Check Call: The broker dry spell

In 2021 it seemed like there was a new freight brokerage opening daily. When you can get away with insane margins and are making money hand over fist, it would be a mistake not to open a brokerage.

Fast forward to late 2022 and 2023, and the freight recession hits. Those new brokers haven’t been through a downturn before, and there isn’t a strong sign of the freight market returning to its glory days anytime soon, leaving some newer players to weather the storm in uncertain waters.

The struggle is plaguing the entire brokerage world. FreightWaves’ JP Hampstead broke down some of the brokerage earnings that came out of Q1: “J.B. Hunt’s first-quarter results revealed the pain felt by the largest transportation providers and their brokerages. Integrated Capacity Solutions (ICS), Hunt’s brokerage, said that gross revenues were down 26% year over year to $285 million on 22% fewer loads and 5% lower revenue per load; the operation as a whole is now smaller than it was five years ago, in the first quarter of 2019, when it posted gross revenue of $301 million.”

The struggle of the freight broker has been top of mind for everyone. Maintaining business and margins has never been more important. The current market is not for the faint of heart, but according to Brush Pass Research, “ 2023’s gross revenues are still 56% higher than that of 2019.” The researchers also found that, “At a 15% average gross margin, freight brokerages’ true net sales for 2023 were $20.24 billion.”

Hampstead adds: “[Logistics expert Kevin] Hill said that while there are 27,000 active brokers with motor carrier numbers operating in the United States, 88% of the industry’s gross revenue is controlled by the top 1,000 brokers. And the largest of those — the top 50 or so brokerages that compete with the largest asset-based truckload carriers for volumes — have suffered the brunt of the freight recession.”

The one bright light for those small to medium-size brokerages is that there has been success in growing year over year, despite revenue per load falling. The trucking side of things had to go through a market correction after rates steeply contracted, and the brokerage and 3PL side has to undergo the same.

As for when that sigh of relief is expected? Well, depends on whom you ask. Some analysts, as discussed in last week’s Check Call, say 2025. This month’s State of Freight has the second half of 2024 as the big turnaround. There is one commonality that almost everyone seems to agree on: All eyes are on the Fourth of July holiday to see if that will spur some market demand.

TRAC Tuesday. We’re hopping a quick jaunt, in the form of a 787-mile trip from Chicago to New York. Spot rates have slightly increased throughout April, which started at $2.57 per mile and now sits at $2.65. The month will likely end how it started as outbound tender rejections are beginning to fall in both New York and Chicago. The saving grace is that outbound tender volumes haven’t begun to fall quite yet. An all-in rate, before margin, of $2,080 should secure this load with few issues. Going above $2,300 will almost certainly end up in a loss, though. Should the Outbound Tender Reject Index rebound and start to climb again, spot rates will see a lift as well.

Who’s with whom? Everyone’s favorite fast-fashion company to talk about – both good and bad talk – has made a move to enhance its U.S. logistics. Shein has partnered with Flexport. U.S. marketplace merchants will be able to integrate with Flexport’s fulfillment services. This move is expected to grow Flexport and Shein.

Shein said in an article by FreightWaves’ Grace Sharkey: “With Flexport as our preferred logistics partner, we’re revolutionizing the way you manage inventory and fulfill orders. … From inventory management to sales, everything works together seamlessly to boost efficiency.”

Shein has faced a lot of scrutiny for its business practices in the past – from allegations of stealing designs to labor issues to poor sourcing practices – and has faced an onslaught of TikTok videos against the company over various issues. Here’s hoping this is the new start and good PR the company desperately needs.