Echo Global Logistics CEO Waggoner examines current state of freight transportation and logistics

Logistics Management Group News Editor Jeff Berman recently spoke with Doug Waggoner, CEO of Chicago-based Echo Global Logistics about various topics, including: the state of the freight economy, a look back at Peak Season, the ongoing impact of the COVID-19 pandemic, and the trucking market, among others. Their conversation follows below. 

LM: Now that we are into March, how do you view the overall state of the freight economy on a year-to-date basis?

Doug Waggoner: Normally, January and February are the lightest months of the year for freight. 2020 finished off strong, and that continued right into January and February, with things slowing down a little bit around mid-February…but on a relative basis, it was still strong. And I think some of the slowdown was caused by the weather, particularly down in Texas, which was pretty disruptive to the national truck network. Whenever something like that happens—a hurricane would be another example—the asset-based trucking companies tend to get their trucks and drivers out of position, and that creates shortages in other places. I would say it was a good first two months of the year.

LM: How about the direction of things from here?

Waggoner: When I look forward, I am pretty bullish on 2021, and I cannot see the circumstances changing much. There have been a lot of Class 8 truck purchases, but, in my channel checks with the larger carriers, they are not really adding capacity, as much as they are replacing equipment that is being retired. There is still a driver shortage, with carriers still having difficulty finding drivers. A small carrier I recently talked to has six trucks and right now three of them are parked, because it cannot find drivers.  You couple that with more stimulus money…we saw what that did last year, in terms of encouraging people to go out and buy more products, and as the economy opens back up for travel and other things, and employment continues to improve, I think all the signs are pointing to an economic recovery this year. Freight has already seen a recovery, and I think freight will continue to benefit off of what the rest of the economy does as well.       

LM: On Friday, March 13, 2020, the U.S. essentially shut down, due to the COVID-19 pandemic. How has Echo had to adjust and approach things, as that relates to your business and market conditions in general, as well as the lessons learned since then?

Waggoner: The obvious one is working remotely from home. We sent everyone home on March 15, 2020 and never really have come back. As of June 2020, we made returning to the office optional, but most employees have opted to stay home. Our Chicago office, where we have around 1,700 employees, has maybe 20-to-30 people there on any given day, at best. That has been an adjustment, but it has obviously worked out OK for us, as we handled record volumes in the second half of the year. It causes you to rethink about, when the world returns to normal, if we should have a more flexible work solution. And, if so, what implications does that have for our real estate? We normally travel a lot, in our business, making face-to-face sales calls, and we have not done that in a year. A lot of this stuff, including investor conferences, have all migrated to online. One of the things I have realized is that they are more productive, and the investors we meet with seem to like them, too.

LM: Looking back at the 2020 Peak Season, what do you think are some of the biggest lessons learned?

Waggoner: We definitely had a Peak Season but I don’t know if it was for the traditional reasons. It is usually kind of all about the pre-holiday movement of retail goods, to get them into stores to be consumed for the holidays, but the 2020 peak was really more about recovery from the pandemic—when businesses were shut down in April and May—and when they re-opened, they completed their inventories and went to suppliers to replenish inventories, and it was taking two-to-four times longer to get their inventories compared to more normal times. Even today, inventories are at record lows, which projects to a lot of inventory catch-up in the future. There was definitely a Peak Season. I think it was all about the recovery from Covid and the shift from consumer spending away from travel and services. The big surprise to me was that it was a Peak Season that had nothing to do with the holidays.

LM: Do you think there is a chance we will get back to something more normalized in 2021, regarding peak, or is it too early to tell?

Waggoner: I think so. There is a lot of inventory catch up that needs to happen, given the number of vessels waiting to get into the San Pedro Bay, at the Ports of Los Angeles and Long Beach. That represents a lot of backlogged freight. We have been working with some shippers to kind of bypass their global supply chains so that they can get their products off the ships and to their customers’ distribution centers faster. That has been an opportunity for us. Once that inventory dip is solved for, it is going to continue with stimulus spending. I think the Biden administration is almost certainly going to push forward to some infrastructure spending. And when you think about injecting almost $2 trillion into our economy, whether it is transportation, infrastructure, healthcare, education…it is an awful lot of economic stimulus that is going to be feeding our economy for the next few years. That is why I am so bullish on 2021. There are too many things that are positive for our industry, and the one negative tends to be the driver shortage and the limit on capacity. That is where Echo really excels with our technology and our data science.

LM: How do you view the current state of trucking, given, as you said, that the new Class 8 buys seem to be more geared towards replacement than new capacity?

Waggoner: A lot of those orders get cancelled; there is no penalty to cancel them. Early in the order cycle, carriers will put in orders as placeholders, in case they need them. Just because there are 50,000 Class 8 truck orders in January does not mean that 50,000 trucks will be sold. A normal replacement value, going back a year ago, was around 18,000-to-20,000 units per month, and most of 2020 was at around 8,000-to-10,000 per month. That creates quite a deficit. If you were at 10,000 and in January went to 50,000, that is a 400% increase, but you are also filling the deficit you created after a year of not buying any trucks.

LM: What about the current rate environment, from both a spot and contract perspective?

Waggoner: Rates ended the year high in 2020 and stayed high to start the year. They came down a little bit in February, and spiked back up again, when the bad weather hit. The week after the ice storm in Dallas, I think we saw the single largest increase in truckload rates that we have ever seen in one week’s period of time…and they are not starting to come back down a little bit. It is definitely a supply and demand market, so if you change either the supply or the demand, it is going to change the pricing and is going to react very quickly. Pricing is still elevated, and we think it is going to remain elevated in the spot market. Over time, as shippers renegotiate their routing guides, they will pull some of that freight out of the spot market and put it back into their contracts. The reason for that is because they would rather pay more than last year in a contract that is still less than the spot market. What you are seeing is that shippers are raising their rates and are willing to pay to lock them in at something that is lower than the spot market. 

LM: What are your expectations, or hopes, for a new infrastructure bill?

Waggoner: Our infrastructure has been neglected for a long time. There is a pretty healthy chunk of money set aside for it, it seems. I fully anticipate an infrastructure bill to get announced that will be fairly robust and would expect it to pass the House and the Senate. That would be the first time we have done that in a long time. There is a lot of work to do, and it will create a lot of jobs and it will generate a lot of raw materials. It is going to be expensive, but I think it will have a stimulus-like effect on our economy. The longer we wait to fix things, the more expensive they get in the long-term.

LM: Things related to vaccine distribution efforts seem to be moving along well. Looking at the logistics components related to vaccine distribution, how do you think things are going so far?

Waggoner: I am not that close to it, as Echo is not involved in it. It is all temperature-controlled, as well as parcel deliveries. With us being more of an LTL and truckload middle-mile player, we don’t really get exposed to that. But as a spectator, I would say we have done a really good job, and I contrast that with some of the other countries…I have talked to people in Spain, the Netherlands, and India, and they are nowhere close to where we are.   

LM: Once most people are vaccinated in the U.S., what do you think that the impact of pent-up consumer demand, for more services-focused things will be, compared to people buying goods, as has been the case over the course of the pandemic, as people have not been going to things like sporting events, concerts, vacations?

Waggoner: As people return to normal life, they are going to buy less stuff and do things like take a vacation. There might be a shift from product spending to service spending. But, at the same time, there are going to be more dollars for people to spend, due to a higher savings rate, in general. I think the surge of product spending that we saw will probably subside a little bit and give way to services, but I still think it is going to be healthy. There are a lot of people clamoring to get back to normal, and there are a lot of other people that are scared and are not in a hurry and will take their time. You have people on both ends of the spectrum and in the middle…with some ready to return to normal and others who don’t want to leave their house and everything in between.     

LM: Shifting gears, what is the current state of things as they relate to technology, at the moment?

Waggoner: The number one thing shippers point to is visibility solutions. They want better visibility in near or real-time, and they want it in a very user-friendly manner, whether that is graphs or maps. Behind that and a lot of other activities is more analytics. For us, we don’t build any technology that does not have some form of algorithms or data science behind it, because we found that there is so much opportunity to apply mathematics to our business that every time we build some new application we can reinforce it and make it stronger with mathematics and data science behind it. Looking back over the last 15 years, when companies like Amazon, Netflix, and others started to leverage your data…and they know what your preferences are and what you paid for something, they then use that data to predict your behavior or to serve up to you what they think you will like. We have those same opportunities in this business, and we know where a trucker wants to go, for example, just based on their past behavior, and we know what price it is going to take to do that. I would say we are entering into that world where e-commerce companies have been for a while now, and it is exciting to see our industry do that.