What the Fed’s Interest Rate Cut Means for Trucking | Ep 26

Caroline: Welcome to This Week in Trucking. The podcast that tells you what you need to know about the trucking market for the week.

Today, we’re talking about diesel prices and where you can find the best rates in the trucking market. We’re also going to be talking about the big news from the Fed, lowering interest rates. And if you want to stay up to date with the trucking industry, we release a new episode on YouTube, Spotify and Apple podcasts every week, so make sure you subscribe and you never miss an update.

Hey, Gurvir, how is it going? How are things? I bet you’re a happy guy today. 

Gurvir: Yeah, this is one of the things that I’ve heard in a while. It also shows that Fed is starting their next phase. But I think for the last two and a half years or so we saw increases, drastic increases that we had never seen.

And finally we’re getting a 50 basis point [00:01:00] decrease. I think a lot of people were anticipating a quarter. I was thinking it was going to be a quarter. But I think because of the job jobs reports and inflation cooling down, I think that it’s taking a sort of aggressive approach here.

So this is really good news for trucking. And a lot of businesses out there.

Caroline: And we’ll get into that. We’ll get into why it’s good news for trucking in a minute. Let’s take a quick look at diesel prices for the week. You said that we probably wouldn’t get any better than last than 2 weeks ago, and I’m happy to prove you wrong because this week’s average on highway diesel price is 3.526 overall.

It’s dropped in nearly every region. So this is good news. The only place that it’s gone up from last week is in the Rocky Mountain region. And so if you’re in the Rocky Mountain region and saying, hey, my diesel prices didn’t go down that’s because they didn’t. Unfortunately, in that region. But everywhere else across the board, diesel prices are down from last week.

They are down across the board in all regions compared to last year. So we’re actually looking really good for diesel prices. That’s always good news for [00:02:00] carriers. 

Gurvir: Yeah, I would have never thought. I think, where did we start our conversation? 3.80s and 90s this, earlier this year, and it’s just been coming down and down.

My guess was that, hey, 3.60s were pretty deep and steep, and we wouldn’t see it anymore. I would still stick, again, it’s very hard to predict exactly what amount we’re gonna hit, but just know that this is pretty low right now, and I don’t anticipate that it’s continue to go down any further we’re just hitting like new lows and stuff.

But this is good news for truckers, right? Again 25 percent of your operating cost are diesels diesel fuels. I’m liking this news, right? We’ll dive into the freight market. That’s not doing very well right now, but at least the diesel is coming down.

Caroline: Yeah, let’s look at some of the hottest markets right now for the different for the different equipment types. We’ll start with dry van and this is a comparative analysis. So this doesn’t necessarily tell us what the rate per mile is, but it does tell us the spotter index does have a per hour profitability that they estimate based on a lot of different data.

So this is [00:03:00] comparing regions across the board. For dry vans, we’re looking at some pretty hot markets out here in the West, but actually the hottest markets are now in the Northern Midwest in Minnesota and North Dakota and Michigan. And then you have some pockets here of some pretty hot markets in Illinois, Indiana, and Missouri.

If we look at reefer, we have lots of hot markets out here in the Northern Midwest and the West region. So looking at places like Green River, Wyoming; Twin Falls, Idaho; Missoula, Montana. So you can see quite a few very hot markets out here. And then we also have Duluth and Fargo, North Dakota, even South Dakota and Nebraska are pretty hot markets for reefer.

For flatbed, the same story. We really haven’t seen much change at all here on the spotter index in the last months. Really the hottest markets for flatbed are here in the Southeast and Midwest, I would say. [00:04:00] So looking at Mississippi, Tennessee, Alabama, also up here in Indiana with one hot market out here in South Dakota, but really mainly around here.

If you stick to those regions, if you have a flatbed, you’re probably making pretty good money.

Gurvir: Yeah, again, one thing I want to say is it’s relative. It doesn’t mean that overall the freight market is improving. It just states that whether the freight market is down or up. What are the hottest states given it’s relative again, right? So just want to point that out. It doesn’t mean that the trade market is actually doing better in September, right?

So the things that I’m going to talk about is that so far September hasn’t really it’s not really playing out the way I thought it would be, right? After Labor Day holiday season preparations, I thought we would see some sort of, A hike in demand and rates would go up. Spot rates would go up.

I think we’re still under 5 percent in rejection rates. If you look at the DAT data for this week drive in rates are down to 1. 99 from 2. 01 in August, right? So we’re about two cents down. Flatbed is about [00:05:00] also about two cents down. And reefer is also about two cents down, right? So we’ve been My two cents down across these different modes.

And things haven’t really improved. I know they will improve but so far we’re not seeing things improve in the first two weeks of September. I know holiday season is coming in and the anticipation is it should be a, a busy season. And let’s see what happens.

But overall freight market, I know truckers are feeling this. Rates are still okay. They’re not really going up as we thought that they would be. 

Caroline: Yeah, and I think we know and have seen some information from industry experts on this that even if there is a strong holiday gift buying season retail markets and imports are not always the best indicator of the trucking market, right?

A lot of it has to do with what’s happening internally in the U. S. economy. Particularly what’s happening with industrial production and manufacturing. So what’s happening and that’s something that you don’t necessarily see in [00:06:00] the titles of articles. And it’s not something that you normally see in the headlines unless you’re really looking for it.

Gurvir: Yeah. But we have some great news interest cuts and we’ll get into that, soon, but I think that will impact some of these things. And we’ll get into that shortly. But yeah, so far, September just is a constant and just a very little deflated compared to August.

I think July was much better, August was okay, and September has actually gone down. October, November, December is generally the time when trucking companies make the most money. So we will see things go up just normal seasonality stuff because of the holiday season. But I was hoping that we would get an early start and get a little bit extra cash into those trucking pockets.

Caroline: Let’s talk about interest rates. So the Fed just about, I think about an hour ago or so, just announced that Federal Reserve has decided to cut interest rates by 0. 5 percentage points. This is a much more aggressive move than people expected.

Traders had anticipated a rate of cut, but we weren’t [00:07:00] actually sure what the size of that cut was going to be. And initial expectations were 0.25 percentage points, but they actually came out with 0.5. So a couple of things. Why does this matter for trucking? And what does it mean for small carriers?

Gurvir: Yeah, so I’ll keep it trucking specific, right? By the way, great news. It does two things, right? One is that it lowers the cost of borrowing, right? That just means that typically, you’re going to have lower expenses.

And generally I’m going to talk about two sectors that I think impacts trucking. One is housing and one is manufacturing, right? So what happens in manufacturing? What will happen in housing? I think cost of borrowing goes down in manufacturing. That means you might see more production happening, right?

And that can lead to increased production, which means more loads and more output. It could also mean more near shore trend continues to happen to Mexico, which means it actually impacts the trucking industry there. Because the large amount of most of the goods that are coming from Mexico are on a truck through the border.

So that is [00:08:00] the manufacturing sector. Again, lower interest rate means it’s cheaper to make products. And by the way, I would say one thing. We’re not going to only see 50 basis points. I think the expectation is anywhere from 2. 5 percent by next year. That is pretty big. So if you see 2. cuts that’s a significant savings for a lot of businesses and that can really start creating the momentum in the economy, right? So it’s definitely gonna help the manufacturing sectors, even from reading other sources, freight waves and other publications. I think a lot of manufacturing companies were just waiting to waiting for the interest cuts to really, a ramp up production.

So I think we’ll see some positive changes there. And second is housing market. Trucking and housing market are. Related we all know if the interest rates go down, that means more demand for housing goes up we’ll start seeing more activity there and possibly we’ll start seeing, more building, right?

Hopefully we can start seeing more homes being built in the U. S. And and it increases the demand. So I think those two things are going to get affected positively. And that, and hence, should create more positive output for it. 

Caroline: [00:09:00] So if I’m an owner operator right now and I’m looking at this news, maybe I can expect to see rates go up if economic activity increases generally.

What does this do to interest rates on things that I might want to invest in as a business owner? So if I’m going to, if I’m on the fence about buying a new truck, but the interest rates are really high, am I going to see an impact of this interest rate cut in what I’m offered by banks and credit unions for a truck loan?

Gurvir: It just generally depends on your loan and what kind of setup you have, but generally if you’re going to refinance your loan, obviously your monthly expenses are going to go down, right? Or if you’re looking to buy a new truck, which is off 50 basis point cuts, your interest rate will be lower than the last six months, right?

As you see more and more cuts, again you will see operational costs go down. So that’s one plus where things will get cheaper truck loans, trailer loans, etc. So yeah, overall, some operational costs would come down for truckers. So if you’re looking to buy a truck, and this is the sad part about trucking, which is as these costs come [00:10:00] down and activity goes up, you will also see more trucking companies get created, right?

It’s a cycle, right? So we don’t we want to make sure that I hope that it stays in a sort of a normalcy stage, like we don’t see a huge boost. I don’t think we will. I don’t think we’re going to see those COVID times again. We should just have like sort of normal cycles, right? It’s okay when trucking companies are coming into the market.

You just don’t want like a huge economic activity that just brings, the same problem again. But generally, yeah lower expenses. 

Caroline: And the problem you’re alluding to is that in the COVID 19 trucking market rates went way up. There were, there was so much backlog in the supply chain and there were way too many loads for the number of trucks on the road.

So lots of people came into the business. Tons of people created trucking companies. Then we had a huge once those load numbers started coming down, we had a huge overcapacity. We’re still seeing that overcapacity today. And so having an enormous. Influx of carriers coming into the market would not be good.

That would put downward pressure on those rates. 

Gurvir: Yeah, exactly. I don’t think it’s going to [00:11:00] happen again just because of all the pressure the trucking companies have had to go through in the last two years. COVID was just a very sort of anomaly period. You saw a lot of short term demand, which just meant that a lot of trucking companies, new trucking companies came into the market 

Caroline: All right. So let’s move on to listener questions. So we got a great comment from Christos Strom. He said on our video with with Victor Newton of Big Vic TV. I like all the recommendations in this video interview. Victor has some great insights and I appreciate his answers. Does he have a website for his business that I can look at to get ideas for my own, we’ll definitely be getting business cards and made up and go the local route. So we had a conversation with Victor Newton who is a box truck business owner and YouTuber. And it’s really fun conversation. He talked about how he runs his business, what he does, how he started it, and then how it would be different to start a box truck business in 2024.

It was really interesting to [00:12:00] see. Between covid times and now, so he started his box truck business completely on Amazon Relay. And because Amazon Relay back then was accepting authorities. Cause they just needed people to move loads. They were accepting all kinds of new authorities. And so you could just build a trucking business, those first three, six months, just on Amazon relay.

And then once you had that six months or a year under your belt, you could go out to other bigger brokers or more specialized brokers and get business. That’s not the case anymore. Now they’re asking, I think for six months on your authority before you can haul Amazon trucking. Relay loads mostly because of fraud.

They came across a ton of fraud, a ton of stolen freight in the market. And that really ruined things for the good carriers out there. And so in 2024, if he said, if he were to start a box truck business, here are the things that I would do. And 1 of the things that he said was to source business locally.

So source some business coming out of your local area. And then use the load [00:13:00] boards to come back or triangulate to come back to where you want to be. So just the old school business best practices of being local, being involved in your business community, having business cards, meeting people being professional, asking questions What are the problems that you face when you’re trying to move your freight?

What are some of the problem loads that you have? And trying to get insight from people locally and building relationships. So it was a really good conversation. And I’m glad that Krista Strom, that you enjoyed listening to that. And I hope that you’re enjoying the series from now on.

Gurvir: Yeah I personally watched the episode as well. I thought Victor shared like really good insights. I saw the comments. I think people really loved it. It’s always good to learn from other people’s experience so you don’t make the same mistakes, right? So I would really go back and listen to that episode.

And if you’re interested in starting a box truck definitely hit up Bobtail. We can help you with factoring and fuel cards and all that stuff. But there’s a lot of other nitty gritty stuff that you need. And I think these small tips. can go a long way. I remember he shared a story and somebody commented about the GPS app that [00:14:00] he used to avoid low bridges and stuff.

Those things can cost a lot of money. So definitely a lot of good feedback in that episode. 

Caroline: Yeah, he told the story that he was using a new trucking app at the time and it ran him into a low. And he didn’t, he actually, saved himself from from going under that low clearance bridge.

He didn’t damage his equipment in any way, but he had to stop. He had to stop up traffic. He had to. Do a u turn in a church parking lot and he was he just said nope I went to the truck stop and I bought myself a trucker gps Just spent that 300 so that this would never happen to me again, and it served me well, so that’s a good tip sometimes apps can be Really good.

Test them out, but there’s nothing like a good piece of tried and true technology when you’re first starting out, go for the stuff. That’s a sure thing. 

Gurvir: Totally. One last thing I want to bring up, Caroline, before we end the show for this week is that I was on Facebook. And I saw this comment and it reminded me of my trucking days [00:15:00] when I had something like this happen to me.

And I think for all the reefers out there, I want to read this out so I can give you some suggestions and how to avoid something like this. So this person, Suti, goes, Hey, broker tells me set the reefer at minus 10 continuous. I pick up the product when I get to the receiver. They’re telling me that they’re refusing the product because it’s supposed to be 40 degrees. He says I call the broker. They’re acting clueless. Asking me what does it say on the BOL. There’s nothing on the bill of lading. They had done a check call to ensure the refer was at negative 10 but the whole time supposed to be, the whole time it was supposed to be at 40. I don’t know what to do where to bring this product to any advice, right?

One thing I would say is you always want things in writing, right? When somebody’s telling you minus 10 and it’s a, it’s an instruction from the broker, you don’t want anything. Verbally, right? Either a text message or in an email. Check the ratecon. Ratecon should have these details, by the way.

What is the temperature supposed to be? And whenever you’re unsure, right? I would say always lean left. And just take another step to make sure [00:16:00] that the temperature is set correctly. I, obviously I work with Bob Till, one of the founders here. I see a lot of these cases where claims happen and carriers get stuck with the claim because they just didn’t do their due diligence, right?

So if the bill of lading is saying different temperature, rate con is saying a different temperature, what the broker is telling you is saying is a different temperature, you want everything in writing. Now it sucks. I don’t think this person got everything in writing. I’m not sure how this is going to unravel.

Hopefully somebody was recording their calls. Some of these major brokers do record calls. But again, brokers are not going to try to be liable for this, right? If they made a mistake, everybody’s going to try to push blame. But I just saw that this was very important to share with everyone that you don’t want some a claim like, this happening, right?

This is a huge economic loss. Yeah, I just wanted to share this quick thing that I saw earlier this morning. 

Caroline: Yeah, that’s a great piece of advice. Get everything in writing. Anything, and that goes for any equipment. Type, but for reefer, obviously it’s super important because if you don’t have the right temperature, then you risk ruining the product and the shipper or the receiver won’t [00:17:00] receive the product.

Now, you’re probably not going to get paid for that load. And if you don’t have everything in writing, you can’t prove. What the broker said or what they did, even if they record their own calls, I don’t know how likely it is that they are going to go through and scrape through those calls and give you the recording that proves that they were wrong, that’s probably not going to happen.

So that, that is a great story to learn from. And I’m very sorry for that carrier that had to go through that. 

Gurvir: It sucks. The carriers that I see do really well are very detailed oriented. They’re reading everything, they’re making sure, they’re taking an extra step, they go an extra mile.

That’s how you ensure that your factoring agreements are in order, your loan agreements are in order, your finance agreements are in order. The broker’s not just including anything or everything in the rate confirmation. Just always pay attention to these things. It could really mean that you survive another two, three years in the industry versus, a single claim like this could take you out, right?

So always be cautious. Always know that, hey, somebody’s gonna try to screw you over, just read everything, right? That’s the main problem in trucking I, we just don’t like reading stuff. [00:18:00] Even me included, when I was running a trucking business, I would sign those rate confirmations blindly.

I would fill out those carrier packets blindly, right? Who’s gonna sit there and read all those things, right? But it’s very important that we know what we’re signing. And I think that was one piece of advice that I would give to everyone. Just know what you’re signing and be very detailed oriented.

Get everything in writing. 

Caroline: All right. That’s a great note to end on. Thanks so much for joining me again, make sure you like and subscribe to this video if you got something out of it. And we’ll see you next week. 

Gurvir: Awesome. Awesome. Sounds good. Thank you so much, everyone. And drive safe.