Echo Global Logistics CEO Waggoner provides a deep dive on market trends and issues

Logistics Management Group News Editor Jeff Berman recently spoke with Doug Waggoner, CEO of Chicago-based 3PL Echo Global Logistics, about various topics, including pricing, capacity, trucking insurance, and Peak Season, among others. A transcript of their conversation is below. 

Logistics Management (LM): With 2019 winding down, how do you view the current state of the freight economy and how things are matching up now compared to a year ago at this time?

Doug Waggoner: I think that the big difference from 2019 is that last year we had tight market conditions and it was hard to find trucks. There was a lot of demand, and it drove prices up considerably. This year, there is a little bit less demand. I would not say we are in a recession. It does not feel like we are close to a recession, it just feels like demand is somewhat anemic and is not as strong as it was last year. And at the same time it seems like there is a lot more capacity available. I believe carriers went out and bought a lot of trucks last year, and they still are…that is not helping. There is plenty of supply and capacity, and we are not in a recession, so we are kind of just going to bounce along in the trough of the cycle.

LM: From a seasonality perspective, how do you view the current state of Peak Season and the holiday “rush?”

Waggoner: I would argue that we have not had a peak in the last decade like how we used to have them in transportation. I think a lot of that is because of the omnichannel retail activity that we see in the marketplace…not everything we buy is sitting on a store shelf anymore. If you look at more recent times, there is cyclicality when looking at freight levels on a per-day basis, and we are following those trends. I don’t see anything that does not look [abnormal], but I don’t think we are having a strong Peak Season…and I don’t think we have had a strong one in a long time.

LM: Looking at pricing, in terms of the spot market, what are the numbers really saying?

Waggoner: We saw prices drop dramatically in 2019 and bottomed out and have come up in recent weeks. I think we found the bottom for the market, and I also think that at some point in 2020 we could see tight capacity as some type of a catalyst, whether it is weather-related or trade-related or even just a pickup in demand or the continual attrition of the national fleet as equipment ages or carriers go bankrupt. One of the factors that are impacting the industry right now is skyrocketing insurance costs for the motor carriers.

LM: How is that playing out at the moment?

Waggoner: I think, in general, that the insurance industry had a tough couple of years, due to a number of factors, in all of the different markets that they sell insurance in. And, of course, when that happens insurance companies make it up in the subsequent years by raising premiums. In the trucking business, we have had some so-called “nuclear verdicts,” where awards were handed out that largely exceeded historical norms and that creates more risk for the insurance companies so they pass it through in the form of raised premiums. I recently attended an investor conference and in numerous conversations with trucking companies, large and small, I heard various tales of dramatic insurance increases. I think, in some cases, we have seen some bankruptcies caused by that. 

LM: To what degree, or level, does that impact your carrier base availability?

Waggoner: We have so many carriers in our database that it is not really a factor, but I think the trend continues. It can be a contributor to some tightening in capacity, and the problem for a carrier is you cannot run without insurance and when your insurance goes up, and you cannot pass it through because pricing is soft in the marketplace, it puts carriers in a really tough spot.

LM: When we last spoke, we talked about inventory management, as it relates to trade and tariffs. How do you view that, for things like inventory being pulled forward, as it relates to your shipper customers’ operations?

Waggoner: It really varies by customer, depending on their supply chain. I have not heard as much about it over the last couple of months, I did during the spring and summer. It seems like it has quieted down a little bit.

LM: Looking ahead to 2020, what are some of the top things on your radar in the freight market?

Waggoner: I think the political “machinery” will keep us out of a recession in 2020, and I think the market will tighten up, because it seems like we have hit the bottom. We know January and February are always soft months, but if you kind of look past that I would expect things to tighten up a little bit in 2020 just looking at the overall trends. If there is some type of catalyst, it could see further tightening; it does not take much.

LM: Going back to August, manufacturing has been on a bumpy ride. How has that subsequently impacted manufacturing-related freight levels?

Waggoner: We may be in an industrial freight recession, but if we look at the different verticals, industrial production seems a little softer than everything else. But I think that is offset by continuing strong consumer demand, low unemployment and other factors that are positives. It does feel like the industrial portion of the economy is a little softer right now.