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The folks that are driving these
high volumes are typically big box

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retailers and big importers that
already have mature logistics networks

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built out. And they don't need
supplemental capacity in warehouses.

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Welcome everybody to the
Industrial Insights Podcast.

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I have Craig Fuller with
me today from FreightWaves,

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and we have a tight 30 minutes
together to learn a little

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bit more about the freight
markets and the interplay with

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industrial real estate.

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So Craig, thanks for
joining me this morning.

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How long have you been
running FreightWaves now?

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Since two thousand sixteen as
we founded it uh ten years ago.

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I love it.

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I have not been to the conference, but I

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saw it last year and
was like, okay, this is

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a whole gathering. This
is going to be a big deal.

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Yeah, we I mean we get
a couple of thousand,

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we have a a number of events we do.

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The big one is called F3,
which is in Chattanooga,

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Tennessee, and it brings
in uh key decision makers.

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Really the target audience
is anybody that spends

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over ten million dollars in
CapEx a year in technology

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is really who we're focused
on to bring together.

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And uh and so that's that's
who comes to our conferences uh

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typically and who uh we are focused
on uh providing intelligence to.

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Yeah.

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And uh if you could describe like the
state of the market for the freight

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markets right now, that'd be a super
helpful intro for our discussion.

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Yeah, it's an interesting market.

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I think it's certainly
changing as we speak.

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I would call it lukewarm
in terms of demand.

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Um, it it was incredibly
robust earlier this

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year as the industrial
economy started to ramp.

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And and look, the industrial
economy is doing quite well.

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Uh, but the consumer side of the
economy is actually starting to

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throw off some some red flags, I
think, and things are slowing down.

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Uh, really in the last couple of months.

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And so it is uh

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It was a tepid market.

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Uh it is flipped because if you
go back a year ago, the industrial

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economy was sort of a dog and really
has been for a couple of years.

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Uh and the consumer economy
was doing quite well.

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It feels like we've changed
guard and now the industrial

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economy is doing well while the
consumer economy is struggling.

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That's a funny way to
bifurcate the market.

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I wish we could have all things.

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I wish we could have a strong
consumer with strong uh

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industrial demand, but that's
just not in the cards right now.

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Yeah.

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And for us we have noticed
uh it be stagnant for

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a little while, and and
definitely year to date.

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And then we had the Labor Day rush.

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It seems like it's been
widespread amongst the country and

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practitioners in our space for
leasing demand for warehouse.

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So we're all in the middle
of what is like a sixty day

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uptick that has been great to
see people have the urgency and

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deals get signed and not just
um like a uh medium size like

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generally like big players, big
deals and like uh across the board.

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So it's great to see it, but of
course then we all think of like,

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okay, you're riding the wave,
how long's this wave gonna last?

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And then to look back at could we
have recognized any of it in advance?

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Like of the leasing demand and
the signals that lead to it?

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And then um yeah, how sustained and like a

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where it's coming from and it's totally uh

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A wide variety of demand signals,
so it's not just aerospace and

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defence or it's not just e
commerce, it's kind of a mixed bag.

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Yeah, we talked to a lot of
the big industrial REITs.

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Um, and what's interesting
is that we we started to

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identify a change in the Freight
economy earlier this year,

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really February, March is when
things started to really turn

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around in terms of industrial activity.

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Really started in November, but really the

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momentum took place uh
in February and March.

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And it's different.

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The uh location of demand
has moved to the Midwest.

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That's where a lot of the

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Sort of origin point of a
lot of freight is happening,

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and less so uh on the coastal
cities, particularly the West

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Coast, while it's benefited
from stronger import volumes

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this year, it is certainly not seeing the

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level of activity that
it has in years past.

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And so there's this disconnect
that's been happening really

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for the last couple of years
in industrial real estate.

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So one of the interesting
things, if you go back to COVID,

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we had a lot of freight
demand, a lot of volume.

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And a lot of industrial activity
happening all at the same time.

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What was driving that was that
everyone, whether those small

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business, mid-size, or large,
was experiencing a sort of

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record high demand across their
whole supply chains, and there

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was sort of a scramble to
find industrial real estate.

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If you go back two years
ago, uh it changed.

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We were seeing import
volumes flow in strongly.

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But we weren't seeing a lot of
industrial real estate uh investment.

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There wasn't a lot of new site
selection activity happening.

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You know, last year was sort
of a pretty weak part of

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the uh industrial economy in
terms of new site selection.

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And the reason is that most
of the freight was not small

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and mid-sized businesses, but
very large big box retailers

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that were doing a lot of import
activity that already had

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logistics networks built out
and warehouses built out.

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And they were just filling excess
capacity that they already had.

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Uh, and now what's happening is it's
the industrial economy that's sort of

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taking the lead, and the consumer
economy is sort of a laggard right now.

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Yeah, what percentage would you
guess that the industrial is of total

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activity in terms of like the economy
for the US, as best we could tell?

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of industrial uh warehouse
activity or site selection,

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um, but in terms of freight
demand, industrials really,

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when you you sort of look at it,
it's it's very what we call mode

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specific.

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So railroads are really that
is the industrial movement.

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That is the, that is the
freight uh movement of choice.

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It's the mode.

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And so it is doing exceptionally well.

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You can see in the railroad
data that comes out

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every week, just how
strong the railroads are.

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Participating in this economy.

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Flatbed trucking is
doing exceptionally well.

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uh It is benefiting as well from
very strong industrial activity.

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But when you look at the
van market, which is the

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containerized freight that
doesn't have a refrigerated unit,

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that's the weakest part of
the freight economy right now.

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Refrigerated is doing
well, uh largely due to

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uh seasonal uh temperatures,
high temperatures.

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as well as some of the
uh effects of weather is

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is just sort of benefiting
from some of that.

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Uh but the van, the containerized van

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market is is the most sluggish part of it.

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And that's largely because
the consumer freight

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activity just isn't
isn't robust right now.

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Yeah.

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It's been interesting to
learn more about the ports,

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especially in Long Beach in LA,
and having a ramp up in port

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activity doesn't necessarily mean
activity in Southern California

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based on rail, like to your point.

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So when you think of like
Chicago, Dallas, Memphis,

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and some of the places where
intermodal all connects and

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seeing those markets already
starting to experience growth

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before Southern California
is experiencing growth,

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even though you see the port growth and

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it might be a 50% of the

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Amount of volume that goes
across the country versus here.

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I've been asked this question by
some of the large industrial players,

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why are we not seeing more
activity in Southern California?

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Because it doesn't, the
data, if you look at what

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with high import volume,
you would expect there to

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be a lot of industrial
site selection warehouses.

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And it's just not in the
it's not what's happening.

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And the reason is, again, going
back to what I said earlier, is that

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the the folks that are driving these
high volumes are typically big.

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Box retailers and big importers
that already have mature logistics

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networks built out and they don't need
supplemental capacity in warehouses.

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They can move it.

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In fact, intermodal is
very robust right now.

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And so they're they're taking
advantage of intermodal activity,

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moving stuff inland and moving
stuff to the center of the country.

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And they don't really need to
expand their physical footprint

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along the coasts because they
already have that infrastructure.

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And so they're moving
freight all the way through.

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One of the other things to
sort of know about this is,

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you know, I talked to everybody
from the Federal Reserve,

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there's this concern that all
this volume is going to create

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some weird capacity because
a lot of the indicators that

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were built during COVID are
just not that sophisticated.

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And so this sort of like supply
chain crunch that everyone's

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worried about due to high
volume is just not a factor

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because the companies that are
driving the volumes are doing

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it very orderly.

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These are very big companies that
sort of manage and micromanage

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their supply chains and have
a lot of control over it.

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And so we're not seeing
a disorderly uh we're not

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seeing a lot of uh bottlenecks
in the supply chain.

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And and so that it's a very
orderly level of volume.

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Um I I've called it a Goldilocks freight

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economy, even though
I've said it's lukewarm.

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The reason it's Goldilocks
is that it's it's it's not

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Things aren't breaking, because
that's not good for anybody.

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Uh, but the larger motor carriers,
the larger trucking companies are

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benefiting from high demand, higher
rates, and really a flight to quality.

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And that's that's you know, we don't
want a market that's overfilling.

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You you end up, you end up
this is what happened to the

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freight recession, is we got
so far ahead during COVID in

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terms of capacity expansion that
we went through a couple years

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of some really, really difficult.

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in really difficult environment
because we overcorrected.

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And now we're in an environment
where uh high fuel prices,

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tepid demand is sort of
keeping a lid on the market.

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So we see tepid demand
in certain parts of the

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freight economy, but
rates are still going up.

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And the reason they're
going up is because they're

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being propped up by
less and less capacity.

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Yeah.

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It's interesting to take that
and then part of the growth in

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the center of the country and
then bring up the topic of AI and

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future demand.

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And I know for us a lot of what
is uh a huge factor when you

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think of capacity for us is
the supply of new construction.

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And we had this huge
boom in supply for class

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A across the country in all major markets.

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And then now with interest
rates and with land prices and

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construction prices, land going
down, construction going up,

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now we're starting to have uh
not a lack of supply, but we're

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working through the excess.

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And so that seems to be
what is going to trigger

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more stability as we
work through the excess.

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And then this moment in time
before new supply comes on,

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which in most major markets
there is some new supply,

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but compared to what there
was, it's like 10% maybe.

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So uh I thought I thought it
was interesting to think about

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something I had seen you had
said about AI and construction

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of data centers and like that
leading to uh demand and then

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how the intersection of real
estate and freight and what

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that looks like as we all
just prognosticate the future

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based on where we're at
right now and and the trends.

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The AI data center, so there's three
things driving industrial activity.

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And it's it's so disconnected
from the so there's this

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interesting conversation happening
where I posted on X that the

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consumer economy is weak, a
freight economy is weakening, and

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the industrial economy is strong.

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And there's these, you
know, some comments.

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Well, at some point these
have to sort of they have to

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sort of work together, because
usually they work in tandem.

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You see weakness in consumer,
you see a slowdown in industrial,

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00:11:49,173 --> 00:11:51,995
see a slowdown in industrial,
see a weakening consumer.

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I don't think that's the case this time.

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And I'll tell you why.

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Because what the the types of things
that are driving in the industrial

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economy are so disconnected from
consumer activity that it doesn't matter.

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So let's walk through
the three primary inputs

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that are driving this reindustrialization.

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So let's put aside the
tariffs for a minute.

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I think the tariffs have been net
negative to reindustrialization,

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not positive, and there's
lots of reasons for that.

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but we'll put that aside for a second.

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The three things that are driving

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re-industrialization is,
number one, AI data centers.

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It's all coming from private
dollars among the most

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profitable companies on the
planet, are deploying the money.

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You can argue whether this
is sustainable or not.

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It doesn't matter.

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It's happening, it's
happening on the ground.

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There's no signs it's slowing down.

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I certainly don't see
anything that suggests

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that it's going to slow down anytime soon.

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So let's put that as one factor.

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The second factor is defense spending.

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The third, I think, is less
appreciated, is the high energy

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prices are actually really good
for the industrial economy.

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And this is always a thing.

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I do a lot of conversations
on Bloomberg, I do it on CNBC,

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and they always look at
me a little strange when

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I say high energy prices
are good for US industry.

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Because you have to remember that
we are a competitively global.

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uh economy and the Americas
is the only place that you can

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source energy that's not in a
contested zone around the world.

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And I'm including Venezuela in that group.

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I'm including Canada, Mexico.

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It's the only place that you can get
surplus energy that is not contested.

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You've got Hormuz that's contested.

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You've got Ukraine and
Russia it's contested.

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The Americas is a safe place to source.

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And heavy industry depends on
energy far more than labor.

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And so what's happening
right now is that companies,

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largely because of lack
of energy, look at what's

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happened in Germany, which
was a major export economy.

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It's you know it still
is, but because of their

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really, I think, foolish
energy policies, uh

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They they've sort of destroyed
a lot of their industrial base.

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But those companies are looking
for where do I put production?

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Where can I source energy?

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Because it's far more
important than labor.

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And they're coming to
the Americas for that.

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It includes Mexico, uh, but also
really includes the United States.

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And so we are seeing chemical shipments,

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petrochemicals, ramp, we're seeing US.

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Petroleum exports, we have a lot
of our industrial activity and

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manufacturers built into the fossil
fuel ecosystem is a big piece of it.

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Um, electricity power production, a
lot of that stuff is just driving it.

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What's great about the big
beautiful bill, I think um

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that it provided so much
incentives to, to source these

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materials in the United States
that it's created a lot of the

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demand here.

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So you get a combination
of surplus energy.

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As we've seen a decrease
in natural gas prices,

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that's made US industry more
productive, more profitable.

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And that's why we're seeing so much take

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place in terms of US industrial activity.

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Yeah.

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And then uh how long it goes if
we are late stage and late cycle.

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I think that's probably everybody's

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you're betting on again, three factors.

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you're betting on do we
think the world's gonna get

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more peaceful and these wars
are gonna end anytime soon?

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I don't think that's the case.

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I would say that we're in the
midst of the second cold war

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and hopefully it doesn't go
kinetic uh beyond these these

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sort of limited engagements
that don't involve a few a full,

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you know, global uh force, you
know, hopefully it stays contained.

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Um so you're betting on one

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That that is a factor.

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You're betting on the fact that uh
energy, electricity in particular,

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but energy broadly, uh, is going
to continue to be in demand.

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And let's not forget that
AI data centers are only

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one part of the electricity
transmission uh pressure.

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If we're gonna have robotics,
that requires power.

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If you're going to have electric vehicles,

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That requires power.

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So unless you think that
all of a sudden we're gonna

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wake up and not need
electricity, then there's no

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reason to think that this
thing's gonna be short-lived.

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And of course, uh, you
also have US industrial

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competitiveness that has to do
with a geopolitical element.

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Again, I think the fact that America is so

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blessed geo from a geography standpoint.

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The fact that we're
protected by our oceans,

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we have the world's
most powerful military,

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And I think the the big risk,
frankly, is political in my mind.

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I think the AI data center build
out, the uh electricity sort of

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00:16:48,966 --> 00:16:54,834
concerns about building utilities
is really a political question.

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I don't think it's an economic one.

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And I think what the big
risk is in 2028, if we see a

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massive backlash towards you
know, just building out these

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00:17:06,140 --> 00:17:10,852
power plants and building out
AI data centers, then that's

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probably the risk that I
would sort of identify.

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Craig Fuller, CEO of FreightWaves.

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00:17:15,024 --> 00:17:15,847
Thank you for joining.

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00:17:15,847 --> 00:17:17,601
That's a tight 30 minutes.

326
00:17:19,107 --> 00:17:19,529
Yep.

327
00:17:19,529 --> 00:17:20,080
Thank you.

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00:17:20,080 --> 00:17:21,030
Take care.