Freight Costs Are Surging — Here’s What’s Really Happening to Trucking Capacity | Freightonomics

0:00Do the second hour of Freightways today. Also known as Freightenomics on Thursdays. I'm Zach Strickland, head of Freight Market Intelligence, and joining me for the first half of the hour are head economists, DJ Donna Hugh, and we're going to break down a few of the large economic releases. And then in the second half, we're going to bring on Thomas Wassen and break down some of the top transportation topics of the day, along with looking at some FMCSA data. The lot of, I think probably some of the biggest questions I get, DJ, recently, on the economic side, a lot of it, of course, AI derivative, what is this actually doing? We'll get into that here in a minute. But also just, they want to know a lot about what demand is going to do. We've got this inflationary overhang that people are still like, well, we've gotten

1:04away with it so far, because consumers have been relatively, I guess, resilient if expectations to start the year weren't super-rob. They were good. Then we had the Iranian conflict, and then inflation came back on the table. And then the trade policy stuff kind of like muted out for a minute, and now it's back on the table once again with the Canadian stuff, which we'll talk about, too. But we got some economic releases this week, one of them, of course, inflationary data. The PPI, producer price index. So I want to get, first off, your take here on the PPI, and then we'll work our way downstream as we go through some of this data. So what did it tell us? Well, PPI overall was, the final demand figures were about 0.4%. That's July to August, month over month, the latest numbers coming out from BLS were the August numbers. So a small gain month over month, a little bit of increase in prices, nothing to really

2:04write home about. But it was a substantial increase over last year, 5.4% year over year. That's a pretty big figure. I mean, the Fed's target is 2%. And the PPI, it doesn't translate perfectly. We know that because it's largely upstream. It's not the finalized goods and the retailers. It's the old sailors. But it does have pressure on the downstream. It does. And we actually saw some of those numbers and that difference come out in interesting places. The big number from PPI, the story, was energy. Energy prices are usually pretty volatile of nature. But we've seen a lot of bouncing around, particularly with the Iran conflict. Because this last month, energy was up 4.2% month over month overall. But 24% up year over year. So we saw nearly a quarter price increase in the year over year price for all of energy. Now the biggest driver on that was diesel prices. Diesel prices, especially for freight and trucking, touched just about everything. Because you got to worry about diesel prices.

3:05Trucking, diesel prices, not just for the guys who drive the big diesel trucks coming out of the doleys coming out of the backwoods. But diesel prices have a large weight of touching everything because diesel electrical locomotives, locomotives. And so the diesel prices remain high right now. John Kingston wrote a great article about it. And as of the last EIA reading on the seventh, we're looking at 5.967 diesel price right now. So almost $6 a gallon for diesel, very, very high prices. That particular price is up 21.4% month over month. So it's still 24% higher than last month. And 77.8% year over year. So insane. That's a huge jump. I mean, you can't ignore it. I mean, as much as you think it's transitory or whatnot at this point, it's been there. And that's a big jump. And it's going somewhere. Some are paying for it. And of course, it is. It translates largely into the earnings of the providers, the retailers as the retail diesel providers as well as some of the upstream guys, the big oil companies. And their earnings show it.

4:06Yeah. And that's actually some place we saw this breakout kind of happen. You know, whenever you're talking about cost of increase, producer prices, who actually pays for it is always questioned. Does the consumer eat all that cost or does where it is that cost actually show up? Yeah. This time we actually saw it show up in some of the diesel retailers because while trade itself was down 2%, a 0.2% excuse me month over month, not a big movement. We actually saw it in 11.3% drop month over month in the fuel and lubricant index. Now this is a trade index. Trade index measure changes margins received by wholesalers and retailers. So this is the change in their profits that they're seeing. So we're not talking about the pump price themselves. We're talking about how much the retailers are seeing at the end of the day. And so the drop of 11.3% month over month tells us that the retailers are eating a large chunk of the recent increase. And we tend to see that usually. Yeah. You know, when you see volatile markets like the WTI, West Texas Intermediate or the Brent Crew, those can tend to be announced up and now whereas retail prices tend to be more stable in relative terms.

5:09We have a great chart on this that I showed on my sonar update if the team back there can pull up the DTS and the DOE. There it is right there. Yeah. So what you're looking at here is, you know, the top two lines, the white line is going to be the DTS figure. So the diesel truck stop figure for the average retail price of diesel gets reported daily. You can see it correlates highly with the DOE figure that you just talked about, which only gets reported weekly on Mondays. And then normally gets implemented on Tuesdays for a lot of the fuel surchargers that the shipping community pays. And you see it continues to rise, you know, even beyond Monday, we're seeing, you know, pressure. And then below that, now this is the thing that helps explain what you were just talking about, that gray line, that is the upstream rack or wholesale price of diesel. We call it ULSDR. And so on our, and that has increasing pressure. Now, the top line, the top two lines retail, the bottom line is going to be your KPI, if you will, or you know, for a better analogy, that is your upstream cost.

6:12And you can see that that is far more volatile. It goes up and down much more erratically. And a lot of times the retailers who, you know, fuel their gas stations and all that, they pay that price and bulk up front or over a period of time and get smoothed out. It's almost a hedge, if you will, depending on when they bought their fuel. So it doesn't move on the daily. It's kind of like truckload spot rates versus truckload contract rates, a little bit, not quite as pure as that. But what you were just talking about, I think, is an important thing. Like retailers don't always immediately pass along their upstream costs. Yeah, there are economic demand models to explain that. The king demand curve talks, you know, that's a flawed model. It never talks about how it gets there. But there's a disincentive to move your price. Because if you try to raise your price, you're going to lose share. Right. If you, because people are going to go to your competitors, but if you try to lower your price, then it's going to cause a problem with, you know, your margins, not only that much,

7:14but either way, the, I don't want to get too deep in the weeds on that because they're short on time. But the idea is that energy is driving everything. Yeah. And to get back to our topic at hand, the transportation and warehousing market also saw some increases, which is really of direct importance to our customers. Yeah, for sure. We saw it up to 2.3% month over month and 13.0% year over year. So they are seeing increases as well. The interesting thing is that freight trucking itself was one of the primary drivers for that. 2.3% had two big numbers in positive space. One was the air passenger. So not freight, but air passenger was up 4.2% which was driven by again, fuel prices, not diesel, but energy of fuel overall, like jet fuel, jet A. And air passenger was up 15, 20, 20% year over year. The other one was freight trucking 2% month over month and 14.3% year over year. Right. So we're actually seeing PPI increase trucking prices show up in the data as well. And of course, trucking prices are increasing due to a lot of the stuff that we talk about here. Tender rejection rates are high. It's a tight market.

8:14So it's inflationary. And I think this one largely though biases towards some of that contract freight stuff. If we want to pull up the tender rejection index, I mean, it's been tight all year. This is independent of fuel though. This tender rejections don't care about fuel. So when you see elevated rejection rates as we talked about earlier on the show, 13.5% means that shippers are not getting the service that they need. So carriers aren't showing up as frequently or as on time. As a shipper would want them to where they we normally see an acceptable level for a shipper is somewhere around that 5% 5% to 6% rejection rate area is normally where we don't see any rate inflation or deflation. It's kind of a balanced market. Or capacity is, you know, supply and demand are meeting fairly regularly. But this is not that. And I think that's a hard that when you look at these figures like the PPI, you've got this 2% figure. How much of that's fuel? How much of that is just the market conditions itself and it's hard to really parse those two things apart, right?

9:19Yeah. I mean, you know that the fuel is having the impact now. How much that impact is on the, you know, how much of the PPI increase in tracking costs is fuel? How much is relatable to a tight market? Right. That's going to go a lot more deeper than the BLS data has available. For sure. Could we answer it? Sure, but that would be like a whole different sit rep. Well, that's why you get that's why you get sonar. Exactly. Yeah. So moving on, we've got our next major release was the consumer credit release. Federal Reserve releases G 19 every month that talks about how much consumers are spending with regard to their, they're revolving and non revolving credit cards. So not just credit cards, but mortgages, loans, things of that nature. We saw a seasonally adjusted analyzed monthly rate of 4.2% for July up from a 3.4% June increase. So again, you got to remember that the numbers coming on in this are a little bit lagged. When you see we actually have this interstone are in the what is it? CCO CC OR the CCO and CC O RG. So both those show up the ones that are ready to growth.

10:20One is the straight amount of figure. Yeah, the actual figure. What we're seeing with this is that the year over your growth slowed. So there was July increase of 1.42%. June's increase was 2.06. So people are still increasing the amount of credit they're using, but not as fast as they were, right? A lot of times we'll see these kind of dips in June. This time that came a little bit later in July. And I think that one possible explanation that people are starting to kind of save up to get ready for the holiday season. This is the revolving credit cards. Yes, these are credit cards. We have not seen an update to the rates yet. You know, we're still because they don't release rates, but every quarter. Right. So we'll see. I think court rates update coming out this quarter or later this month. But we haven't seen that yet. And the rates have still been very historically high. Right. You know, we're still seeing, I think it was like 22% for credit cards. So yes, people are still paying through the nose for credit, but that hasn't really stopped them taking out increasing amount of credit card loans. Yeah.

11:20You know, it's slowed, but it hasn't stopped. It hasn't decreased. Yeah. I think that's it's always interesting to me when we when we talk economics and we talk about revolving credit. I mean, it's one thing when you see credit card increasing and freight demand simultaneously increasing with it. You've got, you know, that's viewed very positively from the freight market perspective, transportation service providers and shippers, because that means they're selling stuff. But over time, it starts to show up in consumer health, which is a longer term problem for freight and shippers and economically, because if they're holding that, I mean, at 22%. I mean, these guys are, that is a phenomenally high annualized rate. If you're holding that amount of credit card data, 22%. I mean, you're paying through the nose for the use of that money and it's not sustainable. Like if you hold that, if you hold high credit balances over time, it's not sustainable. So this to me is more of a long term risk and in the question becomes how long do we sustain it?

12:23The fact that they're slowing down, I think is a fairly positive long term signal, but it's not a great short term signal in my mind. Well, if we look at the data, what we're seeing right now is this slow down we saw from a month of our perspective, we look at the red line on the chart we brought up a second ago. We're seeing that this is well within the range of kind of like a stable, you know, it's a stable range that we've seen since the movement from 2025. So I got to bring up a note on this. In 2024, November, 2024, the Federal Reserve changed the data sources that they were utilizing. So in our data and in the feds data, you see a big drop near the end of 2025. That's not that. Yeah, that's not actually a drop in consumer credit usage. That was a change in the way the Federal Reserve, they changed their data source. So they actually brought in somebody else, they brought in a data source that ties directly to actual facts, line and loan level data. So it's supposed to be a more accurate read, but it also shows a big drop when a drop didn't actually occur. So if we're looking at this from about April on, we can see a slow increase in over time.

13:26It's not a huge jump month over month, but we're still seeing increases in the amount of credit utilized, but it's still kind of a narrow range. So this month over month, slowing down, I'm not really worried about it one way or the other. We're still seeing increases, but it's not a dramatic increase. What this tells me to kind of put this in context is that we have to keep an eye on the end of this month. Because given the last few months, the comments from German wars that we've seen, the mixed vote that we saw back in August, the high rate guidance, the comments from German wars have focused on we need to get prices stabilized. Yeah, we're also going to see a, we saw that also in PPI with the IPPI numbers, particularly around energy. We want to make sure that we keep an eye on prices because he says that, again, he's going off PCE not PPI. But he is very tightly focused on price inflation.

14:28And so that combined is we've set it before. And I think it's going to still hold true that later this month from the Federal Reserve's meaning of the FOMC, the Federal Open Marketing, it's likely that we're going to see an increase in rates or an increase in target rates. Now, it may not be anything more than like a quarter point, not likely a half point. Right. But the trick is that we're probably going to see an increase in rate, and which is going to drive those credit card rates even higher, which is crazy too, because we had credit card rates stay high, even when they were cutting rates. Like, because this is market condition, the market can view risk, and that's what this is effectively as a pricing of risk by the credit card companies saying, like, look, we know that we're borrowing at lower rates, but we're stable financially. We don't view the consumer of this as as stable. So we're going to have to keep the risk premium in the credit card rate for you guys, because you're not as stable. And that's kind of a, it's a finance 101 situation. It goes beyond that, I think, because particularly when we're looking at, and again, we're looking at rates with a two month lag on those real

15:34ass release in May, but given how the Fed's guidance hasn't changed, so that must, I don't think we're to see much of a change there. But the risk premium is coming in from the direction. Remember what happened with the cent in the treasury, you know, we're seeing a highly unstable financial market, because you have the treasury moving in to try and guide monetary policy. In ways that it has never done so within the last, I think, 100 years, the Fed is supposed to be an independent monetary policy body. And when you have the treasury secretary moving in and saying, I'm going to start changing my long term bond buying policy and my short term bond policy with an eye to lower long term bond rates. That's impacting monetary policy in a way that hasn't been done. Now, did the cent come out and say that was his purpose, or is that something that kind of people were implying? I don't think that he ever said it. I don't know that I've got a direct quote on it. So I'm not going to, you know, put my name to that. I think a lot of people were talking like that. Now, it does look like that. That's true. I'll say that like it from my perspective, you know, as a finance guy that clearly looks like people can claim liquidity.

16:37I can tell you how to quote, but if I were to crawl correctly, he actually went on saying long term rates are too high. Yeah. So if this is his move, then it means that that which is weird because the markets just said, okay, short term, they came down, but then they went right back up. Which it still makes no sense to me because if you're looking at this from a long term rate, you're looking at long term rates that were decided large part. Yeah. You know, that's going to be for a new bonds issue going forward. But if you're talking about long term rates, you're talking about rates that have been locked in for 15 or more years, right? So you're the best analogy I heard on this was taking the mortgage and putting on the credit card. You're taking a bet on short term rates coming down and influencing law, you know, by it makes no sense to me. I'm not going to try and say what's going on inside the administration and that's not my place. But yeah, we don't get, we don't get that. I'm not interested in the politics. It's not my spot. But it seems to me that we're trying from what he's doing. He's making a bet on short term rates.

17:39And history shows that that does not play out the way you think it's going to because if you ever look at the difference between a variable short term mortgage and a locked in higher, long term mortgage, the smart play has always been go for the slightly higher, long rate mortgage because you get your rate locked in. And you can always refine it slower if you need to. But if you've got that variable rate, a mortgage and you end up going and the rates go up before you can lock it in sooner, you're stuck praying a serious premium on that. Well, I mean, I think a lot of people in 2008, 2009 learned that harsh lesson. And of course, we all have short memories. But there's not a lot we can do about that. What would you tell people over the next month, what are you looking at from this inflationary rate increase potential perspective that people need to think about? My best thing would be if you're, because credit cards are always on a revolving basis, there's always have to pay the current rates on your.

18:39Or that this say you're always tied into the highest rate whenever new credit cards are issued. So I would always say if you're looking at this and you're anticipating a rate increase, pay down debts. Yeah. I mean, just now that's typical consumer advice when it comes to businesses. If they want to kind of front load their budgets and try and get dispense in the credits, cheaper, that might be wise. Yeah. But yeah, I mean, you got these capex budgets that people were expecting to spend more money on, but then inflation and trade policy and it's not just high prices. It's also high cost. I mean, I'm going to be watching the STVI for a little bit of pull forward. If these guys are saying like, you know what, my capex, I need to spend some, I need to spend some extra. I was thinking that we were going to be in a rate cut environment in the second half of the year. And instead we're in a rate elevation environment. I don't know, I don't know what this means for, for freight specifically, but we need to get into this trade war. Yes. The escalation, the Canadian products thing. You did a phenomenal thing here by pulling this chart out, but let go ahead.

19:40Okay. That's fine. So most recently, there was a continued escalation of the trade war between us and Canada, in which the administration stated that they were going to have a full ban on certain classes of Canadian imported products. Specifically beer, molasses, motorcycles with engines over 800 cubic centimeters, 800 CC, not alcoholic beer spirits. Dairy specifically, when you look at the categories, it's not a broad dairy ban. Right. And then wine. So I've done a little bit of research on this in a couple areas here. First off, here on the chart, you're going to see what was the 2025 import value in million US dollars. So how much stuff in value did we actually bring in from Canada across all these categories? And you can see that this is not necessarily tiny numbers. We're talking 19 million, 80 million. We're talking about spirits, 673 million. That's primary Canadian whiskey. Right. Way and dairy, 34.9 million, but in doing some further research, Canada's like number three for way imports in value, but much higher.

20:45I think number one in volume. Right. So they're actually sending us a lot of bulk, way product that's not necessarily expensive, but it is there is a lot of it. And then we've got wine, 62.1 million. Now, so they're cheap on their way production. Yeah. Like we're buying cheap away from them. Yeah. Yeah, because they can't make a lot of milk. Now, I used to work for the dairy program at USDA ag marketing service. And that's cool. One of the interesting things you find out there is that cows didn't like cold weather. And so that's why I see a lot of our dairy industry in this country in place that have longer winter Wisconsin, Wisconsin, Pennsylvania, for Mont for a small size as a substantial dairy industry. So Canada actually produces a lot of dairy as well because they have much longer cold seasons. I like it when it's cold. Right. So for that, they produce a lot of dairy products. Now, their dairy policy has always been kind of lost. Of course, there has been a lot of import and export restrictions on Canadian dairy coming to the United States.

21:48But when I understand that has actually been more towards making sure that their dairy gets. Around at a large way towards the EU as opposed to the US. You know, it's let it's more that they want to establish better relations with EU maintain the relationship with the EU as opposed to worrying about the US because. That's why I brought in the next column, the US market size. If you look at the way dairy size in the US market, 1.8 billion dollars. So 1,800 million dollars. That's 8 1.8 billion. So yes, we're importing almost $35 million worth of Canadian way. But we consume 1.8 billion. So the imports are relatively small portion of our consumption. And so I add that just for context, you know, 1.9%. And that's the highest figure we have on the chart. Right. You start looking at other categories, bringing in Canadian beer like your moulsen 0.5%. Yeah. So this doesn't look like it's going to have a huge or meaningful influence on any kind of freight volumes or economic staff.

22:49Correct. I don't think so. Which well, it's not to say that's going to have no impact. I think that. Well, obviously for those that deal with this, this is a very specialized group of, you know, food and more specializing you think, because particularly in the wine section, there is a wine surprise that you would not think about. Because I don't know if you know much about wine making generally need to a much more warmer climate. Yes. The areas that you see major wine production of France and Italy in particular. And California, major wine areas, Mediterranean climates, much more Mediterranean climates. But Canada has a specialized wine type you wouldn't know about. Ice wine. Wine that is made after the first where the great harvest is not harsh until after the first frost. Very highly specialized, very sweet profile can be similar to like some of the Southern muskidine wines, but not really competing for the same market. OK. Regardless, we do have some imports there, very small amount. Spirits are one of the other big ones, the Canadian whiskeys. Right. You see there is a very relatively large trade balance.

23:49We import $673 million in Canadian spirits every year. The trade balance, we actually send them a lot less than they send to us. So the negative numbers in the last column, that's the foreign ag service trade balance in million USD. So that is if it's a positive number, we send more than they send to us. If it's negative, they send us more than we send to them. So the large one there is in spirits, $495 million, almost $496 of Canadian spirits come into the US. Every year. OK. Again, primarily Canadian whiskeys. So it is going to have an impact there. I think it's probably going to be your biggest area that you see just because of where the trade balance is. Yeah. That's also the largest import value that we see on the left hand side. $673 million worth of Canadian spirits get imported into the US every year. So if we're going to see it anywhere, spirits, spirits is probably going to be your biggest area. Malassas shows up to very, very, very small percentage. I think the only reason Malassas was included because I saw one number have had time to verify it, but that

24:56when it comes to Canadian Malassas, we're like their primary buyer, right? This goes back to a market power question because whether or not a tariff is effective. It's always a question of market power, right? On one side, you've got Monopoly, which everybody knows about, think about your cable company. One cell lots of buyers. The other side of that coin, which is much more important when it comes to tariff conversations is Monop's Sonny, where you have one seller lots of buyers. If you have just one seller and all your, you know, strike that reverse it. I got that back. So Monopoly once you've got one seller buyer. Yes. So you've got like your cable company, Monop's Sonny is one buyer lots of sellers. There you go. That's right. Think about your rural hospital. You've got one little hospital and all the medical labor in the area has to sell their labor to this hospital, right? And so in that case, the hospital sets the price. Right. So when you have a monopsie situation, you have one person who is buying all your product. If you've got the all the Canadian Malassas that's being exported, being purchased by the US,

26:01then you can, the US has a price at power. They can set the price. That's the price. And so the tariff can actually work backwards through the Canadian producer market. The Canadian producers ought to eat them now. This is not talking about the Canadian overall size production is strictly their exports. From what I understand, Canadians produce of their most of their own internal molasses production. And the about the export is relatively small. The US is the primary buyer. It's a small portion of the molasses market. So it's so so. So wrap this into a bow for me and tell me what the what the influence of these tariffs could do for the overall relationship in economy. If I had to make a statement on it, I would say that this is much more political and performative than actually economic. And it's in so the people outside of the industry specifically targeted here, you know, the spirits industry looks like this is a big deal. But automotive, which is a large portion of the cross-border traffic up there, especially around Detroit, like they're they're not, I mean motorcycles are on here too, but that's a relatively small component of this.

27:04Yeah, and when it comes to motorcycles and motor parts more broadly, you know, we're talking motorcycles that are just over 800 CC, you know, the smaller CC mobs, the smaller motorcycles are exempt. And I don't know how many large CC motorcycles are coming. Yeah, maybe your can and the big spiders are technically considered motorcycles because I won a wheel in the back. Those are probably going to be the most likely affected, but we're not talking hardly. Yeah, you know, the giant CC, you know, the giant ones. You are oftentimes either Chinese or American made. If we're talking about automotive parts more broadly, the conversation becomes more, more complicated because while yes, we do have 50% tariffs remaining in place for Canadian parts imported into the US. However, the interplay gets much more complicated because we turn around and Canadian consumers are buying finished US cars. Right. So while yes, they send parts over here, we put it all together with other foreign parts, like from going from China and other places and then ship the whole car back to them.

28:06Yeah. So it's not a clean cut like you see like the ice one industry where they're the only ones who make it. Yeah, I love that. I love that breakdown. Well, DJ, thank you so much for coming on. We are going to kick to a short break. And then when we return, we're going to talk to Thomas Watson. Stay tuned. If you haven't evaluated Motor City system software applications and integrations, it's time to take a look. Motor City's team brings deep industry knowledge to help improve carrier operations with its software and integrations, including roller, customizable driver app and workflow, relay, advanced messaging and communication, torque, integration platform, wire, modern EDI, touch, visit Motor City dot systems to learn more.

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30:19Sam Zara built with operators. Once a year, the entire freight industry stops what it's doing and comes to one place, Chattanooga, Tennessee. This is F3, the future of freight festival. It isn't just a conference. It's the largest festival in freight built to pull you all the way in. The energy, the ideas, the atmosphere and the people who move this industry forward. Over 50 speakers, four events across three days, founders, executives, innovators and disruptors, all under one roof, all asking the same question. What comes next? On the main stage, the sharpest minds in freight take on the biggest questions in the business, the trends, the technology, and the forces shaping what's ahead. Then the clock starts, seven minutes, no exceptions. The cutting edge of freight tech goes head to head, live, battling for best in show. When the time's up, the lights go out. And in between, the conversations that don't happen anywhere else, the connections that change the trajectory of your business.

31:22The relationships you'll carry long after you leave. Because when the sessions end, the festival begins. Live entertainment, unforgettable experiences, a celebration of the world of freight, and an energy you won't find at any other event in the industry. The leaders you need, the access you won't get anywhere else. This is where knowledge is shared, where deals get done, where the future of freight gets decided. F3, future of freight festival, October 27th and 28th. The signal, Chattanooga, Tennessee. We'll see you there, register now at live.fraithwaves.com. All right, welcome back to freight dynamics on this Thursday, September 10th. The day before 9-11, we're bringing back Thomas Wasson. For the second half, we're going to talk about some transportation, market information, a lot of international stuff.

32:25We've got this cross-border Mexico situation, Neumahoney wrote about. We've got a little maritime as well as the final thing that I want to talk to you about. Because this is like your old life, with FMCSA, carrier data. You would go through and kind of vetted and work with some of that back-end MC, or the 150s, and all that. FMCSA has kind of had a little bit of movement on their back-end systems. I just want to parse that apart because one of the questions I get most often is what's capacity doing? That's what everybody wants to know. Is capacity growing? What's Montgomery Careeb doing? And C.A. Trabzon, of course, is still involved in this ongoing legal battle. That'll be the context there. The maritime stuff, of course, I want to break apart a little bit. I know that's not necessarily your lane, but I also want to get you from an outside standpoint, maritime data. What's your take here in that space? First things first, let's kick it off. Thomas Watson for your return trip.

33:27Let's talk about this article, Noy Mahoney, covers the cross-border traffic. He writes borderlands. The segment on freightwaves.com does a fantastic job. The short version of this story is that there is truckers protesting along the border with the United States. What they're protesting, he lines this out very cleanly in the article. I appreciate this. I told him this yesterday on our call that I really respected the fact that he gave me this specific example of what people were upset about. And it's really just the vagueness and the inconsistency of the enforcement of what is on what's considered to be you transporting freight from point to point in America. In some cases, you've got an empty trailer. You're not transporting freight. But you're allowed to move an empty trailer in America. But some of the enforcement officers consider that freight because they have a trailer.

34:28Because also there's this whole conundrum of, do you open the seal on the trailer? Which is a huge issue because once you break that seal, the shipper is now exposed to damages and claims and all sorts of stuff. And of course, the carrier is in a situation and they don't want to mess with that. And so there's some stuff there. But from my perspective, though, I looked at the data on our end. And regardless of some of these protests, we've got this ongoing geopolitical stuff, the trade policy. Again, you know me on this side of the, like, I don't try to play in politics. I'm not here to speak to politics. There's plenty of other shows to go on there. But from a pure, impactful situation, this cross-border traffic and trade. And DJ and I just talked about this from the northern side of the border. Got the 50% terrace as well as the ban that may be going into place later in the month.

35:31For some goods, probably not that meaningful. But Laredo, specifically the largest cross-border traffic in the United States. Thomas, I look at this Laredo tender volume index. And this thing's pretty much collapsed over the last month. And I've gotten some anecdotal evidence on this. And I don't know that it has anything to do with this protest or some other things. But we also have an article out on Freightlages.com that Malcolm and I covered earlier that talked about highest value all time crossing the border. Now, AI, of course, has to be a component of this. Mexico has become an increasing producer of electronics and components. It's eroding share slightly from China and Asia and Taiwan and all that. I mean, Taiwan is still massive. But when we're talking about Freight, volume matters more than price or value in a lot of situations.

36:33Not always. From an insurance standpoint, somebody will probably be like, no. But from a pure freight volume standpoint, you've got this weird shift going on. A lot of the Mexico cross-border stuff been automotive. You cover this beat to an extent. I want to hear kind of your perspective here. Is this something that's a little nuanced and temporary? Or do you think there's more going on under the surface as we see this kind of trade policy back and forth, as well as a commodity shift in terms of preference on the cross-border trade? What's your takes here? There's a lot going on. I'm going to tackle this in three areas. So the elephant in the room or more knowingly the data center in the room, you mentioned with the situation on data centers, Mexico has been making more electronics. You think of the electronic stuff. We've heard about that even before the data center built that. So that's the first one I'm going to touch on. The reason why we're seeing so much in terms of value is because as these data centers are being built out, the higher value goods. I mean, this is the only thing I can put this in perspective.

37:34The last time we spent enough to build crap to move the GDP by like points, was the early telecom rollout in the 2000s. Remember the early 2000s? I would have laid down telecom line, fiber lines. And then like 10 years later, we figured out what to do with all of them. Right. This is the modern day equivalent of the telecom rollout. So we are, when we're seeing the impact, I was talking to a large warehousing maker as well. Like one of the thoughts is, what's the impact of these data centers? You know, will that impact warehouse construction for raw materials? And so we look at Mexico. Mexico has a part to play because electronics, raw materials and other stuff coming up. You mentioned automotive. I was on a call earlier with ZF. That's ZF, one of the large tier one OEM suppliers for those who aren't in the, in the know. They said that like, look, it's not gangbusters right now, but we are seeing steady growth in the last eight moves. And so, you know, when you're thinking like, why is automotive okay? You know, not bad, not good, like it's Chernobyl. You know, it's not bad. It's not good. That's one of the reasons. So data centers is definitely have an impact. Automotive is slow and steady, but right now we're thinking of the freight.

38:37That has been one of the under reported aspects that I'm hearing in conversations. Has been the fact that an open debt capacity data centers, hundreds of open debt deliveries. You've got entire generations of workers who are doing job site constructions, making 100, 200, 300, $100 a year to build one. And they roll to the next level. We have a labor component that's having impacts on the broader supply chain. The consumer itself has not really shown up and buying more stuff, but that's being offset in our government economics data because of the data center rollout. So, yeah, data centers is a big one. And we can hit on part two, which is part of an overall trend why we're hearing the Mexican capital. But I did want to highlight for this first part the data centers are having an impact. And it's trickier to find out because it shows up like you said in very weird ways. A lot of Mexican electronics, a lot of steel from this specific place, concrete, et cetera. Yeah. And I also, I didn't pull this up for this show, but Tinder rejection rates along the border are actually increasing too. So, it's low volume and I'm curious, and I don't know the answer to this question

39:37because you mentioned the data center stuff. A lot of those components move on the open decks, the flatbeds. Tinder data biases towards consistent contract freight. Not as much flatbed in there that goes on the spot market a lot of times, even though there is a flatbed component. And I'm just thinking that if a lot of these carriers are prioritizing some of that spot freight along the border, they're not hauling this freight. And of course, with the automotive sector lagging a little bit as we enter August and September, not as much movement there. Because I have another data point that also corroborates this, the max volume that I want to pull up here. This is invoice data, by the way, totally different data set. And it's showing a similar kind of downturn and it lags by several days because it's invoice data. So again, we're talking about a little bit slower indicator of demand overall. And it's not exposed evenly to all sectors mind you. This is probably going to be more exposed heavily to the automotive, that consistent freight. While this data center build out stuff is occurring, I expect that to be an increasing portion of this freight.

40:40But a lot of that still seems to me, especially in these early stages with the power grid stuff, still not really moving yet a little bit slower. Now, the next component of this, this is a, this is not, this helps me understand it a little bit more. I want to pull up the O rail, so the loaded container volumes for Mexico. We talk about this in North America. So I want to know if you've heard this or gotten any sense of this because in the United States, we've seen shippers increasingly using modal conversion, intermodal. You know, they keep it on the international containers and move it inland or they, they translate it. We've seen the biggest growth in the domestic size containers here in America. This uses both domestic and international container volumes coming across the border, coming into the United States and this growth mirrors similarly to what we're seeing in the United States. So I mean, to me, this is a no-brainer. Like the rail, the intermodal, I mean, with Mexico being what it is in terms of a chaotic environment,

41:40this only makes two, it makes more sense to me that they're doing this coming across the border for Mexico. But is this really that as fungible in your mind to use intermodal cross-border, you know, with trucking as it is in America? Yeah, it's the same principles right now. So we mentioned the volume talk, which is we've seen the lower volumes, but in the current environment, and this is my spicy take, no, that matters. Volumes don't matter because it's capacity-driven. We are cracking down on every single truck. We're cracking down on Cabotage. We're cracking down on Mexican cross-border truckers. We're cracking down on both Domasile and Non-Domasile. We're cracking down on CDL schools. The Department of Justice and FBI is basically investigating some of these fraudulent Eastern European backed carriers who are either laundering money or operating somewhat nefariously. There is an entire, it is so hard to really reiterate the fact that in a normal thing two years ago, you and I would be talking right now, yeah, why is that volume down? What's the specific thing?

42:41But this is like, what does that show with the Drew Care, where the points don't matter? Who's lying? Who's lying? Who's in anyway? Who's truck is it anyway? Where the numbers don't make you or making it up as we go? That's the biggest thing, because you mentioned the Cabotage. There is going to remain a structural constraint on capacity causing higher prices. Tidda rejection rates 10, 12, 13% in the drive-and-sector. Harriers are repricing their business. I spoke with one carrier off the record. They're not dumb. They're going to prioritize better paying customers and better operational customers. They will. I spoke with one. They're taking like a few months ago. They're only taking half their commitment. So they made a commitment for, like, let's say 100 loads a week. They're only taking 50, because they know they can get it from either other parts of their mix or spot. So we are seeing this behavior. That's why when you're saying, you know, when we're looking at the additions and spot rates and everything, this will continue into the second half of the year, because we are, while we are gaining more capacity, even if it's Mexican, American, et cetera, we are just really cracking down on it.

43:42So yeah, make sense why you put it on the rail, because now in this larger context, one, things are too expensive for truckload. So let's put it on rail. Two, there's a lot of tariff and other uncertainties. So I'd like to front load if I can. And then, you know, three, rail has made a lot of progress. They're invested. Look at Hunt. Never mind what I was trying to, you know, get their car loads. Car load capacity is really nice. And so it's kind of that triple whammy. But yeah, the elephant in the room is just the nature of capacity is having such an outsized impact on volumes. It makes it difficult for me to isolate if the volumes matter as much, until we sort out what the new floor on rates are going to be after three years of crap in the bed. Yeah, I was actually talking to somebody last week about the cross-border traffic. And I was like, listen, man, at Mexico is always kind of a conundrum to me from a data perspective, as well as just a natural, hard to understand environment. And they were like, no, for the first time in a while, we're actually seeing more capacity.

44:42We're actually seeing a shortfall of capacity moving south. Or no, I'm sorry. They saw more coming north to south than they did from south to north. And they were like, this is nuanced. Like, this is a very different world that we're operating in right now, because there's just so much going on. Like you said, there's a lot of moving parts here. But tender rejections are now moving back up. I mean, we're back above 10% Laredo. So I think whatever it was, maybe a blip, I'm curious to keep an eye on this border crossing volume, though. Watch the north-south volumes, because remember, if we have problems with cabotage, think of it like salsa in case I'm doing my Mexican restaurant analogy, because I love Mexican food. So, you know, in cabotage, you go up, you take a load up to like Kansas City from like Laredo, or actually let's say, Monoray to Kansas City, you deliver your auto parts. You gotta come straight back. Normally, price that round trip. Right. So that way you're covering it. What has happened over the course of years is they were double dipping their metaphorical casso and salsa, where they would take a return load back.

45:43There were comments by CEOs and trucking people two quarters ago about how the average mixed carrier coming up from Mexico would like hang out in the US for like 14 to 21 days past when they should have. Yeah. So, if we see the crackdown theoretically, south to a Laredo handoff, and then a domestic carrier, that's how you used to use express, will we see them go all the way up and back? Or if that changes, we will see a difference in northbound, the north-south interplay will change. And the thing we have to watch is, is it being translated or handed off at a terminal and an El Paso, a Laredo, a far or whatever, or is it going all the way? I have a feeling that it will cause more complexities because with all this extra attention on cabotage, maybe we can only get it to my warehouse in Laredo and then I gotta pay in higher costs. There's an angle here. And that's exactly why I was shocked at the Laredo drop is because I was expecting it to not go to Dallas anymore. And it just stick in Laredo. But that seems to be obvious. Maybe it's just a blip. We'll find out. The next piece, international focus, still for now.

46:45We're gonna move into the maritime. So, fuel congestion, push Trans-Pacific Ocean rates near $9,500, Stewart Churls, of course, writes this. And, you know, he also talks about the influence of weather. We talked about El Nino earlier in the show with one of our guests and its increased influence. And this is, of course, I'm a weather nerd. But I want to break this apart a little bit because shippers, of course, are having to deal with inflation on all sorts of fronts from a transportation standpoint. And the ocean markets are the one that I think most people are probably the most dubious of. Yeah. Because there are a limited amount of suppliers of ocean capacity and they tend to, you know, they're considered somewhat like, you know, an oligarchy, if you will. And alliances. Alliances. The alerts. You know, nobody wants to use the seaworth here. But I mean, you hear it all the time in the industry. But the rates, and I want to pull up the freight coast exchange rates here to put this into a visual.

47:46So you're looking at China, to North America's east coasts on top, China, to North America's west coasts on bottom. And then the spread between the two, which is something you're only concerned about if you're moving a lot of this freight, you know, domestically into the center of the country or points east, maybe, I guess. But the spread still way cheaper, you know, to move it on the ocean from China to the east coast, then it is to move it into the west coast and then ship it to the east coast, which is kind of the traditional flow, supply chain flow for a lot of inventory levels. And of course, we're entering the time of year where a lot of that freight needs to be in the east coast, whereas you hold it upstream in the west coast terminals earlier in the year. That's September is kind of the big first big push of all that replenishment. Everybody, all the retailers, getting ready for the late season stuff. You know, so this, this elevation enrates, like seems to be, you know, and I mentioned the IOTI earlier in the show before you showed up here.

48:50But demand is, it hasn't really changed that much, which I guess from that perspective supports elevated rates continued. But demand is still lower than it was in the peak of last year and there it is right there. I mean, it's lower than it was in 2023. Ocean rates were lower, much lower, significantly lower than they are today with, you know, the current amount of demand that we're seeing is just not supporting the rate. So you've got fuel that's cited in this article and then you've got high food driven congestion, which this one makes some sense to me. And you also have the Red Sea and the Iranian conflict, which I don't buy that as being as big of an influence on rates as they want to sell it as. I mean, we've been dealing with Middle East confrontations for several years now. The hoodies attacking the ships were a bigger deal in 24 than they are today. So there's more ships transiting all of that now than there was back then. And there's more uncertainty around that then now we know, hey, go around.

49:54So I don't buy that as big of an end of this. Now this, the first thing that I want to talk about this typhoon situation, El Nino, I want to pull up this weather map and or this map of typhoons that have been hit. Now, when we talk about El Nino, super hot, Eastern Pacific Ocean, compared to the rest, you know, what it normally is. There have been several typhoons that have landed in China. So this box gets checked in my opinion. Is that the current ones? Is that all the routes of the brand? That's what this season has happened in the Western Pacific. So this typhoon, they call them typhoons in the Western Pacific. They call them hurricanes still in the Eastern Pacific. But this is all the stuff that's been going on. And a lot of this happened in July and we just had one make landfall here last week. So this past week, and it was a pretty big deal. And it does have an influence. And again, it doesn't have to make landfall to influence the boat. So I mean, this box checks to me. And then the other thing, the fuel cost component, that makes a ton of sense. When we look at the freight toast rates, they didn't increase right away in March, though.

50:58If we pull up that chart, like most of the rates for freight toast increased in June. Like it was a slow crawl higher than all of a sudden. It's like rate increase. Well, I think I'll give you an angle on that. I think there's two or three ways to look at this. I'm going to put my trucker hat on because it's like boats, but trucking. It's all the same hustle if you think about it. So first, never let a good opportunity go to waste. And trucking, we would blame crap all the time on whether to get higher rates. If you'll go up, I'm going to, I just need a reason to charge you more. And when you run a global shipping alliance, think of it like star wars, the trade federation. You know, you got to continue to maintain a level of pricing discipline. Otherwise, it falls apart because everyone buys too many boats and then they run the whole party. So, you know, the typhoon is real. We looked at that image right there. That is like playing pinballs. We have an operational complexity. We have a fixed clot. We have a variable. We have fuel impacting it. But I think there's a third length. And this is my spicy take for you on this. There we go. I have started dabbling in more into the final mile space. And as I have went down this Odyssey, I spoke with Mayor's, and a few other folks, they want to go full into end.

52:00So the global shipping folks are now no longer content with saying we're going to get it to LA and hand it off. They're like, I don't want that. I can penetrate this market. And guess what I'm going to do? I'm going to, they're making their like, I'm going to have an interview later with in a few weeks with their ground freight person. They're basically going full into end because if you want to order a pair of shoes, you want the right buying experience. You can blame Amazon. They've really set the bar high now. And so we're seeing that. So when you're asking why is it that the East Coast is more attractive? Why are they willing to go from China all of the East Coast? The supply chains because of last mile being like 40% of your transportation costs. Wow. It is the wild west, my friends, for box trucks and vans. They're okay with that. They're like, look, you're right. Now that we know there's extra complexities, higher transportation costs, data, LA, I'm going to, they have the data and visibility to know that I no longer need to do this. LA is probably most at risk. Look at Louisiana and the Dredging. Yeah. The East Coast is like, I want to get in on this action. I need deep, I need a deep birth for the big boats. And because of how our supply chain, especially in last mile and e-commerce,

53:00changed, these folks are a lot more comfortable because now the visibility and the capability when before they had to hand it off to some other pesky person and deal with it. So the ecosystem in the past five years has changed to such an extent. Post-COVID consumers are more comfortable with Rando showing up at their house. They're more okay than expect more visibility top down. We are seeing a larger trend similar to Mexico in the broader supply chain because of national security that it would make sense why this behavior is expected. Because the other ports are catching up and customers and supply chains are naturally saying we can do this different way. Yeah. So a lot of moving parts. And the thing. So the thing that I really want to talk about, and of course, I didn't leave enough time to really break this apart as much as I want to, John Kingston writes this article about C.A. Robinson. And of course they get asked a bunch of questions at a tech conference about insurance and liability. Of course, they're the center point of this Montgomery Careeb thing where broker liability has now come into the environment. And there's this big question on what does this do to capacity overall?

54:00Because brokers are now going to be held as liable as carriers, theoretically, insurance costs becoming a thing. I think some of the quotes in here, and again, I don't have time to really do this justice, but because I want to get your takes. But C.A. Robinson expects insurance costs are going to increase by a very manageable number. And the majority of it will get passed through to freight rates anyway. I think it's a very bold statement. And I'm not, again, I don't have time to really break this apart. But I want to get to its influence on capacity. Yep. So brokers now are going to theoretically have to vet the carriers like a carrier would vet their own because now they're going to get sued, potentially just like a carrier would. So let's pull up the CDNCA figure. So this is net changes and operating authority. Doing the exact opposite thing that I would expect, increasing. So I did a little research on this. You've got familiarity with FMCSA data. So also, I will go ahead and quickly pull up the net revocations figure. So, you know, now we're negative. So this would tell you that capacity is growing.

55:01Not so fast. They just change their system in May. So it's creating a huge noise in their data on the current weekly basis. So be very careful when you're looking at this data. And the last data point I want to pull up here is the FCFH, the Total Four Hire. You see that capacity is actually still down in that little blip in July. This is system change. The data said, yeah, and not look, wrapping this up because you're right, we could dive another 30 minutes in this. It's all about incentives. Carbide and everything are the early areas of incentives to where brokers can no longer get away with the capacity they bought. We will see more capacity attrition. We will also see more capacity enter because when rates go up, folks enter, you strike it out. It's like a boom bus cycle. It's like wildcatting in the Permian. And you know, we put on our Texas hats and let it rip. So at the end of the day, I think this is a positive development because the incentives are there. I'm flying out to Germany for IA next week. You bet your sweet, but the airline in the pilot has an incentive not to screw that up. In trucking, we did not really have that when we hauled goods.

56:02So I'm glad to see that because of the impact of trucking on people, we are now treating trucking that needs a due diligence reserve. So yeah, this is like the second inning. And so it makes sense why CH will say there's technology there. There's tons of things. I know we're coming up on time. But at the end of the day, we will have in the next two years from now a more safer, more vetted, better overall capacity at a higher price. This is what we've needed for the past 20 or 30 years. It has not been where it should have been. We're starting to see the crackdown. Regardless of administrations if the incentives stick, this is going to be a positive development. But this will be painful. And this is the pain time, unfortunately. And capacity is not meaningfully growing at this point in time. So we're still working our way through it. I think it's my big takeaway. It's churned. It's taken an in perfect example. Thank you, Thomas Watson. For jumping in this week. And thank you all for watching. I guess Freightwaves today will return tomorrow at noon. And I will return next Thursday. So have a great week.