Shippers and carriers are linked together via freight brokers. Brokers can help shippers reduce complexity by sourcing drivers for their loads. Brokers supply new business leads to carriers, allowing them to keep their trucks on the road.
Individual brokers are hired by traditional freight brokerages to manually match drivers to shipments. For each load, the broker charges a brokerage fee. This brokerage fee represents the difference between the amount they charge the shipper and the amount they pay the carrier.
This proved to be a profitable business: formerly a niche industry, the number of licensed freight brokers in the United States increased to more than 17,000 by 2017. They have become an essential component of how the freight business runs, and they bring a number of advantages and disadvantages for shippers to consider.
Three ways freight brokers can assist
- Additional capacity might be provided via freight brokers.
Shippers are occasionally required to deliver more products than they had anticipated. More capacity may be required during a predictable time of year, such as the holidays or crop season. It might also happen amid an unexpected rise in demand, as we experienced in March 2020 during the COVID-19 crisis.
Shippers may struggle to find additional capacity through private fleets or asset-based carriers. When this is the case, traditional freight brokers can be a source of additional capacity.
- Brokers are more adaptable than asset-based carriers.
The majority of freight is transported by shippers using contracts connected to a specific carrier or pricing point. Shippers may, however, need to discover alternatives as markets move.
In tight markets, for example, when spot rates rise, shippers may suffer tender rejections from their contracted carriers. When this happens, brokers might fill the void by transporting freight at a higher expense to the shipper. During depressed markets, a shipper may turn to brokers to secure shipments at a cheaper price than their contracted rate.
- Brokers form personal bonds with shippers.
Relationships are the foundation of a freight broker’s business. Brokers make their income by charging fees to shippers, thus it is critical for them to learn the shipper’s business and deliver a good level of service in order to retain that relationship.
Global Trade Mag gave an outline of why these relationships are so important to the business of a freight broker. Because of the professional relationship they’ve formed, a shipper may continue to work with a broker.
Traditional freight brokers can fail in 7 ways
- Operations that take time
Brokers make hundreds of phone calls per day, asking carriers where they have available trucks. They frequently communicate via email and keep track of everything on spreadsheets. When everything is running smoothly, an individual broker may match a truck to a shipment once every hour. This time brokers spend manually organizing equates to extra time shippers wait to find out if their loads will be covered.
- Expensive middlemen fees
Individual brokers are compensated on a commission basis, thus their goal is to maximize the amount they charge shippers while minimizing the amount they pass on to carriers. Brokerage fees typically range from 15% to 20%, though they can be much higher. This results in higher costs being passed on to the shipper.
- Carriers are scarce.
The amount of trucks in a traditional broker’s Rolodex limits their capacity to supply the appropriate truck to the right place at the right price. Because of this limited view of the market, any one broker’s ability to match the best truck for the task (best pricing, highest quality, fewest empty miles) is intrinsically limited. As a result, the load is frequently covered by the best carrier for the broker rather than the best carrier for the shipper.
- Contract freight is less dependable.
Brokers tend to gamble on high-volume, desired lanes and leave low-volume lanes unserviced when it comes to RFPs. Traditional brokers have an incentive to bid low on lanes in order to attract additional business. When the market tightens and trucking prices rise, brokers frequently reject the freight they had promised to handle. When this occurs, a shipper must examine their routing guide or seek another broker on the spot market.
- Less resistant to market volatility
Despite charging 15-20% in middleman fees, traditional brokerage firms run on razor-thin profits due to costly overhead. Because an individual broker matches one load per hour, a brokerage must employ hundreds of brokers to service only a thousand loads per day.
This makes traditional brokerages especially vulnerable under turbulent and recessionary market conditions, as evidenced by a recent wave of layoffs at brokerages such as TQL and others. As a shipper, this can imply less dependable coverage and service when you need it the most.
- When something goes wrong, the response time is slow.
Occasionally, the unexpected occurs. A load is canceled by a carrier. A shipper must plan for a pickup time. When plans change, shippers require a partner who can identify and resolve issues quickly. They require technology that will auto-correct at all times. However, because traditional freight brokerages are run by hand, a missed pickup at 11 p.m. may not be discovered until the next day’s work hours. Traditional brokers will manually phone their carrier network to locate someone to pick up the load to correct the error. This increases the risk for carriers.
- Inadequate supply chain visibility
Shippers lose visibility of freight as it leaves the ports with typical freight brokers. This means that incidentals occur without the capacity to determine the primary cause. Because of human reporting, key performance measures such as on-time pickup (OTP) and on-time delivery (OTD) may be erroneous. Shippers require access to technology that traditional freight brokers do not have in order to obtain the most valuable data and insights.
Why do businesses choose digital freight networks for brokers?
The advent of the digital freight network, a fully connected freight marketplace that leverages machine learning, automation, and other software to efficiently connect shippers and carriers, has occurred over the last five years. This marketplace business model aligns shippers’ and carriers’ interests, lowering both the cost structure and the time it takes to identify the optimal truck for each load.
“Digital freight networks are helping shippers tackle COVID-19 concerns by offering the reliability of an asset-based carrier and the flexibility of a broker,” according to Gartner, when it comes to dealing with turbulent markets. During the first months of the COVID-19 crisis, Get Loaded and Rolling’s digital freight network proved resilient, offering shippers a number of benefits.
Get Loaded and Rolling’s digital freight network is always active, so if something unexpected happens, the system recognizes it right away and auto-corrects. We also have a specialized crew available around the clock to address the situation in order to provide 24/7 support.
When it comes to supply chain visibility, digital freight networks capture vast volumes of data and convert it into actionable information for shippers. In an interview with Supply Chain Deep Dive, Mark Young, Director of Procurement for Anheuser-Busch, stated, “I see the tech-enabled carrier space as something that brings transformational benefit.” According to the article, data offered by digital freight networks enabled Young to rethink Anheuser-KPIs Busch’s and reassess which metrics are relevant and which are not.
If you’re interested in learning more about shipping with Get Loaded and Rolling, now is the best time to get started. Sign up with us today.
