Ep. 16 Inland preview edited audio.mp3

Transcribed September 20, 2024

Audio Quality Score: 76%

Kristen Hallam   00:00:00

Welcome back to another episode of The Decisive podcast brought to you by S&P Global Market Intelligence. I'm your host, Kristen Hallam. And today, we're raising the curtain on the Inland Distribution Conference. The conference will bring shippers, logistics companies, brokers and forwarders, warehousing and distribution companies, LTL and truckload carriers and supply chain technology providers together in Chicago starting September 30. To tell us more about what's on the agenda are 2 expert journalists from the Journal of Commerce, who will be co-chairs and moderators at the conference. Eric Johnson, Senior Editor, Technology; and Bill Cassidy, Senior Editor, Trucking and Domestic Transportation. Welcome, Eric and Bill.

Bill Cassidy   00:01:06

Thank you.

Eric Johnson   00:01:07

Thanks, Kristen. Glad to be here.

Kristen Hallam   00:01:10

Eric, what is the Inland Distribution Conference or Inland '24 as it's known this year? How did it come about? And who does it serve?

Eric Johnson   00:01:21

Yes. This conference started in 2013, and it's aimed at a subset of the North American containerized supply chain market and really focusing on surface transportation modes in North America, meaning truckload, less than truckload, intermodal rail, drayage, a little bit of domestic air freight. And increasingly now that includes cross-border transportation between the U.S. and Mexico and the U.S. and Canada. And in terms of who it serves, you listed some of the companies in the intro that it's definitely targeted at, which are the cargo owners that are moving goods from point A to point B. And all of the service providers, whether they be ones that don't own assets and are involved more in the coordination of those moves or the asset-based service providers, aka trucking companies or railroads that physically are moving those goods. So it's really trying to get that whole ecosystem together, understanding each other a little bit better, predominantly in service of the cargo owners, right?

Bill Cassidy   00:02:29

One thing I like to think of, Eric, too, is that we have TPM, which is our Transpacific Maritime Conference, really our global containerized shipping conference. I like to think that Inland, in a sense, picks up where TPM leaves us: near the docks, at the distribution center maybe, but moving freight inland from the ports or the airports to its final destination.

Eric Johnson   00:02:55

I think there's also the reality that there's a lot of freight that moves just domestically or continentally in North America that didn't originate from a ship or an airplane. So it was moving internationally. There's a lot of industrial cargo, especially that just moves purely domestically, and we focus on those issues as well.

Kristen Hallam   00:03:17

Appreciate that context. Bill, the theme for this year's inland conference is Striking a Balance. How did the Journal of Commerce arrive at that theme?

Bill Cassidy   00:03:30

Last year, the theme was preparing for a rebound or reaching for the rebound because most people last year assume that the freight recession, the down cycle that we've been experiencing since about May of 2022, would be over by now. But that didn't happen the way people anticipated. This past year, whether you're a shipper or a carrier or a logistics provider, you've had to think about how do I strike a balance between supply and demand, between capacity and the demand for my customers, how do I look at pricing, finding a balance that will allow you to -- when the rebound does occur, to be prepared.

Eric Johnson   00:04:17

Yes. Kristen, I think it's important to understand that there's hardly any industry that's more cyclical than the North American trucking industry. And so there's always this sort of concern that even when things are good, the worm is going to turn. Whether they're going well for you or they're not going well for you, there's always that look ahead to when things are actually going to shift because they always shift. Usually, it's pretty predictable in terms of how long the cycle lasts. In this case, it's been a pretty favorable cycle for shippers. But if you talk to them now, it's less about how happy they are in all the savings they've made and more about doom about what lies ahead when the market turns against them. It's like a very anxious industry in a way.

Bill Cassidy   00:05:06

We've never had, at least in the past 20 years, this long of a downturn in the trucking/ intermodal rail market. We're in the third year now. We've had the threats of rail strikes. We've had the threats of other labor actions. And you think about, too, the Red Sea issue, all these things add up to make a very unpredictable and volatile market for the shipper or the cargo owner. And striking the balance again comes back trying to find your balance amid all that volatility, and it's not an easy path to tread.

Kristen Hallam   00:05:43

That's probably a great segue into my next question, which is what are the main concerns of those who will be attending the conference, and maybe we can take it segment by segment here, starting with shippers. Bill, what's in their worry closet?

Bill Cassidy   00:06:01

I love the term worry closet. I'm going to have to add one here. I can just put my worries in it and lock it away.

Kristen Hallam   00:06:09

You'll have to keep expanding it maybe, so be careful there.

Bill Cassidy   00:06:13

I think the biggest worries that shippers have, certainly domestic shippers, and these are people who might be manufacturers, they might be retailers. They're certainly importing goods, and they're also sourcing domestically too. I think their biggest worry right now is when they're going to see higher demand for goods. And when that higher demand comes, what the impact on price is going to be and how can they control it because they saw prices get way out of line in 2020, 2021, 2022, even amid all the disruption caused by the pandemic, all the high demand that people had for goods. The past 2 years have been completely different from that. But they're looking ahead, I think, to this holiday season, but beyond that to 2025 and wondering just how much of a resurgence in demand might they see. And cost, of course, is always a big worry for shippers. The shipper typically wants to spend as little as they need to get goods moved from point A to point B. But there's so many complicating factors in that now, including visibility into freight movements, and a lot of other issues such as cargo crime, which we'll talk about, that is very difficult for them to really predict and to budget for prices in the year ahead.

Kristen Hallam   00:07:42

What about logistics providers, Bill? What are their main concerns going into Inland?

Bill Cassidy   00:07:49

I think one of the big concerns for logistics providers beyond general demand is what's going to happen with capacity as we go forward. And capacity, meaning tractor trailers, trucks, space to put freight in. Right now, they've got plenty of capacity because trucking companies built up their capacity mightily during the pandemic and now have way too much capacity. But that continues to slowly drain out of the marketplace. Brokers who right now have a hard time finding loads, enough loads to make their margins worthwhile are going to be thinking about, okay, where is the capacity going to come from? What are the costs going to be to me as a broker? I'm going to pay more for this and charge more for it. Will shippers accept that when it comes? So it's very similar in some ways to what the shippers are seeing and thinking with a bit of a difference as a supplier because the third party, the broker has a foot both in the kind of the shipper camp and the carrier camp, providing assets and providing loads. So they're also very eager to see trucking rates increase because truckload rates, spot rates, which they live on, have been so low, you're seeing a large number of smaller brokers fold up and leave the marketplace.

Eric Johnson   00:09:13

And it's such a competitive market on the domestic 3PL side. I think some people consider it commoditized. And in general, when the market turns down as it has, you just see a lot of those intermediaries close shop or get consumed or acquired by other larger brokers generally. We haven't seen as much of that as we might have anticipated this time. Maybe the technology is enabling them to stay in the game, maybe they banked some profits during the pandemic where they were able to live on longer. We haven't seen this huge exit. So it stayed incredibly cut throat and there's a need to differentiate in small ways that can seem imperceptible to the outside, but on the inside is noticeable because there's literally thousands of companies, there's not a high barrier of entry if you're just a pure non-asset-based service provider. So it will be interesting. When the market does turn, they should be in a decent spot because they will have bought capacity from the truckload carriers at a lower rate than they can sell it to shippers once the market gets a little tighter. They're all waiting for that turn, I think, even more in more anticipation than the actual carriers.

Kristen Hallam   00:10:26

So let's move on to intermodal and trucking companies. Bill, what's on their minds coming into Inland?

Bill Cassidy   00:10:35

I can tell you a bit more about the trucking companies and the intermodal, but I think they have a lot of common interest. So the intermodal marketing companies work with the railroads almost as third parties again to place freight. The trucking companies, the asset-based carriers, their main concern right now is price. And it's the opposite concern from the shippers, from their customers because they've been working for the past 2 years with lower prices on the spot market, which are now below the level that is required to maintain the company's profitability. So they're running in the red in many cases. Some of them, as Eric suggested, just as brokers banked some money in 2021, 2022, so did a lot of small trucking companies. And a lot of the large trucking companies have continued to make money and be profitable even if their margins are compressed. But they really are concerned about rising operating costs. They're concerned about low rates that aren't providing the return they need to reinvest in business. They're concerned about what they're going to have to pay drivers when the economy picks up and there's more freight moving on the road. So they're looking at this from a bit of a different perspective. Obviously, when rates will go up, they'll be more profitable, they'll be happier. So again, they're trying to strike a different kind of balance, but both shippers and carriers are in a similar bind in a way.

Kristen Hallam   00:12:00

Two things everyone seems focused on is when the freight recession will end, and we've talked a little bit about that. And I confess that I've had the song Turn! Turn! Turn! in my head since we were talking about the turning, seems to be a theme going through here. And the other thing is whether pricing will rise substantially. Is there a consensus on a market turn for U.S. freight demand and pricing bill?

Bill Cassidy   00:12:28

I'd say no, there is no consensus right now. We've heard varying predictions as journalists, we try and take them all and look at them and examine why people are saying things are going to happen in the fourth quarter, in the first quarter and the third quarter. There has not been a great deal of evidence that we're going to see a turn in the cycle simply because the cycle has gone on for a long time. And here we are going into 2025, late 2024, things appear to be at the bottom, for the truckload rate cycle. And the best predictions or forecast that I can get now would lead me to believe that it's going to be sometime in second quarter next year. One of the major issues is manufacturing because manufacturing accounts for so much truck freight. We tend to think at the Journal of Commerce about imports and a lot of retail, and that is an important part of the mix. But I think about 60% of truck ton miles is industrial freight of some type. The industrial manufacturing economy really needs to see better growth in order to begin to pick up at a substantial pace again. Retail goods will do a certain amount, but you need to have both retail and manufacturing moving upward at a better trajectory than we have right now. So that does make it look as if it may be going into early to mid-2025.

Eric Johnson   00:14:05

So I think the fact that you could talk to -- and Bill does, obviously, and I do, talk to 3 dozen experts from academics to data providers to the companies that are literally providing the sort of Craig's list of websites that are matching cargo with available truck drivers to the owners of the largest fleets in the country, names you would see when you're rolling down the highway, all of them have a little bit of a different view on when the market hit the bottom and when they're expecting it to turn. It just tells you how difficult it actually is to capture this. It's a massive market. It's $800 billion at least. As Bill said, there's not one monolithic market. There are thousands of subsets of this market. And to Bill's point about the industrial sector really being a little more indicative of the health of the overall market is important also because truckload is the biggest sector. But when capacity is tight in truckload, it has knock-on effects on less than truckload, which is when the trailer is mixed with a bunch of different cargo from a bunch of different shippers. And it has a knock-on effect on intermodal rail where you're moving goods by railcar instead of on the road. So there's all these interesting knock-on effects that when demand is low, are much less under the microscope. When demand starts to get high and capacity starts to tighten, that's when you see interesting things happen shifting between the modes as well.

Kristen Hallam   00:15:37

Now we've talked about the economy is a factor, and we have not had a recession in the U.S. The economy is growing. So why if the economy is growing, is freight demand in this prolonged downturn, Bill?

Bill Cassidy   00:15:55

The answer there is that the economy, that GDP isn't just generated by goods movement. A lot of consumer spending is on services. The actual GDP generated by goods is a small portion of the bigger picture on the economy. Also, you have to think imports, which we write about incessantly at the Journal of Commerce, that's our bread and butter. They're a negative to GDP. So when imports are up as they have been, that subtracts from GDP. Growth in the services industries helps balance that out. But even though we've had really decent growth in GDP, that does not reflect on the freight market as much. And that's partially because people bought so many goods between 2020 and 2022 that it flipped the switch and everyone began spending more on services. I think in the most recent economic report from the Commerce Department on consumer spending, there's some sign of a balance returning, but we're probably still a long way off.

Eric Johnson   00:17:03

Our worry closets are full of stuff that we bought during the pandemic.

Bill Cassidy   00:17:06

That's what's in my worry closet right now.

Kristen Hallam   00:17:12

I want to pivot back to something that Bill brought up earlier, which was crime. You've added content related to cargo security and crime this year at Inland. What's causing the spike in cargo crime, Bill? Are there ways to prevent it from happening?

Bill Cassidy   00:17:29

That's a big question, and it's a question that has come up every place I've been in the past 2 years. And I think what has happened in part, the pandemic created opportunity, disruption created opportunity for people to develop inroads, shall we say, into sources of freight, sources of revenue for theft. But technology also, I think, has really helped enable a more sophisticated network of fraud that is global, not just domestic. And we have seen since, say, 2020, the incidence of fraudulent pickups where someone falsifies their identity, goes into a warehouse distribution center, gets a truckload of freight and drives off, is never seen again. That has increased like hundreds of times by, I think, an incredible amount over the past 2 or 3 years. And at the same time, we're seeing more strategic theft where people are using technology to gain access to data on where expensive goods are or goods that they want to steal. They don't even need to be expensive goods. It could be energy drinks. Those are a great target because they can be resold so easily. The bad actors, as they're often called, are much more sophisticated than they used to be. And quite often, they're part of theft rings, which are not just continental here, but global. with direction coming from overseas, which makes it even harder for law enforcement to target them. So this is something that is on the minds of everyone involved in freight right now. And really, I think it comes down to Eric's big topic, technology. Shippers and their suppliers are in almost an arms race when it comes to technology to find ways to counter the very aggressive targeting of their goods by cargo theft rings.

Eric Johnson   00:19:25

Bill did a great job of summarizing the global challenge of this. I think of this as this has taken over the industry in the way that cybersecurity has taken over almost every commercial interest in the world. We seem to have reached a point on the cybersecurity side of things where there's enough people wanting to counteract the bad people that we've reached at least something approaching equilibrium. Otherwise, all of our systems would be down all the time, right? So there's enough good actors who understand where the bad actors not are today, but also where they're going. That same sort of equilibrium, we're not there yet on the freight side. The hardest thing, I think, for the industry to wrestle with is this is not a brute force problem. This is a very like nuanced zeros and ones problem, and that's not necessarily the way the industry thinks about things or hasn't historically. So it's coming around. That will be a huge source of discussion throughout the conference.

Kristen Hallam   00:20:28

I definitely want to put a pin in the technology that you mentioned there, Eric, we will definitely come back to that. Another thing that may be a topic of conversation at Inland is the labor action that may or may not happen. There's a chance that longshore workers may go on strike at East and Gulf Coast ports as the conference begins, Eric. If they do, how disruptive would that be on U.S. transportation and inland distribution?

Eric Johnson   00:20:59

Yes. I swear we did not make the time at the conference for the exact expiry of that contract. I think probably even if we had tried, most people would have presumed that this contract would have been signed prior to the deadline. It is looking increasingly likely that there may indeed be some sort of strike or lockout action. And we're talking about ports all along the U.S. East Coast and Gulf Coast. Obviously, a significant amount of trade and freight and economic activity impacted. By the time we will have met, most of the people in that room will have been considering the possibility of this occurrence for a very long time or at least for a few weeks if they're way behind the curve. So I think the more interesting question to ask is how long does it take to untangle what has happened if there is a work stoppage at East Coast ports because you would have ships not calling, potentially waiting it out, potentially skipping calls to ports and turning around or dropping off in Canadian ports, but the dock workers at those ports might walk in arms with their brothers and sisters down south and not work that cargo or those ships. So it's really about how quickly can normal operations, whether it's rail or trucking out of those ports, resume or get back to normal. And I think one thing we've heard from some ports is each of them individually has experienced outages of a day or 2, weather events close ports fairly regularly. Sometimes system outages have shut down terminals, if not whole ports. They're used to recovering from 1 or 2 days. We don't know how it looks when all of them are out for 1 or 2 days, or it's been a while. But that seems somewhat manageable. If we start to press into multiple days to a week, longer than a week, then we're talking about massive upheaval because most shippers and their service providers won't have accounted for those ports and the networks connecting out of them to be down for 2 weeks.

Bill Cassidy   00:23:13

I think a question then, Eric, is how long does it take for the shipping lines to begin to turn their own schedules around if they have suspended a visit to a certain port on the East or Gulf Coast, and it takes longer to resolve. By the time it is resolved, how quickly can they again reallocate capacity back to that port?

Eric Johnson   00:23:34

I suspect, depending on where the service is originating, some services that are calling at New York, Savannah, Port of Virginia, they will have already left, right, from Asia. Transatlantic, maybe not yet. The die has been cast on the services from Asia at this point. If there's enough time, you could just blank that sailing; in flight terms, you just cancel the flight essentially and figure out where to book the passengers on other flights. If the ship is ready on its voyage, I suspect the de facto position will be just wait it out, sail slower, try to offload cargo at intermediary ports if you have any stops before the U.S. East Coast, grin and bear it, essentially.

Kristen Hallam   00:24:22

Eric, you've been waiting patiently for the technology question to come back around, and here we are. How is technology transforming the businesses addressed by Inland 24?

Eric Johnson   00:24:34

That is a very broad question. The short answer is every single company that is attending Inland, every single company in the markets that Bill and I cover, are having to think about what technology to invest in right now. And I think maybe one thing to understand is it is very rare for there to be a piece of software that works equally for the different types of entities that exist in the market. In other words, you've heard us talk about trucking companies or carriers as they're called. They will have a certain set of software that they use to run their business. The brokers, the intermediaries, they have a certain set of technologies that are aimed at them that help them run their business, price things accurately, buy from the carriers accurately. And then the shippers, of course, have their own set of software that helps them manage when they've handed over cargo to a freight broker or a trucking company and get visibility as it's moving once it's out of their hands. And they also have tools on the procurement side that help them ensure that they are buying at the right rate at the right time. They're all optimized for the company that's bought and invested in and maintains those systems, right? So that is the challenge from a technology perspective. There's no one overarching system that governs all of these individual transactions between these 3 sets of partners. So you have all of this fragmentation. You have multiple generations of tools competing for mind share. It's a very confusing space for companies that are tasked with understanding what they need, creating the budget for what they need, and then buying that and then getting adoption within their companies to actually use these tools, too. It's complicated.

Kristen Hallam   00:26:29

It sounds like you'll be very busy on your beat. You are already, but you'll continue to be busy.

Eric Johnson   00:26:34

Yes, I don't think it's going to slow down anytime soon.

Kristen Hallam   00:26:38

So one thing I'd like to ask each of you is, is there one aspect of the conference that you'd like to highlight for our listeners, one thing that you're really excited about or one thing that you're really looking forward to. Bill, let's start with you, and then we'll come to Eric.

Bill Cassidy   00:26:59

There's obviously a lot to be excited about. I mentioned the cargo crime panels. I think they're going to be really exciting. Also, I'm always really interested in our think tanks and what they will turn up. And this is something that is unique to Inland as a conference. We began several years ago holding think tanks as a way to engage people more directly. Think tanks look at issues in regional markets, but also on specific topics like cargo crime. And they're off the record, but that also means people are more willing to stand up and talk about what's really bothering them. What's in their worry closet?

Eric Johnson   00:27:38

What am I most excited about? I'm excited about a lot this year. I've probably taken a bigger role in the event this year than I have in years past. It's cool to see how much excitement there is from people who know and love what this event is. Obviously, my goal is to make sure that more people eventually know and love what this event is about. I'm probably biased, but I feel like I'm saying this pretty objectively. It's the most substantial event from a content perspective that exists in the market. I know that because of the heart and soul that Bill and our colleague, Ari Ashe, who's our intermodal editor, put into not just putting sessions together, but assembling the right people to have and asking them the right questions. I personally am excited that the technology discussions are expanding. You can't extrapolate technology from operations in the industry anymore. Technology is a part of every discussion. The cargo crime issue being probably the easiest example of like how technology is enabling some of that stuff but can also be used to combat it.

Kristen Hallam   00:28:41

There's plenty more that we could talk about, but it is time to wrap up. Any final thoughts for our listeners?

Eric Johnson   00:28:49

It's really important to like do your homework before you come to an event like this because you have a chance to meet some of the smartest people in the industry and you have a chance to learn from your peers, but also service providers that may be able to tell you something that you didn't know about the market or people like Bill and Ari will definitely tell you something that you didn't know about the market. We're going to throw a barrage of information at you.

Bill Cassidy   00:29:12

I would second that because we have not just one type of medium that we engage people with. There's a smorgasbord there. You could say choose your own adventure. -- those books. Yes. There's a lot of opportunity for people.

Kristen Hallam   00:29:28

All right. Thank you both for sharing your valuable insights on Inland. I will drop a link to the conference website in the description of the episode so our listeners can check it out. Thank you for listening to The Decisive podcast.