Technology & Capital Changing the Freight Broker / LSP Landscape for the Better
The days of freight brokers operating with three phones and their hair on fire desperately looking for a carrier back haul is in the history books. Technology and capital is the reason for the change ... and might I add a very positive change for shippers in terms of the quality of service; transparency; multitude of logistics options available; competitive pricing; data mining and network analysis; and professionalism.
Today's cloud based transportation management systems tie users with real-time connections into their carrier base; multiple load boards when the core carriers cannot cover; carrier safety ratings; shippers' orders; dock requirements; rate structures; train schedules for intermodal; etc, etc, etc. which creates a network transparency where the top freight brokers have the ability to truly manage supply chains versus chasing trucks and providing tracking & tracing details. With the technology and connections historical data comes to life in supply chain models and RFP analytical tools that bring clarity through real data to drive streamlined supply chain networks for incredible improvement in KPI's and cost structure for today's shippers.
As the previous paragraph describes, the infusion of technology and capital into the logistics has changed the make-up of the industry forever. The addition of capital has jumped started technology companies with more innovation both now and into the very near future that were not even in the thoughts and minds of logistics professionals, along with producing a flurry of M&A activity that is driving exponential growth for the largest players. These changes are driving out the small to medium size players because they do not have the resources to keep pace, particularly as the transparency in the freight brokerage transactions has decreased freight brokerage margins and made it a volume play.
While many of the small to medium size stand alone brokers can look well from the surface, the climate change occurring in the industry brings to mind comparing them to glaciers with the majority of the activity within the company below the surface and their model slowly disappearing from the landscape.
Now the small to medium size brokers will say they offer a more boutique service that the larger multi-billion and multi-national corporate operators cannot offer, but that is not entirely true in today's market. Add to the change in the market itself, the freight agent model has also evolved to fill the niche the small to medium sized logistics providers used to flourish within.
In the past, freight agencies were typically entrepreneurial people with the intent of starting a small freight brokerage operation and staying relatively small focused strictly on truckload brokerage. They chose the agency model because they could not or did not want to go it alone in the development of their freight brokerage business and did not want the hassles of all the back office paperwork and legal responsibilities. Today's freight agencies are still operated by entrepreneurial people, but many with the intent of scaling up in office size, operating multiple offices under their independent ownership structure, placing team members onsite to support their largest customers and offering the full suite of logistics services. In other words, today's freight agent is fills the boutique niche, but with significantly more resources for their clients and less risk.
InTek Freight & Logistics, a SunteckTTS agent, is one of those agencies offering shippers the ability for a shipper to be a big fish in a smaller pond, while also tapping into the resources available to the largest logistics service providers (LSP's). In InTek's case, the agency operates a tier-one TMS in MercuryGate for its freight brokerage and managed transportation service programs; has the back office support, so it can remain focused on its customers needs; carrier resources to cover every shipper's needs (35,000 active and approved carriers); $1.0 million shipper interest insurance policy; and many other resources through the SunteckTTS home office that a $1.0 billion freight and logistics company can bring to the table. (see graphic to the left)
As a quick example to illustrate a typical shipment recovery situation of a small broker versus a larger broker, we will walk through the situation when a broker has an issue where its primary carriers drops off a load and the broker needs to go out to the market to find another carrier to cover what would otherwise be a service failure. The larger carriers hit their database and / or posts the load. Within minutes multiple carriers come in with a rate and capacity. The larger broker asks if they are part of their network and 9 times out of 10 the carrier says yes. The broker asks for the carrier's MC number to validate they are indeed already within the system and they are legal, under contract and then checks to see the carrier's past history on service KPI's. The load is then booked. The smaller carrier starts the process of recover in the same manner, but 9 times out of 10 that carrier is not within their database and now they have to go through the carrier vetting process, which if done properly, will take a minimum of an hour ... many times longer ... and the broker does not have actual service performance KPI's from prior activity because this is the first time the broker used this carrier. The two concerns for a shipper's perspective on this scenario when comparing the two options are: shippers typically do not have the extra hour to wait and the quality of service is questionable since the broker does not have a history with the new carrier. There are many more concerns to consider and to learn more on those, we would recommend reading "10 Tips Shippers Need to Know when Selecting a Freight Broker".
The new, larger agencies also offers a full menu of logistics services and talent versus just truckload brokerage services. in the case of InTek, we recently wrote a short summary blog entitled "Contract Pricing Beat Spot Rates & Service - Case Study Summary", that outlined how, through the agency resources, InTek was able to provide its latest outsourced transportation management account an 18% freight spend savings on what should be significantly higher level of service that their prior top five transportation management company failed to provide.
The long and short of it is the logistics industry continues to evolve at breakneck speeds through technology and capital in ways that are not always easy to be seen. The non-asset model will continue the M&A roll-up, either through the big getting bigger or through the smaller brokers deciding to roll up under an agency model to compete on a larger scale or for those shippers looking for a higher level of service.
Hopefully this short blog helped in some way to bring clarity for you in a positive way for your business.