Q&A: Matt Pyatt, CEO and co-founder, Arrive Logistics

Logistics Management Group News Editor Jeff Berman recently spoke wirth Matt Pyatt, CEO and co-founder of Austin, Texas-based freight brokerage and transportation management services provider Arrive Logistics. Pyatt provided Berman with an overview of various industry topics, including: the truckload spot and contract market, the freight economy, capacity, and the possibility of more of a North American-driven supply chain, among others. Their conversation follows below. 

LM: How do you view the current state of the freight economy?

Matt Pyatt: We always do our rate forecasting at the beginning of every year and then update it every month during our monthly KPI meetings. In December and January, we thought that maybe things would soften in the beginning of the year, and we saw that. But then with the storms in February, with all of the backlog that created at ports, we have seen nothing but increased tightness, which we did not predict. From March through June, things were extremely tight from a capacity standpoint. We are already starting to see it lighten up just a little bit in July, and it is following some seasonal trends. And we do have a lot of confidence that we are going to see things settling in over the back half of the year, with a little bit of seasonal tightness in the fourth quarter. We do think we have seen the peak of domestic spot and contract rates. Shippers have been moving up their routing guides for the last year, trying to find that happy medium. Their tender rejections are under control, but even today tender rejections are still above 23%. We see that settling down over the next couple weeks, and we will soon have more clarity on how this all shakes out.  

LM: How do you see market conditions from both a domestic and international perspective?

Pyatt: Things are crazy domestically, but, really, they are even worse internationally. Shippers are basically getting annihilated on international cargo expenses, with rates up 300% annually. From a domestic standpoint, we are actually the least volatile piece of the supply chain right now. We are not active in the international market, but we hear about it from our customers. It sounds really challenging right now.

LM: Looking at the truckload brokerage market, things remain super tight, and, in some cases unprecedented, regarding market conditions. How does the overlapping of carrier bases among a crowded and competitive brokerage market play out for Arrive? And how do you assess the overall state of the market, in terms of things that stand out the most or are most notable?

Pyatt: Regarding the overlapping of carrier bases within the brokerage community, we pride ourselves on going after the middle-market carriers that have ten trucks up to 1,000 trucks, as our niche carrier base. A lot of the digital players are really focusing on the smaller owner-operators, with the drivers making their own dispatch decisions. We are really focusing on a different part of the market. There are about 27,000 carriers that fit within our core market of carriers. It is all over the board. The good thing about our carrier base is they all have customer-specific accounts. They don’t rely on Arrive to move 100% of their loads. They have shipper-direct relationships, and that gives us a little bit of insulation on some of the pricing and things we see across the industry. People often say backhaul is dead, and that the rates are not what they used to be, but our carriers definitely have niche markets, in which they are trying to reallocate their equipment and getting it back to shippers. With that as our main focus, we actually have a little bit more insulation against the kind of volatility it creates, which has really shown in our growth. Right now, there are a lot of brokers talking about how strong their revenue growth is, with revenue-per-loads up 50%. So, we really look at volume growth, and we are up almost 50% in July year-over-year. Our shippers are locked into contractual pricing with us, and our contractual business is just exploding year-over-year. We are doing everything we can to lock into as many contracts as possible, and these shippers are all having that conversation. Over the next couple of months, I think things will get a little easier for these shippers. It is going to be really interesting to see how many new bids, mini-bids, re-bids, quarterly bids come out. Shippers are going to have to re-price their network down, as soon as it loosens up even a little bit.  

LM: How do you see things playing out on the pricing and rates side, when looking at both spot and contract situations?

Pyatt: I see spot rates falling around 10% between now and the end of the year, and that is where we are forecasting spot rates to go. We know contract rates move a lot slower, so I think you will see some downward pressure on contract rates. But I think what we will see is that shippers are a little hesitant to re-set their entire routing guide after what they just went through over the last 12-to-15 months or so. Things will move a little bit slower, and I think we are definitely kind of at the peak. Rates that were being locked in in May or June are probably as high as we are going to see. I think you are already seeing all of us get a little more strategically aggressive on contracts…that will obviously put some downward pressure on rates. I don’t see them coming down any more than 5%-to-7% from where we are today, because we know those rates are not as viable as the spot market. The spot market can move very quickly, and it just takes longer for contractual rates to follow. We are almost seeing an identical freight economy like what we saw in 2018. If you look back at tender rejections and pricing, it is eerily similar to what we saw in June and July 2018, and we are seeing the same exact trend now. As everyone knows, the back half of 2018 going into 2019, rates moved pretty quickly and the spot market came down 25% and contractual rates followed shortly thereafter. We think we are going to see a similar market.

LM: How do you view the build-up to Peak Season now compared to a year ago, with the economy re-opening and more people getting vaccinated?

Pyatt: Last year, we were not ready for the spike in durable goods spending. Our entire business is based off of how many loads per day can we bring in from the customer side and how many loads per day can our technology and our carrier side cover. We want to make sure those are in equilibrium. Whenever they are out of equilibrium and if there is not enough carrier capacity, then we are going to be playing with too many market carriers, service is going to go down, and margins will suffer, and our employees will have to work even harder to move the freight because they are having to flex up. We were not positioned for the market to get extremely tight. As an organization this year, we are in a much better situation going into Peak Season. We hired about 600 employees since July 2020 so we really ramped back up and made some strides with staffing. We made huge gains in technology. Our productivity is up about 20% per carrier and employee since launching Arrive Edge so we are already seeing good productivity gains there. We, as an organization, feel we are better suited to serve our customers for this year’s Peak Season. It was a grind last year, and it was really tough for everyone, with going home and working remotely. There were a lot of different things we had to deal with as an industry last year, so I think companies are more prepared [now]. I don’t think inventory levels are where they need to be, but people have now been working at home for more than a year and some people are getting back into the office. A lot of carriers have beefed up their capacity and truck orders are now growing. We have seen new drivers as the barrier to getting that capacity back on the road, but I think shippers are better prepared this year, as they have been dealing with it for the last 12 months. Last year, things came out of the blue and nobody forecasted what we saw. We all thought things were going down 30% but then lo and behold consumer spending goes in the opposite direction, services plummet, durable goods are doubled, and that is what drives freight.

LM: How do you view the resurgence of services-based activity in recent weeks on freight activity?

Pyatt: We are seeing a consistent downward trend on durable goods spending, but services are a rocket ship right now. I do think we are going to continue to see that, barring what is going on with the Delta variant. If things continue on this track, we do think that the backlog will work itself out. If spot rates fell from $2.35 per mile, plus fuel, like they are at the moment [at the time of this interview], coming down $0.20-$0.23 is a good start, but they are still extremely elevated. The highest spot rate we saw before the pandemic, it was $2.04, plus fuel, in 2018. It is still going to be tight, and I think it is going to take time to work itself out. Even if consumer spending slows a little bit, inventory levels need to get back to typical levels. There is also some backlog in the auto industry, which is going to pick back up, and reflects demand as well. Things are loosening because everyone is not spending 100% of their money on durable goods. Things are still really, really tight.

LM: Looking ahead, where you would like to see the market a year from now, given what is happening now?

Pyatt: I cannot speak to things on the international side. That is going to be a big, open-ended question that will get sorted out over the next year. There are a lot of new ships being ordered, and those orders take a long time to get into production. We will see how that plays out. What is going to be interesting is to see how does that change raw materials procurement for manufacturing in China and other parts of Asia, and does that come closer back to North America, in Mexico and other places like that? That would actually drive a lot of domestic freight, which would be a very interesting thing to watch. People may be thinking along the lines of “we cannot get our product from China over here. It is twice as long and four times as expensive. At what point do we start thinking about bringing our manufacturing closer to home?” For our industry, I think we are going to be in a very similar market a year from now, with the low point of rates having risen. The days of a dollar a mile off the East Coast are behind us, I think, and I think that is great for the carriers. The obviously deserve that, and I think we are going to see year-over-year rates being down 15%-to-20%, which is a great place to be, but over the back half of 2022 and into early 2023, barring any weather or anything we cannot predict, it could be similar to the first quarter of 2020, which was not a great freight environment for the carriers, but a great environment for the shippers. Over the next 12 months, I think a lot of capacity will enter the market and a lot of the backlog will kind of work itself out, and inventory levels will get back to where they need to be. The market will open up quite a bit for shippers, and the tables will turn and go back into their favor by early 2023.

LM: Going back to the concept of more of a domestic supply chain, coupled with longer transit times than usual, are more people warming up to the possibility of that?

Pyatt: While the labor rates are higher in Asia, the level of automation in today’s factories is unprecedented. If you are automating 80%-90% of it, you are basically bringing down your average labor rate, which means you are getting better productivity from your employees. Then the question becomes are we able to bring back some of that manufacturing with the increase in automation we are seeing in the manufacturing sector? It is a huge capex, and they have to be willing to spend money, and it will be interesting to see if that shifts.