In for the long haul: interview with John G. Larkin
During his 34 years in the field, all-star transportation analyst John G. Larkin has witnessed a lot of change. And the most profound shift of all, he says, has nothing to do with trucking.
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
John G. Larkin hasn't worked in the transportation field since the dawn of creation. It just sometimes feels that way.
Larkin began his transportation career in 1977 as a research assistant at the Center for Transportation at the University of Texas at Austin. After obtaining his bachelor's and master's degrees in civil engineering from the Universities of Vermont and UT-Austin, respectively, as well as an M.B.A. from Harvard University, Larkin spent three years at CSX Transportation in various planning and economic analysis capacities. In 1987, he embarked on what would become a near 25-year career as one of the industry's most renowned securities analysts, rising to become managing director and head of the transportation practice at Baltimore-based Stifel, Nicolaus & Co.
Larkin, who has forgotten more about transportation that most know, spoke to DC Velocity Senior Editor Mark B. Solomon about what came before, what is happening today, and what the present portends for the future.
Q: What are your data points telling you about the direction of shipping volumes and the health of the overall economy over the next six to 12 months? A: We have much better real-time data on freight volumes than ever before. But the most useful information is of the anecdotal variety from privately held companies. They have no ax to grind with public shareholders and almost always shoot straight. Through their feedback, we have detected a disconnect: Freight volumes, at least relative to downsized capacity levels, are looking rather good at the moment. The sky is not falling.
We think the economy will continue to grow at a sluggish 1- to 2-percent rate through the elections. High unemployment, a high savings rate, uncertainty regarding tax policy and health care costs, and the anti-business rhetoric coming from the White House have slowed new hiring, risk taking, and capital formation.
Slow growth is probably the best we can hope for, and I would not rule out a mild double-dip recession. But it would be mild due to the leanness of inventories.
Q: You've worked in transportation since before deregulation. Between inflationary pressures, driver shortages, and aggressive government intervention, can you recall a climate so unfavorable to truckers as the one we have today? A: One man's pain is another man's gain. All of the issues cited put a crimp on capacity additions. The surviving carriers that are able to effectively deal with all these challenges will benefit from the improved pricing that accompanies tight supply and demand. But we are in uncharted territory when it comes to the quantity and magnitude of the challenges facing the trucking industry.
Q: Do you foresee all this resulting in significant rate pressures for shippers over the next two to four years? Or will shippers—the larger ones at least—be able to drive down increases to levels that mimic the annualized inflation rate? A: I strongly believe the driver-driven capacity shortage will be dramatic and that shippers will have to pay up for high-quality capacity over that time frame. The fly in the ointment would be a severe downturn in the economy. Under those conditions, rates could fall again.
Q: Driver retention today appears to be a bigger challenge than driver recruitment, with driver turnover in the third quarter running at an estimated 90 percent compared with 40 percent a year ago. What can companies do to hold on to drivers? A: They can pay them more, get them home more frequently, keep trucks rolling to maximize productivity under the current hours-of-service regulations, offer economic incentives to safe drivers who are almost always on time, and sensitize those who come into contact with drivers to treat them like the valuable resources they are.
Q: Rail intermodal stands to benefit from the challenges facing truckers and truck shippers. Yet if rails want to be competitive, they will have to deliver reliable service over the shorter distances traditionally served by a solo trucker. Are the railroads really capable of playing consistently on the shorter hauls? A: Length of haul is relative. By "short haul," the rails are talking about 500- and 600-mile lengths of haul. The railroads in the East will continue to improve their service in lanes of that length that are anchored by big cities such as Chicago, Atlanta, and New York. Otherwise, only a few shorter lanes are dense enough to make economic sense, such as Savannah to Atlanta.
Q: There has been a rise in yard dwell times reported by the Class I railroads. Does that indicate the rails might not be able to efficiently handle any additional volume that might come their way? A: Dwell times have risen some, but I think more due to weather issues than to capacity constraints. We have had some amazing weather this year, especially the heavy rains that led to unprecedented flooding.
I believe the railroads are much more capable than they have been historically in terms of coping with volume fluctuations. Railroads can digest another 10 to 15 percent more volume without any significant deterioration in service levels—assuming that other factors, such as weather conditions, remain unchanged.
Q: It has been said the impact of CSA 2010, the new hours-of-service rule, the driver shortage, and tougher emissions standards is a supply chain problem, not just a trucker problem. Do you think shippers, receivers, and intermediaries grasp the severity of the problem and are thinking about ways to mitigate the effects on carriers? A: I would say that about a third of the shippers understand the situation. They are collaborating with carriers to help them get more productivity out of their equipment. They are working with their vendors on product and packaging design with the goal of loading more product per 53-foot box or trailer. They are looking to take control of inbound loads in order to minimize systemwide empty miles.
The challenge is for carriers to somehow convince the other two-thirds of the shipper community that the world is changing.
Q: In 34 years working in and covering the industry, what has been the most profound change you've seen? A: The margins earned by the Class I railroads. We struggled at CSX in the 1980s to run below a 90-percent operating ratio. Now, carriers are targeting operating ratios of 65 percent or below. And the railroads have been able to generate these much improved margins while still charging half what they did at the time of deregulation. That is amazing to me.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
With the economy slowing but still growing, and inflation down as the Federal Reserve prepares to lower interest rates, the United States appears to have dodged a recession, according to the National Retail Federation (NRF).
“The U.S. economy is clearly not in a recession nor is it likely to head into a recession in the home stretch of 2024,” NRF Chief Economist Jack Kleinhenz said in a release. “Instead, it appears that the economy is on the cusp of nailing a long-awaited soft landing with a simultaneous cooling of growth and inflation.”
Despite an “eventful August” with initial reports of rising unemployment and a slowdown in manufacturing, more recent data has “calmed fears of a deteriorating U.S. economy,” Kleinhenz said. “Concerns are now focused on the direction of the labor market and the possibility of a job market slowdown, but a recession is far less likely.”
That analysis is based on data in the NRF’s Monthly Economic Review, which said annualized gross domestic product growth for the second quarter has been revised upward to 3% from the original report of 2.8%. And consumer spending, the largest component of GDP, was revised up to 2.9% growth for the quarter from 2.3%.
Compared to its recent high point of 9.1% in July of 2022, inflation is nearly back to normal. Year-over-year growth in the Personal Consumption Expenditures Price Index – the Fed’s preferred measure of inflation – was at 2.5% in July, unchanged from June and only half a percentage point above the Fed’s target of 2%.
The labor market “is not terribly weak” but “is showing signs of tottering,” Kleinhenz said. Only 114,000 jobs were added in July, lower than expected, and the unemployment rate rose to 4.3% from 4.1% in June. Despite the increase, the unemployment rate is still within the normal range, Kleinhenz said.
“Now the guessing game begins on the magnitude and frequency of rate cuts and how far the federal funds rate will be reduced,” Kleinhenz said. “While lowering interest rates would be good news, it takes time for rate reductions to work their way through the various credit channels and the economy as a whole. Consequently, a reduction is not expected to provide an immediate uplift to the economy but would stabilize current conditions.”
Going forward, Kleinhenz said lower rates should benefit households under pressure from loans used to meet daily needs. Lower rates will also make it more affordable to borrow through mortgages, home improvement loans, car loans, and credit cards, encouraging spending and increasing demand for goods and services. Small businesses would also benefit, since lower intertest rates could lower their financing costs on existing loans or allow them to take out new loans to invest in equipment and plants or to hire more workers.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”