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.
RJW Logistics Group, a logistics solutions provider (LSP) for consumer packaged goods (CPG) brands, has received a “strategic investment” from Boston-based private equity firm Berkshire partners, and now plans to drive future innovations and expand its geographic reach, the Woodridge, Illinois-based company said Tuesday.
Terms of the deal were not disclosed, but the company said that CEO Kevin Williamson and other members of RJW management will continue to be “significant investors” in the company, while private equity firm Mason Wells, which invested in RJW in 2019, will maintain a minority investment position.
RJW is an asset-based transportation, logistics, and warehousing provider, operating more than 7.3 million square feet of consolidation warehouse space in the transportation hubs of Chicago and Dallas and employing 1,900 people. RJW says it partners with over 850 CPG brands and delivers to more than 180 retailers nationwide. According to the company, its retail logistics solutions save cost, improve visibility, and achieve industry-leading On-Time, In-Full (OTIF) performance. Those improvements drive increased in-stock rates and sales, benefiting both CPG brands and their retailer partners, the firm says.
"After several years of mitigating inflation, disruption, supply shocks, conflicts, and uncertainty, we are currently in a relative period of calm," John Paitek, vice president, GEP, said in a release. "But it is very much the calm before the coming storm. This report provides procurement and supply chain leaders with a prescriptive guide to weathering the gale force headwinds of protectionism, tariffs, trade wars, regulatory pressures, uncertainty, and the AI revolution that we will face in 2025."
A report from the company released today offers predictions and strategies for the upcoming year, organized into six major predictions in GEP’s “Outlook 2025: Procurement & Supply Chain” report.
Advanced AI agents will play a key role in demand forecasting, risk monitoring, and supply chain optimization, shifting procurement's mandate from tactical to strategic. Companies should invest in the technology now to to streamline processes and enhance decision-making.
Expanded value metrics will drive decisions, as success will be measured by resilience, sustainability, and compliance… not just cost efficiency. Companies should communicate value beyond cost savings to stakeholders, and develop new KPIs.
Increasing regulatory demands will necessitate heightened supply chain transparency and accountability. So companies should strengthen supplier audits, adopt ESG tracking tools, and integrate compliance into strategic procurement decisions.
Widening tariffs and trade restrictions will force companies to reassess total cost of ownership (TCO) metrics to include geopolitical and environmental risks, as nearshoring and friendshoring attempt to balance resilience with cost.
Rising energy costs and regulatory demands will accelerate the shift to sustainable operations, pushing companies to invest in renewable energy and redesign supply chains to align with ESG commitments.
New tariffs could drive prices higher, just as inflation has come under control and interest rates are returning to near-zero levels. That means companies must continue to secure cost savings as their primary responsibility.
Freight transportation sector analysts with US Bank say they expect change on the horizon in that market for 2025, due to possible tariffs imposed by a new White House administration, the return of East and Gulf coast port strikes, and expanding freight fraud.
“All three of these merit scrutiny, and that is our promise as we roll into the new year,” the company said in a statement today.
First, US Bank said a new administration will occupy the White House and will control the House and Senate for the first time since 2016. With an announced mandate on tariffs, taxes and trade from his electoral victory, President-Elect Trump’s anticipated actions are almost certain to impact the supply chain, the bank said.
Second, a strike by longshoreman at East Coast and Gulf ports was suspended in October, but the can was only kicked until mid-January. Shipper alarm bells are already ringing, and with peak season in full swing, the West coast ports are roaring, having absorbed containers bound for the East. However, that status may not be sustainable in the event of a prolonged strike in January, US Bank said.
And third, analyst are tracking the proliferation of freight fraud, and its reverberations across the supply chain. No longer the realm of petty criminals, freight fraudsters have become increasingly sophisticated, and the financial toll of their activities in the loss of goods, and data, is expected to be in the billions, the bank estimates.
Specifically, 48% of respondents identified rising tariffs and trade barriers as their top concern, followed by supply chain disruptions at 45% and geopolitical instability at 41%. Moreover, tariffs and trade barriers ranked as the priority issue regardless of company size, as respondents at companies with less than 250 employees, 251-500, 501-1,000, 1,001-50,000 and 50,000+ employees all cited it as the most significant issue they are currently facing.
“Evolving tariffs and trade policies are one of a number of complex issues requiring organizations to build more resilience into their supply chains through compliance, technology and strategic planning,” Jackson Wood, Director, Industry Strategy at Descartes, said in a release. “With the potential for the incoming U.S. administration to impose new and additional tariffs on a wide variety of goods and countries of origin, U.S. importers may need to significantly re-engineer their sourcing strategies to mitigate potentially higher costs.”
A measure of business conditions for shippers improved in September due to lower fuel costs, looser trucking capacity, and lower freight rates, but the freight transportation forecasting firm FTR still expects readings to be weaker and closer to neutral through its two-year forecast period.
Bloomington, Indiana-based FTR is maintaining its stance that trucking conditions will improve, even though its Shippers Conditions Index (SCI) improved in September to 4.6 from a 2.9 reading in August, reaching its strongest level of the year.
“The fact that September’s index is the strongest since last December is not a sign that shippers’ market conditions are steadily improving,” Avery Vise, FTR’s vice president of trucking, said in a release.
“September and May were modest outliers this year in a market that is at least becoming more balanced. We expect that trend to continue and for SCI readings to be mostly negative to neutral in 2025 and 2026. However, markets in transition tend to be volatile, so further outliers are likely and possibly in both directions. The supply chain implications of tariffs are a wild card for 2025 especially,” he said.
The SCI tracks the changes representing four major conditions in the U.S. full-load freight market: freight demand, freight rates, fleet capacity, and fuel price. Combined into a single index, a positive score represents good, optimistic conditions, while a negative score represents bad, pessimistic conditions.