Are we headed for a recession in 2023? Which markets are rebalancing, and where could service levels improve? Bloomberg’s Lee Klaskow may not have a crystal ball, but his expert predictions are the next best thing. Tune in to find out this year’s biggest surprise in industry, along with predictions for rail, trucking and ocean freight in the year to come.

Intro/Outro (00:03):

Welcome to Supply Chain. Now the voice of Global Supply Chain Supply chain now focuses on the best in the business for our worldwide audience, the people, the technologies, the best practices, and today’s critical issues, the challenges and opportunities. Stay tuned to hear from Those Making Global Business Happen right here on Supply chain. Now.

Scott Luton (00:31):

Hey, hey. Good morning everybody. Scott Luton and Greg White with you here on Supply Chain. Now welcome to today’s episode, Greg. How you doing?

Greg White (00:39):

I’m doing really good, Scott. It’s good to be here.

Scott Luton (00:41):

Absolutely. Kind of feels like Groundhog Day sometimes around here, right?

Greg White (00:45):

You know, it does. It feels like we just did this seconds ago,

Scott Luton (00:48):

<laugh>, but hey, you know what, what also adds to the dejavu on today’s episode, we’re bringing back one of our faves, right? A rock and roll star in global supply chain, and we’re getting his expert take on what to expect in 2023 when it comes to rail trucking and ocean freight. So, Greg should be great episode, right?

Greg White (01:06):

Yeah. I don’t know what episode this will come out as, but 1 0 8 was his original. Um, and if you want to, you can see him on television.

Scott Luton (01:15):

That’s right. That is right. <laugh>. So, with no further ado, wanna welcome in. Lee Klaskow, senior Analyst for Transportation and Logistics with Bloomberg Intelligence, a k a Logistics. Lee. Lee, how you doing?

Lee Klaskow (01:29):

I’m doing fantastic. Thanks for having me, guys.

Scott Luton (01:32):

You bet. Well, uh,

Greg White (01:33):

Yeah, you’re welcome on board,

Scott Luton (01:35):

Uh, as Greg suggested, and we’re gonna touch on you. You know, I’m gonna go ahead and touch on this now. Uh, so as Greg mentioned, Lee, you first appeared with us on episode 1 0 8. Now, um, today we’re publishing now today is gonna be, you know, two weeks or so before this episode publishes. But today we’re publishing episode 10 47, 1047. So, Lee, on behalf of our team here, you’ve earned OG status through six or seven appearances here at Supply Chain now.

Lee Klaskow (02:03):

Well, thank you very much. I can’t wait to get my badge show or class in the mail. I appreciate that and congratulations to you guys. It’s, uh, always a pleasure to speak with you.

Scott Luton (02:12):

Oh, absolutely, Greg. We get a lot of feedback around Lee’s appearances here and, and what he brings to the table, right?

Greg White (02:18):

Yeah, I mean, uh, I think we should be honored to have him here. I mean, he really does do this thing on television. I’ve seen him, the default channel on my, on my TV at the beach is, is the Bloomberg channel, which, you know, has all the cool stuff off to the side. Turn it on one day. And there’s Lee talking to, I can’t remember who, but it was, I think it was the English guy who does the opening of the Euro, uh, market thing. And, uh, so we are among greatness, no question.

Scott Luton (02:48):

That’s right. Lee’s agent stays busy. But all of that aside, we’re gonna dive into his, uh, industry take here in just a second. But before we do, uh, we want to, for the handful of listeners that may be new to Lee, and really the handful, like three of you out there, um, let’s get to know Lee Klas a little better. And I wanna start, Greg, this has been a popular question as of late, the hard-hitting question. So, Lee, is the holiday seasons upon us, right? Uh, what is your family’s all-time favorite seasonal movie? I’ll call it

Lee Klaskow (03:18):

PR Pro. I mean, I’m not gonna say Die Hard, cuz uh, there’s a lot of controversy about whether Die Hard is a, uh, a Christmas movie. So I

Greg White (03:26):

Did you watch our show the other day? Cuz we had exactly that controversy. <laugh>,

Lee Klaskow (03:31):

Yes. There, there’s a huge controversy. Yeah. Uh, Bruce Willis said it is not a holiday movie, so I’m gonna go with what he says. So because of that, I’ll probably say like Christmas story, you know, that’s just a classic that, uh, you know, I can watch a gazillion times. Um, you know, that maybe Christmas vacation are probably my, my two favorites.

Greg White (03:50):

You’ll put your eye out with that thing Kid.

Lee Klaskow (03:53):

<laugh>. Yeah,

Scott Luton (03:54):

<laugh>. So, so, okay. So, Christmas vacation is certainly, my family’s all time favorite, uh, of course, Greg, the other day, we, the Elf was mentioned. Yeah. Uh, that’s a great one. Just elf, just elf. Sorry. Prop. The, uh, sorry, sorry. Uh, Greg, what’s, what’s your, what’s one of y’all’s all time favorite?

Greg White (04:10):

Yeah, the Elf is, elf is a new favorite for us. Before that, it was, uh, Jim Carey’s version of the Grinch. So I think we love the kind of, um, live animation type shows, but, uh, yeah, and of course, all of the old Rankin Bass stuff, I still, you know, I’m still pulling for those toy, those misfit toys. <laugh>, you know, <laugh>.

Scott Luton (04:35):

Yeah, I like, that’s a great reference. Uh, and we gotta throw this one. Then, uh, also recent favorites. You know, my kids have really enjoyed Home Alone and Home Alone. Two, uh, a lot of good stuff. They’re good family, uh, programming. Okay, so switching gears. So again, we’ve, we’ve already referenced, uh, Lee’s been with us, I think this is his seventh appearance, right? Over the years, uh, from, you know, episode 1 0 8, uh, and whatever this episode number will be. So again, for the handful of listeners beyond your favorite holiday movies, Lee, let’s get to know you a little better. So, uh, for starters, where’d you grow up, Lee?

Lee Klaskow (05:07):

I grew up in, uh, Northern New Jersey, and I didn’t, uh, you know, I didn’t, didn’t really move too far off from there, but we stayed in New Jersey for the most part. Had a short stint, uh, overseas in London, but, uh, mostly New Jersey. You know, I’m a, I’m a finance person, so, you know, being around Manhattan is, is, uh, extremely important, uh, for that kind of a profession. So I’ve always been close to, to Manhattan. Um, you know, I’m about, uh, 20 miles outside of Manhattan, not right now, but it can take, uh, up to two hours to get there. So it’s,

Greg White (05:40):

Yeah,

Lee Klaskow (05:41):

Fantastic.

Greg White (05:41):

Uh, depends on the bridges and tunnels, doesn’t it?

Lee Klaskow (05:43):

Exactly, exactly.

Scott Luton (05:45):

Well, so, uh, I’m not sure, I’m trying to think about questions we haven’t asked you in your previous appearances. And I’m not sure if we’ve ever talked about food from your upbringing. So, is there one dish? This is, is this, you’re gonna have the audible here to call whichever you’d like. Okay. So, is there one dish from your upbringing there in New Jersey that you just loved that was inseparable, that you, you reminisce back and, and wish you could eat it today? Or the opposite of that question, is there a dish that, uh, maybe you, you ate with your folks that you wi you hope you’ll never have to eat again?

Lee Klaskow (06:18):

Well, I guess as a kid, I’d probably, you know, the stuff that ate as a kid, I’d probably be most reminiscent about my mother’s brisket. You know, it’s just, uh, that just has like, you know, uh, those flavors and taste just, you know, brings back a lot of fond memories in terms of things that I would never eat again. Um, it’s funny, uh, tuna casserole, um, yeah, good show, but I did actually make it for my kids about it two years ago, and I’m embarrassed. Were they

Greg White (06:45):

Grounded or had they angered you in

Lee Klaskow (06:47):

Some way of it? And it was delicious <laugh>. Um, so I, I don’t know, maybe it was nostalgic and, but, uh, yeah, as a kid I hated it. Um, but, uh, it, yeah, it, it, it was reborn in my household. My kids hated it. They, they, they thought it was disgusting. My wife thought it was disgusting. <laugh> not a fan of hot tuna fish. Um, so yeah, there you go.

Scott Luton (07:10):

Well, you know, uh, so I had a dear old roommate, uh, I love you, Philip, but he made tuna grits regularly and talk about a stench that would leave you leaving the house in, in a hurry. Uh, Greg, you wait. Weigh in. I, I’m not, I’m not sure if I’ve ever asked you and your, and given your upbringing, is there a dish that you, uh, recall fondly?

Greg White (07:32):

Yeah. Um, I, fried chicken is my all-time favorite meal and just made in a skillet. I really enjoyed that. Absolutely. Will never again in my life eat what we call in Kansas cowboy beans, which is beans and ham hawks. Hate it, despise it. We’ll never eat it ever again. <laugh>, I, because I don’t have to

Scott Luton (07:54):

<laugh>

Lee Klaskow (07:55):

Fried chicken’s. My go-to cheat meal. That’s, uh, oh my

Greg White (07:58):

Gosh. So worth it too.

Scott Luton (08:00):

Well, Anne, I, I was reading just the other day, a chicken breast is, is, uh, down 70% since the beginning of the year. So it’ll be, uh, a go-to cheaper meal and hopefully in the weeks ahead, uh, Lee.

Greg White (08:13):

Wow, that’s really impressive. Yeah, down 70%. How

Scott Luton (08:17):

About that? Um, now of course the Super Bowl is around the corner and we all know chicken wings will spike ridiculously during that, that timeframe. But, uh, anyway, um, alright, so now that we’ve really rekindled, uh, it’s great to reconnect with Lee Klasko here. We’re gonna move into his expertise and insights and, uh, get Greg’s comment on it as well. So, I wanna start with, you know, Lee, I didn’t realize this, I should have given all of your appearances, but you’ve been an analyst in the transportation and logistics space since 2004. So you could undoubtedly write a book, a New York Times bestseller perhaps on what you’ve seen. So, um, I wanna start with, you know, know, what is one of your biggest surprises in industry in, uh, 2022

Lee Klaskow (09:03):

Pro? You know, honestly, it’s probably the impact and duration of the Chinese lockdowns that they’ve had. Um, you know, I think that’s had a huge ripple effect, uh, not only on supply chains, but also transportation companies and the global economy. Um, you know, there’s kind of some early indications that they might start, you know, um, lifting some of those really stringent, uh, lockdown policies that they have, which would be, you know, good for, for the global economy. Um, but, you know, they just had a spike of Covid cases, so who knows what they’re gonna do. Um, you know, going forward, um, you know, Bloomberg economics, they, they think that, uh, China’s not gonna be fully open until, uh, you know, mid next year. Um, you know, fingers crossed that that’ll happen a little earlier than that. If these, um, you know, measures that they’ve been taking recently kind of stick, even if as, um, you know, infection rates rise.

Scott Luton (10:02):

So that certainly, uh, Greg, I’m looking forward to your comments there. Um, when it comes to China and, and their covid policies and impact on industry, your thoughts, Greg?

Greg White (10:11):

Yeah, I’m, I’d say the, uh, prolonged nature of it is really surprising. The impact, of course, I, I mean, um, I think we all could have probably guessed that, but man, just how long they have kept or continued to re shut down, uh, the economy there. And it’s really hurt their economy as well. Um, you know, the thing, you know, the X factor we have to consider is they can completely control their, you know, the Chinese Communist Party can completely control the economy, and most importantly, the constituency, right? They don’t really get elected. And Xi Jinping mm-hmm. Did just get reelected for effectively life, I think just recently. So, uh, but yeah, it is hugely impactful and, and though, and I think we’ve talked about this before with Lee, and that is, you know, even if we want to get outta China, which of course a lot of companies do for a lot of reasons, um, but, you know, you couldn’t accumulate all of the production capacity in Southeast Asia, maybe including hundreds of other companies or countries around the world and equal the, the production capacity that China can have when they’re running at full capacity mm-hmm. <affirmative>.

Greg White (11:30):

So it’s a real challenge and the impact is enormous. Yeah,

Scott Luton (11:34):

Well said. Uh, we’ve been way too dependent upon that market for way too long. Uh, so we’ll see how, how it progresses moving forward. Um, okay. I wanna shift gears, Lee. Um, moving from biggest surprises, uh, let’s, let’s gain your insights into what we might can expect in 2023. And I appreciate, uh, as Greg mentioned, maybe on the front end of the show, I appreciate how, uh, bold and willing you are, uh, to give expectations next year, but especially given the last few years where, man, what hasn’t happened, right? So let’s start with the railroad industry, and we all know what’s going on there with the, um, the labor issues, potential strike and, and the like. Um, what do you expect in 2023 when it comes to railroads?

Lee Klaskow (12:19):

Yeah, so, um, you know, the labor issues seem to be more or less in the rear view mirror. Um, you know, but the rails are dealing with, uh, a lot of service issues that they’re trying to fix. Um, you know, today as we’re recording this, uh, the c e o of Union Pacific is, uh, gonna testify to the S T b, uh, the s TB wants to know, you know, why Union Pacific, uh, has had so many service issues this year relative, uh, to its peers. I mean, they’ve all had service issues and a lot of that stems from labor, some weather, uh, and some, um, but you know, the reality is, is that, uh, the rails in general just are, have been operating, uh, from a, I would say a subpar performance in, in on time, uh, performance dwell times, you know, or high train, uh, speeds are in where they should be.

Lee Klaskow (13:11):

Uh, and that’s, you know, not only her, uh, service, but it also hurts the rail’s ability to take on more freight. Cuz people, shippers might say, well, you know, for this load I’m gonna use a truck, or I’m gonna try to find an alternative when you can. Obviously you can’t find an alternative all the time cuz Right, you know, some, he heavy freight just doesn’t make sense if you’re, um, to put on a truck or if you’re not by a river. Um, so I think, you know, it’s, there’s a huge opportunity cause for the railroads because of the subpar service. So I do believe that they’re motivated to get back, not only see where they were before the pandemic, but to also improve upon that. Uh, cuz you know, if they provide a better service and better on-time performance, that actually creates capacity without adding much in the terms of assets and then just allows them to take on more business and more profitable business at that.

Lee Klaskow (14:02):

Uh, so, you know, that’s, that’s something that, you know, we’re looking at, uh, week to week in terms of trying to see if service is improving by looking at the fluidity metrics that we get. Um, and then looking into next year, you know, listen, it’s probably gonna be a G D P economy year, year, uh, you know, the rails are, are are trending negative this year. Uh, they were negative. Uh, you know, um, so, so, so when we look at where we expect volumes to be next year, you know, it’s gonna be probably flat. Um, you know, there’s gonna be areas of strength, you know, ag is gonna be good. Uh, just cuz a has easier comparisons to Canadians have a really robust, uh, Canadian, uh, you know, grain crop this year. Autos are gonna be a positive because easier comps, right? Right. The production cycles are getting better as, uh, chip availabilities has totally, uh, been, been improving.

Lee Klaskow (14:50):

And, you know, inventories at dealerships are pretty low. So those are two areas that are gonna be good coal, you know, really depends on the global, global markets on where prices are if whether or not, you know, US coal is competitive on the global markets right now, it is, but it’s got certainly some tough comparisons going into next year. Uh, and, you know, intermodal is really gonna be dependent, um, on, you know, where the economy’s heading. And like I mentioned earlier, service levels, you know, so that’s, so that’s on the volume side and on the pricing side, the rails have been pretty good at, at getting pricing above, above inflation, which, you know, should help, uh, you know, generate, uh, you know, decent, uh, you know, low, low single digit maybe earnings growth next year.

Scott Luton (15:35):

Okay, man, we asked for an outlook and he brings it by the real card li uh, Greg. Oh boy. <laugh>, you went there. Seriously, that is, uh, like few and industry can do. So we’ve got two more segments, uh, that we’re gonna look at in a second. But Greg, weigh in on what, uh, you heard him share Lee share about the railroad industry.

Greg White (15:53):

Yeah, well, what I heard him share was a lot that, I don’t know, I mean, it’s a very complex industry, <laugh>, I’m thankful for people like Lee who keep their finger on the pulse of that because, uh, it’s complex is everyone just heard there. And, um, you know, intermodal for what, for anyone who doesn’t know means it, it arrives on a, usually arrives on a ship, winds up on a train, and then winds up on a chassis behind a semi. So, um, that is, you know, every so much, not everything so much hits the ground on rail, um, that the impact has been huge. And, and particularly with the impact of, you know, things like the Mississippi drought and things like that, that has really caused issues in all kinds of transportation, not just, um, barge transportation as well. But, um, you know, it’s, it’s gonna be interesting because the, the, uh, unions were essentially forced into an agreement, which at best a third of the unions didn’t agree with.

Greg White (16:59):

Um, and you know, we’ve heard rumblings, you know, off the record that even the ones who agreed, agreed, many of them agreed, uh, under duress, say the least. So, uh, it’s gonna be an, it’s gonna be a really interesting ride. Demand’s gonna shift big time this year as the country goes into deeper recession. And, and as you know, as, as people continue to, um, shift their lifestyles based on, I mean, if you think about it this time last year, we were still subs under some pretty substantial covid restrictions, though, um, people were, were getting out. Um, I’m thinking about, and we’ve been talking about what, you know, the island looked like last year, uh, versus this year and what labor looked like last year versus this year. And to, you know, Lee’s point, it’s, there’s much greater availability, but there are still people, um, counting on their side hustle for, or whatever you want to call it, for, um, income.

Greg White (17:59):

And I have a feeling that along with the other issues, tech and other layoff issues that have been substantial this year, I think we could see some of these smaller manifest businesses, um, struggle, which is gonna shift demand as well. So it’s gonna be, it’s gonna be really interesting for the next couple years. You know, what’s really interesting, and Lee I don’t know, I mean, you, you have to have seen some of this and, but what’s really interesting is that with all of this disruption, all of which occurs when economic shifts and and other geopolitical, um, impacts occur, but of all of this, I think one of the things that has changed the most is the awareness among the gen general public, right? Consumers know how supply chain works now, and it matters to them both from an e s G standpoint and just from a deliverability and cost standpoint. They are starting to understand the impact that things like rail and trucking and inflation, right, and economic shifts and geopolitical shifts have on their ability to get goods at the price that they want ’em.

Scott Luton (19:08):

So Lee, let’s get you to respond to that and then we’re gonna move into the trucking, uh, industry. Get your thoughts here, your, uh, your response to that Lee.

Lee Klaskow (19:15):

Yeah, so, um, you know, that, that, that was a lot and there’s a lot of things I can comment on, you know, on, on the recession, uh, standpoint, you know? Yeah, it does look like, uh, we’re going to recession. You know, I think the probability on Bloomberg’s around the 65% chance now that we’re gonna go into recession, recession usually happens when like the yield curve is inverted, which it is when there’s commodities shocks, and, you know, we talk about inflation, obviously a lot of that had to do with commodities. So, you know, the big spike up in commodities, um, you know, that’s, that’s, that’s something, that’s something else. Um, and then, you know, also when the Fed begins to tighten, and as everyone, you know, if you just read the paper or look at your credit card statement or, you know,

Greg White (19:55):

You feel total

Lee Klaskow (19:56):

Mortgage, uh, you know, they’ve, they’ve been increasing, you know, uh, rates considerably. I guess the good news is that CPIs kind of tapered off in November. That was reported earlier today. Um, you know, I think the increase, uh, have written down here for total was 0.1 month to month and, uh, plus 7.1% year over year. Uh, that’s, uh, so that, that is, you know, good news cuz it, it, it increased at its, uh, at, at a lower, lower rate and lower than what people expected, right? And so, you know, when that happens, the market’s like, oh, the fed’s not gonna tighten as much as maybe we thought they might. So maybe instead of 75 basis points, it’s 50 basis points or 25 basis points. Um, so, you know, we might be coming not at the end, but, you know, getting closer to the end of the fed tightening cycle, which, uh, would, would be good for, uh, the economy.

Lee Klaskow (20:46):

And, and I’m still, you, you know, optimistic and I, and I, I’m, I’m always a, a glass half, uh, full of, uh, of a nice wine, a glass of wine <laugh>, uh, kinda guy, um, or moonshine, right? Um, that’s right. <laugh>, I, I’m not that particular. Um, but like, you know, so, so, you know, I think it’s going, I think we still can manage, I’m not gonna say a super soft landing, right? But I don’t think the, the, the any recession’s gonna be, you know, long and deep. You know, I, I joke around, I think it’s gonna be, you know, a recession that might be named after me, you know, short and shallow <laugh>. Uh, so I, I think that that would be optimal, uh, for, for not only the economy, but you know, consumers as well, you know, and, and, and, and we, you know, you also talked about the labor issues.

Lee Klaskow (21:34):

Um, you know, I I think that rails are going to have to address sick, sick, sick, sick days, which was a real sticking point, right? Um, you know, not only, you know, there’s some activist investors that have been, you know, voicing their concerns from an E S G standard, uh, which is, you know, becoming extremely important. I mean, they were small investors, uh, in these companies that, you know, they, they owned like less than 1%. Um, but, you know, they’re E s G investors are starting to make noise about how it’s important. And I also think that the rails, you know, Norfolk Southern kind of highlighted this at their analyst day, I think it was last year, last week in Atlanta, uh, which we, which we went to, uh, you know, about the fact that they’re not, you know, myopically focused on their margins. You know, they’re really looking for profitable growth, uh, and they really believe that, you know, they’re probably gonna have to operate a little fatter, if you will, during the cycle.

Lee Klaskow (22:30):

You know, in other words, don’t furlough as much as they did in previous cycles. Because what they’re realizing is the costs not only, you know, to, to, to, to, to get the network back to where it, it should be from a service standpoint, but also to hire and to train people. It doesn’t really pay to start furloughing. You’re really not saving that much money. You might save a little bit that first quarter, right? But when you look at, you know, years out, it’s actually, you know, costing you not only an additional cost, but like I was mentioning earlier, the opportunity cost of, of lost volumes to trucking or right. Um, you know, to, to, to o to other, to other modes. Um, so, you know, I, I think, I think they’re really going to be taking a hard look at sick days. Um, and, and, you know, the worker’s ability to take off, and for them to do that, they have to have people, you know, waiting in the wings to come in and, and sub, because, you know, the rails operate, uh, under precision scheduling railroading, which is kind of like six Sigma for the rails.

Lee Klaskow (23:31):

And the real goal of that is, is a lean operating, uh, system. And, and I think that people, um, you know, are not going to be operating under PSR from an orthodox standpoint, and it’s gonna need to be more or less, less, you know, using what works and, you know, kind of bending to what they need to, to meet not only their, their labor needs, but also, you know, some concerns that some investors have about those, uh, labor practices.

Scott Luton (23:59):

All right. So I wanna move us head into trucking for the sake of time, but, but, uh, quick comment. Uh, we we’re talking, um, uh, getting back to fight and weight, uh, and fight and shape in the new year. Well, you know, you also mentioned the consumer price index early and, uh, uh, um,

Scott Luton (24:15):

Salad and all the ingredients that go in the salad. That’s been one of the things that has been insulated from, from inflation pricing coming back down. I was reading the other day that, um, Arizona, which grows, you know, Greg, I know you from your time there, lots of agriculture, right? That they grow a ton of, of vegetables there. Well, not only is pricing high right now there and in farms in California, but as in January, uh, farmers in Arizona are gonna get less water from the Colorado River as, as more regulation comes into play based on those, those water levels. So it may be tougher, but we may have, we may have new excuses in January to keep eating chicken wings and burgers and other things because it’s, it’s it’s price, it’s economically driven. Is that right, Lee? I see you smiling. Can we, can we go with those excuses in January?

Lee Klaskow (25:05):

Uh, I hope not. I, you know, I’ll, I’ll let your viewers judge me. I need my kale

Scott Luton (25:10):

<laugh>. I love kale. You need kale. That’s right.

Lee Klaskow (25:14):

Keeps you regular, you know, building up <laugh>.

Scott Luton (25:18):

All right, so I’m gonna have to share, speaking of kale, uh, I’m gonna have to share Amanda’s, uh, my dear wife’s incredible kale salad dressing. I’m gonna have to add that to, uh, and, and share that with our supply chain now, global family. Okay. Uh, so much fun. So little time, uh, let’s move into trucking. So, uh, Leah, I’d love to get your outlook for trucking in 2023, and then Gregory, we can get your commentary as well. So Lee, start us off.

Lee Klaskow (25:43):

Yeah, so when we look at trucking, there’s obviously two sub-segments that we look at. We look at the truckload market and the less than truckload market to focus on the truckload market, you know, um, the spot market there has been, you know, extremely volatile, right? We saw, you know, parts of the market about a year ago, or even less than a year ago, where, where conditions were so tight, you saw a flood of capacity coming into the market. And when those people were coming into the market, they were buying equipment at, at higher costs. So, you know, so they had a higher cost base. Now, fast forward to today, you know, uh, the need for the spot market has diminished because demand is diminished, and supply chains are slowly getting back to normal. So that that pressure that people put, you know, for, uh, or relief valve, if you will, within the spot market is, is, is totally changed.

Lee Klaskow (26:38):

So what we’re seeing is, is a rebalancing of the market. Um, and a lot of that, um, high cost capacity is going to be, you know, forced outta the market cuz they just can’t make enough money. Um, that, that should be good for rates. You know, rates have gone down considerably. They’re now like 26 or 27% year over year excluding fuel surcharges. Um, you know, um, but you know, they still remain slightly above some pre pandemic levels. So it’s not like all doom and gloom, but the higher cost people are, you know, getting pushed out. You know, we think that, you know, mark, the market probably should turn around the second quarter, uh, in terms of, of spot rates. You know, we think there’s some more room to go lower, uh, especially since this peak season has pretty, you know, been meh at best, uh, is very muted. What

Scott Luton (27:27):

Was that? What was that Lee? What was that? Man? Man, it’s an economic term. <laugh>. Yes, <laugh>. I love it. Okay. Um,

Lee Klaskow (27:35):

And, and then, and then, so, you know, when you, so when we look at the contractual rate, cuz the, the publicly traded trucking companies, which we follow in, in what we care about, you know, like the JB Hunts, the Knight Swifts, and the Warners of the world, you know, they, they’re, they’re a small part of their businesses spot, you know, five to 10% depending on the cycle, you know, so that’s gonna translate into pressure on contractual rates. Now, from an apple to Apple standpoint, you know, we don’t think a lot of lanes are gonna see significantly declines, but what you’re gonna see is that, you know, there was a lot of contracts priced last year cuz shippers were desperate for capacity, but that capacity was really kind of like spot, but they still priced it. Those lanes are gonna be down, you know, 15 to 20%.

Lee Klaskow (28:21):

But like, you know, most lanes are gonna be down flat to slight, slightly, slightly negative. So net net you know, we’re expecting low to mid single digit lower contractual rates. When you take that mix of everything together, uh, for next year. That coupled with, you know, obviously some volume pressures we’re really gonna weigh on, um, on earnings. And not only are the, the pricing and the volumes gonna impact it, but you know, they were making good money selling used equipment. Uh, those prices have calmed down because the demand in spot market is not as what it once was. Um, and so you could see rates, you know, or I’m sorry, earnings per share, uh, down 15 to 18%, kind of that, that that area. Uh, that’s I think what, what the market is expecting today. Um, you know, and then, and then on the less than truckload market, uh, that’s, that’s geared more towards the industrial economy.

Lee Klaskow (29:16):

Um, and if we go into recession, you know, that’s probably gonna be hit more. And the LTL industry has had a great couple years. Um, they’re gonna continue to have strong pricing, probably mid single digits of price increases. It’s a much more consolidated rational business where, I don’t know the stat, I’m probably gonna not say it correctly, but something like the top 10 carriers have like 70 to 80% of the market. Um, and so it’s a much more, more rational pricing environment, but they’re gonna face, you know, lower tonnage a cuz the difficult comparisons and b cuz of the weaker economy that, you know, we alluded to. Um, but you know, earnings are not gonna go down as nearly as much as you’re gonna see on the truckload side. You know, maybe, you know, low to mid single digit, uh, in terms of earnings per share, uh, next year, uh, at least, at least that’s what the consensus is kind of modeling for.

Scott Luton (30:05):

Okay. Very holistic outlook there, Gregory.

Greg White (30:10):

What a mess. Um, I mean, when you look at, I mean, when you look at all this together, you know, you know, I tend to look at this from the demand side, from the shippers side. And um, what I see frankly a lot from the shipper’s side is a lot of relief that, you know, we’re not in these insane, um, days of rates. Um, though I have heard many people reflect on the ironies of the continued fuel surcharges, which are, which are left over from 2008, 2009 when fuel got to $5 four $45 a gallon, right? And continued even as fuel dipped well below that and now continue even though fuel has has dipped yet again. Um, so, you know, there’s a lot, there’s a lot of, uh, obfuscation of what the actual rates are. I mean, when you say except fuel surcharges, you know, it’s arguable whether, I mean, not, not in this precise environment because diesel is still so expensive, but there are, the rate environment has become more and more difficult for shippers to discern with things like fuel surcharges and these, you know, um, shifting, uh, and cartage charges as well.

Greg White (31:26):

It’s become a really, really complex environment for shippers. And I think that will continue, demand, as we just talked about, will continue to decline into and probably through next year again, uh, not just for Lee’s benefit, but also for our audience. Not, I am not an economist, but I’m right as often as they are, which is also almost never. Um, so <laugh>, I mean, I think, you know, I think what whatever happens, I think there are a few things that we can, we can recognize is that, you know, to Lee’s point, uh, truckload and l t LTL will do what he’s talking about. But I think demand will continue to flutter and, and, um, maybe even reduce over what time span. Who knows? I mean, we don’t get paid to guess that Lee and his team get paid to guess that and good on ’em and Hmm. And I, you know, and I’m, I’m sure they are right as much as anyone else. So

Scott Luton (32:27):

Bet on it.

Greg White (32:29):

Well, it’s a little bit, you know, Lee even said it, it’s a little bit like being a, a meteorologist, right? You just hope nobody remembers that really, really bold prediction or maybe a sports commentator,

Scott Luton (32:39):

Right? For all

Lee Klaskow (32:40):

Those people without the green screen

Greg White (32:42):

Bound for the Super Bowl.

Scott Luton (32:43):

That’s right. What was that Lee? Sorry, you go.

Lee Klaskow (32:45):

No, I’d say I’m yeah, a meteorologist without the green screen, so I don’t

Greg White (32:48):

Yeah, I know you don’t get, you don’t even get the Yeah. <laugh>, you got nothing to point at,

Scott Luton (32:52):

Right? We can, we can fix that. We can fix that, Lee. We can fix that. Um, all right, lotus, lot of things to track. Uh, we, we’ve, we’ve tackled the railroad industry and trucking. There’s so much going on. It’s tough to get it in the, even in an hour long show. Um, Lee, for the second time, let’s move into ocean freight. It’s really interesting, you know, this time of year ago, um, we were just talking yesterday, Greg, I wanna say containers come, come outta China for the west coast was about 20 grand and now they’re less than two, at least what we were, uh, uh, tracking yesterday. So a lot of changes. Uh, give us your outlook for 2023 for Ocean Freight Lee.

Lee Klaskow (33:28):

Yeah, so it rates that, like, you know, when you talk about the 20 grand, like that’s, that’s the spot market and that’s like with all the fees, like if you just, if you need it to get it like immediately, I mean, those levels were obviously extremely unsustainable and rates are down around 70% from there. They still remain above pre pandemic levels, but you know, they can continue to, to track lower. Cuz volumes are expected to be lower next year cuz of the global economy. Um, so that’s first and foremost. Then if you look at the supply side and the second half of next year supply is supposed to, is gonna be a significant amount of supply hitting the water. Uh, and so that’s gonna create capa excess capa more excess capacity than what the market already has. So, you know, when I look at 2022, you know, I, I don’t, I don’t anyone, anyone with like half a brain can easily say with a lot of confidence that 2022 was the peak for the con global container liner industry 2023 is still gonna be a decent year.

Lee Klaskow (34:28):

Um, because shipping is a, is a cycle of booms and busts, right? Mm-hmm. <affirmative> and the cycles have gotten shorter and, um, you know, more extreme, um, for the industry, uh, the most of the players, um, not all of them are not rational when it comes to pricing. They have, uh, shipping companies cuz you know, it’s in their, uh, you know, sovereign companies, uh, countries interest to have those and to support those industries. So they’re somewhat subsidized. Um, and then there’s others that are, you know, more operate, uh, like a capitalist uh, uh, kind of, um, organization. And, and so, you know, my point being is that there’s gonna be booms and busts. Um, next year is probably gonna be a, a better than it was from an earning standpoint, um, from a, from a pre pandemic standpoint, uh, versus I’m sorry, versus a pre pandemic, um, timing.

Lee Klaskow (35:26):

Uh, but rates are just gonna slowly continue to, to, to go lower, uh, until, um, you know, they kind of bottom out. But where that is, I have no, I, no idea. Uh, it’s really, that’s gonna be dependent on, on on global demand and it’s gonna be dependent on what we talked about in the beginning of show, of the show, you know, what China is doing. Cause you know, China influences, um, you know, the world’s exports and imports, um, cuz they’re huge, the biggest importers of iron ore coal. Um, you know, so we also look at the dry bulk industry, um, you know, and that’s been impacted along with the, the crew tanker industry. Um, because of the, the impact of, uh, Russia’s war in Ukraine. Um, you know, that’s creating, you know, people have to find new sources for commodities, uh, because of the sanctions that are in place. It happens to be a good thing for the tanker market. Um, so, you know, people that might have imported, uh, Russian oil via a tanker are now looking at, you know, importing that order oil from either the US or the Middle East. And those have longer ton miles, uh, which, you know, soaks up capacity. So, you know, we’re, we’re probably most bullish about the, the crew tanker market next year, uh, relative to the dry bulk and, and container letter markets.

Scott Luton (36:44):

Okay. Uh, Greg weigh in on more seeing Ocean freight and into next year.

Greg White (36:50):

Wow. You wanna talk about an industry that I know nothing about <laugh>. I mean, it is, I mean, sh shipping, uh, I only know it from having been a consumer of it in the past, but it’s very complex. I can tell you that we have seen what it, you know, both, um, discussions and results very consistent with what Leah said, which is it is a series of booms and busts. I mean, it was just last year that everyone was railing against all these shipping companies for making record profits. Now, now two years before. Um, and in the next two years when they are struggling to remain solvent, nobody will be saying anything. But it is very much that, right? Nobody’s gonna be rushing to their aid with cash, all those complaining, uh, shippers and consumers Lee, right? Um, yep. But they’ll gladly take

Lee Klaskow (37:45):

Advantage. They didn’t complain when, you know, um, you know, uh, transpacific rates were under a thousand dollars and, you know, the, the liners were losing, you know, money on, on, on each shipment that they took. Um, right. So, you know, it’s, it’s, you know, booms and busts last year was a total enno anomaly. Yep. Um, you know, it was like a perfect storm in terms of, you know, what, what was going on the global supply chain, um, you know, the backups and in LA Long Beach or, you know, back to where they used to be. Um, you know, and you’re just, you’re just seeing, uh, a more normalized environment coupled with demand that’s, you know, not where, where it should be. I mean, you know, peak season, like I said earlier, was me. Uh, and, you know, we’re not expecting a huge increase in, in, in exports until China fully reopens. Um, and, you know, the European economy is on better footing and, you know, hopefully the US economy doesn’t slip too deep into a recession.

Greg White (38:46):

Yep. And we’ve talked about situation after situation where companies have bulked up on inventory, right? We talked about Lululemon, who increased their inventory by 85%. Guess where that inventory comes from and guess on what motive transport. So, you know, the, the, um, troubles. It, it, it is truly a whiplash effect. Um, although in, in this case, it’s a very long lasting whiplash, right? So, Hmm. Um, what’s gonna, what is really gonna depend or, or drive this is gonna depend on how companies offload this mass of old inventory. I don’t know what else to call it, um, over the course of the next six to 12 months, because Roomba is just selling the, the I or iRobot is just selling the Roombas they got last year this year. Mm. Right? They held them over pack and hold, right? We talked about that with Gap and all of their, uh, companies and various and sundry other organizations who’ve done that.

Greg White (39:48):

Even some of the best retailers, Costco, Walmart, target, are incredibly overstocked. And we saw it hit their, hit their, uh, valuations early in the year and continue to do so as the goods that you have to order six to 12 months in advance continue to come over. So they, a lot of companies have, they’ve tried to euthanize it so that it doesn’t shock their stock. Right? Uh, good luck with that. But they’ve all said, basically, we’ve stopped buying, right? We have reduced our, our inventory consumption or our in, uh, inventory purchases into next year to see how fast this stuff sells down.

Scott Luton (40:27):

Yep. Discount bonanza. Discount bonanza. Well,

Greg White (40:30):

I mean, it’s true that, you know, tjx, right? TJ Max is now competing with traditional retailers who are preferring to hold that inventory and discount it themselves rather than sell it off at liquidation prices to TJ Max. So it’s created a substantially different dynamic in retail as well.

Scott Luton (40:48):

Yep. So let’s, um, let’s move into, uh, leave for the ha a handful of folks that may not know what you, uh, do over at Bloomberg Intelligence. Let’s talk about that, and then as we start to wrap, we wanna make sure we, uh, can connect our listeners to you and, and I know you do a lot of keynotes out there in marketplace. So tell us about Bloomberg Intelligence.

Lee Klaskow (41:09):

Yeah, so Bloomberg Intelligence is Bloomberg’s research arm. I mean, I’m sure most of your, uh, uh, viewers know Bloomberg, uh, bloomberg.com, um, you know, great, uh, financial, uh, news organization that’s, uh, you know, widely recognized around the globe. Um, their investment, I’m sorry, their, their research arm has around 350, uh, analysts globally. Uh, I cover from an, I cover transports from an equity standpoint, but we have analysts that cover, uh, things from our credit, uh, and E S G litigation, uh, strategy. Uh, so, so we pretty much do the whole gamut. We cover over 2000 companies globally. Uh, and I, I think the number is over 150, uh, industries globally. So we pretty much cover any business aspect that you’re looking, uh, for and any asset that you’re looking for. So whether it’s fixed income, equity, commodity, uh, we we’re, we’re kind of, or we’re kind of looking at it.

Lee Klaskow (42:05):

Um, you know, I’ve been with, uh, I think Bloomberg for about 12 years now. Uh, prior to that I was an Excel side analyst on Wall Street covering transports for about six years, five or six years. Um, if you wanna get in touch with me, I’m on LinkedIn, um, K L A S K O w is my last name. Uh, and I’m also on, uh, Twitter. Uh, my handle’s, uh, at Logistics Lee. Um, and, you know, feel free to reach out, follow me, you know, always, uh, love talking to people that are interested in transports. Uh, it’s a fascinated industry, you know, I fell into it, right? Or stepped into it depending on, you know, <laugh>, how you wanna say it. Um, most

Greg White (42:43):

Of us came into it the same way,

Scott Luton (42:45):

Right?

Lee Klaskow (42:46):

<laugh>? Yes, yes. Um, and, um, you know, uh, it’s just, uh, it’s just a fascinating industry, uh, with fascinating people. Uh, and it’s really, you know, I don’t care what anyone else says, you know, one of the most, uh, important industries. Uh, cuz without it we would not, you know, have medicine. We would not have food, we would not have shelter, we would not have, you know, all the stuff that I got behind me, right? Um, uh, in the, you know, in the, and the clothes that I’m wearing. Uh, and it’s, uh, you know, there’s a lot of unsung heroes that, that are, that, that are participating. It, you know, from, from the guy or gal in the, the, you know, the, the, the loading dock to the trucker, uh, to, you know, the, uh, the engineer conductor on the rail to the seamen, um, all the way up to, you know, the C-Suite.

Lee Klaskow (43:33):

It’s all, you know, it’s, it’s a really, um, fascinating industry that is, um, just so important to most people’s every day. You know, I think Greg, you know, you were talking about earlier, you know, it’s just like, you know, the pandemic, the, one of the good things is if there could be a good thing from a pandemic, you know, it brought, you know, supply chain and supply chain professionals, um, to the forefront and to C-suite, you know, because it became such an important aspect, you know, and it, and it kind of brought supply chain, you know, it brought, brought, brought sexy back for supply chain, uh, if you will. So,

Scott Luton (44:09):

So the,

Lee Klaskow (44:10):

If you wanna play that music as we, that’s

Scott Luton (44:12):

Good. The backbone of society, undoubtedly. Um, alright Lee, I really appreciate that. I’m gonna get Greg’s final word in just a minute, but folks, make sure you connect with Lee, uh, classical, connect with follow him, invite him every time I turn around. Lee, you’re doing another keynote, another conference or, uh, event somewhere. So also check out Bloomberg Intelligence and we’re gonna make it it easy. You’re gonna be one click away in the episode notes of connecting and with Lee and, and his whole team. So Greg, uh, before we wrap here, what is one of your favorite, we’ve covered a lot of ground here in the last hour. What’s one thing that folks gotta keep front and center based on something that we’ve talked about here today?

Greg White (44:47):

Well, I think to Lee’s earlier point, optimism <laugh> is one of the things you have to keep in mind. Look, much of this is outside of our control. And, um, I, I want to assure folks, those folks who had walked away from us, Lee and Scott, at, at, uh, cocktail parties until after the pandemic, as soon as we said the word supply chain or logistics, right? They didn’t know or care or want to know, and you literally watch their eyes gl glass over, but now they’re interested. I want you to understand that the people in logistics, the people in supply chain, people in manufacturing, they have seen all of these disruptions before, not necessarily on the scale that they have, not necessarily for the same reasons, but disruption is a natural element of supply chain. And, and the professionals in this organiza or in this industry are equipped to deal with that, right?

Greg White (45:41):

So, uh, you know, the optimism is, it’s gonna be rough going, obviously, right? But this, these kind of, of disruptions have happened before ships have gotten stuck in the Suez Canal. We’ve had freezes that have shut down, um, petroleum product production. You know, we’ve had weather, we’ve had wars, we’ve had all sorts of, of, uh, things happen that have, that have impacted the, the reliability or the speed or the cost or the sustainability of the supply chain. Understand that the organiza that the industry is equipped to attack this, the one thing we could use is less government intervention. Fewer wars would be nice. Fewer, um, ebbs and flows in terms of, of, um, expeditious regulation or, or restrictive regulation in that, those sorts of things. I mean, obviously the global shutdown did not help, but we’re recovering from that. Um, so look, look, look forward to the fact that this has been done before. It’s, it happened also in 2008, the great recession and in and in between for an, a multitude of other reasons. So we got this.

Scott Luton (46:53):

That’s right. Uh, what a nice optimistic note to wrap up today’s show on, uh, big thanks, uh, Lee Klasko, Lee Klasko with Bloomberg Intelligence. Thanks, uh, for joining us, Lee.

Lee Klaskow (47:05):

Thanks for having me. Like I, like I said in the beginning of the show, it’s always a pleasure to talk to you guys and talk to your audience and, you know, can’t wait to do it again.

Greg White (47:12):

Yeah, great having you, Lee.

Scott Luton (47:14):

Absolutely. Greg, always a pleasure, uh, to knock out these conversations with you. Enjoyed, uh, you and Lee’s uh, observations here today.

Greg White (47:22):

My pleasure. I enjoyed Lee’s

Scott Luton (47:24):

<laugh>. So folks, uh, hopefully our listeners most importantly enjoyed, I’ll tell you, it’s a treat to get together with Lee on a regular basis, which is why he’s been moving up the charts in terms of our repeat guests here at Supply Chain. Now, since the very beginning, the og one of the OGs here, um, need to put on your Casey Casem voice <laugh>, right? That’s, he’s moving up the chart, moving up the charts. That’s right. Um, hey, uh, folks, hopeful you enjoy this episode. Be sure to find Supply channel wherever you get your podcasts from. Hey, including YouTube, uh, which is a, it’s free and easy. It’s probably perhaps one of the easiest platforms to lean into all the content that we produce here. But most importantly, uh, on behalf of our entire team here, uh, Scott Luton wishing you all the best, uh, but do good give Ford be the change. And with that said, we see next time right back here at Supply Chain now. Thanks everybody.

Intro/Outro (48:14):

Thanks for being a part of our supply chain now, community. Check out all of our programming@supplychainnow.com and make sure you subscribe to Supply Chain now, anywhere you listen to podcasts. And follow us on Facebook, LinkedIn, Twitter, and Instagram. See you next time on Supply Chain. Now.