The middlemen who match shipments with trucks have been seeing their ranks swell of late, thanks in large part to web-based software programs that have greatly lowered the cost barrier to entry.
Among those newly hanging up shingles as freight brokers in recent years are many brand-name truckload carriers as well as other types of trucking operations that previously focused on hauling all the freight that came their way. On the other side of the coin, owners of small fleets are becoming savvier about getting brokered loads — and fleets that broker freight are finding transacting with them can lead them to discover new leased partners for their carrier operations.
All in all, brokering truck freight is arguably as hot a market as it has ever been. So it's reasonable to think that any new players cutting their teeth on it now, and doing so profitably, will be well-positioned to score high when the economy picks up again. Nonetheless, experienced managers in the field caution that while lucrative, brokering freight isn't as easy to do as it may seem to outsiders looking in, and it is not accomplished without some financial risk. On the other hand, they say those who enter the field with eyes wide open and the willingness to fully manage the process have no reason to fear success operating as a broker.
TWO BUSINESSES
And that — operating as a broker — is the key phrase. The experts argue that for carriers to be successful as brokers, they must keep the two business operations separate. In other words, they must avoid the temptation to use their brokerage arm as little more than a means to fill their own trucks first. That, the argument goes, will only wind up putting their customers' interests second, serving no one fully in the end.
“It does seem everyone who is a carrier is now a broker too, or will be,” remarks Tom Heine, president of Aljex Software. But Heine, who was a broker for 17 years and whose firm supplies software for transportation intermediaries including brokers, says the more things change, the more they stay the same.
Heine says logistics software, like Aljex's stock in trade, hosted over the Internet has made it possible for brokerages to be set up “without spending $100k to buy a software package.” Instead, a monthly use fee replaces the software investment. Given that and the astonishing rise in the cost of fuel, he says it's not surprising the trend toward carriers becoming brokers has accelerated. “The thinking is you can open an office and tell regular customers you can broker freight, and then you've launched another revenue stream.” He says fleets that tap their expertise in the marketplace can be successful as both brokers and carriers.
“Some larger [truckload] carriers have started broker units because they've recognized that [leveraging] relationships and technology allows them to gain access to customers and they can get the capacity to move that freight,” points out logistics analyst Satish Jindel, president of SJ Consulting. “Some are even downsizing their truckload operations and turning to smaller independent carriers to carry the freight.”
Carriers brokering freight is not new, but it is certainly a growth area. According to Jerry DeMeuse, vp-commercial development for Schneider Logistics, Schneider has brokered freight for over 20 years, but “Schneider Transportation Management [STM] was developed in 2003 to dramatically grow our brokerage business. STM is a transactional brokerage model that is non-asset based. This business unit provides Schneider with another capability to say ‘yes’ to our customer's transportation needs.”
DeMeuse says that STM “operates within a greater Schneider Logistics offering,” which includes freight forwarding, transloading and distribution, supply chain management, supply chain advisory, and port drayage services. More to the point, he says STM “operates completely separate from our intermodal and van truckload operations. Our focus is on selling freight for the carriers we do business with; however, we do sell some loads for our intermodal and truckload companies at times they provide us with capacity.
SAYING ‘YES’
In the Schneider model, brokering is separate from motor carrier operations. “Carriers that are opening their own brokerage operation create another form of capacity to offer their customers,” DeMeuse remarks. “Many carriers have set up a brokerage operation, but they typically do this to move loads when they do not have enough capacity. We have shifted away from focusing on ‘overflow’ freight to developing consistent freight with customers that we can broker year round.
“Schneider works with over 2,000 owner-operators, but they get their loads from our truckload division,” he continues. “These owner-operators haul freight exclusively for our truckload division and do not haul STM's loads. We do help provide loads for some of our drivers, which helps reduce their wait time.”
Celadon Group Inc., another well-known truckload player, started up its Celadon Logistics Services Inc. in late '06, according to Jon Russell, executive vp of logistics for Celadon. “Celadon [the carrier] had long been focused on north-south [lanes] and we recognized that if you say ‘no’ enough times to freight [outside established parameters], they will call someone else.”
Russell says offering brokerage services means the company can “not only supply capacity on long-haul moves, but can become a one-stop shop for customers' needs. For existing customers we can turn to third-party carriers to fill their needs, and we can serve short-haul customers we would not have before.”
Unlike some truckload competitors that he says have begun “shrinking their asset side” after starting up a brokerage, Celadon believes its “strength will always rest on our assets, which provide the backbone” for all service offerings. “We're of the opinion they [carriage and brokerage] are complementary, it's not an either/or deal,” he continues. “When freight is tight, brokered freight can be tapped by Celadon trucks.” At this point, he says, 60% of the brokered freight is attained from new shippers and only 40% from existing Celadon customers. “It's weighted that way because as we've added personnel to staff the brokerage, many of them have ‘brought’ shippers with them.”
Clearly, there is interaction between the Celadon business units. Russell describes the setup as “two separate companies on the same operational floor. They are running off the same [software] system so we can provide real-time tracking on any Celadon asset regardless of customer type.”
Louisville, KY-based truckload carrier Mercer Transportation, which relies 100% on owner-operators, has been brokering freight since about 1983. “It started as a way to offer better service to our customers,” advises operations manager Dale Corum. “Before that, we had trip-leased a lot of our freight. Brokering the freight streamlined the process vs. trip leasing. And it very quickly became a huge [part of] our business.”
Corum notes that back then Mercer expected to initially see business worth $100,000 come in and it got nearly a million dollars' worth. “Today, brokered freight represents 32 to 33% of our total business volume. It lets us service more freight than our permanent fleet can support.”
At Mercer, the brokerage operation is not a separate business, and Corum says no freight is brokered before its owner-operators are contacted — “they are first in and first out here.”
He contends the biggest advantage of brokering is it enables Mercer to move more freight overall. “When things get slow, we broker less freight yet still have abundance to protect [the interests of contractors in] our permanent fleet,” Corum says. “And the truth is our customers want Mercer to be involved moving their less desirable freight as well.”
Corum says brokering not only builds the Mercer brand with current and new customers, it also serves as a “good avenue to recruiting owner-operators” for the permanent fleet. “We handle every aspect of brokered loads as if they were one of our guys and that can lead to them figuring we are a good place to work and we can look at them as well.”
Mike McCarron, managing partner of the MSM Group of Companies, which provides transportation and logistics service between Canada and the U.S., says the difference between brokering and hauling freight can be a very fine line. “Using brokered freight to handle excess capacity is one model and actively selling the capability is another but with broad distinction.”
The thing is, he continues, is “you do not want to be in a situation that's too slippery — that is, you can't secure a piece of business and not service it well. And you must be careful about how brokered freight is priced and track it carefully. If it costs $1.50 a mile [to move it], you don't want someone taking it for $1.30. It comes down to asking what kind of carrier will you attract [at that price].”
BE REALISTIC
Clearly a realist, McCarron points out a lot has changed in the past couple of years. “There are more desperate people out there — thieves and liars — and loads are being double-brokered. You can look at it on a transactional basis, but with today's conditions, it pays to know who you are doing business with” at all times.
Aljex's Heine remarks that the “whole broker business is a relationship business. Who does someone give their freight to? Someone they trust. It is all relationship-driven like the rest of trucking.”
Celadon's Russell says the brokerage operation now has 2,500 carriers in its database and they are “constantly looking to grow that number.” He says a carrier may come to their attention simply by responding to a load board posting but “once a fleet expresses interest, a contract is signed as they will be running under our banner.” Russell adds that Celadon seeks to appeal to small fleets by “treating them right — paying them in a timely manner and trying to send them freight on a regular basis.”
Mercer's Corum reports that most contractors it brokers freight to call about freight posted on the firm's web site or on load boards. “They call us and we start the conversation to qualify them to haul freight. There are so many truckers looking for freight we have 12 to 15 sign-ons a day. Once they're in our database, it takes just a few seconds to verify them for further loads.”
According to McCarron of MSM, carriers must meet strict standards before any loads are brokered to them. “They must be preapproved by our quality control, including being named on their insurance policy. Liability is a very dangerous game to play at; you must have the proper [vetting] infrastructure in place.”
“We have over 10,700 qualified and active carriers set up to do business with us today, and we are always looking to add qualified carriers,” says Schneider's DeMeuse. “We strive to work with high-quality carriers who can help us provide great service to our customers.
“Carriers who have not been rated by the DOT may qualify to haul freight for STM, but will be subject to additional qualification procedures prior to activation,” DeMeuse adds.
LOOK FIRST
Trucking business coach Tim Brady argues that it's even to the advantage of owner-operators to be carrier-brokers. “It's a way they can grow their business with little outlay themselves; brokering whatever excess freight they can't handle.”
On the other hand, he cautions small fleets against jumping right into brokering without proper planning. “You can't just put the freight to be brokered on a load board; you could come up short. There can be hundreds of thousands in accounts receivable, as well as cash flow concerns.
“Bear in mind, too, the tonnage that hits the load boards is not the great loads,” he continues. “If it was, someone would have grabbed it already — someone would have had a relationship that led them to it. If shippers are posting, that's a different story. But those that are broker-carrier posted are not likely the best loads.”
Indeed, according to Bob Voltmann, president & CEO of the Transportation Intermediaries Association (TIA), the professional organization for the third-party logistics industry, carriers interested in starting a brokerage “must realize it is a serious commitment. They can't think, ‘Oh, I could have brokered that load and made money. They need to understand that to broker freight, you have to be prepared to act like a bank, build business relationships on trust, and to serve as an information source” for customers, he continues.
Voltmann paints the banker role as perhaps ominous and one that should not be taken lightly. “Brokers pay motor carriers long before they get paid by shippers,” he asserts. “Even if the broker pays the carrier in 25 days, they may not get paid for 45 or 60 days. In effect, they are financing the shipper's freight move.” He estimates a broker should have $100,000 to $150,000 in cash for every million dollars' worth of business they're brokering.
Got loads you can't haul? Want to boost customer service? Want to recruit owner-operators? Go ahead and hit all three targets by brokering some freight. Just remember, the smart money doesn't think freight brokering is easy money. They do think of it as another way to make money. But for it to be a successful venture, it must be managed as well as any other business endeavor in trucking.
