Article written by John Kingston
Getting companies further down the supply chain to adapt new technology has always been a challenge, according to Doug Waggoner, the CEO of Echo Global Logistics (NASDAQ: ECHO).
But in an interview with FreightWaves founder and CEO Craig Fuller at FreightWaves LIVE @HOME, the online event that is bringing together supply chain leaders in virtual settings, Waggoner said it was starting to get a little easier.
Waggoner was asked by Fuller what things might have occurred in the freight industry had it not been hit by the COVID-19 pandemic.
Echo Global has long spent significant sums of capital on technology investment. But adoption hasn’t always been easy.
“When we put out technology for trucking companies, there are some trucking companies that are eager to adopt it and jump on the bandwagon,” Waggoner said. “Same for shippers. There are some that demand it.”
Unfortunately, Waggoner said, “there are some that aren’t ready for it.”
But there is change in the air. “One of the things I’ve seen happen because of the focus on digital is that some of those slow adopters are starting to speed up and starting to accelerate their willingness to deal with technology and go through a digital marketplace to book capacity,” Waggoner added.
Fuller asked Waggoner given that the brokerage space is constantly changing, whether a possible disruption coming from load boards such as DAT and Truckstop.com are a threat to companies like Echo Global. Echo needs to incorporate data from companies such as those two to make many of its freight matching tools work.
Waggoner said Echo “picks our partners carefully. We do believe that some of these partnerships are important. There is a data component and there is market access.”
He also said he doesn’t see that sort of migration by load boards into either the brokerage space or being modified so that loads can be booked directly through a load board, pushing out intermediaries.
“They don’t want to be competitors,” Waggoner said. “They have an important function to play in the marketplace and they play it. I think they understand their place and we understand ours.”
Brokers have been under fire on social media and at trucker protests from drivers who are directing their anger at low freight rates on to the brokers themselves. The anger has gotten bad enough that the head of the main brokers trade group posted an unusual video defending the industry.
Waggoner did say that he believed that technology will mean a “longer-term secular compression of margins as people get more efficient and don’t need to have the margins we traditionally have had.”
But he also addressed the current market in a way that did not speak to the anger directly but where it seemed to be the underlying message – it isn’t all that the critics make it out to be.
The normal lag on the way up and the way down means that there will always be periods of contracting and expanding broker margins, Waggoner said. “In the last six weeks, we’ve seen kind of a microcosm of how that plays out,” he added.
When capacity is tight, like it was in those first weeks when the pandemic hit and there was a mad rush to restock shelves, “the prices go up and third parties like Echo get their margins squeezed, because the prices we pay are going up faster than we can pass them through to our customers.”
And when demand softens and there is an excess of capacity, “the price we pay for that capacity falls faster than what we charge customers,” Waggoner said.
That’s the current situation but things are changing rapidly, according to Waggoner. He described current rates as “very depressed,” and said rates in the last few weeks have fallen by an “amazing” amount.
Over time, prices move up or down but overall for brokers’ bottom line, “the gross profit dollars or the net revenue dollars per shipment really don’t fluctuate that much,” Waggoner said.
The picture of a brokerage company is always that of a lot of people sitting in some sort of open-plan office, working the phones or on their screens. But Echo Global, like all companies, has sent its workers home, roughly all 2,600 of them. Waggoner isn’t sure in what form they’ll be coming back.
“At some point I think we’ll get everybody back at work,” Waggoner said.”But I think we’re going to take it slow and let it kind of happen organically.”
But that’s short- to medium-term. Longer term, Waggoner questioned whether the old ways will be necessary going forward. “I do think this causes us to question whether people need to come to work [at an office] five days a week,” Waggoner said. “Maybe in a city like Chicago where you can have a (90-minute) commute one way, maybe it is a great fringe benefit for working for Echo to be able to work from home one or two days a week.”
Waggoner is one of those who has gained time from the lack of commuting; he described his daily trip as three hours per day.
And once in the office, Waggoner said he always had an “open door policy” but spelled out some of the productivity pitfalls to that. “You invite them in and you have a 20- or 30-minute conversation,” he said. “But it was in the middle of something you were doing and now you have to restart and figure out where you were and get back in the groove.”
Working from home now, Waggoner conceded “I’m a lot more productive.”
Waggoner was asked his view of the current market. He reviewed the timeline that everybody pretty much knows now – a tremendous surge in volume starting in mid-March, followed by a “major hit in truckload.”
“But the good news for me is that it seems like it leveled off and in the last week has started to pick up a little bit,” he said.
The recovery, according to Waggoner, is going to be a “U-shaped recovery,” What isn’t known, he added, is “whether it is a wide U or a narrow U.” But for now, he said, “I think we’ve hit the bottom.”
Original Source: https://www.freightwaves.com/news/slowly-but-surely-technology-laggards-are-getting-up-to-speed-echo-globals-waggoner