Q&A: Bobby Harris, President and CEO BlueGrace Logistics

LM Group News Editor Jeff Berman recently conducted a wide-ranging interview with Bobby Harris, President and CEO of non asset-based 3PL BlueGrace Logistics about various aspects of the freight transportation market. A transcript of the conversation is below.

Logistics Management (LM): The driver shortage continues to be a big story. Many industry stakeholders have stated this is the worst it has been in years, or, perhaps, ever. How bad do you think it is?
Bobby Harris: Even though there have been driver shortages in the past, there have been ebbs and flows. But the problem with this one is that we have not seen a solution or a remedy or something that will work itself out in the short term. We believe that there is going to have to be something significant that takes place to address that issue; otherwise, it is going to get progressively worse. It is not just a little problem. It is a big problem, and it cannot be overemphasized at this point, as it is extremely viable to supply chains.

LM: What are some possible options or solutions to improve the situation? Many carriers are taking steps to increase driver pay in a big way, especially on the truckload side. Is that alone enough to fill seats?
Harris: While it is nice to see increased driver pay and incentive-based initiatives, the problem is those things take drivers from other companies and they move from one carrier to another. That does not increase the driver pool. If you walk into a high school today and ask the senior class is anyone wants to drive a truck after graduation, you likely will not find one hand raised. With an average age of 56, the driver pool is decreasing, and there are telltale signs that with the younger generation entering the workforce, there is no, or limited, interest in a blue-collar job, much less driving. At that point, we turn to the prospect of immigration, which is very hotly contested politically, but….that is going to have to be a really big part of immigration reform, wherever it is going, that needs to be considered, because without that aspect I don’t know where [carriers] are going to get drivers.

LM: What about other possible solutions?
Harris: Technology will help to increase efficiency by necessity and will result in less waste. And there has to be a big market correction in driver wages. Getting drivers to come in is one thing, but it has to be something very seismic for people to say “now I may do that. I am going to quit my other blue collar job and get a CDL.” Then you could then see kids coming out of high school in a couple of years making good money driving and that could influence younger people looking for a job. Something needs to be done to make the profession more attractive or “glamorous” because it is a huge problem right now.

LM: Have you ever seen the driver shortage situation as bad as it currently is at the moment?
Harris: Yes, this is definitely the worst I have seen. I started my career as a dockworker when I was 18 and can remember that if you had a CDL and wanted a job with a good carrier, you had to know somebody. If you got an interview, you were excited, as getting that job was a big deal. And when you got that job, it came with a lot of conditions like no facial hair, wearing a uniform, and now the standards have been considerably lowered to let people in.

LM: On a related note, how are you viewing the current capacity outlook for over the road transportation? Is it still pretty tight? Anecdotally, it appears the market has loosened up a bit over the course of the year.
Harris: Truckload is still certainly tight right now. It was tighter in the summer months but that is comparing it to a really crazy market. It has loosened slightly but is still at a high level. The volatility is obviously something that, in our opinion, is unseen compared to recent years and certainly tighter than last year. The LTL sector is not as tight as truckload, but we are seeing a lot of ability by carriers to increase their capacity by getting rid of the wrong type of business more and more, which is a good thing for the market.  I do think that is a little bit overstated but it happens in every industry and is also beneficial for the carriers to have tight capacity when setting pricing. There is a little bit of feeding into the frenzy of it, but rather than adding trucks and trailers for capacity, what is needed more is drivers, with equipment coming after. Since we don’t see the solution for that we believe it could be next summer of the following fall where we start seeing it doing things that affect the entire economy and moves outside of the logistics circle.

LM: What about rates and the pricing environment? It is definitely in favor of carriers now and seems like it has been for a while.
Harris: If anything, they could increase. The market correction is still happening. If you look at driver wages from now back to the early 90s for instance, obviously there has been some incremental growth. But compared to a lot of other professions, it is still definitely below the norm. The pay price point has to go up and hopefully a lot. 3PLS and shippers and everybody else need to understand that is just going to be the new market. I think it is necessary. It is not like carriers are just lining their coffers here. They need to reinvest into their companies and buy new equipment and also having to pay their employees more than they used to. It was bound to catch up, and we are seeing that now.

LM: Many stakeholders have said that return on invested capital for carriers is lower than it needs to be. Does that also drive the need for carriers to get the pricing they need?
Harris: Absolutely. And to that point we don’t want to see carriers go out of business. Many of them run very thin operating ratios. Many had a tough year or two where they had very thin capacity and pricing went a bit sideways, but it is good to seem them now catching up. It makes their companies and the industry healthier and causes a lot less disruption with supply chains.

LM: What about the current state of the spot market? At the moment, it seems like it is as vibrant and active as ever, with many records being set for both rates and volume.
Harris: It is no secret that the spot market is extremely vibrant right now. It is also volatile, which is good and bad. We are doing a lot of business in the spot market right now.  In the past, you used to be able to look at data that gave you the norm in term of rates, lanes, and availability, and that does not change month to month, it now changes day to day. That is what you need to keep up with. There are a lot of things like load boards that can give you general data, but the knowledge is what proving to be the most valuable now, and that is why you are seeing a lot of companies hire people that can find the capacity and actually work daily in sourcing loads and finding out where everything is. But it is extremely volatile right now. 

LM: How are things shaping up seasonally at this point of the year? What is the outlook in terms of the holiday shipping season from your perspective?
Harris: Given that we are fairly close to the end of the year, where we are now is likely where we will be then. I often see a bit of softening after the first two weeks of December. By the time of the last rush prior to that, most of the freight has been broken up and impacts the parcel carriers more at that point in my opinion, minus issues at ports and things like that. I don’t feel that is driving volumes as much as standard distribution and manufacturing across the U.S.

LM: How do you view the general economy? There are some decent signs out there for things like GDP and retail sales and low fuel prices, too.  There are more positive signs now at this time of the year compared to recent years.
Harris: If you look back over the last 30-to-40 years, the trucking industry has been a leading indicator of the economy, and the sector usually ticks up before the general economy. You are seeing the tailing of that pull up. It is not often that you are going to see the trucking industry rolling with so much volume being moved when the economy is down. There is a difference between the reality of the numbers and what is being said. I am bullish on the economy. Unemployment rates are low, and the data we have shows that we are moving a lot in terms of tonnage. I believe things will be strong for a while. A lot of the KPIs are doing very well. The main metrics at the moment indicate that the economy is doing very well and at least trending upwards. It is certainly helping the trucking industry. The only caveat we have is if this winter ends up being worse than last winter, which was tough on the industry.

LM: In an industry replete with regulations, what are the ones you pay most attention to, in terms of overall business activity and operations?
Harris: Regulations that impacts smaller carriers are the ones we pay most attention to, as the vast majority of the truckload market is made up of small carriers. It is very hard for them if any of the legislation that comes across is financially burdensome for them. There is not a lot of margin in this industry to begin with, and that is why the larger carriers have a big advantage and we don’t want to see any capacity reduced. We also want to support the smaller carriers. Ruled like hours-of-service and ELDs need to have some thought in mind for how it impacts smaller carriers. And the general public is not informed well enough and don’t necessarily the real impact of how these rules impact commerce. There needs to be a big focus on safety to be sure, but if certain types of legislation like the ones regarding driver fitness and sleep apnea and others get pushed through, it will likely come at a cost. The butterfly effect of that could create something, in my opinion, that could cripple the U.S.