Echo Global Logistics CEO Waggoner addresses logistics and supply chain issues

Logistics Management (LM): How would you assess the current state of the freight economy, given all of the different things going on, at the moment?

Doug Waggoner: At this moment, I would say it is kind of interesting, because we saw a very, very strong 2021. In fact, at Echo, we grew our revenues sequentially from 2020 by more than $1 billion, and we are at a $4 billion run rate right now. The freight economy has been good for us. That being said, over the last few weeks since the holidays, volumes have been soft.

LM: Why has that been the case?

Waggoner: It is not because demand has let up at all; it is because there are no drivers. You had a lot of drivers that have not gone back to work since the holidays and are also being impacted by Covid. So, for the last couple of weeks, we have seen prices stay very, very high, and it is very hard to find trucks. Frankly, it is limiting how much freight can be moved right now. I think the way that plays out is over the next few weeks, as more drivers come back to work, you are going to see the volumes surge, but it is still going to be tight capacity, because there is so much freight to be moved.

LM: Shifting to rates and pricing, are you seeing anything different or unique, for this time of year, compared to past years, given the situation?

Waggoner: Normally, we see demand lighten up in January and February, and you might think that is what’s happening now, if you looked at overall volumes. But it is not that. Demand has not changed. There is a little bit of a crimp right now in capacity supply. I think the market is as strong as it has been throughout 2021, and I would forecast that it is going to remain strong in 2022. It is going to take all of 2022 to work out the kinks in the supply chain. Inventories are still at low levels. You have a backlog of freight on the ocean that cannot get into the United States. We are going to see another year in 2022 that was like 2021.

LM: Inflation is at 40-year highs. How are you viewing the impact of inflation on supply chain and logistics operations?

Waggoner: I would say inflation impacts our industry in several different ways. First of all, wages and salaries are going up. You have seen the narrative about the “Great Resignation” and how many people are staying out of the workforce right now or are using this time to rethink their careers or change industries. It is hard to find talent, and when you do find talent, you need to pay up for it. Of course, that puts pressure on the people you already hired, because they want to make money, too, so there is wage and salary inflation right now. If you think about inflation and transportation prices, that has to trickle down into the price of the products we buy. If transportation costs, depending on the product, at 4%-to-10% of the cost of goods and those prices have gone up 30%, at some point, the sellers have to raise the prices of their product and they are doing that. There are also fuel prices on top of that. It is a pass through for us, but it still affects the end consumer who is buying the product. Going back six-to-nine months ago, when the Federal Reserve said inflation was transitory, I wondered how that could be, when the price of everything was going up, in particular transportation, as it is part of the costs of everything we have. You also cannot find equipment right now so that is going to drive up the price for it.

LM: The Supreme Court recently dismissed the White House’s proposed vaccine mandate for companies with 100 or more employees.

Waggoner: It is a tough question, to be sure. I recently saw where a major bank said that if its workers don’t get vaccinated, they were going to be terminated. That seems pretty harsh to me and does not seem good for [company] culture. We value our culture and know we have people that don’t want to get vaccinated. I am more of the mind that you know the risks. It is like what Colorado’s governor said something like “if you go outside without a coat and it is cold, you are likely going to get sick, and we don’t legislate that you wear a coat. It is kind of on you.” I kind of feel the same way, but we have not made a definitive decision on it as a company.

LM: Looking ahead to when things eventually get back to something resembling pre-pandemic times, will shippers and logistics services providers and carriers need to have more of an onus on cost savings or focus on having a more resilient supply chain? As a follow-up, could perhaps both of these objectives be achieved by finally taking nearshoring to the next level, at least in theory anyhow?

Waggoner: This is an anecdotal answer, but I have heard here and there that companies are re-evaluating what they want to have manufactured in Asia or whether or not it makes sense to bring it back to the Mexican maquiladoras or manufacturing in the U.S. I think that is a long process, because people set up these supply chains and their partners. It takes a long time to undo that, but I do believe it is something companies are looking at.

LM: Shifting back to trucking, 2021 was a big year for the truckload spot market. How do you view what is happening there based on Echo’s spot market business and operations?

Waggoner: In our business, we have to be somewhat able to forecast what we think the market is going to do, because that will dictate our pricing strategy for the contractual freight and also how aggressive we want to be or not. In a tight market, we know there will be lots of spot freight that the routing guides cannot handle, and that creates a lot of opportunity for us, so we would probably be less aggressive in bidding on contractual freight. But in a soft market, where there is no spot freight, we would get more aggressive on the contractual freight. We use our data science and analytics to sort of look out ahead and come out with a thesis for where we think the market is going to be and that then informs our pricing strategy and our negotiations on RFPs.

LM: How about on the LTL (less-than-truckload) side of things?

Waggoner: It is similar but different. LTL is more defined by its carriers and its networks. I like to think of the LTL carriers as having a fixed network that has kind of a constrained capacity. That is defined by all of their terminal operations and linehaul operations. In theory, you could say that at any given time, they are using “X” percentage of their capacity. In a soft market, it may be, say, 60%, and in a tight market it could be 98%. I think we are in the high 90s right now, with respect to LTL network capacity. And the way in which that manifests itself is that LTL carriers get a lot more selective on the freight they will haul. They start pricing a little bit more discriminately based on the commodities and lanes that a shipper has, and they will turn away freight that does not operate well in their network. We have seen that for a year now, and I don’t see that going away anytime soon, especially with the demise of Central Freight Lines, as all of that freight needs to find a new home. LTL networks have such high fixed costs, for terminals, employees, equipment, and fuel. In a soft market, they need a certain amount of revenue to cover the stumps, and right now they are flush with revenue. They then start to get a lot more selective and look at the OR (operating ratio) of each account. It is a great opportunity for LTL carriers to get healthy and to tune their networks.

LM: How would you assess the 2021 Peak Season, given the attention that was given to consumers’ needing to order goods online earlier than usual?

Waggoner: I think that e-commerce and people buying online helped to smooth it out. There were so many moving parts, and it was hard to really get your arms around what was going on because of the supply chain disruption and the move to e-commerce, and the overall tight market. I don’t know that I can really put my finger on what the peak market was in 2021, because of all those other things.

LM: The logistics technology sector is perhaps more accelerated, in terms of development, due to the pandemic, than ever before. That said, how do you view what is happening on that front?

Waggoner: We are doing a lot of that here at Echo, with AI and machine learning, to make our business more efficient. Our goal is to process more transactions per employee, so we obviously don’t want to reduce our headcount. We want to grow our volume and do more with less. I think there are opportunities. Traditionally, our industry has been very inefficient. For example, the percentage of unused capacity in the trucking industry is a significant number…whether it is truckload or LTL does not matter. Those are opportunities to move more freight and drive less miles. In our business, in which we don’t actually operate trucks but yet make a market matching up capacity with loads, we can also do that more efficiently and it is all about technology.

LM: Last year, Echo went from being a publicly-traded company to a privately-owned company through the acquisition of Echo by private equity firm, The Jordan Company. How has the transition been?

Waggoner: It has been very nice. Jordan is a great partner and has been very supportive. We are actively working on M&A and doubling down on our technology investments. It has been a breath of fresh air, and they are a great partner. I did enjoy the people and the relationships I formed with Wall Street and institutional investors, but it is a pretty big distraction…they want to see the CEO and you spend a lot of time telling the same story over and over again. I can divert that energy to building the business now.

LM: Is there a chance Echo will announce some M&A-related news in 2022?

Waggoner: Yes, we will. I can tell you that, because we are not public anymore and do not have to be “guarded.” We are working on deals as we speak.