Brokers, Truckers, Shippers & Rates

26 Jun Brokers, Truckers, Shippers & Rates

Stop the broker gouging! Regulate transportation brokers! No more cheap rates! Carriers are talking about brokers making too much money off the backs of truckers. What is going on?

The transportation industry is one of the greatest examples of a free market; supply and demand dictate rates, rewarding or punishing, through the ebbs and flows of the market. This supply and demand dance happens throughout the entire country, within certain regional markets even down to individual lanes. It travels across different states as shipping seasons change. For example, produce, which starts in Florida, rolling across the south, into California and then up the coast to Washington, culminating with apples and onions, starting again with Christmas trees. It follows, or more appropriately, leads as the U.S. economy fluctuates.

I have 22 years in this industry, 2/3 of that time as a broker. The remaining 1/3 managing trucking companies and driving. During that time I have seen, fuel rise dramatically, hurricanes and other natural disasters disrupt the normal flows, 9/11 downturn, 2004 and 2005 upturn, 2008 and 2009 recession, the boom and decline of the Bakken, 2017 through 2019 swings and now COVID 19.

Today many truckers are complaining about the low rates; stating the brokers are taking advantage of the current climate.

Admittedly, some brokers take advantage of these things. The few unethical brokers give the industry a bad name. Is that what is driving the low rates? Maybe a tiny amount, although, it is not the dominant factor.

In 2007, I was managing a small brokerage office. Toward the end of that year and the beginning of 2008, I lost customer after customer to large asset-based companies. I remember one lane particularly well. It went from Portland, OR to Los Angeles a few times a week. We did not lose the lane for poor service, we did amazingly covering the freight. It was because a large asset-based carrier bid the freight at $.78 per mile (plus FSC). I remember thinking, “How can they run trucks at that rate”. Steadily we lost more lanes and accounts, as big carriers cut rates making it impossible to compete. The next year 2010, the market ticked up. Truck capacity was at an all-time low and the carriers had control. I remember losing $800 to $1000 on loads regularly. Our pricing was locked at 2008 and 2009 levels. My office ended the year with a net loss.

Market pricing is set by shippers and large asset-based carriers when it is down. They have the control; or rather, they have demand, for the limited supply of freight. Carriers set the pricing when the market, for trucks, is tight.  2017 and 2018 saw stellar markets, for the truck. Carriers did not complain about rates then, but the shippers certainly did. I attended a food conference where shippers lamented their transportation cost running 30% – 60% over budget.

The current decline in freight has small carriers believing brokers are taking advantage and gouging pricing. COVID 19 has shaken the market with many segments in decline. My company prices our customers after receiving rates from carriers; (our business is very specialized this way).  Across the board, the carriers are lowering their rates. Why are they doing that? To get the freight – because volume is lower, and rates are declining accordingly. To stay competitive and stay loaded, they need to lean out their rates.

I believe the current outrage over rates comes from the abruptness of the decline. Normally, when the economy slows, it happens over months or longer. Rates decline in a like manner, over time. The carrier may not fully realize the decline, as it is slow and incremental.

Small carriers and owner-operators may look past some of the benefits brokers provide. As a young broker my boss told me, “Brokers are the salesperson for the small carrier”; so true.  It is not feasible for an owner-operator or small carrier to hire a full-time salesperson.  Even if it were affordable, that salesperson would struggle to find accounts for every location the truck lands. How many owner-operators have taken a load to an area outside their normal routine because it paid exceptionally well? Many owner-operators follow the high demand lanes as they progress across the country. Will your salesperson be able to call customers in Pittsburgh today, Kansas tomorrow, Phoenix on Friday, hoping to get set up with them? It can take months, even years to develop new accounts. Additionally, shippers do not want to set up a carrier to haul a single load, never to return. This is where brokers benefit both shippers and carriers. The broker offers a single call for capacity to shippers. Brokers are willing to set up a carrier to haul that one load, one time. Depending on the brokers size they will have hundreds, maybe thousands of carriers, in their system, showing a single load hauled.

Good brokers act as a buffer between the shipper and carrier.

I cannot count how many times I paid the carrier money that I was unable to collect from the customer; mostly detention or truck ordered not used (TONU).  I have purchased coil racks, v-boards, dunnage, even chains to get loads moved, all from my margins. The carrier does not send those to me when the load is done, it is theirs to keep. Two months ago, I paid a $1000 space ordered not used (LTL equivalent of truck ordered not used) that I did not get paid for. It was a $1000 loss on that load. My company has even paid late fees from the truck arriving late at pick up or delivery.

Carriers give loads back daily in the broker world. Excuses run from mechanical failures, refused product, delays at previous delivery and driver messing up. Most carriers are truthful about falling off a load, although, some carriers will book a load then search for a better paying load (some brokers do the same in reverse). That is an unethical practice for either party. No matter the reason, when a carrier gives a load back, it often results in a loss of revenue, possibly with negative margins. Being pressed to get another truck on the load can be extremely stressful.

I once had a carrier fall off an extremely time-sensitive load. It was too late in the day to recover and the product needed to be 1000 miles away in 48 hours. This single failure from the carrier had the potential to cost me a 6-million-dollar account because my customer stood to lose even more from the late delivery. Fortunately, I found a team the next morning, paid $1400 more than I had in the load, and delivered on time. However, the stress was so intense, I developed hives for the first time in my life.

The current push from carriers to regulate or even eliminate brokers is bad. Brokering freight is not easy. As mentioned, there is intense pressure to cover the freight and make margins. Missing the expected service level can cost accounts. Once the freight is on the truck, the brokers’ service levels are entirely in the carriers’ hands, completely out of the brokers’ control. It is like being accountable for raising a puppy, but the puppy is thousands of miles away, with a stranger and constantly moving. (To clarify, I am not calling drivers/carriers puppies, it is strictly an analogy).

Running a freight brokerage company is a big gamble. Brokers submit pricing based on gut feeling, historical and theorized fluctuations in the market. If they miss the mark it can be VERY costly. Other times they get lucky and make a decent margin. Every brokerage I have worked for runs between 12% and 16% margin yearly. On occasion, I have realized strong margins. I have also paid carriers HUGE money to cover load(s), at a loss. Most carriers have certainly benefited from a broker’s misfortune.

I realize there are brokers with poor ethics. I would like to see them out of the market, they give the industry a bad name and reputation. However, pushing for regulation is not the answer. The unrealized backlash could result in more trucking regulation. The 3PL industry may, in turn, lobby for regulations that require carriers to pay the broker when they drop a load, deliver late, or miss a pickup. It is a slippery slope the carrier segment is heading down. Regulation will hurt the entire industry. Regulations undoubtedly result in more regulation. The trickledown effect; more paperwork, more government oversight, more animosity in the industry; all at the expense of the consumer by an increased cost of goods.

My opinion: let the free market do its thing. Stop hauling for cut-rate brokers – literally say “no” to low rates and poor ethics. If they cannot move the freight their customers will drop them. They must either adjust their business practices or go under.

I have worked as a carrier, broker, and driver. Every position has some good and some bad. Many reading this might say I favor the broker; not true. I believe in fair treatment and fair rates for the truck. I also believe in ethical brokers enjoying a successful business. Without trucks, brokers cannot function. Without brokers many small carriers would go out of business or haul for major carriers that would dominate the industry. We have a symbiotic relationship, necessary for each other’s survival. The supply and demand dance will continue to seesaw along, shifting power and control between the carrier, shipper, and broker based on the ebbs and flows of the economy. It is the progression of a free market, natural checks, and balances, keeping everyone involved striving to stay competitive.

* Information contained here is opinion only.  Although the author has made every attempt to verify facts and dates, much of the information is from memory and subject to error. *