Penske Lawsuit SHOCKS Brokers: Who’s Liable for Freight?

Speaker 1 [0:00] Talking about jobs, John Kingston, how you doing, sir?

Speaker 2 [0:04] Not bad, yourself? Doing well.

Speaker 1 [0:07] So let’s talk about the jobs market right now. You are, have been reporting on the jobs market. Tell us, what does it look like in overall jobs and in freight specifically?

Speaker 2 [0:16] Boring, very boring this month. Jobs in truck transportation were up 100 jobs, that’s it. And they, and after all the machinations of the past few months, the number of jobs out there is the same as it was in February. So truck transportation jobs, and remember, that’s an independent owner-operator is not in there. Okay. So I want to make that point, but the number of truck transportation jobs surveyed by the BLS has really, I mean, it’s gone up and down, but it’s where it is. And it’s where it was in July, the same place it was in February. And it’s down from last year.

Speaker 1 [0:48] By the way, John, I think that’s super encouraging because the fear has been, we’ve talked about it frequently on the show, Dr. Miller, Jason Miller, who was on the show a couple of weeks ago, talked about the fact that he believed that fleets were going to overcorrect and hire too many drivers, as they tend to do in these upcycles. It’s not happening. That’s not what the data says. Now, you mentioned the BLS data does not have owner-operators, something we’ve talked about before. But owner-operators are not— I mean, there is a lot of pressure on owner-operators right now in the market because of the regulatory compliance elements. But really, there isn’t a case to be made that the larger fleets are adding trucks according to this data.

Speaker 2 [1:27] Yeah, I mean, I, I would imagine if you really dove into the data and looked over years’ worth, there’s probably got to be some correlation between the number of truck transportation jobs and the number of owner-operators out there, independent owner-operators out there, just because they’re serving the same market. So at a certain point, if you’ve got a really strong market, you’re going to hire more types of jobs that will be reflected in the data, and probably the number of independent owner-operators goes up too. And then conversely the other way as well. So I wouldn’t imagine that there’s a big divergence. in the direction of the numbers between people who are, let’s say, W-2 workers that can get surveyed by the BLS and those who are out on their own.

Speaker 1 [2:06] I think this is great. I’m glad that the industry is not overcorrecting. Like I said, it’s something that the industry has known to do is overcorrect, and it’s encouraging that the cycle may live on longer. We’ve talked about it being a supercycle. Again, I think this is Exhibit A of why we will have a longer cycle. Let’s move on to oil. Tell us a little bit about the state of Hormuz. What are we hearing? What is happening? What’s moving? What’s not moving right now, John?

Speaker 2 [2:33] Well, I think what’s really notable is that whenever there’s a hint that there’s going to be some progress, the market really— you talked about overcorrecting. I won’t say they overcorrect, but they react very strongly to that, more than they do for prospects of nothing happening. So over the weekend, when there were suggestions that maybe we were moving toward a deal, The market, the first couple of days of this week really sold off. The past couple of days, it’s been up. Right now, if it settled right now— let’s say I’m just— when I say it, I mean I’m talking about the price of ultra-low sulfur diesel on CME. If it settled right now where it was, it’d be up about $0.12 in 2 days. So you can see it’s corrected upward as the prospect for peace that we got all excited about over the weekend is starting to fizzle out. But $0.12 is less than a drop. So people, traders just do not want to be caught short if suddenly there’s peace in our time, and they don’t want to be on the wrong side of that trade. So they react rather vehemently to any prospect that maybe this is coming to some sort of end, which, as we know, it really isn’t. Hopefully, it will soon. But the numbers that are going through the straight-up home moves have not shown any significant increase over the last several days.

Speaker 1 [3:47] Now, John, are they biased to the downside? It sounds like they are not, as you talked about, not wanting to be caught. Anytime there’s news of resolution, it looks like they are responding to that, and that’s keeping a lid on oil. Is your view that really as soon as there is true belief and conviction of a resolution, that we’ll see oil prices drop?

Speaker 2 [4:11] I would think in the beginning it would drop, but as you know, I’ve really been pretty consistent. And when I look at the numbers, when I look at the loss of production, the loss of refining capacity, that’s been damaged and is going to take a long time to get fixed. I still think we are facing some resolution— what’s the word I’m looking for, but some resolution that’s going to be bullish. I just still don’t think—

Speaker 1 [4:37] You think price of oil and therefore diesel at some point going to go up? What’s our crack spread, John?

Speaker 2 [4:42] It’s still about, depending on how you measure it, it’s still about $1.75 or something like that. The other thing too is diesel. Diesel on CME compared to gasoline is now like a buck. And that’s incredible. I went back to see when was the last time that diesel was under gasoline. It wasn’t that long ago. It was like spring of 2025. But now that spread is gigantic. And a lot of that is not Middle East. A lot of that is Russia, Ukraine’s ability to continue striking the Russian refining sector, which is very heavily oriented toward making diesel is really having an impact. Remember, it’s one big global market. So the fact that the US does not really consume Russian diesel, or if it does, it’s a very small amount, does not matter. It’s all one big connected waterbed, as I always give my age by talking about a waterbed. But I just can’t help— I love that analogy. You know, a waterbed, if you push it down on one end, the water moves throughout the whole waterbed. That’s kind of like all the diesel market is. Don, you’re dating yourself.

Speaker 1 [5:44] Have you been in a waterbed?

Speaker 2 [5:45] I know I have.

Speaker 3 [5:46] I remember when I was little, people having waterbeds.

Speaker 1 [5:48] They had waterbeds. They were cool in the ’70s and ’80s, I think. I mean, as a kid, you wanted a waterbed until you realized they were really uncomfortable.

Speaker 3 [5:54] Oh my gosh.

Speaker 2 [5:55] I had a fraternity brother who actually slept in one in the fraternity house.

Speaker 1 [5:58] Yeah, really, really kind of nasty after a while, the waterbeds. So, John, real quick on Russia, Ukraine. I mean, it looks like there’s some momentum. The Ukrainians are blowing up these logistics warehouses. across, they’re also blowing up refineries. I mean, in your perspective, I know you’re not a military reporter, but are we seeing, is there a belief in the financial markets and oil markets that Ukraine’s got the upper hand here? Do we believe that there’s gonna continue to be pressure on energy prices related to the Ukraine conflict?

Speaker 2 [6:35] Well, I think that’s what you’ve seen in the diesel price. I mean, you’re not talking about a significant loss of upstream production of Russian production, which has not really been getting hit that much. What’s been getting hit are refineries, and those refineries are constructed to maximize diesel output. So I think that is what you’re seeing here in that spread. The spread on diesel, I think, is only partly related to what’s going on in the Middle East. I think it’s a Russian story. And so yes, in that sense, I think that what’s going on with the price of diesel is very much related to Russia-Ukraine, more so than the Middle East.

Speaker 1 [7:10] Julie, do you watch any of these videos of these like warehouses in Russia being blown up?

Speaker 3 [7:16] No, I mean, I haven’t.

Speaker 1 [7:18] These are like the equivalents of Amazon and the Ukrainians are just, I think they’ve blown up something like 15 so far and there’s only like 40 of them in the entire country that are of the scale they are. It’s absolutely breathtaking across. You can see it on X.

Speaker 2 [7:34] They’re only less scary than the videos you see of these poor people out there naked, whether they’re soldiers or there’s a civilian. There was one of a Ukrainian civilian, he was like a fruit stand seller being chased around by a drone. I mean, the outcome of that is inevitable.

Speaker 1 [7:52] Yeah, it’s really sad. It’s sad the amount of civilian casualties that are related to this conflict. So, So, John, let’s talk a little bit about this Penske lawsuit. Julie, you’ve got some thoughts here.

Speaker 3 [8:04] Yeah. So Cramer’s Slippery Lane, right? I know you’ve been tracking this story and Penske getting pulled back into the lawsuit, not just as a reversal of them being dismissed, but then the vicarious liability angle as well. Do you want to give us some details?

Speaker 2 [8:20] So, I mean, this is sort of a classic case of of a, you know, a fatal crash in Texas in 2018. So remember, you can’t just talk about Penske because Penske’s got multiple companies by that name. They’re all, you know, interwoven and entangled. So Penske Logistics is primarily a carrier. It has a brokerage arm called Penske Transportation, uh, PTM, probably. Um, Jordan Blank, what did I have it as?

Speaker 3 [8:48] Probably if it’s PTM, I would guess it’s Penske Transportation Management.

Speaker 2 [8:53] Yeah, right. Yes, thank you. Thank you. Okay, so, so, uh, when this case first went to trial, 2 things happened. There was summary judgment issued in favor of Penske Logistics, the carrier, on the grounds that it was not the employer of the driver. This, this load from an automotive seat manufacturer got— I won’t say double brokered, but it got moved down the chain twice. Penske Transportation— Penske Logistics got the job. Brogage arm PTM, which gave it to a carrier, which then gave it to another carrier, and it was that carrier whose driver was involved in the jackknife accident that ended up killing somebody. So the carrier, Penske Logistics, was— the move to have them found as the vicarious employer of the driver that jackknifed was unsuccessful, and summary judgment was passed down in the Southern District of Texas. In favor of Penske Logistics. Penske Transportation Management was tossed out of the case under the grounds that the F4A protected it. Of course, the F4A as a protection against brokers went away with Montgomery. So the appellate court, the Fifth Circuit, took it up and they did 2 things. First of all, this is no surprise at all, Penske Transportation Management was kind of put back in the case. Why? Because Montgomery said You can’t do this. Okay, brokers are not being protected by the safety exception in the— in the— or actually, brokers can be pulled in under the safety exception of F4A. And then you also had another decision that reversed the summary judgment on Penske Logistics, the carrier, in which the— in which the court said, yes, they can be found to be vicariously liable for a— for the carrier down the line. They haven’t taken on the responsibility of that load. and then passing it down. So it was a double whammy loss for Penske in this case. And, you know, we’re gonna watch it. There’s gonna be a lot of others, I would imagine, that where a broker was protected and now it’s gonna get put back in and it’s gonna— and the litigation will go like back to the federal district court. And we’ll just kind of watch that.

Speaker 1 [10:58] So much here.

Speaker 3 [10:59] Yeah.

Speaker 1 [10:59] There’s Texas, which has been sort of the epicenter of, you know, the Lupus lawsuit was litigated in Texas, actually. The accident happened in Mississippi, but it was Dallas County. You’ve got Texas. It’s featured— the Warner case was a Texas lawsuit. The Home Depot case that involved Warner was a Texas lawsuit. So Texas is front and center. The idea that Texas is only a business-friendly state is not being proven out in the court systems unless you get to the state Supreme Court. Feels like the state Supreme Court tends to be very, um, call it pro-business, or at least, uh, tends to side on the argument that businesses’ liability is mitigated, which is, I think, encouraging for businesses. But the other idea is that this law— and we were talking about this before we got on air, Julie and I were— is that the parties— there was multiple parties that were passed on. This was not even double-brokered, it was quadruple-brokered, I guess you could describe it. One went from a managed trans business, which is Penske’s sort of core business, to their brokerage arm, then to a carrier.

Speaker 3 [11:58] I Yeah, let’s walk through that chain one more time because I think it’s really interesting. So it was first tendered to Penske Logistics, which is really like their asset. I mean, it’s their trucks, right, as a trucking company, which is why—

Speaker 1 [12:08] Is it the trucking company or is it Managed Trans?

Speaker 3 [12:11] It went from them to their Managed Trans.

Speaker 1 [12:13] Gotcha.

Speaker 3 [12:13] So which is why this whole vicarious liability part was so interesting, because they said that they assumed control and responsibility for the freight. So then the underlying carrier can be considered an employee, right? So it went from Penske Logistics, where it was actually tendered to, to PTM, which is the managed trans, their broker, their, their, um, then to Liberty Lane, who then brokered it to OK Trans, who was involved in the accident.

Speaker 1 [12:42] Go ahead, John.

Speaker 2 [12:42] No, I was gonna say to OK Trans. Yeah.

Speaker 1 [12:45] So, so the question is, if you’re Penske, were you aware, was there awareness at Penske that this was being brokered and brokered and brokered, or was this a a failure in the chain of a carrier that was supposed to have received the load and hauled the load, double brokering, as we know that people are prone to do?

Speaker 2 [13:07] Well, what I— okay, based on— remember something, the decision by the Fifth Circuit Court of Appeals was a grand total of 6 pages, okay? So there’s not a lot of discussion in there, but I would imagine, based on my reading of what’s in there, I think the argument of, hey, we didn’t know this was going on, would probably not stand up in court too well.

Speaker 1 [13:29] Why is that?

Speaker 2 [13:30] The argument— well, because the court made the argument—

Speaker 1 [13:32] why would you say that? Like, what makes you say that?

Speaker 2 [13:35] Because the court makes clear that when— and I spoke to Mark Blubaw of Benesh, and he said this really is a— this is not groundbreaking. This is an accepted part of law that when a carrier takes on a load, as it moves down the chain, it still has responsibility. It does not wipe its hands of it. So even if it didn’t know that it was getting rebrokered From what was that middle one? What lane? Liberty Lane. Yeah. Yeah. From them to OK Trans, the fact that they may not have known about it, based on my thin reading of what the judge said, I don’t think that’s going to make any difference. Wow.

Speaker 1 [14:14] That’s a nice.

Speaker 3 [14:14] And I think the interesting, the other interesting differentiator here is.

Speaker 2 [14:18] Sorry. As long as we’re talking about the week, let’s not forget in Texas. that there was another case involving Atlas Freight, um, this week in Texas where the, uh, the plaintiffs tried to bring them in as a shipper liability and they were shot down. Now that’s the second time in Texas that shipper liability took a blow. The first one was, Craig, you made reference to Home Depot. There was that one and then there was this one. So that’s another— That was an air freight here.

Speaker 1 [14:45] The Atlas Air, as I understand it, John, was an air freight, the air freight operations, right?

Speaker 2 [14:51] Yeah, so anyway, that was one where the trying to extend liability out, uh, did not work.

Speaker 1 [14:56] There was definitely— Supreme Court has ruled multiple times, has been, like I said, they’ve been pro-business, you could argue. Um, they have not had a ton of, um, activism in terms of their allowing these jury awards if you get to appeal, which I think is encouraging, as long as the appeals court, uh, continues and the, the Supreme Court continues to be You know, have have the same representation in terms of of you know judges. I I think the question is going to be what states? I mean these these issues, and you were talking about interesting point. If the broker loses, so if the load is brokered to a carrier, so they think, and that carrier elects to broker it, to your point, John. Chain of custody. You may lose custody as to who the counterparty is, but you’re still responsible, which I think is—I mean—it’s news to me.

Speaker 3 [15:52] I wonder if one of the differentiators here is that it was a carrier who received the load, not a broker. Like in the C.H. Robinson case, it was a broker, and they said that the underlying employee of the carrier was still employed by them. In this case. The vicarious liability is because they were a carrier who received responsibility of the freight. So I don’t know if that distinction of them being a carrier before they gave it off to their brokerage counterpart.

Speaker 1 [16:21] The managed trends business should give them some degree of. I don’t know. We’ll get into it, Matt Leffler, and later in the show, John. Thank you so much, man. We’ll be back.