Logistics Management Group News Editor Jeff Berman recently spoke with Doug Waggoner, CEO of Chicago-based Echo Global Logistics about various topics, including: the state of the freight economy, tariffs and the trade war, trucking capacity, and AI, among others. Their conversation follows below.
LM: How do you view the ongoing situation regarding tariffs and global trade, in terms of the supply chain implications?
Doug Waggoner: It is hard to say in a way, as there has been a lot of changes following various tariff announcements. We were recently down in Mexico for the grand opening of our Mexico City office and we met with a lot of Mexican media. Of course, that was all they wanted to talk about. It was hard to give them an answer, because we just don’t know.
If I had to make my best guess, I would say in the short-term, you could see less freight off the West Coast coming from the Pacific Rim. That seems to be pretty obvious. I don’t know if there’s been some inventory pull forward; we just don’t have the data on that, but that that could be a thing. But I think once that settles down, as long as we’ve got this tariff war with China in particular, you could see a lot less volume coming to the West Coast ports. Longer term, I think that gets replaced with domestic transportation that’s originating either in Mexico for near shoring or, manufacturing points in the U.S. for reshoring. So, I think the net-net for transportation probably is unaffected. It’s just that you’ll see commerce moving in different lanes than it has historically moved. But I also think that it’s not all sorted out yet. So, of course, we hear anecdotal stories. We talked to a customer in Mexico that was holding off on shipping their engines to the U.S. until they understood what the ramifications were going to be, so, for an entire two-week period, they didn’t ship anything. In general, people are nervous, but it varies by industry, obviously, and the commodities that they move.
LM: Can you please provide an update on Echo’s business in Mexico, following the recent expansion of the company’s cross-border services there, as well as setting up new locations in Mexico City, Monterrey, and Laredo, Texas?
Waggoner: We’ve been doing business in Mexico for quite a while, but we really didn’t have a presence there. So, having a presence there enables us to form relationships with either Mexican companies or the Mexican offices of U.S. companies to penetrate the market. When you talk to our people down there, they’re meeting with new companies every week that are opening shops and breaking ground and building facilities. And many of them are either Chinese companies or they’re Chinese partnered with Mexicans to form new entities, presumably to skate around the tariff issue somehow. And I think they’re being very creative, but we’re seeing a lot of activity down there with new entities and new facilities, and it’s just a huge market both directions, across the border, and we just want to get our fair share of it, so we’re putting our presence down there.
LM: What are you hearing from your manufacturing customers about how they’re sort of dealing with things in the short-term and possibly the long-term, too, and how are you working with them?
Waggoner: Manufacturing is a big part of our book of business. The fact that it has been down, and the fact that we’ve been trending up on our growth rate in recent weeks, I think, is a good indicator. I would say that they generally are optimistic that the second half of 2025 is going to be better than what we’ve seen over the last couple of years. Maybe our volume correlates with that. It’s just we don’t have enough data yet to make that conclusion.
LM: How are you viewing the current capacity outlook?
Waggoner: We always talk about capacity. And we’ve had an oversupply of capacity for the last two-and-a-half years. However, there has been capacity coming out, and what we’ve seen in the last few weeks is that flatbed capacity is getting really tight, as tight as it’s been in over two years. We’re doing some analysis now, but sort of anecdotally, there’s a five- or six- month delay, typically when you see tightness or looseness in the flatbed market that sort of portends five or six months later what’s going to happen with dry van. We’re doing some lag correlation analysis right now to see if that gut feeling holds out. But that could also be an indication that capacity is continuing to come out of the market. We’re teetering around that equilibrium point, so we could get into a tight market in the second half of 2025, if we don’t go into a recession first.
LM: What do you think about Peak Season prospects or is it too early to tell, due to the ongoing tariff-related news?
Waggoner: I think, generally, the economy is doing pretty well. We have good employment numbers, inflation is coming down, oil prices coming down, and oil is a major input on everything, for things like energy and manufacturing. That’s going to have a way to tamp down inflation a little bit, so I think there’s some good parts of the economy. And it’s hard to say what Trump’s doing, but assuming he’s got a master plan and it works, we could see a really solid second half of the year. If he’s wrong and it crashes and burns, then it’s anybody’s guess.
LM: What do you think about the current state of rates and pricing?
Waggoner: When we look at both spot and truckload, for that matter, pricing has been very stable, really, since the beginning of the year. And if you look on a year-over-year basis, prices are about the same as they were a year ago. We’re definitely trending upwards a little bit, so I think we’re definitely past the bottom of the trough. And prices inching up gradually, I think, is healthy. If there’s coming tightness in capacity, that that could spell a good market for transportation providers.
LM: How are you seeing pricing on the brokerage front?
Waggoner: Contract freight is holding up really well. That’s always going to be a function of how successfully you bid on new business. If you bid and win, that’s going to grow more than the market in general. Spot is pretty flat, so it doesn’t look like it’s a tight market yet. And one of our measurements that we look at as a sort of barometer for the tightness or looseness of the market and where we are in the cycle is GP (gross profit) per load, and that’s been very consistent for the last several months. That is GP being the difference between what we charge the customer and what we pay for the truck. So, it’s sort of a second derivative play. When prices are moving, we can see our margins either tighten or expand. And so generally, what you would see when the market starts to tighten up, is that the price we pay for a truck starts rising faster than we can pass that on, so our margins get squeezed. On the flip side, if you look at 2021, it was sort of the peak year, and then it started falling off the cliff in 2022. In the first two quarters of the year, the price we were paying for a truck was falling faster than we were passing it through, so you saw huge margin expansion. We use gross profit per load on truckload as really sort of an indicator of where we are in that cyclical pattern.
LM: Let’s shift gears over to technology, specifically AI. What is Echo’s approach to AI? And how do you view it from a market perspective?
Waggoner: I think we’ve been a leader in adopting AI. We were doing it even before the advent of the large language models (LLM). We have a data science department with about 25 people, and we use neural networks and machine learning to create algorithms to do things like pricing and to measure price elasticity of customers and carriers. But when the large language models came along, that opened up new opportunities for us to explore things like natural language processing, the ability for an AI agent to read e-mails and to go get an answer to that e-mail and write the response, and then let the salesperson review it, edit if necessary, and click the send button. We’ve implemented that already and are starting to do the same thing with voice. There are tools out there. We build some in-house, but there’s also tools available from third-party vendors where an employee can have an AI agent that reads every email that they receive and sends a call that they make, and it learns their business, and it learns how they do things. I think it’s here to stay. The hype is real. I think it’s going to transform not only our industry, but a lot of industries. I think it’ll be bigger than the Internet was, so I’m a big cheerleader for it. It’s not the answer to everything, but for those that use it wisely and have a good strategy, you still have to think about your relationships and your interaction with your customers and, in our case, your carriers. So, you’ve got to be thoughtful about where and how you implement it, but there’s opportunities to make the business far more productive, far more efficient, and with more reliability, better service levels. I’m pretty excited about it. We are implementing a lot of AI solutions as we speak, even for things like internal reporting. In the past, I would have to go to the financial Planning and analysis team to ask for a customized report, as there wasn’t a standard report. Today, I have a Teams app on my phone, with a chat bot that’s connected to all of our data, and I can go into Teams and send a chat and say, ‘Tell me the top 10 customers last week and what was their shipment count, their revenue and their gross profit,’ and it’ll produce a report for me on my phone,
LM: Shifting back to the economy, how are you viewing current demand levels, given what some current freight indicators are saying?
Waggoner: I think it’s been pretty anemic, there’s nothing to get excited about. In talking to competitors, I think that’s a pretty consistent theme. We have some growth that’s probably exceeds others, and I would attribute that to us taking market share. But I don’t think there’s been really any uptick in demand yet, although, depending on who you talk to, some people think we might see it in the second half of the year. I’m one of those people. And then you have others that say we’re not going to see it until 2026.
LM: There has been a lot of attention within the industry paid to freight fraud and cargo theft. How does Echo view that situation as the industry continues to address it?
Waggoner: It’s a big problem, because you’re seeing organized crime get involved in this and using very, very sophisticated methods and techniques, even going so far as to hijack trailers and drive them up to the delivery point so that the macro point geofencing triggers and shows it at the delivery point and then driving off with it. There’s a lot of collaboration in the industry. We’re all talking to each other and comparing best practices. We have a standard set of SOPs. We’ve tightened them up. We get very granular about what load we’ll give to which carrier. If it’s a high-value load, they have to have sort of a higher security score with us than just a bulk commodity type load. We’re also using technology in the form of tracking devices that we can conceal and where you would never see them. And we have full time tracking and the ability for devices to call home and report anything we want to know about.
LM: What are your thoughts on the M&A environment at this point of the year?
Waggoner: Speaking for ourselves, we’re active right now. We’re looking at opportunities. And it’s hard to know when you’re going to pull the trigger on one, but we think it’s a good time to buy if you buy the right asset at the right price. I think other people are thinking the same way. Obviously RXO bought Coyote recently. I think there’s also some troubled companies in our space. It’s a tough market to make money if you don’t have scale, so there could be some opportunities there to have some consolidation in the industry. I think the market has been relatively closed so far this year, but I think it will open up as we go out through 2025. There can be a lot of buyers and some people that might need to sell or want to sell. There’s also a lot of private equity firms that have owned assets longer than they would typically like to and, they’re reaching the end of their funds, and they need to find exits, so that creates opportunity as well.
LM: Aside from tariffs and the renewed trade war, what are some other things you are keeping a close eye on?
Waggoner: I generally believe in sort of the consumer psychology. If consumers feel good, they buy more. It creates more commerce. I was sort of hopeful that some of the things that the Trump administration was going to do were going to create those “animal spirits” that Wall Street refers to, which get people excited and feeling confident and more willing to spend money. Spending money has a multiplier effect. We’re seeing the opposite at this moment, but I haven’t given up hope. Because I think part of the administration’s strategy is, “sometimes you want to get better, and you have to take some medicine.” If this works, with some of the things the administration is doing, we could see renewed confidence and excitement. There is a segment of the population right now that’s very excited about what’s going on. And there’s a big portion that’s frightened and scared to death. And then there’s the news media and whatever its angle is, but I think you have to win over the consumer sentiment. And what are the inputs on that? It’s interest rates, the proverbial price of eggs, the price of fuel which have both come down, and unemployment. There’s just a lot of headline noise. It’s probably got people nervous. Once that subsides, I think we’re actually in pretty good shape.
