The rise of freight brokerages
In 2000, freight brokerage was a cottage industry, representing a small percentage of the trucking industry — 6%. Fast forward to 2023, and freight brokers handle more than 20% of all trucking freight.
Brokerages are ‘mainstream’ today
As freight brokerages have taken on a larger percentage of the market, they have reshaped the typical freight cycle.
In the early 2000s, it was uncommon to see a freight broker in the primary position of a shipper’s routing guide.
Back then, freight brokers usually handled freight that asset-based carriers didn’t want or that was priced too low for the carriers to make their margins. Freight brokers would also serve as a last resort if carriers had freight surges that they could not handle.
Since then, however, things have changed dramatically. As freight brokerages invested in technology and customer service, they began to offer a more compelling product than their asset-based competitors and took on a greater role in routing guides.
Today, it is common for multiple freight brokerages to be in primary positions in shippers’ routing guides, often as the top choice, beating out their asset-based competitors.
Moreover, the quality of freight that brokers handle now is far better than it was in 2000. In 2023, freight brokers often are assigned highly desirable, carrier-friendly freight.
Why? Shippers both large and small now rely on freight brokers’ deep databases of reliable carriers to ensure that their loads are shipped and delivered on time.
In addition, carriers — particularly small carriers — also need the leads and business that freight brokers can supply.
Why is that?
As of April 2023, there were more than 531,000 active trucking fleets that own or lease at least one tractor in the U.S., according to Carrier Details, which provides trucking authority intelligence using data from the Federal Motor Carrier Safety Administration (FMCSA) and insurance registrations (available on SONAR).
Contrast that with 1980, when there were around 18,000 U.S. trucking companies.
Trucking deregulation led to the need for freight brokerages
The Motor Carrier Act of 1980 deregulated the trucking industry. In addition to all the other changes generated by trucking deregulation, it led to the development of the freight brokerage industry as we know it today.
Prior to deregulation, the trucking industry was highly regulated by the Interstate Commerce Commission, or ICC. From 1935 to 1980, the ICC set the rates and routes of interstate carriers. The ICC even mandated the types of freight trucking companies could haul. Also, in most circumstances, backhauls were not allowed.
Therefore, there was little need for freight brokers during the reign of the ICC. But by the 1970s, many believed that competition was being strangled by the ICC and that freight rates were too high because the industry was so tightly regulated.
Those circumstances led to President Jimmy Carter and Congress working together to deregulate the trucking industry, as well as the airline and railroad industries.
The Motor Carrier Act of 1980 made the trucking industry much more competitive as the ICC yoke was removed. Of the 18,000 trucking companies in existence at that time, many went out of business in the newly competitive environment. However, thousands of new trucking companies were started.
The results were lower shipping rates and the start of a greater use of backhauls.
Among the first successful freight brokerages was American Backhaulers, which began operations in 1981. The company was acquired by C.H. Robinson in 1999.
Post-deregulation, motor carriers began to operate wherever they could find profitable freight, although rates were much lower because of increased competition. Many carriers needed backhaul freight to generate sufficient round-trip revenue — an issue brokers were able to assist the trucking fleets of the time.
Freight brokerages grew and evolved
As more carriers began using freight brokers, new and more professional freight brokerages started. Moreover, a number of the larger carriers started in-house brokerage divisions.
In most cases, these in-house brokerages provided an additional revenue stream for their carrier owners. The in-house brokerages also created a demand pool that was controlled by those trucking companies. The in-house brokerages supplied freight for the carriers’ trucks in lean times and could sell excess freight to other carriers when their fleets were fully booked.
Brokerages assist small carriers
As the link between shippers and carriers, freight brokers are “traffic managers” for shippers as well as “sales agents” for carriers. Today, brokerages are responsible for thousands of daily freight transactions.
When they are at their most efficient, brokerages can decrease transportation costs for shippers and also increase carriers’ revenue.
As noted above, the number of motor carriers has exploded since deregulation. U.S. Department of Transportation statistics show that of the roughly 531,000 carriers, 99% operate 100 or fewer trucks — and almost 97% have fewer than 10 trucks.
Therefore, freight brokers often take on the sales and customer service roles that small carriers cannot afford. Most importantly, brokerages provide a continual stream of freight for many of the small carriers. Those small carriers that do not have relationships with at least one brokerage are at a distinct disadvantage.
An altered freight cycle
The current freight cycle has been different. In previous cycles when freight rates have been low, many of the weakest carriers exited the industry. While some of the companies that went out of business in 2019 — the last major down cycle — were quite large, such as Celadon and New England Motor Freight, most were small “mom-and-pop” companies that lacked the resources to stay in business.
In 2023, many people, including me, expected that as before, many small carriers would roll over and quickly exit the freight market as conditions became difficult. After all, we thought, when the freight economy slowed, high-quality loads for small carriers would dry up. It wasn’t just rates, but also load counts that dropped.
FreightWaves’ Rachel Premack reported in an April 28 article that the “number of authorized interstate trucking fleets in the U.S. declined by nearly 9,000 in the first quarter of 2023 …”
So while companies have certainly left the industry, small carriers overall have held on for far longer than many of us expected. The reason is that even as rates have declined — in many cases lower than 2019 rates — freight brokerages have kept many small truckers supplied with quality load opportunities.
So much has changed in the past decade
In the 2008 freight recession, freight brokerages were a much smaller percentage of the overall trucking market, representing just 10% of the total freight in the market. This number has doubled since then, along with the quality of freight.
When I was working the freight desk at U.S. Xpress in the early 2000s, freight brokerages weren’t a part of many shippers’ routing guides.
Shippers preferred to do business only with asset-based trucking companies. They used freight brokers sparingly, mostly for low-quality loads that carriers didn’t want or in a pinch due to a surge of freight or unexpected rejection.
But over the past decade, freight brokerages have played a key role in routing guides. And since freight brokerages tend to rely on small carriers, their success in winning primary roles in routing guides has strongly benefitted the smallest carriers.
Small carriers have gained market share as a result.
Going back to the number of U.S. trucking companies, capacity has exploded. The number of trucking companies in the market grew by 28% from 2019 to 2022.
Nearly all of these new trucking companies are small, drawn to the market by pandemic-induced high rates.
‘What goes up, must come down’
Newton’s law of gravity, a fundamental rule in physics, is commonly cited in commodity markets like trucking.
When capacity tightens and drives up rates, new entrants enter the market, flooding it with capacity and driving down rates.
The same carriers that entered the trucking industry to take advantage of high rates are now being forced to take much lower rates to keep their trucks moving.
In past cycles, when the freight market softened, we would see a massive purge in capacity. While there have been reductions, it has happened much slower than anticipated.
A key reason it has been so slow to churn out capacity is because of the proliferation of freight brokers.
In past down cycles, freight brokers would lose a large percentage of their volume, as shippers kept to a small number of core carriers in their routing guides.
But over the past decade, freight brokerages have positioned themselves in the role as a core carrier, enabling them to maintain load volumes, even in down markets.
So in this down market, most freight brokerages have maintained a high percentage of load volumes, even as rates fall.
The loads may not pay much, but brokers are able to supply carriers with loads that pay just enough to cover the monthly truck bill.
Carriers may be losing money, but that small amount of cash flow will keep them in the game longer than would be otherwise expected.
How long will it take before the market is in balance?
While there are many variables that impact the balance of supply and demand in the freight market, we can look to historical models for some guidance.
According to SONAR‘s Carrier Details Total Trucking Authorities index, from 2010 to August 2020, the trucking industry added an average of 199 new trucking fleets per week.
From August 2020 to September 2022, the number of new trucking fleets exploded by an average of 1,124 new fleets per week.
The trucking market currently has 63,000 more fleets than the 2010-2020 trend line would suggest.
Since September 2022, the market has churned an average of 435 fleets per week.
Unless there is an acceleration in revocations (i.e. trucking companies shuttering their authorities), FreightWaves models suggest the trucking market has 78 weeks to go before capacity is back in balance with historical trends.
To put that in perspective, I wrote an article on March 31, 2022, that warned about an imminent freight recession. That was 78 weeks ago.
This would suggest we are only about halfway through the worst trucking downturn since 2008.
While it is possible that freight rates could increase in anticipation of a capacity reset, FreightWaves and many other analysts don’t believe that freight rates will increase until at least the second quarter of 2024, and few predict large increases in rates even then. Therefore, it is likely that the attrition process will continue as the market slowly grinds out the weakest players.
Interested in freight market intelligence?
FreightWaves SONAR is the most comprehensive tool in logistics, offering high-frequency intelligence across millions of data points.
Sign up for a SONAR demo today.
Evgenii
BS !!!!!! How much brokers PAY you ?!
CM Evans
Are the trucks from Mexico and Canada included in these new entrants ? The re-balance of this market is being delayed by carriers from these two border countries either committing cabotage or skirting the laws.
There is little reason for carriers from either of these two countries to be in an traveling East/West direction.
W/all the Pearl clutching some do over the issue of brokers, I believe Cabotage is worth review, and perhaps it is the brokers who are perpetuating it given their market share in the freight market.
DPP
Brokers have driven the truckload rates well below what it actually costs to move a truck down the road. Well below. They’ve quickly forced the rates down as they compete with other brokers over a shrinking piece of pie. And the author tries to describe this as a good thing.
I look forward to the future articles, perhaps in 2025, as he explains the lack of capacity on “greedy” carriers. Clown.
Matt Limerick
Are there any brokers on here being honest about the fact that they have ZERO ability to control the ‘carriers that they have connections with’? Moreover, the fact that they truly aren’t concerned about those ‘relationships’. What they really mean is they are digging into their bag of previous set up packets to see who is willing to haul for the least amount that they can take advantage of…usually, not all of the time, but usually. And third, who wants to be honest about how long it takes to make a ‘connection’ on the load boards. Every broker loves to toot their horn to their customers about the thousands of carriers they have when truly any broker, whether 1 or 1000 employees, has yhw same access as any of them. The assets are assets for a reason. I am waiting for the day that shippers need them again and smoke the garbage brokers who chop rates and pressure cook employees. #nodebt #bringiton #libertylandcarriers
Small fleet owner
Brokers certainly are not saving small carriers. They are only allowing the carriers to kick the can down the road under cheap rates, slowing bleeding out and trying to delay the inevitable. We cannot sustain 78 more weeks.
Bruce
It seems that some commenters lack the perspective that the free market exists not to make anyone rich but to allow everyone to play and each party sets the terms of their game. Either you learn to play at a sustainable level or you exit. A free market efficiently (more efficiently than regulation) allows the market to flex to expand as needed and to contract when there are too many people who feel the game is not worth playing any more. A free market naturally walks the razor’s edge between good pay and bad pay. Through regulation you can control pay but what does that do? If carriers are paid more, the shipper has to bear the weight of this added cost. When a shipper has to pay more they have to charge more for their product, this in turn drives up purchase prices which the now “well paid” drivers will have to pay to get the goods they want (as will everyone else). So do drivers actually win in the end? Does the added cost that the shipper applies to their products offset the added pay the driver receives? Or, is regulation just resetting the baseline for the overall cost of living? The truth is that “position” within the economy dictates control over profits. Trucking company owners will usually make more than their drivers and in a regulated or unregulated market we can expect that to happen. Drivers often cite their own worth as being greater than managers or dispatcher or accountants (pretty much everyone) whose work is administrative rather than physically moving freight. I would say they have a good argument but none of them would work very long if someone didn’t pay them…and so the administration takes its rightful place as a “necessary” part of the supply chain. There are certainly companies that have jobs that are not necessary (One example may be the person that writes an employee newsletter which most companies do without) but at the end of the day the market will determine value and it will always be under tension: moving up or down with supply and demand. Complaining about where it is vs where you want it to be is less useful than looking at trends and causation and preparing to weather the tides which will continue as long as we use the free market as a way to determine prices and value. I like the reporting provided here. Its not going to cause change (it reflects it) but those with economic vision might be able to see how they can adjust in ways that will ensure their survival based on the trends while others who lack vision will decide its no longer worth playing and their exit will help reduce supply so the survivors will find it easier in the future….as the pendulum swings back in their favor… Blaming brokers is just the miopic view that a broker doesnt do much work. If the work of selling to a shipper is so easy then all the little truckers would be doing it successfully. Every shipper would have a huge book of small truckers that they could call. Unfortunately most of the time a 1 or 2 truck operation wont have a truck in the right place to accept a load. maybe once every few days. and they would need to sell to every location. This is what brokers do. If you think that is easy and not worth anything you have never been a shipper who spent 2 hours trying to cover a load with your direct carriers. Brokers have a place because they provide value for the shipper AND the small fleet who can’t possibly sell enough in every location to have direct relationships everywhere they may want one. Brokers are useful to both parties. They may be unnessesary in some cases but when you have a truck sitting and no shipper connections in the area, brokers can be lifesavers. Same for shippers who have exhausted every carrier option they know of and need to move product. Brokers make connections that don’t exist without them and they are far more efficient as a resource than every trucking company talking to every shipper. Neither has the time if they want move freight.
Efe
Mr. Fuller’s trucking industry insight is unmatched. This article draws a very accurate picture of the industry’s history and all of its trials and tribulations in the last several decades during which I have developed an utmost respect for the dedicated professionals of this industry. Having worked with manufacturers and wholesalers since early 1990s, I have observed many of these changes firsthand with large interstate carriers and small local dray operators in big port cities for regular export shipments. Now that I get to teach college level logistics and supply chain full-time, I do whatever I can to incorporate such insightful articles and different perspectives into my class discussions. Much appreciated!
Joe
9000 trucks in first quarter of 2023. That statement is very misleading. No where does that reference mention about California AB5.
Freightwaves forget that one passage alone have dramatically influenced the available fleets in California.
California trucking has gone through a major reorganization, and many of those brokers used to be a 3PL. My broker used to be my trucking company, till AB5 came along, and now they’re a broker and I am my own carrier. Our relationship has changed, but I’m still working loads because customers want capacity. Now there are much much less multi truck fleets and more single truck operators.
I don’t see any reference to how AB5 made a major influence in our trucking industry, because that passage alone started the freight recession. Lot of drivers I knew of left the industry or left the state all together. Trying to pin the freight recession on our own actions when it’s the actions of the passage of AB5 that caused the start of the recession.
Do better and extrapolate better data from important indicators. You need to study more and explain more how one state’s AB5 affected the entire country.