Mergers, Acquisitions and Their Effect on the Transportation Industry

At the end of each year Transport Topics reviews the mergers and acquisitions that have taken place over the past twelve months in the transportation industry, giving readers a brief synopsis of changes with small and large companies. And yes, these mergers/acquisitions do impact the transportation industry, sometimes causing the big to become bigger and the small to become non-existent. The old cliche, "the rich keep getting richer and the poor keep getting poorer" seems to ring true when I review this section, but this is what our industry has become.

In the LTL world, there are only a few less than truckload carriers with true national scope, as some were eaten by UPS and FedEx. We are now left with regional LTL carriers battling with the big boys and it sometimes feels like the truckload side is heading in the same direction, even though there are many more players in the truckload field when you consider all of the brokers, agents, single owner operators and logistics companies.

But the one thing Transport Topics does not compile is a list of mergers and acquisitions that have taken place in our entire economy, (which would probably be too long to print). I bring this up, because I am currently experiencing changes to my business due to two of my customers being acquired by larger corporations.

With both of my customers, the purchasing company is closing the doors to the facilities of the company it purchased, which doesn't entirely eliminate the movement of the freight, but it does rearrange the shipments. For example; instead of loads originating in South Carolina, they now originate in Tennessee. And the people who controlled the freight in the past will no longer control it in the future. All contracts and rate agreements will become null and void. All relationships that have been nurtured over numerous years can easily become memories unless I stay in contact with those people or they find other positions where I can work with them. And yes, it can be frustrating. In our industry, change is inevitable.....whether it be the departure of a Logistics Manager, bankruptcy or the acquisition of a customer. Freight, (or business), can be here one day and gone the next.

The transportation industry is constantly changing due to competition, globalization, global warming and economic trends. All things we have no control over. But the one thing we can control is our outlook and although as bad as it may seem, there is always something positive around the next bend. You never know when the new company needs a little help moving their freight or when the former Logistics Manager might you a call from a position at a better company.

And that my friend is how we roll with the punches in the transportation industry.

Freight Broker Rates

For all freight brokers out there, there is a constant internal struggle when submitting rates. Don't get me wrong. I am well aware that the price is determined by the market, (a law of supply and demand). The scenario I am referring to is one created by competition; where the broker has to submit a competitive rate to get the business, but at the same time the broker must submit a rate that will allow him or her to consistently cover loads with quality carriers. It is a tight rope walk that almost all brokers experience.

When an economic slowdown takes place, carriers and brokers begin to slash their rates in response to it, attempting to hold on to business. But where is the line drawn? Where does the broker know to stop?

Yes, there a multiple websites that have services where a broker or carrier can view the low, high, and average rate for specific lanes, but how accurate are these services? How often are they updated? Where does their data come from?

This is when experience, commitment, determination and relationships help a broker to succeed. The experience can assist the broker in knowing what rates trucks are demanding that day and an understanding of the business cycles that take place . Commitment and determination will allow the broker to continue covering loads even when there seems no hope in finding a truck for such cheap freight. And relationships can enable the broker to possibly get the business at a slightly higher rate than some of the competition, due to their history of providing great service. Relationships can also help the broker to raise rates incrementally as trucks begin to tighten and the rates begin to climb.

There is a general feeling in the transportation industry that carriers are sometimes gouged by brokers during an economic slowdown, but the carriers don't see the many times when truck capacity is depleted and brokers lose money to cover loads and protect their customer. The pendulum constantly swings and the broker hangs on to it for dear life, trying not to be thrown.
And so goes the life of a freight broker.

Freight Broker Business

I sometimes wonder how everyone in the freight broker business began their careers, especially with the multitude Freight Broker Training classes available. Most of the original freight broker pioneers are getting close to retirement age, giving way to a younger generation, logistics companies and trucking companies that have added the brokerage model to increase revenue.

The industry once formed to help fledgling trucking companies get their trucks back to their own customer base has evolved into one that allows larger asset based companies to grow without investing in more assets. It is just another piece of the puzzle for trucking companies, freight forwarders, 3PLs and 4PLs. The terms: freight broker, transportation intermediary, transportation broker or logistics company have all become interchangeable. The lines between head-haul freight and back-haul freight are not as defined as they once were and customers are no longer sure if the asset based carrier they gave the load to is hauling the freight on one of their trucks or on a broker truck.

All of these changes have helped improve the image of the freight broker by pulling most transportation companies under the same label, because most of them have brokerage divisions. These means trucking company X will no longer bad mouth the brokerage industry in the marketplace, because in doing so, he will only damage his own reputation. But the industry still has miles to go. Codes and guidelines need to be established and brokers need to hold themselves accountable to high standards. The one force that can drive these standards is the market place. If more customers demand to do buseinss only with certified brokers or brokers who use qualified business practices, the industry as a whole would be forced to change. But this kind of goes against the grain of the deregulation of the trucking industry that spurred the brokerage business, doesn't it and I don't think all of the Old Timers would be too fond of it.

Freight and Our Economy

I read a blurb on the TIA website about the future "up tick" for our economy and I wonder when it is going to come. I have yet to see any reports of freight for the fourth quarter of 2007, but I know from experience that it is down. Our Federal Reserve Chairman speaks of cutting interest rates to stave off a recession, but I don't know if it is too little or too late. Housing continues to be in a slump and fuel prices continue to rise.

For the transportation industry, this translates into more downward pressure on prices with capacity being unfilled. Trucking companies will continue to lower prices in an effort to gain market share to keep their trucks moving and pay their set costs, while brokers and logistics companies will battle to hold ground using pricing strategies, spot quotes, etc to take full advantage of the daily market fluctuations. The ultimate transportation winner in this type of economy is the customer, who can reap the benefits of lower prices and less service issues, but it also creates challenges for the future. The number crunchers for each company/shipper expect their own Logistics department or their outsourced Logistics department to control prices, and they will be able to show some savings for this year. But when the uptick comes after truck capacity has been trimmed down-because some trucking companies have gone out of business-freight costs will increase. The one factor that can counter the higher freight rates will be lower fuel prices, which equals lower fuel surcharge costs, (but I don't forecast lower fuel prices in my lifetime).

The immediate time during and after the uptick will be a challenge for brokers and logistics companies as well. Brokers will have to rely heavily on their relationships to keep business, get trucks and raise prices, all at the same time. The broker must have strong relationships not only with customers, but with carriers as well or they will find themselves in a terrible pinch.

Yes, the slower economy will be tough for everyone, but we as brokers are conditioned to handle adversity. Adapt or fail. It's just that simple.

The past, the present and the future of freight brokers

In reading The World is Flat by Thomas L. Friedman, I couldn't help but think of the many ways our world has changed over the past twenty years, and the effect of these changes on our business. The freight broker of the not too distant past relied on the telephone and his contacts written down on a sheet of paper or stored in a rolodex file. He or she might have one containing a list of shippers and another holding the list of carriers to call if a load from a customer was called in. The carrier list was very finite giving the broker only so many avenues to pursue, unless the broker had a book, (a carrier directory), with carriers listed alphabetically by state.

Along came the facsimile machine allowing customers to fax over orders and trucking companies to fax over their truck lists, which showed where their trucks were going to get empty over the next few days. And about this same frame of time, load boards began to materialize at truckstops across the country, giving drivers the ability to view available loads in their vicinity, enabling more owner operators to find loads, thereby becoming more productive and more efficient. The load boards also gave the freight brokers another resource for finding trucks, albeit an expensive one.

And finally we enter the modern day era of freight brokering, brought about by the internet, mobile devices, email and EDI. All of these things are flatteners, which have created more competition. The internet has given brokers the ability to search online truck postings, post loads and research the industry. Our mobile devices allow us to communicate virtually any time, anywhere. Email has made the ability to communicate quickly and easily just by pointing a mouse and hitting a few keystrokes on the keyboard while talking on the phone. And EDI has sped up the billing and payment process, in a addition to providing another outlet for exchanging electronic data. Document imaging has replaced the hordes of paper laden boxes and file cabinets, and the keyboard and computer screen have replaced pen and paper.

Who knows what the future holds for us? I can envision all drivers submitting their signed Bills of Ladings to the broker straight from the cabs of their trucks, further speeding up the billing and payment process, but I don't have a crystal ball. Technology has improved our industry so much in the areas of communication, load tracking and information, but it hasn't taken people entirely out of the equation. People, whether you love them or hate them, are the one constant in our industry and they will be for some time; which leads me to this conclusion: the future is unpredictable for our industry, but as long as people are involved in the transportation industry, freight brokers will be in business.

So what is the deal with all of the freight broker training websites?

As I was scanning the web while doing research for our company website I came across hundreds of websites advertising Freight Broker Training. What is the deal? Are there that many people looking to become freight brokers? Or do they see only see easy $ signs??
My advice to them is do your homework. If you don't know someone in the transportation industry who can give you guidance or freight, or if you don't already have some experience in the transportation industry, you might be jumping off a cliff and not know where you are going to land.

I can tell you from experience-you will have to pay your dues and work hard to be successful. Do not believe that it is a get rich quick scheme where freight is abundant, trucks are plentiful, everyone is honest and we all live happily ever after.

The current state of the industry: Freight is scarce. Rates are being slashed by trucking companies needing freight and by brokers trying to compete in the industry. Fuel prices are rising, which will probably lead to some trucking companies going out of business. On the flip side, trucks can be found relatively easy, so if you are starting a new broker business, trucking companies will probably not be as picky about your credit worthiness. In plain English-it will be easy to find trucks and hard to get freight. And this; this is what all of the greenhorn grasshopper pilgrim brokers will learn very quickly. The freight broker business is all about supply, demand, honesty, integrity, communication, relationships and people. So come on in....the water's fine.

Buzzword Bingo

Collaboration-to work together, especially in a joint intellectual effort.