The freight market is cyclical. Every few years the freight market tanks, usually due to an overabundance of capacity combined with tighter consumer spending, and market rates plummet. When rates plummet, carriers get more competitive with their pricing, to compete against the overabundance of capacity, which continues to drive rates lower. When rates come near or below the operational cost to run those trucks, which means a trucking company that takes a load under the operational cost to operate that truck, they go into the red. It is basic economics, right? Law of supply and demand.
This is where things get weird, and it happens every couple of years. Freight rates tank and carriers look for someone to blame for forcing them to take these low rates in order to stay operational, even if running in the red. Now it would make sense to first look at your operational costs to see if those can be adjusted, but let's be honest, there is only so much you can cut. Then they look at who else is involved in the transaction. After all, if they can't cut their operational costs anymore, it must be someone else taking a piece right? Yes, truckers will say, it is the greedy, low-down, and dirty freight brokers who are responsible.
Now let me try and explain this the best way I can for those who do not understand the industry. Freight brokers are essentially middlemen between shippers and trucking companies. While the services freight brokers provide could completely be handled by either side, both choose to work with brokers. A shipper could function as a broker, and properly handle all carrier qualifications, load matching, freight negotiations, tracking, auditing, and payables, but they find it easier to outsource those functions to a freight brokerage. A carrier could also go out, get new clients, check their new clients' credit, negotiate rates, handle tracking, and all accounting for each load they move, but when would they drive? All that paperwork takes a lot of time, so they outsource that work to freight brokers. In exchange, when a freight broker gets a load from a client and gives the load to the carrier, the freight broker takes a small, or sometimes large, percentage of the freight bill as their fee for being the middleman. Makes sense right?
Back to the original topic, freight brokers consider a number of factors when quoting their clients for a move. They must be competitive in their rate quote as they are not only competing against other freight brokers who want to work with that customer but also direct carriers, who opt to do the work a broker does (see above paragraph) themselves. One of the main factors that drive a proper rate quote is capacity. Freight brokers need to ensure that there are enough carriers to transport their customer's freight. If they know there are a ton of trucks available, then they need to figure out what they are going to charge their customer while assuring that their quote remains competitive against their competition, whether it is other freight brokers, or carriers who work directly with shippers. The easiest way to find out what freight broker is going to pay is to find out how much a carrier will charge them for the freight haul, so they post it out on a load board. Carriers then call in and give their rates to haul the freight. Remember the freight broker needs to be competitive in their pricing so they might beat the carrier up a bit on the rate to ensure they come in low enough to win the load from their customer. When they get a carrier they like, they put on their profit and sell the load to their customer, and then you are trucking.
When the market tanks, like it currently is, and operational costs are as high as they are, carriers are not fairing well. When it seems that they can't cut anything else from their operational costs, they look to the freight brokers, who are also making some money to ship the load. The easy solution, it seems, is to say the freight broker is taking too much money off the top, and that is why the carrier is not making enough money. Knowing how the entire process works, as referenced in the above paragraphs, you know that is not how it works, but that is okay. Let's pretend it is for a second.
Some truckers believe when freight rates are bad, that brokers are "price-gouging." We have all heard it. It literally is the easiest excuse to make, although it is very rarely true. Freight brokers are remaining competitive in a tight market. After all, they are also competing against other brokers and direct carriers for that load. If Freight Broker A can convince Carrier A to take the load cheaper than Carrier B, they can sell the load to their customer cheaper than Freight Broker B can if he works with Carrier B. When Carrier A accepts and hauls the load, guess who also knows they can move it cheaper...Carrier B and Freight Broker B. Next time Carrier B Charges a lower rate to Freight Broker B, and Freight Broker B's rate to the shipper is lower than Freight Broker A so B wins it. But now the shipper knows he can move the load cheaper with Freight Broker B than Broker A so Broker A needs to sell the load cheaper to Carrier A if he wants the load. See how it works? Nutty.
For some reason, carriers believe that if they know how much the broker is getting paid from the shipper it gives them more negotiating ability. They reference this archaic trucking regulation which guarantees transparency in the freight load. While this would be great to know in terms of quoting future business, it wouldn't help a carrier to be more competitive in the load itself, as it would only entitle you to see the freight invoice after you hauled it. Sure, if the broker was making a boatload of money off the load and you were offended you could decline future business, but what about Broker B? They would not have any insight into the load, so they would likely still undercut the rate to get the business from the shipper and sell the load cheaper to Carrier B as well. But maybe it is just the knowledge that a carrier might be getting ripped off that drives this push for transparency. If they knew how much a broker was making off a load, it would help them to be competitive against other carriers who know the same thing. Wait, no that would not make sense because what if another carrier doesn't care as much about how much a broker is making and would just quote a lower amount to get the business? What if their operational costs are lower than yours so they can provide a lower quote and still make money (think mega-carriers)? How does knowing how much the broker is making help you in that scenario? Must you also now demand to know how the carrier is able to take a load cheaper than you?
Systems like that already exist, and they suck. Think about it. If you have been in trucking for a long time you have probably heard of them. Those digital platforms that allow shippers to go on them, post a load for the amount they want to spend, and then carriers post how much they will haul the load for. But then another carrier comes in and says I can do it for less, and bids lower than you. They literally had the worst show in the world built on this whole concept, called Shipping Wars, where a shipper would post a rate and carriers would bid for the business, each lower than the last. The cheapest carrier would win the load.
But you said you could haul it if you knew how much the shipper was paying. Transparency would not help you much here, outside your personal decision not to work with a broker who takes too high of a commission on future loads. But there will always be that one carrier who will, which is how we got here in the first place.
Become a Subscriber, free or paid, and let me know what you think about this below.