The Trucking Episode: Why the Industry Is Such a Mess

So we started with container shipping and then we got into break book 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. It does feel like like we're working our way through all the different modes of transport. Like I wonder if we're gonna end up doing a sort of odd lots of coraical episode at some point, like the wackiest modes of moving goods. Yeah, I mean, we got that's that's

the way to do. It's zoom outgo global and then start to drill down to all of the different nootion crannies. But as you mentioned we did a sort of the bulk shipping episode a couple of weeks ago, and uh, at the end we're like, Okay, we gotta go trucking next, and to now it's time for now, we gotta talk about tripping alright, the truck driving episode. It's time has come.

I cannot contain my enthusiasm for this episode because 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 you know, 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 song about truck driving six Days on the Road, another good song. So I'm also very interested in as UM and I'm very excited for

these episodes. So after we did that last episode, we're like, we gotta do the truck driving episode. Today's guest. Multiple people reached out and said, you gotta get on this guy. He's the obvious next one for it. Yeah, and I think it's gonna be interesting. I mean, one of the reasons let's 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 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 and be like Chris Christofferson and Ally 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 gonna be speaking with Craig Fuller. He is the founder and CEO of Freight Waves, which 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 at or it's unloaded from the ports. So Craig, thank you very much for joining us. Hey, Joe Tracy, great to be here. Craig, so excited to talk to um. Obviously, there's lots to cover, and of course we're going to get into all of

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 like very intense boom and bus cycles just in the last few years leading up to periods where it is 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 average in terms of profitability, typically and in a good year the industry will generate three cross profits. And so it is not an industry that is typically very profitable. There's a lot of there's very very few barriers of entry, uh. And it's a very cychnical industry. And so it's and there's reasons of when the market is good where costs go up significantly

because the input costs go up. Uh. And when the market is really bad, obviously revenue you know, drives up when the economy drives its sputtering. And so because of all those reasons, it's a very cychnical industry. And so, as you mentioned, over the fast past five years, we've had two freight recessions uh in the past five years, and two big boom cycles and that was pre COVID. So you have fuel costs that are big input colls, you have labor costs that are big input costs. You

have driver turnover that's a massive issue for the industry. Uh. You have a regulatory 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 that they manage their drivers and a responsible for them. So those drivers up in an accident, Uh, those trucking companies can be sued for tens of thirty millions of dollars.

And so it's an industry that has a lot of structural challenges, but it has no bearers of entry. So anytime you see the market become really strong, like every other commodity market, there's a massive, massive boom cycle. Uh, 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 are a few companies that dominate this form of transport in the US, 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. Yes,

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 ten if you take a top ten shipping carriers, they represent of the capacity. So it's a very concentrated market. In trucking, it's completely different. If you take the top ten trucking companies, you'll come up with about twelve of

the total capacity. So there's no LIKESK equivalent none. So like the largest asset based trucking company is a company called night Swift out of Phoenix, Arizona, but it does about five and a half six billion dollars in revenue on an industry that does about eight billions. So if you sort of look at look at it, it's it is a very very fragmented market. Uh. And for those reasons, you have a lot of independent decision makers out uh

driving a lot of the issues in the market. And 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, uh, 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. Um. The challenges is that oftentimes those people don't have strong business acumen or experience, and so you have this massive boom bust cycle. I was just looking at the number of new trucking companies that entered the industry in the last thirty days, and we had eleven thousand new trucking companies that entered the industry within the past month. Okay, that's 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 cheese in business. The obvious. The other question is is there a plug in plane network that allows her to immediately get jobs? Like what is the process? So of eleventh, obviously it can't be too much of a relationship based business where you need to have connections. If eleven thousand companies. I have to imagine many of them

extremely small, maybe one or two people connenter. So when you 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 loadboards 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 dot com, where buyers of capacity, so brokers, freight brokers are essentially posting loads uh and then the trucking come but easy. The tracy and this example would be looking for loads wherever she wants to go uh for a load that meets her uh, you know what she's looking for uh and pays her what she wants to get paid. She would take those loads uh and be able to fulfill

those orders. So that's a loadboard marketplace typically ran by brokers uh. And then over time she would get a couple of really close shipper relationships. And shippers and our h lexicon are the people that move that buy freight services. So these are the walmarts and the png s and the amazons that are a buying capacity in the market.

And so over time, if Tracy really wanted to get out of the sort of low inside 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 doesn't require

you to go buy a truck. You would have become in the other path, has 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 it 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 and trucking where you can find orders that will allow you to keep moving. So effectively, Tracy, you know, if you decided you want to become a started trucking company. Within a couple of weeks, you could have a truck, you could have your cd

L and you would be off to the races. And in this market probably making two d thousand dollars a year in gross revenue and your cost of good sold or you're operating costs to be about a hundreds and thousands, so you would make in profit today about a hundred thousand. 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 two hundred thousand to probably uh in revenue to about eighty thousand, and your operating costs 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 shortage? If we have eleven thousand 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 our 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 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 truck, a trucking company, a fleet that doesn't have a driver. They have a truck, but they don't have a drive before that truck. That's a driver shortage the way we would describe it at freight waves. And then you have capacity shortages, which is 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 um 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 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 two thousand nineteen we had a capacity glut, but some trucking companies have uh 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, you're gonna that asset over time should appreciate and over time, uh, you're gonna

hold onto that for thirty years. Even in the shipping industries you guys have covered, those ships have life cycles of twenty to thirty years. And so if I go buy a ship, I'm able to operate that ship for thirty years. In trucking, I'm only going to be able to operate that truck for three years. Uh. And so so really, as I run that truck and put as many miles as I can, there is a secondary market

for that uh. 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 into a secondary market, which will end up going to more localized operations support 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 or in in terms of boom or bust, depends on how well they do, and so that's a pretty significant issue. But right now, use trucks have gone up about 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 you're doing quite well because your balance sheets have really really improved, and so we're actually seeing a lot of that. But ordering a new truck here 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 O. E. M s 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 a sort of romanticized view of it, could you maybe um 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 have a hundred thousand dollars as a employee driver. You're probably going to be making about fifty five to sixty thou dollars as an employee driver per year, and you're gonna be paid on a per mile basis. Um you're gonna you're gonna run your truck or drive or work about fifty six hours on a given week, so it's not a forty hour week. You're actually working fifty six hours. But here's the reality is you're not at home every

single night. The vast majority of the drivers, you're actually out and so while you may not be on duty that you know, the six hours in a given week, you're you're still at a truck stop. You know, you're still dealing with sort of being out over the road. So it's it's really it creates a lot of strain on families. Uh, 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 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 for a you know, you're driving for eleven hours a day, you're sitting, which you know, drivers have high incidents of obesity and diabetes. So it's not a great lifestyle. Uh and uh. For all of those reasons, it's not a desirable job for for a large percent of the population.

And the 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 of course, so I'm curious like on this, like what were there and you alluded 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 um 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 c d L. Yeah, so

let's let's talk about two things. One is there's effectively two separate markets between the employee driver market, which is someone who goes and gets a job at a trucking company, which is actually seen a three there's three percent less truck drivers today that work for fleets then 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 eleven thousand trucking companies in the

last month. Those are not employees, those are essentially fleet operators that are in that So we've seen some a lot of growth in the owner operated market of the spot market because they can make a lot more money. And we've seen a shortage in the UH employee drivers UM and so turnover typically in a trucking companies a hundred and fifteen because a lot of people end enter the industry but don't really know what they're getting into.

They have this sort of I don't 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 UH 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 at a warehouse or ends up going to do construction where she can make today more money than she can be for it

can be a truck driver. And so there's just a lot of structural issues that are there just for the how long H is truck driving school? How long would it take an average person to go from never having driven a truck to being UH licensed UH six to eight weeks um and it depends. And this is in a in a COVID world, truck and 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 is 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. When we lost twenty 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, uh for for those jobs. And that's what's really created as

to pass the constraint 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. And Rate Trucking Company is trying to figure that out, and no one has sort of figured out the secret to it. There are certainly initiatives to bring women. Some fleets have as as much as

of their fleet are women. Automated transmissions sort of removing the stick, if you will, actually attracted a lot of women.

A lot of the O. E. M S designed trucks that are in seats that are more comfortable for women, are allowed for someone who's shorter, has a smaller body to fit inside the cab, and typically the trucks were built for men, you know, big, big, sort of big oversized environments, and now they've sort of focused on the aesthetics to trap more women to the industry, and so there certainly is an element of that, but the industry

has not figured it out. Now we do see large investments around recruiting Latino drivers, recruiting African American drivers, recruiting you know, one of the largest population of truck drivers has been very successful has been uh. Indian populations in

trucking is actually a very respected industry in India. UH. And so a lot of the trucking companies have figured out that they can bring in, you know, bringing 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 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 you have in in sort of as you diversify is Latino populations into 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. Um. And so you have sort of these constraints that exist in the industry and there really isn't an easy answer. Um. 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 they do. There's there is some awesome YouTube videos which our Body was style and they're they're incredible because they're they're dancing in front of their rigs and they've outfitted these beautiful rigs. It is and and and and the job itself is one of pride.

It is one that they're very proud of the job. And it's 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 the challenges because of the American immigration 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 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 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? Like could you organize some of the trucking routes more efficiently?

Could you develop some sort of end off system where instead of having a single driver drive from you know, like the west coast to the east coast, they could maybe pass on their loads from like, you know, 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? Were logistically It's very difficult, and it is tried in you know, it is tried and successful and sort of parcel operations and what they call lt L which are small palettes or small parcel where I'm running a terminal determinal network and I sort of 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 uh and trucking demands. And so what supply chains want our products there as fast as possible. They want them efficient, you know, they want to move. Is all liquidity demanded in the supply chain, and so you can't optimize the trucking market or network.

Should that I agree that, um, you would want to if you if everything else is created equals So for those reasons, you know, freight tends to run what we call head hall and back hall. 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 head haul market out of southern California that goes all over the country and then basically very little freights coming from the other parts of the country back to l A. So there's just a lot of inefficiencies and how supply chains work that create 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, uh as you mentioned,

for these handoffs scenarios. Companies have tried it. It just doesn't work pretty 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 the the gap between outbound shipments from the port of Los Angeles elsewhere versus inbound which was already very um you know, there's already a big disparity for years, but that's really grown massively in this crisis because of all the goods important 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 listened to a couple of your podcast, 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, uh, this is you know something we do, I do full time. It's really it's 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, where was before no one cared. I would often get asked, can you actually build a media and data business? For fraid it seems like a very small niche, And I'm like, well, it's two percent of the global economy. Of the economy the global economy is are logistics dependent end trees. But everybody sort of ignored it because they all assumed it all worked because they

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 we've had at times pipeline issues. We've had you know,

presidents that shut down borders that create massive disruptions. Um just just out of you know, uh, sit out a tweet and all of a sudden, I'm gonna shut on the Mexican border because I don't like the fact that you're not paying from 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 that they

haven't available. These things are always playing out, and now we're really aware as a society how vulnerable you are supply chain disruptions which have always existed, just not with the degree they are and not act 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 inner dependency. So you look at what's happening 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, uh, 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. Uh. And just look at tight inventories and look at the lack of labor supply. All this stuff is playing out and now people are experiencing that only in their business life, with their experience in their personal life. So you mentioned the idea that even though the trucking industry is in a boon now and people can make a lot of money, that it's most certainly going to end up in a bust and

over capacity 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 us. Yeah, it's a it's a great question. So in the shipping market, I'm going to own a ship for thirty years, So

these shipping cycles typically play out over decades. Um. You know, the shipping industry has had this sort of a shut recessionary environments two thousand eight since the Great Financial Crisis, and in the last two years a sort of has had has sort of come out of that, and COVID really accelerated that. So that cycle will probably live on

for some some period of time. Uh. In trucking, they typically the industry runs in three to four year cycles because it's very it's very close to the broader industrial cycle and the economy and the domestic economy. Uh. And so for those reasons, if the industrial sector is very soft, so well trucking. And but what happens is because of the lack of bears of entry, people when they enter the industry, they go out by these trucks. You all of a sudden have this glut of capacity and the

industry has to throw that during the softer time. So two thousand eighteen was a record year for trucking. Two thousand nineteen was the worst year in trucking since the Great Depression. Two thousand and twenty. We saw two side, you know, really three cycles. We saw the run up to COVID where you have this massive surge and demand. We saw a crash where you saw this massive 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 uh, these cycles live out and because there's very little barriers of entry, it allows the industry to get over supplied really really quickly. And because you have such a fragmented market, there are forty thousand trucking companies that that have that have employees that work for them to 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 you biquitous information across the industry, uh that they end up 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 they're operating costs have gone up. The operating costs have shot, you know, way up. They will have to live with those higher operating costs. And it's okay, is the market as long as the markets

doing well. But when the market, when the volume drives 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 specifically, I mean, that is pretty striking to say, is the worst year in a on a growth basis since the Depression. It was the worst trucking market in terms of bankruptcies since the greater since the Great Procession.

So just look us through if you don't mind, like to give us this summary of what really happened in ten. So the government created this new mandate called the electronic logging device, which basically in the old days truck drivers would would use paper logs and 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 rubbed between the small trucking companies which are the independent 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 regulations. So the big carriers are all constantly getting sued and constantly getting audited by the federal 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, uh

in that fashion or have not operated. So the government mandated they called electronic clogging devices, which actually electronically monitor the amount of hours driver drives and so it records all that information. And so this everyone sort of expected this massive churn of capacity. Uh. And because everybody thought, well, this is going to you know, destroying a lot of the available capacity in the market, and for a short term,

short time, it did. Uh. 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 say, is it's different this time. You'll hear this a lot. People say that all the time. To me, at this time, it's different. Well, I've heard that for forty two 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 is different, but the

rules are always the same. And so the industry were we ramped up a lot of capacity headed up to the e L demand date. The L demand date 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 there was a lot of additional supply brought into the market over six to nine months in two thousand eighteen. Now, at the time in two thousand eighteen, 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 terrorists put in place in mid two thousand eighteen, 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 two thousand and eighteen. And then with the slowdown and the industrial economy at a time and capacity had been overbuilt. This massive, massive UH issue in two dozen nineteen where the market was oversupplied and we saw a lot of bankruptcies. You know, we at freight ways, we're covering probably for bankruptcies at one point for bankruptcies a day where we would you know, and some of them were big. There was a four thousand

Republican try that went out went out of business. New England Motor Freight, which is a new York based LTL Care went out of business. So you know, there's just a lot of bankruptcies that happened in two nineteen because, uh, 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 bus cycle? No,

it is. It's classic economics and 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, uh started a trucking company, my uncle started a trucking company. My grandfather was was in trucking. And so I've grown up listening to my dad talk about the cycles. And it's existed as far back as I can remember, uh,

these cycles. Uh, and so even you know, we have something called the Hall of Fame at Freight Ways, which is we cover stories about historical trucking companies for featured. A lot of them are now out of business. Um, if you go back to pre de regulation, so there was a time when trucking was a great industry and

a great job and that was pred regulation. But when the Carter administration deregulated trucking in the in the late seventies along with the airlines and telecommunications sector when they when they deregulated over you know, the during that period of time, what ended up happening is that you saw a massive drop in transportation costs send a GDP. But what you also saw was this massive boom month cycle. Rate 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 whey the airlines work today, uh in terms of international sort of you know, they restrict how many airlines could fly internationally these routes um but pricing was also fixed and and so for those reasons, it was a very

stable market. But when the government deregulated, it allowed a lot of you know, just as massive sort of level of altility that is going to be with us as long as the economic cycle, which you know, as long as as long as we're living a free ish market, you always have that. Well, I have an idea to stabilize the trucking market. And I'm gonna 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 five thousand different trucking companies and then create some really slick digital platform where so that it's more than the Craigslist for trucking and give repeat customers a nice break and try to like really become the Marisk of trucking in some way. Why wouldn't

that work? Can I just say that my dream of being a loan truck driver left to my own devices has suddenly morphed into me becoming like a private equity tycoon rulling over some sort of tech fuel to think of a different approach that might be more sustainable. Okay, go ahead, Tracy. You would be You would be far happier being sitting on the financial side of the industry. The driving and so like, it's hard work, and I

don't want to be dismissive to the drivers. It is hard work and they know they keep the economy running. And it can't be the first to have thought of that. Well, you're not, but the track record of private equity roll up is one that is not great. So we've seen this tried. So there's really a couple of markets. You've

seen the l T L and parcel market. There's been very successful roll ups in the LTL market, Brad Jacob said, XPO has has rolled up a lot of the sort of trucking entities UH in the l T L, UH and fording market and has been very successful there. But in the truckload market, the market that we've taught predominance of today, that full truckload market where the vast majority of capacity lives UM it is very difficult because it takes someone who understands how to operate an entity, and

there are no there are no economies of scale. And here's the reason is that drivers are the factor that matter most and trucking and the problem is if you start rolling up a bunch of companies, you have all of these cultural issues and skill 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 UH 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 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 that are 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 as a company out of Cannon called Transport, which is probably the most successful acquire which does acquire companies and has been successful sort of really operating them and then not. 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 they it ends up really really ugly for them because they don't know how to operate it. They don't trucking is an industry that they'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 when the market is good as it is right now, where you would think trucking companies atret to bring 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 and care seen 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 sixteen thousand independent freight brokers in the United States. These are effectively the day traders of the market. If you ran a consumer products company, you're probably using freight broker because that tends to be

where they They live a lot in that market. But they are the intermediaries, and that's where all the money that they don't own, the assets they don't have to build, the drivers, they don't have to do with the insurance typically and so for those reasons, they do quite well. And there's 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 no return on assets, and and for those reasons, it's just it's a really

nasty industry. Do 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 a UPS or fed X 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 as trucking companies, No, no, no, no, 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 that it's it's partially that, but it's also because the parcel market, 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 economis as a scale, like, it's very difficult, and Amazon is certainly probably the only company that can 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 DHL, you know the world's largest parcel company, has 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 and and companies that have tried to, you know, like the Jail that 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 UH. And that rate is set by the conditions in the markets. When the market

is oversupplied, rates collapse. When the market is undersupplied, 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, a hundred dollars a mile, you can find someone to do it. So for those reasons, Um, it's it's just it's a market that has these substantial booms about cycles uh, and

it's very difficult and doesn't allow for economs of scale. Now, the reason you don't get a commis of scale come down to the truck driver. That is the factor here. And if we sort of fast forward to two thousand and thirty five two forty, when we have autonomous or driver lest trucks, that's when I think it's an attractive

industry for private equity. That's when it's an attractive industry for technology g 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. Um. And frankly, a lot of the carriers that exist today

just won't survive that. H what is the state of that? And like how much does the planning for that theoretical eventuality? Um, how much is that affecting the industry today? And like sort of like what are you watching there? Like how realistic it is it? What's the time frame and what's your what's your what's your sense of it? It's very speculative. It has been a lot of InterCapital poured into autonomous driving. There's been some facts that have gone public for autonomous

trucking service. Is there's a lot of reasons to be bullish on the economics of autonomous talking for many of the reasons I've talked about, eliminates the driver and sort of the factor in the industry, and then you can get economies of scale and you can optimize this this industry. But it is 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 rodert m 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 twenty nine in nine states, the number one job is trying 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 read and so an environment which would you would expect to be pro business uh and support autonomy, happens to be in states where a large percent of the population or a represented percent of population have to 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 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 Cavils truck

is probably twenty 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 up. Yeah, I appreciate it. And 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. I would love to do that. We're going to do you should do it. I'm going to start thinking about my my trucking handle right now,

so let me know and I will make those radios. Yes, thanks Craig, that was great, Thanks so much, all right, Tracy, Thanks Jo Tracy, I kind of feel like, I know, I 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 twenty nineteen, which for the rest of the economy was I don't think you know it was it was a good it was a good year for the economy, and so the fact that in what was what was a good year for the U. S economy was the worst year for truck driving bankruptcy 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, um problems. And I guess, I guess what 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've 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 seemed to like be none of them feel like one solutions, like how you imagine things should work in the modern era. No. Absolutely, it's sort of

like two different extremes of not one 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 All Thoughts. Let's do it. Okay. This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway.

You can follow me on Twitter at Tracy Alloway and I'm Joe Wisn't Thought. You can follow me on Twitter at the Stalwart and be sure to follow our guests 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 Levi at Francesca Today, and check out all of our podcast at Bloomberg onto the handle at podcasts. Thanks for listening.