Echo Global Logistics CEO Waggoner provides deep dive into logistics and freight markets

Logistics Management Group News Editor Jeff Berman recently spoke with Doug Waggoner, CEO of Echo Global Logistics. Topics covered include the state of the freight economy, Peak Season, the e-commerce-driven supply chain, and capacity, among others. A transcript of their conversation is below.

Logistics Management (LM): How do you view the current state of the freight economy–looking at things like volume, demand, and capacity-compared to what was a very strong 2018?

Doug Waggoner: A year ago, market conditions were tight. In late 2017, we had hurricanes and the ELD mandate set to begin in 2018. There was a truck driver shortage, and the economy seemed strong. Rates were up 20-to-30%. We would have never predicted the market conditions we have today and how rapidly we would have got to them. I don’t think anyone predicted it, and it happened pretty quickly.

LM: What about the impact of tariffs and trade tension, as it relates to the shift in market conditions?

Waggoner: I do think the threat of tariffs caused importers to re-think their supply chain strategies, in terms of different timing and different modes and different ports of location. We have talked to many different shippers, and they have all been affected in some way, with a lot of different permutations on how they were impacted. Some have said they have been pulling inventories forward. Another factor was that they bought a lot more capacity than they admitted to as well. Demand is also a little bit softer, too. All of these things combined make for very different market conditions.

LM: Truckload capacity compared to a year ago is not as tight. How do you view the current situation?

Waggoner: Finding trucks now is pretty easy. When you think of a traditional routing guide, the primary carrier is taking anything that is tendered to them so there is not much spilling over to the spot market. That is the cycle we are in.

LM: How does that play out on the TMS and freight brokerage side?

Waggoner: When rates first start to fall, brokers will typically see margin expansion, because some percent of their business is locked up in contractual rates. But they are covering the loads at rates that are falling so their margins actually expand. The flip side of that is there is less volume, so they are getting more margin per load but are getting fewer loads. The next part of the cycle is where prices stop falling, and shippers are trying to catch up and are putting pressure on people to lower price…you can get some margin compression there. And then you have the recovery part of the cycle, where if the macroeconomic cycle picks up there is more demand and a shortage of capacity and the prices spike up by the asset-based carriers. The brokers get squeezed. It is just like on the way on the way down; on the way up, they have committed pricing in their contract but now it is costing more to live up to those commitments so their margins get squeezed. But that gets offset because with macroeconomic improvement, there is additional volume and there is spot freight.

LM: What are some of things on the shipper and provider side that are viewed as concerns the market is staring down at the moment?

Waggoner: Everybody is concerned with trying to figure out where the economy is going. We are all great at talking about what happened yesterday but not as good about what is going to happen tomorrow. When the market gets somewhat soft, it affects us all differently. A shipper needs to figure out how to optimize its price but also maintain partnerships with transportation providers. Transportation providers are trying to do the same thing. The volatility in the market is challenging for everybody. Shippers are trying to plan their budget a year in advance and budget certain costs, but when those costs are moving around all the time it is difficult. Likewise, carriers are trying to commit to prices. The uncertainty and volatility in the market is a challenge for shippers, carrier, and brokers alike.

LM: The emergence of the e-commerce-driven supply chain continues to play out, resulting in things like shorter transit times and the “regionalization” of DCs and warehouses. How do you view these shifts compared to ten years ago or so?

Waggoner: The consumer benefits from it because everybody is trying to make things better for the end consumer. I recently ordered something on Amazon, and it came to my office on the same day. That starts to spoil you…it is so convenient now. I think it is raising the bar on everybody, not just the retailers but also the suppliers and providers to the retailers. It is getting people to re-think their supply chain. Some people like the experience of shopping in a brick-and-mortar store and like to touch and feel products before they make a purchase. At the same time, people like the convenience of ordering something and getting it on the same day and not having to leave the house. That then causes the retailers to have omnichannel strategies that we hear about, and that cascades down to transportation service providers like us. When you ask these retailers and suppliers to retailers to rethink their supply chains, you also have to think about how that changes the way freight moves. I think that at the end of the day the same amount of freight moves. If you are buying a Samsung TV, it is probably made in Korea but how it got to your living room can take a lot of different paths. In the old days, you may have gone to a Best Buy showroom to get it, and today it probably gets delivered to your house. There is still transportation involved, but it is picking different modes and routes to get there. It is incumbent on companies like Echo and others to have strategies to keep us relevant, as supply chains change.    

LM: How do you view the 2019 Peak Season so far?

Waggoner: It seems like the last couple years have been more volatile in that respect compared to others. I expect to see things build up through November, but it may still be too early to call.