James Menzies: Welcome back to our next installment of the Five Minute Deep Dive: Five Minutes of What Matters Most, featuring FTR. Eric, the headlines this year have been dominated by tariffs, tariffs, tariffs. We have already discussed weak Class 8 truck demand. How much of that is due to the threat of tariffs and possible price increases?

Eric Starks: It’s all being driven by tariffs. It’s not just the tariffs specifically. It really comes down to the uncertainty on the overall environment of what does the market look like there.

One of the things that you and I have talked about before is that the market just needs something to hang its hat on. Right? You need some type of certainty, whether or not you like the policy or hate the policy, whatever that is, just tell us what the policy is and then we’ll work within that. And so the tariff situation is kind of that broader thing that everybody’s hanging their hat on because that’s the problem of that uncertainty. So we actually started timestamping all of our slides that talk about tariffs. So when in the world has anybody ever needed to timestamp a tariff slide?

Usually tariffs are set in such a way that they go through a process. And so, therefore, you have time to understand what the implications will be and to be able to plan for it. And with this administration, it’s minute by minute. And I’m not joking. We literally put out a forecast one minute, and then within a half an hour, we had to change the whole forecast because we had new economic inputs and that was due just to tariffs.

And let’s kind of put this in perspective.

We ended the year and it came into the year with2.6% as the effective tariff rate for stuff coming into the U.S. And then within a matter of days, that thing went up to over 30% and then it dropped back down to 14% and then back up to 20%. And now we’re sitting somewhere close to—again, this is a matter of timestamping—somewhere in that s18-18% range.

And others have calculated being closer to 20%. So needless to say, that’s a huge difference from where we started the year. And those are inputs that are important for the commercial vehicle industry and for the transportation industry in total. That’s the big problem.

And it keeps changing day to day. If I gave you specifics right now, by the time you publish this and somebody looks at it—even if we did it live—it would be different tomorrow. So we have to be very diligent on the tariff front.

Menzies: So, Eric, I guess what you’re telling me is that we’re gonna have to put a timestamp on this video.

Starks: Yes. You will.

Menzies: When it comes to freight patterns, are they being significantly disrupted due to the tariffs and their impact on imports? How’s that playing out?

Starks: Yeah. It’s been really fascinating because a lot of the stuff that was happening was being impacted in, say, Southern California and the West Coast by and large.

We saw a huge drop-off in import activity there, and that has dissipated. That’s finally gone away. Once the administration basically said, ‘Hey, we have some type of a framework with China set’, then that started to ease back. But what’s really crazy, though, is when you look at the data, we’ve seen a huge drop-off in freight from China, and we’ve seen a huge increase from other Asian countries.

So there’s been an offset there. So it has not been, ‘Hey, China’s out and freight has just collapsed’. So I’m assuming, though, that there’s a fair amount of Chinese goods that are transporting through other Asian countries and coming into the U.S. just based upon the absolute level.

We have seen stuff coming in through Canada, doing fairly well. But by and large, one of the best ways to look at this is the rail data is really good. They weekly report what’s happening on intermodal specifically here, and they’re up year over year.

So we had an expectation that they were gonna continue to be weak through most of the second quarter and on into the early part of third quarter. That has turned the corner. So they’re up somewhere around 5% year over year right now. So that’s pretty good.

So this is that disconnect of the issues we’ve talked about and then what the actual data is doing really has not been overly horrible yet. So, by and large, I’m like, okay. And I’m eating crow a little bit, because I was probably one of the individuals out there saying this could be really horrible, but it hasn’t collapsed that particular part of the freight market. But the bigger issue, though, is we also had an expectation that the broader freight market would have started to pick up by now, and it hasn’t. And I think that’s the broader issue that the tariff situation has caused—it has stalled that recovery.

And I think that’s the bigger issue, and it’s basically pushing you out about a year for that recovery.

Menzies: Alright. So, Eric, I was thinking about having a shot of coffee at the FTR conference every time the word tariff was mentioned. You think I’ll be pretty healthily caffeinated by the end of the day?

Starks: I think you would be. Yes. And if anybody did the regular shots, yes, we’d be carrying them out of there. It would be horrible. Yes. It is going to be a big part of the theme of what we talk about because I don’t think that is going to go away anytime soon.

Menzies: I think that’s a safe bet. And for first-time attendees, if you haven’t been to the FTR conference and you want to learn more about the market and where it’s headed, it’s a great event to attend.

Starks: Yeah. We’d love anybody to join us. And here’s the thing too, if we know people are dealing with budgetary issues, I don’t want that to be a barrier. So if somebody does have budgetary issues, let us know.

We want you to be there. We want you to get there. But we also have a virtual option too, if need be, if the travel is just too much. We understand that.

Menzies: Great option. Thank you.