Speaker 1 [0:00] We have Laura Ritchie here from Nashville. She is the president and CEO of Geotis. She just completed her first year. Geotis is a massive company, 20,000 employees in the US, 230 sites. Laura, welcome to FreightWaves Today.

Speaker 2 [0:13] Thank you. Thanks, Craig. Thanks, Julie.

Speaker 1 [0:15] We’re so excited to have you. So tell us a little bit about, you know, this reconfiguration of the economy. ISM’s manufacturing data is incredibly robust. A lot of that is AI data centers and big infrastructure buildout. But what are you guys seeing right now?

Speaker 2 [0:29] You know, we’re scratching our head because we’re seeing all sorts of things. So we have customers who are doing really well, they’re seeing sales up double digits, 30, 40%. And then we have others who, you know, maybe aren’t seeing the same thing. And I think a lot of it depends on who their customers are. So we’re staying really close to those forecasts. We definitely see in big tech the challenges about the shortage of chips and the ability to get things over here. So we’re planning To help them manage that.

Speaker 1 [0:57] Now, is it hard to get airlift capacity? Is that tight right now due to just all of the semiconductors and memory chips that are coming over?

Speaker 2 [1:04] It is, although I would say what we’re still seeing is ocean continues to be a challenge as well. So with all the blank sailings that are happening, the port congestion, we’re seeing things actually get stuck more on the ocean side, and then air capacity’s there, you just have to be willing to pay for it.

Speaker 1 [1:21] It’s all, there’s a price for everything. The interesting thing on the ocean side is that ocean spot rates are up, you know, over 300% in just the last 5 months. What is it? Obviously, blank sailings are a big piece of that. The international ocean container lines have such market power. Is it just that they are just trying to control price or at least manage price? Is that really what’s happening?

Speaker 2 [1:42] I think there’s that, but I do think obviously with what’s happening in the Strait of Hormuz, that’s impacting it. Threats in the Red Sea are impacting it as well. So, you know, we saw the Port of India very congested, and it’s taken some while to clear that out. We just have a huge backlog now of goods. You know, we have product that we’ve been trying to book, you know, since March that’s still rolling in July. And for people in the manufacturing space where they need these things on their assembly line, they’re not too happy.

Speaker 1 [2:13] And that’s international shipping just doesn’t have capacity to provide it?

Speaker 2 [2:17] It is and/or it’s the spot market. spot rate you’re willing to pay, as you talked about, right? So we aren’t seeing quite the COVID levels, but, you know, a container is a lot more expensive than it was just, just a few months ago.

Speaker 1 [2:28] Well, the ocean container lines, no crisis averted, they always have, uh, take the opportunity to, to raise price. It does create a significant, um, issue and strain. One of the things that is coming through some of the survey data, you’re on the board of the Federal Reserve out of Nashville, the Atlanta Fed, uh, a lot of conversation about this sort of the have and have-nots economy. Housing is down significantly, or at least soft compared to where it has been. But then you get into these electronic components, into heavy, heavy manufacturing. We covered every week with just how strong the railroad volumes are. What are other parts of the economy that are doing well outside of this big electronic AI data center buildout?

Speaker 2 [3:09] I still think we’re seeing strength in retail, certain areas of retail. So apparel has actually been up even on an inflation basis. adjusted basis. We have customers that are telling us, you know, they were, they were making it on price, but they’re actually seeing more units start to move through. So I think if your brand is well positioned and you have value, you’re personalizing the customer experience, customers are staying. You know, some people say that they’re shopping, right, to kind of alleviate the sadness about the economy in general. And we’re definitely seeing some of that. They’re trading off on, you know, how often they fill up their gas tank to maybe have a splurge. We do see in housing improvements though, that is a little bit down. New housing starts are obviously down. So, so that’s something we see. But, but yeah, it’s very uneven and it makes it hard to predict across the board.

Speaker 3 [4:04] I will tell you that the number of packages arriving to my house each week, absolutely, if you graphed it in tandem with my stress level, like you could tell last week must have been tough because there’s a lot.

Speaker 1 [4:15] You guys must be really stressed out because we get a lot of those packages.

Speaker 2 [4:18] Statistical correlation there.

Speaker 3 [4:20] I think people are getting— Craig’s favorite topic— people are getting skinny, so they have to buy new clothes.

Speaker 1 [4:24] I’m glad you mentioned that. We’re a big fan of the GLP-1s here. It’s a big recurring topic. We, a couple of weeks ago, one of our guests is in a retail liquidation, particularly CPG as well as retail. And it was interesting because what she described is that apparel is doing exceptionally well as people downsize.

Speaker 2 [4:42] Yes.

Speaker 1 [4:43] But the foods products are actually, particularly the unhealthier food or foods that we all kind of love to splurge on, are not doing as well. And it was interesting to sort of see the fact that apparel, like as a GLP-1 user, I have gone through a number, that’s the worst part of this whole thing.

Speaker 3 [4:59] I said it’s the best part. First I was like— What, new clothes?

Speaker 1 [5:02] Yeah. Except when you get the bill. Like I, like it is, how many times, the problem is like—

Speaker 3 [5:09] You know how much worse it would be to have to keep buying new clothes because you were outgrowing them though?

Speaker 1 [5:12] Yeah, well, it’s true, but the problem is, as soon as I buy a jacket, it feels like a couple months later it’s too big as you continue to slim out.

Speaker 2 [5:20] So, well, but we all needed a clothing refresh, I feel like, after COVID, right? When you had the sweatpants on.

Speaker 1 [5:25] That’s true.

Speaker 2 [5:26] And you had to say, okay, is this stuff I was wearing in ’19 really worth it anymore?

Speaker 1 [5:29] It feels like at first people were still in the COVID casual mode.

Speaker 3 [5:33] Yes, yes.

Speaker 1 [5:34] And then over time, the more professional people come back to the office, just how different it is. So you’ve been in Nashville for a year.

Speaker 2 [5:40] Yes.

Speaker 1 [5:41] What exactly has that experience been like at GEODIS in terms of, this is a, you know, you’ve been at a number of different companies across the supply chain. What has specifically attracted you to GEODIS?

Speaker 2 [5:51] Well, I think, you know, one, when you say I’ve been in Nashville for a year, I’m like, I visit once in a while, but mostly I’ve been on the road, right? So, but when I looked at GEODIS, what I really liked is we have the international ownership. So we’re owned by SNCF, which is the French railroad. And that really gives us a stability, right? A financial stability, a solid base from which to grow, and then scale. So the ability to work with customers across all 3 regions, which is how we divide up the country, and then finally meeting the teammates. So I always insist that you do in-person interviews, even during COVID I did that when I changed roles, because I think it’s meeting people and saying, is this a place I wanna work? Do I think that, you know, I can add value here?

Speaker 1 [6:34] Mm-hmm.

Speaker 2 [6:35] and see myself as part of the team. And so, so it’s been a lot of fun. It’s, it’s a surprisingly vast, though, amount of warehouses, right? So 230 locations counting freight forwarding and warehousing. And so trying to tackle that has been a bit of a challenge. I’ve made a dent in a year, but certainly more to go.

Speaker 1 [6:52] The scale of it is quite— how do you, how do you prioritize in terms of your time, in terms of what you’re focusing on with so much scale? Is your goal to visit all the locations or the main offices, or how do you, how do you think about it?

Speaker 2 [7:05] Yeah, for me, it’s really understanding the business. And so what I kind of laid out is we have freight forwarding, we have the contract logistics and the transportation business. So what do I need to know? Do— is going to a freight forwarding office giving me the ability to learn the business? Sort of yes, sort of no, right? But I have the ability to do that more remote. The warehouses you really have to see because we have a scale of automation.

Speaker 1 [7:30] Mm-hmm.

Speaker 2 [7:30] And so seeing from the least automated to the most automated, And then our transportation hubs obviously operate sort of like warehouses, but also as transportation around, you know, cross-docking and things. So I wanted to make sure I could see and touch all of that. But my favorite thing to do is go and don’t do anything they’ve said, right? So don’t follow the tour path. Don’t talk to the associates that they’re pushing out in front. You know, certainly make nice, but to make sure you go the places where maybe somebody didn’t want you to go more because I just want to learn what’s happening. What are their challenges? I appreciate the, the nice red carpet that gets rolled out for the CEO, but how do you really get your, your fingers on the pulse?

Speaker 1 [8:12] Are we gonna see you on Undercover Boss?

Speaker 2 [8:14] Is that coming? Yeah, I did think of that because now they do start to know you after a year, so it’s a lot harder. You definitely would have to do more disguises.

Speaker 1 [8:22] I watched that show. Have you seen it, Julie?

Speaker 3 [8:24] Yeah. Yeah.

Speaker 1 [8:24] I watched the show and I’m like, how do these people not, it just, you have a camera crew maybe in the first couple of episodes, right? But it just feels like it is put on for TV. So I don’t know if it’s real or not.

Speaker 2 [8:34] I don’t know. I think that they’re telling— I mean, we film stuff in the warehouses all the time. We have customers doing things. So they, they, we, I think we could do that.

Speaker 1 [8:41] So you think it’s legit?

Speaker 2 [8:42] I think so.

Speaker 1 [8:42] Yeah. We, we need to get you on Undercover Boss so we can all root for— whenever there’s someone on for The Bachelor, my wife is a big reality TV connoisseur, we’ll say The Bachelorette or Bachelor that’s in freight, we’re always rooting for them.

Speaker 2 [8:55] Yes.

Speaker 1 [8:55] Yes. It’s like, this is one of us.

Speaker 2 [8:56] Yes, exactly.

Speaker 3 [8:57] So you’ve clearly done this tour. You have talked a lot about, like, listening being the most important part, seeing the parts of the business that might not be what is necessarily brought to you, the shiny parts of it. What surprised you most? What did you learn?

Speaker 2 [9:12] Really, the passion of our teammates. And I know probably everyone says that, but I went— my questions are always like, if I gave you a magic wand, what would you do differently? And all of their asks were, you know, we have a security system for one of our customers who requires it. And they’re like, could you put a bathroom in closer to us because it would be easier for all of us? And so they’re always so thoughtful about what’s meaningful for the teammate. You know, they could have said, pay me more. They could have said, you know, give me more perks or benefits. But, and even when I asked the people who came from another provider, why did you come here?

Speaker 3 [9:50] Yeah.

Speaker 2 [9:50] They’re like, because I heard it was a great place. I joke we have a fair amount of boomerangs, right? People who leave and think, oh, maybe I’ll try somewhere else. And then, you know, they come back a couple of years later, which was great because they get the experience outside. But really, Geotis is their home.

Speaker 1 [10:05] It is interesting. I think the days of, hey, this person’s left and we’re going to, you know, that’s sort of the old school transportation way. Get out and don’t come back. It is rewarding when someone comes back after they’ve had the chance to sort of realize that things aren’t as good. Yeah, because I think in business, you get so just, you get so frustrated. I always tell folks on our team is like, you’re going to get frustrated at times, and, and sometimes it’s better to see that it isn’t as great as you think it is going to be.

Speaker 2 [10:28] That’s right. I tell my kids that all the time, but that’s a tough lesson to learn. So, so I’m like, you should go learn it then. Don’t, don’t listen to just us. You experience it, see what something else is. You’ll learn, maybe you’ll bring things back. Plus, our industry is so small, so small. So, you know, people that you worked with 20 years ago come back again, and, you know, you need to make sure that you were a professional, so.

Speaker 1 [10:51] Yeah, for sure.

Speaker 2 [10:52] Yeah.

Speaker 3 [10:53] So, you talked about getting past sort of those surface-level issues, and I read that you use the 5 Whys to do that. Yes. Can you walk us through what those are, and then some outcomes of that? Sure.

Speaker 2 [11:03] So, it’s really the Toyota Production System, right? And what they were doing when they were diagnosing issues on the assembly line was saying, why is this happening? Why is this happening? And that’s really how you get to the root cause. So, a lot of it is, just continuing to ask why. Otherwise, we solve service issues. Right now, we’re launching several new clients. Of course, there’s always bumps and bruises when that happens. And it’s really saying like, oh, it’s easy to say, well, you know, we didn’t have this or we didn’t do this, but is that really the issue? Like, what’s really happening?

Speaker 3 [11:32] So getting to the root.

Speaker 2 [11:33] That’s right.

Speaker 3 [11:34] Not just the initial symptom.

Speaker 2 [11:36] That’s right.

Speaker 3 [11:37] But the actual cause. Yes.

Speaker 2 [11:39] And then actually fix it. Like, don’t do it again. One of the things I love about our business is we seem to like Groundhog Day. where you’ve done it and then you do it again and then you do it again. So I’m like, let’s learn from it, let’s carry that forward, let’s not repeat it.

Speaker 1 [11:52] It’s a great reference. I love that movie.

Speaker 2 [11:55] Yes.

Speaker 1 [11:56] It’s such a, it was one of my favorite movies to watch. I watched it a lot of times. You created a client experience organization earlier this year. What exactly does a client experience organization do?

Speaker 2 [12:06] Well, I was studying some other industries that were really focused on customer loyalty and developing the customer journey. which would be brands, airlines have done that, and said, our customer experience or our client experience is fragmented. So continuous improvement, which helps the customer get better, we get better with serving the customer. Our data and analytics team that does all of the analytics was fragmented. The actual account management team who manages the day-to-day was all separate. So what we’re trying to do is really pull that together and say, similar to how a brand would own the customer journey, That’s really what we’re focused on. So from the moment you say, maybe I wanna work with Geotis, then that’s part of the journey to say, and of course you’ll wanna stay.

Speaker 1 [12:50] So what were the businesses you looked at as inspiration? Any favorite sort of lessons from those that you took into Geotis?

Speaker 2 [12:57] So American Airlines is a great example of doing this where they had challenges. They were receiving ratings about their customer service. And as they studied it, what they realized is similarly their journey was fragmented, right? put it in what was natural to how the airline operated best instead of what was best for the customer. And I found that that’s kind of how we were thinking too, right? Like, let’s put data and analytics with IT because we’ll call that a tech thing.

Speaker 1 [13:25] Right.

Speaker 2 [13:25] You know, let’s put continuous improvement in the engineering team because that’s where engineers go versus saying, what is the customer experience with us, you know, throughout our journey together and how do we really point that? And then I had it report to me because I think that’s the difference. Sometimes we put it in operations, sometimes we put it in sales, and that makes it— makes the organization sort of become not neutral, right?

Speaker 1 [13:49] They have a bias to give you their own perspective.

Speaker 2 [13:52] That’s right.

Speaker 1 [13:52] The truth. And of course, AI has enabled— makes this data far more actionable. And, you know, we— I think one of the interesting things about AI is that you can build your processes around the technology versus I’m sorry, build the technology around your processes versus the other way around, which is quite unique. And I know you guys, I got to spend time with your team at Pallet, had a World Cup. I know you guys are huge soccer fans at Geotis. I got to spend time with some of your folks down in Miami, and I know you guys are doing some stuff with AI. What exactly are you implementing?

Speaker 2 [14:26] So we’re doing a couple different things. So we’re doing what you would see and expect most people are, right, which is taking all of these processes, all of the data, all of the shipment data, all of the management of truckers and things like that, and turning that into being more managed by AI, right? It’s process-heavy, so it lends itself to that. The other place that we’re really thinking about it though is in training and upskilling our teammates, particularly as we continue to go further into automation. It’s really helping to be able to train teammates I think we’re up to 30+ languages now that our teammates speak, and we just haven’t had the robustness to be able to interact with them in their own language and to be able to really lead the business forward. And then some other stuff I can’t talk about yet.

Speaker 1 [15:15] We track all the public earnings and conference calls. We have pods set to basically go out. Julie and I sort of manage this process where it goes out and listens to all the calls, the conference calls of the public companies, 72 public companies in supply chain logistics we track. The most bullish consistently is Prologis.

Speaker 2 [15:34] Yes.

Speaker 1 [15:34] What’s happening in the warehouse space is absolutely— I mean, they’re always ranked. We have Claude’s own ranking. It provides a ranking system based on a couple of metrics, but it’s consistently they’re the most bullish of all the public companies. What is special about warehousing right now? Why would they be enormously bullish?

Speaker 2 [15:53] Well, I think there’s a couple things, right? So we’re gonna have to bring up the data center word. So if you look at Prologis, they have a huge database, a huge land bank.

Speaker 3 [16:01] Mm-hmm.

Speaker 2 [16:01] So they have the ability, right, to really do warehousing and do data centers in a big way. But data centers is creating now a supply chain issue that we didn’t have before. So data centers are being built outside the normal supply chain structure. So even if you, talk about like building them, once they’re constructed, there are not a lot of warehouses nearby to do fast supply of repair parts. There’s not a lot of infrastructure to support the teammates that are going to work. So it’s actually creating a problem. You know, warehouses, people believe, have expanded outside of the city limits, but now the data centers are going farther. And so if they’re positioned to have both the warehousing and the data centers, I don’t wanna speak on behalf of Dan, but You know, that’s really, I think, why they continue to be bullish about that.

Speaker 1 [16:49] Yeah, it is interesting. That’s a great point. I hadn’t thought about the whole supply chain, the need. If you have this, you know, $100 million or even multi-billion dollar investment, you need to make sure it runs.

Speaker 3 [17:01] And it’s in the middle of nowhere in many cases.

Speaker 1 [17:03] It’s getting pushed out. I mean, so many municipalities and cities and even some states are banning data centers. And so you’re wanting to be out away from cities because zoning— I mean, even Hamilton County, which is a very conservative county here in Chattanooga, put a moratorium on all data centers.

Speaker 2 [17:24] Well, and then if you’re gonna— yeah, I agree. Sorry. And then if you’re gonna do nuclear to power them, which everyone’s talking about.

Speaker 1 [17:31] Tennessee is where all this action is happening. We keep telling people it’s great down here in the South. TVA is leading that.

Speaker 2 [17:38] They are.

Speaker 1 [17:39] TVA deserves a lot of credit.

Speaker 3 [17:40] Yes.

Speaker 1 [17:40] They have really built this entire region, helped win World War II. So yeah, the whole Oak Ridge, TVA, it was the reason we could produce so much aluminum.

Speaker 2 [17:50] Okay.

Speaker 1 [17:51] And the atomic bomb, so.

Speaker 2 [17:53] Just study my Tennessee history.

Speaker 1 [17:54] We’re big, I’m a big history fan.

Speaker 3 [17:56] Yeah, Craig’s a huge history fan. So speaking of technology and moving beyond AI, I’ve read that you’ve said that visibility is just not enough anymore. So tell me what you mean by that and what else is needed.

Speaker 2 [18:09] Well, I joke that we’ve been talking about supply chain visibility for as long as I have been working, and somehow we still don’t have it in an easy way. But I think the new buzzwords are orchestration, right? Like the ability to not only have the data, but actually be predictive, and not just predictive in the way of like, oh, this order is going to sell to this store, so I should put it close. but actually say, this is a disruption, here’s what I’m gonna do about it. So we’ve seen some early pilots around the ability to do that and do that without much human intervention. But, you know, you think about if there’s a physical flow and a data flow, and a lot of what 3PLs do is a data flow, what are we gonna do in 2 or 3 years when the data can be managed by AI, right? All the transactional data. It’s gonna be about how we orchestrate, how we actually get more predictive. I read something on LinkedIn over the weekend where somebody said delivery will actually be the product in the future. Like, what you’re buying won’t matter. It’ll be the actual delivery is all that matters. When you get it, how you get it, how fast. And of course, we call that the Amazon effect. But, but what does the future hold for that? I don’t think we know.

Speaker 1 [19:18] Are you guys doing anything with drones? Is that—

Speaker 2 [19:20] We are using them right now mostly for inventory. Inside the warehouse? Inside the warehouse and really kind of piloting that. It has some of the same challenges we saw with RFID around density and what type of product it has. But we’re sort of really focused on maybe that’s the way to manage inventory integrity in the future instead of our fund cycle counting.

Speaker 1 [19:42] Yeah, it’s got to be better in terms of just safety because the drone can get up. You know, the worst— some of the biggest challenges in a warehouse in terms of claims is just people climbing.

Speaker 2 [19:52] That’s right.

Speaker 1 [19:52] You know, on higher equipment and falling.

Speaker 2 [19:54] Yeah.

Speaker 1 [19:54] So it’s gotta be a much better way. What are you most bullish about? Like, what is, what is, of all the things that you guys are involved in, this massive scale, what is the technology or thing that you’re most bullish on?

Speaker 2 [20:03] Well, it’s gonna be slightly different than you think. What I’m most bullish is I think people are back to actually thinking about supply chain as partnerships instead of transactional. You know, we go through these cycles of insource, outsource, should I use a 3PL, should I not? And I feel like people are back to, let’s make some bets About what I want to do in my business. What do I want to control? Is it product? Is it marketing? Is it manufacturing? And then what am I going to use my 3PL for? And I think then we have to have the technology to be able to be an integrated part of our clients.

Speaker 1 [20:36] Are you seeing any movement since the Montgomery decision with the Supreme Court? Has there been any, you know, some of the stuff we’re hearing is that shippers realize that there’s risks associated with it and they want one degree of separation. they want a much more robust vetting process. Is that creating demand?

Speaker 2 [20:53] It is. And I think for us, we’ve had a pretty robust— obviously we have French government ownership. And so I feel like from a compliance perspective, we have that robustness. It’s taking capacity out, as you well know. So that’s kind of the biggest challenge. But we continue to double down on the compliance that we had.

Speaker 1 [21:12] Yeah, I think the question is, how long does this cycle last? Any perspective on it?

Speaker 2 [21:16] Yeah, but it was time. I feel like I don’t know whether it’s a cycle or it’s whether it’s Or is it just a natural resetting of supply and demand? I’m sort of hoping the latter.

Speaker 1 [21:25] I’m saying it’s the latter. That’s what we— I mean, I think the cycle is an easy term, but we’ve called it a supercycle because it feels like we’ve got a long run. I love that you guys are owned by a railroad, by the way. I’m a huge fan of the railroad. Julie gives me a hard time about it. We love the railroad.

Speaker 2 [21:38] Chattanooga choo choo.

Speaker 1 [21:38] Chattanooga choo choo. We love some trains down here. So Laura, really appreciate you coming in.

Speaker 2 [21:44] Thank you.

Speaker 1 [21:44] Thanks for joining us. I love Nashville. I love what you guys are doing. I love Geotis. The, the brand that you’ve built over— you guys have built is just— it’s, it’s really fascinating.

Speaker 2 [21:56] Thank you. That was great. Great to be here.

Speaker 3 [21:58] Great to see you. Great to see you.

Speaker 1 [21:59] I’m sure your home is Tennessee. We’re big fans.

Speaker 2 [22:01] Exactly. Me too.

Speaker 1 [22:02] So appreciate it.

Speaker 1 [0:07] Today’s sonar update. I’m going to focus on two things. Today is Tuesday, August fourth. One, an exciting new sonar development. We have partnered with Retlia to produce a new index, rtleg.usa. It’s called the Register, and it gives a view of macroeconomic. Retail conditions. So very cool. Check it out in the Sonar UI. The second thing I really want to focus on and talk about is the new PMI numbers and ISM numbers that were released yesterday for July. So the PMI for July is 55.6, which is up 2.3% above June and a record since May 2022. Overall, For the PMI, new orders increased, inventories remained too low based on sentiment, manufacturing employment turned positive. And all of this is really signaling economic growth on the backdrop of GDP growth at 2.8%. The ISM number came in at 58.9, customer inventories at 40.7, which is down 1.6%, showing they’re going to need to replenish and restock those inventories. Overall employment was up 3.1% in manufacturing. Production increased to 58.5 in July, which is 6.3% up. Backlogs are up by 4.5%. And of those surveyed, 60% said that their companies are hiring, while the remainder said they are managing headcounts. But overall, Orders are up. There is a need for replenishment in inventories. Backlogs are up. Everything is pointing to strength in these numbers and continued expansion in July, showing that we should be seeing some increased demand. You know, we’re not seeing capacity enter the market. This market has been really driven based on lack of capacity due to regulatory pressure. And this is signaling continued strength in manufacturing in our industrial economy. Which should continue to generate freight. Obviously, commodities coming in, finished goods going out, heading to DCs, and then eventually to retailers or to the consumer or the ultimate purchaser. So all of that should be generating freight and looking towards continued strengthening that we have been talking about and potential increased demand coming in the end of August and then through a normal peak season in the fall. So we’ll continue to watch it. But overall, all of the PMI and ISM numbers really came in incredibly strong. So excited to keep watching that. There’s a great article in FreightWaves on FreightWaves website that was released today, really detailing the outcome of this month’s report. So I encourage you to check it out.

Speaker 2 [3:01] All right. So a reminder that the Sonar update today is brought to you by RXO CapacityNow. So as we Hopefully see that continued increase in freight demand as we go through the rest of the year and into peak season. If your routing guide breaks down, if you need capacity now, be sure to reach out to RXO.

Speaker 1 [0:00] We’re gonna talk about trailers. We like to call them warehouse on wheels, and nobody, nobody more than to call them warehouse on wheels named his company after it. John Brooks is the CEO of the company Warehouse on Wheels. Welcome, John. How are you today, sir?

Speaker 2 [0:14] I’m very good. Thank you all for having me. I appreciate it.

Speaker 1 [0:17] All right, so Warehouse on Wheels is trailers. Tell us a little bit about the business.

Speaker 2 [0:22] Yeah, so in 2017, I started the business with our first 2 locations and about 4,000 trailers. And today we’re at 37 locations and 35,000 trailers. We’ve built the business through a multitude of networks from now Montreal, Canada to Monterrey, Mexico. And our purpose is we take end-of-life over-the-road trailers and we repurpose them for flexible industrial storage into the supply chains of our 6,000 customers.

Speaker 1 [0:50] So the idea here is that these trailers that have are no longer, they may be roadworthy, but they’re no longer really in the best of shape to be roadworthy. You’re using them for storage. What’s the advantage of that over a traditional warehouse?

Speaker 2 [1:06] Yeah, so from an economic standpoint, we’re generally 2 to 4 times less expensive on a per square footage basis, and we only require a 30-day evergreen contract, so not a 5, 7, 10-year lease. So the unit economics clearly lean in our favor. And to your point, yes, the trailers are roadworthy. We take those trailers in, we give them a fresh coat of paint, a fresh Federal, so they’re safe, dark, and dry and ready to go to work.

Speaker 1 [1:31] What is the advantage? So cost advantages, but in other commodities, is there any commodities that work better for these trailers or is it all price?

Speaker 2 [1:41] You know, I think it’s a matter of just solving that short-term pain point in the supply chain. You know, You know, we’re all just one tweet away from our silent partners in Washington or some other disruption in the supply chain. And when that happens, that’s really when our assets show up and serve best, is solving that short-term need, that pressure relief valve, that easy button for the guys and gals on the dock that are dealing with issues every day.

Speaker 3 [2:05] Yeah, I think it makes a ton of sense. The flexibility there has to be incredibly beneficial. So you recently released a Supply Chain Activity Index. So can you tell us what it actually measures, what it does, and what prompted you all to come up with the index?

Speaker 2 [2:23] Yeah, we felt like we needed to share with the world kind of our view of the supply chain and how well or how things are performing, I guess. With 6,000 customers across a multitude of industries from automotive manufacturer to retail, we thought we had a view. And so our index is really designed to highlight the level of goods activity throughout the supply chain. It’s, it’s not another pricing index. And so what we did is we, we took a basket of measures that everybody already respects. I just saw it on the Sonar update. I’m looking forward to our July refresh because I think it’ll even be more positive. And then we compared that to the on-off-ramp activity within our own business, and we think that it forms a view of how the underlying supply chain activity and goods are moving.

Speaker 3 [3:09] So it runs 0 to 100, if I’m correct. 50 is neutral. June was— where was June? Oh, 42.2. I see it in the graphic. It’s hard to see. You said you’re looking forward to—

Speaker 1 [3:25] The lines are real small.

Speaker 3 [3:26] Yeah. Well, it says 42.2 very large. I know. It’s up there, but it is—

Speaker 1 [3:30] not just your eyes. Mine too.

Speaker 3 [3:32] I got new contacts yesterday. They might be worse. Anyway. So tell us, so we’re below neutral. So what does that mean for the supply chain overall? What are you expecting for July?

Speaker 2 [3:41] Well, I think it really lines up with even the headline that was in the Journal this morning about how our economy is almost becoming over-indexed to the AI-related infrastructure build. And so when you look through to the goods economy and think about housing starts and other just durable goods orders outside of the AI infrastructure build, there is still a general malaise, in our opinion. There’s a— I sometimes call it this wait-but-still-move mindset that people need to grow, they need to perform quarter over quarter for their shareholders, but no one’s making any real big bets. It’s a lot like the information you guys just shared from Sonar about inventory levels. They’re below ideal. And so, yes, I believe there will be a restocking as we build towards hopefully a more traditional peak season, but at this point, outside of those AI-related builds and components, there’s a general malaise out there.

Speaker 3 [4:34] So I want to continue to tie this together. Trailers being rented or then being, I guess, sent back to you, whatever the right words are for that, across your 37 locations. So why is that a clean read on freight flow as a whole versus just sort of inventory levels?

Speaker 2 [4:54] It’s definitely indexed to inventory levels for sure. But I think it also represents the lack of front-end flow. The fact that when you think about 2018, for example, the first time we dealt with this sort of tariff approach to things, there was a real focus and a real build-ahead, if you will, on inventories. Whereas this time, as the administration came back in and started implementing these things, I think people took a bit of a wait-and-see attitude. They would take smaller bites at the apple, but it wasn’t the big wave of goods. So in our minds, it’s an indicator of the totality of the activity within the supply chain from raw materials to ultimately getting it on the shelves.

Speaker 3 [5:38] So with it being sort of a relatively low number right now, still in contraction below 50%, I think it’s really interesting and I want your take on, despite that, you guys have had tremendous growth to 37 locations now and 38,000, 36,000 trailers I read. So how do you reconcile those 2 things?

Speaker 2 [5:58] Well, we’ve been consolidating the space first and foremost. I was a customer back in the day and saw an opportunity that I felt like this was a portion of the trailer’s life that was a bit neglected. There were a lot of small mom-and-pop players out there serving this use case of storage and local cartage, and we went upon the mission of building a bigger version of that. a national footprint, or in this case, even now an international footprint. So that’s really been the driver behind the growth. And then quite honestly, as we build brand and solution awareness and people come to understand the true economics of the solution, when we win a heart and mind, we rarely lose it. And so a customer may have 50 trailers, they may size down to 25 or up to 100, but they never really give up that solution once they’ve had a chance to experience what we offer.

Speaker 1 [6:48] John, what is the— you got shoes framed in the background. What is special about those shoes? They look like Air Jordans. Am I reading that right?

Speaker 2 [6:55] They are. Much to my wife’s chagrin, I have a Jordan problem.

Speaker 1 [7:00] Okay.

Speaker 2 [7:01] And I’m pretty sure it’s ’cause I couldn’t afford ’em as a kid, but those are actually custom Warehouse— oh, the wrong way— custom Warehouse on Wheels Jordans. And I couldn’t bring myself to wear ’em and scuff ’em up, so they’re a great conversation piece with my management book there from Michael Scott as well, ’cause I’m a big Office fan.

Speaker 1 [7:17] And you’ve got a bunch of, it looks like trucks in the background too, a nice toy collection.

Speaker 2 [7:21] So each time we buy a brand, we have kept that regional brand. And so that’s the family of brands under Warehouse On Wheels. So our customers know us as Meisler Trailer Rental, First In Trailer Service, Advantage Trailer Rental. So Warehouse On Wheels really represents at this point the holding company of that family of brands.

Speaker 1 [7:39] That’s kind of fun. You do a deal, a transaction, and you get a new toy. There you go. I think that’s every man’s dream is like deal, business, let’s make some money. Well, it’s better than a diltoy. You know, those that don’t know what a diltoy is, like a plaque. This is actually even cooler.

Speaker 2 [7:54] A tombstone, yeah. I’ve got enough of those too from my 7 tours with different private equity firms, but yeah, I like the trucks better.

Speaker 1 [8:00] Now, are you guys private equity backed, or did you found it and funded it yourself?

Speaker 2 [8:05] So we’re private equity backed. We’re on our second sponsor. So myself and a group called Milton Street Capital outta Houston started building the business together, and then in 2021, we joined forces with Windpoint Partners, our current sponsor.

Speaker 1 [8:19] Is it harder to find the land? Is that the big issue, or is it the trailers themselves that are the sort of growth constraint?

Speaker 2 [8:25] To be honest with you, neither are that hard because when we go to a market, we generally only need 3 to 5 acres of gravel. It’s pretty simple. And then the used trailer market, now that we’ve come off the COVID abnormalities, there’s a plethora of used trailers in the market. And so that’s really our sources. We’re buying from the private carriers as they defleet and then modernize their fleets.

Speaker 1 [8:48] And would you, in terms of picking a new location, other than, I know you’re buying existing locations, are you scouting out new locations that you guys will open?

Speaker 2 [8:56] Yeah, we just launched. We’ll launch in the next 2 weeks in Chicago, of all places. We’re kind of slow to get there, but really, you think about us along the 8 major corridors of transportation, and then probably in smaller towns just adjacent to those main thoroughfares. That’s really where we thrive.

Speaker 1 [9:13] John, you’re a brave man to put an industrial asset in Chicago, but it is the epicenter of freight, not as big and important as Chattanooga is, but it is certainly up there. Right, totally agree. In terms of growth, what is the constraint on growth? Is it capital? Is it customer demand? What slows you guys down?

Speaker 2 [9:39] Yeah, I mean, I think we’ve got to be good stewards of the capital. Again, we’re private equity owned, so there’s not an infinite checkbook, but I think for us, there’s really been little to no constraints. I mean, to go from 2 locations in roughly essentially 2018, we started in November of ’17, to 37 today, I think is a real testament to what the model can be. And my vision for the organization is 100 locations and 100,000 trailers, and that’s what we’re building towards.

Speaker 1 [10:06] Wow. And then do you have any metrics you can share with us in terms of what a trailer does in terms of monthly yield or annual yield?

Speaker 2 [10:13] Yeah, absolutely. So, you know, the way we do things and operate, you know, we’re generally providing kind of an 8x money-on-invested-capital return on these trailers. So we’ve really built quite a mousetrap that I’m pretty proud of and something that we’re continuing to scale.

Speaker 1 [10:31] So 8x, is that over the life of that trailer? Yes, over the life of the trailer. So when you’re looking for, When you’re buying an asset, you’re looking for it to basically yield 8 times what you guys invested.

Speaker 2 [10:42] Absolutely. And if you think about it, our use case is so much different than the over-the-road. The trailer rolls to the site, it gets loaded, it’s generally stored close to the site, or maybe comes back to our yard to be stored. So it really minimizes the wear and tear on the asset, which allows that asset then to have a substantial useful life under our ownership.

Speaker 3 [11:01] But John, does it make so much sense? Because at that point in the life of the asset is when the maintenance costs begin to rise, right?

Speaker 2 [11:07] Yeah.

Speaker 3 [11:07] But you’re not gonna have to do nearly as much.

Speaker 1 [11:09] It’s a great business model.

Speaker 3 [11:10] I’m really into it. Yeah, as long as they are watertight.

Speaker 1 [11:12] Well, that’s the thing I was wondering.

Speaker 3 [11:15] And he mentioned that.

Speaker 2 [11:16] Safe, dark, and dry is what we like to say.

Speaker 3 [11:18] Say it again. What? Dark and dry?

Speaker 2 [11:20] Safe, dark, and dry.

Speaker 3 [11:22] Safe, dark, and dry.

Speaker 1 [11:22] So I am just curious, is there certain commodities that this isn’t ideal for? Obviously, a fridge isn’t.

Speaker 2 [11:29] Yeah, anything temperature controlled really doesn’t fit for us, but Again, we’re supporting everyone from automotive manufacturers through apparel production through to retail. Plastics manufacturers are a big customer as well because, again, in that business, a lot of times it’s optimizing the raw material input, so playing the commodities market, and then optimizing the throughput volume so you don’t have to change over tools and so forth. That trailer flexibility to allow you to store that staged or even finished product Gives you a tremendous lever to play as you manage those other key components of your process.

Speaker 3 [12:04] I don’t even think through the course of them, even through the course of a month, it would be like, you know, end of month, end of quarter, getting it off your yard and into one of these trailers wherever it needs to go. Like, I would think the flexibility has got to be the biggest selling part.

Speaker 1 [12:17] Brilliant. John, I imagine permitting is so much easier than building a physical building, particularly in certain districts where they don’t, you know, they’re not welcoming industrial real estate. You have the advantage of, you know, you have portable units and they’re classified as trailers. I imagine that gives you an enormous amount of advantage in permitting.

Speaker 2 [12:35] It absolutely helps. We’re actually, we’ve got our Ecovadis score, so we’re recognized as an environmentally friendly solution because not only are we helping you avoid the construction of the warehouse and the infrastructure and all the burden that goes with that, we’re also helping to keep some of these trailers out of the scrapyard, relatively speaking. And so Again, viewed very positively from an ESG standpoint. I like to say that we make the procurement guys happy, we make the CFO happy, and we darn sure make the operators happy.

Speaker 1 [13:03] One man’s junk is another man’s treasure. That is the great thing here is these old units. I have to imagine, John, if we went to one of your yards, we would see some old school trucking names out there. Like, you know, we used to own a company called Paragon Leasing, which is a trailer leasing company. Occasionally, Julie, around town you’ll see a Southwest Motor Freight trailer that’s out there. It always makes me happy. Usually it’s been stripped.

Speaker 3 [13:28] Yeah, and you could just still see like the— Yeah, the ghost.

Speaker 1 [13:32] Yeah, the ghost of the freight.

Speaker 2 [13:33] Well, I have a rule.

Speaker 3 [13:34] It’s—

Speaker 2 [13:35] I have all these Brooksisms, as you guys will get to know me, and one of them is 55 and 55. I want the trailer to look good at 55 feet away and 55 miles an hour. So we give it a fresh coat of paint all the way around, a fresh branding, and then a fresh federal. So again, back to my earlier point, it shows up safe, dark, and dry, ready to go to work, and it needs to look good from that distance.

Speaker 1 [13:55] So those ghosts of trailers past, those libraries that are gone on to— are, are no longer there?

Speaker 2 [14:01] Our intention is to cover those up. Now, will one slip through the cracks? And, and with all our acquisitions, quite honestly, there are some trailers we’ve probably acquired that I haven’t even seen yet in our hold period because they stay on rent that long. Our, our average rental period right now is probably about 20, 24 months. So, wow.

Speaker 3 [14:17] And can those shippers transfer those between different facilities of theirs, or is it for a specific location?

Speaker 2 [14:24] They’re licensed and federally certified, so they can roll on the road, and we’ll help move them for them if they need us to.

Speaker 1 [14:30] Amazing business. I love businesses that just require creativity, brilliance, leverage capital, recycling. John’s got an amazing business. We’re big fans of yours, John, here. I am.

Speaker 2 [14:44] Well, I am fans of yours as well. What you guys have built here and the service you provide to those of us in the space, I honestly am sincerely grateful for that.

Speaker 1 [14:52] Well, likewise. Well, if you get ahold of an old Roadway trailer, just give us a holler. I’m looking for one. I think those are cool. I’ll send you pictures. I want the OG one, not the YRC one. I want the old school Roadway. And it’s really its prime right before the big acquisition. John, thank you so much for coming on Freightways Today. We’ll have to have you back.

Speaker 2 [15:13] Thank you all very much.

Speaker 1 [15:14] Have a good day.