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 greater than 20% of all trucking freight.
Brokerages are ‘mainstream’ today
As freight brokerages have taken on a bigger percentage of the market, they’ve reshaped the everyday freight cycle.
Within the early 2000s, it was unusual to see a freight broker in the first position of a shipper’s routing guide.
Back then, freight brokers normally 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 function a final resort if carriers had freight surges that they might not handle.
Since then, nevertheless, things have modified dramatically. As freight brokerages invested in technology and customer support, they began to supply a more compelling product than their asset-based competitors and took on a greater role in routing guides.
Today, it’s common for multiple freight brokerages to be in primary positions in shippers’ routing guides, often as the highest selection, beating out their asset-based competitors.
Furthermore, the standard of freight that brokers handle now is much better than it was in 2000. In 2023, freight brokers often are assigned highly desirable, carrier-friendly freight.
Why? Shippers each large and small now depend on freight brokers’ deep databases of reliable carriers to make sure that their loads are shipped and delivered on time.
As well as, carriers — particularly small carriers — also need the leads and business that freight brokers can supply.
Why is that?
As of April 2023, there have been greater than 531,000 energetic trucking fleets that own or lease a minimum of one tractor within the U.S., in response 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 have been fewer than 20,000 U.S. trucking corporations.
Trucking deregulation led to the necessity for freight brokerages
The Motor Carrier Act of 1980 deregulated the trucking industry. Along with all the opposite changes generated by trucking deregulation, it led to the event of the freight brokerage industry as we realize 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 sorts of freight trucking corporations could haul. Also, in most circumstances backhauls weren’t allowed.
Due to this fact, there was no use for freight brokers throughout the reign of the ICC. But by the Seventies, many believed that competition was being strangled by the ICC and that freight rates were too high since the industry was so tightly regulated.
Those circumstances led to President Jimmy Carter and Congress working together to deregulate the trucking industry, in addition to the airline and railroad industries.
The Motor Carrier Act of 1980 made the trucking industry rather more competitive because the ICC yoke was removed. Of the 18,000 trucking corporations in existence at the moment, many went out of business within the newly competitive environment. Nonetheless, hundreds of recent trucking corporations were began.
The outcomes were lower shipping rates and the beginning of a greater use of backhauls.
Among the many first successful freight brokerages was American Backhaulers, which began operations in 1981. The corporate was acquired by C.H. Robinson in 1999.
Post-deregulation, motor carriers began to operate wherever they might find profitable freight, although rates were much lower due to increased competition. Many carriers needed backhaul freight to generate sufficient round-trip revenue — a problem brokers were capable of assist the trucking fleets of the time.
Freight brokerages grew and evolved
As more carriers began using freight brokers, latest and more skilled freight brokerages began. Furthermore, a lot of the larger carriers began in-house brokerage divisions.
Most often, these in-house brokerages provided a further revenue stream for his or her carrier owners. The in-house brokerages also created a requirement pool that was controlled by those trucking corporations. The in-house brokerages supplied freight for the carriers’ trucks in lean times, and will sell excess freight to other carriers when their fleets were fully booked.
Brokerages assist small carriers
Because the link between shippers and carriers, freight brokers are “traffic managers” for shippers in addition to “sales agents” for carriers. Today, brokerages are answerable for hundreds of each day freight transactions.
Once they are at their best, brokerages can decrease transportation costs for shippers and likewise increase carriers’ revenue.
As noted above, the variety 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.
Due to this fact, freight brokers often tackle the sales and customer support roles that small carriers cannot afford. Most significantly, brokerages provide a continuous stream of freight for lots of the small carriers. Those small carriers that don’t have relationships with a minimum of one brokerage are at a definite drawback.
An altered freight cycle
The present freight cycle has been different. In previous cycles when freight rates have been low, lots of the weakest carriers exited the industry. While a few of the corporations that went out of business in 2019 — the last major down cycle — were quite large, akin to Celadon and Latest England Motor Freight, most were small “mom-and-pop” corporations that lacked the resources to remain in business.
In 2023, many individuals, including me, expected that as before, many small carriers would roll over and quickly exit the freight market as conditions became difficult. In spite of everything, we thought, when the freight economy slowed, high-quality loads for small carriers would dry up. It wasn’t just rates, but in addition load counts that dropped.
FreightWaves’ Rachel Premack reported in an April 28 article that the “variety of authorized interstate trucking fleets within the U.S. declined by nearly 9,000 in the primary quarter of 2023 …”
So while corporations have actually left the industry, small carriers overall have held on for much longer than lots of us expected. The explanation is that at the same time as rates have declined — in lots of cases lower than 2019 rates — freight brokerages have kept many small truckers supplied with quality load opportunities.
A lot has modified up to now decade
Within the 2008 freight recession, freight brokerages were a much smaller percentage of the general trucking market, representing just 10% of the whole freight out there. This number has doubled since then, together with the standard of freight.
After I was working the freight desk at U.S. Xpress within the early 2000s, freight brokerages weren’t a component of many shippers’ routing guides.
Shippers preferred to do business only with asset-based trucking corporations. They used freight brokers sparingly, mostly for low-quality loads that carriers didn’t want or in a pinch as a consequence of 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 are inclined to depend on small carriers, their success in winning primary roles in routing guides has strongly benefitted the smallest carriers.
Small carriers have gained market share in consequence.
Going back to the variety of U.S. trucking corporations, capability has exploded. The variety of trucking corporations out there grew by 28% from 2019 to 2022.
Nearly all of those latest trucking corporations 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 usually cited in commodity markets like trucking.
When capability tightens and drives up rates, latest entrants enter the market, flooding it with capability and driving down rates.
The identical carriers that entered the trucking industry to reap the benefits of high rates are actually being forced to take much lower rates to maintain their trucks moving.
In past cycles, when the freight market softened, we’d see an enormous purge in capability. While there have been reductions, it has happened much slower than anticipated.
A key reason it has been so slow to churn out capability is due to the proliferation of freight brokers.
In past down cycles, freight brokers would lose a big percentage of their volume, as shippers kept to a small variety of core carriers of their routing guides.
But over the past decade, freight brokerages have positioned themselves within the role as a core carrier, enabling them to keep up load volumes, even in down markets.
So on this down market, most freight brokerages have maintained to maintain a high percentage of load volumes, at the same time as rates fall.
The hundreds may not pay much, but brokers are capable of supply carriers with loads that pay simply enough to cover the monthly truck bill.
Carriers could also be losing money, but that small amount of money flow will keep them in the sport longer than could be otherwise expected.
How long will it take before the market is in balance?
While there are various variables that impact the balance of supply and demand within the freight market, we are able to look to historical models for some guidance.
Based on SONAR Carrier Details, from 2010 to August 2020, the trucking industry added a mean of 199 latest trucking fleets per week.
From August 2020 to September 2022, the number of recent trucking fleets exploded by a mean of 1,124 latest 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 a mean of 435 fleets per week.
Unless there may be an acceleration in revocations (i.e. trucking corporations shuttering their authorities), FreightWaves models suggest the trucking market has 78 weeks to go before capability is back in balance with historical trends.
To place that in perspective, I wrote an article on March 31, 2022, that warned about an imminent freight recession. That was 78 weeks ago.
This is able to suggest we’re only about halfway through the worst trucking downturn since 2008.
While it is feasible that freight rates could increase in anticipation of a capability reset, FreightWaves and lots of other analysts don’t consider that freight rates will increase until a minimum of the second quarter of 2024, and few predict large increases in rates even then. Due to this fact, it is probably going that the attrition process will proceed because the market slowly grinds out the weakest players.
Concerned with freight market intelligence?
FreightWaves SONAR is probably the most comprehensive tool in logistics, offering high-frequency intelligence across hundreds of thousands of knowledge points.
Join for a SONAR demo today.
The post Freight recession unlike some other in history appeared first on FreightWaves.