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Homebuilding and freight · The Intermodal Logistics Podcast

• 0:04
  Speaker: Thanks very much for joining us on this edition of the Intermodal Logistics Podcast.
• 0:11
  Speaker: I'm Kevin Baxter and today we are focusing on the home building market, how it's doing and how it relates to a freight.
• 0:18
  Speaker: And to help us with that discussion as someone who's got more than two decades of experience in that arena, Kevin Oakley, Managing Partner with Do You Convert?
• 0:28
  Speaker: Kevin, thanks very much for joining us today.
• 0:31
  Speaker: Absolutely excited to be here.
• 0:31
  Speaker: And we always like to start with a little bit about the guests that is joining us.
• 0:39
  Speaker: So, so tell us a little bit about yourself and and the background that has stretched that 20 plus years in in the home building.
• 0:45
  Speaker: Of course I've I've been in the home building industry my entire career.
• 0:52
  Speaker: Started in 2003 with a small little $2 billion private company based out of Pittsburgh, PA that did over 6000 homes a year at over 40% margins and worked with them until 2007.
• 1:07
  Speaker: Went to go work for a semi custom private builder that was much smaller.
• 1:10
  Speaker: They were doing 250 units at the time in Pittsburgh.
• 1:13
  Speaker: And then that ended up being a like the perfect place to be at that time because when the financial crisis hit, Pittsburgh was kind of insulated bubble because they never really grew much.
• 1:28
  Speaker: And so our worst year permits were down 8%.
• 1:31
  Speaker: And when I was in Columbus, I called my friends back home and they're like, oh, we're down 40% this year.
• 1:36
  Speaker: Oh, we're down another 30%, another 40% at a time when 50% of the home building companies in the country went out of business.
• 1:43
  Speaker: The company I was with in Pittsburgh grew about 20% a year all the way through the downturn.
• 1:50
  Speaker: And then we were acquired by a number four public home building company.
• 1:57
  Speaker: And so that's that's the home building part of my career.
• 1:59
  Speaker: And then I switched over to consulting after a couple years with the public builder.
• 2:02
  Speaker: So I've been in every position except for construction and logistics and purchasing in the home building space.
• 2:10
  Speaker: And so now what I do is consulting on the digital marketing inside sales, CRM implementation, set up and support basically everything that happens digitally with the customer or remotely from the time they start shopping for a new home until they arrive in a sales center in a model home.
• 2:27
  Speaker: That's what our company helps over 100 different home builders, publics, privates, customs, semi custom, multifamily, infill resort, the whole, the whole gamut.
• 2:40
  Speaker: Yeah.
• 2:45
  Speaker: And I know marketing is a term that that covers a lot of a lot of ground for a lot of people.
• 2:50
  Speaker: I'm, I'm in marketing in in my own way.
• 2:52
  Speaker: But for, for home building marketing and, and, and home marketing, how is that different than than what people traditionally think of?
• 3:04
  Speaker: Because in looking at your your background, a lot of the the home marketing covers covers a lot more than than what you might.
• 3:10
  Speaker: Yeah, it does, it does.
• 3:13
  Speaker: And that's, you know, the very first job I had, my boss would lean across the the hallway anytime he had a problem And and I was, you know, a new kid who was just trying to do whatever my boss wanted me to do.
• 3:23
  Speaker: And he would be like, hey, Kevin, we got a problem.
• 3:25
  Speaker: And I think it falls under marketing.
• 3:26
  Speaker: And the joke was everything does right.
• 3:31
  Speaker: The the definition of marketing is not advertising, it's not branding, it's not product.
• 3:36
  Speaker: It it's everything related to going to market.
• 3:39
  Speaker: So it's a good, good, insightful question to clarify in home building it generally is either advertising is what people mean when they say that or they mean product price in place.
• 3:52
  Speaker: And the, the way I try to simplify it is just there's people who think in spreadsheets and, and think strategically that way, and then people who think in terms of, of reaching the customer to make the things that they're working on the spreadsheets interesting and, and relative to them.
• 4:07
  Speaker: And so it is really all of that together.
• 4:10
  Speaker: But I'm sure in your industry, like like all of them, including home building, the people who think about it holistically are actually pretty rare.
• 4:17
  Speaker: And it's one of the things that continually causes friction is like the other day we had ACFO e-mail over to the CMO and say, Hey, I have a friend who's pretty good at this AI stuff and here's a bunch of stuff you should consider doing.
• 4:31
  Speaker: I was like, in what world would the CMO e-mail the CFO and go, hey, I think accounting can all be done better with these AI stuff.
• 4:42
  Speaker: You know, it's just this, this confusion of what that really even means in different departments in different organizations.
• 4:48
  Speaker: But but in our world it's it's price, promotion, place and product primarily.
• 4:58
  Speaker: And so, so leading into that, do you convert, you mentioned you work with over 100 home builders of of many different stripes, but what's what's kind of an overview of of all that you do for them that some of the different elements?
• 5:15
  Speaker: So it is, it is the entire spectrum of, of website auditing feedback, right?
• 5:19
  Speaker: The website is essentially the digital model home of, of the of of the builder.
• 5:25
  Speaker: So it's giving them ways to improve conversion and highlight the content in a more relative way for today's customer and what they're looking for.
• 5:31
  Speaker: It's running advertising.
• 5:34
  Speaker: We directly manage over $60 million a year in Google and Meta ads for those folks.
• 5:40
  Speaker: So best practices on how to use the current technology and platforms to reach the customers as they're on their journey, which is a really long one by the way.
• 5:48
  Speaker: The latest data point is about 200 plus days from the first home time they visit a home builder website to the time that they actually interact with someone in person.
• 5:57
  Speaker: And that's back to where it used to be pre COVID.
• 6:01
  Speaker: COVID shrunk that down tremendously, but we're kind of back to normal.
• 6:06
  Speaker: So it is a longer journey.
• 6:06
  Speaker: So it's helping builders understand the length of that because all of the current data attribution models that the digital platforms use are really designed more for a 4560 day customer journey.
• 6:22
  Speaker: In fact, I've talked to someone incredibly high up at Google who was like, yeah, you can't use any of our AI tools and you can't really trust your attribution data.
• 6:28
  Speaker: Can you understand?
• 6:28
  Speaker: No, we can't.
• 6:32
  Speaker: And then once someone does reach out and ask a question, then that's a whole other set of problems that we help builders understand is it's you have to respond, you know, in 5 minutes or less.
• 6:41
  Speaker: You have to follow up multiple times and, and really nurture that relationship.
• 6:48
  Speaker: Essentially be be persistent with your presence and say I'm always here to help you whenever you're ready to go CRM implementation and set up.
• 6:55
  Speaker: So a lot of people will use a Salesforce or HubSpot or our industry favorite tools called Lasso CRM.
• 7:01
  Speaker: And that's like getting a great car without an engine.
• 7:06
  Speaker: You have to have all the logic behind how you how you follow up what you say and hiring and building the team of humans.
• 7:12
  Speaker: Yeah, I said that still, still, still humans to to follow up in a personal and professional way and get customers the answers they need so they can take that next step.
• 7:23
  Speaker: And that's, I'm sure I kind of jokingly said humans, but there is a lot of it of technology and AI tools that can make that better.
• 7:36
  Speaker: But there's a lot of data showing that while over 75%, this is a stat from CoreLogic that just came out or CoreLogic is now Cotality, a big data provider to the, to the space that over 75% of consumers believe that AI tools are being heavily used by the, by all of the companies, including real estate companies interact with, but they're not really sure that it should be, which means that there's this whole lack of trust in every interaction that you have, which gives the companies that are leaning into using humans plus tools.
• 8:10
  Speaker: Because basically what the consumers are saying is, thank you for the instant access to more data than I could ever process.
• 8:14
  Speaker: But can a human please verify that it's actually correct and that it's relevant to me?
• 8:22
  Speaker: And so you do still have to, you know, tool plus human is the way to go, especially in a high ticket purchase like a like a home.
• 8:29
  Speaker: Yeah.
• 8:32
  Speaker: I mean, I think, I think the AI conversation across any industry is where do you use it?
• 8:38
  Speaker: Where don't you use it there?
• 8:43
  Speaker: There's obviously sort of a an immediate push back with with folks when it's used what they deem incorrectly.
• 8:50
  Speaker: And I mean, yeah.
• 8:50
  Speaker: Just a few and the tension, the tension, Kevin, is really about like how much risk is there?
• 8:59
  Speaker: It's OK if you're like trying to push the envelope and let it read my French fry and nugget order in the drive through 'cause I can fix that or, or I lose out on my $4.00 and and $0.15.
• 9:11
  Speaker: But when it comes to a house, the stakes are so high.
• 9:14
  Speaker: And This is why real estate agents and brokerages have been around a lot longer than people have predicted is the, the fear of if I make a wrong move, especially early on in, in my lifetime, this could materially impact my financial status for like the rest of my life.
• 9:34
  Speaker: And so that level of fear means that trust has to match it.
• 9:38
  Speaker: And that's where there's a real tension anyway in our industry about how quickly companies move to to adopt and adapt where where it meets the customer.
• 9:47
  Speaker: I don't think there's any question about using it as quickly as possible behind the scenes.
• 9:52
  Speaker: Or are you like to use a restaurant analogy of like front of house, back of house, What's going on in the kitchen could be who knows what, But what does that experience look like and feel like outside of the front of house where the customer is actually interacting with the staff and the and the end product is, is wildly different in terms of how we should all be thinking about it.
• 10:14
  Speaker: Yeah.
• 10:14
  Speaker: And I mean it crosses over here into the logistics industry too.
• 10:19
  Speaker: I mean, I think a lot of it is when you're you're dealing with other, with people who are making, you know, big shipping decisions as well, that that cost a lot of money also for their business.
• 10:32
  Speaker: And it's great to know that the, the AI is streamlining back office operations and things like that.
• 10:37
  Speaker: But they want to know that there's somebody with judgment watching what's going on too, and, and knowing how to how to move quickly when things don't go maybe according to plan.
• 10:49
  Speaker: So yeah, we could probably go deeper and deeper.
• 10:52
  Speaker: I know I was just going to mention a couple of days ago, there's the use of AI that didn't go over very well in a college graduation ceremony.
• 10:59
  Speaker: I don't know if you saw that one.
• 11:00
  Speaker: Yes, well, that's, that's really that is it?
• 11:04
  Speaker: Because I also saw the the next day the Wall Street Journal post that showed a bunch of people with signs protesting.
• 11:11
  Speaker: And I, I didn't because I try to be a decent person on social media.
• 11:17
  Speaker: But I really wanted to crop out that photo and post it and say people protesting for the use of more AI chat bots when they're trying to purchase a home.
• 11:25
  Speaker: Because that's that's kind of this other thing of if you're not using it, you get this weird sense that you're falling behind or that your company is going to be, but that's it.
• 11:35
  Speaker: It doesn't match.
• 11:38
  Speaker: And look, if we just play it out in real life, every time I see that little bubble in the corner when I'm trying to solve a problem and I don't want to spend a lot of time there is still, even though I've been burned so many times, there's just a little bit of excitement of like, oh, I bet hopefully I can just solve my problem in like 45 seconds.
• 11:55
  Speaker: And then you start that process and the delusion just become soul crushing of like, Oh no, it can't actually do anything for me.
• 12:03
  Speaker: And now I can't even get to a person without wasting a bunch of time with this other thing, if there even is a person still there.
• 12:15
  Speaker: And so, yeah, I think, I think the whole, the whole idea around this is, is way more complicated than anyone's willing to give it credit for in the business community.
• 12:27
  Speaker: Well, yeah, so we could talk about AI.
• 12:28
  Speaker: All day, I think.
• 12:28
  Speaker: But, but getting getting more into why we, why we brought you here with, with the home building and logistics, there's, there's a big relationship between the two of them.
• 12:42
  Speaker: I know you mentioned you, you didn't necessarily do all of the on the ground stuff before, but you follow it.
• 12:48
  Speaker: I know that's another piece of the puzzle We see, you know, your presence on LinkedIn and the podcast and content and all that you're, you're paying close attention to everything.
• 12:57
  Speaker: But before we get into the current state of the market, tell us why home building is is kind of a force multiplier for for freight really in terms of all that moves based on home building moving?
• 13:15
  Speaker: Yeah.
• 13:15
  Speaker: And I, I think my favorite way to do that is to share a conversation that I had.
• 13:20
  Speaker: And I don't want to keep bringing back up the COVID era cause most of us just want to move on.
• 13:28
  Speaker: But the obviously all the data that we could see was that interest in housing was cratering when that announcement, like when Tom Cruise, not Tom Cruise, who was the gentleman who announced he had COVID?
• 13:41
  Speaker: Tom Hanks.
• 13:41
  Speaker: Tom Hanks said, I've contracted COVID was kind of the low point on all the data points.
• 13:50
  Speaker: And so a lot of the people in the industry that that are well connected.
• 13:52
  Speaker: We were all talking kind of offline with each other about what's going on, what do we think?
• 13:56
  Speaker: And we kept coming back to a small circle of us.
• 14:01
  Speaker: This is the most complicated supply chain product that we can conceive of, not just in terms of the number of of pieces and parts, but how labor interacts with it, The customer selection process we were already talking about.
• 14:16
  Speaker: Can you imagine all the reselections that are going to have to happen, how complicated this is going to be?
• 14:21
  Speaker: And we kind of saw a lot of what was ultimately going to happen ahead of time, even when it came to inflation.
• 14:32
  Speaker: And like housing costs are kind of, to me, the best symbol of where real inflation really is.
• 14:43
  Speaker: And, and so that, that understanding that complexity was like, oh, this is going to be a disaster and probably spike demand and housing.
• 14:51
  Speaker: And so it was kind of a crazy call the time I was like, hey, in another couple months, this is going to be maybe the best market for home builders that we've ever seen.
• 15:02
  Speaker: But for sure, like the complexity and the volume is I, I still think unprecedented.
• 15:11
  Speaker: I can't think of another more complicated supply chain.
• 15:15
  Speaker: You could like Apple only has what like 18 skews total.
• 15:21
  Speaker: So the variety and and then the volume.
• 15:25
  Speaker: So 88 truckloads, 10 truckloads, 14 truckloads.
• 15:27
  Speaker: Like it obviously depends on the size of the product, but it's not just like total capacity of trucks.
• 15:36
  Speaker: It's, it's, it's got to show up on time in the right place.
• 15:39
  Speaker: And so there were definitely periods of time where smaller builders that work with, I mean, I know one guy in Pennsylvania, he sent 8 trucks down to somewhere in, in South Carolina just to get as many windows of a certain size that he could on his own.
• 15:52
  Speaker: Found his own like with doing, doing all his work just to try to, to store windows so that he had them to use.
• 15:59
  Speaker: But you can only do that with with like a couple items in, in most organizations at scale now.
• 16:09
  Speaker: So I think it's going to lead us down my hunches to two very different paths. 1 is the I'm doing 500 homes to 50 homes a year as a private builder in a single market, maybe 2 markets and what the public's do and the nationals do, which is wildly different.
• 16:26
  Speaker: And I have experienced working at both to kind of understand that, but man, it is.
• 16:34
  Speaker: And and then the lag time, I'm not trying to toss out too many things here at once, but the lag time from sale to start to closing.
• 16:42
  Speaker: And it means that decisions you're making now, you might not know if you made the right one for like 6 months to a year and a half.
• 16:55
  Speaker: I mean, that was part of what made COVID so painful.
• 17:00
  Speaker: Is it just accentuated that lag time even more?
• 17:04
  Speaker: It just so all those things together, it's it's like this outsized impact on employment and where physical products need to move from one part of this planet to another and just over such long periods of time that you have to try to forecast.
• 17:22
  Speaker: Yeah.
• 17:22
  Speaker: Well, I mean, when you bring up the the COVID time frame, the folks in intermodal and the logistics industry know that that was, you know, seems kind of coincidental that you talked about a a home building boom then and that's when, you know, freight volumes exploded as well.
• 17:40
  Speaker: It's like there's maybe some sort of correlation there.
• 17:43
  Speaker: Yeah, well, when that that multiple ordering wasn't just affecting, you know, containers, it was affecting everything because everyone was trying to predict in advance and that those wild swings did show like this need for anti fragility as much as efficiency.
• 18:07
  Speaker: And I think builders are still super skeptical about have we even come close to solving that problem?
• 18:14
  Speaker: Like the other side of the whole conversation really has been, thank goodness we couldn't build what we wanted to or we would have killed the whole industry.
• 18:23
  Speaker: Like we the all, every chart you look at on housing starts and, and not just starts in terms of pulling permits, but actually getting homes under construction and closed.
• 18:31
  Speaker: We would have overbuilt like you couldn't have believed we would.
• 18:35
  Speaker: We would be talking about the opposite of a of a housing availability crisis in the country.
• 18:42
  Speaker: Yeah, I mean that that was one thing that came to mind when you're talking about the, the lead time and everything.
• 18:48
  Speaker: The that period was was a big boom for a while.
• 18:54
  Speaker: And then all of a sudden that demand kind of cratered.
• 18:57
  Speaker: And so I mean, demand for every all, all sorts of things, items.
• 19:03
  Speaker: And, you know, people, people spent their money that they had saved up during COVID.
• 19:12
  Speaker: People moved, people did renovations, things like that.
• 19:15
  Speaker: And then all of a sudden they decided, you know, now we don't have to stay home anymore.
• 19:18
  Speaker: We can spend that money to take a vacation.
• 19:20
  Speaker: And and that's where we're still kind of building back up from, from the level that that it hit at that point.
• 19:28
  Speaker: Yeah.
• 19:31
  Speaker: And I think the reason that I it hasn't been worse is that home builders haven't been as quick to reduce price.
• 19:39
  Speaker: They've used mortgage rates and buy downs and financial tools to kind of mask that that ultimately ends up in margin compression for them.
• 19:47
  Speaker: But they're still able to keep payments in a similar place for without, without adjusting the top line.
• 19:56
  Speaker: And that's that's something that you can do on the new side that you can't do as easily on the resale side.
• 20:01
  Speaker: And so that's where places like Austin home builders.
• 20:05
  Speaker: Prices have come down, but not to the same degree that some of the resale market has been impacted.
• 20:12
  Speaker: And in some parts like 20% or more, whereas home builders have been able to say, no, we'll, we'll take the, the tariff hit, we'll take the gas hit and we'll just have to pay a little bit more.
• 20:27
  Speaker: I mean, the financialization of the product does make me a little nervous because it is similar to, to, to cars in, in some respect.
• 20:35
  Speaker: Now the, the difference thankfully is that homes appreciate, cars depreciate and that's a big deal not under doing that, but the amount of financialization in the product over time.
• 20:50
  Speaker: I mean, those mortgage buy downs are awesome as long as you definitely don't ever need to move in the next like 3 years because you're not going to be able to sell it for what you bought it for.
• 20:58
  Speaker: And and so that's where we're, we are kind of still saying, OK, overall economy, please hold because that could be a really quick double whammy kind of head fake in the other direction.
• 21:10
  Speaker: If the economy took a hit and and the people who are buying homes and have been for the last two years needed to sell, that would be a that would not be a good thing.
• 21:19
  Speaker: Also, you mentioned 22 pieces that have contributed to costs, tariffs obviously with starting last year with some uncertainty and some some certainty that it's that it's expensive on certain items.
• 21:38
  Speaker: And then and then more recently the fuel prices.
• 21:40
  Speaker: So, so how are home builders and, and you're getting, you know, inputs from from different sizes.
• 21:46
  Speaker: So that obviously makes a difference too.
• 21:49
  Speaker: How are they reacting to to both of those variables?
• 21:54
  Speaker: Most of the time they're taking it on the chin in terms of, in terms of their margins, because they understand that from an affordability standpoint, they can't, they can't do much more.
• 22:02
  Speaker: And HP has a lot of data they've shared about the, the giant outsize impact of every $1000 increase in price on both the number of people who can afford the product and and then that doesn't even consider really the number who are willing to, to stretch to get that product.
• 22:17
  Speaker: The thing that I imagine most of your audience knows, but I still have to say out loud is that most of I think it's still fair to say, even though a larger percentage continues to be built and sold by public builders than privates, most home building trades like they're the ones determining what what product they're getting and how it's delivered.
• 22:43
  Speaker: It's only the really large companies at scale like that.
• 22:47
  Speaker: I do know at NVR there's like 1 gentleman who just buys lumber for the entire organization and determines how and where and, and and all those decisions.
• 22:59
  Speaker: But for, for most of the smaller and again, small is a weird thing to say in, in this industry because it could still be someone doing 1500 homes a year in in the middle of Iowa somewhere would still be in the industry considered on the smaller scale.
• 23:12
  Speaker: Those decisions are being made by the builder.
• 23:15
  Speaker: They're so, so they're, they're saying, Hey, I need this, this phase of construction to be completed, taking min bids.
• 23:21
  Speaker: And those bids are saying we'll do it for this price with this spec material.
• 23:27
  Speaker: But a lot of times those decisions still are being made by hundreds of different people.
• 23:31
  Speaker: And so those, those smaller companies are, are taking the hit way harder than the ones like the the builder I started with, even though they were private, they were one of the early ones at that scale to say suppliers.
• 23:46
  Speaker: You supply the labor, will supply the materials, the materials that you need will be dropped off at the job site for you.
• 23:53
  Speaker: And that separation of Labor and materials then gives them of course, a lot more control over, you know, they had to have their own warehouse, but the vertical integration there of selecting, purchasing, procuring and shipping the material allowed them to control and have much more.
• 24:10
  Speaker: But, but now that's the question of like, are you a logistics company that's building homes or are you a home building company?
• 24:17
  Speaker: Probably the best answer is to be both for sure.
• 24:21
  Speaker: And, and then the other part is a lot of this stuff on the tariff side.
• 24:23
  Speaker: You can't just replace it.
• 24:26
  Speaker: Like it's not.
• 24:26
  Speaker: There is no getting around it, which means that everyone has to try to find, you know, every edge they can to, to save what they can.
• 24:37
  Speaker: But there's certain components that like the only place it's coming from is the place it's coming from, at least for now.
• 24:43
  Speaker: Kind of like with chips, like we're trying to build as many fabs as we can here in the US, but this little company called TSMC in Taiwan kind of has a has a stranglehold on the supply until those other fabs get built.
• 25:00
  Speaker: Yeah.
• 25:00
  Speaker: So, so with the the fuel prices as as another layer to this, you know, we've we've talked a lot on in our space recently about a little bit more of a, a push towards intermodal as, as an option when you have the fuel prices going up.
• 25:21
  Speaker: And also trucking rates have gone up a bit faster as well because of the capacity issue largely on that side.
• 25:29
  Speaker: So are you hearing conversations about some modal conversions in in certain situations as well?
• 25:38
  Speaker: I think what I hear, so I, there's, there's groups in our industry called Builder 20 clubs which are, which are not the public's, but kind of the full spectrum of everyone else other than the Publix and the Super national companies.
• 25:51
  Speaker: There's definitely more.
• 25:51
  Speaker: It's, it's kind of like AI actually.
• 25:54
  Speaker: It's like we think we should be doing this.
• 25:56
  Speaker: We're pretty sure we should.
• 26:00
  Speaker: We're not really sure how.
• 26:00
  Speaker: And again, we might not have the, the like our purchasing agent might not be able to, to span both of those skill sets really well.
• 26:13
  Speaker: And so there's a lot of curiosity, but also a lot of questions of how could we do that?
• 26:17
  Speaker: And, and sometimes they're leaning more on their suppliers.
• 26:21
  Speaker: I can't think of the name of the company off the top of my head.
• 26:23
  Speaker: I should know it, it'll come to me.
• 26:27
  Speaker: But there's a large lumber yard in Texas that kind of is trying to take this on for their, their customers.
• 26:35
  Speaker: And they're like, let us figure out all the logistics.
• 26:37
  Speaker: And so you're starting to see this kind of the lumber yards are no longer saying that we're just going to be in the in the business of slime spline with materials, but we'll try to help go upstream on the logistics side to improve costs.
• 26:51
  Speaker: If you can forecast and promise us what you're going to going to take away.
• 26:53
  Speaker: And in some cases the same lumber lumber yards are switching towards, you know, why don't you just let us install your cabinets for you?
• 27:01
  Speaker: So they're, they're trying to go kind of all the way through to hey, home builder, I've heard this pitch many times.
• 27:08
  Speaker: Why don't you just design plans and sell the homes and and then we'll kind of be your white labeled building supply logistics all wrapped in one.
• 27:16
  Speaker: Yeah, interesting.
• 27:21
  Speaker: I mean, I guess you we see that in in other areas as well.
• 27:24
  Speaker: Amazon just used to sell things and then now they are the logistics company and now they're they're selling their logistics product to, to smaller companies as well to say like here you can, you can ship with us too.
• 27:37
  Speaker: Yeah, but I guess what I was trying to say is on, on as as an individual builder, that question is really hard.
• 27:43
  Speaker: Like they'll try to solve it themselves.
• 27:45
  Speaker: Like that story I told about the the Pennsylvania builder.
• 27:48
  Speaker: But there is there was also this sense in one of those meetings I was at recently of maybe we should try to form some type of group with, with several 'cause these builders are in non competing markets, but the ones that are at least somewhat could have a hub and spoke model.
• 28:00
  Speaker: Should we, should we start thinking about this more holistically?
• 28:04
  Speaker: A lot of them are talking to the folks in multifamily trying to say like, OK, how much consolidation can we make in our product offering that would allow us to start doing stuff at the scale that a multifamily operator would, where they're bringing in the containers of the same exact lighting fixture that's going to be used in 1000 units over the next two years.
• 28:25
  Speaker: No, that I mean that makes a lot of sense in terms of getting, getting the ability to scale up and, and finding, you know, getting people who can handle that, that level of coordination and in the logistics side to get things shipped and maybe maybe make some changes on the fly a little bit easier than feeling like you're stuck in, in the way that you have always done it basically.
• 28:48
  Speaker: Yeah, Now there's some things that are coming that coming slash here to different degrees that I think could make this better.
• 28:57
  Speaker: There's a there's a software tool, software architectural design tool called Hierarch and essentially what it uses video game engine like theory.
• 29:06
  Speaker: So when when when someone makes a video game, they will spend years developing an engine that then allows the level designers to use that engine to build levels way faster and environments that the game will actually run in way faster.
• 29:21
  Speaker: And they're taking that same kind of idea to residential where the home builder can just drag a square box and to whatever dimension.
• 29:34
  Speaker: And it has the logic rules of this is how many studs, this is how many nails.
• 29:36
  Speaker: This is like all the different materials will automatically put in windows to the same logic of this is how many windows we get.
• 29:43
  Speaker: They can have different levels of kitchens.
• 29:45
  Speaker: And so you just highlight a square, say this is this room is now a kitchen and it will automatically configure the cabinets.
• 29:53
  Speaker: And all of that means that there might be able to be, I think some consolidation and consistency around the materials that still allows for variety.
• 30:03
  Speaker: And that's, I think the, to me, the Holy Grail of what needs to happen is instead of builders right now, think about floor plans and options on those floor plans.
• 30:12
  Speaker: And then then take offs are done to figure out what we need.
• 30:16
  Speaker: And instead with the with the take offs and the floor plans, like you can have an infinite number of floor plans that all follow the same general logic means that you, you know, like in advance some, some, some levels of consistency that could allow you to, to really make a, a more consolidated bill of materials that I would imagine would make everything else easier.
• 30:47
  Speaker: Yeah, it sounds like it definitely.
• 30:50
  Speaker: I mean, it makes a lot of sense as as, as a way to streamline operations and, and yeah, know, know what you need to order and all of that.
• 30:56
  Speaker: So, so let's get a little bit more into you mentioned home starts recently and, and that's one of the the big statistics that everyone is following in the industry.
• 31:08
  Speaker: So, so where is that looking?
• 31:12
  Speaker: How is that looking right now and how is it been over the last couple of years leading into to where we are at the moment?
• 31:20
  Speaker: Not great.
• 31:20
  Speaker: So, so when I say that it's, it's this forward planning piece.
• 31:29
  Speaker: And so we had right right now the best way so you can look at permits and starts.
• 31:33
  Speaker: The other thing that I think though that's really important to, to consider is land.
• 31:41
  Speaker: And right now land pricing and it is, is soft.
• 31:45
  Speaker: Demand for land is soft.
• 31:45
  Speaker: And that is the most leading indicator of where these folks see things coming.
• 31:52
  Speaker: There's a lot of optionality in land, which until the last two years, it was still a lot more kind of hard money upfront, putting a lot more skin in the game.
• 32:02
  Speaker: Builders have definitely moved into more of a, I'll put an option on this and I'll find a land banker or someone to partner with to take on the risk and we'll pay a little bit more for that.
• 32:11
  Speaker: So there we have been in a consistent state of uncertainty really since the end of 22, not uncertainty of do we need to build homes, but what kind of product.
• 32:22
  Speaker: And again, the lag time then means that so, so a lot of builders are still trying to work their way out of inventory homes that they decided to build because, and we should, I guess, unpack that builders shifted dramatically more towards inventory because they couldn't guarantee they didn't want to talk about pricing until they had their costs, you know, more known through the process because they got burned selling more than they could actually build and acquire the parts for to build.
• 32:53
  Speaker: So like, let's not do that.
• 32:53
  Speaker: And then it's also, it turns out really convenient not to have a customer attached to a house that's being built really slowly.
• 33:00
  Speaker: Yeah.
• 33:00
  Speaker: So it kind of a line of like, let's build a lot of inventory and when it's done, it'll sell.
• 33:07
  Speaker: And we can know what our margins will be.
• 33:09
  Speaker: And we don't have to have anyone complaining about, hey, you told me this is going to be done four months ago and I'm still waiting for Windows.
• 33:14
  Speaker: Well, now all of those decisions about what to build and what's in it and for what price, those were made a long time ago.
• 33:25
  Speaker: And then when that demand softened and the supply was still there, but it's a supply of homes that people can't afford that's causing this delay.
• 33:35
  Speaker: And like what is the next round of product decisions need to be?
• 33:39
  Speaker: And so one of the interesting things about the market we're in right now is that the Publix don't have a choice.
• 33:44
  Speaker: They have to try to maintain volume.
• 33:46
  Speaker: And so they're for the most part making a trade off of of keeping a more consistent volume of units and taking again the hit to margins.
• 33:59
  Speaker: Many of them are back to 2018-2019, in some cases lower than 2018 or 2019 levels of of margin.
• 34:07
  Speaker: And that's really surprising because they were two to three times what they in terms of net margins, what they typically would have been in 21 and 22 even with the increasing cost.
• 34:19
  Speaker: But what's happening now is that the smaller builders who can be more nimble or essentially their product turn is faster because they didn't start thousands of unsold homes.
• 34:30
  Speaker: We're starting to see more strength there.
• 34:34
  Speaker: And so it's, it's definitely the overall picture is still 1 of uncertainty of which direction and things are going to go.
• 34:40
  Speaker: And it's a lot of things that no one can control.
• 34:43
  Speaker: You know, if gas prices come back down, if there's some some agreement on the tariff side, we could still have mortgage rates in the fives by the end of the year.
• 34:52
  Speaker: It's possible and that would make a big impact.
• 34:54
  Speaker: But in the interim what we're seeing is the national story is not as interesting as market by market, pocket by pocket.
• 35:03
  Speaker: And then on top of that, we had a, we have a lot of our medium and smaller size builders who have had either their best Q1 in, since, since like 2021 when you could sell anything and everything for whatever price you wanted.
• 35:17
  Speaker: Whereas a lot of the larger builders, they're, they're having to again, sacrifice margin because that lag time is, is so much longer because they're still heavily building inventory because they, they just have to continue to kind of match the drum beat of what the stock market expects.
• 35:35
  Speaker: And so they kind of have to stay on that cycle.
• 35:37
  Speaker: But it's, it's tough.
• 35:37
  Speaker: I mean, the biggest thing is that demand is there website activity to home builder websites from consumers is at all time highs still, but they're coming back again and again and again to look and check and say, can I afford this now?
• 35:53
  Speaker: Should I really do it now?
• 35:53
  Speaker: And so and the idea of creating new demand, it's it's just not there.
• 36:01
  Speaker: So the, again, the builders that are having success are taking the, the limited demand they have and pulling it through their customer journey faster.
• 36:08
  Speaker: But they're, they're, they're still nervous.
• 36:11
  Speaker: So I, I'm saying all that to say, even the builders are doing really well right now, Kevin.
• 36:17
  Speaker: They're still nervous because they don't see an unending supply of customers waiting.
• 36:20
  Speaker: Yeah, well, we didn't, we didn't, we hit our sales goal this month.
• 36:24
  Speaker: But look, there's three months worth of people still waiting behind.
• 36:26
  Speaker: That's, that's not there.
• 36:28
  Speaker: I don't know that that's ever coming back.
• 36:31
  Speaker: And a lot of builders haven't made that mental switch to realize, like, we just have to understand this is the way it's going to be for a while.
• 36:37
  Speaker: Yeah.
• 36:39
  Speaker: So if you hit your sales goal this month, then you're afraid that in in two months there, there aren't going to be enough people to help you hit that sales goal again, maybe not two months, but but yeah, it's something down the road.
• 36:50
  Speaker: Yeah.
• 36:50
  Speaker: It's.
• 36:52
  Speaker: The the age-old, well, I hit my, I hit my sales goal this month, but the, the pipeline is empty.
• 36:56
  Speaker: We got to get all new people.
• 37:00
  Speaker: And that's, that's not true.
• 37:00
  Speaker: That's what we have to do a lot of reminding of like hey, most builders in their CRM systems are customer relation management tool.
• 37:09
  Speaker: They have more people who became leads voluntarily said I'd like more information in 2020 and 2021 then all of the last all the other years in the last 12 years combined.
• 37:23
  Speaker: And so those people are still thinking, still waiting, still considering many of them have to make decisions.
• 37:30
  Speaker: And they just, it's almost like popcorn kernels, you know, like the heat is still there, everything's simmering.
• 37:37
  Speaker: And then they just, and, and there, there's enough of them that they're, they do pop and builders can meet their goals, but you can't make more new demand unless you're going to come out with a sub $300,000 home.
• 37:49
  Speaker: Well, and, and the mortgage rates are obviously a, a factor in this as well.
• 37:52
  Speaker: You mentioned the, the hope that maybe they get down to the fives, which you know, a few years ago didn't sound like a very good thing, but but we, we've seen a little bit of movement down and then it kind of stagnated again.
• 38:07
  Speaker: So, so, so where are things, what are you looking at as, as, as where things are actually headed with with the mortgage rates and and is that where that next wave of pipeline comes from?
• 38:23
  Speaker: It it is where the next wave of pipeline comes from, but I want to be clear about why it's not because of how it affects new new home specifically because again, the vast majority of builders over 75% still are offering some buy downs that are getting interest rates into 3-4 and 5% range already.
• 38:44
  Speaker: What, what's not helping though, is people still have an existing home with an existing rate that they don't want to give up or there's pressure, there's not enough interest on the existing or the overall market.
• 38:56
  Speaker: And so we do need rates to come down and we need affordability to improve to allow kind of the whole, the whole housing stock to, to start becoming unstuck.
• 39:12
  Speaker: Where do I think rates are going to go?
• 39:15
  Speaker: Well, first, let's just break down for everyone.
• 39:19
  Speaker: There's what the Fed does, which is an aspect, there's the spread, which is the premium that investors say that they want for the risk that they're taking on.
• 39:30
  Speaker: And what we saw was that that the Fed was trying to lower rates to make borrowing cheaper, but the spread was was not budging and and it had stayed expanded from where it typically had been.
• 39:39
  Speaker: That's, that's the light at the end of the tunnel, is that while a lot of this stuff compounds or has compounded to the negative, it also means that it can compound to the positive relatively quickly.
• 39:57
  Speaker: Because the same thing that would cause rates to at least not go higher could also cause the spread to lower.
• 40:06
  Speaker: Right now we're still heading in the wrong direction.
• 40:11
  Speaker: And it's, it's, but you can't.
• 40:11
  Speaker: If there's one thing, my goodness.
• 40:13
  Speaker: We can say is that like every every morning now my routine is to check like 5 different news sources just because how quickly the story on any one of these things changes is dramatic, which again, doesn't bode well for decisions that have to be made years in advance with with our industry.
• 40:33
  Speaker: But if rates go lower by the end of this year, we'll be fine and doesn't have to go dramatically lower, just kind of back to low sixes, high fives.
• 40:52
  Speaker: If we go another year with rates in, in the 6 1/2 or, or even the seven territory, it's going to be, we're going to have, we're going to have a lot more pain because, and here's why I say that on the really large builder size, the folks who are using all the tools they have includes including intermodal to, to make their costs as low as possible.
• 41:11
  Speaker: They're all rushing towards scale and people are championing that.
• 41:19
  Speaker: But ultimately someone in that scale game is going to lose.
• 41:24
  Speaker: And so that's, that's what I don't hear enough conversation about.
• 41:25
  Speaker: A lot of cheering of yay, this builder is going to acquire that builder and yay, a lot of consolidation.
• 41:29
  Speaker: And that's going to, but, but there's a lot of builders who are using consolidation and and growth and scale to try to run their way out of, out of all these problems.
• 41:39
  Speaker: And if everyone's trying to play that game, a couple people are going to lose and they're going to lose big too.
• 41:46
  Speaker: And, and I think that narrative then could, could be bad for building now.
• 41:55
  Speaker: The everything's a trade off.
• 41:55
  Speaker: The one thing we also, if we hadn't had the Great Recession, all of this would be way worse because it was the land price reset of, of the financial crisis that allowed builders to grow their way back.
• 42:07
  Speaker: And that's one of the biggest challenges we have, if not the biggest.
• 42:11
  Speaker: And why I'm not really sad that land prices are softening is land prices and impact fees and permit fees and all of the all of those fees are a bigger danger to the industry than anything else, I think.
• 42:30
  Speaker: And and what is that overall attitude with with the the fee structure now?
• 42:34
  Speaker: I mean a lot of that is local too based on on areas.
• 42:39
  Speaker: Sadly, that's, that's why I say rates are kind of OK, but if it gets better, it's going to get a lot better, like potentially pretty quickly.
• 42:53
  Speaker: When, when these impact fees and something like 1/3 in many cases of a house cost now are taxes and fees and, and permit costs and inspection costs and required mandates for safety and, and, and all of those things together.
• 43:14
  Speaker: And that's, that's not an easy undue thing even even at the federal level.
• 43:17
  Speaker: And so that's, that is driving more and more builders to, to look further and further out.
• 43:26
  Speaker: And and that's why builders are probably more than anyone else, excited about autonomous driving.
• 43:32
  Speaker: Like, can we have that now, please?
• 43:33
  Speaker: Because as soon as the customer can say with full confidence, well, who cares?
• 43:38
  Speaker: If I drive another 10 minutes, my car is going to drive for me and I can do whatever I want.
• 43:46
  Speaker: Then I'll live wherever I want.
• 43:46
  Speaker: Didn't think about that as a as a consequence, but that that's that's interesting.
• 43:54
  Speaker: So before we let you go tell, tell folks more about where they can find information on do you convert your podcast, market proof marketing and anything else you're up to these days.
• 44:06
  Speaker: Yeah, doyouconvert.com is our is our website.
• 44:08
  Speaker: That's where you'll find everything, events that we have or host different content that we put out.
• 44:13
  Speaker: Marketproof Marketing is our weekly podcast around the topic of marketing.
• 44:16
  Speaker: We also have one related to inside sales called OPT and always talking at the International Builders Show often at PCBC, which is on the West Coast.
• 44:26
  Speaker: We have our own conference in October and LinkedIn is is, I mean, even with all of the AI slop on there, it's still the place, place to talk about and share ideas.
• 44:39
  Speaker: So definitely check me out on LinkedIn if you want some of the spicier takes.
• 44:48
  Speaker: We appreciate it, Kevin.
• 44:48
  Speaker: Thanks very much for taking the time.
• 44:49
  Speaker: Absolutely great to be here.
• 44:55
  Speaker: Very interesting to hear that correlation in terms of the home building market and the freight market.
• 45:02
  Speaker: The COVID time frame and what's happened since certainly dovetails a bit between the two.
• 45:07
  Speaker: There's a very clear relationship there, and we appreciate Kevin Oakley taking the time to take us through it and cover a bunch of other topics in that area as well.
• 45:18
  Speaker: We appreciate you joining us on this edition of the Intermodal Logistics Podcast.
• 45:25
  Speaker: Also, please do rate and review us, like subscribe, follow wherever you get the podcast.
• 45:29
  Speaker: Any comments are also appreciated too and you can e-mail us at podcast@ inteklogistics.com as another way to get in touch with us.
• 45:41
  Speaker: You can also learn more about Intek Logistics, the company, on our website, www.inteklogistics.com.
• 45:50
  Speaker: Thanks again for joining us.
• 45:50
  Speaker: I'm Kevin Baxter and we will be back soon with another episode.