Echo Global Logistics CEO Waggoner assesses market conditions amid COVID-19

Logistics Management Group News Editor Jeff Berman recently spoke with Doug Waggoner, CEO of Chicago-based 3PL Echo Global Logistics, about the impact of the COVID-19 pandemic on the freight transportation and logistics sectors, and other topics, including trucking supply and demand, and Peak Season prospects, among others. A transcript of their conversation follows below. 

Logistics Management (LM): How do you view the impact of COVID-19 on the freight market, as well as the freight-based economy?

Doug Waggoner: In the middle of March, when COVID-19 was kind of coming into the public consciousness, we saw a lot of panic-buying of certain commodities, and that created kind of a freight bubble. So, in the second half of March, we saw elevated truckload volumes and tight market conditions, with prices spiking up pretty high. And then by the first week of April, the bubble passed and the reality of businesses being permanently cut back, or even shut down, came home to roost in the freight market. We saw volumes decline very significantly in the first two weeks of April. On our earnings call, which was around that time, we said we were at the bottom of the “U,” with the question being how wide or narrow the recovery would be. Fast-forward a couple of weeks and that is still the case. We think we hit the bottom the first two weeks of April, and it is getting nominally better every week. As states start to re-open, businesses that were shut down are coming back online. They are starting to ship a little freight, and a little freight is better than no freight, and we are expecting it to get better.

LM: Looking at trucking supply and demand, Class 8 orders are currently very low. That said, how should people be viewing rates and pricing during these unusual and uncertain times?

Waggoner: Looking at the supply side, it is interesting to look at the short distance between tight capacity and loose capacity. In March, we saw tight capacity with a little bit of a spike in demand, and in April, with a falloff in demand, we saw extremely loose capacity. That still persists; it is easy to find trucks now. I recently talked to a trucking company owner that typically runs about 20 trucks, and, now, half of them are parked, due to low rates. And even if the rate was better, he said it remains hard to find loads. I think that for some period of time there is going to be a combination of too many trucks, with some parked, and eventually it will all come back online. There could be trucking company failures. We are in an extremely loose market, in terms of conditions, with an excess of supply and deficit in demand. That also drives prices down, because there is always a cheaper truck around the corner. It really is an “Econ 101” supply and demand issue.

LM: With indicators like unemployment and consumer confidence not headed in the right direction, due to COVID-19, Peak Season is not really top of mind. That said, what are your thoughts on what may happen later this year.

Waggoner: When we address Peak Season, we look at two peaks. One is the summer build, with produce season and certain commodities—like beverages—shipping in larger volumes. We are seeing some of that now, but it is muted by all of the other companies that are not shipping.  I think you are seeing a normal summer build, but the offset is the recession we are in. This occurs in the fall Peak Season leading up to the holidays. But as for what is going to happen, it is impossible for me to call that.

LM: What are your customers saying about any possible changes that they may be making to change their sourcing mix to not be as dependable on China?

Waggoner: I have heard a little of that anecdotally, nothing that has any data behind it. But there does appear to be a sentiment that people want to near-source and buy U.S. manufacturing-sourced goods.

LM: If that comes to fruition, what, in your opinion, what does that do to the domestic supply chain? How does that impact Echo?

Waggoner: On a hypothetical basis, were that to happen, you would see a lot of U.S.-bound freight that comes into places like the Port of Long Beach or the Port of Los Angeles that goes onto stack trains or truckload to distribution centers to different parts of the country not go away. It would just originate in other places other than West Coast ports. If certain goods were manufactured on the U.S.-Mexico border or in the Southeast U.S., you would have new volumes emanating from those areas. There would be the same amount of freight, but it would be coming from different places.

LM: During this time, what would you say are the biggest issues, or challenges, for shippers right now?

Waggoner: Right now, there is plenty of supply and rates are low so generally shippers don’t have any problems with that. The question in their mind is how long are these conditions going to persist and is there some sort of V-shaped recovery that would suddenly find us with an inadequate supply, because drivers have moved on to other jobs, companies have parked equipment or gone out of business. There is concern for the trucking companies, because rates are so low and there are other pressures on them like the cost of insurance. Although there is not a shortage of capacity today, it does not take a whole lot to push us into that zone. It could be a spike in demand, it could be exogenous events like weather or a hurricane that can disrupt the natural balance and network of freight flows.  I think shippers enjoy the low rates but should not get used to them as things change. A perfect example of that is how quickly the market changed between the middle of March and the middle of April. There were multiple freight cycles in the same month.

LM: With the Presidential election coming up, how do you view the impact of either candidate winning on the freight markets?

Waggoner: It seems like there is not much news on the election these days. Either party is going to have to deal with the same issues on their plate, and they have limited numbers of options. I think we may see continued fiscal stimulus. We run out of monetary policy when rates hit zero. We will eventually see an inflationary effect of all that money that is being pumped into the economy, regardless of who wins.

LM: How do you view the current state of the truckload market?

Waggoner: There is not much spot freight so if you are looking to grow, you are going to have to find new customers or you have to be successful at managing your routing guides and winning contractual lanes. Winning new customers is difficult right now, because a lot of people working are not answering the phone.

LM: Looking at the e-commerce supply chain, what do you see happening there over the next six-to-12 months?

Waggoner: We don’t have any deep penetration into the last mile of retail so we are a little bit ambivalent as to whether people are buying from stores or online. We are focused more heavily on the industrial segment of the economy in manufacturing and some food and beverage. This crisis has forced even more people to rely more on online purchasing. And with fears of going to a mall or a big retailer, I think what we have seen over the last few years is possibly accelerating. 

LM: As for manufacturing, data from ISM has been down across the board. What are your manufacturing-based customers up against at the moment?

Waggoner: It really comes down to what commodities and products they manufacture and distribute. Certain products—like toilet paper—are moving off the shelf faster than they can be made. Some other products are viewed as nice to have or luxury products, with lower purchase activity, or are just not being purchased, at this time. It really varies by industry and product. We see that in our own customer base, with some sectors up dramatically and others down dramatically in volume. That kind of nets out to something we can live with but clearly COVID-19 is not affecting all companies and sectors equally.

LM: While Echo is not heavily into intermodal, it is in that space to an extent. How are you viewing the sector, given the excess trucking capacity at the moment and low gas prices?

Waggoner: Looking at the historical rules of thumb, low fuel and truck pricing make it less attractive. In general, that is a double-whammy and impacts it relative to other parts of the freight sector.

LM: There has been some news coverage focused on a complaint on brokers engaged in price gouging.  Can you comment on that?

Waggoner: There is really some concern about freight rates, and there is a misconception among some truckers that brokers control the marketplace and set pricing. It is a supply and demand market, like many others. When there are too many trucks, prices go down. We ride the wave of the price with our margins. And margins ebb and flow a little bit, due to the lag effect of the buy price or the sell price. They don’t always move in lockstep but there are parts of the cycle where margins grow and others where they contract. We have to play it over the long run for the averages.