DAT Rating, Insurance, and Contracts | Final Mile 94

Speaker 1: 0:19

Welcome back for another edition of the Final Mile. We got three questions coming from us today. These are all from our Facebook group, so continue to participate in there. There's a link in the show notes. We got close to 100,000 of you actively involved in that group, so thanks for engaging with one another. We see a lot of folks in there looking for job opportunities, looking to cover loads, sometimes just to network and ask questions.

Speaker 1: 0:47

So no question is a stupid question, all right. First one up here is how long does it typically take for a new brokerage MC authority to become fully active on DAT? I've been a broker for five plus years, but my new company is struggling to cover lanes like Georgia to Georgia, florida to Florida. They're telling me it could take a year and a half to gain traction. Is this accurate? All right, so the meat and potatoes of this question is how long does your authority need to be active before people essentially have trust in your company? Right? That's kind of what we're getting to here. I think it's probably two things here there's two things age.

Speaker 1: 1:26

But it's like how much are you actually doing? Because I was like you're really good on like the credit and how you're doing it, but I've seen people.

Speaker 1: 1:34

They're like, yeah, I'm just going to, I'm going to open an MC, let it age, and then, like, once it's a couple of years old, I'll be good, and it's like, no, well, yeah, it'll show that you've been open for that long, but if you're not doing anything, you've, you're not going to show anything on DAT. So, ben, what's your? You've broken this down in the past. What is what have you?

Speaker 2: 1:52

found out as far as like a ton of time with the past few years. So the analogy I would use is OK. Well, when you turn 18, it's hard to get a credit card. I mean you can get a small one because you have no credit history. All credit history is is the reporting agencies look at how much have you borrowed and how do you make the monthly payments. Are they on time or not enough? Right? It's your ability to repay debt. Is your credit rating right?

Speaker 2: 2:19

So, to your point, if you just don't get a credit card when you turn 18 and try to get one at 25, you still have zero credit. You're going to start at the same place. Getting older doesn't increase your credit rating because you haven't shown the ability to borrow and repay debt. It's the same with a company starting your MC and leaving at age for two years, shows your authority date, but doesn't do anything in the credit reporting space to show your business has the ability to pay its bills. That is your credit risk, right? So DAT is tied to Ansonia. So when you see the credit score and days to pay, when a carrier looks at a broker that's coming from Ansonia Now, if you click in that, it'll take you to this link in Ansonia. That will give you the exact verbiage, but I can tell you it's and it's a little vague because it says, like, on the fourth month of doing, I think, two transactions per month and Sonia will basically give you a credit rating.

Speaker 1: 3:19

So it typically takes four months after the fourth month or on the fourth month.

Speaker 2: 3:23

Yeah, and it's weird and like I have never been able to get anyone to clarify that. I've asked Ansonia, I've asked Dat, I've tried to get more specifics. Like that is as close as I can get and what I saw like, practically speaking, it was like the fourth month, but you need two different loads basically every month. And this is the important piece how you do this. So if I agree with Nate's trucking company to run freight until I get credit but I just pay Nate through ACHs and wires, that's not getting reported to the credit agency. So, like, even if I'm doing that, you need to make sure that information gets to the credit departments.

Speaker 2: 4:00

So the next thing is like that's why I suggest you try to get a factoring company that will work with a newer broker, because even if you process your payments through it and you self fund, like literally deposit your own money in it, some factoring companies will let you pay through their system. In those scenarios, at least you know the factoring company is going to make sure it gets reported. So making sure it gets reported is important too. So at least two transactions making sure they're reported is the second thing, and the third thing is the time. And we broke this down with Comfrate in that episode before. But basically the sweet spot is you want to be paying your carriers at like 21 days, like 18 to 21 days if you're going through a factoring company or you're automating, and here's why If you pay all of the carriers you work with immediately, it also doesn't get reported with the same weight and I'm not going to go into like a huge. It almost looks like you're trying to like cheat the system.

Speaker 2: 5:01

Well, it's not that you're trying to cheat the system, but the system has a bunch of math and algorithms. It's trying to determine can you borrow money and repay it? So if you're just paying them right away, like it just shows, you're just have the cash to pay them, which isn't the same as borrowing money and being able to repay it later. And I'll give you a like, a little analogy on the consumer finance side. So if you get a credit card and you're 18 and say you have a $2,000 limit, if you borrow and spend $1,900 the first month, you get that card and you pay the whole balance off before the month ends, so you don't get charged interest. That does not increase your credit score because you literally didn't borrow the money and you didn't make payments. If you want your credit score to go up as a consumer, you want to not max out your credit cards, because there's two things maxing, riding your lines, they call it. So if you've got a $2,000 credit card, you want to spend $1,500 or $1,200. And then what you ideally want to do is make payments close to the minimum but a little higher for like six months to a year. So you got a $2,000 credit card, you borrow 1,500 and you pay $150 a month for the next whatever 10 or 11 months with interest, that makes your credit score go up faster. Why? Because all that math is trying to see is if you borrow money, do you have like the character and the income and restraint to be paying it back long after you borrowed it? That's really what it's trying to tell. So it's the same with the business, like if you're paying your carriers at, like, 21 days. That's the sweet spot where it is going to report most effectively to the credit agencies. If you pay them on 30 days, it's a little too long. You pay them too soon. It doesn't show your ability to borrow money and repay. It just shows you had more cash when you were doing this. So automate it through a factoring company, do two transactions a month. By your fourth month you'll get a score from Mansonia. That's the first thing. So now that gets you through your first hurdle of a new brokerage. But there's a second one, and the second one are the trucking factoring companies. There's three major factoring companies that basically most of the carriers operate RTS, triumph and OTR. All three of them have different standards.

Speaker 2: 7:21

I would say to when they will allow a trucking company to work with a new broker. Most of them are like nine months to a year. So even once you got credit reported on Insonia, call it at month four or five. Usually most of the carriers that will call you and want to work with you are going to go. What's your MC, you'll give it to them, you'll have reporting, it'll show days to pay on that and Insonia but they go. Sorry, rts won't approve you. You need to be in business nine months or 12 years. They want to see a longer history before they allow their trucking companies to factor with your brokerage. So the reality is is four months of you're doing two loads and they're being reported correctly. But to really access the open market to book loads like you would at a normal or an aged company that's been in business a while, like you're closer to like nine months to a year, is really around where that happens.

Speaker 1: 8:13

Yeah, the takeaway here is it's not impossible to do business. It just is going to require a lot more work and, um, you know, curating relationships with carriers through trust before, like you said, you get access to that full of the market.

Speaker 2: 8:29

And I'll add one thing, the analogy that I think is really good for your first year. Most of the time, if you worked at a brokerage and you had a job like you get the freight, then find the truck through the open market because you have credit. And why? Because it's the speed of the transaction. You could have a million dollars in your bank account, but the carrier doesn't know that and doesn't know if you're willing to give it to them. That's what the credit score tells them. Are you willing to pay them even if you have the money?

Speaker 2: 8:52

So what I always suggest is work it backwards. Start talking to carriers, build relationships with them, negotiate some terms where they're willing to work with a new company and in return, you'll help them. What are you going to help them with? Ask them what lanes they run, ask them what shippers they would want to work with that they aren't already, or what lanes they need. Then go and find the shippers that move the freight on the lanes that the carrier wants, because now you have the carrier already lined up and payment terms agreed with them. Now go find them the freight, and then you give it right back to the carrier, which is very difficult to do If you don't have credit and you got loads. It's so hard to get a load moved in a short amount of time like in an hour, half an hour because you just can't work through all these things that quick. That's a great.

Speaker 1: 9:37

It's a great tactic. I love it. All right, all right. Our next question when can I create forms and contracts for a new brokerage joining a lawyer to draft or review them, or are there any reliable templates I can use? Yes, to both and a little bit of both, is my initial answer is there are good templates. So, tia, great model contracts. If you're a TIA member, we've got a few of our own on our website that you can look at.

Speaker 1: 10:12

But back to our conversation with Matt Leffler, the armchair attorney. You should have a lawyer reviewing your contracts. I would say before you know, this is both for like, when you're signing them and when you're creating your own. So I would do both. I would probably start with a model contract so you're not reinventing the wheel, but then you're going to have your own specific language to your company that you know is in addition to the baseline model contract and have a lawyer review those like. And here's the danger now is, like with AI, you could legitimately like, just have chat GPT probably craft you up an agreement, but I wouldn't feel comfortable without a you know, a seasoned lawyer giving their stamp of approval on any of any of our contracts. And this goes with like why transformations, broker carrier agreements, co brokers, all that stuff, what's your take?

Speaker 2: 11:13

So there was a case like last year an attorney had Chad GBT write a bunch of briefs for a case he was trying and one we know it hallucinates. If it doesn't know the answer, it'll just make shit up Like so it'll absolutely make up URL links that don't work, like I've. I just listened to this really long thing on like education kids using this in college and the professor just look at the links and most of the time they're just not real. So that's how they can tell they wrote it with AI. But it's the same thing with a legal document Meaning like if it doesn't know, it'll just make up precedents. Meaning like it'll reference cases that never happened. It will put in language that absolutely never occurred. So like this judge was reading through this, found this out and he's like, researching the cases and precedents, he's like these never happened and then he realized none of them happened in any of these briefs and like that guy was disbarred.

Speaker 1: 12:08

But it goes to show you because, like here's why the agreement really matters.

Speaker 2: 12:10

It doesn't matter at all when things go well. It matters only when things go to shit and you got a claim and like the customers withholding your payment and the carrier might not be responding, but you also owe the carrier money. They file on your bond but the customer won't pay you because they said they had the right insurance. And like when you work through these messes, that legal, the legal, my mind's blanking verbiage, like how it's actually written in that agreement determines what is going to happen.

Speaker 2: 12:43

And like we're literally going through ours again right now because, like, there are things that need to be updated. If you work with a new shipper and they've got many different things in their agreement you agree to you, better be sure you have something similar on the other side. Because, like, if you're being held to something and you can't hold the carrier to it, you end up stuck in the middle with no recourse. So, 100%, I wouldn't use AI, maybe to research, but I certainly wouldn't use it to write a legal agreement and risk my entire business on it.

Speaker 1: 13:13

The last thing I'll say on is this is all relative to where you're at in your business, so you don't need to hire an attorney. That's $1,000 an hour when you're a brand new broker, right.

Speaker 1: 13:22

A thousand bucks an hour when you're a brand new broker right you may be using Zoom or some sort of a service that like, well, you know, give you ad hoc, you know, advice and all that stuff as needed, versus like having you don't need in-house counsel on day one. Well, you know, to go to the extreme route. So, yeah, it's all relative, all right. Final question here we're a small brokerage in need of insurance, need to increase our general liability to 2 million and add additional coverages, but we're having trouble finding the right fit. Any suggestions? My advice on insurance actually I talked to a guy yesterday about this and last week another guy about this exact same thing. Because, like common questions like what do I need, where do I find it? And the two things I'll say is like number one, the insurance that you need is really dictated by your customers and you need to make that decision. You know, is the cost of this policy worth the business I'll get from them? So if someone wants $5 million in liability and umbrella coverage, well, it's going to cost you some money. Is the business going to be there to justify it. Same thing with if they want some out-of-the-box rare policy or a high limit, like I just mentioned. You just got to justify that on the business. So that's the first thing is. That's where your need comes from. The second part is how do you get it? Some carriers won't cover you based on where you're at in your journey as a broker. But, like you know, we had Melt Godwin on a couple of years back. Right, he's an insurance broker.

Speaker 1: 15:04

Insurance brokers have the same way that us, as freight brokers, have, access to the open market of motor carriers. Insurance brokers can go shop policies for you, um, and find a carrier that will underwrite whatever you're looking for, and you typically find the different options at different prices, like I did this. So we did this a lot. Last month, when looking for credit insurance, we had like, here's what we want. The broker shopped it. We had five underwriting insurance carriers come back and say here is the five companies, here's what they're offering you, here's the details of it, because they're not all credit equally, and here's the premiums and the deductibles, et cetera. Narrowed it down to two. They sharpened their pencil a little bit and then we got the one that was the best fit for us. What do you got, ben?

Speaker 2: 15:51

I'm going to add. We'll add a link in the show notes. Cameron Pescia has been on the show A couple times now I think right.

Speaker 2: 15:57

Yeah, so we can throw a link in there to go to his website. He's a broker so he can get you different options and help you shop it and find the right fit. Also, does a lot in our space. Free, gives back a lot, so good guy worth reaching out to if you're really having trouble finding somebody. Yeah, I mean I think you summarized it Like all insurance is is reducing risk.

Speaker 2: 16:21

If your customer's requiring it, you need to make sure whatever you're going to pay for that you're going to recoup, and then some to be able to justify it. That's not always easy. Shippers don't typically guarantee loads when you're getting onboarded, so you've got to justify if the cost you're going to pay is going to be made up with them. That's also just the risk of being a business owner, I mean. I think having somebody you can actually talk to is super important. We talk about this a lot Like somebody you can trust.

Speaker 2: 16:49

Talk to that when they explain the coverage, what it actually covers and if it covers things is super important because so many shippers will request things that never come into play, that, like I've seen brokers get what are called like dead policies on things where they're like oh, we want workman's comp and we're like well, we're a remote brokerage, we don't have an office and we're never sending employees to your site, but the shipper wants workman's comp to cover the carrier. Well, even if the broker has workman's comp, it doesn't cover the driver at your facility anyway. So this policy you're asking me for absolutely has no situation where it would pay out.

Speaker 1: 17:23

No applicable purpose.

Speaker 2: 17:24

No applicable purpose and, like I've talked to insurance companies, they're like yeah, we can create a dead policy for 500 bucks. We add it to you. It is an insurance policy but it basically pays out under no circumstance because there's no circumstances. What happened anyway? So it makes the shipper happy. They get it on the document and you don't pay four grand for a policy that's covering people that never go there.

Speaker 1: 17:43

Yep exactly I for a policy that's covering people that never go there. Yep, exactly, I've seen that a lot. I remember my boss was telling me a customer this is like probably like 20 years ago a customer was like yeah, we need you as the broker to have auto liability. So he's like obviously they don't know what they're asking for because we're not a carrier and insurance guy's like I can get you out of liability. He's like take your truck, like your personal Chevy Silverado, we'll call it a, we'll call it a truck that your company owns and we'll write you an auto liability policy on it. He's like OK, so like, but again, would never pay out.

Speaker 2: 18:25

So Correct Understanding what and how these things are. Why you need that. It's very important and I can tell you most shippers require things that are never going to come into play, like the most common thing I see I talk about this constantly is most shippers don't vet the carrier's cargo insurance. They just vet the brokers and we're like okay, so you're requiring me, as a broker, to have 300 grand in contingent, but you have no idea if the trucks I'm sending in have any cargo. Hey, guess what? Contingent cargo is not cargo, but almost every shipper just goes. As long as the brokerage has it, we're good and I'm like. That effectively does nothing like you required something.

Speaker 1: 19:06

It's like the dumbest policy, in my opinion. So ridiculous, but yes, anyway, good questions, keep them coming our way. I'm actually curious what is our audience count? Up to now it is in our group Ninety one thousand four hundred members. So yeah, keep asking questions. There's a lot of stuff in that group. So if you have a really good question that you want to get our attention on, just do it right through our website, freight360.net. That will be the best way for us to see it.

Speaker 2: 19:42

So, final thoughts, ben, Whether you believe you can or believe you can't, you're right.

Speaker 1: 19:49

And until next time go Bills.