#1 – B.J. Patternson

Hello and welcome to the first episode of Supply Chain Saga. I’m Mark Taylor, the co-founder and CEO of Warehouse Republic, a Third party logistics company that specializes in e-commerce. Today I’m interviewing B.J. Patterson. B.J. is the founder and CEO of Pacific Mountain Logistics, a full service, 3PL located in San Bernardino, California. B.J. is highly respected in the industry and I’m excited to have him on the show. So let’s get started. Yeah, they’ve made getting into podcasting and everything like that extremely … I mean, very, very easy.
B.J. Patterson:
It’s really cool. I wouldn’t even know where to start.
Mark Taylor:
Yeah. So a little bit of the fun little, I mean, they’ve even got this thing set up to have intro music, little noises.
B.J. Patterson:
So that’s how they do all that stuff.
Mark Taylor:
Yeah.
B.J. Patterson:
I like that.
Mark Taylor:
Yeah. It’s funny. It’s good. Yeah. Got a lot of all the good stuff.
B.J. Patterson:
Oh. My gosh. That’s crazy.
Mark Taylor:
This one, it runs off of a little micro SD card in the back. And then it allows you to set just basically everything. I mean, you can-
B.J. Patterson:
That is so cool.
Mark Taylor:
Yeah. So, anyway. Well, let’s get going.
B.J. Patterson:
Great.
Mark Taylor:
Thank you for being here. I’m happy we’re able to make-
B.J. Patterson:
Thanks for having me. Yeah.
Mark Taylor:
Absolutely. Let’s go ahead and start with, just go ahead and introduce yourself.
B.J. Patterson:
Hi. I’m B.J. Patterson. I’m the CEO and founder of Pacific Mountain Logistics. We’re a third-party logistics company, based in San Bernardino, California. The inland empire, logistics mecca of the universe.
Mark Taylor:
Yep. I would also say the best operator. I have the pleasure of knowing and meeting.
B.J. Patterson:
Well, thank you. I’ll thank you for that. I mean, it’s funny. You always say that you don’t find logistics, logistics finds you. Not too many kids are sitting there in their high-school class saying, “Man, I can’t wait to be a logistician someday.” And then all of a sudden, wow! 32 years later, you’re the old man on the block.
Mark Taylor:
So, with that said, how did it find you?
B.J. Patterson:
It’s really funny. It was a temp job. It’s really true. I’d gotten out of the military, had done some of this stuff. And, quite frankly, I was going through a divorce and was lining up another job, was going to take me back overseas. And a friend called me and said, “Hey, could you help me out?” The guy I was in the service with? And called me up said, “Can you help me out?” I said, “What’s that?” And he said, “I need you to work in a warehouse for me.” “Warehouse, oh.” I didn’t know anything about warehouse. I mean, my vision of warehouse that time was some tin building with a bunch of diesel forklifts running around in it.
Long story, but he talked me into it. I went and talked to him. It was Target, their Fontana, 1.3-million square-foot distribution center in Fontana, California. And they needed someone to work Friday, Saturday, Sunday, Monday night. He said, “Hey, you’re divorced. You don’t have a life. So why don’t you work those nights?” I said, “Well, I’m never going to have a life if I work those nights.” “Oh, it’s just a temp job. Just four months.” So four months turned into six years and got me addicted to the whole logistics thing.
Mark Taylor:
1.3-million square feet. And this is what, 1989? 1990?
B.J. Patterson:
No. ’92, 1992.
Mark Taylor:
’92? Okay. So 1.3 million back in that time was big?
B.J. Patterson:
It was big. It was one of the few million square footers on the West Coast at the time. There were a few, but not very many. I mean, you could count them on two hands at the most. I mean, there just weren’t very many around. And they all had names like Target or Walmart, Kmart on them. That’s the only ones that had those bigger buildings at the time. And what’s funny too is, and we bragged that we had 18 miles of conveyor in there. In today’s environment, I mean, it was so arcane. But at the time it was state of the art. Everything we were doing was state-of-the-art stuff. And it’s funny to go look at today’s warehouses. And while they’ve changed in some aspects, some aspects are exactly the same, they haven’t changed at all.
Mark Taylor:
Give me some of the, this has really changed. This has not changed at all.
B.J. Patterson:
Well, if you go to what I would call your “shipper warehouses,” your Target’s warehouse, the thing that hadn’t changed is the sorting and the way they managed that. The things that have changed is much more flow-through inventory, not as much stock inventory. Obviously, the pandemic taught us that maybe they should stock a little more. But I mean, yes. I mean it’s much more flow through much more just in time today than it was back then. Back then it was primarily pull stock, mostly. Going to stock and then pulling from stock to fulfill and to supply the stores. Whereas now, it is very little pulls from stock. Majority of it just comes in on a truck, goes straight out.
Mark Taylor:
And so, the ultimate storage end up ending up being the retail location itself. And so it’s like that’s your store-
B.J. Patterson:
And actually, if they work it the way they would love it. The store is the ship that it’s on, the truck that it’s on. That transition is the storage. And just think of it as a pipe. Right? So that supply chain, everybody calls it a supply chain. And really the best terminology would be the supply pipe. Think of it as a pipe. And they’re constantly feeding the one end of the pipe, and you’re hoping that the flow out the other end is the same flow that it’s rate of sales. So, ideally, the pipe, this flow, that’s your storage, ideally. Now again, that works great until there’s a disruption, a pandemic maybe.
Mark Taylor:
Sure.
B.J. Patterson:
It just so happens to happen. And so, now you’ve got this pandemic and now, “Oh, my gosh! I don’t have anything in storage.” And everybody wonders why? “Oh, my gosh! We’re out of everything.” Well, because we didn’t really plan. Because, you can take that back to 2008 when the Lehman Brothers, everything went off the cliff in 2008. All these retailers got caught with so much inventory, they became inventory shy. So what was, quote, unquote, just in time, which really wasn’t. We jokingly said, became “just late.” Everything now is just late. And to some degree, prior to 2008, retailers had a very, very low tolerance for out of stock. I mean, that’s all they focused on. They didn’t care what it cost them. They didn’t want a bare shelf in a store.
Now you go to stores today, with a few exceptions, but not many, and you see the amount of inventory in the stores is so much lower. And they have a much higher tolerance to out of stocks, because then they direct you to your website. “Just buy it online. We don’t have it here today.” So they’ve cut down the number of SKUs in the stores and they’ve limited the inventory in stores and pushed that back upstream to these warehouses that were sitting half empty. And now they’ve pushed that back upstream in trying to force people to buy online and buy through that channel, rather than through the store.
Mark Taylor:
So, it’s interesting. So when you think of it as the pipe, then the container ship is a part of the storage. The sortation warehouse is a part of the storage. The trucks taking it from the-
B.J. Patterson:
It’s part of the storage.
Mark Taylor:
So that actually becomes … It’s like the entire is your-
B.J. Patterson:
Think of it is you’re rolling warehouse. The ship, it’s your storage. It’s that container on that vessel, that’s all storage, a temporary storage.
Mark Taylor:
Right. So, backing up a little bit, how’d you go from four months, to four years and then a career?
B.J. Patterson:
Well, I mean, I think a couple things. First off, I think logistics is addicting. Particularly if you’re a problem solver. If you like to solve problems, logistics is an awesome way to do it. I mean, that’s what you do. If you’re working in warehousing or trucking or any other aspects of it, you’re constantly solving problems. And the person that is most successful is the one that can solve the most problem. And so, working at Target, I just became addicted to this problem solving and I was successful. I got promoted quite a bit there. And then I did the unthinkable, went and worked with Walmart after that, which is almost like an American going to work or … Actually more like a Soviet going to work for America. I think that’s the way they looked at it. Like some Soviet spy, because I used to work for Target.
Mark Taylor:
How many years was it before you could go back to your Target colleagues and have a polite cup of coffee?
B.J. Patterson:
It was the Walmart people that treated me crappy, quite frankly. The Target people are like, “Man, those guys are weird over there.” But the Walmart people, they kept acting like I was still with Target or something. Like I was there to steal their secrets. But you work that retail, but I always had an entrepreneurial bent to me. I liked that. And you can only go so far in corporate logistics, Walmart, Target. In order to keep things consistent throughout the organization, “Look, here’s how we do it. Don’t change it.” And that just didn’t fit me. So I got myself into the third-party side of it, working for NFI. And that’s when you learn the entrepreneurial side of it, how to make money at this and how to solve those problems, but do it in a profitable way, rather than just solving them to solve.
Mark Taylor:
So what was it like going from the behemoth of, like you said, the corporate logistics, where “Look, you’re going to get promoted if you execute our process better than anybody else executes the process,” to then getting … What were you recruited to NFL?
B.J. Patterson:
Yeah.
Mark Taylor:
Okay. So then, being recruited into this entrepreneurial environment and they say, “Okay, we want you to help look for how to do this better.”
B.J. Patterson:
Yeah. It’s so much better. I look back and it’s just so much more fun. I was very fortunate. I worked for a big three PL that gave me a lot of latitude. They did. They expected everyone, particularly at my level, to be entrepreneurial and to look for ways in how to do it better and how to do it more cost effectively. And, quite frankly, how to get revenue out of it, how to do that. And the other thing is, even though the company at NFI who I was working for, I mean, it was a big company, but still they got you involved, and you were able to get involved in all kinds of other aspects of the business that typically at a corporate, it’s either your job or it’s not your job.
Mark Taylor:
Right.
B.J. Patterson:
Right? It’s like corporate real estate. They have real-estate people. They would never, ever, ever talk to an operator about a real-estate solution. Whereas you go to a 3PL and like, “Hey, we need another building.” “Well, you’d better go find one.” You know what I mean? You learn about leases, you learned about all these other aspects of the business that, if you’re in that corporate world, you just don’t get [inaudible 00:12:15]. I mean, it’s very rare that you get to touch all those different pieces of the deal.
And again, you go back to the original thing of problem solving. So, it takes problem solving to a new level, because now you’re able to learn how to make things, again, profitable and entrepreneurial and learn new ways to create revenue streams and look for new problems to solve. And now you’re working with clients. Okay. How can I help this client? I mean, the best way to make money is to make your client look like a hero. Right? So you look at that, whoever you’re dealing with, the VP of logistics for a company, or the purchasing, whoever they are. If you approach every day with my goal is to make that guy a hero in his company, then I’m golden. And I’m golden with them.
And now, every time he has a problem, he calls me. I’ve become the subject matter expert. He calls me and every time he calls me with a problem, that’s a potential revenue stream for me. I don’t want him calling a consultant. I don’t want him calling somebody else. I wanted to call me. [inaudible 00:13:28] “If I call B.J. call and say, look, I have this problem, how do I solve it?” And you say, “Okay. I got this. I can call my trucking partners. I can call this guy. I can call that guy, we got this for you. Don’t worry about it.”
Mark Taylor:
So when you’re dealing with somebody inside a company, let’s say it’s somebody in purchasing, somebody at the VP of supply chain ops, whatever it may be, in a larger company, and it’s like your goal is to make them look good. Does it alter when you’re actually speaking with the owner and the owner is … It’s not about looking good, it’s about making the business better.
B.J. Patterson:
Well, I mean, I think that if you take that same attitude with the owner … Look now my goal is not to make you look good. My goal is to make your business run better.
Mark Taylor:
Right.
B.J. Patterson:
I think Warren Buffett said, “Pigs get fat. Hogs are slaughtered.” Right? So look, my goal is to reduce your costs. That may reduce a little bit of my revenue, but my long-term goal here is to be indispensable to you. And if I become indispensable to you, then long-term going to make a lot more money than trying to just get fat off of one or two deals. So, that owner needs to know, that I’m there looking out for his best interest. And if I’m looking out for his best interests, he’s going to keep coming back to me. And, by the way, owners sometimes open other companies. Or this purchasing manager skips and goes to another job. When he gets that other job, first thing you do, he’s going to call me. Say, “Hey B.J., can you help me out over here? I need to look like a hero at my new job. And I know B.J. makes me look like a hero.”
And so, if you take that approach, that look, your job is to make them look good. It’s not to get over on them. It’s not to try and … You don’t have to wine and dine people. You just have to … Sometimes it’s no more complicated than just doing what you said you’re going to do. You don’t have to overcomplicate it. But, knowing that that guy can call you and trust you, that you’re going to do everything you can to make better for him? That’s what matters. And not that you’re going to gorge him. He’s not going to call you if you’re going to gouge him every time he comes to you, and you’re going to try to get rich off of every deal. It’s the long-term vision. “Look, long term, I got to be there for you.
Mark Taylor:
Right. So, the way you came up, you mentioned military service?
B.J. Patterson:
Mm-hmm.
Mark Taylor:
And I feel like what really helps, probably helped you in the corporate … I mean, obviously you’re very smart, capable, hardworking. But there’s also that fitting within the mold and doing things as they’re supposed to be done. Certainly was probably pretty finely honed at the time coming out of the military?
B.J. Patterson:
Mm-hmm.
Mark Taylor:
And so, it really does make sense to go from military service up to corporate logistics, corporate warehousing. And then now you make the jump to this more entrepreneurial role. So, what were the things that … There’s this saying. It’s like, “What got you here won’t get you there.”
B.J. Patterson:
Right.
Mark Taylor:
Yeah. So, what were the things that you had to change, not only in your thinking … But how did you become good at logistics? Because obviously before that you were good at logistics, but also at logistics, while following orders. And then now in this newer role, certainly you have a direction that you’re going, but-
B.J. Patterson:
Well, I think I would say this to anybody. It’s a willingness to learn and listen. Right? A mentor of mine many years ago said, “You got to wake up every morning trying to know what you don’t know.” Right? So if you know what you don’t know and you’re willing to go out and ask questions and listen and learn from everybody … I mean, there’s so many different aspects to logistics. And I’ve been very fortunate to have been sometimes dropped in the deep end of water in some of those different forms, whether it’s drayage or long-haul trucking or LTL trucking or warehousing and e-commerce fulfillment. I mean, there’s so many different aspects. And I think the true person wants to be successful has to be, first off, know that they don’t know it. Admit to that they don’t know it. And then go seek out and find the guy that does know, or a gal that does know. And ask them, and learn from them. I think that’s the thing.
And I think that, if you want to be successful and you want to take that next step, you have to be … I call it “a learner for life.” Right? You got to always want to learn something new. And that’s where I’ve been very fortunate, and very fortunate that sometimes I was just dropped in the deep end. “Hey! Here this is. Figure it out.” And then on some cases it was leases. I sat next to my boss and he walked through a lease with me and said, “Okay.” Here’s a guy who’s been doing it for most of his life and he’s walking me through it. “This is what you look for. This is the watchouts. Here you go. Here you go.” And you got to soak that in. You got to take that and run with it. Trucking. Got to dropped off and, “Hey, you’re in charge of this terminal now.” “What?” “What do you mean now?” I don’t even know what the heck a terminal is.
And so, you go in there and you leverage the people that are working there. And you don’t go in there too big for your britches, and admit what you don’t know and ask questions. And you find that most of these people love teaching you. I mean, I’ve sat with dispatchers and say, “I don’t know how the hell you do this. Show me.” And they’ll show you. They’re proud of what they do. And just be willing to be humble and talk to them and learn from them. And it’s awesome. Again, I think that’s what I love about this industry is … I mean, there’s something new to learn every day. Every day. And from anybody. You don’t know who it is. It’s like, I love touring warehouses. I’m a total warehouse nerd. I love touring warehouses, because I can’t recall ever touring a warehouse, no matter what size, didn’t see something went, “Oh, that’s a pretty damn good idea.” I like that.
And it’s usually something that somebody they’re on the floor came up with, or some supervisor came up with. It’s not some crazy wazoo engineering thing. It’s some simple thing that some warehouse worker or person just said, “Here’s a better way to do it.” And you see that and go, “Hell! That’s a good idea.” And I can’t remember walking the warehouse, where I didn’t see at least one thing going, “Oh, that’s a good idea.” And so, there’s always something to learn if you approach it from that. I think the biggest leap for me was when I leapt out of, even the 3PL world started my own company, because you just don’t know how many hats there are to wear until all of a sudden you got to wear all of them.
I was a VP-level kind of guy, and had been for a number of years. And you forget that what you’re relying on all these different people that are doing these ancillary functions all around you, making your life better every day. And then, you go into the true entrepreneurial world where … Now it’s you. I don’t have a risk manager handling all the insurance stuff. You don’t have an HR person, you don’t have-
Mark Taylor:
A legal. I mean, you might not do all your legal, but you’re doing a lot more legal than you were beforehand.
B.J. Patterson:
Oh, yeah. Yeah. I mean-
Mark Taylor:
You’re reading through all your contracts. You’re doing the HR piece to the extent that you can, or finding the person who can do it and understanding how to coach them. It’s everything. It’s wearing a bunch of hats.
B.J. Patterson:
It’s a bunch of hats. And also, you find those things that throughout your career you never really did get into. I was a career operator. I was a career operator my entire career. I was never a sales guy. Never once. I mean, I had sales guys that reported to me at different points in my career, but I was never the sales guy. And now, guess what? I’m the sales guy. So-
Mark Taylor:
I do want to back up, because this is an interesting thing. It’s like you start being exactly what you said, that operator … You’re marching in line and then you get a little more entrepreneurial. And then you just full on go and do the entrepreneurship thing. When did you start feeling like, “I’m going to do this. I’m going to do this for myself,”? Were there any stops between NFI and other logistics companies?
B.J. Patterson:
Yeah. I mean, I think that probably a million guys out there. You start noodling on a business plan. I don’t even remember the first year I did it, but probably five or six years before I started the company, I started on my off hours, sitting around noodling on a business plan. Putting a business plan together, because I’m thinking I’m figuring this out, and if I can make money for someone else, why couldn’t I do this for myself? And I always say that, I think a lot of times it just has to be that impetus, that thing that pushes you off the edge. Right? So you have this business plan. You’ve been dreaming about it and thinking about it like a lot of guys do.
And then I left and I went to work for a private equity firm. And it was just one of those things that circumstances led it. I was traveling 99.9% of the time. I was working 100 hours a week. And-
Mark Taylor:
How was your family life?
B.J. Patterson:
It was terrible. Terrible. I was probably on the verge of divorce. I mean, it was horrible. I mean, it was horrible. And then you throw right in the middle of all that, the 2008 crash. And I’m now big wig, I’m the COO at this company and like, “Oh my gosh! It’s nuts,” and I’m never home. I’m never home. And I tell this story a lot that … It was May of 2009 and I’d been gone for, I don’t know, three or four weeks, I’d been gone from home. And my wife is on the phone. I’m at the Newark, New Jersey airport. And my wife’s on the phone giving me the play-by-play of my youngest son’s baseball game. It’s a playoff game. And they win the game and, “Oh. Hey, babe? I got to run.” She hangs up. “I’ll call you later.” Hangs up.
Hear everybody’s screaming and laughing and going crazy in the background. And when she hung up, I said, “This sucks.” And the guy across from me … I was in the Delta lounge there, and then the guy across me goes, “I agree.” I said, “Did I say that out loud?” And he goes, “Yeah. Something sucks.” And, honestly, just that night. And it was that push that, “Look. I’m missing out on everything. And come on, you can do better than this.” So, I literally stayed up all night long and wrote myself out of a job at my company. I wrote a whole new organizational plan. Wrote myself out of a job. Presented it to the managing partner and my boss and said, “I’m just done.” And to be very fair, they were very good to me and we worked through it.
But that’s when I just said, “I got to go do something,” and then I went and hiked the Pacific Crest Trail for a while, for a day and came up with the idea of Pacific Mountain Logistics. And that’s where the name comes from, this hiking on the Pacific Crest Trail.
Mark Taylor:
That’s cool.
B.J. Patterson:
And, yeah. It’s been a rollercoaster ride since then. But that was 2009, so I started the process of putting the company together. And then we were operating in January, 2010.
Mark Taylor:
Wait. What month in 2009? That was May?
B.J. Patterson:
Well, I filed all the paperwork in July.
Mark Taylor:
Got it. Okay.
B.J. Patterson:
I filed for the DBA in the LLC in July. I got the LLC in September, I think, September 9th when all the paperwork came back. And then, we did our first shipment January 2nd, 2010. January 4th, excuse me. January 4th, 2010.
Mark Taylor:
Yeah. Did you raise money? Or how did you-
B.J. Patterson:
No.
Mark Taylor:
How’d you get it off the ground?
B.J. Patterson:
Well, originally out of my savings and back pocket. We shoe-stringed it. And, remember this is 2009. Nobody’s lending anybody anything. Then I brought in a partner. I think about February of 2010, I brought a partner in to help. The upside is in 2009, 2010, if you fog a mirror, they’d lease you a building. There was building and equipment and stuff around very cheap. And part of the impetus too was I’d read a million self-help books that talked about businesses that opened up during a recession, because the barrier to entry was very low.
Couldn’t have been much lower than it was in 2009. I mean, you’d talk to somebody about putting something in a warehouse and they were clamoring to you, “Oh, take mine. Take mine.” And also talent. I mean, there was a lot of talent around, underutilized or not utilized. And so, getting quality people was an easier thing. I mean, it was tough, I mean, we certainly bootstrapped it. And we got some money here and there from, like I said from my partner, brought some money to the table. But, yeah, for the most part just some loans and a lot of savings and wiping out your 401k. And it’s worked out. That’s outstanding.
Mark Taylor:
I do think there’s a lot to be said for, it’s a lot easier to start a business when everybody’s hungry.
B.J. Patterson:
Yeah. Yeah. Yeah.
Mark Taylor:
That’s a great thing. Depending on which news article you read on any given day today, it’s, “We’re headed for doom and gloom,” and then, “Ah, well maybe it’s not as bad as we thought.” We’re seeing these big waves, almost like these sign functions going up and down and up and down with what’s going on. So how do you think the environment is different today than it is in 2008?
B.J. Patterson:
It’s several things. First off, I think the biggest difference today, versus any other time, is that credit’s been tight since 2008. The free-wheeling credit has never really come back. Not like it was 2005, 2006, where again, if you could put together 100 cents they’d loan you a million dollars and put you in a house that you had no chance of ever really being able to afford. So, I don’t think credit’s ever loosened up that much since then. So I don’t think you have so much of bad credit out there.
Then you look at unemployment numbers. Unemployment numbers, I mean, the participation rate is still so pathetically low, and there’s so many jobs out there, unlike 2008 when I mean the unemployment rate was double-digit and climbing. Right? So everybody still has jobs. So, it’s not like that’s there. Housing hasn’t fallen off the cliff. And, from everything I’ve read and everyone I’ve talked to, no one believes it will, because inventory is still painfully low. We never really recovered from the pandemic. The construction never caught up due to supply issues and labor issues and so on. So, it’s not like there’s a big glut of houses out there. So, that’s not going to cause housing to fall off the cliff. I think it’ll moderate and it’ll come down. The interest rates are going to force that that way.
And so, you back that up into the rest of the economy. So the housing market doesn’t fall off the cliff. Then your home improvement stays pretty good, because people start to stay put a little bit when housing’s expensive. And housing’s still very pricey. So people stay put, and so they fix up what they have, versus buying something new. So that bodes well for your home improvement, which … I think people don’t realize how big a chunk that is of the economy. So, people have been pent up. So, obviously, travel and leisure is doing really well and all things point to that. I mean, at some point fuel has to come down. I mean, that’s probably the thing that’s causing the most consternation out there is, travel and leisure would be doing much better if the fuel prices would come down.
Mark Taylor:
I mean, with that said, I mean I paid below four today at the pump down the road, and we’re in sunny southern California. [inaudible 00:31:16]
B.J. Patterson:
Right. And diesel’s staying up there, though. And that’s-
Mark Taylor:
Diesel is. Yeah.
B.J. Patterson:
And that’s what has kept the overall freight rates from coming down dramatically, is diesel just has been stubborn sticking there. And I just drove across half the country and it’s the same price, doesn’t matter where you go. I mean, diesel’s still in that mid-fives all the way across the country. So-
Mark Taylor:
Even in Texas [inaudible 00:31:42].
B.J. Patterson:
Yeah. Absolutely. Well, gas was much cheaper in Texas.
Mark Taylor:
And gas, I think was 2.69 when I left about a week ago.
B.J. Patterson:
Yeah. Yeah. I saw that just two weeks ago in Texas. So the fuel prices come down, it bodes well for the travel and leisure section. Restaurants, they’ve rebounded quite a bit, and you don’t see a lot of that mitigating. So, while I do think we’re in for a little bit tougher than what we’ve had … I mean, we’ve been on a pretty good roll here. And you’re starting to see volume draw back. Durable goods have drawn down and you’ve seen some delay of purchasing. But, you’ve got this artificial spike in 2021, which is hard for everybody to understand. I mean, this was not normal. The government threw so much money into the economy and everybody went out and spent a girl getting ready for prom. Everybody went and spent so much money. 2021, excuse me, is an anomaly. And so, I think the inventory glut is people did their production planning around that 2021 spike and planned, based on that. And you get into 2022 when things are a little bit back to normal and now you have this big inventory glut because you just made too much. Right?
It’s not that the economy’s bad, it’s just getting back to normal. And all this government funny money is out of the equation, or at lease is leaking out the equation-
Mark Taylor:
For now.
B.J. Patterson:
For now. Right? And so once you get that out of the equation, you get back down. I think what we’re seeing is just a return more to a normal economy-
Mark Taylor:
To normalcy. Yeah.
B.J. Patterson:
Yeah. Not an off the chart. I mean, supply chains are starting to open up and so car availability. So car prices are coming back down to earth. And that’s just an availability thing. It’s not that, “Oh, my gosh! The car market’s crashing!” No, it’s not. It’s just now you can actually find a car. It was an availability issue, not a … So to me, I look at it and see all these artificial spikes that were just ballooning things up, are going away. And, yes. It may be a recession in terms of comparing it to 2021. But let’s compare things to 2019. I think that’s where you go back and say, “Let’s compare to 2019 and see where it is.” And I think you can see it still moderate to decent growth over 2019. And we’re just back down to a more normal pace.
That’s the way I see it. And that’s reading and talking to a lot of people that are way smarter than me. To me, from what I understand, that’s the consensus. We’re just got to back down to a more normal pace. They’ll keep raising the interest rates, which … Look, we’ve gotten a little drunk on cheap money.
Mark Taylor:
Absolutely.
B.J. Patterson:
So the entire world has gotten a little drunk on cheap money. So, if the interest rates leak up to eight, 9%, it’s probably not the end of the world. And they’ll get things back to a steady state and they’ll come back down. We’re not seeing the 1980s with 18, 19% interest rates.
Mark Taylor:
Fortunately.
B.J. Patterson:
Yeah.
Mark Taylor:
So, it’s interesting because what I’m seeing, and this is bringing it back … I mean, that was an excellent, I think, view of the macroeconomic trends and everything. And that plays so much into how you and I plan for our businesses. And so now, I’m looking at the Chinese numbers, going down for the exports. We’re seeing a lot of big drops in exports. We’re seeing the Port of California is heralding themselves for getting … Now they have no container ships waiting.
B.J. Patterson:
Mm-hmm. Right.
Mark Taylor:
They’re on time. And I’m like, “Oh.” I mean, a lot of those got offset to the East Coast, which is now consequently having issues-
B.J. Patterson:
Major issues.
Mark Taylor:
I haven’t seen recently, but I think Savannah was up forties, fifties offshore, waiting to get in.
B.J. Patterson:
And, to put things in perspective, 40 vessels off of Long Beach in LA is two weeks’ worth of work. 40 vessels off of Savannah is about seven weeks’ worth of work. So, you always got to put things in perspective. I mean, 40 vessels off LA Long Beach isn’t really not that big a deal. 40 vessels off of Savannah is a huge deal. Charleston, even a bigger deal. So this diversion … And I’ve talked to some retailers that did this, that diverted to the East Coast and they’re all regretting it, because East Coast just can’t handle it. I mean, particularly smaller ports. I mean, you go outside of New York, New Jersey, all these other ports, they’re landlocked. They don’t have the capabilities that you have in Long Beach, LA. And so, the product was on the water longer, it cost them more to get there. And now it’s hung up. I’ll leave their name out of it. Talked to a big retailer who says, they [inaudible 00:37:08], maybe 20 to 25% of their Christmas just wasn’t even going to make it.
Mark Taylor:
Wow!
B.J. Patterson:
Because they shipped it to the East Coast, and that’s the risk they took.
Mark Taylor:
Right. And you mentioned this at one of the longer, I think it was two or three times ago, we met. And you mentioned that what we’ll see is we’ll see the East Coast cooling and that’ll cool. And then it’ll basically take about a year. And then we’ll see the West Coast start to calm down.
B.J. Patterson:
Yeah.
Mark Taylor:
You still think that’s where we’re headed?
B.J. Patterson:
Absolutely. I mean, it’s funny. You can judge the market by who’s calling you. So, I think for at least a year there, I don’t think the real-estate guys even had an outbound line. They weren’t calling anybody. So, now they’re calling, they’re emailing, they’re sending you flyers. You’re getting flyers out of Chicago and Kansas City and Phoenix and Dallas and a few other areas. You’re not seeing a lot still in Southern California. Southern California’s still tight and it’s going to … Quite frankly, I just think Southern California’s going to be tight forever. I really think a lot of people thought that, and me included, thought that there’d be a much greater easing of the inventory glut during Christmas than there has been. And, yeah. We’ve got a couple weeks left to go, but there’s really hasn’t been much easing.
And there’s so much pent up demand here that … I was talking to a large real-estate guy the other day and he’s seeing some easing in that 100 to 200,000 square foot range, he said. But anything over 350 or above, there is none. There’s no availability and there’s no forecast availability. Anything that’s under construction’s already spoken for. He said there just isn’t. And, quite frankly, they’re running out of decent land to build on.
Mark Taylor:
Well they’re running out of permitting. I mean, California’s-
B.J. Patterson:
And the NIMBYs and the warehouse moratoriums and all those things. It’s just coming to roost. And so, while I think a lot of people felt like Southern California would ease at some point, I don’t know that that’s true anymore. The people I talk to, and again, I talk to people that are way smarter than me, that say all the indicators say no. Now, some of these other outliers … I think you and I have talked before. You have your major markets. Right? I call them the primary distribution points, which in my brain are Southern California, Chicago, the Lehigh Valley, Pennsylvania, that area there, Pennsylvania. A little bit New York, New Jersey. But, I really like that Lehigh Valley area. I mean, if you were going to only have one warehouse in the United States, I would have it one of those three markets. And then, you get your secondary markets, Kansas City, St. Louis, Indianapolis, Dallas, Memphis. And I know it [inaudible 00:40:27] people that thinks Memphis should be a primary. It’s not. Not in my brain. Atlanta? To me, those are all secondary markets.
Mark Taylor:
Phoenix, Nevada.
B.J. Patterson:
Phoenix.
Mark Taylor:
Vegas.
B.J. Patterson:
Vegas. I actually put Phoenix and Vegas in tertiary, I wouldn’t even think I’d put them secondary. I really wouldn’t. And again, that’s a big generalization. It really depends on what you’re distributing and how you’re distributing it. Well, if you’re doing parcel, 100% B2C, then Phoenix and Vegas make a little more sense. But, if you’re doing mainline distribution, retail-type distribution, where you need LTL and truckload, those become problematic. You got to look for that east and west and north and south corridors to run out of.
Mark Taylor:
So then my question becomes, I mean, as long as Southern California stays extremely tight, then I mean, your next closest markets are Phoenix and Vegas.
B.J. Patterson:
Yeah. Phoenix, Vegas. You’re going to start seeing some movement in the Central Valley of California move up there.
Mark Taylor:
And they’ve got the new inland port that was just approved a few months ago.
B.J. Patterson:
Yeah. We’ll see how that plays out. But, yeah. So you’ll see that. You’ll see more into Phoenix and Vegas. I think you’re going to see more into Phoenix first. I mean Vegas seems to be struggling to get buildings built over there. A lot of pent up demand in Vegas.
Mark Taylor:
Well, the thing I think Phoenix and even Tucson has going for it is proximity to Mexico.
B.J. Patterson:
Mm-hmm. Absolutely. And the more nearshoring you get, the more reliable that becomes. And, quite frankly, coming across in the Nogales area is way easier than coming up through San Ysidro or Otay Mesa crossing. So, way easier to get into Phoenix and go through Nogales than it is to come up through San Diego, through either [inaudible 00:42:32] or San Ysidro. So, yeah. And you’re absolutely right. I mean, Phoenix is a great market if you’re coming up out of Mexico. The dray over there is expensive. And again, it comes back to, there’s not a lot going back. They used to have a big yard there [inaudible 00:42:52], when [inaudible 00:42:52] was still a steam ship line. They were terminating boxes over there, because there was so much waste paper coming out of Phoenix going abroad. But, ever since China quit taking our waste paper, that market’s dried up.
But, no. I mean, you’re spot on. And again, you know, I generalize and say, “Okay. These markets are great.” But, again, you got to look at what your specific needs are. I mean, again, if you’re doing B2C, one of these secondary markets were great for you, because pricing is usually a little more accommodating. And, if I’m shipping out parcel, who, as long as I’m close to an airport, who really cares? Then you just start looking at population trends, and where can I be? So Vegas makes a decent sense. Phoenix makes good sense. Indianapolis? I like Kansas City and St. Louis. I think those are both great markets.
So, you look at what you’re doing specifically, versus just generalized. But the other thing is, a lot of people, a lot of companies don’t have the sophistication to split inventory. It takes a lot of sophistication to split inventory across the country. And you got to re-look at that. So, if you’re only going to have one warehouse, you want to be in the most cost-effective place you can be.
Mark Taylor:
Really enjoy that perspective. I want to switch gears a little bit. What year was it that you launched Pacific Mountain?
B.J. Patterson:
2009.
Mark Taylor:
Okay. So, 2009. From 2009 when you got going, when did you really start seeing some of the big changes in how people were operating, or have tried to operate warehouses? I mean, I know there’s of course the Amazon effect, that enabled third-party sellers and everybody to be an entrepreneur with much less of a barrier to entry. What have been some of the changes, I guess, you’ve seen in the last 10, 15 years.
B.J. Patterson:
Well, I mean, you go through these cycles. Right? So, I used to always jokingly say when I first got into business, the shipping a case was shipping it gross. And most people don’t even know what a gross is anymore. And, first thing you saw over the last 15 years was how that shipable unit size has shrunk so much. As retailers got rid of their back rooms, they want 12. They didn’t want 144, for sure. They wanted just enough to fit on the shelf. Right? So, just enough to fit on the shelf, that’s it. So, one thing you saw, just in warehousing in general was that pack size reduce. And then you get B2C comes along. Now you only want to ship one of them. Right? And you want to repack it even.
So there’s just this big shift in … You went from truckload to LTL, to … Early on when I was first in the business, it was really rare to ship less than a pallet. If a retailer’s going to buy a pallet, I mean, they need to buy at least a pallet’s worth. And even before that, it was by a truckload worth. Then okay, I’ll let you buy a pallet’s worth. And now then a case worth or layers’ worth. We used to have layer limits. You had to buy an entire layer. And now it’s, can I buy one of those? And so, that’s been a big change. Right? And then, particularly just focus on the third-party side of it. Now, you had a lot of people have gotten in the business. In third-party logistics, you’ve got everything from the GXOs and NFIs of the world, to the Bob and Tom’s warehouse.
Bob and Tom were truckers who had some customers say, “Hey, can you store this stuff for us?” “Yeah. Sure.” And they’re running it with a yellow notepad and shipping orders out. So, you have this gamut. Now, come about 2000, I’ll call it about 2014, when you really saw this surge of these new fulfillment houses, following that model of, one price, here it is. We’ll process it, no matter what, kind of thing. And it’s funny. When I first started the company, I got a lot of advice from people who said, you got to do e-commerce. E-commerce. E-commerce. So I was very fortunate. I knew some guys and I traveled around and went to a few different e-commerce warehouses and talked to them. They were owners and taught them what they thought. And the thing was all of them said, “Hey, can you teach us how to do retail compliance stuff?” He goes, “We’re not making any money at this e-commerce thing.”
It’s a very tricky business model to do straight e-commerce. And so, I think there’s a lot of people in that space. I think there’s a lot of people in that space that don’t make money. And the people that do make money are making it on the arbitrage off of parcel rates, because you got some crazy parcel volume, or there’s some parcel deal. That’s still a very, very strong market, but what you look at, that’s still, I mean, all e-commerce fulfillment is still less than … I think today, still less than 22% of the total distribution market. So, more than two thirds of the market is still retail distribution.
And it comes in different phases now. Now with the Amazon FBA, you’re still shipping … It’s like shipping retail compliant, but you’re shipping to Amazon for e-commerce fulfillment. But you’re just fulfilling their warehouse. And so, it’s still LTL, it’s still pallets, but the makeup of those are very different than they were before. A lot of case pick, a lot of each pick still. Even in that retail distribution, you’re still doing a lot of each and a lot of handling. Robotics have come a long way in the last 15 years. You’re seeing more and more of that. Particularly in the 3PL space, a lot of the autonomous bots, that two-person and two … Either product-to-person or person-to-product kind of thing. So, that’s very flexible. It’s better than conveyors in a lot of cases, particularly in 3PL, because you use a lot more flexibility.
Mark Taylor:
I think this is an interesting point here, because just to say it a little bit more blatantly, everything here, it’s not replacing workers, it’s reducing … You can reduce your workforce to an extent. But, this is more-
B.J. Patterson:
It’s about productivity.
Mark Taylor:
Yeah. This is about augmentation more than replacement.
B.J. Patterson:
Right. Yeah. And I think that you’re right, Mark. That’s a really good point to make. And it’s one of my soapbox items, is that, look, 25 years ago, we were talking about how there was going to be this gap in labor when all the baby boomers retired. And now, not just the baby boomers, but you got the, whatever, Gen Y … I don’t know. I get lost in all those.
Mark Taylor:
I think it’s X, Y, Z-
B.J. Patterson:
[inaudible 00:50:59], whatever. And millennials and all this other stuff. But, we knew that there was going to be a labor shortage, because the baby boomers didn’t have any kids. So, we knew that there was going to be a labor gap. 25 years ago we said that. I can remember the first conference I was in, they were talking about how are we going to deal with this labor gap that’s going to happen? Now, the miss was, most people thought that was 2030, 2035. That was always the conversation. But now COVID comes along and it exacerbates the whole issue. A lot of early retirements, people getting out of the workforce. And so you have a low workforce participation rate, along with this labor gap. So, this idea that automation’s going to replace everybody is insane. It’s barely, barely going to help make up for the gap in labor shortage that’s already there, by making people more productive.
And, quite frankly, I heard someone say the other night at an event, “reduce the suck in the building.” Right? So, make the work suck less. So, it’s going to help and augment the worker, and help them be more productive and take some of the more, we’ll call them mundane tasks out of the way. So, this idea that it’s going to replace workers is crazy. If anything, it’s going to increase the number of higher-paying jobs, because someone’s got to work on them. And someone’s got to program those silly things. They’re not programmed themselves yet.
Mark Taylor:
Exactly. And so, it’s interesting that the first economically viable robot that Boston Dynamics came out with was Stretch. I think that’s what they’re calling the container unloader, which is using suction technology. And in any warehouse, I feel like I would prefer to sweep the floors than unload a container.
B.J. Patterson:
You’re not alone. You’re not alone.
Mark Taylor:
And I’ve been in the can before. You have. I mean, that is a hard job. I don’t care.
B.J. Patterson:
There’s no reducing the suck in that one.
Mark Taylor:
That’s right. And so, to have this robot come in and augment the workforce. I mean, they still-
B.J. Patterson:
They’ve still got to sort it. They’re still probably going to have, in a lot of cases palletize it, and sort it, and label it and receive it. I mean, but-
Mark Taylor:
Unwedging that top carton?
B.J. Patterson:
Oh, gosh. Yeah.
Mark Taylor:
From the top of the container.
B.J. Patterson:
It’s pretty crazy.
Mark Taylor:
It is.
B.J. Patterson:
Yeah.
Mark Taylor:
It’s interesting. And I find with the automation that, what … I went to modex, I think it was in March, I believe it was, in Atlanta. And the thing I find very interesting is that everybody focused on the automation around the individual pick, or bin pick. Nobody’s focusing on the actual automation around pallets. And so, in warehousing, I think there are a couple tenets. Maximize your cube. Use as much possible spaces as you can use, floor to ceiling, wall to wall. And then also, you want to reduce the amount of walking for your employees.
B.J. Patterson:
Travel time.
Mark Taylor:
Travel time. And that’s what a lot of those segue-looking bots, I think, 6 River Systems-
B.J. Patterson:
Yeah. 6 River. There’s a bunch of them.
Mark Taylor:
There’s a bunch of them.
B.J. Patterson:
Fetch. Robotics-
Mark Taylor:
Right. But, what’s interesting is, you don’t see very many companies trying to eliminate aisles, trying to … It’s like those certainly help with the amount of walking that’s happening in your building. And maybe your aisles can go a little bit smaller. You can have now a lot more levels to your pallets. But, there’s still a significant amount of space that’s left. And I’ve always been surprised that there’s not more automation around the actual pallet and at the carton. Around the carton side of things.
B.J. Patterson:
Yeah. I mean, you see that in the grocery industry. They’ve got some pretty neat automation stuff at the pallet level. There’s some of those autonomous spots that, they’ll go as far as loading the pallet on a truck. They’ve got conveyor tops and they’ll slide the pallet right off the top. And there’s some of that. That’s expensive though, still. And you got to have the right size building. That’s the other thing. A lot of this automation, it’s about getting the right circumstance, the right customer, the right set up to use it. But, so much of the automation. Then you go to this automation that is, in my mind, semi-useless. I’ve been to, I’ll leave their name out of it, but a really highly-automated warehouse and they have auto tapers and then they have five people with tape guns in their hands going around fixing the boxes, coming out of the auto tapers. And yeah, it’s like, “What is that?” I said, “Oh, we can’t keep mechanics and got to adjust these things.” “Okay. So why don’t you just have people taping them then?” And auto labelers, and some of those same issues.
And I’m against automation for the sake of automation. I like automation that works and automation that … That’s why the autonomous bots are nice, because they’re like a conveyor, but they’re more flexible, because I can change the pattern and can send them wherever I want. I don’t have this big monument thing that’s in the way, [inaudible 00:56:35] conveyor. They’re pretty good. In fact, I saw a demonstration one the other day. It was a trash bot. And so, what they were doing was, they were working an area that had a lot of … They were detrashing this stuff and repacking. And it had a bin on it and you throw it in the bin and the thing understands when the bin’s full and it goes to the dumpster. Dumps it and comes right back, automatically. No one has to engage in anything.
Mark Taylor:
And so, no longer at 3:00 PM do you have the two guys that are going around unloading-
B.J. Patterson:
Right. This one just goes and does it and knows when it’s full and then dumps it. So, there’s a lot of really cool unique things in that environment that, again, reduce the suck. But, go to some of these highly automated warehouses that Amazon operates and they say, “Well, this is one of our most automated facilities and it only has 800 people that work here.” “Okay.” I mean, okay, how automated is it? I mean, distribution’s still going to require people to be involved at some point. We’re just not to that point. But, again, you look at the labor shortages there are today. I think, what did they say yesterday? 10 million jobs unfilled, nationwide. So, we need the automation to fill that gap.
Mark Taylor:
Yeah. To enhance it. So, let’s say you’re planning, you’ve got a 10-year plan. You don’t have Pacific Mountain Logistics, but you’ve got a box. How big is the box? How are you going to build it out? And what kind of customer set are you going to put in there? How do you go from an empty box to a business that you think is your ideal mix, based on all of your experience?
B.J. Patterson:
Well, I mean, I think the ideal box is 250,000 square feet, if you’re starting off. I mean, if you’ve got scale, you might go to 350. But I’ve found that everything over 350, there’s some diminishing returns there. But 250 to 300 probably, if I was going to start fresh and start over. I mean, that is probably where I’d be. I would have a mix of clients that are primarily omnichannel. From a profitability standpoint and a business standpoint, the pure B2C players? There’s just too much volatility in that market and too much commoditization in that market. So, it’s really tough to be consistently profitable when it’s only B2C. So, I like the, call them, omnichannel or supportive e-commerce, whatever you want to call it.
I have plenty of those clients now, that are shipping big box retailers or drop shipping through Amazon. They’re shipping to Amazon and they’re doing their own B2C. That multifaceted client, that’s what you’re looking for. The holy grail is counter-cyclical business, patio furniture in the spring and coats and jackets in the fall, kind of thing. So you’re always looking for those counter-cyclical clients. I fell into it, but it’s a food component. It gives you that year-round cashflow, year-round business. Also forces you to keep your warehouse clean. So, I’m a big fan of that. But, those omnichannel clients, that’s what I’m looking for. And also you want that wraparound. You want a client that I can help with their transportation, I can help them with all their different services they need. And, you’re trying to wrap around that client as much as you can.
Mark Taylor:
So, in that vein, once you’ve got your warehousing piece taken care of within … And, I know you’re such a fan of very narrow aisle racking-
B.J. Patterson:
I hate that stuff.
Mark Taylor:
Okay. So this is a question. I mean, if the idea is to maximize the cube, why don’t you do it by having more narrow aisles?
B.J. Patterson:
Again, I go back to, I want that mix of omnichannel. Right?
Mark Taylor:
Okay.
B.J. Patterson:
So, omnichannel, retail, they’re going to turn. It’s going to be higher velocity. The very narrow aisle is just not conducive to high velocity, unless it’s completely automated. So, I call them turtle trucks. Those turtle trucks, they’re just not very fast. Or, you can’t move a lot of freight in a very narrow aisle. If you’re in a 40-foot [inaudible 01:01:28] building, you may pick up an extra 20% storage, but what does that cost you in labor? The labor component’s not going away. And to me, very narrow aisle … If you go back to … I don’t want a client that stores their stuff. I want clients that turn. But if I’ve got 150,000 SKUs and I’m storing less than half a case of every SKU, hey, maybe a very narrow aisle works.
Mark Taylor:
But, in that case, I think you would almost want to go with one of the solutions like the modular storage-based thing, like AutoStore, for instance.
B.J. Patterson:
Yep. Yep. Exactly.
Mark Taylor:
You’re not going to get better compression than that. You’re not going to get better space utilization.
B.J. Patterson:
No. But, if I’m a logistics knucklehead, starting to start a 3PL, those things require a lot of capital investment.
Mark Taylor:
They do.
B.J. Patterson:
And while they’re really good, and if I’m a shipper and I can guarantee I’ve got volume on those that fits those for evermore, that’s great. But if I’m a 3PL and you signed a three-year deal with me, and I’m going to invest $1.5 million in a modular system, $2 million, more likely, that payback can be crucial. So, you got to look at it that way too. From a business standpoint, from a entrepreneurial standpoint, what’s my biggest payback? And labor is a consistent cost I’m going to have. I can set up my pricing so the building pays for itself. That’s not that hard to do. But if I put in a very narrow aisle, it’s really tough to relay a warehouse, and the labor expense to me outweighs the space you gain.
Mark Taylor:
So, I’ve looked fairly extensively into it. And you’re not far off. 27% is what you’re supposed to gain. And, I mean, that’s looking at a 10,000 square-foot block, as for instance. It would allow you to put, let’s say, if you could get 100 pallets in there, now you can get 127. So I mean, to your point, it helps. But, what are the downsides? And I think you summed them up very well. So then, all right, so you’ve got your customers now. The next question was, what’s the first wraparound service you put around your warehouse, your storage, your in and out?
B.J. Patterson:
Well, I mean think the first thing you do is you got to get that software integration with them. Right? So, you want that hook into a client. You want your software to be fully integrated.
Mark Taylor:
Yes. Absolutely.
B.J. Patterson:
I mean, to me that’s the first and foremost. Some people skirt around that and don’t force that. But, you got to force that, make sure of that. And that is a service and that is something that some people just aren’t very good at making sure happens. And then you go for the transportation.
Mark Taylor:
Got it. And LTL? FTL? Or does it matter?
B.J. Patterson:
All of it. I mean, whatever they’re doing. Drayage out of the port. If they don’t have door-to-door contracts, if they have door-to-port, or whatever they have. I mean, inbound? I want to handle their inbound. And I want to handle all their outbound I can. It becomes difficult. Some of these clients like Amazon and so on, they’re managing their own transportation, collect freight. But all that discretionary freight? I want all of it.
Mark Taylor:
So, what’s interesting about the Amazon thing you bring up, and this is we’ve learned … So, we’ve got some customers that use our third party. We’ll work with Global Trans. We’ll work with C.H. Robinson, whoever it may be, to gain to get a full truckload from here to ONTA, for instance. And it’s like, the prices aren’t too different just right off the cuff when you look at them. But, where the customers really end up getting hosed is detention fees at Amazon. Because, if you’re doing a full truckload, it is almost unheard of that they’re going to get unloaded at the time that they’re supposed to get unloaded, and they’re not going to have detention time. But whereas, if a customer uses Amazon partnered transportation, it’s the big blue truck, they don’t get charged attention time. Amazon understands that this is the rate. So, it’s very, very interesting. I mean, it’s like-
B.J. Patterson:
Well, they’re trying to force you into using their-
Mark Taylor:
Of course they are.
B.J. Patterson:
And, yeah. If I were them, I’d probably do the same thing.
Mark Taylor:
Yeah. I mean, evil-genius smart.
B.J. Patterson:
It really is. Well, I mean, so there’s always those risks. And you want to do the right thing by your client.
Mark Taylor:
Of course.
B.J. Patterson:
But the more you can wrap around, the better you can get. And, again, also forget just the business side of it. The more you wrap around, the more you understand your client, the easier it is for you to help them. The easier it is for you to work through the problems together and understanding what their issues are. And so, the upside for the client is, now you’re more invested in them than you would’ve been otherwise. And understanding every facet of their business. So, we even try to get in on the steamship line stuff, if we can, through our freight-forwarder partners. So, again, the more you know the more you can help them.
Mark Taylor:
Right. So what is the very first, and this can be very light automation … What’s the very first piece of automation? Whether it’s pallet wrapping machines, whether it’s … ? Anything?
B.J. Patterson:
I mean, I hate pallet wrapping machines.
Mark Taylor:
Yeah?
B.J. Patterson:
Yeah. Because unless you’re going to have 20 of them, 30 of them now, everybody’s got to drive to a specific point. And, unless you’re doing something that requires really heavy wrap, I’ve found most hand wrapped can compete. And it’s flexible and it’s wherever you want to be. The automation piece, I think, that gets overlooked is the data automation, making sure that your WMS is doing everything you can do. RF guns in the warehouse, and scanning things in and out of location, not limiting all those manual events that happen. Scanning onto a truck, cameras on trucks, so I can prove that I loaded this, this time. And I think cameras on trucks now is a big deal.
Mark Taylor:
And so that just aims down at every single-
B.J. Patterson:
Uh-huh.
Mark Taylor:
When something backs up?
B.J. Patterson:
Yeah. Well, on the inside too. So on the inside, being able to see in that truck and say, “Look. This time, this truck was here and I loaded it. I scanned it on, and here’s a picture of me putting it on.”
Mark Taylor:
So, that might be a better. That’s so in the nuts and bolts, that might be better to talk about offline.
B.J. Patterson:
Yeah. But automation. First off, data automation, systematic automation. And then you start looking at things like box erectors, if you’re doing a lot of repack. You start talking about the autonomous bots. I think to me, they lead the pack in their flexibility. So, I have 15 of them. Monday I need all 15. On Tuesday, I only turn on eight of them. On a Wednesday, I turn on seven of them. And they give you that bandwidth. And travel time is a eater. And anytime someone travels outside their area, then it’s never as simple as just travel out and travel back. They’re going to see a friend. They’re going to stop off at the restroom. There’s all those things, those little minor productivity eaters that are in that. But, if you keep them in their work area and the bots are doing all the traveling back and forth, I mean, that’s a big productivity gain.
Mark Taylor:
What separates a good warehouse from a great warehouse?
B.J. Patterson:
It sounds silly to say this, but organization really does. Having a plan, knowing where things are and putting things away with a plan. Clean warehouse. I always say that you can’t tell if things are wrong if everything isn’t clean. In a warehouse, everything should have a place and it should be in its place. And when I walk a warehouse, it should be very easy to tell if something’s out of place. And if everything’s put away like it’s supposed to be, everything is where it’s supposed to be, it’s very easy to tell when things are skew. And so, the great warehouses have … And I’ll go back to this. It’s the people, the great warehouses have good people that question, “Why is that there? Why is that there?” There’s only two safe places for freight, in a location and on a truck. And everything in between, things happen and things go wrong.
And so, you need to have a clean, organized warehouse so that when your supervisor, your manager, whoever’s walking the building, it’s easy to see something out of place. And you have people that question it, “Why is that out of place?” And so, to me, that’s the biggest delta between a good warehouse and a great warehouse. Is a great warehouse stays clean and organized. People don’t accept things out of place, and they question when things are out of place. A good warehouse, they try. And again, it’s the simple things. I had a mentor of mine telling me once, “It’s never the elephants that get you, it’s the gnats.” It’s the little things that you let slide and you just let slide and let slide. They eventually suck the blood out of you.
Mark Taylor:
I think they’re in this vein and all of our previous conversations, there are two big things that have come that are on this topic. One of which you said, it’s like, especially as we go into potentially a recession and really more, as you established, maybe a normalization. But, you always make your biggest, detrimental mistakes when everything is slow.
B.J. Patterson:
Yeah. Absolutely.
Mark Taylor:
Yeah. And then the other thing that you’ve always told me is so few operators actually understand their costs.
B.J. Patterson:
Right. You’ve got to understand your costs. I mean, you got to live it and breathe it and understand … Every penny that’s spent out there. You better know it and understand it, and particularly when it’s going to slow down, because things happen. I mean, everything is cyclical. I don’t care. It’s an old saying, “It’s never as good as you think it is. It’s never as bad as you think it is.”
Mark Taylor:
Right. Right.
B.J. Patterson:
And we’ve been riding a high for the last couple years. I mean, even through COVID and all that. I mean, again, that government money, it’s floating out there. But, as we slide back down, I mean, you’re fine as long as two things. One, you didn’t get drunk on that free money and spend it willy nilly. And then secondly, you know your costs and you can understand as you ratchet down, as volume slows, where the pinch points are, where the discretionary money is and how to control it, take it out. And you know what your profitability is for client. I mean, that’s the other thing that’s really key, particularly in the 3PL world when you have multiple clients in a building. It’s probably the holy grail, is making sure that what clients are profitable and tracking that all the time.
Because, you got to remember, you have several micro economies in your building. Each one of those clients is fighting their own battles with their sales and what they’re doing. And if you don’t watch that and stay on top of that, next thing you know, now they’re unprofitable, because they’ve changed, or their clients have changed or their sales have changed. They’re not turning like they were. And if you’re not watching it all the time, it can get away from you really quickly. And next thing you know, that’s impacting your bottom line, because you weren’t watching what they were doing. So, that’s really important that understanding your costs and understanding how that’s affecting each one of your clients individually.
Mark Taylor:
Mm. Okay. And I’ll say this is going to be the last question. Looking into your crystal ball the next five years, what are we in for?
B.J. Patterson:
I would say that it’s good to be in logistics. I mean, I think the industry is … Really, to me, it’s really funny. For the first probably 20 years of my career, people ask me what I did, I spent the next 30 minutes trying to explain it to them. And so, I jokingly say, “Logistics finally got sexy.” So now that they can remember the last time they turned on the news and they didn’t say “supply chain” at least once in the telecast. So, I think logistics is a good space to be in, particularly as retail morphs. I mean, I think the death of brick and mortar is widely overstated. And I think brick-and-mortar retail’s not dead by any stretch. But the emphasis on logistics and the emphasis on how things get to where they are is, I don’t think that’s falling out of focus anytime soon. So it’s a good time to be in the industry. It’s a good time from a career standpoint.
From a business standpoint, I think over the next five years it’s going to continue to morph. Automation will become more and more of a factor. There’s always cost realizations. Right? So I always say that the cycle is that everybody’s trying to cover their balance sheet. The next thing you know, everybody’s trying to spend. They have too much money on their balance sheet. And so you’ll see this ebb and flow of outsourcing and insourcing of logistics. But, I think as you move forward, and particularly with this still a large number of people working remotely, the reticence to bring logistics back in house. I just don’t see that. And I’ve seen some telltale signs of people that are trying to push it away, push it away. They don’t want that liability on their own. They want somebody else doing it.
So I think you’ll see continued growth on the 3PL side. You’ll see more consolidation. You’re going to see the bigger guys gobbling up the smaller guys. That trend, I don’t think is going to stop anytime soon. But I think the next five years, normalization of the economy, higher interest rates will stick around for a few years. At least two or three, which I don’t know that that’s a bad thing. Again, the drunk on cheap money? I don’t know that drives the best practices, businesses. I think the next couple of years you’ll see some weeding out of some of your bad actors and the guys that just don’t run quality companies. I think you’ll see some of that. And that slack will be picked up by the better operators. I think some of these, I call them “money eaters.” Some of these startups that are out there, quote, unquote, changing the landscape or disruptors? I think those will disappear as money’s not cheap anymore.
I think these guys out there that are just eating up money from people, I think there’ll be some consolidation in that environment. And a lot of those guys will go the way, the Dodo bird-
Mark Taylor:
They probably all went in V&A too.
B.J. Patterson:
Probably all went V&A. That’s their problem, right there. But, I mean, I think that’s what you’re going to see, the next five years.
Mark Taylor:
I would be remiss, and so I lied. That’s not my last question. This’ll be one of my last questions.
B.J. Patterson:
Okay. That’s fine.
Mark Taylor:
Amazon warehousing and distribution came out, or they’re in the process of rolling out … I don’t know a ton of details, but it seems like they’re trying to-
B.J. Patterson:
3PL.
Mark Taylor:
Yeah. Effectively. And I don’t know how many hundreds of millions, or how many millions of square feet they have. But I’m guessing it’s all inland. I’m guessing it’s still not going to be cheap.
B.J. Patterson:
No.
Mark Taylor:
And I don’t know what your read is on it, but it seems like this is them overcommitting to a lot of square footage. And then, now what in the heck do we do with it?
B.J. Patterson:
Right. There was an article that came out a few weeks ago that said they were going to send all this square footage to sublease. And you talk to the guys in the know and they went, “No. No. No, they’re not.” Basically, they overbuilt. And it’s really funny. I had a great perspective. I’ll leave his name out of it, but he’s a big player in the real-estate market and does a lot of business with Amazon. He said they overbuilt their labor bandwidth. So, they had buildings, but they just didn’t have the bandwidth on the management side to get them open. They were behind recruiting and management and they just didn’t have the bandwidth to open them.
So it wasn’t so much just a pullback of space, but it was also a pullback of resources. So, basically, they felt like they were spread too thin. And so, Amazon’s Amazon. And, yeah. I’m critical enough of them in general. But I think if they get into the 3PL space, it’ll be … One thing that Bezos set up is the siloed sections of, everything’s a silo. So, it’s easy to try it and unplug it. My opinion is they’ll try that and they’ll unplug it pretty quick, because they’ll find that they don’t have that product profitability to offset their logistics inexperience. I’m sorry, there’s a lot of people out there that have forgotten more about logistics than Amazon knows. I mean, Walmart could teach them a lot about logistics.
Mark Taylor:
Yeah, I’m sure they could.
B.J. Patterson:
And I don’t see them as some crazy, awesome logistics provider. And so, I think they get into the 3PL space and they’ll find that they’re not as good as they think they are.
Mark Taylor:
Well, I think that’s a great place to end. I thank you so much.
B.J. Patterson:
Oh, thanks for having me. This is awesome.
Mark Taylor:
This is fun. I’m looking forward to getting more into it. I’ll pick your brain on some other people I should probably talk to and-
B.J. Patterson:
Yeah. That’d be awesome.
Mark Taylor:
Yeah. I love it, because we’re able to get in the nuts and the bolts and-
B.J. Patterson:
Got to get Simon Ho on this thing.
Mark Taylor:
What’s that?
B.J. Patterson:
Got to get Simon Ho on this thing.
Mark Taylor:
Oh, he’s coming next.
B.J. Patterson:
There you go.
Mark Taylor:
Yeah. Simon’s got a great perspective.
B.J. Patterson:
He does. He does.
Mark Taylor:
That’s how you and I met.
B.J. Patterson:
Yep. Smart kid. I think this is a great format and there’s a lot of smart guys out there doing this and gals that are way smarter than me, that look at all this from different angles. You got to look at the real estate guys, you got to look at the development guys. You got to look at the 3PL guys and look at the shipper guys. They’ve got a very different perspective too.
Mark Taylor:
Yeah. Well, it’s a pleasure. I really appreciate it.
B.J. Patterson:
Oh, it’s always good to talk to fellow Texan.
Mark Taylor:
Absolutely. All right. With that said, thank you.
B.J. Patterson:
Thank you.

Hello and welcome to the first episode of Supply Chain Saga. I’m Mark Taylor, the co-founder and CEO of Warehouse Republic, a Third party logistics company that specializes in e-commerce. Today I’m interviewing B.J. Patterson. B.J. is the founder and CEO of Pacific Mountain Logistics, a full service, 3PL located in San Bernardino, California. B.J. is highly respected in the industry and I’m excited to have him on the show. So let’s get started. Yeah, they’ve made getting into podcasting and everything like that extremely … I mean, very, very easy.
B.J. Patterson:
It’s really cool. I wouldn’t even know where to start.
Mark Taylor:
Yeah. So a little bit of the fun little, I mean, they’ve even got this thing set up to have intro music, little noises.
B.J. Patterson:
So that’s how they do all that stuff.
Mark Taylor:
Yeah.
B.J. Patterson:
I like that.
Mark Taylor:
Yeah. It’s funny. It’s good. Yeah. Got a lot of all the good stuff.
B.J. Patterson:
Oh. My gosh. That’s crazy.
Mark Taylor:
This one, it runs off of a little micro SD card in the back. And then it allows you to set just basically everything. I mean, you can-
B.J. Patterson:
That is so cool.
Mark Taylor:
Yeah. So, anyway. Well, let’s get going.
B.J. Patterson:
Great.
Mark Taylor:
Thank you for being here. I’m happy we’re able to make-
B.J. Patterson:
Thanks for having me. Yeah.
Mark Taylor:
Absolutely. Let’s go ahead and start with, just go ahead and introduce yourself.
B.J. Patterson:
Hi. I’m B.J. Patterson. I’m the CEO and founder of Pacific Mountain Logistics. We’re a third-party logistics company, based in San Bernardino, California. The inland empire, logistics mecca of the universe.
Mark Taylor:
Yep. I would also say the best operator. I have the pleasure of knowing and meeting.
B.J. Patterson:
Well, thank you. I’ll thank you for that. I mean, it’s funny. You always say that you don’t find logistics, logistics finds you. Not too many kids are sitting there in their high-school class saying, “Man, I can’t wait to be a logistician someday.” And then all of a sudden, wow! 32 years later, you’re the old man on the block.
Mark Taylor:
So, with that said, how did it find you?
B.J. Patterson:
It’s really funny. It was a temp job. It’s really true. I’d gotten out of the military, had done some of this stuff. And, quite frankly, I was going through a divorce and was lining up another job, was going to take me back overseas. And a friend called me and said, “Hey, could you help me out?” The guy I was in the service with? And called me up said, “Can you help me out?” I said, “What’s that?” And he said, “I need you to work in a warehouse for me.” “Warehouse, oh.” I didn’t know anything about warehouse. I mean, my vision of warehouse that time was some tin building with a bunch of diesel forklifts running around in it.
Long story, but he talked me into it. I went and talked to him. It was Target, their Fontana, 1.3-million square-foot distribution center in Fontana, California. And they needed someone to work Friday, Saturday, Sunday, Monday night. He said, “Hey, you’re divorced. You don’t have a life. So why don’t you work those nights?” I said, “Well, I’m never going to have a life if I work those nights.” “Oh, it’s just a temp job. Just four months.” So four months turned into six years and got me addicted to the whole logistics thing.
Mark Taylor:
1.3-million square feet. And this is what, 1989? 1990?
B.J. Patterson:
No. ’92, 1992.
Mark Taylor:
’92? Okay. So 1.3 million back in that time was big?
B.J. Patterson:
It was big. It was one of the few million square footers on the West Coast at the time. There were a few, but not very many. I mean, you could count them on two hands at the most. I mean, there just weren’t very many around. And they all had names like Target or Walmart, Kmart on them. That’s the only ones that had those bigger buildings at the time. And what’s funny too is, and we bragged that we had 18 miles of conveyor in there. In today’s environment, I mean, it was so arcane. But at the time it was state of the art. Everything we were doing was state-of-the-art stuff. And it’s funny to go look at today’s warehouses. And while they’ve changed in some aspects, some aspects are exactly the same, they haven’t changed at all.
Mark Taylor:
Give me some of the, this has really changed. This has not changed at all.
B.J. Patterson:
Well, if you go to what I would call your “shipper warehouses,” your Target’s warehouse, the thing that hadn’t changed is the sorting and the way they managed that. The things that have changed is much more flow-through inventory, not as much stock inventory. Obviously, the pandemic taught us that maybe they should stock a little more. But I mean, yes. I mean it’s much more flow through much more just in time today than it was back then. Back then it was primarily pull stock, mostly. Going to stock and then pulling from stock to fulfill and to supply the stores. Whereas now, it is very little pulls from stock. Majority of it just comes in on a truck, goes straight out.
Mark Taylor:
And so, the ultimate storage end up ending up being the retail location itself. And so it’s like that’s your store-
B.J. Patterson:
And actually, if they work it the way they would love it. The store is the ship that it’s on, the truck that it’s on. That transition is the storage. And just think of it as a pipe. Right? So that supply chain, everybody calls it a supply chain. And really the best terminology would be the supply pipe. Think of it as a pipe. And they’re constantly feeding the one end of the pipe, and you’re hoping that the flow out the other end is the same flow that it’s rate of sales. So, ideally, the pipe, this flow, that’s your storage, ideally. Now again, that works great until there’s a disruption, a pandemic maybe.
Mark Taylor:
Sure.
B.J. Patterson:
It just so happens to happen. And so, now you’ve got this pandemic and now, “Oh, my gosh! I don’t have anything in storage.” And everybody wonders why? “Oh, my gosh! We’re out of everything.” Well, because we didn’t really plan. Because, you can take that back to 2008 when the Lehman Brothers, everything went off the cliff in 2008. All these retailers got caught with so much inventory, they became inventory shy. So what was, quote, unquote, just in time, which really wasn’t. We jokingly said, became “just late.” Everything now is just late. And to some degree, prior to 2008, retailers had a very, very low tolerance for out of stock. I mean, that’s all they focused on. They didn’t care what it cost them. They didn’t want a bare shelf in a store.
Now you go to stores today, with a few exceptions, but not many, and you see the amount of inventory in the stores is so much lower. And they have a much higher tolerance to out of stocks, because then they direct you to your website. “Just buy it online. We don’t have it here today.” So they’ve cut down the number of SKUs in the stores and they’ve limited the inventory in stores and pushed that back upstream to these warehouses that were sitting half empty. And now they’ve pushed that back upstream in trying to force people to buy online and buy through that channel, rather than through the store.
Mark Taylor:
So, it’s interesting. So when you think of it as the pipe, then the container ship is a part of the storage. The sortation warehouse is a part of the storage. The trucks taking it from the-
B.J. Patterson:
It’s part of the storage.
Mark Taylor:
So that actually becomes … It’s like the entire is your-
B.J. Patterson:
Think of it is you’re rolling warehouse. The ship, it’s your storage. It’s that container on that vessel, that’s all storage, a temporary storage.
Mark Taylor:
Right. So, backing up a little bit, how’d you go from four months, to four years and then a career?
B.J. Patterson:
Well, I mean, I think a couple things. First off, I think logistics is addicting. Particularly if you’re a problem solver. If you like to solve problems, logistics is an awesome way to do it. I mean, that’s what you do. If you’re working in warehousing or trucking or any other aspects of it, you’re constantly solving problems. And the person that is most successful is the one that can solve the most problem. And so, working at Target, I just became addicted to this problem solving and I was successful. I got promoted quite a bit there. And then I did the unthinkable, went and worked with Walmart after that, which is almost like an American going to work or … Actually more like a Soviet going to work for America. I think that’s the way they looked at it. Like some Soviet spy, because I used to work for Target.
Mark Taylor:
How many years was it before you could go back to your Target colleagues and have a polite cup of coffee?
B.J. Patterson:
It was the Walmart people that treated me crappy, quite frankly. The Target people are like, “Man, those guys are weird over there.” But the Walmart people, they kept acting like I was still with Target or something. Like I was there to steal their secrets. But you work that retail, but I always had an entrepreneurial bent to me. I liked that. And you can only go so far in corporate logistics, Walmart, Target. In order to keep things consistent throughout the organization, “Look, here’s how we do it. Don’t change it.” And that just didn’t fit me. So I got myself into the third-party side of it, working for NFI. And that’s when you learn the entrepreneurial side of it, how to make money at this and how to solve those problems, but do it in a profitable way, rather than just solving them to solve.
Mark Taylor:
So what was it like going from the behemoth of, like you said, the corporate logistics, where “Look, you’re going to get promoted if you execute our process better than anybody else executes the process,” to then getting … What were you recruited to NFL?
B.J. Patterson:
Yeah.
Mark Taylor:
Okay. So then, being recruited into this entrepreneurial environment and they say, “Okay, we want you to help look for how to do this better.”
B.J. Patterson:
Yeah. It’s so much better. I look back and it’s just so much more fun. I was very fortunate. I worked for a big three PL that gave me a lot of latitude. They did. They expected everyone, particularly at my level, to be entrepreneurial and to look for ways in how to do it better and how to do it more cost effectively. And, quite frankly, how to get revenue out of it, how to do that. And the other thing is, even though the company at NFI who I was working for, I mean, it was a big company, but still they got you involved, and you were able to get involved in all kinds of other aspects of the business that typically at a corporate, it’s either your job or it’s not your job.
Mark Taylor:
Right.
B.J. Patterson:
Right? It’s like corporate real estate. They have real-estate people. They would never, ever, ever talk to an operator about a real-estate solution. Whereas you go to a 3PL and like, “Hey, we need another building.” “Well, you’d better go find one.” You know what I mean? You learn about leases, you learned about all these other aspects of the business that, if you’re in that corporate world, you just don’t get [inaudible 00:12:15]. I mean, it’s very rare that you get to touch all those different pieces of the deal.
And again, you go back to the original thing of problem solving. So, it takes problem solving to a new level, because now you’re able to learn how to make things, again, profitable and entrepreneurial and learn new ways to create revenue streams and look for new problems to solve. And now you’re working with clients. Okay. How can I help this client? I mean, the best way to make money is to make your client look like a hero. Right? So you look at that, whoever you’re dealing with, the VP of logistics for a company, or the purchasing, whoever they are. If you approach every day with my goal is to make that guy a hero in his company, then I’m golden. And I’m golden with them.
And now, every time he has a problem, he calls me. I’ve become the subject matter expert. He calls me and every time he calls me with a problem, that’s a potential revenue stream for me. I don’t want him calling a consultant. I don’t want him calling somebody else. I wanted to call me. [inaudible 00:13:28] “If I call B.J. call and say, look, I have this problem, how do I solve it?” And you say, “Okay. I got this. I can call my trucking partners. I can call this guy. I can call that guy, we got this for you. Don’t worry about it.”
Mark Taylor:
So when you’re dealing with somebody inside a company, let’s say it’s somebody in purchasing, somebody at the VP of supply chain ops, whatever it may be, in a larger company, and it’s like your goal is to make them look good. Does it alter when you’re actually speaking with the owner and the owner is … It’s not about looking good, it’s about making the business better.
B.J. Patterson:
Well, I mean, I think that if you take that same attitude with the owner … Look now my goal is not to make you look good. My goal is to make your business run better.
Mark Taylor:
Right.
B.J. Patterson:
I think Warren Buffett said, “Pigs get fat. Hogs are slaughtered.” Right? So look, my goal is to reduce your costs. That may reduce a little bit of my revenue, but my long-term goal here is to be indispensable to you. And if I become indispensable to you, then long-term going to make a lot more money than trying to just get fat off of one or two deals. So, that owner needs to know, that I’m there looking out for his best interest. And if I’m looking out for his best interests, he’s going to keep coming back to me. And, by the way, owners sometimes open other companies. Or this purchasing manager skips and goes to another job. When he gets that other job, first thing you do, he’s going to call me. Say, “Hey B.J., can you help me out over here? I need to look like a hero at my new job. And I know B.J. makes me look like a hero.”
And so, if you take that approach, that look, your job is to make them look good. It’s not to get over on them. It’s not to try and … You don’t have to wine and dine people. You just have to … Sometimes it’s no more complicated than just doing what you said you’re going to do. You don’t have to overcomplicate it. But, knowing that that guy can call you and trust you, that you’re going to do everything you can to make better for him? That’s what matters. And not that you’re going to gorge him. He’s not going to call you if you’re going to gouge him every time he comes to you, and you’re going to try to get rich off of every deal. It’s the long-term vision. “Look, long term, I got to be there for you.
Mark Taylor:
Right. So, the way you came up, you mentioned military service?
B.J. Patterson:
Mm-hmm.
Mark Taylor:
And I feel like what really helps, probably helped you in the corporate … I mean, obviously you’re very smart, capable, hardworking. But there’s also that fitting within the mold and doing things as they’re supposed to be done. Certainly was probably pretty finely honed at the time coming out of the military?
B.J. Patterson:
Mm-hmm.
Mark Taylor:
And so, it really does make sense to go from military service up to corporate logistics, corporate warehousing. And then now you make the jump to this more entrepreneurial role. So, what were the things that … There’s this saying. It’s like, “What got you here won’t get you there.”
B.J. Patterson:
Right.
Mark Taylor:
Yeah. So, what were the things that you had to change, not only in your thinking … But how did you become good at logistics? Because obviously before that you were good at logistics, but also at logistics, while following orders. And then now in this newer role, certainly you have a direction that you’re going, but-
B.J. Patterson:
Well, I think I would say this to anybody. It’s a willingness to learn and listen. Right? A mentor of mine many years ago said, “You got to wake up every morning trying to know what you don’t know.” Right? So if you know what you don’t know and you’re willing to go out and ask questions and listen and learn from everybody … I mean, there’s so many different aspects to logistics. And I’ve been very fortunate to have been sometimes dropped in the deep end of water in some of those different forms, whether it’s drayage or long-haul trucking or LTL trucking or warehousing and e-commerce fulfillment. I mean, there’s so many different aspects. And I think the true person wants to be successful has to be, first off, know that they don’t know it. Admit to that they don’t know it. And then go seek out and find the guy that does know, or a gal that does know. And ask them, and learn from them. I think that’s the thing.
And I think that, if you want to be successful and you want to take that next step, you have to be … I call it “a learner for life.” Right? You got to always want to learn something new. And that’s where I’ve been very fortunate, and very fortunate that sometimes I was just dropped in the deep end. “Hey! Here this is. Figure it out.” And then on some cases it was leases. I sat next to my boss and he walked through a lease with me and said, “Okay.” Here’s a guy who’s been doing it for most of his life and he’s walking me through it. “This is what you look for. This is the watchouts. Here you go. Here you go.” And you got to soak that in. You got to take that and run with it. Trucking. Got to dropped off and, “Hey, you’re in charge of this terminal now.” “What?” “What do you mean now?” I don’t even know what the heck a terminal is.
And so, you go in there and you leverage the people that are working there. And you don’t go in there too big for your britches, and admit what you don’t know and ask questions. And you find that most of these people love teaching you. I mean, I’ve sat with dispatchers and say, “I don’t know how the hell you do this. Show me.” And they’ll show you. They’re proud of what they do. And just be willing to be humble and talk to them and learn from them. And it’s awesome. Again, I think that’s what I love about this industry is … I mean, there’s something new to learn every day. Every day. And from anybody. You don’t know who it is. It’s like, I love touring warehouses. I’m a total warehouse nerd. I love touring warehouses, because I can’t recall ever touring a warehouse, no matter what size, didn’t see something went, “Oh, that’s a pretty damn good idea.” I like that.
And it’s usually something that somebody they’re on the floor came up with, or some supervisor came up with. It’s not some crazy wazoo engineering thing. It’s some simple thing that some warehouse worker or person just said, “Here’s a better way to do it.” And you see that and go, “Hell! That’s a good idea.” And I can’t remember walking the warehouse, where I didn’t see at least one thing going, “Oh, that’s a good idea.” And so, there’s always something to learn if you approach it from that. I think the biggest leap for me was when I leapt out of, even the 3PL world started my own company, because you just don’t know how many hats there are to wear until all of a sudden you got to wear all of them.
I was a VP-level kind of guy, and had been for a number of years. And you forget that what you’re relying on all these different people that are doing these ancillary functions all around you, making your life better every day. And then, you go into the true entrepreneurial world where … Now it’s you. I don’t have a risk manager handling all the insurance stuff. You don’t have an HR person, you don’t have-
Mark Taylor:
A legal. I mean, you might not do all your legal, but you’re doing a lot more legal than you were beforehand.
B.J. Patterson:
Oh, yeah. Yeah. I mean-
Mark Taylor:
You’re reading through all your contracts. You’re doing the HR piece to the extent that you can, or finding the person who can do it and understanding how to coach them. It’s everything. It’s wearing a bunch of hats.
B.J. Patterson:
It’s a bunch of hats. And also, you find those things that throughout your career you never really did get into. I was a career operator. I was a career operator my entire career. I was never a sales guy. Never once. I mean, I had sales guys that reported to me at different points in my career, but I was never the sales guy. And now, guess what? I’m the sales guy. So-
Mark Taylor:
I do want to back up, because this is an interesting thing. It’s like you start being exactly what you said, that operator … You’re marching in line and then you get a little more entrepreneurial. And then you just full on go and do the entrepreneurship thing. When did you start feeling like, “I’m going to do this. I’m going to do this for myself,”? Were there any stops between NFI and other logistics companies?
B.J. Patterson:
Yeah. I mean, I think that probably a million guys out there. You start noodling on a business plan. I don’t even remember the first year I did it, but probably five or six years before I started the company, I started on my off hours, sitting around noodling on a business plan. Putting a business plan together, because I’m thinking I’m figuring this out, and if I can make money for someone else, why couldn’t I do this for myself? And I always say that, I think a lot of times it just has to be that impetus, that thing that pushes you off the edge. Right? So you have this business plan. You’ve been dreaming about it and thinking about it like a lot of guys do.
And then I left and I went to work for a private equity firm. And it was just one of those things that circumstances led it. I was traveling 99.9% of the time. I was working 100 hours a week. And-
Mark Taylor:
How was your family life?
B.J. Patterson:
It was terrible. Terrible. I was probably on the verge of divorce. I mean, it was horrible. I mean, it was horrible. And then you throw right in the middle of all that, the 2008 crash. And I’m now big wig, I’m the COO at this company and like, “Oh my gosh! It’s nuts,” and I’m never home. I’m never home. And I tell this story a lot that … It was May of 2009 and I’d been gone for, I don’t know, three or four weeks, I’d been gone from home. And my wife is on the phone. I’m at the Newark, New Jersey airport. And my wife’s on the phone giving me the play-by-play of my youngest son’s baseball game. It’s a playoff game. And they win the game and, “Oh. Hey, babe? I got to run.” She hangs up. “I’ll call you later.” Hangs up.
Hear everybody’s screaming and laughing and going crazy in the background. And when she hung up, I said, “This sucks.” And the guy across from me … I was in the Delta lounge there, and then the guy across me goes, “I agree.” I said, “Did I say that out loud?” And he goes, “Yeah. Something sucks.” And, honestly, just that night. And it was that push that, “Look. I’m missing out on everything. And come on, you can do better than this.” So, I literally stayed up all night long and wrote myself out of a job at my company. I wrote a whole new organizational plan. Wrote myself out of a job. Presented it to the managing partner and my boss and said, “I’m just done.” And to be very fair, they were very good to me and we worked through it.
But that’s when I just said, “I got to go do something,” and then I went and hiked the Pacific Crest Trail for a while, for a day and came up with the idea of Pacific Mountain Logistics. And that’s where the name comes from, this hiking on the Pacific Crest Trail.
Mark Taylor:
That’s cool.
B.J. Patterson:
And, yeah. It’s been a rollercoaster ride since then. But that was 2009, so I started the process of putting the company together. And then we were operating in January, 2010.
Mark Taylor:
Wait. What month in 2009? That was May?
B.J. Patterson:
Well, I filed all the paperwork in July.
Mark Taylor:
Got it. Okay.
B.J. Patterson:
I filed for the DBA in the LLC in July. I got the LLC in September, I think, September 9th when all the paperwork came back. And then, we did our first shipment January 2nd, 2010. January 4th, excuse me. January 4th, 2010.
Mark Taylor:
Yeah. Did you raise money? Or how did you-
B.J. Patterson:
No.
Mark Taylor:
How’d you get it off the ground?
B.J. Patterson:
Well, originally out of my savings and back pocket. We shoe-stringed it. And, remember this is 2009. Nobody’s lending anybody anything. Then I brought in a partner. I think about February of 2010, I brought a partner in to help. The upside is in 2009, 2010, if you fog a mirror, they’d lease you a building. There was building and equipment and stuff around very cheap. And part of the impetus too was I’d read a million self-help books that talked about businesses that opened up during a recession, because the barrier to entry was very low.
Couldn’t have been much lower than it was in 2009. I mean, you’d talk to somebody about putting something in a warehouse and they were clamoring to you, “Oh, take mine. Take mine.” And also talent. I mean, there was a lot of talent around, underutilized or not utilized. And so, getting quality people was an easier thing. I mean, it was tough, I mean, we certainly bootstrapped it. And we got some money here and there from, like I said from my partner, brought some money to the table. But, yeah, for the most part just some loans and a lot of savings and wiping out your 401k. And it’s worked out. That’s outstanding.
Mark Taylor:
I do think there’s a lot to be said for, it’s a lot easier to start a business when everybody’s hungry.
B.J. Patterson:
Yeah. Yeah. Yeah.
Mark Taylor:
That’s a great thing. Depending on which news article you read on any given day today, it’s, “We’re headed for doom and gloom,” and then, “Ah, well maybe it’s not as bad as we thought.” We’re seeing these big waves, almost like these sign functions going up and down and up and down with what’s going on. So how do you think the environment is different today than it is in 2008?
B.J. Patterson:
It’s several things. First off, I think the biggest difference today, versus any other time, is that credit’s been tight since 2008. The free-wheeling credit has never really come back. Not like it was 2005, 2006, where again, if you could put together 100 cents they’d loan you a million dollars and put you in a house that you had no chance of ever really being able to afford. So, I don’t think credit’s ever loosened up that much since then. So I don’t think you have so much of bad credit out there.
Then you look at unemployment numbers. Unemployment numbers, I mean, the participation rate is still so pathetically low, and there’s so many jobs out there, unlike 2008 when I mean the unemployment rate was double-digit and climbing. Right? So everybody still has jobs. So, it’s not like that’s there. Housing hasn’t fallen off the cliff. And, from everything I’ve read and everyone I’ve talked to, no one believes it will, because inventory is still painfully low. We never really recovered from the pandemic. The construction never caught up due to supply issues and labor issues and so on. So, it’s not like there’s a big glut of houses out there. So, that’s not going to cause housing to fall off the cliff. I think it’ll moderate and it’ll come down. The interest rates are going to force that that way.
And so, you back that up into the rest of the economy. So the housing market doesn’t fall off the cliff. Then your home improvement stays pretty good, because people start to stay put a little bit when housing’s expensive. And housing’s still very pricey. So people stay put, and so they fix up what they have, versus buying something new. So that bodes well for your home improvement, which … I think people don’t realize how big a chunk that is of the economy. So, people have been pent up. So, obviously, travel and leisure is doing really well and all things point to that. I mean, at some point fuel has to come down. I mean, that’s probably the thing that’s causing the most consternation out there is, travel and leisure would be doing much better if the fuel prices would come down.
Mark Taylor:
I mean, with that said, I mean I paid below four today at the pump down the road, and we’re in sunny southern California. [inaudible 00:31:16]
B.J. Patterson:
Right. And diesel’s staying up there, though. And that’s-
Mark Taylor:
Diesel is. Yeah.
B.J. Patterson:
And that’s what has kept the overall freight rates from coming down dramatically, is diesel just has been stubborn sticking there. And I just drove across half the country and it’s the same price, doesn’t matter where you go. I mean, diesel’s still in that mid-fives all the way across the country. So-
Mark Taylor:
Even in Texas [inaudible 00:31:42].
B.J. Patterson:
Yeah. Absolutely. Well, gas was much cheaper in Texas.
Mark Taylor:
And gas, I think was 2.69 when I left about a week ago.
B.J. Patterson:
Yeah. Yeah. I saw that just two weeks ago in Texas. So the fuel prices come down, it bodes well for the travel and leisure section. Restaurants, they’ve rebounded quite a bit, and you don’t see a lot of that mitigating. So, while I do think we’re in for a little bit tougher than what we’ve had … I mean, we’ve been on a pretty good roll here. And you’re starting to see volume draw back. Durable goods have drawn down and you’ve seen some delay of purchasing. But, you’ve got this artificial spike in 2021, which is hard for everybody to understand. I mean, this was not normal. The government threw so much money into the economy and everybody went out and spent a girl getting ready for prom. Everybody went and spent so much money. 2021, excuse me, is an anomaly. And so, I think the inventory glut is people did their production planning around that 2021 spike and planned, based on that. And you get into 2022 when things are a little bit back to normal and now you have this big inventory glut because you just made too much. Right?
It’s not that the economy’s bad, it’s just getting back to normal. And all this government funny money is out of the equation, or at lease is leaking out the equation-
Mark Taylor:
For now.
B.J. Patterson:
For now. Right? And so once you get that out of the equation, you get back down. I think what we’re seeing is just a return more to a normal economy-
Mark Taylor:
To normalcy. Yeah.
B.J. Patterson:
Yeah. Not an off the chart. I mean, supply chains are starting to open up and so car availability. So car prices are coming back down to earth. And that’s just an availability thing. It’s not that, “Oh, my gosh! The car market’s crashing!” No, it’s not. It’s just now you can actually find a car. It was an availability issue, not a … So to me, I look at it and see all these artificial spikes that were just ballooning things up, are going away. And, yes. It may be a recession in terms of comparing it to 2021. But let’s compare things to 2019. I think that’s where you go back and say, “Let’s compare to 2019 and see where it is.” And I think you can see it still moderate to decent growth over 2019. And we’re just back down to a more normal pace.
That’s the way I see it. And that’s reading and talking to a lot of people that are way smarter than me. To me, from what I understand, that’s the consensus. We’re just got to back down to a more normal pace. They’ll keep raising the interest rates, which … Look, we’ve gotten a little drunk on cheap money.
Mark Taylor:
Absolutely.
B.J. Patterson:
So the entire world has gotten a little drunk on cheap money. So, if the interest rates leak up to eight, 9%, it’s probably not the end of the world. And they’ll get things back to a steady state and they’ll come back down. We’re not seeing the 1980s with 18, 19% interest rates.
Mark Taylor:
Fortunately.
B.J. Patterson:
Yeah.
Mark Taylor:
So, it’s interesting because what I’m seeing, and this is bringing it back … I mean, that was an excellent, I think, view of the macroeconomic trends and everything. And that plays so much into how you and I plan for our businesses. And so now, I’m looking at the Chinese numbers, going down for the exports. We’re seeing a lot of big drops in exports. We’re seeing the Port of California is heralding themselves for getting … Now they have no container ships waiting.
B.J. Patterson:
Mm-hmm. Right.
Mark Taylor:
They’re on time. And I’m like, “Oh.” I mean, a lot of those got offset to the East Coast, which is now consequently having issues-
B.J. Patterson:
Major issues.
Mark Taylor:
I haven’t seen recently, but I think Savannah was up forties, fifties offshore, waiting to get in.
B.J. Patterson:
And, to put things in perspective, 40 vessels off of Long Beach in LA is two weeks’ worth of work. 40 vessels off of Savannah is about seven weeks’ worth of work. So, you always got to put things in perspective. I mean, 40 vessels off LA Long Beach isn’t really not that big a deal. 40 vessels off of Savannah is a huge deal. Charleston, even a bigger deal. So this diversion … And I’ve talked to some retailers that did this, that diverted to the East Coast and they’re all regretting it, because East Coast just can’t handle it. I mean, particularly smaller ports. I mean, you go outside of New York, New Jersey, all these other ports, they’re landlocked. They don’t have the capabilities that you have in Long Beach, LA. And so, the product was on the water longer, it cost them more to get there. And now it’s hung up. I’ll leave their name out of it. Talked to a big retailer who says, they [inaudible 00:37:08], maybe 20 to 25% of their Christmas just wasn’t even going to make it.
Mark Taylor:
Wow!
B.J. Patterson:
Because they shipped it to the East Coast, and that’s the risk they took.
Mark Taylor:
Right. And you mentioned this at one of the longer, I think it was two or three times ago, we met. And you mentioned that what we’ll see is we’ll see the East Coast cooling and that’ll cool. And then it’ll basically take about a year. And then we’ll see the West Coast start to calm down.
B.J. Patterson:
Yeah.
Mark Taylor:
You still think that’s where we’re headed?
B.J. Patterson:
Absolutely. I mean, it’s funny. You can judge the market by who’s calling you. So, I think for at least a year there, I don’t think the real-estate guys even had an outbound line. They weren’t calling anybody. So, now they’re calling, they’re emailing, they’re sending you flyers. You’re getting flyers out of Chicago and Kansas City and Phoenix and Dallas and a few other areas. You’re not seeing a lot still in Southern California. Southern California’s still tight and it’s going to … Quite frankly, I just think Southern California’s going to be tight forever. I really think a lot of people thought that, and me included, thought that there’d be a much greater easing of the inventory glut during Christmas than there has been. And, yeah. We’ve got a couple weeks left to go, but there’s really hasn’t been much easing.
And there’s so much pent up demand here that … I was talking to a large real-estate guy the other day and he’s seeing some easing in that 100 to 200,000 square foot range, he said. But anything over 350 or above, there is none. There’s no availability and there’s no forecast availability. Anything that’s under construction’s already spoken for. He said there just isn’t. And, quite frankly, they’re running out of decent land to build on.
Mark Taylor:
Well they’re running out of permitting. I mean, California’s-
B.J. Patterson:
And the NIMBYs and the warehouse moratoriums and all those things. It’s just coming to roost. And so, while I think a lot of people felt like Southern California would ease at some point, I don’t know that that’s true anymore. The people I talk to, and again, I talk to people that are way smarter than me, that say all the indicators say no. Now, some of these other outliers … I think you and I have talked before. You have your major markets. Right? I call them the primary distribution points, which in my brain are Southern California, Chicago, the Lehigh Valley, Pennsylvania, that area there, Pennsylvania. A little bit New York, New Jersey. But, I really like that Lehigh Valley area. I mean, if you were going to only have one warehouse in the United States, I would have it one of those three markets. And then, you get your secondary markets, Kansas City, St. Louis, Indianapolis, Dallas, Memphis. And I know it [inaudible 00:40:27] people that thinks Memphis should be a primary. It’s not. Not in my brain. Atlanta? To me, those are all secondary markets.
Mark Taylor:
Phoenix, Nevada.
B.J. Patterson:
Phoenix.
Mark Taylor:
Vegas.
B.J. Patterson:
Vegas. I actually put Phoenix and Vegas in tertiary, I wouldn’t even think I’d put them secondary. I really wouldn’t. And again, that’s a big generalization. It really depends on what you’re distributing and how you’re distributing it. Well, if you’re doing parcel, 100% B2C, then Phoenix and Vegas make a little more sense. But, if you’re doing mainline distribution, retail-type distribution, where you need LTL and truckload, those become problematic. You got to look for that east and west and north and south corridors to run out of.
Mark Taylor:
So then my question becomes, I mean, as long as Southern California stays extremely tight, then I mean, your next closest markets are Phoenix and Vegas.
B.J. Patterson:
Yeah. Phoenix, Vegas. You’re going to start seeing some movement in the Central Valley of California move up there.
Mark Taylor:
And they’ve got the new inland port that was just approved a few months ago.
B.J. Patterson:
Yeah. We’ll see how that plays out. But, yeah. So you’ll see that. You’ll see more into Phoenix and Vegas. I think you’re going to see more into Phoenix first. I mean Vegas seems to be struggling to get buildings built over there. A lot of pent up demand in Vegas.
Mark Taylor:
Well, the thing I think Phoenix and even Tucson has going for it is proximity to Mexico.
B.J. Patterson:
Mm-hmm. Absolutely. And the more nearshoring you get, the more reliable that becomes. And, quite frankly, coming across in the Nogales area is way easier than coming up through San Ysidro or Otay Mesa crossing. So, way easier to get into Phoenix and go through Nogales than it is to come up through San Diego, through either [inaudible 00:42:32] or San Ysidro. So, yeah. And you’re absolutely right. I mean, Phoenix is a great market if you’re coming up out of Mexico. The dray over there is expensive. And again, it comes back to, there’s not a lot going back. They used to have a big yard there [inaudible 00:42:52], when [inaudible 00:42:52] was still a steam ship line. They were terminating boxes over there, because there was so much waste paper coming out of Phoenix going abroad. But, ever since China quit taking our waste paper, that market’s dried up.
But, no. I mean, you’re spot on. And again, you know, I generalize and say, “Okay. These markets are great.” But, again, you got to look at what your specific needs are. I mean, again, if you’re doing B2C, one of these secondary markets were great for you, because pricing is usually a little more accommodating. And, if I’m shipping out parcel, who, as long as I’m close to an airport, who really cares? Then you just start looking at population trends, and where can I be? So Vegas makes a decent sense. Phoenix makes good sense. Indianapolis? I like Kansas City and St. Louis. I think those are both great markets.
So, you look at what you’re doing specifically, versus just generalized. But the other thing is, a lot of people, a lot of companies don’t have the sophistication to split inventory. It takes a lot of sophistication to split inventory across the country. And you got to re-look at that. So, if you’re only going to have one warehouse, you want to be in the most cost-effective place you can be.
Mark Taylor:
Really enjoy that perspective. I want to switch gears a little bit. What year was it that you launched Pacific Mountain?
B.J. Patterson:
2009.
Mark Taylor:
Okay. So, 2009. From 2009 when you got going, when did you really start seeing some of the big changes in how people were operating, or have tried to operate warehouses? I mean, I know there’s of course the Amazon effect, that enabled third-party sellers and everybody to be an entrepreneur with much less of a barrier to entry. What have been some of the changes, I guess, you’ve seen in the last 10, 15 years.
B.J. Patterson:
Well, I mean, you go through these cycles. Right? So, I used to always jokingly say when I first got into business, the shipping a case was shipping it gross. And most people don’t even know what a gross is anymore. And, first thing you saw over the last 15 years was how that shipable unit size has shrunk so much. As retailers got rid of their back rooms, they want 12. They didn’t want 144, for sure. They wanted just enough to fit on the shelf. Right? So, just enough to fit on the shelf, that’s it. So, one thing you saw, just in warehousing in general was that pack size reduce. And then you get B2C comes along. Now you only want to ship one of them. Right? And you want to repack it even.
So there’s just this big shift in … You went from truckload to LTL, to … Early on when I was first in the business, it was really rare to ship less than a pallet. If a retailer’s going to buy a pallet, I mean, they need to buy at least a pallet’s worth. And even before that, it was by a truckload worth. Then okay, I’ll let you buy a pallet’s worth. And now then a case worth or layers’ worth. We used to have layer limits. You had to buy an entire layer. And now it’s, can I buy one of those? And so, that’s been a big change. Right? And then, particularly just focus on the third-party side of it. Now, you had a lot of people have gotten in the business. In third-party logistics, you’ve got everything from the GXOs and NFIs of the world, to the Bob and Tom’s warehouse.
Bob and Tom were truckers who had some customers say, “Hey, can you store this stuff for us?” “Yeah. Sure.” And they’re running it with a yellow notepad and shipping orders out. So, you have this gamut. Now, come about 2000, I’ll call it about 2014, when you really saw this surge of these new fulfillment houses, following that model of, one price, here it is. We’ll process it, no matter what, kind of thing. And it’s funny. When I first started the company, I got a lot of advice from people who said, you got to do e-commerce. E-commerce. E-commerce. So I was very fortunate. I knew some guys and I traveled around and went to a few different e-commerce warehouses and talked to them. They were owners and taught them what they thought. And the thing was all of them said, “Hey, can you teach us how to do retail compliance stuff?” He goes, “We’re not making any money at this e-commerce thing.”
It’s a very tricky business model to do straight e-commerce. And so, I think there’s a lot of people in that space. I think there’s a lot of people in that space that don’t make money. And the people that do make money are making it on the arbitrage off of parcel rates, because you got some crazy parcel volume, or there’s some parcel deal. That’s still a very, very strong market, but what you look at, that’s still, I mean, all e-commerce fulfillment is still less than … I think today, still less than 22% of the total distribution market. So, more than two thirds of the market is still retail distribution.
And it comes in different phases now. Now with the Amazon FBA, you’re still shipping … It’s like shipping retail compliant, but you’re shipping to Amazon for e-commerce fulfillment. But you’re just fulfilling their warehouse. And so, it’s still LTL, it’s still pallets, but the makeup of those are very different than they were before. A lot of case pick, a lot of each pick still. Even in that retail distribution, you’re still doing a lot of each and a lot of handling. Robotics have come a long way in the last 15 years. You’re seeing more and more of that. Particularly in the 3PL space, a lot of the autonomous bots, that two-person and two … Either product-to-person or person-to-product kind of thing. So, that’s very flexible. It’s better than conveyors in a lot of cases, particularly in 3PL, because you use a lot more flexibility.
Mark Taylor:
I think this is an interesting point here, because just to say it a little bit more blatantly, everything here, it’s not replacing workers, it’s reducing … You can reduce your workforce to an extent. But, this is more-
B.J. Patterson:
It’s about productivity.
Mark Taylor:
Yeah. This is about augmentation more than replacement.
B.J. Patterson:
Right. Yeah. And I think that you’re right, Mark. That’s a really good point to make. And it’s one of my soapbox items, is that, look, 25 years ago, we were talking about how there was going to be this gap in labor when all the baby boomers retired. And now, not just the baby boomers, but you got the, whatever, Gen Y … I don’t know. I get lost in all those.
Mark Taylor:
I think it’s X, Y, Z-
B.J. Patterson:
[inaudible 00:50:59], whatever. And millennials and all this other stuff. But, we knew that there was going to be a labor shortage, because the baby boomers didn’t have any kids. So, we knew that there was going to be a labor gap. 25 years ago we said that. I can remember the first conference I was in, they were talking about how are we going to deal with this labor gap that’s going to happen? Now, the miss was, most people thought that was 2030, 2035. That was always the conversation. But now COVID comes along and it exacerbates the whole issue. A lot of early retirements, people getting out of the workforce. And so you have a low workforce participation rate, along with this labor gap. So, this idea that automation’s going to replace everybody is insane. It’s barely, barely going to help make up for the gap in labor shortage that’s already there, by making people more productive.
And, quite frankly, I heard someone say the other night at an event, “reduce the suck in the building.” Right? So, make the work suck less. So, it’s going to help and augment the worker, and help them be more productive and take some of the more, we’ll call them mundane tasks out of the way. So, this idea that it’s going to replace workers is crazy. If anything, it’s going to increase the number of higher-paying jobs, because someone’s got to work on them. And someone’s got to program those silly things. They’re not programmed themselves yet.
Mark Taylor:
Exactly. And so, it’s interesting that the first economically viable robot that Boston Dynamics came out with was Stretch. I think that’s what they’re calling the container unloader, which is using suction technology. And in any warehouse, I feel like I would prefer to sweep the floors than unload a container.
B.J. Patterson:
You’re not alone. You’re not alone.
Mark Taylor:
And I’ve been in the can before. You have. I mean, that is a hard job. I don’t care.
B.J. Patterson:
There’s no reducing the suck in that one.
Mark Taylor:
That’s right. And so, to have this robot come in and augment the workforce. I mean, they still-
B.J. Patterson:
They’ve still got to sort it. They’re still probably going to have, in a lot of cases palletize it, and sort it, and label it and receive it. I mean, but-
Mark Taylor:
Unwedging that top carton?
B.J. Patterson:
Oh, gosh. Yeah.
Mark Taylor:
From the top of the container.
B.J. Patterson:
It’s pretty crazy.
Mark Taylor:
It is.
B.J. Patterson:
Yeah.
Mark Taylor:
It’s interesting. And I find with the automation that, what … I went to modex, I think it was in March, I believe it was, in Atlanta. And the thing I find very interesting is that everybody focused on the automation around the individual pick, or bin pick. Nobody’s focusing on the actual automation around pallets. And so, in warehousing, I think there are a couple tenets. Maximize your cube. Use as much possible spaces as you can use, floor to ceiling, wall to wall. And then also, you want to reduce the amount of walking for your employees.
B.J. Patterson:
Travel time.
Mark Taylor:
Travel time. And that’s what a lot of those segue-looking bots, I think, 6 River Systems-
B.J. Patterson:
Yeah. 6 River. There’s a bunch of them.
Mark Taylor:
There’s a bunch of them.
B.J. Patterson:
Fetch. Robotics-
Mark Taylor:
Right. But, what’s interesting is, you don’t see very many companies trying to eliminate aisles, trying to … It’s like those certainly help with the amount of walking that’s happening in your building. And maybe your aisles can go a little bit smaller. You can have now a lot more levels to your pallets. But, there’s still a significant amount of space that’s left. And I’ve always been surprised that there’s not more automation around the actual pallet and at the carton. Around the carton side of things.
B.J. Patterson:
Yeah. I mean, you see that in the grocery industry. They’ve got some pretty neat automation stuff at the pallet level. There’s some of those autonomous spots that, they’ll go as far as loading the pallet on a truck. They’ve got conveyor tops and they’ll slide the pallet right off the top. And there’s some of that. That’s expensive though, still. And you got to have the right size building. That’s the other thing. A lot of this automation, it’s about getting the right circumstance, the right customer, the right set up to use it. But, so much of the automation. Then you go to this automation that is, in my mind, semi-useless. I’ve been to, I’ll leave their name out of it, but a really highly-automated warehouse and they have auto tapers and then they have five people with tape guns in their hands going around fixing the boxes, coming out of the auto tapers. And yeah, it’s like, “What is that?” I said, “Oh, we can’t keep mechanics and got to adjust these things.” “Okay. So why don’t you just have people taping them then?” And auto labelers, and some of those same issues.
And I’m against automation for the sake of automation. I like automation that works and automation that … That’s why the autonomous bots are nice, because they’re like a conveyor, but they’re more flexible, because I can change the pattern and can send them wherever I want. I don’t have this big monument thing that’s in the way, [inaudible 00:56:35] conveyor. They’re pretty good. In fact, I saw a demonstration one the other day. It was a trash bot. And so, what they were doing was, they were working an area that had a lot of … They were detrashing this stuff and repacking. And it had a bin on it and you throw it in the bin and the thing understands when the bin’s full and it goes to the dumpster. Dumps it and comes right back, automatically. No one has to engage in anything.
Mark Taylor:
And so, no longer at 3:00 PM do you have the two guys that are going around unloading-
B.J. Patterson:
Right. This one just goes and does it and knows when it’s full and then dumps it. So, there’s a lot of really cool unique things in that environment that, again, reduce the suck. But, go to some of these highly automated warehouses that Amazon operates and they say, “Well, this is one of our most automated facilities and it only has 800 people that work here.” “Okay.” I mean, okay, how automated is it? I mean, distribution’s still going to require people to be involved at some point. We’re just not to that point. But, again, you look at the labor shortages there are today. I think, what did they say yesterday? 10 million jobs unfilled, nationwide. So, we need the automation to fill that gap.
Mark Taylor:
Yeah. To enhance it. So, let’s say you’re planning, you’ve got a 10-year plan. You don’t have Pacific Mountain Logistics, but you’ve got a box. How big is the box? How are you going to build it out? And what kind of customer set are you going to put in there? How do you go from an empty box to a business that you think is your ideal mix, based on all of your experience?
B.J. Patterson:
Well, I mean, I think the ideal box is 250,000 square feet, if you’re starting off. I mean, if you’ve got scale, you might go to 350. But I’ve found that everything over 350, there’s some diminishing returns there. But 250 to 300 probably, if I was going to start fresh and start over. I mean, that is probably where I’d be. I would have a mix of clients that are primarily omnichannel. From a profitability standpoint and a business standpoint, the pure B2C players? There’s just too much volatility in that market and too much commoditization in that market. So, it’s really tough to be consistently profitable when it’s only B2C. So, I like the, call them, omnichannel or supportive e-commerce, whatever you want to call it.
I have plenty of those clients now, that are shipping big box retailers or drop shipping through Amazon. They’re shipping to Amazon and they’re doing their own B2C. That multifaceted client, that’s what you’re looking for. The holy grail is counter-cyclical business, patio furniture in the spring and coats and jackets in the fall, kind of thing. So you’re always looking for those counter-cyclical clients. I fell into it, but it’s a food component. It gives you that year-round cashflow, year-round business. Also forces you to keep your warehouse clean. So, I’m a big fan of that. But, those omnichannel clients, that’s what I’m looking for. And also you want that wraparound. You want a client that I can help with their transportation, I can help them with all their different services they need. And, you’re trying to wrap around that client as much as you can.
Mark Taylor:
So, in that vein, once you’ve got your warehousing piece taken care of within … And, I know you’re such a fan of very narrow aisle racking-
B.J. Patterson:
I hate that stuff.
Mark Taylor:
Okay. So this is a question. I mean, if the idea is to maximize the cube, why don’t you do it by having more narrow aisles?
B.J. Patterson:
Again, I go back to, I want that mix of omnichannel. Right?
Mark Taylor:
Okay.
B.J. Patterson:
So, omnichannel, retail, they’re going to turn. It’s going to be higher velocity. The very narrow aisle is just not conducive to high velocity, unless it’s completely automated. So, I call them turtle trucks. Those turtle trucks, they’re just not very fast. Or, you can’t move a lot of freight in a very narrow aisle. If you’re in a 40-foot [inaudible 01:01:28] building, you may pick up an extra 20% storage, but what does that cost you in labor? The labor component’s not going away. And to me, very narrow aisle … If you go back to … I don’t want a client that stores their stuff. I want clients that turn. But if I’ve got 150,000 SKUs and I’m storing less than half a case of every SKU, hey, maybe a very narrow aisle works.
Mark Taylor:
But, in that case, I think you would almost want to go with one of the solutions like the modular storage-based thing, like AutoStore, for instance.
B.J. Patterson:
Yep. Yep. Exactly.
Mark Taylor:
You’re not going to get better compression than that. You’re not going to get better space utilization.
B.J. Patterson:
No. But, if I’m a logistics knucklehead, starting to start a 3PL, those things require a lot of capital investment.
Mark Taylor:
They do.
B.J. Patterson:
And while they’re really good, and if I’m a shipper and I can guarantee I’ve got volume on those that fits those for evermore, that’s great. But if I’m a 3PL and you signed a three-year deal with me, and I’m going to invest $1.5 million in a modular system, $2 million, more likely, that payback can be crucial. So, you got to look at it that way too. From a business standpoint, from a entrepreneurial standpoint, what’s my biggest payback? And labor is a consistent cost I’m going to have. I can set up my pricing so the building pays for itself. That’s not that hard to do. But if I put in a very narrow aisle, it’s really tough to relay a warehouse, and the labor expense to me outweighs the space you gain.
Mark Taylor:
So, I’ve looked fairly extensively into it. And you’re not far off. 27% is what you’re supposed to gain. And, I mean, that’s looking at a 10,000 square-foot block, as for instance. It would allow you to put, let’s say, if you could get 100 pallets in there, now you can get 127. So I mean, to your point, it helps. But, what are the downsides? And I think you summed them up very well. So then, all right, so you’ve got your customers now. The next question was, what’s the first wraparound service you put around your warehouse, your storage, your in and out?
B.J. Patterson:
Well, I mean think the first thing you do is you got to get that software integration with them. Right? So, you want that hook into a client. You want your software to be fully integrated.
Mark Taylor:
Yes. Absolutely.
B.J. Patterson:
I mean, to me that’s the first and foremost. Some people skirt around that and don’t force that. But, you got to force that, make sure of that. And that is a service and that is something that some people just aren’t very good at making sure happens. And then you go for the transportation.
Mark Taylor:
Got it. And LTL? FTL? Or does it matter?
B.J. Patterson:
All of it. I mean, whatever they’re doing. Drayage out of the port. If they don’t have door-to-door contracts, if they have door-to-port, or whatever they have. I mean, inbound? I want to handle their inbound. And I want to handle all their outbound I can. It becomes difficult. Some of these clients like Amazon and so on, they’re managing their own transportation, collect freight. But all that discretionary freight? I want all of it.
Mark Taylor:
So, what’s interesting about the Amazon thing you bring up, and this is we’ve learned … So, we’ve got some customers that use our third party. We’ll work with Global Trans. We’ll work with C.H. Robinson, whoever it may be, to gain to get a full truckload from here to ONTA, for instance. And it’s like, the prices aren’t too different just right off the cuff when you look at them. But, where the customers really end up getting hosed is detention fees at Amazon. Because, if you’re doing a full truckload, it is almost unheard of that they’re going to get unloaded at the time that they’re supposed to get unloaded, and they’re not going to have detention time. But whereas, if a customer uses Amazon partnered transportation, it’s the big blue truck, they don’t get charged attention time. Amazon understands that this is the rate. So, it’s very, very interesting. I mean, it’s like-
B.J. Patterson:
Well, they’re trying to force you into using their-
Mark Taylor:
Of course they are.
B.J. Patterson:
And, yeah. If I were them, I’d probably do the same thing.
Mark Taylor:
Yeah. I mean, evil-genius smart.
B.J. Patterson:
It really is. Well, I mean, so there’s always those risks. And you want to do the right thing by your client.
Mark Taylor:
Of course.
B.J. Patterson:
But the more you can wrap around, the better you can get. And, again, also forget just the business side of it. The more you wrap around, the more you understand your client, the easier it is for you to help them. The easier it is for you to work through the problems together and understanding what their issues are. And so, the upside for the client is, now you’re more invested in them than you would’ve been otherwise. And understanding every facet of their business. So, we even try to get in on the steamship line stuff, if we can, through our freight-forwarder partners. So, again, the more you know the more you can help them.
Mark Taylor:
Right. So what is the very first, and this can be very light automation … What’s the very first piece of automation? Whether it’s pallet wrapping machines, whether it’s … ? Anything?
B.J. Patterson:
I mean, I hate pallet wrapping machines.
Mark Taylor:
Yeah?
B.J. Patterson:
Yeah. Because unless you’re going to have 20 of them, 30 of them now, everybody’s got to drive to a specific point. And, unless you’re doing something that requires really heavy wrap, I’ve found most hand wrapped can compete. And it’s flexible and it’s wherever you want to be. The automation piece, I think, that gets overlooked is the data automation, making sure that your WMS is doing everything you can do. RF guns in the warehouse, and scanning things in and out of location, not limiting all those manual events that happen. Scanning onto a truck, cameras on trucks, so I can prove that I loaded this, this time. And I think cameras on trucks now is a big deal.
Mark Taylor:
And so that just aims down at every single-
B.J. Patterson:
Uh-huh.
Mark Taylor:
When something backs up?
B.J. Patterson:
Yeah. Well, on the inside too. So on the inside, being able to see in that truck and say, “Look. This time, this truck was here and I loaded it. I scanned it on, and here’s a picture of me putting it on.”
Mark Taylor:
So, that might be a better. That’s so in the nuts and bolts, that might be better to talk about offline.
B.J. Patterson:
Yeah. But automation. First off, data automation, systematic automation. And then you start looking at things like box erectors, if you’re doing a lot of repack. You start talking about the autonomous bots. I think to me, they lead the pack in their flexibility. So, I have 15 of them. Monday I need all 15. On Tuesday, I only turn on eight of them. On a Wednesday, I turn on seven of them. And they give you that bandwidth. And travel time is a eater. And anytime someone travels outside their area, then it’s never as simple as just travel out and travel back. They’re going to see a friend. They’re going to stop off at the restroom. There’s all those things, those little minor productivity eaters that are in that. But, if you keep them in their work area and the bots are doing all the traveling back and forth, I mean, that’s a big productivity gain.
Mark Taylor:
What separates a good warehouse from a great warehouse?
B.J. Patterson:
It sounds silly to say this, but organization really does. Having a plan, knowing where things are and putting things away with a plan. Clean warehouse. I always say that you can’t tell if things are wrong if everything isn’t clean. In a warehouse, everything should have a place and it should be in its place. And when I walk a warehouse, it should be very easy to tell if something’s out of place. And if everything’s put away like it’s supposed to be, everything is where it’s supposed to be, it’s very easy to tell when things are skew. And so, the great warehouses have … And I’ll go back to this. It’s the people, the great warehouses have good people that question, “Why is that there? Why is that there?” There’s only two safe places for freight, in a location and on a truck. And everything in between, things happen and things go wrong.
And so, you need to have a clean, organized warehouse so that when your supervisor, your manager, whoever’s walking the building, it’s easy to see something out of place. And you have people that question it, “Why is that out of place?” And so, to me, that’s the biggest delta between a good warehouse and a great warehouse. Is a great warehouse stays clean and organized. People don’t accept things out of place, and they question when things are out of place. A good warehouse, they try. And again, it’s the simple things. I had a mentor of mine telling me once, “It’s never the elephants that get you, it’s the gnats.” It’s the little things that you let slide and you just let slide and let slide. They eventually suck the blood out of you.
Mark Taylor:
I think they’re in this vein and all of our previous conversations, there are two big things that have come that are on this topic. One of which you said, it’s like, especially as we go into potentially a recession and really more, as you established, maybe a normalization. But, you always make your biggest, detrimental mistakes when everything is slow.
B.J. Patterson:
Yeah. Absolutely.
Mark Taylor:
Yeah. And then the other thing that you’ve always told me is so few operators actually understand their costs.
B.J. Patterson:
Right. You’ve got to understand your costs. I mean, you got to live it and breathe it and understand … Every penny that’s spent out there. You better know it and understand it, and particularly when it’s going to slow down, because things happen. I mean, everything is cyclical. I don’t care. It’s an old saying, “It’s never as good as you think it is. It’s never as bad as you think it is.”
Mark Taylor:
Right. Right.
B.J. Patterson:
And we’ve been riding a high for the last couple years. I mean, even through COVID and all that. I mean, again, that government money, it’s floating out there. But, as we slide back down, I mean, you’re fine as long as two things. One, you didn’t get drunk on that free money and spend it willy nilly. And then secondly, you know your costs and you can understand as you ratchet down, as volume slows, where the pinch points are, where the discretionary money is and how to control it, take it out. And you know what your profitability is for client. I mean, that’s the other thing that’s really key, particularly in the 3PL world when you have multiple clients in a building. It’s probably the holy grail, is making sure that what clients are profitable and tracking that all the time.
Because, you got to remember, you have several micro economies in your building. Each one of those clients is fighting their own battles with their sales and what they’re doing. And if you don’t watch that and stay on top of that, next thing you know, now they’re unprofitable, because they’ve changed, or their clients have changed or their sales have changed. They’re not turning like they were. And if you’re not watching it all the time, it can get away from you really quickly. And next thing you know, that’s impacting your bottom line, because you weren’t watching what they were doing. So, that’s really important that understanding your costs and understanding how that’s affecting each one of your clients individually.
Mark Taylor:
Mm. Okay. And I’ll say this is going to be the last question. Looking into your crystal ball the next five years, what are we in for?
B.J. Patterson:
I would say that it’s good to be in logistics. I mean, I think the industry is … Really, to me, it’s really funny. For the first probably 20 years of my career, people ask me what I did, I spent the next 30 minutes trying to explain it to them. And so, I jokingly say, “Logistics finally got sexy.” So now that they can remember the last time they turned on the news and they didn’t say “supply chain” at least once in the telecast. So, I think logistics is a good space to be in, particularly as retail morphs. I mean, I think the death of brick and mortar is widely overstated. And I think brick-and-mortar retail’s not dead by any stretch. But the emphasis on logistics and the emphasis on how things get to where they are is, I don’t think that’s falling out of focus anytime soon. So it’s a good time to be in the industry. It’s a good time from a career standpoint.
From a business standpoint, I think over the next five years it’s going to continue to morph. Automation will become more and more of a factor. There’s always cost realizations. Right? So I always say that the cycle is that everybody’s trying to cover their balance sheet. The next thing you know, everybody’s trying to spend. They have too much money on their balance sheet. And so you’ll see this ebb and flow of outsourcing and insourcing of logistics. But, I think as you move forward, and particularly with this still a large number of people working remotely, the reticence to bring logistics back in house. I just don’t see that. And I’ve seen some telltale signs of people that are trying to push it away, push it away. They don’t want that liability on their own. They want somebody else doing it.
So I think you’ll see continued growth on the 3PL side. You’ll see more consolidation. You’re going to see the bigger guys gobbling up the smaller guys. That trend, I don’t think is going to stop anytime soon. But I think the next five years, normalization of the economy, higher interest rates will stick around for a few years. At least two or three, which I don’t know that that’s a bad thing. Again, the drunk on cheap money? I don’t know that drives the best practices, businesses. I think the next couple of years you’ll see some weeding out of some of your bad actors and the guys that just don’t run quality companies. I think you’ll see some of that. And that slack will be picked up by the better operators. I think some of these, I call them “money eaters.” Some of these startups that are out there, quote, unquote, changing the landscape or disruptors? I think those will disappear as money’s not cheap anymore.
I think these guys out there that are just eating up money from people, I think there’ll be some consolidation in that environment. And a lot of those guys will go the way, the Dodo bird-
Mark Taylor:
They probably all went in V&A too.
B.J. Patterson:
Probably all went V&A. That’s their problem, right there. But, I mean, I think that’s what you’re going to see, the next five years.
Mark Taylor:
I would be remiss, and so I lied. That’s not my last question. This’ll be one of my last questions.
B.J. Patterson:
Okay. That’s fine.
Mark Taylor:
Amazon warehousing and distribution came out, or they’re in the process of rolling out … I don’t know a ton of details, but it seems like they’re trying to-
B.J. Patterson:
3PL.
Mark Taylor:
Yeah. Effectively. And I don’t know how many hundreds of millions, or how many millions of square feet they have. But I’m guessing it’s all inland. I’m guessing it’s still not going to be cheap.
B.J. Patterson:
No.
Mark Taylor:
And I don’t know what your read is on it, but it seems like this is them overcommitting to a lot of square footage. And then, now what in the heck do we do with it?
B.J. Patterson:
Right. There was an article that came out a few weeks ago that said they were going to send all this square footage to sublease. And you talk to the guys in the know and they went, “No. No. No, they’re not.” Basically, they overbuilt. And it’s really funny. I had a great perspective. I’ll leave his name out of it, but he’s a big player in the real-estate market and does a lot of business with Amazon. He said they overbuilt their labor bandwidth. So, they had buildings, but they just didn’t have the bandwidth on the management side to get them open. They were behind recruiting and management and they just didn’t have the bandwidth to open them.
So it wasn’t so much just a pullback of space, but it was also a pullback of resources. So, basically, they felt like they were spread too thin. And so, Amazon’s Amazon. And, yeah. I’m critical enough of them in general. But I think if they get into the 3PL space, it’ll be … One thing that Bezos set up is the siloed sections of, everything’s a silo. So, it’s easy to try it and unplug it. My opinion is they’ll try that and they’ll unplug it pretty quick, because they’ll find that they don’t have that product profitability to offset their logistics inexperience. I’m sorry, there’s a lot of people out there that have forgotten more about logistics than Amazon knows. I mean, Walmart could teach them a lot about logistics.
Mark Taylor:
Yeah, I’m sure they could.
B.J. Patterson:
And I don’t see them as some crazy, awesome logistics provider. And so, I think they get into the 3PL space and they’ll find that they’re not as good as they think they are.
Mark Taylor:
Well, I think that’s a great place to end. I thank you so much.
B.J. Patterson:
Oh, thanks for having me. This is awesome.
Mark Taylor:
This is fun. I’m looking forward to getting more into it. I’ll pick your brain on some other people I should probably talk to and-
B.J. Patterson:
Yeah. That’d be awesome.
Mark Taylor:
Yeah. I love it, because we’re able to get in the nuts and the bolts and-
B.J. Patterson:
Got to get Simon Ho on this thing.
Mark Taylor:
What’s that?
B.J. Patterson:
Got to get Simon Ho on this thing.
Mark Taylor:
Oh, he’s coming next.
B.J. Patterson:
There you go.
Mark Taylor:
Yeah. Simon’s got a great perspective.
B.J. Patterson:
He does. He does.
Mark Taylor:
That’s how you and I met.
B.J. Patterson:
Yep. Smart kid. I think this is a great format and there’s a lot of smart guys out there doing this and gals that are way smarter than me, that look at all this from different angles. You got to look at the real estate guys, you got to look at the development guys. You got to look at the 3PL guys and look at the shipper guys. They’ve got a very different perspective too.
Mark Taylor:
Yeah. Well, it’s a pleasure. I really appreciate it.
B.J. Patterson:
Oh, it’s always good to talk to fellow Texan.
Mark Taylor:
Absolutely. All right. With that said, thank you.
B.J. Patterson:
Thank you.