ATLANTA — FreightWaves and DAT Solutions squared off during FreightWaves’ Future of Supply Chain conference at an inaugural event, the “Great Debate — DAT vs. SONAR: Where is the Market Headed Next?”
The live event on Tuesday pitted Zach Strickland, FreightWaves SONAR director of market intelligence, against Ken Adamo, chief of analytics for DAT.
The debate was moderated by George Abernathy, a board member and adviser for freight procurement platform Emerge. Abernathy was president of FreightWaves from 2017 to 2021.
Adamo was voted the winner of the debate by audience members at the Georgia International Convention Center.
The debate has been edited for clarity and length.
ABERNATHY: So let me start with describing the freight clock. It’s midnight, or 12 o’clock on the freight clock, which means capacity is really tight, very tight for a carrier. If you’re a carrier, you’re loving it, you’ve got power, you’ve got the ability to determine your destiny. If it’s 6 o’clock, shippers are probably a little bit happier. The first question is, what time is it on the freight clock right now?
ADAMO: When you really look at it like that, my answer would be close to 7:30, though the hands of that clock are getting longer. What does that mean? The cycle is getting much more volatile. The last three cycles have all been more volatile than the cycle before. So if you think about that outstretched hand of a clock, making a cycle bigger and bigger, the peaks are getting higher, the valleys are getting lower. It’s also spinning a little bit faster.
STRICKLAND: We’re earlier, by a good hour at least. I will lean on [SONAR’s] tender rejection index, because it’s very pure and biased towards almost nothing; it is measuring one thing and one thing alone, and that is the rejection rate from a carrier to a shipper. It’s roughly around 4%. The tender rejection index is very low, meaning that carriers don’t have a lot of optionality. Anything below 5% is very deflationary. Yes, it’s off the bottom, but it hasn’t really crept up that much higher.
ABERNATHY: Why is it taking so long for capacity to leave the market?
ADAMO: I think there’s a couple of reasons. One, we have to contextualize, and the reason I’m not as bearish about this being a freight armageddon is that if you hold the same amount of freight, let’s just say the cycle started in May of 2020, around when the pandemic really caught up — if you hold 10 loads a month, every single month, market-average loads, this would still be by leaps and bounds the most profitable freight cycle you’ve ever lived through.
The COVID highs are still much higher in both SONAR and DAT data points than the COVID lows. So a lot of truckers kept a lot of that money that they had. We talked to a lot of truckers that didn’t spend any of that knowing that this was coming.
There’s 315,000 interstate motor carrier authorities out there right now, as of this morning, operating just fine. About 37,000 have gone away since October 2022, due to COVID. So it’s not like they’re all gone. I think it’s a wide distribution. I think the current environment has pushed a lot of that one tail end out of the market. But it’s kept a lot of the other ones who otherwise may have exited sooner. They should have some of that money from 2022. I think that’s why we’re on that hairy edge of equilibrium right now.
STRICKLAND: I agree with Ken on the fact that there was so much influx of capacity. That’s undeniable, and then there was a big cash flow that came out of this extremely profitable environment. That’s also undeniable. If you look at the earnings reports for any large carriers, they did exactly what they should have done during the COVID environment.
Now, there is something in addition to that huge amount of wealth and stuff generated, because if you look at the earnings report now, and the one thing I will disagree on is, if you would ask any carrier, any 300,000 of them, if they’re doing well or not right now, I don’t think they would say, “I’m doing great.” I think most of them feel some level of distress because if you look at the financial statements of a lot of the publicly traded companies, they are just not doing as well right now. They’re certainly not doing as well as they were. Are some of them operating profitably? Sure, but it’s not where they want to be in the context of things.”
The next part is that the influence of brokerages is much higher now than it has been. It wasn’t just trucks and carriers that grew during the pandemic, it was also brokerages. Digital brokerage was a huge buzzword at the front edge of the pandemic era. Lots of people went out and got their own brokerages.
It’s also the fact that you have the broker connecting the small carrier and the owner-operator to larger shippers much more efficiently and effectively. That’s allowing them to utilize their equipment, maintain that cash flow, and pay that bank note every month, because they now have a sales force that didn’t exist before. One of the hardest things for the owner-operators to do is source new and unique freight, because they’re driving all day. That to me is one of the biggest driving forces in keeping these people on board, as well as the obvious large amount of cash.