January 28, 2025 • 48 mins
FedEx and UPS are trying to navigate an ever-changing parcel industry as volume mix shifts toward more-expensive home deliveries and increased competition from the likes of Amazon.com, which have weighed on margins. These legacy players are focused on productivity improvements, expense controls and restructuring networks in the hopes of thriving in this complex environment. In this Talking Transports podcast, Satish Jindel, president of SJ Consulting and ShipMatrix, joins Lee Klaskow, Bloomberg Intelligence senior transportation and logistics analyst, to share his insights about what’s shaping the parcel and less-than-truckload landscapes. Jindel also discusses many aspects of the LTL market, including, consolidation, FedEx Freight’s spinoff and carriers’ pricing power.
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Episode Transcript
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Speaker 1 (00:07):
Hi everyone, this is Lee Klaskow and we're Talking Transports.
Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host,
Lee Klaskow, senior Freight, transportation and Logistics analysts at Bloomberg Intelligence,
Bloomberg's in house research arm of almost five hundred analysts
and strategists. Before diving in a little public service announcement,
your support is instrumental to keep bringing great guests onto
(00:30):
the podcast like the one we have today. If you
haven't already, please do take a moment to follow rate
and share the Talking Transports podcasts with your family and
friends and colleagues. We appreciate your support. I'm very excited
to have Satish Gentle with us today. I have noticed
Satish for the better part of seventeen years, maybe even
twenty years, and he's been a source of insights when
(00:52):
it comes to the LTL and parcel markets. Satisha has
over thirty years of diverse experience in the industry, with
accomplishments that include a key founding member of RPS what
is today FedEx Ground, founded SJC in nineteen ninety three
and advised over two hundred carriers around the globe. Recently,
(01:13):
he advised Knight's board in twenty twenty one on the
attractiveness of the LTL space and helped it acquire Triple
A Cooper Transportation for one point four billion dollars. Most recently,
he advised pitt Ohio on its acquisition of Sutton Transports.
In two thousand, he founded ship Matrix, which supports hundreds
(01:33):
of shippers with parcel visibility, analytics, auditing, and customer experience
by processing hundreds of millions of parcels. In twenty twenty one,
ship Matrix was recognized by UPS as the voice of
the parcel industry. He has three master's degrees from the
University of Pennsylvania, which includes an MBA from the Wharton
(01:55):
School of Business, which is two more MBAs or two
more masters than I have. So Satish, welcome to the
Talking Transport podcast. I'm really glad to have you here
with us today.
Speaker 2 (02:07):
Thank you. Lee.
Speaker 1 (02:08):
Give us some background, because you know s JC, I
know what it is not everyone might not know what
is and ship Matrix your other venture. Can you just
talk a little bit about that, you know what the
two of them do.
Speaker 2 (02:20):
I started first with Est Consulting and it came from
after I had helped build RPS, which is it truly
one of the most fascinating story in the transport industry,
and the things I learned there were so enormous. I said,
I need to help other companies and it just turned
out beautiful that I first my engagement was with Airborne
(02:43):
and then FedEx and they are the only two companies
that I approached to help and do business with, and
we have done work for two hundred and the reason
that happens, Lee is I like to describe it that
when people go to a doctor, they have to tell
them what that they're not feeling good, They're sick. This
thing is wrong. When I meet with companies, I have
(03:06):
a general conversation about what's going on in the industry,
and somehow it leads to them wanting to say, you know,
it seems like you can help us. So we have
helped two hundreds some companies with working for their CEO
coos understand what the future is going to be. And
for those who care, they can look up on my
(03:27):
website our forecast record. We are at ninety four of
them and those are many of them so significant. I'll
tell you one that most of them will be floored
to hear this that in nineteen ninety nine, soon after
Amazon started selling books at CDs, I published a commentary
in Air Cargo World on e commerce, and I said,
(03:49):
the real benefit in the future of Amazon will be
in becoming the Walmart of online, helping other retailers sell
using their platform. And my said aspect of it is
that I mentioned that saw that as a future, but
I did not invest think of what that could have been.
Speaker 1 (04:13):
Well, I'm a little glad you didn't because maybe we
would be talking right now. You might be on a
beach somewhere. So let's talk about the parcel industry. Yeah,
that's a great segue. So there's been a lot of changes,
you know, to your point, B two C has been
taking off B to b's kind of in flat FedEx
and ups or trying to restructure their networks to kind
of shift to this paradigm. Where do you see the
(04:35):
parcel industry heading and where do you see FedEx in
ups kind of fitting in that landscape, you.
Speaker 2 (04:43):
Know, since we're picking up on what Amazon has started doing,
it's a perfect way to talk about the parcel I've
been in it since nineteen eighty four when I helped
start ourps and in these forty years, League, I would
tell you twenty twenty five will be a more critical
year than any of the last forty years. And that's
(05:04):
because the parcel industry is going through a fundamental change
in a way that it has never experienced. When you
think of truckload, and we're not gonna go into in detail,
but truckload has had private fleets for many years. If
Walmart private fleet was listed among the four hire carriers,
(05:27):
they would rank in the top five targets had this
private fleet. Costco has a private flee in parcels, there
were no private fleets. Now you got the private fleets
in a slightly different structure that now are handling over
forty five percent of the parcel market. So, if you
(05:50):
want to think of twenty sixteen, if the parcel market
at that time was about let's say sixty sixty five
million packages a day, the entire market was addressable market
for FedEx and UPS and post Office and everyone else. Today,
(06:10):
with the parcel market being about eighty five to ninety
million a day, it has grown. However, the part that
is addressable for the carriers has shrunk from sixty five
million to forty five million. Why Because Amazon in twenty
twenty four handled and delivered more packages that originated within
(06:38):
its network than any other carrier, including the Post Office.
Because almost forty fifty percent of the parcels that Post
Office delivers are for other carriers. So if you were
to just look at a number of deliveries, post Office
still delivers more packages than Amazon, but those forty fifty
(07:02):
percent of them are not the ones that originate with them.
That's a fundamental change.
Speaker 1 (07:09):
Right, And not only is that changing because I want
to talk about that more, but you know you mentioned
the US Postal Service UPS has recently announced that it's
taking all its short post volumes in house, where most
of it went to the US Postal Service for final mile.
What do you think was behind that strategy? Do you
(07:29):
think that's something that you know, we're going to see
more of of US people leaning on the post Office
or more people leaning on the Post Office.
Speaker 2 (07:36):
I think you will see Post Office not wanting to
enable other companies to leverage this last mile network for
their growth and profitability. I may put in context the
reason Post Office offered this last mile service that they
call Parcel Select. It took both in nineteen ninety one
(07:58):
when I was at RPS here and I asked Post
Office to handle my deliveries in the poor dunk areas
of Utah, Colorado, places like death Well in California because
they were the cheapest. What they did is they expended
it to all the markets in nineteen ninety nine with
parcels a lect and they enabled other companies to cherry
(08:21):
pick and handle the easier part, which is the pickup
the line haul, and they did the deliveries. If they
stopped doing deliveries, a lot of those companies are going
to have trouble and you will see that happening. Now
we're coming back to the UPS breakup off shore posts.
I can assure you it was not because UPS wanted
(08:45):
to do it right now. They were gradually trying to
bring it in house as they can marry the packages
for delivery, to build that density. It is resulting in
my view, because Post Office is sake. I want to
handle those packages from origin to destination and not let
someone else leverage it. What happened here in this situation
(09:09):
in such a short notice, I think it's because the
two of them were trying to renegotiate the contract. The NSSA,
as Post Office would call it, and they couldn't come
to terms on the price that Post Office would have
wanted and what UPS would be able to support, and
(09:31):
they had a falling out. And now UPS is going
to deliver it itself, which is a little different than
the way FedEx did three years ago and twenty actually
four years when they brought it in house. They got
rid off what they called smart posts and called it
FedEx ground Economy. They planned it here. This was an
(09:53):
unplanned move.
Speaker 1 (09:55):
Right you know, when you were talking about the addressful
market and how it's it's it's shrinking, but you know
also there are other players out there that are doing
the final mile delivery, you know, like for the Walmarts
of the world. Can you talk about that market, like
who are some like, because I know it's very regionable.
Are there any major players out there that are that
are doing it?
Speaker 2 (10:16):
You know, they are not major in terms of how
they can compete in volume or revenue with UPS faedect.
They are significant in the sense that they are handling
one hundred thousand packages that can be significant for them,
But when the carriers are handling ninety million, all of
(10:37):
them collectively it's still a very small amount. You've got
two or three companies that come to my mind. One
is called Jitsu, another one is called VJO and VO
particularly people may take more interest. They raise three hundred
million dollars. They I don't know if they are profitable,
I doubt, but they've expanded, are trying to offer across
(11:01):
the country and not just the last mile. For last mile,
you have companies like Walmart, which is doing a lot
of store to door delivery or store to home from
their four thousand stores that they have, and with that,
ninety percent of fewest population is within ten mile of
(11:22):
those four thousand store. So they're even using companies like
Uber Eats and door dash drivers to pick up the
packages from the local store with their cars. They run
around deliver four, five, six packages an hour, and they
still end up making a decent money. And Walmart is
(11:44):
able to provide the same day, next day service that
they can't get from FedEx UP.
Speaker 1 (11:51):
Okay, So, like you know, when we start off the conversation,
I said, there's a lot of things going on and
FedEx and UPS are doing a lot of restructuring inside FedEx,
probably more so than UPS. Right now where do you
see that the combining of ground and express and also
the you know what they're doing, how they changed their
air air network.
Speaker 2 (12:11):
You know, they have moved in the direction of reducing
number of aircraft that they've had. They had too many
aircrafts and they have finally come to recognize that. However,
when I see comments that they are looking to go
(12:32):
after the premium air freight international and what they're thinking
of what would be premium, there is the airfreight that
moved in the bellues of patsenger airlines triple sevens seven
eight seven, or Airbus three fifty or three twenty, and
all of those those are premium because they go from
(12:56):
gateway to gateway. So if we have a ship at
originating in Frankfort and you want it in Chicago, you
have an aircraft Patenter airline that is flying directly. It
is very difficult for Faedex to be able to compete
with that because they would have to bring it into
a hub like Memphis and that extra time. Furthermore, from
(13:20):
a pricing point of view, the pattenger airlines do not
allocate the full cost of that belly space because they
allocate the entire cost of the aircraft capital expanse to
the patsenger side, and they only apply the ground handling
crew and fuel to the freight charges that they have,
(13:42):
so that actually is not going to be premium from
a pricing point of view. But what that tells me
is that they have access capacity in the air network
and they rather fill it with that air freight than
take that capacity out. So while they have done some
progress in reducing number of aircraft, they still are trying
(14:05):
to find ways to put more freight on those planes
than to retire them. And in terms of the integration
of express and ground that you ask, all I would
say is that in the earnings call they announced recent
one that they finally completed integration of ground and air
(14:25):
in Canada. Folks who are on this call listening to
this Canada, while it's a huge country and may become
a state of America one day that opportunity, the amount
of business they do is less than a division of
faed X in this country, and it took them over
(14:48):
a year or to integrate Canada. I just see that
as an indication that they are having some challenges, either
with the planning of it or or with the execution
within this country and that it is not going as
fast as it should and they may be having challenges.
(15:09):
And I would say from my ship matrix business that
Lee mentioned that we have visibility to millions, hundreds of
millions of packages. During December, they had some service issues
in certain parts of the country. I do not know
exactly what are the factors for it, but it could
(15:33):
be related to some of the integration that is becoming
more challenging than they may have factored.
Speaker 1 (15:45):
Yeah, so FedEx networks are very interesting for those who't
know their ground network or independent contractors and their express
network or employees. So you know, that's probably not an
easy thing to kind of integrate, I would guess.
Speaker 2 (16:01):
And to add to that lead, what I've heard from
friends I have who are those independent contractors they cat ISPs,
independent service providers, is that they are paid a different
amount for different kind of a package. So if it's
a business delivery, they get a different amount, if it's
(16:22):
a home delivery, it's a different amount. If it's ground economy,
it's a different amount. And now if they are being
asked to handle express packages, they're getting paid differently, and
from what I've heard, they're getting paid less for an
express package, then they are getting it for the ground package.
And it goes against the notion of people that if
(16:46):
I'm adding a premium package, I should have premium costs
paid to me. But the approach the fat Ax is
taken with them is that I'm increasing your volume, and
that to an extent, is a logical wait for them
to look at it. That stood up delivering two hundred
packages today, You're gonna deliver two hundred and forty. You're building.
(17:08):
I'm building density for you, so your cost per package
should be coming down. But the mannerism in which it
is being unfolded, it is not resonating with those independent
contractors that may be contributing to some of the challenges.
Speaker 1 (17:23):
Right you mentioned December performance for fed X. You know,
when you're looking holistically at all their networks in North
America or maybe just in the United States, who who
is a performing better fed X, UPS, DHL. Do you
have the postal service in your matrix? I would say
UPS number one. Fed X is the close second and
(17:45):
the post office is a distant third when you exclude
parcels Select, which is basically a last mile. So if
you just look at the ground advantage and Priority Mail,
which folks, you should to wonder why they would call
a package or mail instead of calling it prior to advantage,
(18:05):
But that's what they still do. They're on time performances
for those two services that are door to door, going
across the country or across the region is a distant
third to UPS and fed X. So we started the
conversation with you talking about Amazon, and you know how
(18:26):
much that's changed. You know, the world of a logistics.
Do you see Amazon? You know, because the question I
get all the time is like, will Amazon be a
head to head competitor with EPs and FedEx? Do you
see them as head to head competitors? Yes, not in
all phases. I don't see them offering an overnight express
(18:51):
service like FedEx is Priority overnight or UPS is next
day Air.
Speaker 2 (18:58):
But if I've helping a company start a new parcel
business today like I did in nineteen eighty four eighty
five with RPS, I wouldn't even worry about the next
day early AM or ten thirty service because that is
a shrinking business. The parcel of the future is day
to see, and it is not even next day and
(19:22):
two days. It is you pick the day of the
week you would like to get your packages, and that's
when I'll deliver all your packages, kind of like the
Milkman of the nineteen fifties and sixties. People don't need
if they order four packages on four different days, they
don't need those four packages delivered on four different days.
(19:44):
They are content with getting them all four on one
day because those are not time urgent deliveries or packages.
So Amazon is definitely on the path. They've already announced
they are trusting it in very market. They have offered
rates to customers. They will be targeting a medium sized
(20:05):
shipboard who doesn't get the very high discounts from the
UPS's and fat axis, and they can move their packages
within their existing network. Granted the existing network is designed
for a one way shipping, it needs to be adjusted.
They already are in the process of doing so. They
(20:27):
have been working at making changes in their technology, in
their routing and information that they make available, such that
a year ago, if you got a delivery from post
Office that was for Amazon, they would have had no data,
no information as to how it moved through the Amazon
(20:50):
network to be provided to the post Office for the
final mile delivery. Now their label includes every facility with
a barcode for it that it is going to go
through the Amazon network for it to be tendered to
the post office for the last mile delivery. And you
(21:12):
can see it. Your guests probably can't because it's all audio. Lee.
You see all those four things at the bottom, Those
are not for the tracking, Those are for the routing.
This first one is Talsa, next one is Phoenix, the
next one is in some central place, and then this
(21:34):
is Cleveland. They never used to include this information. They're
doing this because when they start marketing it to the customers,
the shippers for a door to door, they're gonna be
able to provide that, and those customers are going to
be looking for where is my package today? Not just
it's coming tomorrow and I shouldn't worry about.
Speaker 1 (21:55):
It, but to their independent contractors that they use, I mean,
do they have the capacity to start picking up packages?
Speaker 2 (22:01):
They are coming back empty. So think of it in truckload.
Being a one way carrier, you end up with although
dead miles, empty miles. Every contractor of theirs who's got
drivers on the street is out with two hundred two
fifty three hundred and he's done delivering. Then he comes
back empty. I don't need too many customers because I
(22:24):
may be delivering two packages for stop, but when I
pick up, I'm going to pick up twenty to thirty
packages with one stop, so I don't need to make
too many stops. I make two or three stops. I'll
pick up on hundred packages. It's riding practically for free.
Speaker 1 (22:39):
But once they come back to the facility, do they
have do they have the equipment to do the sorting.
Speaker 2 (22:46):
Yes, they have the ability to toops, put it on
the truck, send it back to the facility from where
the truck came for them to deliver, just like ups
fat Accent. They just need the sortationnology and I to
be synced to handle them. And that's what they were
(23:06):
supposed to have started offering that at full scale in
spring of last year. It has gotten delayed and probably
because they're finding out they from a technology point of view,
were not where they need to be for the ship
or to use them right.
Speaker 1 (23:22):
I think Jeff Bezo has got to give you a call.
Speaker 2 (23:24):
I would love to help them.
Speaker 1 (23:26):
You know, so you know, let's let's pivot a little
bit to the LTL market. The LTL market is I've
been pretty interesting as of late. You know, we were
talking about FedEx. For those that don't know, fed X
is also the largest lesson truckload carrier out there in
North America. They announced that they're planning and spinning out
(23:47):
that business.
Speaker 2 (23:47):
It could take up to eighteen.
Speaker 1 (23:48):
Months to do so. They also announced today, as we're
recording this, the CEO is retiring of FedEx Freight. What's
going on with fed X, FRAY? What do you think
is gonna were you think? Do you think the company
is going to get positioned once it's spun out?
Speaker 2 (24:06):
For friends that fed X who may listen to it,
the sequence of events, the timing of them are not
aligned with what the company is doing with Network two
dot oh and with the faed Ex Freight spin off.
I remind people of the earnings call from June twenty
(24:30):
fifth of last year when they announced that they were
going to that the board has authorized them to look
at driving sharehold or value by separating or spinning off
faed X, either to potential buyers or publicly, and that
(24:51):
they would decide that within six months. The market like
the idea, and rightfully, I Lee you would know published
a open letter to Fred Smith on November twenty twenty one, saying,
mister Smith, the FedEx Freight by itself had the market
cap of forty billion when the entire company had a
(25:11):
market cap of sixty three, that it is a great value.
You need to spin it off. They finally took them
two and a half years to deal with that, and
then they said it could take them six months. I
can't imagine that they needed six months to realize that
there was no better option but to spin off, because
(25:33):
no one could have afforded, no one would have bought.
I got calls why wouldn't Amazon buy? Hello? Why would
Amazon want to get into LTL? They can buy capacity
as they need it, and then they would end up
with Sean O'Brien, who's already knocking on the door for
Amazon warehouse workers to unionize them. LTL has a history
(25:56):
of union career. They would not want to touch it.
So they took six months to finally say yes, we
have been approved to do a spinoff. Okay. Market liked it.
The stock went up from two seventy six to two
ninety nine in after drawings of the release. However, when
(26:16):
the market read that it was going to be eighteen
months for them to complete it again very slow. It
lost interest and as I started to connect the dots,
I can see why they've won to wait eighteen months, folks.
My view is that when you look at the last
(26:37):
earnings results and you find that the parcel business now
referred to as FedEx Express, which is everything combined ground
and air, had an operating margin of five point five.
LTL with only nine and a half billion in revenue,
had a margin of fourteen point five. If they were
(27:01):
to spin off the child in three months, the market
cap of the child would be greater than that of
the patent, folks, and that must be on the minds
of the leaders of faed X to say we can't
do it. We need the time to get the network
(27:23):
two dot and the ground and air parcel integration align
and working with firing on all cylinders before we separate
the two. The other thing that I don't think market
has been happy to hear is that when they spin
it off they want they're going to still have it
(27:46):
branded as fat X fred. I think while faed X
is a great brand, to continue to detain that name
when it is a truly stand alone, separate spin off
suggests that they are spinning it off not because they
like it, because they are being asked to because they
(28:08):
owned a brand in LTL. The second LTL carrier that
they bought, which was American Freight With. And Lee, your
audience may like to know that they are listening to
the guy who helped fred Smith and FedEx get into
LTL business in nineteen ninety eight by convincing him that
he needed to buy Viking when he bought Caliber. And
(28:29):
they loved Viking so much they went and bought American
Freight With. Then they bought Watkins, and American Freight With
would be the right name for this.
Speaker 1 (28:37):
Spin off, all right, not setis Freightways No, thank you, okay.
And you know, interesting turn of events also, they're they're
the current leader of that business just announce his retirement.
So it'll be interesting to see who leads the company
going forward, you know, through the spin and post spin.
Speaker 2 (28:59):
It's really that, you know, while they have other people
for it to happen at this time, just a month
after they announced the spin off on December nineteenth earnings call,
and then they announced it today and then they say
that today's this last day. It just does not sink
(29:21):
as to something is not aligned there. Yeah, I sure,
I'm sure.
Speaker 1 (29:27):
I'm sure more information is going to come out over time,
and management's going to give a little more color about
the timing of that. You know, the LTL industry is
from my advantage point because I cover truckload and less
than truckload, it's a much better business from a margin standpoint,
from a pricing standpoint. Pricing, you know, has been a
(29:48):
top of mind for a lot of investors because you've
seen those year of a year increases of revenue one
hundred eight x fuel Search arges those those growth rates
kind of moderate. We think, you know, concerns a little overdone.
We're a big fan. We think that they could do
mid single digit pricing X fuel this year. That's you know,
(30:09):
that's kind of how we're thinking about it. And the
market's getting more consolidated. So can you talk about like
you know, they we're seeing Night building a national network.
We're seeing SAIA, you know, expanding its presence in certain
regions and being now in all forty eight into the States.
Can you talk about the consolidation that we're seeing in
the LTL market?
Speaker 2 (30:28):
Yeah, where do you see the big boys? I don't
think you're going to see any more consolidation among the
top ten. Right that are in the top ten, unlike
other segments. You've got a few private guys that are
very big. Shd's is almost five billion plus. You've got
raden Hell which is that three plus billion, Southeastern that
(30:51):
almost two plus something from going from memory. And these
are family businesses that that is no hope for any
banker to convince them to go public. Okay, but they
are run very well. I don't see any consolidation in them.
What I see and youth will see it has happened.
(31:12):
In twenty twenty four, there were four smaller LTL carriers
that got folded into others. DHG Dependable Highway from the
West Coast got acquired by Night. Then you had Rmax
Freight bought by Moran Transportation. They were both small, fairly small.
Then you had ped Ohio closed on certain Transport. I
(31:37):
had a role to play on December thirty one. Then
Standard Forwarding got bought UH and DHL sold that off.
By end of last year. You will see more of
those kinds of carriers exiting the market. In twenty five
I can easily see four to five of them again
(32:00):
in twenty twenty five getting bought by others. The reason
why you'll see it happening more in the small and
medium sized guys with one hundred million or so revenue
is because Lee at one time terminals was the greatest
barrier to entry. As you know, Yellow went out of business,
(32:20):
put three hundred and fifty terminals on the market. We
did not see a single new career come in by
acquiring any of them. Right that, Because now, in my
view on.
Speaker 3 (32:32):
LTR, there are three t's that are barriers to entry.
First T is terminals, second is technology, and third is talent.
And you talked about changes in pricing and changing in
dimensional pricing that's coming. You will need technology to execute
(32:52):
on that. So if you don't have good technology, you're
going to struggle, and you need talent to deploy that technology,
and if you don't have that, you will struggle. The
reason for technology, you need a lot of capital. If
you're a small guy, it becomes challenging for talent. You
are challenged because a smart management executive of LTL is
(33:16):
unlikely to go and work for a company with forty
fifty million privately held because the family members even a
twenty four year old grandson of a founder is going
to have a last say on how you run the company,
even though you may be the president there and then
there isn't much career progress you can have, so that
(33:36):
limits them. So that's why you find some of them
getting consolidated.
Speaker 1 (33:42):
Are you surprised we haven't seen like private equity come
in and try to roll up a national network like
night Swift is trying to do.
Speaker 2 (33:50):
No, because private equity people like to invest in companies
that are low cap acts. Yeah, and doing LTL integration
where the network or the densities required, you have to
combined carrier, you have to deal with seniorities of drivers
and doc workers, even if they're not union, that's still
(34:13):
a relevant thing and culture. It's they don't have the bandwidth,
they don't have the talent to make that happen, so
they will only consolidate with others. Like you saw with
night Swift buying DH they'll be looking to a quart carrier.
You saw pid Ohio aquiring Sutton, that's the kind of
(34:35):
thing you're going to see. Or even Dayton Freight. They
bought a small cartage company really in the Midwest near
Chicago area.
Speaker 1 (34:45):
Right and so I guess you know with the Ohio
or the pit Ohio acquisition that you know you were
involved in. What was the rationale for that acquisition? Was
it to expandage geographic footprint?
Speaker 2 (34:57):
What was the footprint does not increase in In fact,
all of such a geography is within the geography of
Dawn Transfer, which is an operating company OPID Ohio parent company.
The rationale here is we had a very large regional
player in the Midwest that went out when Yellow shut down.
(35:18):
You know, they're a great brand, Holland being around for
forty to fifty years. Yes, they were a union carrier,
but they had a pretty big footprint. They were a
very good career for the Midwest. They got damaged with
all the things that were happening at wyre C, so
they were left practically with one regional carrier for alternative,
(35:39):
which was daytum Free. It's a great carrier, very well managed,
great service, but shippers like to have an alternative. They
had alternative to some extent with down Transfer, but with
certain being within the footprint, it will help them with
the density, it will help them with service. Annasmith. When
you increase you can have better line haul runs, So
(36:03):
customers in the Midwest looking for a good alternative to
date to freight, they will have a better alternative than
they've had separately, be Drawn and Sutton with a combined entity.
Speaker 1 (36:17):
Gotcha, and so how would you you know, so I
talked or mentioned, you know, Knight Swift consolidating the market.
Speaker 2 (36:26):
You know, how did from your vantage point, how do you.
Speaker 1 (36:28):
Think that exercise is going and that execution is going
in terms of taking these regional players and growing them
out and making it into a national network.
Speaker 2 (36:39):
You know, I helped Knight Swift get into the LTL business.
Then they said, the fine you make us. You got
us interested in being an LTL, But how do we
get into it? There aren't any prospects. I found triple
a read up, dear friend, and so the great acquisition start. Well.
(37:01):
They then acquired MME to cover the Midwest all the
way to northwest that they bought DCH. The part that
I have concerned about with Knight Swift is who is
leading the charge in how we're going to bring these
(37:22):
different acquisitions together, integrating them, integrating their service for the
customer so that I can ship a shipment from Florida
or Atlanta that originates with Triple A going to La
or San Francisco, where DH has to handle it is
(37:44):
not an easy task. If Dan Sullivan, my former boss,
my mentor, who taught me everything I know about this industry,
who ran Caliber and Roadway and the regional networks of
Viking and Spartan and Central and Calls, would tell you
it is a huge challenge. I don't see them having
(38:08):
taken charge of how they're going to bring these regional
career to share and move shipments between them that will
generate the kind of profit margins that it should and
provide the service the customer they're gonna look for.
Speaker 1 (38:24):
Right, Okay, Yeah, I mean this is definitely a new
business for night Swift. They're you know, fantastic in the
truckload market, kind of best in class management teams. So
it'll be interesting to see, you know, how this plays
out over the years to come.
Speaker 2 (38:40):
If I can add one comment on that, Lee is
that they should they should look at a related situation.
The gentleman who taught Kevin and everyone at Knights Swift
how to run a truckload business was Jerry Moys. Jerreymoys
(39:01):
built Swift. He taught Kevin Knight how to run truckload.
He then got into LTL with Central Freight and he
lost a lot of money. Finally had to shut down
Central Freight three years ago. And I draw that parallel
to the point out that while there are similarities in
(39:24):
leveraging the various capabilities of buying trucks in large quantity,
you can leverage that domiciling drivers. The pricing and the
network that is needed in LTL is very different than
truckload and Kevin Knight and Todd Miller and others who
are running Kevin Knight at Knight Swift. I want them
(39:47):
to succeed, and they need to think about how they
avoid what happened to Jerry Moys and his venture of
going from truckload to LTL R.
Speaker 1 (40:00):
Let's not forget you know when when the acquisition of
Swift that Night happened, when the merger happened, it was
the Night senior management that stayed around because they ended
up being better operators than yes who is at Swift.
So was it the teacher became the master? Is that
is that saying.
Speaker 2 (40:16):
What they have reaped up there. I don't know how
much he's involved on the LDL strategy I hope he's
taking a bigger role in that because they would benefit
from it. Right And you know, kind.
Speaker 1 (40:30):
Of as we're wrapping up here, you know, I started
the conversation LTL about pricing. What are your thoughts on
pricing for LTL? Do you think you know the market's
going to remain disciplined and rational and look to increase
to least offset inflation, if not surpassed inflation.
Speaker 2 (40:48):
Lee, I echo your comments about LTL. You said at
the start that among truckload LTL parcel you are more positive.
I am one hundred pertent with you. Over next three year,
they may face challenges, but they would be a lot
less than the truckload and the parcel. LTL has a
(41:08):
huge tailwind, and that is the pricing and the entity
n MFDA that manages the freight classification system. The sooner
they shut down, the faster the LTL carriers will benefit
from changes from LTL pricing. I see them managing that
(41:31):
getting low to mid single digit or better price increases
the service is off the value that they should be
able to get that and the other thing that you
mentioned they are getting more discipline in collecting for accessorial
if a customer needs a lift gate, they need appointment delivery.
(41:54):
There's a value to you missed a customer. I need
to get paid because it cost me more to schedule
appointment delivery. Then if it just not so, I see
pricing continue to.
Speaker 1 (42:05):
Be favorable, okay, and then you know when you're looking
at demand, obviously the demand backdrop has not been good. ISM,
which is leading indicator, has been in contraction territory twenty
five the last twenty six months. Good news. I guess
ISM manufacturing order numbers has been in in expansion territory
the last two months, and that tends to be a
two month trailing indicator for the ISM manufacturing index. So
(42:29):
you know, that could mean that things are maybe starting
to turn. Kind of what's your what's your thought on
demand in twenty twenty five and what do you kind
of look at to kind of flesh that out?
Speaker 2 (42:40):
Lee, I read the Wall Street Journal every day, not
Bloomberg dot com. I could do that too, but okay,
good good. I got into the habit of Wall Street
in my warton days what the years ago. It's the
best continuing education and instead of relying on the monthly
index is being put out, I look at consumer spending.
(43:01):
I look at inflation, if I look at mortgage rates,
If people are spending more on buying a house or
making payments on it, or spending more on groceries, that
meets overall production consumption is down. That's not gonna help
LDL or trucking or anyone. And my view is that
the trucking companies, unlike retailers, they can load the shipping
(43:25):
price charges that shippers can't ship more just because they
charge them less, right, Okay, So they need to focus
on managing the capacity. And they've done a decent job
of managing capacity even after twenty twenty four is coming
gone and Yellow shut down in twenty three. So you're
seeing a great progress in the leadership of these companies
(43:49):
in managing capacity. As long as they do that, they
need to stop expecting demand is going to bring any
prosperity because they have no control over it.
Speaker 1 (44:02):
And just have a couple quick questions for you, Is
there anything else briefly that's on your radar and freight
transportation world that you wanted that's kind of we haven't
hit upon.
Speaker 2 (44:15):
The only comment I would make because I published two comments,
one in July of twenty three or yeah, about the
ups and the teams to contract, and then about the islay.
Is that the labor and you've seen it with the
Boeing workers, You've seen it with Auto, You've seen it.
(44:38):
The companies need to be aware that they need to
manage labor costs and labor relations. It will be a
little more challenging than they may have had two, three, four,
five years ago. The expectations from the workers is going
to be that I contribute a lot to the prosperity
of the company. I would like to see it being
(45:00):
recognized within reason. So they need to manage that cost.
Speaker 1 (45:05):
Okay, And this is my last question for you. It's
something I like to ask all my guests. Is there
a book about transportation or leadership that's kind of close
to your heart that you read over the years that
you'd recommend people that you know, maybe getting into the
industry or just looking at some self development might want
to read.
Speaker 2 (45:24):
Well, not so much about getting into industry, but there
are two books that about related to our industry, one
more related, one tangentially. One is a book that was
published after a FedEx pilot who was expecting to get fired,
(45:45):
was in the cockpit and carried weapons, hammers and shackles.
He was determined as soon as they took off from
Memphis that he was going to hurt the pilot and
the co pilot and crash that plane in the Memphis
up It is a stunning book, folks. If you try
(46:07):
to read it, please don't try to read it as
you're going to bed, because you will wait to finish
it before you can go to street. Is not fiction, No,
it was real. Real that feels like it is fiction.
And fred Smith was so kind and generous. He rewarded
those pilots and the co pilot where he said, you
don't ever have to work. I will support you and
(46:29):
your family for rest of your life because of the
heroic actions. What's the book called. I don't know the name,
but I think if you google they will find it. Okay. Yeah.
The other book that I would like to mention it
doesn't create to our industry, but they do a lot
of work in the industry, is when McKenzie comes to town. Folks.
(46:50):
It is a book that anyone who is thinking of
bringing McKenzie into that company should read because and it's
special to me because coming out of my Mbale I
wanted to work in consulting. I wanted to work for McKenzie.
They were the biggest name in the world for MBA,
I hadn't offered. I turned it down. Why because they
(47:14):
are general people. They learn about the industry and your
company after they come and work for you. But that
book McKenzie Comes to Town, written by two New York
Times reporter, they did great investigative reporting to list the
companies they did project for the money they made and
the serious people's lives have been lost because of their
(47:36):
consulting assign And I had a client DHL that not
the men and they went out of business. Thank you McKenzie.
Speaker 1 (47:44):
Okay, And it just suggestion that book is called Hijack
The True Stories of Heroes of Flight seven oh five
by Dave Hirshman.
Speaker 2 (47:52):
Well, that's right. He was a reporter for Atlanta Journal Constitution.
Speaker 1 (47:56):
Yeah, I've never heard of that. I got to go
check that out. Well, Satisha's always I really appreciate your time,
your honesty, your opinions. I know you love to give
all those things, so I really appreciate it. And thanks
so much for joining us today. Thank you, and I
want to thank you for tuning in. If you liked
the episode, please subscribe and leave a review. We've lined
(48:17):
up a number of great guests for the podcast, so
please check back to hear conversations with C suite executives, shippers, regulators,
decision makers within the freight transportation markets. Also, if you
have an idea for a future episode, please hit me
up on the Bloomberg terminal or on Twitter at logistics Late.
Thanks everyone, and take care.
Hi everyone, this is Lee Klaskow and we're Talking Transports.
Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host,
Lee Klaskow, senior Freight, transportation and Logistics analysts at Bloomberg Intelligence,
Bloomberg's in house research arm of almost five hundred analysts
and strategists. Before diving in a little public service announcement,
your support is instrumental to keep bringing great guests onto
(00:30):
the podcast like the one we have today. If you
haven't already, please do take a moment to follow rate
and share the Talking Transports podcasts with your family and
friends and colleagues. We appreciate your support. I'm very excited
to have Satish Gentle with us today. I have noticed
Satish for the better part of seventeen years, maybe even
twenty years, and he's been a source of insights when
(00:52):
it comes to the LTL and parcel markets. Satisha has
over thirty years of diverse experience in the industry, with
accomplishments that include a key founding member of RPS what
is today FedEx Ground, founded SJC in nineteen ninety three
and advised over two hundred carriers around the globe. Recently,
(01:13):
he advised Knight's board in twenty twenty one on the
attractiveness of the LTL space and helped it acquire Triple
A Cooper Transportation for one point four billion dollars. Most recently,
he advised pitt Ohio on its acquisition of Sutton Transports.
In two thousand, he founded ship Matrix, which supports hundreds
(01:33):
of shippers with parcel visibility, analytics, auditing, and customer experience
by processing hundreds of millions of parcels. In twenty twenty one,
ship Matrix was recognized by UPS as the voice of
the parcel industry. He has three master's degrees from the
University of Pennsylvania, which includes an MBA from the Wharton
(01:55):
School of Business, which is two more MBAs or two
more masters than I have. So Satish, welcome to the
Talking Transport podcast. I'm really glad to have you here
with us today.
Speaker 2 (02:07):
Thank you. Lee.
Speaker 1 (02:08):
Give us some background, because you know s JC, I
know what it is not everyone might not know what
is and ship Matrix your other venture. Can you just
talk a little bit about that, you know what the
two of them do.
Speaker 2 (02:20):
I started first with Est Consulting and it came from
after I had helped build RPS, which is it truly
one of the most fascinating story in the transport industry,
and the things I learned there were so enormous. I said,
I need to help other companies and it just turned
out beautiful that I first my engagement was with Airborne
(02:43):
and then FedEx and they are the only two companies
that I approached to help and do business with, and
we have done work for two hundred and the reason
that happens, Lee is I like to describe it that
when people go to a doctor, they have to tell
them what that they're not feeling good, They're sick. This
thing is wrong. When I meet with companies, I have
(03:06):
a general conversation about what's going on in the industry,
and somehow it leads to them wanting to say, you know,
it seems like you can help us. So we have
helped two hundreds some companies with working for their CEO
coos understand what the future is going to be. And
for those who care, they can look up on my
(03:27):
website our forecast record. We are at ninety four of
them and those are many of them so significant. I'll
tell you one that most of them will be floored
to hear this that in nineteen ninety nine, soon after
Amazon started selling books at CDs, I published a commentary
in Air Cargo World on e commerce, and I said,
(03:49):
the real benefit in the future of Amazon will be
in becoming the Walmart of online, helping other retailers sell
using their platform. And my said aspect of it is
that I mentioned that saw that as a future, but
I did not invest think of what that could have been.
Speaker 1 (04:13):
Well, I'm a little glad you didn't because maybe we
would be talking right now. You might be on a
beach somewhere. So let's talk about the parcel industry. Yeah,
that's a great segue. So there's been a lot of changes,
you know, to your point, B two C has been
taking off B to b's kind of in flat FedEx
and ups or trying to restructure their networks to kind
of shift to this paradigm. Where do you see the
(04:35):
parcel industry heading and where do you see FedEx in
ups kind of fitting in that landscape, you.
Speaker 2 (04:43):
Know, since we're picking up on what Amazon has started doing,
it's a perfect way to talk about the parcel I've
been in it since nineteen eighty four when I helped
start ourps and in these forty years, League, I would
tell you twenty twenty five will be a more critical
year than any of the last forty years. And that's
(05:04):
because the parcel industry is going through a fundamental change
in a way that it has never experienced. When you
think of truckload, and we're not gonna go into in detail,
but truckload has had private fleets for many years. If
Walmart private fleet was listed among the four hire carriers,
(05:27):
they would rank in the top five targets had this
private fleet. Costco has a private flee in parcels, there
were no private fleets. Now you got the private fleets
in a slightly different structure that now are handling over
forty five percent of the parcel market. So, if you
(05:50):
want to think of twenty sixteen, if the parcel market
at that time was about let's say sixty sixty five
million packages a day, the entire market was addressable market
for FedEx and UPS and post Office and everyone else. Today,
(06:10):
with the parcel market being about eighty five to ninety
million a day, it has grown. However, the part that
is addressable for the carriers has shrunk from sixty five
million to forty five million. Why Because Amazon in twenty
twenty four handled and delivered more packages that originated within
(06:38):
its network than any other carrier, including the Post Office.
Because almost forty fifty percent of the parcels that Post
Office delivers are for other carriers. So if you were
to just look at a number of deliveries, post Office
still delivers more packages than Amazon, but those forty fifty
(07:02):
percent of them are not the ones that originate with them.
That's a fundamental change.
Speaker 1 (07:09):
Right, And not only is that changing because I want
to talk about that more, but you know you mentioned
the US Postal Service UPS has recently announced that it's
taking all its short post volumes in house, where most
of it went to the US Postal Service for final mile.
What do you think was behind that strategy? Do you
(07:29):
think that's something that you know, we're going to see
more of of US people leaning on the post Office
or more people leaning on the Post Office.
Speaker 2 (07:36):
I think you will see Post Office not wanting to
enable other companies to leverage this last mile network for
their growth and profitability. I may put in context the
reason Post Office offered this last mile service that they
call Parcel Select. It took both in nineteen ninety one
(07:58):
when I was at RPS here and I asked Post
Office to handle my deliveries in the poor dunk areas
of Utah, Colorado, places like death Well in California because
they were the cheapest. What they did is they expended
it to all the markets in nineteen ninety nine with
parcels a lect and they enabled other companies to cherry
(08:21):
pick and handle the easier part, which is the pickup
the line haul, and they did the deliveries. If they
stopped doing deliveries, a lot of those companies are going
to have trouble and you will see that happening. Now
we're coming back to the UPS breakup off shore posts.
I can assure you it was not because UPS wanted
(08:45):
to do it right now. They were gradually trying to
bring it in house as they can marry the packages
for delivery, to build that density. It is resulting in
my view, because Post Office is sake. I want to
handle those packages from origin to destination and not let
someone else leverage it. What happened here in this situation
(09:09):
in such a short notice, I think it's because the
two of them were trying to renegotiate the contract. The NSSA,
as Post Office would call it, and they couldn't come
to terms on the price that Post Office would have
wanted and what UPS would be able to support, and
(09:31):
they had a falling out. And now UPS is going
to deliver it itself, which is a little different than
the way FedEx did three years ago and twenty actually
four years when they brought it in house. They got
rid off what they called smart posts and called it
FedEx ground Economy. They planned it here. This was an
(09:53):
unplanned move.
Speaker 1 (09:55):
Right you know, when you were talking about the addressful
market and how it's it's it's shrinking, but you know
also there are other players out there that are doing
the final mile delivery, you know, like for the Walmarts
of the world. Can you talk about that market, like
who are some like, because I know it's very regionable.
Are there any major players out there that are that
are doing it?
Speaker 2 (10:16):
You know, they are not major in terms of how
they can compete in volume or revenue with UPS faedect.
They are significant in the sense that they are handling
one hundred thousand packages that can be significant for them,
But when the carriers are handling ninety million, all of
(10:37):
them collectively it's still a very small amount. You've got
two or three companies that come to my mind. One
is called Jitsu, another one is called VJO and VO
particularly people may take more interest. They raise three hundred
million dollars. They I don't know if they are profitable,
I doubt, but they've expanded, are trying to offer across
(11:01):
the country and not just the last mile. For last mile,
you have companies like Walmart, which is doing a lot
of store to door delivery or store to home from
their four thousand stores that they have, and with that,
ninety percent of fewest population is within ten mile of
(11:22):
those four thousand store. So they're even using companies like
Uber Eats and door dash drivers to pick up the
packages from the local store with their cars. They run
around deliver four, five, six packages an hour, and they
still end up making a decent money. And Walmart is
(11:44):
able to provide the same day, next day service that
they can't get from FedEx UP.
Speaker 1 (11:51):
Okay, So, like you know, when we start off the conversation,
I said, there's a lot of things going on and
FedEx and UPS are doing a lot of restructuring inside FedEx,
probably more so than UPS. Right now where do you
see that the combining of ground and express and also
the you know what they're doing, how they changed their
air air network.
Speaker 2 (12:11):
You know, they have moved in the direction of reducing
number of aircraft that they've had. They had too many
aircrafts and they have finally come to recognize that. However,
when I see comments that they are looking to go
(12:32):
after the premium air freight international and what they're thinking
of what would be premium, there is the airfreight that
moved in the bellues of patsenger airlines triple sevens seven
eight seven, or Airbus three fifty or three twenty, and
all of those those are premium because they go from
(12:56):
gateway to gateway. So if we have a ship at
originating in Frankfort and you want it in Chicago, you
have an aircraft Patenter airline that is flying directly. It
is very difficult for Faedex to be able to compete
with that because they would have to bring it into
a hub like Memphis and that extra time. Furthermore, from
(13:20):
a pricing point of view, the pattenger airlines do not
allocate the full cost of that belly space because they
allocate the entire cost of the aircraft capital expanse to
the patsenger side, and they only apply the ground handling
crew and fuel to the freight charges that they have,
(13:42):
so that actually is not going to be premium from
a pricing point of view. But what that tells me
is that they have access capacity in the air network
and they rather fill it with that air freight than
take that capacity out. So while they have done some
progress in reducing number of aircraft, they still are trying
(14:05):
to find ways to put more freight on those planes
than to retire them. And in terms of the integration
of express and ground that you ask, all I would
say is that in the earnings call they announced recent
one that they finally completed integration of ground and air
(14:25):
in Canada. Folks who are on this call listening to
this Canada, while it's a huge country and may become
a state of America one day that opportunity, the amount
of business they do is less than a division of
faed X in this country, and it took them over
(14:48):
a year or to integrate Canada. I just see that
as an indication that they are having some challenges, either
with the planning of it or or with the execution
within this country and that it is not going as
fast as it should and they may be having challenges.
(15:09):
And I would say from my ship matrix business that
Lee mentioned that we have visibility to millions, hundreds of
millions of packages. During December, they had some service issues
in certain parts of the country. I do not know
exactly what are the factors for it, but it could
(15:33):
be related to some of the integration that is becoming
more challenging than they may have factored.
Speaker 1 (15:45):
Yeah, so FedEx networks are very interesting for those who't
know their ground network or independent contractors and their express
network or employees. So you know, that's probably not an
easy thing to kind of integrate, I would guess.
Speaker 2 (16:01):
And to add to that lead, what I've heard from
friends I have who are those independent contractors they cat ISPs,
independent service providers, is that they are paid a different
amount for different kind of a package. So if it's
a business delivery, they get a different amount, if it's
(16:22):
a home delivery, it's a different amount. If it's ground economy,
it's a different amount. And now if they are being
asked to handle express packages, they're getting paid differently, and
from what I've heard, they're getting paid less for an
express package, then they are getting it for the ground package.
And it goes against the notion of people that if
(16:46):
I'm adding a premium package, I should have premium costs
paid to me. But the approach the fat Ax is
taken with them is that I'm increasing your volume, and
that to an extent, is a logical wait for them
to look at it. That stood up delivering two hundred
packages today, You're gonna deliver two hundred and forty. You're building.
(17:08):
I'm building density for you, so your cost per package
should be coming down. But the mannerism in which it
is being unfolded, it is not resonating with those independent
contractors that may be contributing to some of the challenges.
Speaker 1 (17:23):
Right you mentioned December performance for fed X. You know,
when you're looking holistically at all their networks in North
America or maybe just in the United States, who who
is a performing better fed X, UPS, DHL. Do you
have the postal service in your matrix? I would say
UPS number one. Fed X is the close second and
(17:45):
the post office is a distant third when you exclude
parcels Select, which is basically a last mile. So if
you just look at the ground advantage and Priority Mail,
which folks, you should to wonder why they would call
a package or mail instead of calling it prior to advantage,
(18:05):
But that's what they still do. They're on time performances
for those two services that are door to door, going
across the country or across the region is a distant
third to UPS and fed X. So we started the
conversation with you talking about Amazon, and you know how
(18:26):
much that's changed. You know, the world of a logistics.
Do you see Amazon? You know, because the question I
get all the time is like, will Amazon be a
head to head competitor with EPs and FedEx? Do you
see them as head to head competitors? Yes, not in
all phases. I don't see them offering an overnight express
(18:51):
service like FedEx is Priority overnight or UPS is next
day Air.
Speaker 2 (18:58):
But if I've helping a company start a new parcel
business today like I did in nineteen eighty four eighty
five with RPS, I wouldn't even worry about the next
day early AM or ten thirty service because that is
a shrinking business. The parcel of the future is day
to see, and it is not even next day and
(19:22):
two days. It is you pick the day of the
week you would like to get your packages, and that's
when I'll deliver all your packages, kind of like the
Milkman of the nineteen fifties and sixties. People don't need
if they order four packages on four different days, they
don't need those four packages delivered on four different days.
(19:44):
They are content with getting them all four on one
day because those are not time urgent deliveries or packages.
So Amazon is definitely on the path. They've already announced
they are trusting it in very market. They have offered
rates to customers. They will be targeting a medium sized
(20:05):
shipboard who doesn't get the very high discounts from the
UPS's and fat axis, and they can move their packages
within their existing network. Granted the existing network is designed
for a one way shipping, it needs to be adjusted.
They already are in the process of doing so. They
(20:27):
have been working at making changes in their technology, in
their routing and information that they make available, such that
a year ago, if you got a delivery from post
Office that was for Amazon, they would have had no data,
no information as to how it moved through the Amazon
(20:50):
network to be provided to the post Office for the
final mile delivery. Now their label includes every facility with
a barcode for it that it is going to go
through the Amazon network for it to be tendered to
the post office for the last mile delivery. And you
(21:12):
can see it. Your guests probably can't because it's all audio. Lee.
You see all those four things at the bottom, Those
are not for the tracking, Those are for the routing.
This first one is Talsa, next one is Phoenix, the
next one is in some central place, and then this
(21:34):
is Cleveland. They never used to include this information. They're
doing this because when they start marketing it to the customers,
the shippers for a door to door, they're gonna be
able to provide that, and those customers are going to
be looking for where is my package today? Not just
it's coming tomorrow and I shouldn't worry about.
Speaker 1 (21:55):
It, but to their independent contractors that they use, I mean,
do they have the capacity to start picking up packages?
Speaker 2 (22:01):
They are coming back empty. So think of it in truckload.
Being a one way carrier, you end up with although
dead miles, empty miles. Every contractor of theirs who's got
drivers on the street is out with two hundred two
fifty three hundred and he's done delivering. Then he comes
back empty. I don't need too many customers because I
(22:24):
may be delivering two packages for stop, but when I
pick up, I'm going to pick up twenty to thirty
packages with one stop, so I don't need to make
too many stops. I make two or three stops. I'll
pick up on hundred packages. It's riding practically for free.
Speaker 1 (22:39):
But once they come back to the facility, do they
have do they have the equipment to do the sorting.
Speaker 2 (22:46):
Yes, they have the ability to toops, put it on
the truck, send it back to the facility from where
the truck came for them to deliver, just like ups
fat Accent. They just need the sortationnology and I to
be synced to handle them. And that's what they were
(23:06):
supposed to have started offering that at full scale in
spring of last year. It has gotten delayed and probably
because they're finding out they from a technology point of view,
were not where they need to be for the ship
or to use them right.
Speaker 1 (23:22):
I think Jeff Bezo has got to give you a call.
Speaker 2 (23:24):
I would love to help them.
Speaker 1 (23:26):
You know, so you know, let's let's pivot a little
bit to the LTL market. The LTL market is I've
been pretty interesting as of late. You know, we were
talking about FedEx. For those that don't know, fed X
is also the largest lesson truckload carrier out there in
North America. They announced that they're planning and spinning out
(23:47):
that business.
Speaker 2 (23:47):
It could take up to eighteen.
Speaker 1 (23:48):
Months to do so. They also announced today, as we're
recording this, the CEO is retiring of FedEx Freight. What's
going on with fed X, FRAY? What do you think
is gonna were you think? Do you think the company
is going to get positioned once it's spun out?
Speaker 2 (24:06):
For friends that fed X who may listen to it,
the sequence of events, the timing of them are not
aligned with what the company is doing with Network two
dot oh and with the faed Ex Freight spin off.
I remind people of the earnings call from June twenty
(24:30):
fifth of last year when they announced that they were
going to that the board has authorized them to look
at driving sharehold or value by separating or spinning off
faed X, either to potential buyers or publicly, and that
(24:51):
they would decide that within six months. The market like
the idea, and rightfully, I Lee you would know published
a open letter to Fred Smith on November twenty twenty one, saying,
mister Smith, the FedEx Freight by itself had the market
cap of forty billion when the entire company had a
(25:11):
market cap of sixty three, that it is a great value.
You need to spin it off. They finally took them
two and a half years to deal with that, and
then they said it could take them six months. I
can't imagine that they needed six months to realize that
there was no better option but to spin off, because
(25:33):
no one could have afforded, no one would have bought.
I got calls why wouldn't Amazon buy? Hello? Why would
Amazon want to get into LTL? They can buy capacity
as they need it, and then they would end up
with Sean O'Brien, who's already knocking on the door for
Amazon warehouse workers to unionize them. LTL has a history
(25:56):
of union career. They would not want to touch it.
So they took six months to finally say yes, we
have been approved to do a spinoff. Okay. Market liked it.
The stock went up from two seventy six to two
ninety nine in after drawings of the release. However, when
(26:16):
the market read that it was going to be eighteen
months for them to complete it again very slow. It
lost interest and as I started to connect the dots,
I can see why they've won to wait eighteen months, folks.
My view is that when you look at the last
(26:37):
earnings results and you find that the parcel business now
referred to as FedEx Express, which is everything combined ground
and air, had an operating margin of five point five.
LTL with only nine and a half billion in revenue,
had a margin of fourteen point five. If they were
(27:01):
to spin off the child in three months, the market
cap of the child would be greater than that of
the patent, folks, and that must be on the minds
of the leaders of faed X to say we can't
do it. We need the time to get the network
(27:23):
two dot and the ground and air parcel integration align
and working with firing on all cylinders before we separate
the two. The other thing that I don't think market
has been happy to hear is that when they spin
it off they want they're going to still have it
(27:46):
branded as fat X fred. I think while faed X
is a great brand, to continue to detain that name
when it is a truly stand alone, separate spin off
suggests that they are spinning it off not because they
like it, because they are being asked to because they
(28:08):
owned a brand in LTL. The second LTL carrier that
they bought, which was American Freight With. And Lee, your
audience may like to know that they are listening to
the guy who helped fred Smith and FedEx get into
LTL business in nineteen ninety eight by convincing him that
he needed to buy Viking when he bought Caliber. And
(28:29):
they loved Viking so much they went and bought American
Freight With. Then they bought Watkins, and American Freight With
would be the right name for this.
Speaker 1 (28:37):
Spin off, all right, not setis Freightways No, thank you, okay.
And you know, interesting turn of events also, they're they're
the current leader of that business just announce his retirement.
So it'll be interesting to see who leads the company
going forward, you know, through the spin and post spin.
Speaker 2 (28:59):
It's really that, you know, while they have other people
for it to happen at this time, just a month
after they announced the spin off on December nineteenth earnings call,
and then they announced it today and then they say
that today's this last day. It just does not sink
(29:21):
as to something is not aligned there. Yeah, I sure,
I'm sure.
Speaker 1 (29:27):
I'm sure more information is going to come out over time,
and management's going to give a little more color about
the timing of that. You know, the LTL industry is
from my advantage point because I cover truckload and less
than truckload, it's a much better business from a margin standpoint,
from a pricing standpoint. Pricing, you know, has been a
(29:48):
top of mind for a lot of investors because you've
seen those year of a year increases of revenue one
hundred eight x fuel Search arges those those growth rates
kind of moderate. We think, you know, concerns a little overdone.
We're a big fan. We think that they could do
mid single digit pricing X fuel this year. That's you know,
(30:09):
that's kind of how we're thinking about it. And the
market's getting more consolidated. So can you talk about like
you know, they we're seeing Night building a national network.
We're seeing SAIA, you know, expanding its presence in certain
regions and being now in all forty eight into the States.
Can you talk about the consolidation that we're seeing in
the LTL market?
Speaker 2 (30:28):
Yeah, where do you see the big boys? I don't
think you're going to see any more consolidation among the
top ten. Right that are in the top ten, unlike
other segments. You've got a few private guys that are
very big. Shd's is almost five billion plus. You've got
raden Hell which is that three plus billion, Southeastern that
(30:51):
almost two plus something from going from memory. And these
are family businesses that that is no hope for any
banker to convince them to go public. Okay, but they
are run very well. I don't see any consolidation in them.
What I see and youth will see it has happened.
(31:12):
In twenty twenty four, there were four smaller LTL carriers
that got folded into others. DHG Dependable Highway from the
West Coast got acquired by Night. Then you had Rmax
Freight bought by Moran Transportation. They were both small, fairly small.
Then you had ped Ohio closed on certain Transport. I
(31:37):
had a role to play on December thirty one. Then
Standard Forwarding got bought UH and DHL sold that off.
By end of last year. You will see more of
those kinds of carriers exiting the market. In twenty five
I can easily see four to five of them again
(32:00):
in twenty twenty five getting bought by others. The reason
why you'll see it happening more in the small and
medium sized guys with one hundred million or so revenue
is because Lee at one time terminals was the greatest
barrier to entry. As you know, Yellow went out of business,
(32:20):
put three hundred and fifty terminals on the market. We
did not see a single new career come in by
acquiring any of them. Right that, Because now, in my
view on.
Speaker 3 (32:32):
LTR, there are three t's that are barriers to entry.
First T is terminals, second is technology, and third is talent.
And you talked about changes in pricing and changing in
dimensional pricing that's coming. You will need technology to execute
(32:52):
on that. So if you don't have good technology, you're
going to struggle, and you need talent to deploy that technology,
and if you don't have that, you will struggle. The
reason for technology, you need a lot of capital. If
you're a small guy, it becomes challenging for talent. You
are challenged because a smart management executive of LTL is
(33:16):
unlikely to go and work for a company with forty
fifty million privately held because the family members even a
twenty four year old grandson of a founder is going
to have a last say on how you run the company,
even though you may be the president there and then
there isn't much career progress you can have, so that
(33:36):
limits them. So that's why you find some of them
getting consolidated.
Speaker 1 (33:42):
Are you surprised we haven't seen like private equity come
in and try to roll up a national network like
night Swift is trying to do.
Speaker 2 (33:50):
No, because private equity people like to invest in companies
that are low cap acts. Yeah, and doing LTL integration
where the network or the densities required, you have to
combined carrier, you have to deal with seniorities of drivers
and doc workers, even if they're not union, that's still
(34:13):
a relevant thing and culture. It's they don't have the bandwidth,
they don't have the talent to make that happen, so
they will only consolidate with others. Like you saw with
night Swift buying DH they'll be looking to a quart carrier.
You saw pid Ohio aquiring Sutton, that's the kind of
(34:35):
thing you're going to see. Or even Dayton Freight. They
bought a small cartage company really in the Midwest near
Chicago area.
Speaker 1 (34:45):
Right and so I guess you know with the Ohio
or the pit Ohio acquisition that you know you were
involved in. What was the rationale for that acquisition? Was
it to expandage geographic footprint?
Speaker 2 (34:57):
What was the footprint does not increase in In fact,
all of such a geography is within the geography of
Dawn Transfer, which is an operating company OPID Ohio parent company.
The rationale here is we had a very large regional
player in the Midwest that went out when Yellow shut down.
(35:18):
You know, they're a great brand, Holland being around for
forty to fifty years. Yes, they were a union carrier,
but they had a pretty big footprint. They were a
very good career for the Midwest. They got damaged with
all the things that were happening at wyre C, so
they were left practically with one regional carrier for alternative,
(35:39):
which was daytum Free. It's a great carrier, very well managed,
great service, but shippers like to have an alternative. They
had alternative to some extent with down Transfer, but with
certain being within the footprint, it will help them with
the density, it will help them with service. Annasmith. When
you increase you can have better line haul runs, So
(36:03):
customers in the Midwest looking for a good alternative to
date to freight, they will have a better alternative than
they've had separately, be Drawn and Sutton with a combined entity.
Speaker 1 (36:17):
Gotcha, and so how would you you know, so I
talked or mentioned, you know, Knight Swift consolidating the market.
Speaker 2 (36:26):
You know, how did from your vantage point, how do you.
Speaker 1 (36:28):
Think that exercise is going and that execution is going
in terms of taking these regional players and growing them
out and making it into a national network.
Speaker 2 (36:39):
You know, I helped Knight Swift get into the LTL business.
Then they said, the fine you make us. You got
us interested in being an LTL, But how do we
get into it? There aren't any prospects. I found triple
a read up, dear friend, and so the great acquisition start. Well.
(37:01):
They then acquired MME to cover the Midwest all the
way to northwest that they bought DCH. The part that
I have concerned about with Knight Swift is who is
leading the charge in how we're going to bring these
(37:22):
different acquisitions together, integrating them, integrating their service for the
customer so that I can ship a shipment from Florida
or Atlanta that originates with Triple A going to La
or San Francisco, where DH has to handle it is
(37:44):
not an easy task. If Dan Sullivan, my former boss,
my mentor, who taught me everything I know about this industry,
who ran Caliber and Roadway and the regional networks of
Viking and Spartan and Central and Calls, would tell you
it is a huge challenge. I don't see them having
(38:08):
taken charge of how they're going to bring these regional
career to share and move shipments between them that will
generate the kind of profit margins that it should and
provide the service the customer they're gonna look for.
Speaker 1 (38:24):
Right, Okay, Yeah, I mean this is definitely a new
business for night Swift. They're you know, fantastic in the
truckload market, kind of best in class management teams. So
it'll be interesting to see, you know, how this plays
out over the years to come.
Speaker 2 (38:40):
If I can add one comment on that, Lee is
that they should they should look at a related situation.
The gentleman who taught Kevin and everyone at Knights Swift
how to run a truckload business was Jerry Moys. Jerreymoys
(39:01):
built Swift. He taught Kevin Knight how to run truckload.
He then got into LTL with Central Freight and he
lost a lot of money. Finally had to shut down
Central Freight three years ago. And I draw that parallel
to the point out that while there are similarities in
(39:24):
leveraging the various capabilities of buying trucks in large quantity,
you can leverage that domiciling drivers. The pricing and the
network that is needed in LTL is very different than
truckload and Kevin Knight and Todd Miller and others who
are running Kevin Knight at Knight Swift. I want them
(39:47):
to succeed, and they need to think about how they
avoid what happened to Jerry Moys and his venture of
going from truckload to LTL R.
Speaker 1 (40:00):
Let's not forget you know when when the acquisition of
Swift that Night happened, when the merger happened, it was
the Night senior management that stayed around because they ended
up being better operators than yes who is at Swift.
So was it the teacher became the master? Is that
is that saying.
Speaker 2 (40:16):
What they have reaped up there. I don't know how
much he's involved on the LDL strategy I hope he's
taking a bigger role in that because they would benefit
from it. Right And you know, kind.
Speaker 1 (40:30):
Of as we're wrapping up here, you know, I started
the conversation LTL about pricing. What are your thoughts on
pricing for LTL? Do you think you know the market's
going to remain disciplined and rational and look to increase
to least offset inflation, if not surpassed inflation.
Speaker 2 (40:48):
Lee, I echo your comments about LTL. You said at
the start that among truckload LTL parcel you are more positive.
I am one hundred pertent with you. Over next three year,
they may face challenges, but they would be a lot
less than the truckload and the parcel. LTL has a
(41:08):
huge tailwind, and that is the pricing and the entity
n MFDA that manages the freight classification system. The sooner
they shut down, the faster the LTL carriers will benefit
from changes from LTL pricing. I see them managing that
(41:31):
getting low to mid single digit or better price increases
the service is off the value that they should be
able to get that and the other thing that you
mentioned they are getting more discipline in collecting for accessorial
if a customer needs a lift gate, they need appointment delivery.
(41:54):
There's a value to you missed a customer. I need
to get paid because it cost me more to schedule
appointment delivery. Then if it just not so, I see
pricing continue to.
Speaker 1 (42:05):
Be favorable, okay, and then you know when you're looking
at demand, obviously the demand backdrop has not been good. ISM,
which is leading indicator, has been in contraction territory twenty
five the last twenty six months. Good news. I guess
ISM manufacturing order numbers has been in in expansion territory
the last two months, and that tends to be a
two month trailing indicator for the ISM manufacturing index. So
(42:29):
you know, that could mean that things are maybe starting
to turn. Kind of what's your what's your thought on
demand in twenty twenty five and what do you kind
of look at to kind of flesh that out?
Speaker 2 (42:40):
Lee, I read the Wall Street Journal every day, not
Bloomberg dot com. I could do that too, but okay,
good good. I got into the habit of Wall Street
in my warton days what the years ago. It's the
best continuing education and instead of relying on the monthly
index is being put out, I look at consumer spending.
(43:01):
I look at inflation, if I look at mortgage rates,
If people are spending more on buying a house or
making payments on it, or spending more on groceries, that
meets overall production consumption is down. That's not gonna help
LDL or trucking or anyone. And my view is that
the trucking companies, unlike retailers, they can load the shipping
(43:25):
price charges that shippers can't ship more just because they
charge them less, right, Okay, So they need to focus
on managing the capacity. And they've done a decent job
of managing capacity even after twenty twenty four is coming
gone and Yellow shut down in twenty three. So you're
seeing a great progress in the leadership of these companies
(43:49):
in managing capacity. As long as they do that, they
need to stop expecting demand is going to bring any
prosperity because they have no control over it.
Speaker 1 (44:02):
And just have a couple quick questions for you, Is
there anything else briefly that's on your radar and freight
transportation world that you wanted that's kind of we haven't
hit upon.
Speaker 2 (44:15):
The only comment I would make because I published two comments,
one in July of twenty three or yeah, about the
ups and the teams to contract, and then about the islay.
Is that the labor and you've seen it with the
Boeing workers, You've seen it with Auto, You've seen it.
(44:38):
The companies need to be aware that they need to
manage labor costs and labor relations. It will be a
little more challenging than they may have had two, three, four,
five years ago. The expectations from the workers is going
to be that I contribute a lot to the prosperity
of the company. I would like to see it being
(45:00):
recognized within reason. So they need to manage that cost.
Speaker 1 (45:05):
Okay, And this is my last question for you. It's
something I like to ask all my guests. Is there
a book about transportation or leadership that's kind of close
to your heart that you read over the years that
you'd recommend people that you know, maybe getting into the
industry or just looking at some self development might want
to read.
Speaker 2 (45:24):
Well, not so much about getting into industry, but there
are two books that about related to our industry, one
more related, one tangentially. One is a book that was
published after a FedEx pilot who was expecting to get fired,
(45:45):
was in the cockpit and carried weapons, hammers and shackles.
He was determined as soon as they took off from
Memphis that he was going to hurt the pilot and
the co pilot and crash that plane in the Memphis
up It is a stunning book, folks. If you try
(46:07):
to read it, please don't try to read it as
you're going to bed, because you will wait to finish
it before you can go to street. Is not fiction, No,
it was real. Real that feels like it is fiction.
And fred Smith was so kind and generous. He rewarded
those pilots and the co pilot where he said, you
don't ever have to work. I will support you and
(46:29):
your family for rest of your life because of the
heroic actions. What's the book called. I don't know the name,
but I think if you google they will find it. Okay. Yeah.
The other book that I would like to mention it
doesn't create to our industry, but they do a lot
of work in the industry, is when McKenzie comes to town. Folks.
(46:50):
It is a book that anyone who is thinking of
bringing McKenzie into that company should read because and it's
special to me because coming out of my Mbale I
wanted to work in consulting. I wanted to work for McKenzie.
They were the biggest name in the world for MBA,
I hadn't offered. I turned it down. Why because they
(47:14):
are general people. They learn about the industry and your
company after they come and work for you. But that
book McKenzie Comes to Town, written by two New York
Times reporter, they did great investigative reporting to list the
companies they did project for the money they made and
the serious people's lives have been lost because of their
(47:36):
consulting assign And I had a client DHL that not
the men and they went out of business. Thank you McKenzie.
Speaker 1 (47:44):
Okay, And it just suggestion that book is called Hijack
The True Stories of Heroes of Flight seven oh five
by Dave Hirshman.
Speaker 2 (47:52):
Well, that's right. He was a reporter for Atlanta Journal Constitution.
Speaker 1 (47:56):
Yeah, I've never heard of that. I got to go
check that out. Well, Satisha's always I really appreciate your time,
your honesty, your opinions. I know you love to give
all those things, so I really appreciate it. And thanks
so much for joining us today. Thank you, and I
want to thank you for tuning in. If you liked
the episode, please subscribe and leave a review. We've lined
(48:17):
up a number of great guests for the podcast, so
please check back to hear conversations with C suite executives, shippers, regulators,
decision makers within the freight transportation markets. Also, if you
have an idea for a future episode, please hit me
up on the Bloomberg terminal or on Twitter at logistics Late.
Thanks everyone, and take care.
Host
Lee Klaskow
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