FreightWaves Today | September 10

0:00Welcome to Freight Waves today. I'm your host Malcolm Harris. Alongside my co-host, Zach Strickland. Of course, you may know me from what the truck and Zach from Freight Enomics. But today we are all yours. Zach, hello sir. How are you? After, uh, good afternoon. Good afternoon. Oh, absolutely. It's like you're the, it's like you're the cool one and I'm the nerd on the side. I'm not cool. What, what the truck? Freight Enomics. You know, like what are you doing? Dude, it's like the cool brand and the nerd brand. No, but it's like PB and J. It's the perfect combination. You gotta have, you can't have one without the other. And if you have one without the other, the same with shouldn't taste as good.

1:02You're, you're probably right. I know him right. I know him right. It's good to see you. We got a big show today. Of course you guys know Thursdays are us Malcolm as well as Zach. And today we have two great guests that are going to be fantastic. Let's get into it and see who we have that is going to be on the show today. We're going to start with the Pascos Eric Lemacy is breaking down a new report showing operator margins nearly vanished this quarter right as peak season approaches. And then DTN's own Ben Hershey is joining us on how AI powered weather forecasting is helping keep driver safe as the strongest El Nimeo pattern in years is officially underway. It's all coming up right here on freight waves today. We have a lot to get into as well. Of course our two Fredinomics with of course Zach as well as DJ. What's the the happenings in Fredinomics today give us a little. So DJ is going to break down the latest economic macroeconomic readings. You know we got a lot to go through there. But he also did a little bit of back end work for me on you know.

2:07I know this has kind of been over done a little bit but the influence of AI on the economy. You know you hear a lot of this back and forth around production like people are doing. Are they more productive with AI? Yes. And then you have the physical thing which is a lot of what our audience is worried about is how much freight is moving. How much is this actually contributing to GDP? How much is of it in those figures is being driven by this ongoing activity with AI. And it's a huge debate. So he did a little bit of back end work there. And then of course we're in a Thomas Wassen on. Oh really? Thomas Wassen to help me break down. We've got some border crossing stuff going on with the visas. But also I think primarily because he's worked extensively with fleet count data, FMCSA. And of course we have a partnership and so on with carrier details. And FMCSA data has kind of had a little bit of a moment in terms of their transitioning, their systems and everything. So we're going to break that down to see what's actually going on with the capacity.

3:08It's going to be fantastic stuff. Any time Thomas Wassen is in the room. He's just buckle up and see if I'll take it ready. He is fantastic and that's going to be quite the show. And of course you guys know how we always start the show. Here is now officially your morning minute. We kick things off with a massive milestone in cross border commerce. US Mexico trade reached a record $94.8 billion in July. The highest monthly total on record according to US Census Bureau data analyzed by World City. Two-way trade between the US and Mexico jumped 27.5% from $74.3 billion in the same month last year. Mexico now accounts for nearly 18% of total US international trade, firmly holding its position as America's number one trading partner ahead of Canada, at number two and China at number three. Laredo, Texas retained its crown as the nation's busiest international trade gateway, handling $36.9 billion in two-way commerce during July, up nearly 22% year over year.

4:09Meanwhile, federal regulators are giving carriers some breathing room during a major technology transition. The Federal Motor Carrier Safety Administration has temporarily suspended enforcement of its biennial update requirement, and stopped inactivating US DOT numbers when registrants miss those filings. The relief covers deadlines falling on or after June 1st, 2026, and will remain in place until further notice. FMCSA introduced the change while registrants transitioned to its new MODIS system, which the agency launched May 19th. Officials want to reduce service disruptions during the migration. Businesses covered by the relief do not need to submit overdue biennial updates immediately, and their US DOT numbers will remain active despite missed deadlines. The FMCSA will provide advance warning before restarting enforcement actions. Finally, the Federal Government's aggressive crackdown on alleged CDL fraud is now enlisting the public for help. US Immigration and Customs Enforcement has launched a tip line for reporting suspected commercial driver's license fraud.

5:13People with information about suspected CDL fraud can submit tips by calling their tip line. This comes shortly after federal officials announced the emergency removal of more than 110 commercial driver training schools from a federal registry. Transportation Secretary Sean Duffy stated those 110 schools accounted for 5,000 English language proficiency violations. HSI said it had already received more than 1,000 leads involving CDL-related businesses, suspected of unsafe practices. Investigators were examining for potential CDL fraud, unauthorized employment, identity document fraud, money laundering, possible connections to human smuggling, drug trafficking, and cartel activity. And of course that was your morning minute. Let's go to work our way backwards Zach, because this is the last one about obviously the CDL fraud and things that are happening in that nature. Two questions, I guess on top of my head, for one, why is this just now happening? I guess it's the first question, too. When you think about all the violations, I guess what I heard was 5,000 in total. That is just silly because I think that is just scratching the surface of what is truly out there.

6:24Unless I'm reading this wrong. No, no, you're exactly right. That is a, I mean it sounds large depending on your perspective, because if you don't have context, what does the number mean? I mean, there's hundreds of thousands of drivers out there, and potential drivers at that, too. But it's kind of like news. You don't think about it and then you think about it and then it's all of a sudden like, oh wow, why is now? Well, they've always been doing this and the English language proficiency thing is is a relatively new enforcement over the last couple of years. And it's just because that this administration is is targeting it. Now, what I get super worked up over these figures. No. I don't think that it's having a huge influence to capacity, but I do think what we're seeing is an increasing bear to entry. Yes, I literally was over here saying, yeah, barriers to entry. It's the one thing that, that out of all of the regulatory pressure, that's the one takeaway.

7:28Capacity just doesn't disappear. I mean, you're going to have these people that are going to stay on like, this is their livelihood. No, 100%. They've been doing this for 20 years in this manner because that's the environment that they've operated in. And then all of a sudden, you can't just up and say, okay, I guess I'm not going to drive my truck because I'm not supposed to. No, there's probably some that are trying to get their language proficiency up, but then there's also a lot of operators out there that are just going to keep going until they get caught. Good to know to agree more. Good to agree more. It's going to continue to happen. I mean, we're always going to report on things that are coming out of obviously Washington with Neumahoni and the rest of our riders as well. So again, that was your morning minute. You can check out those articles right now on freightwaves.com for more information and details on that. But now I'm excited for this next segment. It is going to be fantastic. Again, a new report built entirely from fulfillment data shows operators margins cushions nearly vanishing this quarter shrinking from 9.7% points in April to just 0.6 points by the end of June right as peak season again is approaching joining us now is Eric Lima.

8:35He is the vice president of strategy and analytics at the POSCO Eric. Welcome to freight waves today. I hope you're doing well, sir. I am doing well. Malcolm has a pleasure meet you guys. Thanks for having me on the show. It's a pleasure to meet you as well. Thank you so much for being here. I saw the notes of form our producer Suzanne and these questions are fantastic. I'm excited to jump right in and I want you to walk us through what commerce signal actually is and why you built it from a live network with the data. Instead of surveys or even forecast. Yeah, Malcolm, it's a great question. It would be who've been not to give a little bit of an intro on what the POSCO does. You know, the POSCO we've been around for about 15 years now. We help operators where they be brands or three PL logistics providers. With their warehouse management, order management and supply chain planning. We also provide an immense amount of intelligence surrounded around the arena of supply chain intelligence, whether it's shipping data, labor intelligence and revenue intelligence.

9:41Since we've been around for 15 years, we have fulfilled over 80 billion in GMV. We provide services for over 4,000 brands and operators and we see hundreds of millions of orders per year. So with that immense amount of data and transactional data within the platform, we're able to take that data and provide meaningful intelligence in real time to our operators. So commerce signal, it brings us to the like commerce signal. We've realized the immense amount of data that we have in the critical mass that we've been able to build of data. We're able to provide really interesting economic insights across the areas of supply chain, whether it be labor data, shipping, carrier data, any sort of trends that we're seeing in the marketplace. So we created commerce signal, which is a quarterly report that will be able to share different trends, different interesting items that we're seeing within within the data in real time. So your question Malcolm, why did we decide to build live network data instead of surveys and forecasts?

10:41My previous life was law-street analyst and we're always provided insights whenever a quarterly earnings report occurs. But a quarterly earnings report is looking at one quarter in a rears where you're making stock decisions really in real time or what the future is going to guide us to. So we took that same idea around looking at economic signals in real time. So our operators can see and evaluate their businesses in more real time. So instead of relying on surveys, which are inherently biased in some sort of way, depending on who you're serving, as well as forecasts, we don't look at the live data what's actually occurring within the industry in real time. You're speaking my love language here, Eric. Live data is definitely my jam. You know, the opening there talked about a margin collapse, a margin cushion collapse from 9.7 points to 0.6. And it happened in just one quarter. So I know from my perspective, that is an alarming figure.

11:41Oh my goodness. I would love to hear you pick this apart. Number one, what is margin in this situation? Because you guys obviously handle the bar downstream fulfillment processes from the warehousing and to what was driving this? Sure. So what we saw on the platform is GMV gross merchandise value. We see what our operators and brands and 3PLs are issuing in terms of pricing and the revenue that's coming in through the door. What we're also able to see is live shipping costs over time and parcel in particular. So what that collapses on margins really is around the increase in amount of shipping costs over Q2. We're looking at an commerce signal over a quarterly period. Shipping costs continue to rise at a pretty significant rate and accelerate throughout the quarter where it ended at the 13% as described in the article. Where are the GMV while still growing in a decent pace? It's growing at a slower pace than overall shipping costs. So what we're seeing is more order about orders, individual orders, which is actually driving the shipping costs themselves versus the GMV growing much quicker.

12:58Most forecasters or most FPNA groups will model out their revenues but not really taking consideration where orders are growing, which is really where the contingency is on or was driving the overall shipping costs for their individual business. So with those factors in mind, isolating those two factors, that's where that margin erosion comes into place. Eric, let's stick with that theme of GMV growth because there was a slow growth, just a fraction, right? 15.4% to 13.4%. Even to your point as order volume growth accelerated almost from 4% to 8.8%. For our listeners and viewers, what does this divergence tell you and what should it tell us specifically? Yeah, well, first and foremost, you know, 15% 13% growth is nothing to have been eye out. This feels fairly strong overall demanded amendment that we have, which is a positive. It's certainly decelerating over time. And that's what you're pointing to that 15 to 13% in the order volume growth is actually accelerating. So what is that divergence tell me? It tells me that demand is is slowing in dollars, not, but not necessarily in units.

14:07Consumers are still buying, but operators are moving more units through their platform or through their networks without seeing the reciprocal revenue growth as they anticipated. So why is that important? It's putting pressure on their margins again. It puts additional pressure on efficiencies, cost controls, and heading into a peak season where there's surcharges upcoming. It's something that operators really need to pay attention to and stay close to ahead of peak season. Yeah, I mean, you're mentioning peak season surcharges haven't even gone into play yet, but parcel costs are up almost 13%. Year over year. So is this, is this something you guys expect to get worse as time progresses into peak season? Yeah, Zach, I kind of knew you were going to be asking about more of the go for than the forecast being the economics world, but yeah, I'd say first, you know, stay tuned. We plan to issue more quarterly reports from commerce signal. Yes, I we do think that's going to continue one of the forecasts and the calls that we had in Q2.

15:07Is that we will we do expect that parcel inflation to continue. Interesting enough, our forecast at this point are showing, you know, roughly 12% at the minimum year over year increase continuing through Q4. And that's even without the peak season surcharges. You know, there's been reports and what we're seeing is surcharges are likely to range anywhere from 6 plus percent on average. So if you compound that with a pretty heightened environment of year year inflation with parcels, this Q4 peak season will certainly show some some pressure upon the margins due to that that carrier spend. So Eric, you said shipping costs are rising more than three times faster than consumer inflation. Why has this gap gotten so wide over time? Yeah, there's there's multiple factors, right? The inputs into shipping costs with carriers. Really depends on multiple factors, but obviously the cost of transportation, the cost of energy has been compounding over this time period. That likely is the main significant piece of that.

16:13But when we look at our data, when we've seen around shipping costs, the primary drivers that we've seen is carrier mix, dim weights, a dimensional weights throughout the network that operators are sending out through. And then contracted rates. There's other pieces too, but those are the main variables that are driving those overall shipping costs to continue to rise. So in the market, yes, there's some structural and so it's a difficult variables that are driving the shipping costs higher. But certainly within an operator's environment, there's some things that are in their control that can help them with shipping costs, but we're still seeing those move higher. So you've got a note in the article about inventory being pretty much the leanest it's been in several months. I've talked with Dr. Zacharajar's about this extensively. I think inventory levels are one of the biggest hot button topics in the shipping community that I've encountered. I think that it's a huge leading indicator for demand, economic demand at that. And it closed at 89.3 days on hand.

17:19And I think this is obviously a conundrum because you've got increasing costs that are driving some of this. But I've also talked about this a little bit about how carrying lean inventory in an environment with a lot of volatility like we've seen, that's got a risk associated with it. Can you elaborate on what that risk might be? Yeah, the risks are multifaceted, but you're right. Lean inventory, I believe, is a certainly a risk for a lot of operators. So, specifically the operators are what we call the most lean inventory quartile. They're running up to a peak season that could certainly surprise them in terms of the overall demand. We do believe that orders in GMV are continue to grow. So those operators that are running lean inventories, they run the risk of understocked items, unfulfilled orders. Those are the primary factors that will impact an operator if they have lean inventories. The secondary tertiary impacts and risks around that is loss of brand loyalty.

18:24There is purchasing that particular product on a competitor's environment, so a competitive nature to it. Then there is a tertiary risk impact where any forecaster that has run a forecast that has underserved the amount of inventory that they expect relative to the demand, likely got their handslapped or potentially lost their job because of loss revenue to the business. I think a lot of operators run with what their expectation is, with a netted up higher expectation to overall inventory levels. So there is certainly a risk across the board and we do believe that Q4 peak season will continue that aspect of depletions of inventories. Now since we released that report in Q2, we have seen inventories start to pick up beginning in July. Still at historically low levels, but we have seen a bit of a pick up heading into the peak season. Let's speak on brands for a second because brands and 3.3 in the quarter just 3.3 days apart in inventory coverage. Why does this convergence matter so much?

19:28I think we are seeing a shift in overall sentiment and what people want to be comfortable with in terms of inventory levels. Historically we have seen 3.3 P.L.s and brands that typically have different inventory levels. A brand is generally on the safer side, risk averse side of having Henry Ray inventories so they can satisfy the demand. Yes, they do deal with dead stock inventories and dead stock inventory costs, but a 3.0 P.L. in particular, depending on how they are pricing their brand, they would price on warehousing. They tend to stay a little bit leaner on the inventory levels. Now that convergence is interesting. We do believe that there has been a more focus on leaner inventories to free up capital. To have more working capital and be more efficient on that working capital sense. Going forward, it's an interesting aspect to continue to look at, especially when we go into peak season. It feels like a risk trade off. You came from finance. You got to run the risk and manage your costs simultaneously. Elevated risk comes with elevated costs.

20:38We are getting into the peak season here in just a month or two. What should retailers be doing now? Costs are not seemingly not going anywhere. What should they be doing now to protect their margins? Sure. There are different areas that you could go into. Some of the areas that we are recommending to our customers is really not relying on last year's peak season to formulate your overall forecast going forward, whether it be forecast on inventory or forecast on your parcels. We spoke about that inflation has changed quite a bit. The variable nature and volatility and parcel cost has been significant this year. We are relying on previous years numbers and historical information. We will put you at a disservice. Same thing goes with inventories. We continue to see that the completion of inventories overall. We do believe customers and operators should really look deep into their skill level detail and understand where the replenishment risks exist. That's first and foremost.

21:42We need to understand what current market rates are and what that searcher pricing could be at different levels, especially when you are talking about different dem weights and service levels. Another aspect, and this is something that we have seen in our data, which I find really interesting is that the operators that are running single one or two carrier models versus those that are taking more of a diversified carrier strategy, a diversified carrier strategy generates more complexity. You are managing different partners on the carrier side, but that complexity really does pay off. If you are able to generate a more diversified carrier strategy, what we have seen and what we believe to continue throughout the peak season, you will likely reduce your parcel spend by 21%. That is significant. Yes, complexity. If that complexity creates some sort of mode within your business, it is something that should be considered.

22:43That is massive. 21%? I don't think a lot of people outside of finance respect what a 21% savings actually means. That is a massive figure that I don't think any CFO would ignore. I want to talk about something else that is fascinating to go hand in hand with the data. You said this data represents real-time transactions and not modeled estimates. Why does the distinction matter so much in a report like this? We think it is important the same way as you guys, freight waves and so on, our real-time data provides meaningful insights to the overall market. I believe when we look at our operational transactional data, we are observing the behavior, the actual inputs and outputs. When you predict there is a forecast and you make predictions, there is a potential risk of variables being off. We are basing our data based on real-time information that operators are actually seeing in the current marketplace.

23:45That is number one. Even with that live data, we are able to see developing trends over time and seeing the challenges that they are experiencing, whether it be labor, carriers, G&V, etc. We think it is far more accurate in terms of what is actually happening in the market than expectations or even surveys that are done looking at historical data in one month or a quarter of the years. Eric, I feel like we could drop you into Sonar and you wouldn't have to do anything different at this point. Real-time data helps build these forecasts in a far more precise way. Of course, you can modify them. I think traditionally forecasting is kind of a generic, over a long stretch of time. What happened a month ago and you are trying to apply that board in the meantime, a lot of things have already shifted. I totally pick up what you are putting down on the real-time data and forecasting component. Let's go ahead and make it real for some of these people. What are your forward calls for Q3?

24:46Yes, I am going back to my previous Wall Street days and making a call on a stock. This is not dissimilar. We want to make meaningful calls and predictions heading into the future period. Our main cause that we provided in the Q2 Commerce signal report where our inflation will continue on the rise. GMV growth will continue at a pretty elevated pace. In inventory, we believe days on hand will continue to stay at levels that are fairly low relative to historical. Companies will remain lean on inventory turns. Those are the main things we are watching. Since that report, most of our expectations have actually played out as we expected. The one area that has taken a turn, not massively, but parcel inflation has come down a bit. We expect that to ratchet back up as we had into Q4. But still, days of inventory and inventory levels, as I said before, started to ratchet up, which is a positive, but we think it may be a little bit too late in the season heading into peak. That is certainly a risk as we had into Q4.

25:59Absolutely. VP strategy and analytics at the POSCO, Mr. Eric, Alimus, Eric, thank you so much for being here for your segment on Freightwaves today. This was absolutely outstanding. You guys are doing great work and looking forward to having you back on the show here and the near future. Great. Thank you so much. Thank you so much as well, sir. And great segment. We're just going to start it here on Freightwaves today. Yeah, no, you know what? This guy, I feel like this guy and I, Eric and I could have... I was lying up. I wish we would have got a close up because he was speaking your language. Man, everything he said, I was like, yeah, totally get there. We're about to speak your language coming up with a deep dive into so-and-our data just started only here on Freightwaves today. Blind spots cost some of fleets, costliest collisions. Simpsara's AI gives you 360 degree visibility into risks on the road so you can protect your drivers in real time. Learn more at simpsara.com.

26:59The world doesn't wait. So neither do they. Wheels on the interstate. Boots on the sights. Hands on the ship. We build for the world out here and we build it with the people who live it. Ideas from the field made real by world-class R&D. To keep the operation sharp, the front line safe and the world moving. From one cab to a global network, billions of miles, trillions of data points, everyone making your operation better. And we never build it alone. Simsara builds with operators.

28:09Once a year, the entire freight industry stops what it's doing and comes to one place, Chattanooga, Tennessee. This is F3, the future of freight festival. It isn't just a conference. It's the largest festival in freight built to pull you all the way in. The energy, the ideas, the atmosphere, and the people who move this industry forward. Over 50 speakers, four events across three days, founders, executives, innovators, and disruptors. Number one roof. All asking the same question. What comes next? On the main stage, the sharpest minds in freight take on the biggest questions in the business. The trends, the technology, and the forces shaping what's ahead. Then the clock starts. Seven minutes. No exceptions.

29:09The cutting edge of freight tech goes head-to-head, live, battling for best in show. When the time's up, the lights go out. And in between, the conversations that don't happen anywhere else. The connections that change the trajectory of your business. The relationships you'll carry long after you leave. Because when the sessions end, the festival begins. Live entertainment. Unforgettable experiences. A celebration of the world of freight. And an energy you won't find at any other event in the industry. The leaders you need. The access you won't get anywhere else. This is where knowledge is shared. Where deals get done. Where the future of freight gets decided. F3. Future of freight festival. October 27th and 28th. The signal. Chad and Nougat Tennessee. We'll see you there. Register now at live. freightwaves.com. All right. Welcome to your Thursday September 10th. So in our update. Looking at the market conditions. Starting off with the tender rejection index.

30:13The tender rejection index. What should be everybody's viable at this point for what's going on in the truckload market. Tender rejection rates continue their dive out coming out of the holiday period. We saw this bump. What I should point out was more significant than any of the previous three years in terms of the Labor Day influence on tender rejection rates. The higher this index goes, the tighter the market. We're still sitting around 13.5%. On the tender rejection index, which I think is something you can ignore. I mean, yeah, I did expect it to come down now. We're at a point, though, where the next couple of days probably into next week, where we're going to get a sense of things that are going to occur for the next month or so. Tender rejection rates before the holiday level out right around this point. So over the next couple of days, are they going to continue to fall at somewhat precipitous at a somewhat precipitous rate. Or are they going to level out? And I think that's the big question. If we see a continued deterioration in tender rejection rate at this point, this market's going to be a little bit softer. It's still going to be tight, I think, for the rest of the year. That's not in question.

31:17It's just the rate of change that I think we're really interested at at this point. And I don't know that we've seen anything that suggests that capacity at this is coming online with too much speed or quickness. So 13.45% rejection rate well above last year and the previous years before that, we are in a very tight space still. It may not feel quite as tight at this point with the volatility, but we do have some, you know, a lot of elevated spot rates as well. Tender volumes. Now, this is the one, of course, knowing that this is a seven day moving average, the STVI here. So we're measuring the total number of tenders, both rejected and accepted in this index. And the man side conditions, since about mid July have really not been as strong. We saw this deterioration. And a lot of this was modal conversion. There seems to be a little bit of an extra component of maybe some economic weakness showing up in this data set. It's really hard to parse that apart at this point. It's just a slower time of the year in general replenishment is largely occurring for those shippers that can do it on the rails for that long haul transit. You've got the East Coast too getting on board with this.

32:27Because there's nothing that suggests that the economy is really slowing down significantly or anything like that. So I'm not too concerned about it, but we're still showing some decent, if you look at this trot that we're on the very front of here with the STVI, it's still well above where it was last year. So we're about a week off in terms of the calendar, in terms of year over year comparison. And this big spike coming out of the holiday period here, even though it's on the low end, again, seven day moving average. This big spike tells me that there's a lot of freight coming out after the holiday. A lot of tenders, a lot of shippers got back into the office on Tuesday and decided they needed to move freight. We just talked to a guest that was talking about lean inventory levels. This is a huge risk for this index as we move into the fourth quarter. Because inventory levels being tight heading into a period with uncertain demand means that this index, this is where intermodal becomes less fungible with trucking.

33:27Later in the year, replenishment should already have happened. So trucking and expedited moves. This starts to show up as retailers figure out they don't have inventory on shelves. So this index shooting up out of the holiday like this gives me a little bit of a sense of urgency has returned into the space. We'll see what it looks like traditionally speaking. We do see a pretty decent spike coming out of the Labor Day period. A lot of replenishment occurring in September end of Q3. Some of that sales revenue needs to get recognized. October tends to be a little bit softer. So I wouldn't make much of that. But this demand side condition compared to where we were earlier in the year, little softer than we are we started out with. So I'm not super bullish on the rest of the year from a demand side component, but I am a little bit more bullish on this sense of urgency influence on trucking. So I do think that there is a risk that this demand side could return to some level later in the year spot rates, the headline figures that everybody's concerned about.

34:31And again, there's increasing fuel pressure, but as you've heard Craig and Julie and myself talk about consistently underlying inflationary cost pressures don't always get recognized purely in the spot market. And it's because this is a market cleared rate. It's competitive environment. And that's what matters the most, not the underlying inflationary pressures. They don't hear a lot of carriers passing along their costs because their insurance premiums went up. Most people don't care. Well, I'm going to go to a carrier whose insurance premiums didn't go up and get that rate. But fuel is a component of this and certainly should be considered when looking at these rates, which continue to rise. And I don't think we've come far enough outside of the Labor Day influence yet. Van rates sitting there in white $3.43 on the NTI. All of these include fuel. RTI continues to show pressure. FTI flatlining here a little bit and tender rejection rates also support a softening or I guess a less tight flatbed environment as we hit the fourth quarter here, which traditionally is not flatbed season, but it is something to watch, especially as this AI build out component starts to get parsed out.

35:40Here is the DTS the average retail price of diesel up up up up close to, you know, it's already it's getting close to $6 a gallon. It's definitely something to watch any shipper out there looking at their fuel surcharges. Guess what? You're going to pay more this week and fuel surcharges and you're probably going to pay more next week and fuel surcharges as well. Again, don't apply this as much to the spot rates looking at the IOTI import volumes along with what we just heard from our guest Eric, lemus import volumes are steady like we're I mean, I say steady, they're volatile, but they're still an elevated pace relative to where they are, you know, traditionally at this time of year and where they were earlier in the year. Lot of import volume still staying relatively high suggesting that maybe those inventories are a little bit tight, definitely going to watch that as we move into the second half of the month. This is looking at the spot rates, where are they moving, drive and rates throughout the country, a big scatter plot. And again, I don't know that we've moved far enough out of the labor day market, but the fact that we see a lot of blues still sitting on this map tells me we're still in a very volatile space and spot rates.

36:52And spot rates and capacity still have not come online yet, something I expect to change in the coming weeks as the market stabilizes a little bit and with that, I'll hand it back over to Malcolm. So was that always a good time anytime we have a sonar deep dive with that coming up with the strongest El Nino pattern in years getting underway. DTCN says AI powered forecasting can be critical to keeping drivers safe this winter. Product manager Ben Hershey is joining us to break it all down and how it works only here on freightways today to go around. Huge thanks to today's OTR sponsor again, OTR Solutions. They believe the right partner should know your business, understand your goals and be there when it really matters. It's no accident that OTR boasts 4.7 stars on Google. They know that excellent customer support is at the center of every relationship with responsive teams industry knowledge and a commitment to long term growth. OTR gives customers more than service. It gives them a partner designed to help their business succeed. Learn more again with OTR.

38:01The world doesn't wait. So neither do they. Wheels on the interstate. Boots on the sides. Hands on the ship. We build for the world out here and we build it with the people who live it. Ideas from the field made real by world class R&D. To keep the operation sharp. The front line is safe. And the world moving. From one cab to a global network. Billions of miles. Trillions of data points.

39:09Everyone making your operation better. And we never build it alone. Samzara. Built with operators. Once a year, the entire freight industry stops what it's doing and comes to one place. Chadanuga Tennessee. This is F3, the future of freight festival. It isn't just a conference. It's the largest festival in freight. Built to pull you all the way in. The energy, the ideas, the atmosphere. And the people who move this industry forward. Over 50 speakers. Four events across three days. Founders, executives, innovators and disruptors. All under one roof. All asking the same question. What comes next? On the main stage, the sharpest minds in freight take on the biggest questions in the business. The trends, the technology, and the forces shaping what's ahead. Then the clock starts. Seven minutes. No exceptions. The cutting edge of freight tech goes head to head live battling for best in show.

40:13When the time's up, the lights go out. And in between, the conversations that don't happen anywhere else. The connections that change the trajectory of your business. The relationships you'll carry long after you leave. Because when the sessions end, the festival begins. Live entertainment. Unforgettable experiences. A celebration of the world of freight. And an energy you won't find at any other event in the industry. The leaders you need. The access you won't get anywhere else. This is where knowledge is shared. Where deals get done. Where the future of freight gets decided. F3. Future of freight festival. October 27th and 28th. The signal. Chattanooga, Tennessee. We'll see you there. Register now at live. freightwaves.com. Welcome back to freight waves today. Again, October 27th and the 28th is going to be the future of freight festival. The biggest event in freight this year. It's tickets are on sale right now. Use the promo code. Take 20 for 20% off. It is going to be a fantastic time. The sky's going to be there. You're going to be there. I'm going to be there. Why aren't you going to be there? That's the question.

41:16It's on sale right now. Go do it. All right. And with that, the strongest El Nino pattern in years is officially underway. It's getting underway, rather. DTN says AI powered weather forecasting has become an essential to keeping driver safe. And fleets moving. Joining us now has been Hershey product manager of transportation and logistics at DTN. Then welcome to freight waves today. How's it going, sir? Hello. How are you guys doing? Well, doing well. It's good to see you. Thank you so much for being here. I was saying during the commercial break, you're talking to two weather nerds. I when I was a little boy wanted to be a meteorologist. It's the only word in the spelling bee that I could spell incorrectly. And ever since then, I was like, you know what? I want to be a meteorologist. So I'm excited to talk about weather with you. And again, thank you so much for being here on freight waves today. Awesome. Yep. But I'm happy to be here and then looking forward to talking about weather and logistics. Right? That's what we're here for our two worlds colliding right now for those of familiar. Tell us about DTN and the scale of weather intelligence.

42:21You all are currently working on. Yeah, DTN is one of the largest private weather companies actually in the world. And we're providing weather services to agencies all over the globe in multiple different verticals. And so specifically for transportation, we provide a ton of weather data and insights to both government and to the private sector and actually get our data out into the public sector for decision-making. So we do that through using highly skilled models, right? We lose a lot of the weather models that you can access today. We blend those together in a very unique fashion and then build the data analytics on top of that to make good decisions, right? And so the opportunity here is to take that weather data and not just give you a forecast, but tell you how to do something with that forecast, how to make better decisions operationally. Yeah, that's obviously the key here been and then again, I'm equally as much of a weather geek.

43:26I actually started out here giving a little bit of a weather forecast before we got a legit meteorologist that you know really knew what they were talking about. But I love the fact that you're putting together some actionable weather data here. So you have a crash risk index and I think I intuitively understand what you mean by this just by reading it because we've talked about weather in terms of transportation for years. It is a huge influence over all transportation networks. I get asked about it constantly about, oh, what's hurricane season going to do? And I know we're going to get into El Nino and what that potentially means a little bit later, but walk us through the crash risk index and how it actually works. Yeah, thanks for the question. So the crash risk index has been developed at DTN and it's a patent pending solution to take weather traffic data, historical crash data to drive forecasted potential for crashes, right?

44:27So we can't prevent crashes from happening, but if we can help that operator and those dispatchers understand the risk that an operator may be driving into, that's our goal. So we take that historical data that we have and all the forecast data that we've been able to generate and we take historical crash data, which is actually, which is great from the logistics space because we can get that data. We know when crashes occur, we know the location, we know the time and we have all the weather data and then we can marry that data together to come up with algorithms that will then take forecasted data and potentially predict where there is a potential for crash data. And so instead of just giving an operator a forecast that says, hey, you're going to drive into a snow storm or you're going to drive into a freezing rain event, which for some operators, that might be really valuable to them. Another operator is to say, well, okay, I've been through many of these before. The idea here is that we're going to, we are trying to apply it to their operations and so giving them a potential risk of a crash in that situation, heightens their attention to the weather conditions.

45:39And so not only is it in a real time setting, right, because trucks are moving. So in the weather field, we got to recognize that that it's not what's going on right now, but what's going to happen 12 hours from now. And so even though you might be in a really nice location might be sunny out. So it may not be in 12 hours where you're going. And so giving them that information to make a better decision to potentially reroute or just recognize that they're going to run into challenges as they get to that location, either from a delivery standpoint, a pickup standpoint, whatever it might be. Now, Ben, what does the term hyper local actually mean here? And then specifically, how granular can this forecast and get for a specific stretch of the actual highway? That's a great question. So when we're talking about hyper local, we're talking down to, you know, a couple miles in distance or a couple kilometers, depending on what part of the globe you're talking about. And from a scale standpoint into the future, you know, we're looking out to 72 hours specific for the crash risk index.

46:43Our weather data goes several days out into the future, but we recognize that a lot of the detailed decision making route planning is based on feedback from those in the industry. They're looking at that 72 hour or less window to make good decisions operationally for moving freight across, especially across the United States. You know, I heard the other day on the weather channel, Jim Cantori said actually that the Google deep mind AI had been outperforming some of the more traditional European, American, GFS models for predicting tropical storm development. So I'm really interested to know how does AI forecasting in your perspective help predict these route hazards before they encounter? That's a great question. So, you know, every day AI is changing. It is changing not just in the logistics world is changing for all of us individually. But from the weather forecasting perspective, it's allowing us to bring in more data to the decision making process than we've ever been able to do before.

47:51And it does it so much quicker. So making that decision where, you know, 10 years ago trying to make a decision along a route and deciding all the weather data and the traffic data, it would take the algorithms and the models, you know, hours potentially to run for forecast, then that wouldn't give you much value. Now we're able to do this in minutes. And so getting that data to the decision maker much more quickly is ultimately what we're trying to accomplish. And DTN is actively working in the space of AI and generating then detailed data from the weather modeling. And you're not wrong that there is a lot of work going on to improve the AI side of weather forecasting. And there are times, yes, where the AI models are starting to perform the the pure science side of the meteorology from that standpoint, although DTN is very much still focused on keeping that traditional weather modeling as our core, but then utilizing those AI tools to run it faster quicker and more efficient for the operational customer.

48:56Ben, I want to dive into the weather now and really kind of do a deep dive. I mean, with the strongest El Nino pattern officially getting started, what kind of weather disruption should fleets be bracing for when in terms of this upcoming winner? That's a great question. And there's obviously the social media people are out and they're all talking about how bad this is going to be. And we're definitely following that. And from a from a weather standpoint, yeah, we're moving into a situation where we're going to have much warmer, Pacific ocean temperatures that we've seen in the past. And that's going to impact the weather across much of the United States. And we generally see the impact of the ocean waters impacting more of our winter weather than maybe in the summertime. And so what we're looking at is a potentially through the central part of the United States, a on average a warmer winter. That does not mean that we're not going to see winter. And so I think the important narrative is to really hone in on the fact that on average, we could see generally warmer temperatures.

50:03That does not mean that we won't see some major snow events still occur across the northern central and southern plains. We may not see the three, four week outbreak of really cold temperatures in a lot of Nini type year, but that still doesn't mean that we're going to see below freezing temperatures across much of the south for at least a short period of time. And as we move all west, where maybe not as many people reside, but a lot of our freight moves, either from the west coast or across the mountains range. We're looking at a potential of a much wetter winter season, which could challenge those operators trying to travel those mountain passes, right? And so being aware of storms coming in and it's not quite clear yet how if they're going to come in big storms or just constant waves of precipitation, but it does indicate that we're going to see some increase in moisture. I don't think anybody in the western part of the United States will complain about that, but it is going to go to challenge for those operators that have to travel up and over those mountain ranges moving freight from the western part of the United States into the central and eastern parts.

51:12Yeah, the warmer weather actually means traditionally that you can also have the opportunity for more moisture because warmer air temperatures, of course, hold more water for the weather and herds out there. And the west coast, man, that donner past, I remember back in the day, just having to figure out whether it was snowing and they just get dumped on. And there's no such thing as rain on daughter pass in January. And I think too, the winter weather, especially from our perspective, and has been one of the largest disruptive forces in the freight market over the last four years since COVID. I think this is like this El Nino pattern that's happening. It's actually kind of calming down the Atlantic right now. We've got some trade winds that are now kind of disrupting some of that. So this is a fascinating discussion that I could open the book on for days, but I know we need to progress. But yes, I love the context around what El Nino means potentially across the country. And I think this warmer jet dropping moisture over a large portion of the northern tiered, you know, 30 degrees is something that we can't really see.

52:1730 degrees is still snow, just because it warmed up from 25 degrees doesn't mean that it's not going to be more impactful. I think it's a huge point to make. So tell us a little bit about how this product integrates into the users. Yeah, so we have just launched within the last few months our new weather intelligence platform called Weather Hub for DTN. And it's available for most of our customers at this point. And so the way that it's integrated is that users are able to then visually see on an hour by hour basis, the road network across the United States and detailed data about air temperature on that roadway, the road temperatures themselves, the road condition. And ultimately, the combination of all the data I've already mentioned, bringing it into that crash risk index. And so it gives the user the capability of being able to see that data across the spatial region and ultimately, temporarily, right into the future.

53:18So giving that user the opportunity to see what are the conditions going to be as the storms move into their area or to the areas that their operator are traveling to. And then ultimately, the ability to enter a starting and end location and getting an idea of what those conditions are going to be along that route on the time that they are probably expected to be there aside from maybe something that's unplanable, such as a crash that may occur that may delay things, but ultimately giving them a sense of those conditions going there and ultimately alternate routes to get around that weather potentially depending on the route that they're out operationally taking. So not only do we give them the ability to see that in a spatial view, but ultimately in the view itself of the route that they're going to take in addition, understanding that there's a lot of companies out there and there's a lot of logistics support companies that are out there. We do provide this data in an API format, not only the crash risk index data, but all of our weather data that could be fed into other applications to be able to make decision making processes easier for customers that have multiple applications.

54:24And so we recognize the fact that not everybody wants to open 15 different applications and make a decision and whether is why I love it, it's my career, it's my life. It's a part of the logistics making process. And so we want to make sure that we can get that data to others that are bringing lots of different data sets together and AI is making that easier every day. So again, I love the weather, but it's a piece of the logistics making process. So if we can get that data into all of the other decisions that can be made that only make the logistics process smoother and easier when weather becomes a disruption to the delivery of your freight. Fantastic stuff. Now what kind of measurable safety improvements have fleets seen after adopting tools that we've been discussing today as well as being more privy to the data and the insights that you've shared with us as well. Yeah, so there's there's a couple different things that operationally that the customer is able to accomplish, right? And so some of the things we're looking at is even down to insurance premiums, right?

55:26Because they're a way for them to, you know, by having this better data can they look at the insurance side of their operations. In addition, it's really more of that on time delivery and being able to identify that weather was a challenge, right? So a lot of the the shippers themselves and the delivery agencies will have some types of penalties, but if they can prove and they have the data to prove it that weather was a delay factor in their operations, there's many times where that they can have those fees weighed. And that's a huge thing is we continue to move through challenges, you know, economic challenges, operational challenges, fuel challenges, any way to better account for those delays. And if weather is a key piece of that, this data helps them support in that decision making process and that operational process. Yeah, what what gets watched gets fixed to say the least and I think that accountability factor to you have something to show, you know, hey, the weather hit and here's the actual information.

56:30So as weather gets more volatile, it does appear to be hitting more frequently and more extreme in certain ways. How is the technology evolving? Yeah, so I mean, that's a great question and not that we need to get political on the side of climate change and the most, but the climate is definitely changing, right? We know that and we see that it's always been changing and so, you know, I think and what we're seeing is AI is helping with that, but I also believe that there is just more data for us to feed those AI engines today. The data that's coming directly from the fleets themselves, other vehicles that are out there and we could spend days talking about that as well as all the autonomous data, but also the actual collected data from personal vehicles, the logistic vehicles, all of those things. All of that plays into the decision making process and is that data becomes more ambiguous in the in the infrastructure and AI is able to process it more quickly.

57:31We can make better decisions quicker for that operator. So instead of them having to drive into bad conditions or at least be prepared to drive into those conditions, you know, you mentioned Donner pass and knowing that you're going to have to chain up, depending on where you're at, is valuable information for that operator. And we know that, you know, the operators, there's a lot of turnover, there are a lot of changes. And so giving them the right information, but not having to try to discern that, well, my roads are going to be wet. What does that mean for me? Or they're going to be icy? What does that mean for me? Giving them insights on what's going to happen is is basically we're seeing that technology go today. Ben Hershey product manager of the transportation and logistics at DTN Ben, thank you so much. We could have talked to you for another hour and you're getting two weather nerds off of the line, but we look forward to having you back on for a day sooner rather than later. So I'm good. Thank you very much, guys. Thank you so much, man. We really appreciate it. It's been a great first hour. We talk some weather. We talk data.

58:32My language is so I don't know. Maybe I don't need to do the second hour. Maybe I didn't say that. Maybe I just need to go. I mean, no, because what would DJ go? What promise go? That's true. We got we got two people that contribute to the conversation now. Two for one. We are on the way more again with freight waves today. Stick around for hour two. Fredonomics is on the way only here on freight waves today. This segment is brought to you by day card. The best applied chains aren't just faster. They're more connected. That's why leading companies rely on day cards, a global logistics network to connect, collaborate and move freight with greater visibility and confidence. Powered by innovation and AI, day card helps businesses deliver smarter, uniting the people and technology that move the world. Learn more at daycard.com. The world doesn't wait. So neither do they. Wheels on the interstate. Boots on the sides. Hands on the ship. We build for the world out here and we build it with the people who live it.

59:41Ideas from the field made real by world class R&D. To keep the operation sharp. The front line is safe. And the world moving. From one cab to a global network. Billions of mines. Trillions of data points. Everyone making your operation better. And we never build it alone. Samzara. Built with operators.

1:00:41Once a year, the entire freight industry stops what it's doing and comes to one place. Chattanooga, Tennessee. This is F3. The future of freight festival. It isn't just a conference. It's the largest festival in freight. Built to pull you all the way in. The energy, the ideas, the atmosphere. And the people who move this industry forward. Over 50 speakers. Four events across three days. Founders, executives, innovators and disruptors. All under one roof. All asking the same question. What comes next? On the main stage, the sharpest mines in freight take on the biggest questions in the business. The trends, the technology, and the forces shaping what's ahead. Then the clock starts. Seven minutes. No exceptions. The cutting edge of freight tech goes head to head live battling for best in show. When the time's up, the lights go out. And in between, the conversations that don't happen anywhere else. The connections that change the trajectory of your business. The relationships you'll carry long after you leave. Because when the sessions end, the festival begins. Live entertainment. Unforgettable experiences. A celebration of the world of freight. And an energy you won't find at any other event in the industry. The leaders you need. The access

1:02:01you won't get anywhere else. This is where knowledge is shared. Where deals get done. Where the future of freight gets decided. F3. Future of freight festival. October 27th and 28th. The signal. Chattanooga, Tennessee. We'll see you there. Register now at live. freightwaves.com. The second hour of freight waste today. Also known as freightonomics on Thursdays. I'm Zach Strickland head of freight market intelligence and joining me for the first half of the hour are head economist. DJ Donna Hugh. And we're going to break down a few of the large economic releases. And then in the second half, we're going to bring on Thomas Watson and break down some of the top transportation topics of the day along with looking at some FMCSA data. I think probably some of the biggest questions I get. VJ. Recently on the economic side, a lot of it of course, AI derivative. What is this actually doing? We'll get into that here in a minute. But also just they want to know a lot about what demands going to do.

1:03:16We've got this inflationary overhang that people are still like, well, we've gotten away with it so far because consumers have been relatively, I guess, resilient. If expectations to start the year weren't super rogue. They were good. Then we had the Iranian conflict and then inflation came back on the table. And then you know the trade policy stuff kind of like muted out for a minute. And now it's back on the table once again with the Canadian stuff which we'll talk about too. But we got some economic releases this week. One of them of course, inflationary data, the PPI producer price index. So I want to get first off your take here on the PPI. We'll go through some of this data. So what did it tell us? Well, PPI overall was up the final demand figures were about 0.4%. That is July to August month over month. The latest numbers coming out from BLS were the August numbers.

1:04:17So a small gain month over month, a little bit of increase in prices, nothing to really write home about. But it was a substantial increase over last year, 5.4% year over year. That's a pretty big figure. I mean, we're the Fed's target is 2%. And the PPI, it doesn't translate perfectly. We know that because it's largely upstream. It's not the finalized goods and the retailers. It's the all sailors. But it does have pressure on the downstream. It does and we actually saw some of those numbers and that difference come out in interesting places. The big number from PPI, the story was energy. Energy prices are usually pretty volatile of nature. But we've seen a lot of bouncing around particularly with the Iran conflict. And this last month, energy was up 4.2% month over month overall. But 24% up year over year. So we saw nearly a quarter price increase in the year over year price for all of energy. Now the biggest driver on that was diesel prices.

1:05:18Diesel prices, especially for freight and trucking, touch just about everything because you got to worry about diesel prices, trucking, diesel prices, not just for the guys who drive the big diesel trucks coming out of the dolies coming out of the back woods. But you know, diesel prices have a large weight of touching everything because diesel electrical locomotives locomotives. Yep. And so the diesel prices remain high right now. John Kingston wrote a great article about it. And as of the last EIA reading on the seventh, we're looking at 5.967 diesel price right now. So almost $6 a gallon for diesel, very, very high prices. That particular price is up 21.4% month over month. So that's it's still 24% higher than last month and 77.8% year over year. That's insane. I mean, that's a huge jump. I mean, you can't ignore it. I mean, as much as you think it's transitory or whatnot at this point, it's been there. And that's a big jump. And it's going somewhere. Some are paying for it. And of course, it is. It translates largely into the earnings of the providers, the retailers as the retail diesel providers as well as some of the upstream guys, the big oil companies. And their earnings show it.

1:06:23Yeah. And that's actually some place we saw this breakout kind of happen. You know, whenever you're talking about cost of increase, producer prices, who actually pays for it is always a question. Does the consumer eat all that cost or does where it is the cost actually show up. Yeah. This time we actually show it show up in some of the diesel retailers because while trade itself was down to percent 0.2% excuse me month over month. Not a big movement. We actually saw an 11.3% drop month over month in the fuel and lubricant index. Now this is a trade index. Trade index measure changes margins received by wholesalers and retailers. So this is the change in their profits that they're seeing. Okay. So we're not talking about the pump price themselves. We're talking about how much the retailers are seeing at the end of the day. Right. And so the drop of 11.3% month over month tells us that the retailers are eating a large chunk of the recent increase. And we tend to see that usually. Yeah. You know, when you see volatile markets like the WTI West Texas Intermediate or the Brent crude. Those can tend to be announced up and now whereas retail prices tend to be more stable in relative terms.

1:07:26We have a great chart on this that I showed on my son our update if the if the team back there can pull up the DTS and the DOE. There it is right there. Yeah. So what you're looking at here is, you know, the top two lines, the white line is going to be the DTS figure. So the diesel truck stop figure for the average retail price of diesel it gets reported daily. You can see it correlates highly with the DOE figure that you just talked about which only gets reported weekly on on Mondays. And then normally gets implemented on Tuesdays for a lot of the fuel surchargers that the shipping community pays. And you see it continues to rise, you know, even beyond Monday. We're seeing, you know, pressure and then below that, now this is the thing that helps explain what you were just talking about that gray line. That is the upstream rack or wholesale price of diesel we call it ULSDR and so on our. And that has increasing pressure. Now the top line, the top two lines retail, the bottom line is going to be your KPI if you will or you know for a better analogy.

1:08:28That is your upstream cost and you can see that that is far more volatile. It goes up and down much more erratically and a lot of times the retailers who, you know, fuel their gas stations and all that. They pay that price and bulk up front or over a period of time and get smoothed out. It's almost a hedge if you will, depending on when they they bought their fuel. So it doesn't move on the daily. It's kind of like truckload spot rates versus truckload contract rates. A little bit not not quite as pure as that, but what you were just talking about I think is an important thing like retailers don't always immediately pass along their upstream costs. Yeah, there are economic demand balls to explain that the king demand curve talks about, you know, that's a flawed model that ever talks about how it gets there. But there's a disincentive to move your price because if you try to raise your price, you're going to lose share. Right. If you, because people are going to go to your competitors, but if you try to lower your price, then it's going to cause a problem with, you know, your margins not only that much, but either way, the, I don't want to get too deep in the weeds on that because they're short on time.

1:09:35But the idea is that energy is driving everything. Yeah. And to get back to our topic at hand, the transportation and we're housing market also saw some increases, which is really of direct importance to our customers. Yeah, for sure. We saw it up to 2.3% month over month and 13.0% year over year. So they are seeing increases as well. The interesting thing is that freight trucking itself was one of the primary drivers for that 2.3% had two big numbers in positive space. One was the air passenger. So not freight, but air passenger was up 4.2% which was driven by again fuel prices, not diesel, but energy of fuel overall like jet fuel, jet A. And air passenger was up 15.8% year over year. The other one was freight trucking 2% month over month and 14.3% year over year. Right. So we're actually seeing PPI increased trucking prices show up in the data as well. And of course, trucking prices are increasing due to a lot of the stuff that we talk about here. Tender rejection rates are high. It's a tight market. So it's inflationary. And I think this one largely though biases towards some of that contract rate stuff.

1:10:39If we want to pull up the tender rejection index, I mean, it's been tight all year. This is independent of fuel though. This tender rejections don't care about fuel. So when you see elevated rejection rates as we talked about earlier on the show, 13.5% means that shippers are not getting the service that they need. So carriers aren't showing up as frequently or as on time as a shipper would want them to where they we normally see an acceptable level for a shipper is somewhere around that 5% to 6% rejection rate area is normally where we don't see any rate inflation or deflation. It's kind of a balanced market or capacity is, you know, supply and demand are meeting fairly regularly. But this is not that. And I think that's a hard that when you look at these figures like the PPI, you've got this 2% figure. How much of that's fuel? How much of that is just the market conditions itself. And it's hard to really parse those two things apart, right? Yeah. I mean, you know that fuel is having the impact now how much that impact is on the, you know, how much of the PPI increase the tracking costs is fuel?

1:11:45How much is a relatable to a tight market? Right. That's going to go a lot more deeper than the BLS data has available. Sure. Could we answer sure, but that would be like a whole different sit rap. Well, that's why you get that's why you get sonar. Exactly. Yeah. So moving on, we've got our next major release was the consumer credit release. Federal Reserve releases G 19 every month that talks about how much consumers are spending with regard to their, they're revolving and non revolving credit cards. Not just credit cards, but mortgages, loans, things of that nature. We saw a seasonally adjusted analyzed monthly rate of 4.2% for July up from a 3.4% June increase. So again, you got to remember that the numbers coming on in this are a little bit lagged. So when you see we actually have this interstone are in the what is it CCO the CCO and CC O RG. So both those show the ones that are ready to growth one is the straight amount of figure. Yeah, the actual figure. What we're seeing with this is that the year over your growth slowed. So there was July increase of 1.42%. June's increase was 2.06. So as people are still increasing the amount of credit they're using, but not as fast as they were. Right.

1:12:55And sometimes we'll see these kind of dips in June. This time that came a little bit later in July and I think that one possible explanation that people are starting to kind of save up to get ready for the holiday season. This is the revolving credit card. These are credit cards. We have not seen an update to the rates yet. We're still because they don't release rates, but every quarter. So we'll see I think court rates update coming out this quarter or later this month, but we haven't seen that yet. And the rates have still been very historically high. Right. You know, we're still seeing I think it was like 22% for credit cards. So yes, people are still paying through the nose for credit, but that hasn't really stopped them taking out increasing amount of credit card loans. Yeah, you know, it's slowed, but it hasn't stopped. It hasn't decreased. Yeah, I think that's it's always interesting to me when we when we talk economics and we talk about revolving credit. I mean, it's it's one thing when you see credit card increasing and freight demand simultaneously increasing with it.

1:13:55You know, that's viewed very positively from the freight market perspective, transportation service providers and shippers because that means they're selling stuff. But over time, it starts to show up in consumer health, which is a longer term problem for freight and shippers and economically because if they're holding that, I mean, at 22%. I mean, these guys are that is a phenomenally high annualized rate. If you're holding that amount of credit card data, 22%. I mean, you're paying through the nose for the use of that money. And it's not sustainable. Like if you hold that, if you hold high credit balances over time, it's not sustainable. So this to me is more of a long term risk. And in the question becomes how long do we sustain it? The fact that they're slowing down, I think is a fairly positive long term signal, but it's not a great short term signal in my mind. Well, if we look at the data, what we're seeing right now is this slow down we saw from a month of our month perspective, we look at the red line on the chart. We brought up a second ago.

1:14:56We're seeing that this is well within the range of kind of like a stable, you know, it's a stable range that we've seen since the movement from 22.5. So I got to bring up a note on this. That's good. In 2024, November, 2024, the Federal Reserve changed the data source that they were utilizing. So in our data and in the feds data, you see a big drop near the end of 2025. That's not that. Yeah, that's not actually a drop in consumer credit usage. That was a change in the way the Federal Reserve. They changed their data source. So they actually brought in somebody else. They brought in a data source that ties directly to actual facts, line and loan level data. So it's supposed to be a more accurate read, but it also shows a big drop when a drop didn't actually occur. So if we're looking at this from about April on, we can see a slow increase in over time. It's not a huge jump month over month, but we're still seeing increases in the amount of credit utilized, but it's still kind of a narrow range. So this month over month, slowing down, I'm not really worried about it one way or the other.

1:15:59That we're still seeing increases, but it's not a dramatic increase. What this tells me to kind of put this in context is that we have to keep an eye on the end of this month. Because given the last few months, the comments from Chairman Worsh that we've seen, the mixed vote that we saw back in August. The high rate guidance, the comments from Chairman Worsh have focused on we need to get prices stabilized. Yeah, we're also going to see a, we saw that also in PPI with the high PPI numbers, particularly around energy. We want to make sure that we keep an eye on prices because he says that, no, again, he's going off PCE not PPI, but he is very tightly focused on price inflation. So that combined is we've said it before and I think it's going to still hold true that later this month from the Federal Reserve's meaning of the FOMC, the Federal Open Marketing, it's likely that we're going to see an increase in rates or an increase in target rates.

1:17:00Now, it may not be anything more than like a quarter point, not likely a half point. But the trick is that we're probably going to see an increase in rate and which is going to drive those credit card rates even higher, which is crazy too. Because we had credit card rates stay high even when they were cutting rates. Like because this is market conditions, the market can view risk and that's what this is effectively is a pricing of risk by the credit card companies saying like, look, we know that we're borrowing at lower rates, but we're stable financially. We don't view the consumer of this as as stable. So we're going to have to keep the risk premium in the credit card rate for you guys because you're not as stable and that's kind of a, that's a finance 101 situation. It goes beyond that, I think, because particularly when we're looking at, and again, we're looking at rates with a two month lag on those real last released in May, but given how the Fed's guidance hasn't changed, that must have not been seen much of a change there. But the risk premiums coming in from the direction, remember what happened with the cent in the treasury, you know, we're seeing a highly unstable financial market because you have the treasury moving in to try and guide monetary policy in ways that it has never done so within the last I think 100 years the Fed is supposed to be an independent monetary policy body.

1:18:15And when you have the treasury secretary moving in and saying, I'm going to start changing my long term bond buying policy and my short term bond policy with an eye to lower long term bond rates. That's impacting monetary policy in a way that hasn't been done. Did the cent come out and say that was his purpose or is that something that kind of people were implying? I don't think that he ever said it. I don't know that I've got a direct quote on it, so I'm not going to put my name to that. I think a lot of people were talking like that. Now it does look like that that's true. I'll say that like it from my perspective, and as a finance guy, that clearly looks like people can claim liquidity. I can try to quote, but if I were to crawl correctly, he actually went on saying long term rates are too high. Yeah. So if this is smooth, then it means that that which is weird because the markets just said, okay, short term, they came down, but then they went right back up. Which it still makes no sense to me because if you're looking at this from a long term rate, you're looking at long term rates that were decided large part.

1:19:19That's going to be for a new bonds issued going forward, but if you're talking about long term rates, you're talking about rates that have been locked in for 15 or more years. So the best analogy I heard on this was taking the mortgage and putting on the credit card. You're taking a bit on short term rates coming down and influencing law, but it makes no sense to me. I'm not going to try and say what's going on inside the administration. And that's not my place, but we don't get. We don't get the I'm not interested in the politics. It's not my spot, but it seems to me that we're trying from what he's doing. He's making a bet on short term rates. And history shows that that does not play out the way you think it's going to because if you ever look at the difference between a variable short term mortgage and a locked in higher long term mortgage. The smart play has always been go for the slightly higher long rate mortgage because you get your rate locked in and you can always refine it slower if you need to. But if you've got that variable rate mortgage and you end up going and the rates go up before you can lock it in sooner, you're stuck paying a serious premium on that.

1:20:28Well, I mean, I think a lot of people in 2008, 2009 learned that harsh lesson. And of course, we all have short memories. But you know, there's not a lot we can do about that. What would you tell people, you know, over the next month, what are you looking at from this inflationary rate increase potential perspective that people need to think about? My best thing would be if you're because credit cards are always on a revolving basis, there's not you always have to pay the current rates on your. Or that this say you're you're always tied into the highest rate whenever new credit cards are issued. So I would always say if you're looking at this and you're anticipating a rate increase pay down debts. Yeah, I mean, just now that's typical consumer advice when it comes to businesses. Yeah, if they want to kind of front load their budgets and try and get dispense in the credits cheaper. That might be wise. Yeah. But yeah, I mean, you got these capex budgets that people were expecting to spend more money on, but then inflation and trade policy and it's not just high prices.

1:21:28Yeah, it's also high cost. I mean, I'm going to be watching the STVI for a little bit of pull forward. If these guys are saying like, you know what, my capex, I need to spend some I need to spend some extra. I was thinking that we were going to be in a rate cut environment in the second half of the year. And instead we're in a rate elevation environment. I don't know, I don't know what this means for for freight specifically, but we need to get into this trade war. Yes, the Canadian products thing. You did a phenomenal thing here by pulling this chart out, but let go ahead. Okay, so most recently there was a continued escalation of the trade war between us in Canada, in which the administration stated that they were going to have a full ban on certain classes of Canadian imported products. Specifically beer, molasses, motorcycles with engines over 800 cubic centimeters 800 CC, non alcoholic beer spirits, dairy, specifically, when you look at the categories, it's not a broad dairy ban and then wine. So I've done a little bit of research on this in a couple areas here.

1:22:31But first off, here on the chart, you're going to see what was the 2025 import value in million US dollars. So how much stuff in value. Did we actually bring in from Canada across all these categories and can see that this is not. You know, necessarily tiny numbers talking 19 million 80 million. We're talking about spirits 673 million. That's primary Canadian whiskey. Right. Way and dairy 34.9 million, but in doing some further research. Canada's like number three for way imports in value, but much higher. I think number one in volume. Right. So they're actually sending us a lot of bulk way product. That's not necessarily expensive, but it is there is a lot of it. And then we've got wine 62.1 million. Now. So they're cheap on their way production. Yeah, like we're buying cheap way from them. Yeah, because they can into makes a lot of milk. Now I used to work for the dairy program at USDA Ag Marketing Service. And that's cool. One of the interesting things you find out there is that cows tend to like cold weather. And so that's why I see a lot of our dairy industry in this country in place that have longer winter Wisconsin, Wisconsin, Pennsylvania, Vermont for a small size as a substantial dairy industry.

1:23:45And so Canada actually produces a lot of dairy as well because they have much longer cold seasons like it when it's cold. Right. So for that, they produce a lot of dairy products. Now their dairy policy has always been kind of lost. There has been a lot of import and export restrictions on Canadian dairy coming to the United States. But when I understand that has actually been more towards making sure that our dairy gets. A lot of the large way towards the EU as opposed to the US. You know, it's let it's more that they want to establish better relations with EU maintain relation with the EU as opposed to worrying about the US because. That's why I brought in the next column the US market size. If you look at the way dairy size in the US market, 1.8 billion dollars. So 1.8 billion. So yes, we're importing almost $35 million worth of Canadian way. But we consume 1.8 billion. So the imports are relatively small portion of our consumption. And so I add that just for context, you know, 1.9%.

1:24:50And that's the highest figure we have on the chart. Right. You start looking at other categories. Bringing in Canadian beer like your moulson 0.5% Yeah. So this doesn't look like it's going to have a huge or meaningful influence on any kind of freight volumes or economic stuff. Correct. I don't think so. Well, it's not to say that's going to have no impact. I think that given. Well, obviously for those that deal with this is a very specialized group of food. More specializing you think because particularly in the wine section, there is a wine surprise that you would not think about because I don't know if you know much about wine making generally need to a much warmer climate. Yes, the areas that you see major wine production of France and Italy in particular. And California major wine areas, Mediterranean climates, much more Mediterranean climates. But Canada has a specialized wine type you wouldn't know about. I swine wine that is made after the first where the great harvest is not ours until after the first frost. Very highly specialized, very sweet profile can be similar to like some of the Southern musket on wines, but not really competing for the same market.

1:25:56Okay. Regardless, we do have some imports there, very small amount spirits or one of the other big ones, the Canadian whiskeys. Right. You see there is a very relatively large trade balance. We import 673 million dollars in Canadian spirits every year. The trade balance, we actually send them a lot less than they send to us. So the negative numbers in the last column, that's the foreign ag service trade balance in million, million USD. So that is if it's a positive number, we send more than they send to us if it's negative, they send us more than we send to them. So the large one there is in spirits, 495 million dollars, almost 496 of Canadian spirits come into the US every year. Okay. Again, primarily Canadian whiskeys. So it is going to have an impact there. I think it's probably going to be your biggest area that you see just because of where the trade balance is. That's also the largest import value that we see on the left hand side, 673 million dollars worth of Canadian spirits get imported into the US every year.

1:26:58So if we're going to see it anywhere spirits, spirits, probably going to be your biggest area. Malaces shows up to very, very, very small percentage. I think the only reason molacis was included because I saw one number haven't had time to verify it, but that when it comes to Canadian molacis, we're like their primary buyer. This goes back to a market power question because whether or not a tear of his effective is always a question of market power. Right. On one side, you've got monopoly, which everybody knows about, about your cable company, one cell or lots of buyers. The other side of that coin, which is much more important when it comes to tear conversations is not sunny. It's where you have one seller, lots of buyers. If you have just one seller and all your, you'll strike that reverse it. I got that back. So monopoly once. Yeah, one other liar. Yes. So you've got like your cable company, monopsony is one buyer lots of sellers. There you go. That's right. Think about your little hospital. You've got one little hospital and all the medical labor in the area has to sell their labor to this hospital. Right.

1:28:04And so in that case, the hospital sets the price. Right. So when you have a monopsony situation, you have one person who is buying all your product. If you've got the all the Canadian molacis that's being exported, being purchased by the US, then you can, the US has a price power. They can set the price. Right. Yeah. And so the tariff can actually work backwards through the Canadian producer market and the Canadian producers ought to eat them now. This is not talking about the Canadian overall size production is strictly their exports from what I understand, Canadians produce of their most of their own internal molasses production. And we got the export is relatively small. The US is the primary buyer. It's a small portion of the molasses market. So it's so so. And so it's really a big deal to a bow for me and tell me what the what the influence of these tariffs could do for the overall relationship and economy. And if I had to make a statement on it, I would say that this is much more political and performative than actually economic. And it's in so the people outside of the industry specifically targeted here, you know, the spirits industry looks like this is a big deal.

1:29:11And so it's a big deal to a lot of which is a large portion of the cross border traffic up there, especially around Detroit. Like they're not, I mean motorcycles are on here too, but that's a relatively small component of this. Yeah. And when it comes to motorcycles and motor parts more broadly, you know, we're talking motorcycles that are just over 800 C.C. You know, the smaller CC mobed heads, the smaller motorcycles are exempt. And I don't know how many large CC motorcycles are coming. Maybe your can ends. Yeah. The big spiders are technically considered motorcycles because that one wheel in the back. Those are probably going to be the most likely affected, but we're not talking hardly. Yeah. You know, the giant CC, you know, the giant ones are oftentimes either Chinese or American made. If we're talking about automotive parts more broadly, the conversation becomes more complicated because while yes, we do have 50% tariffs remaining in place for Canadian parts imported into the US. However, the interplagus much more complicated because we turn around and Canadian consumers are buying finished US cars.

1:30:15Right. So while yes, they send parts over here, we put it all together with other foreign parts, like from going from China and other places and then ship the whole car back to them. Yeah. So it's not a clean cut like you see like the ice wine industry where they're the only ones who make it. Yeah. I love that. I love that breakdown. Well, DJ, thank you so much for coming on. We are going to kick to a short break. And then when we return, we're going to talk to Thomas Watson. Stay tuned. If you haven't evaluated motor city system software applications and integrations, it's time to take a look. Motor city's team brings deep industry knowledge to help improve carrier operations with its software and integrations, including roller, customizable driver app and workflow. Relay, advanced messaging and communication, torque, integration platform, wire, modern EDI, TUT, visit motorcity.systems to learn more.

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1:32:37Samzara, built with operators. Once a year, the entire freight industry stops what it's doing and comes to one place. Chattanooga, Tennessee. This is F3, the future of freight festival. It isn't just a conference. It's the largest festival in freight, built to pull you all the way in. The energy, the ideas, the atmosphere, and the people who move this industry forward. Over 50 speakers, four events across three days. Founders, executives, innovators, and disruptors. All under one roof. All asking the same question. What comes next? On the main stage, the sharpest minds in freight take on the biggest questions in the business. The trends, the technology, and the forces shaping what's ahead. Then the clock starts. Seven minutes. No exceptions. The cutting edge of freight tech goes head to head, live, battling for best in show. When the time's up, the lights go out. And in between, the conversations that don't happen anywhere else. The connections that change the trajectory of your business.

1:33:40The relationships you'll carry long after you leave. Because when the sessions end, the festival begins. Live entertainment. Unforgettable experiences. The celebration of the world of freight. And an energy you won't find at any other event in the industry. The leaders you need. The access you won't get anywhere else. This is where knowledge is shared. Where deals get done. Where the future of freight gets decided. F3. Future of freight festival. October 27th and 28th. The signal. Chattanooga, Tennessee. We'll see you there. Register now at live.fraithwaves.com. Welcome back to Freedonomics on this Thursday, September 10th. The day before 9-11. We're bringing back Thomas Wasson. For the second half, we're going to talk about some transportation, market information, a lot of international stuff.

1:34:43We've got this cross-border Mexico situation. Noemi-Honey wrote about to start things off. And we got a little maritime as well as the final thing that I want to talk to you about. Because this is like your old life was with FMCSA carrier data. You know, you would go through and kind of vetted and like work with some of that back in MC or the 150s and all that. And FMCSA has kind of had a little bit of movement on their back end systems that. I just want to parse that apart because one of the questions I get most often is what's capacity doing? I mean, that's what everybody wants to know is capacity growing. What's care Montgomery Caree doing and CA Robinson, of course, is still involved in this ongoing legal battle. So that'll be the context there. The maritime stuff, of course, I want to break apart a little bit. I know that's not necessarily your lane, but I also want to get you kind of like from an outside standpoint maritime data. Like what's your take here in that space? So first things first, let's kick it off Thomas Watson for your return trip. Let's talk about this article Noemi-Honey covers the cross-border traffic. He writes borderlands.

1:35:51The segment on freightwaves.com does a fantastic job. And the short version of this story is that there is there's truckers protesting along the border with United States. And what they're protesting and he lines this out very cleanly in the article. I appreciate this. I told him this yesterday on our call that I really respected the fact that he gave me this specific example of what people were upset about. And it's really just the vagueness and the inconsistency of the enforcement of what is on, you know, what's considered, you know, to be you transporting freight from point to point in America. In some cases, you've got an empty trailer. You're not transporting freight, but you're allowed to move an empty trailer in America, but some of the enforcement officers consider that freight because they have a trailer. Because also there's this whole conundrum of do you open the seal on the trailer, which is a huge issue because once you break that seal, you know, the shipper, you know, is now exposed to damages and claims and all sorts of stuff.

1:37:01And of course, the carrier is in the situation and they don't want to mess with that. And so there's some, there's some stuff there. But from my perspective, though, you know, I looked at the data on our end. And, you know, regardless of some of these protests, you know, we've got this ongoing geopolitical stuff, the trade policy. And again, you know me on this side of the, like, I don't, I don't try to play in politics. I'm not here to speak to politics. There's plenty of other shows to go on there. But from a fear and pure impactful situation, this cross-border traffic and trade and DJ and I just talked about this from the northern side of the, the border, got the 50% terrace as well as the ban that may be going into place later in the month for some goods, probably not that many fold. But Laredo, specifically the largest cross-border traffic in the United States, Thomas, I look at this Laredo tender volume index.

1:38:02And this thing's pretty much collapsed over the last month. And I've gotten some anecdotal evidence on this. And I don't know that it has anything to do with this protest or, or some other things. But we also have an article out on Freightways.com that Malcolm and I covered earlier that talked about highest value all time crossing the border. Now, AI of course has to be a component of this. But Mexico has become an increasing producer of electronics and components. You know, it's kind of eroding share slightly from China and Asia and Taiwan and all that. I mean, Taiwan is still massive. But when we're talking about Freight, volume matters more than price or value and a lot of situations, not always from an insurance standpoint, somebody will probably be like, no. But from a pure freight volume standpoint, you've got this weird shift going on. A lot of the Mexico cross-border stuff been automotive. You cover this meat to an extent.

1:39:07I want to hear kind of your perspective here. Is this something that's a little nuanced and temporary? Or do you think there's more going on under the surface as we see this kind of trade policy back and forth, as well as a commodity shift in terms of preference on the cross-border trade? What's your takes here? There's a lot going on. I'm going to tackle this in three areas. So the elephant in the room or more, normally, the data center in the room. You mentioned with the situation on data centers, Mexico has been making more electronics. You think of the electronic stuff. We've heard about that even before the data center build that. So that's the first one I'm going to touch on. The reason why we're seeing so much in terms of value is because as these data centers are being built out, the higher value goods. I mean, this is the only thing I can put this in perspective. The last time we spent enough to build crap to move the GDP by like points was the early telecom rollout in the 2000s. Remember the early 2000s? I would have laid down telecom line, fiber lines. And then like 10 years later, we figured out what to do with all of them. This is the modern day equivalent of the telecom rollout. So we are when we're seeing the impacts, I was talking to a large warehousing maker as well.

1:40:15Like one of the thoughts is what's the impact of these data centers? Will that impact warehouse construction for raw materials? And so we look at Mexico. Mexico has a part to play because electronics, raw materials and other stuff coming up. You mentioned automotive. I was on a call earlier with ZF. That's ZF, one of the large tier one OEM suppliers for those who aren't in the know. They said that like, look, it's not gangbusters right now, but we are seeing steady growth in the last eight moves. And so when you're thinking like, why is automotive okay? Not bad, not good. Like it's Chernobyl, you know, it's not bad. It's not good. That's one of the reasons. So data centers is definitely have an impact. Automotive is slow and steady, but right now we're thinking of the freight. That has been one of the under reported aspects that I'm hearing in conversations has been the fact that an open debt capacity data centers hundreds of open debt deliveries. You've got entire generations of workers who are doing job site constructions, making 100, 200, 300,000 dollars a year to build one and they roll to the next. We have a labor company, a component that's having impacts on the broader supply chain. The consumer itself has not really shown up and buying more stuff, but that's being offset in our government economics data because of the data center rollout. So, yeah, data centers is a big one. And we can hit on part two, which is part of an overall trend why we're hearing the Mexican capital. But I did want to highlight for this first part the data centers are having an impact. And it's trickier to find out because it shows up like you said in very weird ways, a lot of Mexican electronics, a lot of steel from the specific place concrete, et cetera.

1:41:43Yeah. And I also I didn't pull this up for this show, but tender rejection rates along the border are actually increasing too. So it's like low volume. And I'm curious. And I don't know the answer to this question because you mentioned the data center stuff, a lot of those components move on the open decks, the flat beds, tender data biases towards consistent contract freight, not as much flat bed in there that goes on the spot market a lot of times, even though there is a flat bed component. And I'm just thinking that if a lot of these carriers are prioritizing some of that spot freight along the border, you know, they're not hauling this freight. And of course, with the automotive sector kind of lagging a little bit, you know, as we enter August and September, not as much movement there, because I have another data point that also corroborates this, the max volume that I want to pull up here. This is invoice data. By the way, totally different data set. And it's showing a similar kind of downturn and it lags by several days because it's invoice data. So again, we're talking about a little bit slower indicator of demand over.

1:42:43And it's not exposed evenly to all sectors mind you. This is probably going to be more exposed heavily to the automotive that consistent freight. You know, while this data center build out stuff is occurring, I expect that to be an increasing portion of this. Great, but a lot of that still seems to me, especially in these early stages with the power grid stuff still not really moving yet a little bit slower. Now, the next component of this, this is a, this is not this helps me understand it a little bit more. So we're going to pull up the O rail, so the loaded container volumes for Mexico. We talk about this in North America. So I want to know if you've heard this or gotten any sense of this because in United States, we've seen shippers increasingly using modal conversion, intermodal, you know, they keep it on the international containers and move it inland or they, they translate it. So I think that the growth in the domestic size containers here in America, this uses both domestic and international container volumes coming across the border, coming into the United States. And this growth mirrors similarly to what we're seeing in the United States.

1:43:48So I mean, to me, this is a no brainer like the rail, the intermodal, I mean, with Mexico being what it is in terms of a chaotic environment. It only makes two, it makes more sense to me that they're doing this coming across the border for Mexico. But is this really that as fungible in your mind to use intermodal cross border, you know, with trucking as it is in America? Yeah, it's the same principles right now. So we mentioned the volume talk, which is we've seen the lower volumes, but in the current environment, and this is my spicy take, no, that matters. Times don't matter because it's capacity driven right we are cracking down on every single truck. We're cracking down on cabotage. We're cracking down on Mexican cross border truckers. We're cracking, we're cracking down on both domiciled and non domicile. We're cracking down on CDL schools. The Department of Justice and FBI is basically investigating some of these fraudulent Eastern European backed carriers who are either laundering money or operating somewhat nefariously. There is an entire, it is so hard to to really reiterate the fact that in a normal thing two years ago, you and I would be talking right now. Yeah, why is that volume down? What's the specific thing?

1:44:58But this is like, what does that show with the Drew Care, where the points don't matter? What's the, yeah, whose line is it anyway? Well, whose truck is it anyway? Like, where the numbers don't make you or making it up as we go? That's the, that's the biggest thing because you mentioned the cabotage. There is going to remain a structural constraint on capacity causing higher prices. Tidda rejection rates 10, 12, 13% of the drive-an sector. Harriers are repricing their business. I spoke with one carrier off the record. They're not dumb. They're going to prioritize better paying customers and better operational customers. They will, I spoke with one, they're, they're taking like a few months ago, they're only taking half their commitment. So they made a commitment for like, let's say a hundred loads a week. They're only taking 50 because they know they can get it from either other parts of their mix or spot. So we are seeing this behavior. That's why when you're saying, you know, when we're looking at the additions and spot rates and everything, this will continue into the second half of the year. Because we are, while we are gaining more capacity, even in whether it's Mexican, American, et cetera, we are just really cracking down on. So yeah, makes sense why you put it on the rail because now in this larger context, one, things are too expensive for truckload.

1:46:06So let's put it on rail. Two, there's a lot of tariff and other uncertainty. So I'd like to front load if I can. And then, you know, three, rail has made a lot of progress. They're invested. Look at hunt. Never mind. Whatever was trying to, you know, get their car loads, car load capacity is really nice. And so it's kind of that triple whammy. But yeah, the elephant in the room is just the nature of capacity is having such an outsized impact on volumes. It makes it difficult for me to isolate if the volumes matter as much until we sort out what the new floor on rates are going to be after three years of crap in the bed. I was actually talking to somebody last week about the cross-border traffic. And I was like, listen, man, at Mexico is always kind of a conundrum to me from a data perspective, as well as just a natural hard to understand environment. And they were like, no, for the first time in a while, we're actually seeing more capacity. We're actually seeing a shortfall of capacity moving south. No, I'm sorry. They saw more coming north to south than they did from south to north. And they were like, this is nuanced. Like this is a very different world that we're operating in right now because there's just so much going on. Like you said, there's a lot of moving parts here.

1:47:21But tender rejections are now moving back up. I mean, we're back above 10% Laredo. So I think whatever it was, maybe a blip. I'm curious to keep an eye on this border crossing volume though. Watch the north, south volumes because remember, if we have problems with cabotage, think of it like salsa in case I'm doing my Mexican restaurant analogy because I love Mexican food. So, you know, in cabotage, you go up, you take a load up to like Kansas City from like Laredo or actually let's say, moderate a Kansas City, deliver your auto parts. You gotta come straight back and normally price that round trip. So that way you're covering it. What has happened over the course of years is they were double dipping their metaphoric queso and salsa where they would take a return load back. There were comments by CEOs and trucking people two quarters ago about how the average mixed carrier coming up from Mexico would like hang out in the US for like 14 to 21 days past when they should have. So if we see the crack down theoretically, south to a Laredo handoff and then a domestic carrier, that's how you used to express, will we see them go all the way up and back?

1:48:22Or if that changes, we will see a difference in northbound, the north, south interplay will change and the thing we have to watch is, is it being translated or handed off at a terminal and an El Paso, a Laredo, a far or whatever, or is it going all the way? I have a feeling that it will cause more complexities because with all this extra attention on cabotage, maybe we can only get it to my warehouse in Laredo and then I gotta pay in the higher cost. There's an angle here. And that's exactly why I was shocked at the Laredo drop is because I was expecting it to not go to Dallas anymore and it just stick in Laredo, but that seems to be obvious. Maybe it's just a blip. We'll find out. The next piece, international focus, still for now. We're going to move into the maritime. So fuel congestion, push trans-Pacific ocean rates near $9,500, Stuart Charles of course writes this and, you know, he also talks about the influence of weather. We talked about El Nino earlier in the show with one of our guests and it's increased influence and this is, of course, I'm a weather nerd.

1:49:24But I want to break this apart a little bit because shippers, of course, are having to deal with inflation on all sorts of fronts from a transportation standpoint. And the ocean markets are the one that I think most people are probably the most dubious of because there are a limited amount of suppliers of ocean capacity and they tend to, you know, they're considered somewhat like an oligarchy, if you will. And alliances. Alliances. Alliances. You know, nobody wants to use the seawater here, but I mean, you hear it all the time in the industry. But the rates, and I want to pull up the freight coast exchange rates here to put this into a visual. So you're looking at China to North America's east coasts on top, China to North America's west coasts on bottom. And then the spread between the two, which is something you're only concerned about if you're moving a lot of this freight, you know, domestically into the center of the country or points east, maybe, I guess. But the spread still way cheaper, you know, to move it on the ocean from China to the east coast than it is to move it into the west coast and then ship it to the east coast, which is kind of the traditional flow supply chain flow for a lot of inventory levels.

1:50:39And of course, we're entering the time of year where a lot of that freight needs to be in the east coast, whereas you hold it upstream and the west coast terminals earlier in the year that September is kind of the big first big push of all that replenishment. Everybody, all the retailers getting ready for the late season stuff. You know, so this, this elevation and rates like seems to be, you know, and I mentioned the IOTI earlier in the show before you showed up here, but demand is. It hasn't really changed that much, which I guess from that perspective supports elevated rates continued, but demand is still lower than it was in the peak of last year and there it is right there. I mean, it's lower than it was in 2023. The ocean rates were lower, much lower significantly lower than they are today with, you know, the current amount of demand that we're seeing is just not supporting the rate. So you've got fuel that's cited in this article and then you've got typhoon driven congestion, which this one makes some sense to me.

1:51:44And you also have the red sea and the Iranian conflict, which I don't buy that as being as big of an influence on rates as they want to sell it as. I mean, we've been dealing with Middle East confrontations for several years now. The hoodies attacking the ships were a bigger deal in 24 than they are today. So there's more ships transiting all of that now than there was back then and there's more uncertainty around that then. Now we know, hey, go around. So I don't buy that as big of an end of this. Now this, the first thing that I want to talk about, this typhoon situation, El Nino, I want to pull up this weather map and or this map of typhoons that have been hit. Now when we talk about El Nino, super hot, eastern Pacific ocean, compared to the rest, you know, what it normally is. There have been several typhoons that have landed in China. So this box gets checked in my opinion. Is that the current ones? Is that all the routes of the brand? That's what this season has happened in the western Pacific.

1:52:44So this typhoon, they call them typhoons in the western Pacific, they call them hurricane still in the eastern Pacific. But this is all the stuff that's been going on and a lot of this happened in July and we just had one make landfall here last week or this past week. And it was a pretty big deal and it does have an influence and again, it doesn't have to make landfall to influence the boat. So I mean, this box checks to me and then the other thing, the fuel cost component, that makes a ton of sense. When we look at the Freito's rates, they didn't increase right away in March though. If we pull up that chart, like most of the rates for Freito's increased in June. Like it was a slow crawl higher than all of a sudden, it's like rate increase. Well, I think I'll give you an angle on that. I think there's two or three ways to look at this. I'm going to put up my trucker hat on because it's like boats but trucking. It's all the same hustle if you think about it. So first, never let a good opportunity go to waste. And trucking, we would blame crap all the time on whether to get higher rates. If you'll go up, I'm going to, I just need a reason to charge you more. And when you run a global shipping alliance, think of it like Star Wars, the trade federation.

1:53:47You know, you got to continue to maintain a level of pricing discipline. Otherwise, it falls apart because everyone buys too many boats and then they ruin the whole party. So, you know, the typhoon is real. We looked at that image right there. That is like playing pinballs. We have an operational complexity. We have a fixed, we have a variable, we have fuel impacting it. But I think there's a third length. And this is my spicy take for you on this. There we go. I have started dabbling in more into the final mile space. And as I have went down this Odyssey, I spoke with Mayor's and a few other folks. They want to go full into end. So the global shipping folks are now no longer content with saying we're going to get it to L.A. and hand it off. They're like, I don't want that. I can penetrate this market. And guess what I'm going to do? They're making, they're like, I'm going to have an interview later with a few weeks with the company. They're basically going full into end because if you want to order a pair of shoes, you want the right buying experience. You can blame Amazon. They've really set the bar high now. And so we're seeing that. So when you're asking why is it that the East Coast is more attractive? Why are they willing to go from China all of the East Coast? This supply chains because of last mile being like 40% of your transportation costs.

1:54:50Wow. It is the wild west, my friends, for box trucks and vans. They're okay with that. They're like, look, you're right. Now that we know there's extra complexities, higher transportation costs, data, L.A. They have the data and visibility to know that I no longer need to do this. L.A. is probably most at risk. Look at Louisiana and the Dredging. The East Coast is like, I want to get in on this action. I need deep, I need a deep birth for the big boats. And because of how our supply chain, especially in last mile and E-Com has changed, these folks are a lot more comfortable because now the visibility and the capability when before they had to hand it off to some other pesky person and deal with it. So the ecosystem in the past five years has changed to such an extent. Post-COVID consumers are more comfortable with Rando showing up at their house. They're more okay than expect more visibility top down. We are seeing a larger trend similar to Mexico in the broader supply chain because of national security that it would make sense why this behavior is expected because the other ports are catching up and customers and supply chains are naturally saying we can do this different way. Yeah, so a lot of moving parts and the things.

1:55:51So the thing that I really want to talk about and of course I didn't leave enough time to really break this apart as much as I want to. John Kingston writes this article about C.A. Robinson and of course they get asked a bunch of questions at a tech conference about insurance and liability. Of course they're the center point of this Montgomery Careeb thing where broker liability has now come into the environment and there's this big question on what does this do to capacity overall because brokers are now going to be held as liable as carriers theoretically insurance costs becoming a thing. I think some of the quotes in here and again I don't have time to really do this justice but because I want to get your takes but C.A. Robinson expects insurance costs are going to increase by a very manageable number and the majority of it will get pass through to freight rates anyway. I think it's a very bold statement and I'm not again I don't have time to really break this apart. But I want to get to its influence on capacity. So brokers now are going to theoretically have to vet the carriers like a carrier would vet their own thing because now they're going to get sued

1:56:53potentially just like a carrier would. So let's pull up the CD and C.A. figure. So this is net changes and operating authority doing the exact opposite thing that I would expect increasing. So I did a little research on this and you got familiarity with FMCSA data. So also I will go ahead and quickly pull up the net revocations figure. So you know now we're negative. So this would tell you that capacity is growing not so fast. They just changed their system in May. So it's creating a huge noise in their data on the on the current weekly basis. So be very careful when you're looking at this data. And the last data point I want to pull up here is the F.C.F.H. the total for hire. You see that capacity is actually still down in that little blip in July. This is system change. Wasn't the data set. Yeah. And not look wrapping this up because you're right. We could dive another 30 minutes in this. It's all about incentives. Carbide and everything are the early areas of incentives to where brokers can no longer get away with the capacity they bought.

1:57:54We will see more capacity attrition. We will also see more capacity enter because when rates go up, folks enter, you strike it out. It's like a boom bus cycle. It's like while catting in the Permian man. You know we put on our Texas hats and whatever it. So at the end of the day, I think this is a positive development because the incentives are there. I'm flying out to Germany for I.A. next week. You bet your sweet, but the airline in the pilot has an incentive not to screw that up. Yeah. In trucking, we did not really have that when we hauled goods. Right. So I'm glad to see that because of the impact of trucking on people, we are now treating trucking that needs it needs the due diligence to deserve. So yeah, this is, this is like the second inning. And so it makes sense why C.H. will say there's technology there. There's tons of things. I know we're coming up on time. But at the end of the day, we will have in the next two years from now a more safer, more vetted, better overall capacity at a higher price. This is what we've needed for the past 20 or 30 years. It has not been where it should have been. We're starting to see the crackdown. Regardless of administrations if the incentives stick, this is going to be a positive development. But this will be painful. And this is the pain time, unfortunately. And capacity is not meaningfully growing at this point in time.

1:58:57So we're still working our way through it. I think it's my big takeaway. It's churned in the beginning. Perfect example. Thank you, Thomas Watson for jumping in this week. And thank you all for watching. I guess Freightwaves today will return tomorrow at noon. And I will return next Thursday. Have a great week.