Backhauls, Tariffs, and More Q&A | Final Mile 72

Speaker 1: 0:19

Welcome back for another edition of the Final Mile, where we answer your listener Q&A and react to your comments periodically. We've got four questions today, but first make sure to check out all of our other content at Freight360.net, including the Freight Broker Basics course, and please check out the sponsors in the description to help support this channel. All right, first question we got here With loadouts. We did a recent. We got here With loadouts. We did a recent episode about trailer pulls and loadouts.

Speaker 1: 0:49

With loadouts, what are the MC age requirements? And if you have 10 days to deliver, do you have to go in the direction of the drop off? Very easy answer and we can elaborate on it. There's no required MC age to do a loadout. The broker might have their own preference or requirement, but there's not like a federal standard on it. And then also, if you have 10 days to deliver, do you have to go in the direction of the drop off?

Speaker 1: 1:16

No, that's one of the one of the value adds of a loadout. So the loadout is when, let's say, for example, loadout is when, let's say, for example, the customer or the shipper makes dry vans right, brand new dry vans that have to get delivered to whoever's buying them or to a dealer or whatever. The loadout would be a power only driver picking up this brand new trailer and delivering it to wherever it's going, and part of the benefit or the value of this load is that they get to use someone else's equipment and for 10 days. In this situation they can use it however they want as long as it gets to the purchaser on that 10th day. So for a week and a half before then they can run a bunch of loads all around the country as long as they get it to where it has to go. So that's a pretty easy one. The age requirement for the MC that's going to be up to the broker who hires you and make sure, if you're hauling a loadout trailer like that, you understand what you can and cannot do.

Speaker 2: 2:19

When does it have to?

Speaker 1: 2:19

get delivered? Where does it have to get delivered and can you use it however you want for those number of days? Pretty simple answer there.

Speaker 3: 2:31

The first thing that came to my mind, the only thing I wanted to mention on the topic, because we have a lot of drivers that kind of get caught up in this issue and it may not be related, but personal conveyance is one of the things that they'll use when they're out of hours to get home or whatever. But if, if the point of this question is in regards to personal conveyance and in the direction of the delivery, personal conveyance can only be used to not gain an advantage. So if you say you run out of hours but you do pc to go home and you're 60 miles towards delivery, to be legal you have to go 60 miles back before you start your clock, so no closer in that case, yeah, there's your caveat.

Speaker 3: 3:15

And if you get hemmed up by the dot, they will shut you down for, I think, 10 hour or whatever it is. So that's going to be a caveat I want to point out on that, the whole PC stuff.

Speaker 1: 3:29

All right. Next question what are your thoughts on the fact that tariffs are going to have the opposite effect that everyone in freight seems to think? In other words, they will raise the price for the consumer? Ben, do you want to take a stab at this one? I'll give my opinion afterward.

Speaker 2: 3:45

I've been saying this for like I don't know since anybody started talking about tariffs and then three people argued with me in YouTube comments and they were like you're not an economist, you should stick to freight. I'm like, well, I did go to college for economics. But besides the point, when you add a tax to anything it does not get cheaper and when things get more expensive, we buy less of them. What do we need in freight? More freight to move and we need more of it than there are trucks.

Speaker 2: 4:14

Making things more expensive with a government involving itself, does not increase the volume of freight. It might have other geopolitical ramifications and things that are relevant. But again, politics aside, if you add any tax to anything, we buy good or service we will buy less of it, right? That's why the government uses taxes to disincentivize smoking and things, because people smoke less when they're more expensive. Like it's not really in debate that people buy more things when they're more expensive versus less. So, like I genuinely don't understand who is arguing the other side of this, the only thing that I've heard somebody put out- I think Greg Fuller did, didn't he?

Speaker 2: 4:57

But I haven't heard anything that made any sense, because the only thing I've heard is that, like, somehow the additional revenue to the government would offset the inflation. Do you know how much more revenue the government would need to be able to offset inflation? It's in the trillions of dollars. Like those two numbers are so far apart that they have absolutely no correlation with each other. I have no clue.

Speaker 1: 5:19

I think the intent of the tariff in general, because there's a lot of proposed tariffs, even US.

Speaker 2: 5:28

Mexico and Canada now right.

Speaker 1: 5:30

But the intent is to discourage, like you said, to discourage buying goods from outside the country and to encourage the production and consumption of American-made products, which would create jobs. Again. If you impose a tariff, though, its immediate effect is going to be higher prices.

Speaker 3: 5:50

It could be a long-term play.

Speaker 2: 5:52

And less goods to move Right.

Speaker 1: 5:55

But for a tariff to be and I'm not an economist If a tariff goes in place and stays and your goal is long term, we want to have more American manufacturing and American jobs it takes a lot of time and a lot of cycling of the market for that to actually play out to where your pricing would would would regulate back to a more sustainable level. So that's the, I guess, the answer. The person's the commenters question here we agree, we're not.

Speaker 3: 6:26

We're not arguing that it's going to lower. What is the other side?

Speaker 2: 6:29

of this.

Speaker 3: 6:30

I'll get. I'll give one anecdote to this, and it's it's in my wheelhouse of beef imports. So Brazil and Ireland are on the same quota for tariffs. You can only import so many pounds of beef before, uh, it is taxed. I think it's like 20% Um, and in this case I think it was this year, October of this year um, they hit their quota in October and, uh, the people in my space predict that they already have next year's quota of imported beef in bonded warehouses, um, ready to be released January one.

Speaker 3: 7:11

The reason for that is because Brazil is their product is so cheap, they're willing to take on those tariffs for the customers on those tariffs for the customers, and that tariff is now being taken by the companies of Brazil and the consumers aren't paying for it because they must have enough profit on that beef. So that is one instance, one anecdote, where the tariff isn't really being applied to the consumer and a lot of that is because I still made it more expensive because, I can assure you, if that tariff didn't exist, the cost of Brazilian beef would not be the same thing to the consumer.

Speaker 3: 7:50

Well, the reason they're going to Brazilian beef is because the product domestically and where they normally get it in Australia and New Zealand, is too expensive. It's cheaper to get that product from Brazil, even with those companies taking on the tariffs. So the consumer is still because they're getting it from. Brazil they're not paying.

Speaker 2: 8:10

Just because they're not paying a premium over comparable products does not mean they're not paying more because of it, because if there was a cheaper product available, people would buy less of the more expensive one and more of the cheaper one, and prices would fall, just like in trucking Right.

Speaker 3: 8:24

Right, which would be an argument for imposing tariffs if the idea is to get away from the issues that we had during COVID, where we had to source product from China and then we couldn't get it because things were shut down, and you want to move manufacturing to North America. You would then force people to find suppliers and products, and that is a long-term play, and will it increase costs? Yes, but what is? The objective of the tariff.

Speaker 1: 8:53

One other argument, too, I think I read was like we use China, for example. If there's a tariff on Chinese manufacturers, there's a whole lot of other cheap manufacturers over there too that aren't in China that you can then go to Right.

Speaker 2: 9:07

I saw like in the other thing too right, and I had like five comments on Freight Caviar all from people we probably interact with in the industry that were like one, I think the guy who developed Silver I can't remember which one of it did Cargato. He just thinks it's a bluff and it's not going to happen Because if they do that to your point into Canada and Mexico, you're making the entire supply chain more expensive. The two closest countries with the cheapest cost and the least global impact like carbon footprint to get it from where it's made to where it's used, would be the closest countries. So if you did it to all the rest of North America, things are for sure still going to get more expensive.

Speaker 1: 9:47

All right. Next question why does a backhaul pay less? And there was more context to it he asked about, I think it was like something to California and then California, back to the original origin, was a different price. So there's two things I want to hit on here. When we use the term backhaul, we're usually referring to a driver that's driving back to their origin. It could be where their, their fleet is domiciled, it could be their house, whatever.

Speaker 1: 10:16

If I'm getting, if I'm a driver and I'm getting a load that takes me right back home, where I'm trying to get to, I'm usually willing to take less money for it because I want that load instead of somebody else. That's the concept of the backhaul. Is that it's it's, it's what's in it for me the location. The location is what matters for me. Therefore, the price I will accept a cheaper rate. That is a basic economic principle, whereas a headhaul, if I'm there's a little valuable at my house and I don't care where it's going, I just want the highest paying load. Well, I don't get to decide where I'm going. I have to look for the highest paying load.

Speaker 2: 10:53

It's going to send me somewhere that who knows what you know I can find coming out of there they're going than the rate, because they could probably get a better paying load per mile going somewhere else, but they want to be home at the end of the week, for instance, right. So it's more important right to be back home than it is to get the best paying rate. The second is the backhaul markets. So Florida is an easy way to look at this. It's a peninsula. You can't come in from the east, the west or the south. You can only come in through Georgia and Bama right, from the east, the west or the south. You can only come in through Georgia and Bama, right.

Speaker 2: 11:32

So when produce used to pop right, when we didn't have this down market, right, say everything, watermelons coming out for like those few months, all right. Outbound market in Florida goes up to like three or 350 a mile to ship out of Florida because there's not enough trucks for the amount of watermelons, for instance, to go out. So what happens to the rate to come into Florida? All of the carriers race to the bottom to get down here with something. So if you want to get into Florida to get $3.50 a mile delivering back to Tennessee or whatever the carriers are like, dude, I'll take $1.25 a mile to get into Florida because I know I'll make $3.50 a mile coming out. So the whole market starts to fall for loads delivering into Florida, because every carrier knows they're going to make really good money shipping back out.

Speaker 1: 12:20

Yeah, exactly, so that's the second part of it is market conditions. You have to look at the ratio of loads to available trucks. That's that load to truck ratio that we've referenced in the past. So that's a bigger macro scale, whereas the individual lane for a driver backhaul is going to be dependent on, usually, where they're trying to get to, not just what the market's paying. But good question. Finally, oh, one of you guys added this one in. So you guys? So can you guys do an episode about being a broker with asset? I don't know who put this in here.

Speaker 2: 12:56

I did. This was a question that just came up on YouTube from last week's Final Mile, so I threw it in here.

Speaker 1: 13:02

What you got. Read it off here. It says yeah.

Speaker 2: 13:05

So can you do an episode about being a broker with assets? I think he meant to say how that works. I'm a broker and I'm also trying to start a small courier transportation business, but I don't want to be labeled as a double broker and this is confusing. So let's clarify how to present your company and what that looks like from an authority standpoint.

Speaker 1: 13:24

Oh for sure. So I mean Stephen and myself and you, ben, we've all, either now or at one point, have been on both the asset or the trucking side. I just think it's important to be very clear with your customers that if you have assets but you don't intend to run it on one of your assets, you should be very straightforward about that. We're going to put it through our brokerage and broker it out. If you try to sell to a customer as an asset-based company and then you end up brokering it out through your brokerage, that is not the way that it should be working.

Speaker 1: 14:02

So I'm just about the transparency on it. I think if you go to a shipper and you've got both authorities, I think it's great because it's like, hey, if you go to a shipper and you've got both authorities, I think it's great because it's like, hey, I own these assets, I can control these assets, and if I don't have an asset available or if my available asset is not the most efficient, I can find you a cheaper option through the open market. So I think if you sell it that way, that's a very good way to go about doing that. And if you're let's say, you're a broker and you're giving a load to a trucking company that also has a brokerage, make sure you're very transparent with them. Hey, it is my understanding that this is going to be picked up on one of your company trucks not brokered out through your brokerage authority. So just transparency, I think, is the answer on that one. What do you think?

Speaker 2: 14:47

I agree and I think what I try to do and I've worked for companies that both did last year is like hey, I explain to the customer listen, we have an asset company. We also have a brokerage. We've got much better service and additional capacity. If I can set you up through our brokerage, we can prioritize your loads with our assets and if you have a preference to only use our assets, we can only use our assets. But if we run into a pinch where you need a load picked up and I set you up through my asset MC, I've got no ability to use my partner relationships and I might have a carrier that's a better fit for that load because it should be positioned as more service. Then I can both broker to my own trucking company and another one. If a load comes up somewhere I don't have a truck or, you know, there's a last minute thing somebody needs help with somewhere else.

Speaker 3: 15:30

Good deal. One of the things I would point out, just as I'm currently dealing with this, is your presentation matters and the one thing I would Correct and so I would be very persistent on making sure that you know it's not a dual authority. You'll have separate authorities. I would even go as far as trying to make sure that the names of your companies, while they may be close, aren't the same and you keep everything separate different domain names just so that when a broker is looking to use your assets, they're not going to be. Well, you're a brokerage, because not only is the new authority going to cause you problems and trying to get established and set up, but if they can see that you're tied to a brokerage there without even talking to you there, a lot of these people are going to disqualify you just because of the vetting tools and stuff. Um, I would still be transparent about it and let them know like, hey, we do have a brokerage, but in trying to keep those entities separate will benefit you in the long run.

Speaker 2: 16:32

I have one last question that segues from that and is also related to the podcast that we just recorded on the regulation right. So I was looking at an agreement with a large shipper recently that and this is pretty common, I think practically that they are requiring their brokers to sign their agreement that is written to a carrier, right, okay. And the company says if you don't sign this, you can't work with us. Our other brokers have signed it. This is what is required to do business with us. So I was curious because I looked back at the MAP 21 regulation, back to regulations, right, this is like in like 2012 or whatever. The regulation right and I'm going to read this right are designed to ensure that brokers and carriers operate transparently within their legally defined roles, which is what we were just talking about. And it says, by signing the agreement, as a motor carrier, you are representing to the FMCSA, your partners and the industry that your brokerage is a motor carrier for this transaction. And it said, regulatory agencies like the FMCSA would hold your brokerage accountable for this misrepresentation. So we have a regulation that is supposed to make sure that it is clear that the agreements between a broker or a carrier are written to what they are, not what they aren't.

Speaker 2: 17:58

Now, that's the intention of the regulation, but in practice, if a shipper says you can't work with us unless you sign this as a carrier, what ends up happening? Brokers just end up signing it, right. And then what happens beyond that? Because the regulation had almost no effect, in some of these situations they're still holding the responsibility of the brokerage, right. So then the brokerage can be held liable in court, even though the shipper literally made you sign the agreement or you can't do business with them, right. And it's just like another example where free markets actually will win out, even when there's a regulation in place. Because what do you see in practice? Brokers are like dude, I need to move the freight, we'll deal with this later. Sign it, however, they ask right. And then for the side that it was supposed to help and then doesn't hold the company, that is actually making people sign the incorrect agreement in the first place, right?

Speaker 1: 19:11

Exactly Well. Good questions, keep sending them our way and, stephen, thanks for joining us today. Ben, any final thoughts here?

Speaker 2: 19:21

Whether you believe you can or believe you can't, you're right.

Speaker 1: 19:25

And until next time go Bills.