The Derivative - Optimizing the Supply Chain: Private Equity, Automation, and Economic Indicators in Logistics with Chris Jamroz

Episode Date: March 14, 2024

This episode is a fascinating deep dive into the complex world of logistics. Our guest is Chris Jamroz, CEO of Roadrunner, a serial logistics entrepreneur who has indeed seen and done it all over his career. Chris provides colorful anecdotes about his past 100+ acquisitions and turnarounds, including the challenges and lessons learned along the way. He then gives listeners an up-close look at his current ventures - Roadrunner, an LTL shipping company known for its blazing-fast delivery speeds, and Global X, a rapidly growing charter airline. The wide-ranging discussion touches on how the pandemic disrupted global supply chains and the "nearshoring" trend of moving manufacturing closer to home. Chris also shares insightful perspectives on economic conditions, the potential and limitations of automated trucking, and the value private equity brings to facilitating turnarounds. For those interested in alternative investments, Chris even discusses how his family office allocates to areas like equipment leasing, real estate, and hedge funds. Overall, it's a very entertaining and educational podcast that provides a true insider's view of the logistics industry. SEND IT! Chapters: 00:00-01:19= Intro 01:20-06:49= Extracting value across the continent 06:50-13:45= Quality freight transportation, LTL Players, allure of trucking life, 100+ acquisitions 13:46=26:00= Logistics & the global economy, freight recession post COVID spikes & the global supply 26:01-33:58= Rate pain points, the trigger effect, inflation & automated trucking – is it even possible? 33:59-45:20= Private equity = Devil or angel? Removing barriers & Deserving the right to grow 45:21-51:10= LyonIX & other ventures Learn more about Chris: https://chrisjamroz.com/ & Roadrunner and follow along with Chris on LinkedIn @ Chris Jamroz ⁠& Roadrunner Don't forget to subscribe to ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Derivative⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, follow us on Twitter at ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@rcmAlts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and our host Jeff at ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@AttainCap2⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, or ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ , and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠sign-up for our blog digest⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠www.rcmalternatives.com/disclaimer⁠

Welcome to The Derivative by RCM Alternatives, where we dive into what makes alternative investments go, analyze the strategies of unique hedge fund managers, and chat with interesting guests from across the investment world. Hello there. Who wants to talk trucking? We all see semis crisscrossing the country, but what is really happening behind the scenes with the logistics, tie-ins to the larger economy, and venture and private equity investment

into this old, boring industry? We sat down with Chris Jamron, CEO of Roadrunner Transportation Systems, to hear all the details. Send it. This episode is brought to you by RCM. From clearing to execution, portfolio construction to outsourced fund ops,

China to Nebraska, RCM has you covered for all things futures and derivatives. Learn more at rcmalts.com. And now, back to the show. All right, everybody. We're here with Chris Jamros. Chris, how are you? I'm very well. Thank you very much.

Thanks for having me on. No worries. Where in the world are you these days? We are at the Roadrunner head office here in Chicago. All right. I take offense to people who actually call it Chicago. It's in the burbs, right? Chicago land. In the burbs.

Chicago land. Exactly. We have all the activity of different areas. So Chicago and the suburbs, it's an easy lane for us. But you split your time? You're not full time in Chicago, right? No, I mean, there's a limited, I think, limited effectiveness to my role and just being in the head office, I do spend a fair amount of time on the road visiting our terminal locations, our partners, vendors, customers. And that sort of takes me across the continent. Lucky, the continent, not the states, the continent not the states the continent we'll get more into that but uh to start out just if you could give us kind of a high level uh you've got so much on your cv there that it would be take up the whole pod to go through the

whole thing so if you can kind of give us a high level of what you've been up to and how you found yourself here at roadrunner in that cool t-shirt? So I think I'll describe myself as sort of a serial logistics entrepreneur and a sort of a turnaround specialist. I usually partner up with financial sponsors and in logistics platforms exclusively across transportation and logistics. And at this point, I think in every possible mode of supply chain that I'm aware of and through all different facets of supply chain. exits for shareholder groups and management teams through creating value and operationalizing what was perhaps envisioned investment thesis and at some point in time didn't go exactly as planned. And I just find it fascinating to extract so much value from undermanaged operational enterprises within the supply chain.

And is that usually an IPO or it could be a private sale or it could be a merger, it could be all of the above? It could be everything. And I've done everything. I've done, you know, I've done several, I've done, you know, IPOs and second the offerings to get to effectuate exits for management, for management groups and obviously shareholder constituency. But we've done exits through outright sales through mergers through span spinouts so through just everything you could possibly imagine as far as but what what the essence of that is that we've created companies

that are attractive that are valuable that create they perform a valuable, relevant service in industry and generate economic profit and become attractive target for someone, either investors or strategics to take a very serious interest in. And it's over, in your bio here, over 100 acquisitions. That seems like a lot. Yeah, a lot. You're not that old. Well, thank you.

I probably am a little older than I look. But yeah, it's been a lot more than 100. It's just incredible how you think. I remember my first one and how stressed I was. And now we're trying to add all of those things up. And it goes into such large numbers. But you learn a lot through those transactions. You learn by mistakes always.

I think that's the only form of learning you can do. You learn a lot more from success. And I've done a tremendous amount of mistakes and erred a lot. I think what you learn through that is just you increase the velocity of your decision-making. So you become smart in the process. You take a lot of wisdom from lessons learned. By the same time, the increased velocity of decision-making helps you make the right decisions and correct the wrongs a lot faster. But it is, it is a,

it is a collective, the value of collective lessons learned is quite incredible. And so all of this has culminated in the current two roles. It seems like you have many more than just the two roles, but two of the more prominent ones are here at Roadrunner and at GlobalX. Which one do you want to jump into first? Oh, definitely Roadrunner. Roadrunner is my life. I've cleaned my plate to be singularly focused on this platform. It's the most spectacular comeback story in the recent decades of transportation. was beyond broken and we performed against all odds there wasn't a single person who would bet

in our favor that just simply it would be nonsensical to do so but we we did it we did it with a fantastic team we've um with the help of great customers and this kind of um you know this is what i think i love the most about what i get to do is taking and extracting value and creating sustainable operating platforms in times where everybody else would seem to have given up on them. So tell us, Roadrunner is a less than full truckload LTL player in the market, which basically means that we consolidate customers freight inside our trailers. So we don't have a single trailer dedicated to a single customer in every of our trailers. There's probably a lot of freight coming from a dozen or more shippers and we specialize in transporting freight directly point to point over long distances so we are you know if you need to get your freight from port of la or long beach or lax airport to chicago next business day you call us on a Friday and get that by Monday. That's sort of our calling card.

We are ultra fast. We are an expedite LTL player, but we are operating on standard LTL rates. So we provide a lot of value to shippers with sensitivity towards speed, quality of service, as well as the fact that people are very sensitive to damage or loss of freight in the process of transport. We are a very attractive alternative. And for a rookie like me, why wouldn't I just use FedEx or something? These are bigger than they can handle. It's unique loads. Our customers probably would not afford FedEx. Oh, it's unique loads. There's not, uh, you would, uh, our customers probably would not afford, uh,

FedEx. it's too expensive. Yeah. We're talking that, you know, FedEx is, is obviously a phenomenal courier, but that's why I would start this run a small parcel courier offering versus bulky.

And we talked about piece of machinery, um, like 500, 500 pounds and things like that. You cannot really lick it and put it in an envelope and seal it. And you guys own the trucks? You own all the hardware?

There's a mix. We have our own trucks that we have. We work a lot with owner-operators. We have the preferred destinations for owner-operators. We also pride ourselves in putting people in business so small small entrepreneurs to have to own their own business we have um plans for that but we we have a mix of power modes but we are definitely the the preferred destination for

operators and team drivers an owner i was going to touch on that later but i remember a couple years ago, Andrew Yang, when he was running for president, kept talking about truckers are the largest employer in I can't remember how many states, 15 states or 18 states or something. I don't know if you have the math to back that up, but right. So it's a huge industry of these owner operators. So you're actually bringing them under your umbrella. They become Roadrunner employees or or you just license, lease?

Well, they have an option. No, we actually do find ourselves in promoting the owner-operator models sort of independent of ours. We become their destination and their key partner. But I think it's something very American, extremely patriotic about it. I'm obviously a naturalized American with my lifelong dream to live in the United States. I truly feel this is obviously the best country on earth. But there's something so incredibly noble, whether it's a native American,

that in a first generation, in generations, you can build a business that suddenly makes $60,000, $70,000, $80,000. You can change the life for your family, for your loved ones. And then when you start building your fleet of trucks and you actually become a true entrepreneur and your small business grows, I think it's just incredible. And I really have struggled through working through so many different um facets and modes of logistics i i really have never met a cohort of americans or new americans or aspiring aspiring americans there's more patriotic than truckers yeah what are those trucks like i want to get in one of those can you get me in one of those absolutely all right something so magical and and just the allure of a truck that has a little house and home attached to the back

of your cab it's it's just fascinating some people take to go to men's to customize them they look incredible but it is it is quite an experience to be inside a sleeper a sleeper cab. Yeah. And what's a new one of those, Runme? Those goes, you know, the prices have spiked, you know, in COVID and post-COVID and now they're kind of normalizing. I mean, you need to kind of looking at, you know,

150 to 200 Gs for a full rig. So it's not cheap. It's definitely cheap. It's cheaper than I thought it'd be because I'm in the ag business, right? Those combines and the big tractors are actually in some of those John Deere's are millions.

It's massive, yeah. And then you want to touch on Global X now or leave it till later? Sure. Global X is, you know, it was an offshoot investment and we led the transformative investment to the other airline pre-certification

as part of the Roadrunner spin-off. So it's not completely unrelated. It's somewhat unrelated. Obviously, different mode of transport. And it is a, you know, this is an incredibly fascinating story. It's the fastest-growing charter airline in the United States. The objective is to be the largest operator of charter flights in the country.

I think we are well on track to do so. There's a phenomenal management team. My engagement with that is obviously a little bit more hands-on, chairman of the board. But the team is first class, And it's a fascinating story. Obviously, you see the earnings report yesterday with record revenues last year. The demand for passenger charters is as strong as you can only imagine. So great things to come from there. So it's freight, air freight, or it's passengers? Passenger predominantly with a little cargo operation as well. to come from there so it's for it's freight air freight or it's passenger passenger predominantly

with a little uh little cargo operation as well okay so that's like what's that one out on the west coast that is doing uh people keep telling me about the little private that they're kind of not as nice as a full private so it's like that or it's just charter flights for these are charter flights for you know or whatever Sports teams, college teams. We do, obviously, being based in Miami, we fly to the Caribbean and all those beautiful destinations. We serve in the overflow airline for larger things. We work with tour operators like TUI in Europe.

So it's just a very diverse market. Got it. And what are those planes? They're modern planes? They're modern, very modern Airbus 320s, 321s. So with all this logistics background, I want to take a step back for a minute and talk kind of what you see being involved in all these logistics in terms of U.S. economy, global economy, right? We're the feds trying to get us on this perfect soft landing. So what are your thoughts with the front row seat you have of are things slowing down? Are they speeding up?

Where do you see the economy from your seat? So, Jack, from a freight perspective, we've been in a recession for probably a better part of 92 weeks now. It's just it is a freight recession post, you know, post-COVID spike. And so we've come we've gone accustomed to a very tough and a weak freight environment globally. That goes across different modes. Obviously, ocean shipping is in probably the worst shape of all the modes, followed by, you know, freight forward market. That's very challenging. Full truckload brokerage market is just challenging. Expedite, pure broad expedite market is in very challenging conditions, etc.

The LTL market is the one that is the most functional and the most resilient, just because of a number of macroeconomic factors, geopolitical factors, the change of buying habits, the near-shoring trends, etc., which are all massive tailwinds driving right into the LTL space. But the freight environment continues to be very challenging and lackluster. People tend to forget that freight is a commodity market and commodity markets and commodity industry cycle. And it's just almost fascinating to me that even the smartest people sometimes tend to forget it. They forget at the peak of the cycle

when they think that this time will be different. And unfortunately, it always ends up the same way and ends up in tears. And then it's the people at the froth or the bottom of the market can't seem to be seeing past the doom and gloom. And at the same time, that shall pass too, as the Rumi, the poet would say.

So it's just a cyclicalogy. So you're always a certain number of quarters away from a change in the cycle. And it always happens a little bit faster on a down cycle and a little bit slower on an up cycle. And right now we are at the trough. There is, what the fed is doing is obviously you know very convoluted and complex and just goes way beyond just a supply chain because supply chain in even its complexity and growth still still accounts for

about eight percent of the gdp so significant but not obviously all in all. And what happens with the economy, that's probably a little bit too speculative for me to apply, but the freight market will recover in the next probably three to four quarters as it always has through syndicality of industry. Stig Brodersen We have an old saying here in the commodity trader world of the cure for high prices is high prices, right? So that's what leads to this. Syndicality. So dig in on some of those, what you just said earlier,

like the nearshoring and some of those concepts that I'm not familiar with and the listeners might not be familiar with. Or if you want to go back to COVID, of what changed in freight during COVID and now what the post-COVID situation looks like in terms of... Yeah, that's a fascinating question and thank you for the opportunity because I feel very passionate about it. So what has happened in the global supply chain? There was this obsession with China, an obsession with offshoring, an obsession with outsourcing, and effectively what many manufacturers, many industries found themselves in a position of complete dependence on a very remote manufacturing base, you know, in Southeast

Asia and predominantly China. And that was because of an ultralow labor cost and sort of very inexpensive transport market and an effective transport market. The sailings from Hong Kong to L.A. were taking fewer and fewer weeks and they were very inexpensive and the whole world cast them to that business model. COVID came and completely disrupted those dynamics. First of all, you find yourself out without your manufacturing base. You thought you had one, but you just realized there is a certain economic and geopolitical realities when a country can shut you out of the market, can completely close your factories, and there's nothing you can do. You find yourself without your capabilities, without your production,

without the thing. Then you're looking at you know cost of shipping a container which pre-covid was about three thousand dollars to ship at 40 foot containers they're called you know t use 20 foot equivalent units so that 40s you see those only big container ships you see them on the roads a little like perforated metal yeah metal containers these are the ocean containers it used to cost three thousand dollars to get it from china to um la long beach port which is the main entry point for all freight gun china now in in covet that spiked to 27 000 per container so just think about what it does to you to your operation first of all you cannot get the product manufactured because a country shut down and it's not allowing your own workers to come into factories

and there's nothing to do about it then it turns out it's not such a friendly jurisdiction as you may have thought previously and secondly it's prohibitively expensive to get that product out of there even if you can get your hands on it. So after that, what dramatic shift is, I don't think there's a single CEO standing in front of any board in North America who would survive in their job without pitching and executing a credible strategy of reducing the dependence on China for all needs, sourcing needs, manufacturing needs, supply needs, any sort of arrangements. And what happened then is just this has been a love affair with Mexico, which kind of like, well, hey, listen,

we have this relatively cheaper labor pool, not as cheap in China, but I can truck it from there. And they don't seem to be fighting against this. They seem to want to be friends. And notwithstanding, obviously, the challenges that Mexico is dealing with on the domestic policies, it's actually a country of great work ethic, relative proximity, relative cost arbitrage. So people just rediscovered the neighbor to the south.

And as you probably have seen last month, it was broadly publicized that Mexico has now eclipsed China as the U.S. main trading partner. There's no more important trading partner to the U.S. than Mexico. Now, when you step back a little bit and think like, okay, who surprised the public? Raise your hands. Like, who surprised? Literally, the guys are right next door to you, right? They have the same values. They work hard. They love families. They believe in God. They just, you know, have so many incredible parallels between the two societies,

and they're just hardworking folks, and it's just became such a phenomenon. But I grapple why, if it feels so intuitive. But you have this, and that's called nearshoring, or friendly shoring, or onshoring, or whatever you call it. You're still playing the cost arbitrage, but you effectively, what you may lose on a more expensive labor, you gain on a reduced cost of transport, ease of thing, and speed to market. So think about all the industries from fashion, garments, et cetera, when they need quick runs, right? It's like, you know, if something is hot,

if that particular piece of outfit is hot, if you can get it. You need more of it right now, yeah. Yeah, versus you can get it next two weeks well it's it makes a difference so and there's also the the language uh you know ability to because we have obviously so many dual speakers etc so but what happens is because it's so close instead of building those huge loads that you need to fill the whole ship before you ship it, you can start shooting partial shipments and you don't need to wait for this absolute trailers to fill. So suddenly there's this demand, okay, how could we ship it effectively, cost effectively at a good transit times, but I don't need to fill the full trailer. I want to just, I produced this, I need to ship it.

Well, here you go, LTL. This is exactly what we meant to do. So you have this massive tailwind of consolidating shipments, shipping from cross-border, coming from the south of the border, even from guys like Laredo to anywhere in the country, or San Diego to anywhere in the country, and so forth. And on top of that, you have the e-commerce. And obviously, we've lived through 2020, 2021, 2022, where the world seems to have

changed for good, that Amazon was producing, delivering record results and record earnings. And obviously, that has subsided. But what has not changed, that the people have changed their shopping habits the e-commerce is is driving again e-commerce when you buy you don't buy a full load the full truck load of toilet paper you just buy a package so when you consolidate the shipments again who comes to to uh into your maze LTL players. So this whole thing is just a transitional shift into favoring an LTL market that now accounts for $60 billion a year versus a full truckload market when you actually have to fill out the whole trailer, which is now it's assessed at $120 billion. It's probably a lot larger, but think about it. The LTL is now almost half of what's reported to be as a truckload market, which is just phenomenal.

So it's a good place to be. So how does that work for you guys? You were already in Mexico? You already had the… Actually, not even in Mexico yet. So we go through prior experiences. I've done a lot of business in Mexico. It's a very interesting market.

So we are exploring how we're going to do this, but it's more of the tide that raises all the boats, Jeff. We're still a relatively small play in the LTL market, but I wanted just to give you the context of why this is such an attractive thing and how much runway is ahead of a company like ours as we are just preparing to organizationally handle the cross-border Mexico to the US and vice versa shipments. We are in Canada and obviously that's a big trading partner to the US as well for similar reasons. And that's obviously a wonderful capability that we have for ourselves. And so it seems like five years ago,

it was we're making everything in China. We're all buying it on Amazon. Amazon's delivering it all to us, right? So it's kind of one, I'm oversimplifying a great deal, right? But kind of one big company, one big partner in China, one shipping route.

And now you're saying, hey, now we have all these smaller players are kind of competing with Amazon. Plus, we have all these different areas where the goods are coming from. So it's become much more diversified. It is diversified. It's easier to do trade because they are part of the same trade zone. So you have people like Dominican Republic, Honduras. There's a lot of those near base geographies with good opportunity areas to set up manufacturing and production facilities. I think the world is becoming a far more interesting place with the proliferance of them appearing

as good partners to us. Preston Pyshko Got it. I think for those in the trading world, the're saying that's the peso has benefited from that. I think the pace was at like five, six year highs based on that, that strength. Yeah. Right.

And it, right. Like you said, it makes total sense of like, why haven't we been doing this the whole time? So we talked a little bit about it with rates. What do you see in terms of rates that hurts people trying to buy a new truck? Does it hurt the overall logistics industry or your specific LTL and Roadrunner of rates remaining stubbornly high? I are sort of the, you know, I always think about this. We are the service providers in the community of shippers and buyers.

So a weaker consumer would definitely have an impact on any transport business. Right now, I think what has happened over the last two years, a lot of people overbuilt the inventories because they were expecting the 2021, 2022 trends to continue somewhat probably at the reduced pace, but they probably were caught absolutely unprepared with an absolute cliff off of demand and with huge inventories that they needed to get rid of. And people have become very, very careful

how they stock the inventories and restock the goods. And this is sort of, we had such a low inventory level now that people are still careful. So the interest rates definitely hurt anybody who needs to invest because capital is so incredibly expensive. I mean, if you try to remortgage or refinance your house over the last five months, you probably get a shock of a generation of how painful that could be. So that obviously has the trigger effect because people are not investing as much.

The consumer is still very strong in the US and defying the logic, defying the gravity and the spending continues, which obviously accounts for nearly three quarters of all GDP in the US. So that's very good to see. But things are more expensive, right? And capital is scarce. And I think there's a big anticipation of the Fed starting to begin to lower the rates so that the investment phase of the economic expansion relaunches. And that, I think, is the premise of the soft landing and then managing the inflation. Inflation is, people are surprised unless you've gone or you grew up in a country where inflation could wipe out your everything within a sort of a day or a month. So inflation is a very dangerous economic indicator,

a very important one. So I applaud the Fed for keeping an eye on that and managing this because it is like cancer and very rapidly spreading cancer. But I think the way that it's being, I think it's not without risk, but I think all the indicators are shifting in favor of what one describes as self-learning. But for you guys in particular, if you have the demand, you're going to pay whatever rate you need

to get new equipment, to get new... So it's more demand-based than rate-based? I think we're agnostic. I want to just tell you that I think we are, we cycle agnostic. That's the beauty of Roadrunner, the way we've built it, we've designed it. I can tell you that our financial results

have never been as strong as they are now, even though we operate at the bottom of the cycle. So I cannot, and nor I would accept an excuse of the economy because we are so small that we should outperform any cycle, any economic environment, etc. But to us, we are cycle agnostic and we provide a service that is so important that it's just the demand is going high. I'm sure there'll be times when it'll be easier to win business and grow faster. But at the same time, I think the way we've designed our levers here, our position has

gone favorably no matter what economic cycle we find ourselves in. And I just got the name, sorry, I'm slow, like Roadrunner. It's fast. So you're getting these, right? You're getting them the service. You're getting them what they need quickly. The Roadrunner. And he's on the road, the roadrunner.

That's right. Do you guys got any pet roadrunners there? I saw a few when we were out golfing in Arizona. They're just walking around the golf course. It's cool. They're fast little buggers. They're fast. I mean, they run fast.

And so do we. And so do we. And then I want to go into a little bit. It's always been a little fascination of mine. Like, how far out are we, in your opinion, from automated trucking, automated shipping? Like the far reaches of, OK, we don't even need any of these owner operator truckers who we just praised 10 minutes ago. Sorry, guys. Right.

But is that on the horizon somewhere? I think it's on the horizon somewhere i think it's you know i always kind of take a um make a joke that you know the minute you can take a pallet from la to chicago and you can transport in metaverse and you know count me out i'm not showing up for work yeah you know well they won't need it if anybody can convince me that that pallet with that part of engine or that that consolidated freight can uh skip the forklift skip the dog skip the i think skip the human i don't know it's uh it would be it would be uh you know it would be interesting to see. Automated, I mean, autonomous trucking,

I think that's something that can help. I don't think it would ever replace, but I think it would substitute and help elevate the gaps. And, you know, like this, truckers work very hard. It's one of the probably hardest jobs you can imagine. It's so tolling on you physically, mentally. It takes you away from home and your loved ones for extended periods of time. I mean, I have so much respect for our driver partners.

And at times it loses its appeal as generations shift and retire. A few years ago, people talked and talked, there was about 300,000 shortage of drivers in the United States and then COVID happened and then that became one of the best paying jobs. And then obviously, a lot of people are leaving the truck industry. So there's ebbs and flows and things, but I think there always will be the need for trucker. But I think the entry of autonomous vehicles over the period of the next decade, I think, should elevate some of the volatility and cyclicality of truckers within leaving and entering the market. And what I've read is that last mile is the hardest part for them to figure out, right?

Maybe you could be on the highway autonomous from LA to Chicago, but when you're getting off in Downers Grove and making that tight turn on such and such avenue and having to back into that stall to deliver it, that's the hard part. That's where you need the human. True. And you know, when you talk, the people use this first mile, final mile. Final mile means you have to take a washing machine out of the human. True. And you know, when you talk, the people use this first mile, final mile. Final mile means you have to take a washing machine out of the thing,

take it on a dolly, drag up to somebody's condo and put it in the laundry room. And know where it is in the truck too, right? Yeah. So it's not the only thing in the truck.

It's a little ways away from that. Got it. But it's always fascinating to me. What do you think the amount of investment into automation and robotics and AI is probably 100x what it is to kind of... I'll call your business boring businesses here for a second. Don't take offense. But as compared to those guys...

I try to be boring businesses. Yeah, exactly. It's always interesting to me of like the smart money is probably like, hey, I'm going to invest in this thing over here, which nobody cares about, but which can throw off this great return. Listen, there's so much capital invested in AI and automation and autonomous technology that it's bound to come through at some point.

And I think it will make the world a better place. It will make it more interesting. I just, you know, that's not something that is in my business plan for the next year, that's for sure. So speaking of investment, we'll pivot towards, so Roadrunner was PE owned or still is PE owned? Or how does owned? So Roadrunner is a publicly traded company that has a very large majority shareholder, which is an institutional shareholder. But there's a lot of shareholders, institutional and private and Roadrunner. Okay. But you've been involved with a lot of these 100 plus acquisitions from private equity

coming into the space. You told me offline, some of these guys, they're calling you like, hey, we bought this. It's not working out. Can you come fix it? So I want to dig in a little bit with you of just how you view private equity, how the companies themselves view private equity of someone like you coming in is their pushback so i don't know if there's a question in there but i'll let you i'll ask the question just from the company side did the people view private equity as the the devil or as an angel of like oh we're getting saved i think i think the sort of the bad rep from private equity came from 1980s um where you had that sort of depicted in many movies

and feature productions of this ruthless barbarians at the gate. Come, come, barbarians. Yeah, barbarians at the gate. You have the folks, whether in the UK or here in the US

where people are just buying assets and kind of forming a financial arbitrage or divesting, shutting down, et cetera. But at the end of the day, private equity appeared as a very effective form of capital effectuating a lot of changes that,

well, at the time were very disruptive that led to significant and outside value creation. I think it's an extraordinarily attractive constituents of capital. It continues to have very attractive returns, oftentimes outpacing the public market returns.

And it's commonly associated with sort of a smart money investing where people take the nonsense out of the equation and focus on what drives the most value. I think most private equity firms are very focused now on providing opportunities

for the employee cohorts to build the wealth alongside those shareholders and and this sort of employee ownership model uh sponsored you know KKR is you know the leader in this you know I am personally a huge believer in that so I kind of I love owners in the business and I love being in the business with people who co-own the business. I think that changes and makes it more prideful. It kind of gives people a reason to give the best. And that's not always possible through other forms of ownership. When there is change, we're humans, Jeff. So obviously people resist change. I don't, I've never had balloons and a cake

when I first walked into the boardroom. But I'm yet waiting for that one moment when there's a show and a magician and I get a little pony and we get a cake. There were daggers and shields probably, right? It's just that, you know, but it's at the end of the day, it's, you know, what you come in, you have,

you know, it's never the people's fault. It's always the leadership failure. So when the leadership fails, and that's operational leaderships and private equity firms, they do buy businesses by they really invest in management teams. And if those management teams fail, that obviously had a lot of negative externality. So when you come in, you have probably, you know,

a fairly wounded and hurt employee cohort. It's just, you know, people may not feel as proud of the affiliation and have been, you know, they've seen, you know, the stress, personal stress levels are elevated, et cetera. So it's not really that, you know, difficult to understand why. I do enjoy my farewell parties, though, when there is an exit event, when there's a liquidity event, monetization event, when people come.

I love the letters. I love the stories. I love the messages. And those parties are a lot of fun. And when I kind of go on to the next one, I see something that we've changed people's lives and we've left them so much better than when we found it. And that would be difficult to do without the private equity financial sponsors, hedge funds and other members of that financial constituents. And I think that's interesting. And that's what I do. And that's what I love doing.

And Roadrunner now is my absolute passion. It became a little more personal than any other business before, just because of how hard we've all worked to turn around such an incredible operation. And touch on what you said a second ago of like the hedge funds and the private equity coming in. Is it, and I think I'm going to know your answer, but is it their money or their skill and being able to get the right management and leadership in there or a combination of both, right? If they just had the leadership and not the money, would it still work? The institution investors obviously

represent not their own money. It's the limited partners funds. So they serve a conglomerate aggregator of funding. But I think what they do bring is the discipline and freedom to act so sort of removing the barriers that you know sometimes it'd be difficult to orchestrate such difficult turnarounds in the public market where you have to stand in front of investors every 90 days and explain what you're doing. And that could be difficult, if not impossible at times. The private equity brings the discipline, the expectations of driving value, making quick moves, acting in a concerted, disciplined way and a decisive way. And also, it gives you the freedom for executives like myself.

It gives the freedom to act and do it with an expectation of creating value. So that's what I think is the main benefit of working with these players. But the money's needed. So if they were like, it just removes that, oh, we could really grow if we could do this, but we don't have the capital to do it. It removes that kind of barrier for ideation. I think, Jeff, I think every company needs to deserve the right to grow. And once you deserve your right to grow, the capital is easy to combine. The capital is an easy excuse that people that are inept or without results, et cetera, it's the greatest stories that I've seen, the greatest turnarounds that I've been privileged to be part of,

they all came from scarcity of capital and a lot of doubt because you make, brings the best out of people. And then it's just capital is a byproduct of success. There are obviously different situations when somebody gives you a pot of gold and ask you to build something incredible. That's not the universe that I labor in. I labor in a very boring business in very basic industries. But the capital is never difficult to come by when you actually when you gain your credibility and confidence from your investor constituencies.

Is it hard for you to then have to leave eventually, right? If you build these connections, you build this. Yeah, when we saw the cent in December, well, first of all, the associate did not make it easy. I've never received as beautiful letters as I've received from a cent. Personal stories, pictures. And a cent, sorry, a cent was part of Roadrunner and you spun it off? Yes, it was part of this, personal stories, pictures. And Ascent, sorry, Ascent was part of Roadrunner

and you spun it off? Yes, it was part of this, part of, it was a group of companies within Roadrunner that we grouped together. We spun out in a private entity. We ran it for three years and we ultimately sold it. And that was just, it was very difficult to leave. I take the business

i lived in my office for seven months so i actually had to pull out sofa in my office i had a bathroom there etc so i lived in my office so it was a very personal thing so it's just a you know but you know change is good and and you know when you see the new executive stepping in and you see the you know existing leaders stepping up and having the opportunity to orchestrate and drive their own, being the chief architects of their new future, I think that's what a teacher probably must feel like when the kids graduate. But there's an absolute profound sadness and heartbreak that you're no longer part of their story. That's got to be the toughest part. and heartbreak that are no longer part of their story. That's got to be the toughest part. And one more, since we are a hedge fund podcast,

I got to ask a few more of these hedge fund questions. But there's a feeling that there's too much money in private equity, right? And it's driving up prices. Like private company premium traded a premium to public markets now. They used to be at a discount because of their illiquidity. So are you seeing any of that? Maybe not in the companies you're involved with but tangentially of like yes i can't believe that company just sold for x to private equity like that valuations have gotten out of hand or maybe because you're in this recession in your space

it's been less i strongly believe that the markets are very effective and particularly the global market is affected and people are drawn to assets that are fair priced or fully priced. I don't personally think that's overpriced. I think it's just maybe a different form of valuing companies when you think about hedge funds,

the tradition. Hedge funds traditionally were public equities place, right? They look at arbitrage in underpriced or overpriced markets

and took either activist approach or just purely technical approach, you know, smartest people, smartest money in the world. The private investors value things differently. you know, smartest people, smartest money in the world.

The private investors value things differently. You know, the public markets tend to probably have a forward-looking guidance. You buy into the, you're really leaning

into the future story, how you're selling a public company. It's just, you may not have anything to show for yourselves right now, but if you can sell it,

you know, where you're going incredibly and you have some credibility with investors, that's one part. Private equity investors value in a sort of what they call LTM, the last 12-month performance. And every indication is just people look at your past performance and to me, they always remain a little bit skeptical of what the future guidance may otherwise be. So they've developed their own courage of conviction and their own sort of

resolve around the asset's future. But they've guided more of the historic performance versus the private investors. The future is, I think, at the times where you have a lot of uncertainty in the market. And the public market is where you know everybody participates the retail investors individual investors as well as institutional investors you have a lot of volatility and may have a little bit subdued performance at the times of you know lackluster confidence where the private equity investors are looking the actual track record of performance and they tend to value assets based on that so So I think that could be, in my opinion, I don't see that much, you know,

that always happens. There's always that one transaction everybody talks about. It's like, how on earth did they get that? How on earth is somebody valuing them? It kind of seems to kind of normalize and regulate in time. So it's just, you know,

it's a temporary emotional upheaval. Wanted to touch real quick on, is it Lion9 or LionIX? LionX. It's because that sounds like a hedge fund, right? So it's a private fund. LionX is a fruit of love of mine. It's basically a group of us who move from platform to platform, from company to company, because obviously it's not just me. I wouldn't have done it with a team. And it's a certain degree of changing group of individuals because some of them do fall in love with the companies we work for and do find themselves that they they want to become permanent part of the fabric of these

entities that we've turned around and built and and they leave the group and there's there's obviously always new people who join and and become incredible partners to me and we move to another investment etc so it's a it's a it's i named named our group Linex, and it's effectively a group of very operation-minded executives who help effectuate exits for private equity firms and financial sponsors and so forth. And we create value through uh operational um discipline we have a playbook um and we've sort of we've done seven exits uh we're batting a thousand and we're doing well and you know i can't wait to uh to see what the future holds yeah i love it so i would i read in somewhere

that it was doing like uh some leasing like i was thinking it's like an aircraft leasing or a private credit fund but not exactly it's we do we do do that too there's a but linux is also my private my family office the name of my family office so i do have an investment in equipment leasing businesses and real estate and the number of others cyber security etc but the core the core formula is it's no different than any cetera. But the core, the core of the company, it's no different than any other family office, but the core of it is the group of remarkable individuals who are changing the shape of logistics globally at this point.

Yeah. And so since you're on an alternative investment podcast, we'll have to ask you, what is the family office looking at? Any alternatives, managed futures, hedge funds funds do you do anything outside of logistics in those other companies i do have people who manage those things i i i completely stand this i'm completely focused on on operating the businesses but yeah we do obviously have many of our partners, the hedge funds that who own majority of the business as restructure, they often are the people who I

co-invest in, invest my money in. So I know that's sort of funny, how small the world becomes. But yeah, absolutely the exposure, I think any family office would be proven to have exposures to alternatives and hedge funds and other forms of investing. I love it. What else do we have to talk about? Did we miss anything? I cannot thank you enough. I've enjoyed this

thoroughly. It's been a lot of fun talking about things that I feel very passionate about. Thank you very much for giving me a platform to speak. No worries. Thank you're we we heard it here the trough is in freight's going to start climbing back up any day now any day now i would did you know there was a group that was thinking about doing freight futures i think it was like truckload futures um where companies could hedge against the freight prices rising or falling. I don't think it ever got off the ground, but that would be interesting, right?

That would be something. That would be something. I'm probably not as adventurous. I'm probably more towards the boring end of that logistics spectrum where I kind of continue to labor. But that would be something to see. That would be interesting. All right. We'll leave it there, Chris. Thanks so much. Thank you very much for having me on.

Yeah. We'll talk soon. Thank you. Okay. That's it for the pod. Thanks to Chris. Thanks to RCM for their support. Thanks to Jeff Berger for producing. We may be off next week. Have a little guest issue there, but we'll be back after that with a guest from Trend Follower, Lauren Court.

So go ahead and subscribe to get it right when it drops. Peace. You've been listening to The Derivative. Links from this episode will be in the episode description of this channel. Follow us on Twitter at RCM Alts and visit our website to read our blog or subscribe to our newsletter at rcmalts.com. If you liked our show, introduce a friend and show them how to subscribe. And be sure to leave comments. We'd love to hear from you. This podcast is provided for informational purposes only and should not be relied upon

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