Noel Perry heads Transport Futures in Harrisburg, Pennsylvania. In addition, he heads Transportation Economics, a consulting company focused on strategy, market research and forecasting for the North American freight transport market. Previously, he was a Corporate Economist at Schneider National, and Director of Market Research at CSX Transportation and Cummins Engine Company.
Broker margins are climbing? FreightWaves published a sponsored article penned by Scott Simanek, Chief Commercial Officer of Unis Fulfillment and Transportation. In that article Mr. Simanek cites improvements in the margins of two prominent publicly traded brokers as evidence of brokers leveraging declining conditions in the spot market to their gain – at the expense of carriers. He attributes the increase in margins to the brokers’ ability to strongarm vulnerable carriers in the soft market. His conclusions are clearly wrong for three reasons:
- What did Adam Smith teach us? The North American brokerage market is as freely open a market as any in the world, regardless of commodity or service. There are no pricing regulations and precious few barriers to entry. If the two brokers cited, or any other brokers, were mistreating carriers (carriers they in many cases have been working with for years), the carriers need simply to shift to another of the 16,000 licensed brokers, most of whom are hungry for business. For Mr. Simanek’s conclusion to be accurate, there would have to be an extraordinary, and illegal, conspiracy involving thousands of brokers.
- What goes up eventually goes down. The arithmetic phenomenon cited in the article is a long-standing and well-known fact of truckload pricing economics. In softening markets, carrier prices always fall moderately faster than shipper prices, with broker margins rising. Of course in rising markets the reverse happens – carriers’ rates rise more rapidly than shippers’ rates and broker margins fall. Using Unis’ logic, brokers must have been scrimping on their profits to help the carriers in 2017 and the first half of 2018. Did Unis sponsor an op-ed praising the brokers to document that phenomenon?
- Accounting 101. The cycle in broker margins is primarily an accounting issue. Market economics tell us that scarcity or surplus of assets affects the pricing of assets and the cost of services provided by those assets. Intermediaries, like brokers, add a relatively fixed cost to facilitate the match of assets and demand and the accompanying transactions. It follows that such a fixed cost will occupy a smaller portion of a total rate, in a tight market with high rates than in a soft market with low rates. A simple calculation using average rates for the period from the second half of 2018 to the second half of 2019 referenced in the op-ed shows an increase in brokers’ margins of 306 basis points using a fixed absolute value for the brokers’ take. This example yields the same internal broker dollar return in both cases – same service, same ‘profit.’ Note importantly that the Unis example cites a 134-basis point improvement in brokers’ margins, just over half of the expected gain. Apparently, the brokers cited are sharing in the market’s pain, suffering about a 10% reduction in their take.
Here’s the point – Generalizing two data points from a pair of SEC filings to characterize the workings and ethics of a $300 billion market has little value.
Under the examination of a skilled financial analyst, those filings may well illuminate the results and strategies of the two companies involved, but they shed little light on the economics of a massive and highly variable market.
Brokers exist and have a growing share of the market because they provide a useful service to shippers and carriers. Those services retain their value throughout the business cycle, even if carriers are happy at the top and unhappy at the bottom.
The notion that an entire group of market participants is operating to the market’s detriment is a preposterous claim that provides no insight to carriers, shippers or any rational actor in this market.
Karla
Great article!
Something to think about
1. If you don’t like the rate, don’t take the load.
2. Build a relationship with the broker(s) you like. Friendships go a long way in this business.
Thanks and stay safe out there friends!
CA Trucker
I agree with you.
Consider this: When you need new tires for your rig what do you do? Check prices with two or three tire shops then usually you take the lowest price (for the same brand or quality of tire) unless the tire shop gives you some type of better service that you want at the time.
It’s going to be the same with freight rates. Don’t take it unless it makes sense. The broker is going to post at a price they think will attract a trucker. If the price is taken the load goes.
But if you do have a good relationship with a broker and you are dependable and give great service, they may hang with you to protect their service level to their shipper. You are giving the broker that extra service and to some brokers that’s worth a few bucks more. The bottom feeder brokers will always take the cheapest trucker.
Problem is you die a slow death until all truckers make the same choice to take a load only when it makes sense for them.
No easy solution unfortunately.
KEN STABLER
You hit the nail on the head Karla.
Rickard
Where was this picture taken, it looks like the road is going into the sky
James Moore
Keeping things very simple…
With demand then you have cost, however cost from price fluctuations due to not only industry, yet brokers. In fact, many brokers have built repores with their customers as well as drivers by being strategic in whom, what and where, but how to stretch the maximum dollar against drivers can be a bit more about them. In negotiations,first we must look upon markets. Now, can you consider the trucking Industry a monopoly?
Think of this, because if sweat and miles are definitely determined by the driver’s or companies and the true meaning of this industry is based upon drivers, think to whom might assist in getting the best of both worlds( finance and prestige).
The railroad went through a monopoly issue…
Although, it may seem as competitive companies are fighting for business… They are all the same 😎
Noble1
Check it out
California’s AB5 has carriers rethinking vendor relationships
Quote:
“the option that seems to be getting the most scrutiny from carriers, and which some already are using, is letting a broker handle the relationship with the owner-operator. “This will satisfy the “B” part of the ABC test,” Kirsanow said, because brokers won’t be in the same business as either the owner operator or the carrier.”
https://www.freightwaves.com/news/californias-ab5-has-carriers-rethinking-vendor-relationships
https://www.freightwaves.com/news/battle-on-making-dynamex-abc-into-law-now-moves-into-the-california-senate
Apparently a lot more OO’s will have to deal through a load broker rather than directly with a carrier to bypass employee classification . That means a lot more revenue for load brokers in the future or a lot less OO’s .
On the other hand , forming a truck driver alliance would rectify the problem and put a lot more revenue than a simple salary in the truck drivers pocket compared to a “union” .
I repeat , CUT OUT THE MIDDLEMEN ! They are the problem costing truck drivers galore !
In my humble opinion …………………
10-4 !
Trucker
Unfortunately it is the sad truth brokers are keeping a big share but ultimately it is our fault because we have bills we need to pay and we give into these rates. Though a strike might not be the answer it will help in the short run and might prevent or make them think twice before they try and keep all the profit the next time. In order to put a damper the strike would have to be by all truck drivers which will never happen. I drive a dryvan and I refuse to take loads under $2.00 per mile and shorter ones for even more but I will soon go broke unfortunately. I just find it hard to comprehend that a broker calls me offers me a load for $1.60 per mile , I refuse it then they go up to $1.75 at which point I give them my rate and sometimes they agree.
Ask yourselves where did those extra $500 came from all of a sudden. Go figure. All I can say is try and get what is just don’t agree to these ridiculous rates.
Best of luck to all.
E Dale Field
I don’t care who it is., out of due respect I can assure everyone that that guy saying it is preposterous Has never drove a truck or dealt with hundreds of different brokers when it Comes right down to getting loaded…In 25 years I have…And I know that Some brokers do gouge is….I have had the Produce buyer offer me $7200 to haul a load and as a company driver my boss wouldn’t let me…..So the buyer gave it to a broker and that Broker gave it to my company anyway…. for $4800 ! I’ve got just a little bit too much experience to believe college educated salesmen….
johnny mcdowell
brokers has help kill the trucking bussiness. how is it that they can sit at home and make more then the guy buying the fuel paying the truck note and spending all that time away from family..come on we all no that ch is making money hand over fist and the goverment needs to step in and put a stop to all this bs..guys are losing everything why this people ride around in 100 thousand dollar cars .. telll us to take less even tho they can easy pay more.. they should only by law be able to make 15 percent of the whole load the rest should come to the people doing the work .. its nuts that we paid everything and lose everything and they live like kings.. we should go on strike just like gmc i am shit we bring food gas and everything else to the table and there telling us to run elogs which making trucking even harder because you running your ass off to get to a place to sleep..elogs are very dangerous and people think o man trucking now safer then ever what bs..
Noble1
Government is not the solution at least not yet , nor are carrier associations .
What is needed is a truck driver association/alliance . That’s how you solve “truck driver” challenges and create a fair sustainable change . Otherwise drivers will be replaced far sooner than any truck driver problem/challenge will be resolved in favor of truck drivers .
A strike is not the solution either . It’s simply a means to obtain a “band aid” on a cancer . It’s not a sustainable solution . If strikes were the answer there wouldn’t be anymore strikes since the first historical strike occurred .
Drivers keep asking others to find solutions to their problems . That’s the first and biggest mistake in my opinion .
Rather than complaining , why not focus on uniting ? Drivers should create an alliance and find their own sustainable fair and prosperous solutions . Nobody will care about truck drivers more than truck drivers themselves.
What you need to do is start caring about one another . Form an alliance ! Everything truck drivers have done apart from that has lead them to where they are now ! And where they are now is not where they want to be . Who else can they blame but themselves since they always put the power in another’s hands in an attempt to solve their problems ?
Stop acting like the fly trying to get through a closed window ! You reap what you sow ! If you don’t like what you have reaped then plant a different seed !
Example : Start by forming a truck driver mastermind group ! That group of wise visionaries are to lead you , serve you , and increase your quality of life through implementing a plan and strategy to follow which will lead you to prosperity and happiness ETHICALLY !
The world is your oyster !
In my humble opinion ………..
1 owner oper
I agree with johnny mcdowell brokers are killing this industry i am an owner operator and get all my loads off the broker board alot of the time i see the same load posted by 3 different brokers with 3 different rates that means some brokers are skimming more than others off the load i see loads all the time for a little over a dollar a mile who can operate for that i see loads going short distances for $100.00 dollars come on the rates are way too cheap im slowly going broke while the brokers are all getting rich the nincompoops in dc need to put a cap on what brokers can take all the brokers are is govt job creation at the expense of the truckers dont we all ready feed enough people
fuck these brokers
That’s right let’s get a Revolution going fuck these brokers
Noble1
That’s the spirit !
UNITE ,create a different system and bypass the BS while reaping a tremendous increase in benefits !
In my humble opinion …………..
Noble1
Quote:
” i am an owner operator and get all my loads off the broker board alot of the time ”
WHY ?
NOBODY is forcing anyone to deal with a freight broker nor deal through a load board , and much less force a driver to take a load off of a load board . However, I see truck drivers repeatedly pointing their fingers at everyone else except themselves for their “uncomfortable/unprofitable ” situations .
CUT OUT THE MIDDLEMEN ! Gees man , you’re too dependant upon MIDDLEMEN ! And then most of you complain about them making a profit and or the amount of profit they make ???
COMPETE , but not among yourselves !
If you truck drivers don’t unite you’re going to end up getting squeezed out of the market by savvier people than yourselves , GUARANTEED ! Isn’t that what is currently happening ?
Major motor carriers aren’t affected by the recent insurance hikes . The little OO’s and carriers are .
The older generation left all the BS to the new generation to deal with . And the new generation is a lot savvier than the older one . They are redesigning trucks to be driverless ! The older generation acted like sheep ! That’s the seed they planted for the new generation to reap ! And the new generation is saying “F*** Y**, we aren’t sheep” !
in my humble opinion ……………
Cynthia
Brokers are taking all money and carriers have high insurance high fuel bill high Maintence On Truck’s and doing all the work brokers are legal pimps I think all carriers should go on strike until this crap called spot rates are the same everywhere
Mark Rodriguez
The average gross margin in the brokerage world is 13%. That means they are already passing down 87% of gross revenue to the carriers. Regulating profit margins is not the answer. Brokers use that 13% to pay their sales staff to acquire the business they pass on to the carriers. It covers insurance, bond, dispatch staff, technology, and claims. It also pays whether the customer’s pay them or not….bad debt is real to brokers but not an issue with carriers (assuming they are going through a legitimate company with good financials). Again, targeting the big bad brokers for low rates is missing the bigger economic factors that actually drive pricing conditions.
Noble1
Quote:
” Are brokers gouging carriers? ”
HEY ! Don’t swindle , GOVERNMENT HATES COMPETITION ! LOL !
Speaking of “CLOWNS R US”(Government) they can’t even maintain highways in winter . The moment snow falls it’s chaos !
And you wonder why the trucking industry is in a mess ? Look at who is regulating it ! Incompetent CLOWNS !
Check this out in Canada :
Quote:
“Hundreds of truckers idle in Headingley during Highway 1 closure”
GOOGLE IT !
Some truckers have been idle for over 32 hours !!! What kind of incompetent nonsense transport ministers are in office ??? This sort of thing can be preventable . And these clowns are in a position of power ? What a disgrace !
Gouging the public under the guise of taxes is about all they are competent in doing .
If these clowns knew how to manage a country they wouldn’t have to tax ! Imagine that , no income tax and no capital gains tax . Then eventually extend to no longer needing property tax !
But these clowns can hardly maintain their highways and public roads during a snow storm !!!
And we’re going to ask them to solve our problems ? Excuse me but that is freaking absurd , LOL !
In my humble opinion …………….
Jamieson
Well said 😂