Broker blues

BROKER BLUES Carriers cry foul as COVID-19 stall erodes spot-market rates

BY TOM QUIMBY AND JAMES JAILLET F or Northeast Transport of Crawford, Maine, business was strong at the start of COVID-19.

The 35-truck fleet rode the early, albeit brief, uptick in reefer freight, but “as the shutdowns increased, the amount of available freight on the spot market had diminished,” said Rob Bisset, Northeast’s director of sales and logistics. When freight demand fell off a cliff, rates went with it.

With approximately 40% of Northeast’s backhaul freight relying on the spot market, the impact to revenue has been staggering, Bisset said.

The depressed rates environment, particularly on the spot market, became a prominent theme for trucking beginning in late April and continuing last month, with many carriers crying foul on brokers, arguing that freight intermediaries were using current market conditions to squeeze them down on freight bills while boosting their own

“When all this started, we took a hit right off of the bat, and about 50% of our work died off,” said Greg Dubuque, president for Liberty Linehaul West. “We’re lucky enough to have a few brokerage friends that are holding their rates where they need to, that understand the cost of running a truck up and down the road, and then there are those that really seem to be on the back side of price gouging.”

margins — reverse price gouging. Often, rates being offered didn’t cover carriers’ costs, forcing them to choose between running at a loss or parking their trucks.

“It really seems that [brokers] are taking advantage of the market,” said Greg Dubuque, president for Liberty Linehaul West, a 40-truck fleet based in Montebello, California. “We’re lucky enough to have a few brokerage friends that are holding their rates where they need to, that understand the cost of running a

truck up and down the road, and then there are those that really seem to be on the back side of price gouging.”

Dozens of carriers responding to weekly CCJ surveys during the pandemic have reported the same feeling — a sense of being taken advantage of by brokers, especially during a time when appreciation for the trucking industry was being poured out on social media and in the news, and as President Trump himself took to the White House lawn to express gratitude to trucking.

“We have price gouging laws in place to prevent businesses from overcharging for essential items when people need them,” said Aubrey Rife, president for TranZstar, a Warsaw, Indiana-based 16-truck fleet that runs tanker, refrigerated, dry van and specialized equipment. “Why are there not guidelines in place to prevent price gouging by a broker taking higher percentages off the top just because they have access to freight that a carrier doesn’t? If brokers were seeing a reduction in freight charges, this would be a completely different conversation, but I don’t feel that this is the case.”

There are federal provisions in place that allow carriers to see what a shipper pays a broker for a load, so long as carriers don’t sign away that opportunity. That could help carriers know which brokers to avoid, should they be unfair to a carrier in terms of rate offerings, but it doesn’t help in negotiating rates with unfamiliar brokers.

The country’s largest brokerage trade group has pushed back on the notion that brokers are gouging carriers. Though there obviously are bad actors in any industry, current market conditions are the true culprit in driving down rates, said Bob Voltmann, head of the Transportation Intermediaries Association.

“There’s just not enough freight for all the trucks that want it,” said Voltmann, who pointed a finger at shippers that are using current market conditions to

Chris Fann of C. Fann Transportation in Texas said the stalled economy and poor rates have forced him to turn over 30 of his fleet’s tractors back to Penske, since he couldn’t afford lease payments on them. The fleet now operates 19 trucks. Fann advocates for more transparency from brokers in price negotiations, but he cautioned against increased regulations, saying it is a slippery slope that could lead to more problems down the road. “They give us a load sheet,” he said. “They’re transparent with just about everything else on that load confirmation. They should be transparent with the rate that they’re getting paid. And if they weren’t guilty of taking it all, they wouldn’t have any problems.” Fann said he worked with a broker in years past that was open about taking a 10% cut of the shipper’s paid rate. “We’d take his freight, because we knew that he was transparent,” Fann said. “You can respect that. If it’s cheap, you know he’s just taking 10%, so you know he’s not making a million dollars on it.”

get out of freight contracts. That forces more carriers onto the spot market and further exacerbates the supply-demand issues — too little freight, too many trucks. Brokers “are bidding for freight just like carriers,” he said. “No one is getting pre-COVID rates. No one is doing well right now.”

Some of the country’s largest brokers – C.H. Robinson, J.B. Hunt, Hub Group and Echo Logistics – reported margins below the 16% industry average in the first quarter, Voltmann said. “If the largest companies in the space aren’t increasing their margins, then margins are contracting, and that’s the reality,” he said.

Rates on load boards such as DAT and Truckstop.com slid to five-year lows starting in late April as load-to-truck ratios fell off. Brokers and carriers working those boards rely heavily on spot-market freight.

“The pendulum swings both ways,” said Ken Adamo, chief of analytics for DAT. The sudden deluge of loads in early March for bottled water, toilet paper and refrigerated foods caused spot-market rates to spike for a short period. “The same mechanics that pushed rates up have pushed them back down,” he said, with capacity “grossly oversupplied” and freight movement bare.

DAT understands carriers’ position, Adamo said, but brokers also are being squeezed, with shippers pushing for cheaper prices and carriers pushing for higher prices. “They’re getting beat up on the sale and the buy side,” he said.

Nonetheless, many carriers, especially smaller operations such as Northeast, feel they’re bearing the brunt of the market’s imbalance. “With all soft markets, there always seems to be a bunch of predatory brokers that take advantage of the situation,” Bisset said.

TranZstar works the spot market for backhauls, but the rates being offered by brokers are below the fleet’s break-even point, Rife said. “It is laughable that a broker would even offer [those loads] for that price,” he said.

The COVID-19 economy has forced TranZstar to turn to brokers more often to find freight, but Rife said if the current pricing scenario continues, the fleet will be forced to downsize.

Before the downturn, TranZstar mostly was hauling biodiesel in its tank trailers, along with some local dry van loads. They’ve since shifted to more dry

van business to keep trucks moving.

“We had a few [brokers] we dealt with regularly, because they had lanes in the areas we took loads to,” Rife said. “There are a few that paid really fair rates before and have continued to do so since the pandemic. The large majority, though, have been awful since the pandemic has started and not only continue to pay lower and lower rates by the day but also refuse to answer calls or emails and have made it more and more difficult to get detention when our trucks are detained at facilities.”

Dubuque worries Liberty Linehaul West and other similar operations – smaller carriers that keep spot freight moving – won’t survive the current rate environment, and right or wrong, he blames brokers. “The open-market brokers are killing the small operator who may not be able to sustain themselves to get to a better day,” he said.

McCord Trucking of Winchester, Indiana, operates a fleet of 11 trucks. The carrier transitioned from hauling refrigerated goods and produce to low-volume nursery plants during the downturn brought on by COVID-19. “Very little loads are available, and rates are around $1 per mile,” said Danielle Bane, operations manager for McCord. “Brokers are taking advantage of a bad situation. I think regulations need to be put in place on brokers, and no more than 10% should be allowed to be charged.”

Some carriers are advocating for regulatory intervention on rates to help keep a wave of carriers from folding.

“A cap on freight rates should be initiated now to keep rates from spiraling and losing trucks and companies,” said Pamela Davis of Etoile, Kentucky-based Ricky Davis Trucking, which keeps a fleet of 10 trucks.

Davis advocates for a margin cap for brokers, suggesting a maximum 10% cut of what a shipper pays. “Brokers have made good money off of carriers, and I don’t see them backing down,” she said.

Dubuque would like to see increased transparency among shippers, brokers and carriers but is leery of government intervention.

“I think there’s a common ground there where there should be some visibility to both the shipper and the carrier to what the broker is doing,” he said. “By no means do we want to go back to a rate-regulated world where government sets pricing and then it is impossible for anybody to enter our industry, to be an independent to go into. That’s not what we want to see.”

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