little bit more difficult, they all go bust. And it's a sort of self-fulfilling cycle. But it's a little bit different in shipping where you do have long lead times to build very, very expensive vessels. It's dominated

by a few companies that have a decent amount of money, or at least more money than some of the trucking companies. So I guess my question is, what's the common thread between all these transportation and logistics companies that seems to make them very, very vulnerable to these cycles of booms and bus. Yeah, it's a great question. So in the shipping market, I'm going to own a ship for 30 years. So these shipping cycles typically play out over decades. You know, the shipping industry has had this sort of recessionary environment since 2008 since the great financial crisis. And in the last two years, it sort of has had, has sort of come out of that in COVID's really accelerated that.

So that cycle will probably live on for some period of time. In trucking, they typically, the industry runs in three to four year cycles because it's very close to the broader industrial cycle of the economy and the domestic economy. And so for those reasons, if the industrial sector is very soft, so will trucking. But what happens is because of the lack of barriers of entry, people, When they enter the industry, they go out and buy these trucks, you all of a sudden have this glut of capacity. And the industry has to prune that during the softer time. So 2018 was a record year for trucking.

2019 was the worst year in trucking since the Great Depression. 2020, we saw two, you know, really three cycles. We saw the run up to COVID where you had this massive surge in demand. We saw a crash where you saw this massive surge. hangover. So in March, you saw this massive surge. In April, you saw this massive hangover. And then we've seen a super demand cycle since then. And so these cycles live out. And because there's very little barriers of entry, it allows the industry to get oversupplied really, really quickly. And because you have such a fragmented market, there are 40,000 trucking companies that have employees that work

for them. They have more than one truck. And for those reasons, there are so many independent decision makers that are out making decisions on what's in their best interest and oftentimes don't have ubiquitous information across the industry that they end up buying more trucks, growing their fleet, and increasing their costs along the way. So right now what's happening is the trucking industry is dramatically increasing labor costs. They're trying to attract new drivers into the industry by increasing salaries. Well, the problem is when the market busts, they will be stuck with those salaries. So their operating costs have gone up.

The operating costs have shut way up. They will have to live with those higher operating costs. And it's okay as long as the market's doing well. But when the volume dries up, is it inevitably will, they will be stuck with very high operating costs and we'll just see a massive bleed out in the industry. Can you just go back and talk about 2019 specifically? I mean, that is pretty striking. Do you say it was the worst year on a growth basis since the Depression?

It was the worst trucking market in terms of bankruptcies since the Great Recession. So just walk us through, if you don't mind, like, go ahead and give us this summary of what really happened in 2019. Well, 2018, so the government created this new mandate called the electronic logging device, which basically in the old days, truck drivers would use paper logs. Oh, yeah. Cheating or creative accounting, as we like to call it. A lot of them were cheating the amount of time. Now, the big trucking companies,

and there's always this rub between the small trucking companies, which are the independents, and the big trucking companies, and so there's always this sort of the little guys and the big guys are sort of always fighting it out in terms of what regulation. So the big carriers are all constantly getting sued and constantly getting audited by the federal government,

government and others. So they have to keep things really, really tight, compliant. Otherwise, they just, you know, it would be a pretty nasty situation for them. So the small carriers have don't typically have to operate in that fashion or have not operated. So the government mandated, they call electronic logging devices, which actually electronically monitor the amount of hours a driver drives. And so it records all that information. And so this, everyone sort of expected this massive churn of capacity. And because everybody thought, well, this is going to destroy a lot of the available capacity in the market. And for a short term, short time it did, they're expecting that this would create such a tightness in capacity that the rules would be

different this time. And this is something the industry always says. It's different this time. You'll hear this a lot. People say that all the time to me. This time it's different. Well, I've heard that for 42 years since I, you know, I grew up in the industry. So I've heard that. It's never different. It's just the, maybe the situation's different, but the rules are always the same. And so the industry ramped up a lot of capacity, headed up to the ELD mandate. The ELD mandate happened.

And what they expected to happen was this massive contraction and capacity. We actually saw the opposite. We actually saw a building of capacity. And so it was. a lot of additional supply brought into the market over six to nine months in 2018. Now, at the time, in 2018, there was a lot of industrial demand. The industrial economy was doing quite well. This was post Donald Trump's tax cuts.

It was sort of, you know, the economy was doing really well. All of a sudden, we had tariffs put in place in mid-2018, and we saw an industrial slowdown throughout the economy. And so as the economy slowed down, the industry was still building up capacity. And they were continuing to build up that capacity all the way until about the third quarter or fourth quarter of 2018. And then with the slowdown and the industrial economy at a time and capacity had been overbuilt, this massive, massive issue in 2019 where the market was oversupplied.

and we saw a lot of bankruptcies. You know, we at Freightways were covering probably four bankruptcies, at one point, four bankruptcies a day where we would, you know, and some of them were big. There was a 4,000 publicly traded company that went out, went out of business, New England Motor Freight, which is a New York-based LTL carrier, went out of business. So, you know, there was just a lot of bankruptcies that happened in 2019 because these companies just couldn't survive it.

So this sort of gets back. to the question that I asked earlier, but is there anything that can be done in order to balance out the industry from this boom bust cycle? No, it is, it's classic economics. And so, I mean, Tracy, this is just the reality of it. And a lot of people assume, and so I grew up. My dad started a trucking company. My uncle started a trucking company.

my grandfather was in trucking. And so I've grown up listening to my dad talk about these cycles. And it's existed as far back as I can remember these cycles. And so even, you know, we have something called the Hall of Fame at Freightways, which is we cover stories about historical trucking companies for a feature. A lot of them are now out of business. If you go back to 1980, pre-deregulation. So there was a time when trucking was like,

great industry and a great job, and that was pre-deregulation. But when the Carter administration deregulated trucking in the late 70s, along with the airlines and telecommunications sector, when they deregulated during that period of time, what ended up happening is that you saw a massive drop in transportation costs and percent of GDP, but what you also saw was this massive boom in mon cycle. Rates used to be fixed, which means there was no marketplace for rates. you have a fixed rate. You had to file the tariff with the government, and only certain carriers could bid on lanes,

very similar to the airline, the way the airlines work today in terms of international, sort of, you know, they restrict how many airlines can fly internationally in these routes. But pricing was also fixed. And so for those reasons, it was a very stable market. But when the government deregulated it,

it allowed a lot of, you know, just this massive sort of level of volatility. that is going to be with us as long as the economic cycle does, which, you know, as long as we live in a free-ish market, you'll always have that. Well, I have an idea to stabilize the trucking market. And tell me why, if it's ever been tried and why it won't work. I mean, I'm sure it won't work because someone would have done it. But instead of Tracy starting a independent truck driving company, why doesn't she start like a private

equity roll up that buys 5,000 different trucking companies? companies and then create some really slick digital platform so that it's more than the Craigslist for trucking and give repeat customers a nice break and try to like really become the merce of trucking in some way. Why wouldn't that work? Can I just say that my dream of being a lone truck driver left to my own devices has suddenly morphed into me becoming like a private equity tycoon ruling over some sort of tech-fueled dystopian future? I'm just trying to think of a different approach that might be more sustainable. Yeah. Okay. Go ahead. Tracy, you would be, you would be far happier being sitting on the financial side of the industry than driving a truck.

And so, like, it's hard work. And I don't want to be dismissive to the drivers. It is hard work. And they, you know, they keep the economy running. But I can't be the first to have thought of this. Well, you're not. But the track record of private equity roll-off is, is one that is not great. So we've seeing this tried. So there's really a couple of markets. You've seen the LTL and parcel market. There's been very successful roll-ups in the LTL market. Brad Jacobs at XPO has rolled up a lot of the sort of trucking entities in the LTL and forwarding market and has been very successful there. But in the truckload market, the market that we've taught our dominance of today, that full truckload market where the vast majority capacity lives, it is very difficult because

it takes someone who understands how to operate an entity. And there are no economies of scale. And here's the reason is that drivers are the factor that matter most in trucking. And the problem is if you start rolling up a bunch of companies, you have all of these cultural issues. And scale is not your friend when you're dealing with human capital. And so as you start to roll up entities, oftentimes the companies don't have similar operating. lanes, they don't have similar networks, they don't even have similar equipment. And then you have the human factor, which typically as you get bigger, you tend to have to have more strenuous

requirements on who you hire because your insurance companies will demand it, because you're now a much bigger target in a courtroom. It just, there are no economies of scale on size. And so even the large public trucking companies, or private for that matter, that have, that are ran by operators, their track record and doing big acquisitions is just not great. There have been a couple that have been very successful. This company out of Canada called Transforce, which is probably the most accessible acquire, which does acquire companies and has been successful, sort of really operating them. And then Knight Swift has also had a successful track record of buying and acquiring. But those were exceptions with exceptional management teams, but they're not private equity.

So private equity has a very, very poor track record of acquiring companies. Oftentimes it ends up really, really ugly for them because they just don't know how to operate it. Trucking is an industry that you're constantly playing, you know, you're playing defense on a constant basis because you're dealing with all these factors that you have to deal with. When the market's good as it is right now where you would think trucking companies are doing really, really great, they're actually struggling because they can't find people to fill their trucks. And so when markets are good, you have a new set of problems. And so you go fix those set of problems by increasing driver salaries.

And all of a sudden, you're, and everyone else is doing it. So you're constantly having to play catch up. And then you're stuck with those higher salaries when the market softens. And so it's just, it's a very tough environment. Now, there are other parts of the market, like what we call freight. brokerages, which there are 16,000 independent freight brokers in the United States. These are effectively the day traders of the market. If you rent a consumer products company, you're probably using freight broker because that tends to be where they live a lot in that market. But they are

the intermediaries. And that's where all the money is that. They don't own the assets. They don't have to deal with the drivers. They don't have to deal with the insurance typically. And so for those reasons, they do quite well. And it's been a very attractive private equity. play, but in trucking, asset-based trucking, it's, it is not a good private equity play. There's no return on assets. And for those reasons, it's just, it's a really nasty industry. But you have to say, I find it so, I find it so counterintuitive that for a logistics industry scale might not be the answer to all its problems. Like, you would think that if you could just like increase size, increase the network, there would be some efficiencies there, but it seems

like you're suggesting that's not necessarily the case. Well, just to add to Tracy's question, you know, like is the difference between, and it sounds like the difference between, say, like, trucking, full truckload trucking that we're talking about versus, say, UPS or FedEx is really how taxing the job is to the humans. Is that the key difference there? Well, FedEx and UPS, we would never describe FedEx and UPS as trucking companies. No, no, not at all. I just mean in terms of like a national logistics company, like the reason why that type of logistics and package shipment can scale nationally versus trucking where you don't get those scales, it sounds like a big difference is how taxing it is on the actual humans who have to do the job.

It's partially that, but it's also because the parcel market at, you know, FedEx and UPS have these very sophisticated. and very expensive physical networks that go beyond just the trucks and the planes. They have physical warehouses and sorting facilities, which affords some economies of scale. Like, it's very difficult. And Amazon is certainly probably the only company that could pull this off or is trying to pull this off, is to build this infrastructure of warehouses and sorting centers and network to sort of rival FedEx and UPS. Even DHS, you know, the world's largest parcel company has strongly. struggled in the United States to compete against FedEx and UPS because they're so entrenched.

And those companies have done exceptionally well, even with Amazon as a competitor and companies that have tried to, you know, like D.HL that have tried to come in the market. Truckload is very different because it's a fungible commodity. You know, shippers don't really, they have relationships, but most of the freight moves based on rate. And that rate is set by the conditions in the markets. When the market's oversupplied, rates collapse, when the market is undersupplied. light rates shoot up. And there's always a rate that's available in the market. You can always

move your freight for the right price, even if that price is, you know, $100 a mile, you can find someone to do it. So for those reasons, it's just, it's a market that has these substantial booms of bus cycles and is very difficult and doesn't allow for economies of scale. Now, the reason you don't get economies of scale comes down to the truck driver. That is the factor here. And if we sort of fast forward to 2035, 2040, when we have autonomous or driverless trucks, that's when I think it's an attractive industry for private equity. That's when it's an attractive industry for technology. As you mentioned, Joe, why don't we build a digital experience and marketplace and put it into a private equity roll-up? When we get there, when we get to eliminating the driver

as the factor in the industry, that's when we will see big dollars into the industry and private equity really make some significant plays. And frankly, a lot of the carriers that exist today just won't survive that. Yeah. What is the state of that? And like, how much does the planning for that theoretical eventuality, how much is that affecting the industry today and like sort of like, what are you watching there? Like, how realistic is it? Is it? What's the timeframe and what's your what's your what's your what's your sense of it it's very speculative it is it has been a lot of intercapital poured into autonomous driving there's been some spacks that have gone public for autonomous trucking services there's a lot of reasons to be bullish on the economics of

autonomous trucking for many of the reasons I've talked about eliminates the driver as sort of the factor in the industry and then you can get economies of scale and you can't optimize this industry. But it is not a technological limitation. So if you if you look at it, the technology will be here autonomous driving. And there are, you know, around ports and closed-loop environments, there are autonomous trucking or autonomous freight operations happening right now. The port of Rotterdam is largely an automated or semi-autonomous facility. You see the ports in different parts of the world, which have built some level of autonomy. So we do see the ability and the technology is certainly we're on the cusp of having the

technology to be able to do this. That's not your issue. The issue is the regulatory environment. So in 29 states, the number one job is truck driving. And so when you create autonomy and that autonomy allows a trucking company to, haul freight without a driver, then you put those jobs at risk. Those jobs happen to be in red states or the predominance of trucking jobs happen to be in states that tend to vote Republican or vote red. And so an environment which you would expect to be pro-business and support autonomy

happens to be in states where a large percent of the population or a represented percent of the population have to be truck drivers. And so, it's going to be a really difficult thing. And if you just look at our government constructs, we can't. You have to get the state municipalities and federal laws all to work together to allow point to point autonomy. And we can't even make federal laws with, it's a very dysfunctional government. So for that to happen, it just doesn't seem very likely in the next decade. So I think autonomy, we will see layers of autonomy, highway only autonomy within the next decade.

But point to point, being able to see a completely driverless, capitalist truck is probably 20 years out. Craig, I think that's a great place to drop it. That was a fantastic conversation. I learned so much and I really appreciate you coming on. Yeah, appreciate it. Tracy, if you ever want to drive a truck for a day, just let me know. I will help make those arrangements.

You can do a whole episode in the truck. Oh, I would love it. to do that. That would be a music. Yeah, we're going to do that. You guys should do it. I'm going to start thinking about my trucking handle right now. So let me know and I will make those arrangements. Yes, I'm psyched. Thanks, Craig. That was great. Thanks so much. All right, Tracy, thanks, Jeff. Tracy, I kind of feel like I know why so many people told us we had to talk to Craig. Oh, totally. That was a fascinating conversation and he was really good at digging into. You know, I kind of expected us to talk more about the truck driver shortage and the experience of being a truck driver and whether or not higher wages would solve the problem and that sort of thing.

But Craig was very good at giving an industry level overview of how the entire trucking landscape works. So that was great. Yeah, that was really interesting. And obviously, like, it's clear like it's just such a mess. I mean, the fact that like 2019, which for the rest of the economy was, I don't think, you know, it was a good year for the economy. Totally. And so the fact that in what was a good year for the U.S. economy was the worst year for

truck driving bankruptcies since the Great Depression is just sort of like an astonishing fact that speaks to how brutal this area already was all going into the coronavirus crisis. But this is the thing that I was sort of trying to get to with the question about scale and logistics. Like, it just seems so strange that industries that are all about getting efficiently from point A to point B seem to be so prone to their own idiosyncratic chaos and, you know, problems. And I guess what we're learning from the entire past year is that it's really hard to make forecasts. And the higher up you go on the supply chain or maybe the further along, you go on the supply chain, the more difficult making those forecasts actually is because you have

to take into account more and more variables. And I feel like logistics and transport sort of sit at the very, very end of the supply chain. They're the last step between goods getting from, you know, a factory or a shop to an individual. And so I feel like for them, it just becomes even more challenging to figure out future capacity. And that seems to be one of the reasons for getting these big booms and bus. You know, it's so interesting, too, because from a market structure standpoint, like, it seems like the exact opposite of shipping where it's like there's like three or four big players and it's all relationships and you got to know the guy at Marisk in Copenhagen or whatever

versus tens of thousands of trucking companies. It's all just sort of done like on electronic message boards that still resemble, that still resemble Craigslist. But none of them really seem to like be, none of them. feel like 2021 solutions, like how you imagine things should work in the modern era? No, absolutely. It's sort of like two different extremes of not 20, 21 solutions. Yeah. But yeah, well, we have to take Craig up on his truck driving offer. I feel like that's the next stage. We're definitely taking Craig up on that. All right. We're going truck driving,

and then we're taking a barge up the Mississippi. Yeah. Yeah, okay. And then Coracle journeys next. It's like planes, trains, and automobiles with Othlots. Let's do it. Okay. This has been another episode of the Othlots podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allaway. And I'm Jill Weisantel.

You can follow me on Twitter at The Stallwart. And be sure to follow our guest on Twitter. Craig Fuller. He's at Freight Alley. And follow our producer, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca today, and check out all of our podcasts at Bloomberg, onto the handle, at podcasts. Thanks for listening.