Brokers exploiting Truckers? Let’s examine the issues.
In August, the Federal Motor Carrier Safety Administration (FMCSA) opened a comment period to solicit views concerning the transparency of information between Freight Brokers and their underlying carriers. The Owner Operator Independent Drivers Association (OOIDA) and the Small Business in Transportation Coalition (SDTC) have pushed hard for this opportunity. The two associations consider it a step toward eliminating Freight Broker’s regulatory avoidance.
It has long been a requirement that upon completion of a brokered transaction, the broker will upon request provide shipment information to a carrier.
Regulation is one thing. Enforcement is another.
Brokers have made such requests difficult. Non-Disclosure agreements, “in person” view of shipment data requirements, and system integration support from carriers are a few hurdles. The unspoken is that carriers requesting such information will be viewed as competition rather than collaborative, and perhaps prioritized behind others for future shipment tenders.
Better visibility provides higher quality service. It also offers a balanced network and consequently a profit margin to support a carrier’s internal need to maintain its infrastructure –
which benefits the Industry. Transparency is seen as an evolution in enforcement of decades old regulation. Brokers would now be responsible to “push” the information to the carrier within 48 hours, post transaction.
Owner Operators, as with carriers in general, feel strongly that true transparency will translate into efficiencies and the ability to regulate some of the volatility that comes with managing assets through seasonal surges and unknown impact events in the Industry. They feel that it would drive some costs out of the system as a whole, while placing much needed margin to the entities that bring the value of their assets to the transaction.
Brokers believe their existence provides for more than a simple middle-man transaction. They bring significant value as a sales support mechanism of multiple carriers and provide customer centric services to the shipper, unbound by the needs of asset carrier considerations.
If shipment detail, inclusive of invoice amounts, is shared, carriers or shipper are more likely to circumvent the Broker/Client relationship. If Freight Brokers share what they see as proprietary, their value to the transaction would be significantly diminished.
Shippers have long used Brokerage companies to access a network of carriers that work within a unique geographic and service requirement, without having to hire the personnel to manage that diverse carrier network. Additionally, the Broker can offer a way to flex with capacity requirements when a carrier’s network may be strained.
Ultimately, the Transportation Industry is dynamic enough to support both Carrier and Brokerage models. The 3rd Party Logistics industry, Intermodal Market Companies, Asset-Light Equipment Providers, Freight Forwarder and every on-line Load Board exemplifies the need for complex processes that add value to the supply chain of any manufacturer and shipper.
It is likely that things will continue to evolve, further commoditizing transportation baselines. This will have a dramatic impact on small business. Owner Operators and Small Freight Brokerages owe their viability and often vitality to each other. Without a Broker providing sales effort, Owner Operators typically don’t have enough relationships to keep busy and stay solvent. On the other hand, small Brokerages need the Owner Operators to fill holes in their network that systematized large carriers cannot.
Size matter where regulatory implementation is concerned. Estimated costs to comply with the debated transparency regulations are significant enough to put small business on their heels. Large brokerages will typically have Transportation Management Systems that can comply quickly and are often sibling companies to large Asset Carriers.
Historically, regulations are implemented to moderate not obliterate. They are often meant to balance competition and allow for flexibility with restraint. Market conditions dictate whether a carrier slashes its rates or inflates them. The same goes for the Freight Brokers. It depends upon how each company views its profitability profile, how it wants to manage it cost controls, and who has a relationship with a shipper needing support.
While comments to FMCSA accumulate and debate ensues, the shippers will watch with deep interest. Most love solid relationships that allow them structure and asset agreements while utilizing flexible options to accomplish their goal of moving their product in an efficient and effective manner.
But, Budgets rule. Anything that looks to drive costs out of their supply chain is going to be applauded. Any additional cost will be a consequence of fewer options and eventually passed to consumers.
History indicates that both of these are likely to happen. More costs added due to systems complexity and compliance management. Eventually technologies and accumulated data points will enable all involved to discover system voids and fill them. Specific modeling should be done beyond this comment period, as the consequences to the Industry are significant and the impact on small business assured.