The Truth Behind Rate Transparency | Episode 272

Speaker 1: 0:19

Welcome back. It's another episode of the Freight360 podcast, and happy Thanksgiving for everyone that filled up on too much turkey yesterday, and happy Black Friday. The day this drops will be Friday, if you're brand new. We've got all kinds of other content. Please check it out at our find the Freight Broker Basics course for an educational option.

Speaker 1: 0:43

Today we're going to talk a little bit about the state of the freight brokerage market as it stands. We'll talk a little bit about where the market's at compared to where it has been in the past. But more so we're going to have a discussion about rate transparency and CFR 371.3C, which has been a pretty hot topic over the last couple of weeks, and we'll kind of give a background on it, a history on it and what's led up to the reason that it's gotten to be such a household discussion for those in the freight world. And our producer, steven the intern, is going to be joining us today as well as part of the discussion. Steven the intern is going to be joining us today as well as part of the discussion. He's pretty active on X and LinkedIn and he's kind of the driver behind a lot of our socials. So if you guys see any interactions from Freight360,. Chances are it might have been Steven behind the keyboard on that one. But yeah, ben, what's going on today?

Speaker 2: 1:39

man, how are you Doing? Well, man, looking forward to the holiday, looking forward to just relaxing, hanging out with the family. Nothing planned, probably just going to cook some steaks or something tomorrow, I don't know, we'll see.

Speaker 1: 1:53

There you go. Yeah, we record on Wednesday, so it's just before Thanksgiving. Here in Buffalo it's like the calm before the storm. We have this lake effect snow storm that's supposed to come through A little bit of snow tomorrow on Thanksgiving, and then more so Friday, saturday, sunday and into Monday even possibly. Predictions are all over the place. I've heard anything from like two inches to four feet, so we'll see how it pans out, but we haven't had any snow yet this year.

Speaker 2: 2:19

Nice holiday weather. You guys picking up your Christmas tree or anything this weekend.

Speaker 1: 2:22

It's already up, man. The tree's already up in the house. We started putting lights on it yesterday and we'll get it decorated, I'm sure, this weekend. So it kind of worked out good. I got the whole house ready for winter, got the plow stakes up on the driveway and cleared out all my patio stuff, got the garage all prepped and my Polaris with a plow on it ready to clear whatever snow comes our way. So we're ready, man, we're ready. Yeah, Steven. What's going on in Cincy?

Speaker 3: 2:55

Oh, not much Cold. Not as cold as you, I'm sure what has been like hovering in the 50s, but my backyard is finally near completion.

Speaker 1: 3:07

Yes, almost that looks awesome.

Speaker 3: 3:10

Yeah, I'm excited for that. I'm going to in the essence of the topic this week. I'm going to name my backyard the Ripper's Lounge because I only get large margins on my freight on all your websites yeah, the rippers lounge the rippers lounge love it all, right?

Speaker 1: 3:32

well, uh, we'll get a little sports recap here before we get into some news, and then our topic today um bill's out of bi-week, so that was cool. Um steelers, what happened?

Speaker 2: 3:44

there. I don't know, man. It was definitely a fun game to watch, but a hell of a disappointing outcome. I mean definitely a couple of calls I think could have went the other way, but I mean, at the end of the day they definitely shouldn't have lost to the Browns, but it is what it is.

Speaker 1: 4:00

I went to dinner with friends that night and we were watching it or we were just kind of tracking it. I was like there's no way Pittsburgh is going to lose this game. And uh, yeah, sure as shit, cleveland pulled it off.

Speaker 2: 4:12

But I'll tell you the sentiment in Pittsburgh leading up to it was concerned. For sure I don't think Tomlin has ever there was some stat about like, like overwhelmingly losing on Thursday night games, like I don't remember what it was, but he just has a very, very terrible record for Thursday night games and I think also the Browns had won either on the past Thursday night games or something over the past few years, like it was. I can't remember what it was, but there definitely wasn't a lot of enthusiasm from the Pittsburgh you know sports media leading up to the game. It was more like this should be a game people should be a little more concerned with and aren't Short week coming off the Ravens game and a big win and yeah, still can't believe they lost that game.

Speaker 1: 5:03

Other. So I mean we're coming down the back stretch of the NFL season here, heading into December. So it's pretty clear who the frontrunners are. So in the NFC, you've got Detroit and Philly are kind of like your real strong suitors, it looks like. And then AFC, obviously you've got Kansas City, buffalo, baltimore's looking strong. I mean, at the end of the day, I mean you get seven teams on each side, they're gonna make it to the playoffs and it's pretty much a fresh new season at that point. Besides, you know the one seed to get the, the, uh, the buy. So we'll see. I'll be at the sunday night bills game hosting the 49ers. We'll see how the weather potentially could impact that College. Actually A couple of upsetting games, depending on where you fall. But the Florida Gators, unranked, beat Ole Miss last weekend on Saturday and Colorado Buffaloes. That's Coach Prime Deion Sanders. He took a loss to. I think it was Kansas which hurt them for their playoff odds.

Speaker 1: 6:13

I love this time of year, man. There's so much sports going on. Oh, the Las Vegas Grand Prix was over this past weekend too. I didn't stay up to watch it because it's on at like one in the morning. I didn't stay up to watch it Because it's on at like 1 in the morning. Yeah, they put the crown on Max Verstappen as the Driver champion for the year, even though he didn't win the race, but he had enough points.

Speaker 1: 6:33

Alright, let's go news. I'm going to reference our newsletter that came out Tuesday this week. We won't have one coming out Thursday Because it's Thanksgiving, but I'll hold off the broker transparency news for our full discussion on it. So, uh, this was interesting. Um, you had the big echo global logistics uh court case, did you see that? So, basically, um, it was basically a win for brokers. So, it said, a South Carolina court ruled that Echo Global was shielded from liability in a 2022 fatal crash involving a hired carrier. The case hinged on the Federal Aviation Administration Authorization Act, which preempts state laws affecting freight price, route or service, and it goes on to talk a little bit more about that. But basically, now you've got a big case like that. That's where a lot of future decisions they'll typically base them off of historical precedent. Right, exactly For sure.

Speaker 1: 7:38

Another one here Thanksgiving Freight Surge, and this one came from. What site was this? Uh, freight waves. Um, as I just closed it out, where was it? Um, freight activities heating up. We'll talk a little bit more about the market shortly here. But volumes rebounded about two and a half percent week over week after a sluggish start to november. Outbound tender volume index is up 11% compared to last year. Rejection rates rose to 6.11% nearly double the lows from earlier this year. So we'll talk a little bit more about that and national prices during the episode today, but these are all a little bit of glimmers of hope.

Speaker 1: 8:18

And then from DAT, dean Croke had a piece on steel. So I know you used to move steel right, but it was basically US steel production hit a six-year low this fall, plunging 7.3% month over month and 4.6% year over year. And it goes on to talk a little bit more about tariffs, and we're going to actually answer a question about tariffs on our final mile. That'll come out on Tuesday. So, but make sure to subscribe to that newsletter.

Speaker 1: 8:47

We get you guys all the latest content of ours and the what we think is relevant, important news to kind of keep your keep your pulse check on, and that'll come out every Tuesday and Thursday. Just go to the website Freight360.net and there's a subscribe option for the newsletter. Okay, great transparency. It's been all over social media. I think my favorite honestly was and I might have to lean on you guys Stephen can probably give me a rundown on it, but James Lamb calling for Ken from DAT to to be fired Is that what it was? Yes, can you give? Can you give us the rundown on the heated debate here on who's yelling at who? Ken stuff is hilarious. If you don't follow Ken, I think he's like the freight nerd is his handle.

Speaker 3: 9:38

Yeah, yeah. So so Ken's the, the freight nerd on X and and the. So Ken's the freight nerd on X and the guy is just I don't know if it's one of those. He's a very personal person, he's been on the podcast, but just the way he writes on X, it's just perfect trolling, especially from someone who has the data. It's fantastic.

Speaker 3: 10:05

And and the issue with James Lamb and the SBTC and kind of the position that they're coming from is that they're they want to conflate this, uh, these definitions of commission and margin to kind of blur the lines of what broker transparency really means, Cause there's a historical aspect to it. Um, but James Lamb and the SBTC James Lamb, specifically, had been involved in some litigation with a prior company that we don't need to get into, but Ken has called him out on that and he's got his lawyer that anytime Ken says something about it, he immediately fires off an email to DAT calling for him to be fired. This isn't the first time he's done it and unfortunately, it probably won't be the last, but it's humorous, to say the least.

Speaker 1: 10:52

Yeah, so I want to. I'm going to revisit what the current transparency laws are and what is being proposed. So if you guys recall any of our past content for the last few years now, one of the points of discussion during the lobbying in DC on behalf of the TIA's policy forum has been surrounding rate transparency. So the actual regulation that's on the books now is CFR 371.3C. If you want a full breakdown on it via video or blog, you can just search that on our website. We did a video and a full blog on it and I think Stephen's going to have an article coming out here as well. But essentially this was created. We're going back about almost 45 years now, so 1980, deregulation. So prior to this point in time, all trucking rates were published by the federal government and there was no alteration to it. So let's say I'm taking a truck from Chicago to Atlanta, there's a published rate, there's no negotiating, no discussion about it. That's the rate, that's what you pay.

Speaker 1: 12:11

Freight brokers did exist in this previous period, but they operated in a very different role from how we operate today. Ok, now when deregulation happened and rates were allowed to be market based meaning supply and demand is now part of the way that we price things. Right, if there's high demand and a low supply, you're going to pay more for that available supply. Right, if there is a high supply and a low demand for it, well, you can get pretty cheap access to that vast supply. In the middle an equilibrium, that's your market balance. If you've ever taken an economics class, you've probably seen the chart. It shows a curved line going up and a curved line going down, or sometimes a straight line, depending on whatever business model is. But that middle ground is your equilibrium, where supply meets demand.

Speaker 1: 13:01

Ok, so deregulation happens. Brokers are still operating differently than they do today. So at first the motor carrier still worked directly with a shipper, shipper. And if the broker helped that motor carrier with that load, then the motor carrier was the one paying a commission to the freight broker 10% maybe something like that. Okay, so let's say, you know, I'm a broker, I helped my trucking company find a load with a shipper. Shipper still pays my trucking company directly and then I get my commission from the trucking company. So in order for the freight broker to be sure that they're getting paid the correct amount, there was a transparency law CFR 371.3C that was established and put on the books to make sure that everyone knows how much money was exchanged, so the commission would be paid properly. I have a question about that but that was pre-regulation, right.

Speaker 2: 15:19

Like that was pre 1980, when every lane had a certain dollar per mile on it, right? What was the point of transparency If everybody could see what the government mandated on each lane?

Speaker 1: 15:34

Steven, do you know when the? Do you know Everybody could see what the government mandated on each lane? Stephen, do you know when? They? Do you know? I don't have the exact answer on when it when it switched, but I believe it was shortly after deregulation that it became a two transaction system. But at first it became deregulated and because of that we needed to have transparency to ensure and because of that.

Speaker 1: 15:52

We needed to have transparency to ensure that we were being, but it was. I want to say it was within like a couple years after that that then the freight broker was allowed to start invoicing the shipper directly and then paying the truck. So either way you could, if anyone wants to fact check us or correct us on the dates, that would be great. But the takeaway here is that at some point the way that the transaction happened changed. The CFR 371.3C was actually there to serve the broker as the primary person to be paid properly, so then it became a two-transaction process. Freight broker is now the middleman. Freight broker finds the load from the shipper and invoices the shipper. Shipper pays the broker. Broker then in turn as it still happens today pays the truck a lesser amount. That difference is their margin, which used to be paid as a commission from the trucking company.

Speaker 1: 16:47

In a free market deregulation the way that it was designed to be that becomes an outdated regulation. Then at that point and it should just be totally stripped and that's what we've been pushing for for years and years now is to just totally do away with it because it makes no sense. It violates a lot of our customers' contracts. Brokers are often required to put verbiage in their broker-carrier contracts that would null and void or basically waive that right for the carrier to request it. So where CFR 371.3C now currently stands is that it requires a freight broker if a motor carrier requests a list of their financials and the margin and the pricing on that load, the broker is required within $40 to produce that to the motor carrier.

Speaker 1: 17:41

The issue now being a lot of brokers don't. It's a very manual process. Not everyone has it automated the same way. It's not all digital. A lot of times it's just on it's paper. So we get to where we are now. A couple months ago a notice of proposed rulemaking was announced by the FMCSA. So the FMCSA again, they're the body that governs brokers and carriers, right? So brokers have lobbying organizations like TIA and carriers have them as well OIDA and some others. So the trucking side they want to push for a revised rulemaking that would kind of update this and make it even more in favor of the truck. So here's where it's go ahead, ben, what do you got?

Speaker 2: 18:30

The thing that I've heard and Matt Leffler said this, we were listening to this same discussion on X right before is that the FMCSA right, it is a safety organization, okay, and its main objective is to keep the roads safe, the trucks safe, compliance things like that, which they have been long behind in keeping up with the standard and goal of safety.

Speaker 2: 18:55

The second is it's kind of ridiculous, I think, in all politics that they're putting this out there in the midst of rampant fraud and inability to audit carriers. Update safety ratings do their main objective and yet they're like oh, here's something for all of you to talk about, while we don't do the thing that we're supposed to be doing, or addressing this roughly billion dollar a year problem that is literally costing the entire economy from truckers, brokers and shippers tens of millions of dollars. And they want to bring out rate transparency. And the last point that he made is that they don't even have the authority to make a broker waive the rights of their customer, like, even if the FMCSA said, hey, you should give these to carriers, they don't have the authority to override the legal agreements we have with our customers that prevent us from doing it. It would have to go through Congress and all of it just seems kind of like a moot point at the end of the day and distraction to seem like they're pandering towards a larger group to just get some bonus points. I guess.

Speaker 1: 20:05

Yeah, no, you're exactly right, and that's been one of the main arguments from the brokerage side is that the FMCSA. It stands for Federal Motor Carrier Safety Administration and the big point is like what?

Speaker 2: 20:18

does that have to do with safety.

Speaker 1: 20:20

It has nothing to do with safety and, to your point, when less than 10% of the motor carriers out there have a safety rating from the FMCSA, that's obviously a bigger point and all the fraud Right. So really quickly I'll run through what the proposal is for this new rule and then we'll get into kind of the reaction from the community here. So the proposed rule change would be brokers must provide records of each transaction, including all payments, fees and charges, to motor carriers and shippers within 48 hours of request. Intent here is to improve transparency and maintain electronic records. So brokers would need to keep electronic records of transactions, making it easier for carriers and shippers to access and review them. This would be intended to promote fairness and reframe the broker's duties, which would make transparency a regulatory duty for brokers, not just something by request. So we go from hey, they technically have the right to do it to hey, brokers, you need to change the way you're operating so that this is going to be a mandatory thing by regulation. Think about the small broker out there who is using a very cheap or maybe a free TMS and doing their own accounting, and now you're going to add on to that requirement that they've got to create some electronic records to provide to all their motor carriers. It just seems like huge overreach. So anyway, that is the. Those are the facts.

Speaker 1: 23:14

And here we are now. The way that lawmaking works in our country is that, you know, in this, in this case at least, we're not going to talk about, like you know, bills and how they get through the House and Senate, but when a proposal is made, so the FMCSA has this notice of proposed rulemaking and they open it up for public comment. And in this case you've got until January. Let's see here. There's a link in our newsletter for it, but this one is open for comments until 55 more days, which is January 21st. All right, so basically just under two months, and at that point it'll move to the next step. They'll digest those comments, but please, you know, go comment on this, let your voice be heard. So those are your facts. That's where we're at. What does this? I guess we'll go to Steven here. What's the reaction been across social media? Who are the players on various sides and what's everyone's take on it?

Speaker 3: 24:22

from what you're seeing, so the majority of what I've seen is and it kind of echoes the political landscape as a whole the loudest group tends to be the smallest one.

Speaker 3: 24:40

So your owner-operators, the people that represent the smaller carriers, and stuff like that OIDA, the SBTC, which is the Small Business Transportation Coalition, that represents smaller entities and if you, if you do talk to a larger carrier, their impression is they don't care, they, they want less regulation, whereas the smaller carriers they, they're pushing for this, whereas the smaller carriers they, they're pushing for this. And some of the points are you know, they're misinterpreting the original intent of the regulation that we kind of discussed earlier and they're trying to get that transactional data so that they can better negotiate, when in reality, if they want to negotiate better, they would just know their operating costs and not rely on the brokers to tell them well, you know, that's the rate, you know, at the end of the day, it's a decision and to think that any data 48 hours later is going to make you a better is a it's a disservice to them.

Speaker 1: 25:55

I almost feel like they want to see our records because they think that the average margin is like 40% and they want to be like this is BS. We need to regulate this so margins are lower when the data shows, like Ken Adamo has posted numerous times, the average broker margin is not 40%, it's maybe in the teen, it might be 14, I think is one of the ones that I saw him showing. There's been numerous studies on this over the years. Freightwaves did one like five or six years ago and it showed roughly I think it was like 15.3% was the average margin, which is, you know, 15 is like kind of that standard number we use a lot and if you break down in more detail some of the data that Ken has shown, you have brokers that take like 40% losses on certain loads because that's part of their overall business strategy. Like Ben, I'm sure you've probably done it before where you might run at a loss with a customer for a little bit.

Speaker 2: 26:54

Twice yesterday, right Twice yesterday. Book loads at losses and some of this is just incredibly absurd. Like, honestly, from an economic point of view, I have never seen this heated of an argument that has absolutely no economic basis for actually doing the thing. People think it will, and Ken's pointed this out, and this is what I like. I want to think it will, right, and Ken's pointed this out. And I want to read this definition right, because this really gets at the point I think. So there's a term in economics. It is called price taker. It's not derogatory like. It has an economic definition right.

Speaker 2: 27:32

In economics, a price taker is a company or individual that accepts the prevailing market price for a good or service and is unable to influence it. Price takers are unable to influence the market price because they lack the market share or power to do so. Right. Farming is also an example of this. Any one individual trucking company is not large enough to move the market. And also, lots of people think brokers are large enough, and if you look at the share of market share of even the largest brokerages, if you take the top 20 and add them all together, they're still too small to influence the market, maybe on a lane here and there for a short period of time, but they cannot influence the entire economic model of shipping. Right Is the first thing.

Speaker 2: 28:25

If carriers actually did want to be able to influence pricing, what they would need to do is operate kind of the way they did when the mob ran trucking 60 years ago, where they were all in a union and they all worked together. Because if literally every carrier just take in a city, if every trucking company that needed a load out of Houston, texas, today all refused to take a load for less than $2.50 a mile, freight would not move until all of the company's shippers not brokers paid $250 a mile. But what actually happened is brokers would lose money that day. The next day they would lose money. The third day they would go back to their customers and go listen, we can't move anything out of Houston for less than $250 a mile. You need to pay more. That shipper is going to call a bunch of carriers that are all going to tell them the same thing. Now that creates the floor. They would all need to work together. So the problem is the other trucking companies are like you know what I want to get out of here sooner and I don't want to take the pain of waiting, I'll take it for a buck 95. Well then the rates fall right back down to the lowest guy willing to run it. That's what's actually happening, right. They do not have the ability to influence it unless they all got together.

Speaker 2: 29:35

Now, brokers are also price takers. We cannot influence what a shipper pays, so it goes all the way up economically to a shipper. Now what's a shipper's incentive? A shipper does not want to pay for shipping. They want to pay to make and sell the product they make money on, whether it's ketchup, washing machines, steel coils, whatever they make and sell. The only reason they have to pay for shipping is because they need to get the product there for their customer to give them money. They do not look at it as anything that makes them money. It is a necessary expense. So the motivation.

Speaker 1: 30:09

It's kind of like packaging. Correct the packaging is a requirement that you hate to pay for. That's why you see a lot of companies try to squeeze a little bit of savings anywhere they can, and it's shipping, it's packaging, it's you know a variety of other things that aren't the actual product itself.

Speaker 2: 30:27

So this is free market capitalization, right? This is what the United States is literally founded on. This premise, okay, and it is free market competition. If I'm selling a widget and you're selling a widget out of Houston, right? My goal is to be more competitive than your product. I can either make it better, I can get it to my customers faster, or I can sell it cheaper, okay. Well, in order for me to be cheaper, I have to eliminate as many expenses as I can, so I never have an incentive as a shipper to pay any more than the absolute minimum to get my widget from Houston to wherever it's going.

Speaker 2: 31:03

Okay, so why do rates ever change in the first place? Okay, so all of the shippers are all trying to pay the least amount possible. The only time rates start coming up is all the way back to the carrier side. One of two things needs to happen. They literally can't get their widget picked up and delivered by when their customer needs it. So, okay, I was paying $2 a mile and nobody will take my load. So now I'm going to offer $2.20 a mile and see if someone will pick it up to take it to my customer, and until that number is accepted by a trucking company that moves it, it will keep going up. But if other carriers are willing to take it for less, it doesn't go up. Right, that's it. It's just a correlation between service and price. When there's not enough trucks in a market to move all the freight, that's there. Rates start to go up because the things still need to move. If there's too many trucks and everyone's willing to take them for the lowest rate, that's where the economics fall. Whether one company sees all the way through to the other side doesn't change the fact that a motor carrier or another one is willing to run it for less.

Speaker 2: 32:09

And that's the other part. That makes no sense to me. Because if, let's say, steven ran that load for me today from Houston to New Jersey, okay, and let's say he found out I paid him two bucks a mile but I made 50 cents a mile in margin, say I made that'd be what? 25%, okay, so Steven gets my rate Friday and he's like, oh my Lord, he made 25% on that load. So now I have that load next Wednesday. Steven's like hey, man, I'd love to take that load for you, but I need $2.45 a mile because I saw you made $2.50. And he goes Stephen, thanks for your offer, but Nate is on my other phone right now and he's willing to run this load for $2 a mile. So I'm going to take Nate's truck. So you got to see it and all it did was incentivize me not to work with you next week.

Speaker 2: 32:53

That is not even in the best interest of your trucking company. Week, that is not even in the best interest of your trucking company. You're in the best interest of the trucking company to get more freight, provide better service so that I can try to get you more money on this and I get something in return. All this would do is make me more transactional as a brokerage All of them would Because every time the guy comes back and tries to argue for a different margin, you're just going to use a different trucking company, which makes it harder for them to even get freight in the first place.

Speaker 1: 33:24

Like it doesn't even achieve the thing I think people think it will. Like it does the exact opposite. Yeah, that's a really good point. It's like okay, so what? Like you find out that I made, you know that I made a margin what? Now you can't go back and say you want more money. And then the other thing too and I'm curious, stephen, your take on it is like the accessorials part of it, like there are. There are many times when a customer will pay detention and we pass it right through.

Speaker 1: 33:46

And there's other times when a customer refuses to pay detention and we will choose to eat it ourself out of our own pocket and pay them.

Speaker 2: 33:54

By the way, I emailed this to you yesterday we just set up a customer and they're just literally not paying detention. And guess what we're doing? Paying all the carriers detention and then next month we're going to increase our rates to cover the carrier's detention. But all month, every single time a truck delivers and they're delivering to like food places, right, some of them are 11 hours we're absolutely paying this out of our pocket because our customer said we're not paying detention. Next time bid more, put margin on it, because it doesn't happen that often. But we also know that that shipper also is probably charging their customer detention and just keeping the money.

Speaker 1: 34:30

Yeah.

Speaker 2: 34:30

It's literally happening to us right now as a broker, as if we're just pocketing all of this money and we don't come out for losses to move this stuff.

Speaker 1: 34:39

So I think what's funny, too is like, if you look back to 2021, when rates were so high and you know, trucking companies were making all this money and brokers were too. No one cared then, nobody does. And brokers were still making a lot of money then and carriers weren't complaining about it. And brokers were still making a lot of money then and carriers weren't complaining about it. And now the issue is that, because the market has dropped the last couple of years, it's exposed a lot of the financial weaknesses of these trucking companies that they've got high expenses for maintenance, for loans on their equipment, lifestyle creep right, whatever you want to call it. And now it's like you're not operating efficiently, you're running dead miles, you have your truck out of service because it broke down, and now it's a loss of potential earnings. And now they're like well, the brokers are you know they're raking us for work.

Speaker 2: 35:30

It's their fault, it's not my fault for managing my cash flow this way, not saving enough money, managing my expenses or whatever it is that I'm doing. Let's call the government to come run in and bail us out and regulate the whole thing to fix our financial issues of our company. To me that's also just asinine.

Speaker 1: 35:46

Steven, what was the? You had like a hypothetical suggestion that you offered up to one of the guys on Twitter about transparency. You know what I'm talking about.

Speaker 3: 35:56

Yeah, yeah, so I'll go into that. So one of the thought experiments that I considered and I think it holds some ground, especially if you look at Ken's data that he puts out with the 12 to 16% and the fact that there was a thread between ken and craig fuller over freight waves, um, where I'd asked them that the how much of the domestic freight is actually moved through load boards, which is where most of these guys that are complaining are getting their freight um, and they both agree that it fluctuates between two to six percent of all domestic freight is on load boards. Everything else is being that's straight from. That's it. Two to six percent. Whoa and and the, the sonar people and the dat people came to agreement on that fact which. So this is what we're arguing over two to six percent, and to think that that would have any impact on the market is insane. So if you run through the thought they're going to get transparency, we have to give them these records and they're going to get hit with this realization that, oh, the margin's not there.

Speaker 3: 37:09

So what's the next realistic step? Well, the shippers now have to provide their transparency. So what? We just go back to regulation and now you're left with the periods of the motor carrier act of 1935, where now carrier authorities are relegated to geographical areas and specific commodities, where trucks at that time were being routed out of route to pick up loads that they were legally allowed to carry. And that's it, um, which was a significant inflationary period for our economy. Um, I think, uh Leffler had made the comment that when they signed the motor carrier act of 1980, that it would be a think he said, 10 billion dollar reduction in spending. Um, there was a, an article I read when I was writing the article, that there was a 48 million dollar reduction in cost on holding product post 1980 because we were able to adjust our supply chain to a just-in-time model versus holding everything because everything was so delayed. Yep, um, so a couple of like that's the main is like, what they hope to achieve is not and in any way accurate.

Speaker 1: 38:31

Um, I want to add that they think this because you talk about the shipper transparency and to give people context, you ever buy something online and you got to pay for shipping right. I can tell you that that company that you're buying from is not losing money on that shipping right.

Speaker 2: 38:50

Literally.

Speaker 1: 38:50

And if you extrapolate that out to a large company, let's say I make widgets and Ben is my customer, I'm a supplier of his, and I say all right, here's the price of the widgets, it's $80,000. There's $2,500 added on for shipping as well. That $2,500, well, that actual shipper might be paying a broker $2,000. And the broker's paying the carrier maybe $1,800, right, or I don't know whatever it is, but everyone's making money on this stuff. That's capitalism, exactly. But then it gets to a point where if you're the carrier and you're going to say well, the broker made $200. And then the broker's like yeah, well, the customer made $500 on that shipping charge. So then what happens Then?

Speaker 1: 39:45

If I'm the one making widgets and then, Ben, you're like what you made $500 off of that, you start to expose all this. And that is not the way that our economy and our country operates. We operate based off of is the price I'm willing to pay? Is that price worth it to me? Am I willing to pay that? And if the answer is yes, then that is a fair market value. If it is not, then it is not a fair market value and I will not buy it.

Speaker 1: 40:12

And eventually someone will buy at whatever price, and that becomes the market value.

Speaker 3: 40:15

It's just the way that capitalism works buy at whatever price and that becomes the market value. It's just the way that capitalism works. So one of the arguments that they would levy in response to this is that well, your stockbroker, your financial advisor, your real estate broker, they're required at a specific percent of commission and Craig Fuller put out a tweet on this topic just this morning, which is very true is the difference between a stockbroker or a real estate broker and a freight broker is the freight broker has a principal risk, a principal monetary risk, because we are held to the rates of the shippers and we can only make, whereas stockbrokers and real estate brokers there is no risk of money. They don't have their money in there.

Speaker 1: 41:05

Yeah, they're also literally the way that we used to operate, where they're paid a commission. Like you buy a house, who's paying who? The buyer pays the seller. Right and the seller pays a commission to the agent.

Speaker 2: 41:17

And here's the other part of that. How have you been used to work? The other part of that that makes zero sense, right? The first thing I want to say is regulating anything to that degree makes all of the markets inefficient. Like we have a model of how that played out, right? Like you could look at the USSR and you could look at the United States over this period, and there was like this famous meeting I think it was Gorbachev, maybe, or whoever was before him, maybe Khrushchev, whatever is meeting with Reagan and he's like how do you guys figure out bread? And Reagan's like what do you mean? He's like we can't seem to be able to get bread in the right places where people need it. We have lines of hundreds of people because either we run out or we don't have enough or we have too much. Right, capitalism and free market capitalism is what allows things to grow and function right. Like that is why it's more efficient. Sometimes it expands and everybody does more, and then eventually it expands too much and it has to contract and get smaller until it gets to equilibrium again and it goes a little past that. Then it goes in cycles again. It's a big circle, right? That is the way everything in our economy functions because of this right, like at any industry and anything you look at.

Speaker 2: 42:28

The thing about stock market and the real estate example also that makes zero sense to me is if you buy a share of Apple today or tomorrow or the next day, it's the same share of Apple. Okay, I might have a load today that is completely different than that same load tomorrow. I might have a load from Memphis to whatever New Jersey today, right, and it might be 40,000 pounds and it might take an hour to load and an hour to unload on each side. Tomorrow I might have a load from Memphis to New Jersey. It might be 20,000 pounds, but it might be floor loaded and it might take five hours to load and unload on either end. Are those two loads the same? They are not. Now I could have that same load three days later where my customer didn't know that order was coming in. It urgently needs picked up and it's very important for their supplier to get that load of whatever it is in less time. So now my shipper is willing to pay more money to get that load moved because it's more important to get that product when that customer needs it. Now they pay me more.

Speaker 2: 43:35

All shipments for one are not created equal like stocks or real estate. They have different things and variables that make them priced differently. There are different needs of service on different loads and shipments on the same miles driven right. So there is for sure not homogenous or the same of freight. In the same way these comparisons are used.

Speaker 2: 43:56

And now let's look at the other side carriers and drivers. And I'll bet if you ask, everyone will tell you there is a difference between an experienced driver and somebody that has been driving for two months. Is one more likely to get into a wreck? Is one more likely to have a claim? Is one more likely to be there on time than the person that's just learning to drive a truck for a few months? Clearly, the longer you do it, the better you're at it. Okay, now let's look at the equipment. If one doesn't spend proper money and time maintaining their truck and the other one's driving a brand new truck, which one has a higher likelihood of it breaking down between point A and point B? Okay, there are different qualities of both the operators, the things they're operating, the freight that goes in it, that make all of those things ridiculous.

Speaker 2: 44:43

So let's say, this guy looks at my rate tomorrow in 48 hours and goes oh, ben made 30%. But two days from now my customer goes look, I don't really need the load moved, but if you've got a truck that needs it I'll give it to you. So now that driver calls me and he goes hey, do you got another load? I'm back in Houston and I go my customer doesn't have any. But I'll call my customer and see if they have a load for you.

Speaker 2: 45:04

Customer goes didn't need moved for two days, but if you've got a guy there that needs the load, I'll give it to you for 15% less than the last one because, like, I just don't need to move it today. But if your driver needs it, I'll give him the load, we'll get it together and he can take it. Now the driver looks at the margin on that one it's completely different and goes well, why are we getting paid differently on two different loads? Well, because my customer had a different need two days ago than they have today, even though it might even be the same shipment. None of these things are the same across days loads, shipments, carriers, drivers or anything that is happening. So it makes absolutely no sense and, to me achieves absolutely nothing. If everybody even knew what we were getting paid on different scenarios.

Speaker 1: 45:45

Yeah. So I want to kick it back to to Steven, to kind of wrap up this part of it, and then we'll talk a little bit about the market where it's at. So, based on everything we've talked about, what are you? Do you have a thought or prediction on where this all goes, or any big takeaways on it?

Speaker 3: 46:06

So, so one of the things that I thought about a lot one, I think. I think the the FMCSA is. They claim to be, you know, I think in their post they said what matters most to you and they're talking about transparency, that's right and even in the proposed ruling they referenced that 80,000 complaints of fraud has been made, but they're going to address an issue that was filed complaints by two associations and 32 complaints. So that's the one thing I want to point out.

Speaker 2: 46:44

And the other thing is it matters most Quantitatively. I'm pretty sure 32 is smaller than 80,000.

Speaker 3: 46:52

So two things on this kind of backs Pet a. You know a lot of these guys are relying on anecdotal information, which happens to be a common fallacy of humans that you know. There's this anecdote that happened. So in reference to the TQL case with Pink Cheetah that they made so much money on. So now that holds more relevance to these people than you know the data that Ken pushes out holds more relevance to these people than you know, the data that Ken pushes out.

Speaker 3: 47:20

But you know, if the FMCSA is to actually tackle this to prevent fraud, the current proposed ruling will not do that. But some alterations that they could consider that I think would be more beneficial to fraud, at least from bad actors on brokers, would be exclude the line haul, because that is our principal risk, that is, our proprietary information. They claim there's an asymmetry of information, but products like that and truck stop and green screens have eliminated that argument. So hinging their proposal on that is also, I think, a disservice and disingenuous. So hinging their proposal on that is also, I think, a disservice and disingenuous.

Speaker 3: 47:59

But what would help small carriers is making accessorials and claims a mandatory transaction that has to be passed along. And why I say that is, if they were to make that mandatory, then that would also mandate shippers to have those assets. So, like the situation Ben's dealing with, that would be something that would be regulated and they would be held to that. So we'd be able to hold the shippers to that and we'd be able to pass that information along, while protecting our rates to the shippers but giving them a little peace of mind and like, hey, you know, this detention did get paid and you're getting all of it, which on here we've advocated for brokers that that should be passed through 100% anyways. And then there was one I've drawn a blank, but I think if the FMCSA was to really do a service to the industry, they would focus on cleaning up their database, looking at the principal place of business issues and eliminating fraud. And the fact that they're addressing this is akin to Congress having hearings on aliens. It's just a distraction.

Speaker 3: 49:17

So, that we can talk about this but not address the real issues of, you know, the detention times of shippers and the safety on the roads, and I mean even case in point. Last week I went through their database on enforced violations. I had it pulled up, I think. Yeah, so there was two year to date. This year there's 3,211 enforced violations of FMCSA regulatory code. They separate them by subject, type, being carrier, broker. There was some like hazmat identifiers in there or whatever, but of the 3,211 enforced cases, carriers were the subject of 3,086.

Speaker 3: 50:04

So the vast majority, almost all of them, yeah, and brokers were the subject of five. And to think that, even if they pass this ruling, that the FMCSA would then follow up on your complaint is ignorant. It's not. They're not, not. They're not doing it now, so why would they do it post ruling? Um, and it's, it's just. I don't see any how, in any way that this would affect who's the last one?

Speaker 2: 50:34

the last one is the fmcsa.

Speaker 2: 50:37

Even if they did change, this would likely need legislative like Congress, to explicitly prohibit the waivers that are in place.

Speaker 2: 50:48

Now, right, and like there's a debate again whether FMCSA could somehow prohibit a broker from putting in their contract or a shipper for that matter that says you are not allowed to disclose our rates, okay, and if you want to work with our business, you need to sign this, right, like that's the right and a free country to say you have a choice. I can't make you work with me and I'm okay if you don't, but if you want to work with me, this is the way we do business. They would somehow need to also prohibit a company's ability to decide how they want to operate. Right, which, again, is even beyond their authority of comical that this is happening. At the same time, we've got the Department of Government Efficiency coming in to start reining in what these organizations are able to do, from the EPA through the Department of Agriculture all the way over the FMCSA. But yet, right before this is happening, the scope of what they're trying to do for sure seems to be getting bigger and the regulatory burden certainly doesn't seem smaller, for sure.

Speaker 1: 52:05

So I'll give my final take on it. I think the complaints and the push from the carrier side of this will go away when rates increase and will make rates increase. Well, there's two things Demand goes up. Supply'll make rates increase. Well, there's two things. Demand goes up. Supply shrinks right.

Speaker 1: 52:33

So here's your stats from DAT. Shout out to DAT for giving us great content and data every single week. Dean Crokes, he's awesome at this. So here's the most recent data for the past week Dry van right.

Speaker 1: 52:44

Remember I said the shipments got to go up and the available capacity has to go down, right. Dry vans, reefers and flatbeds all had shipment volumes go up. Dry vans, reefers and flatbeds all had capacity go down. Those are key indicators of rates going up. Additionally, dry vans, reefers and flatbeds all had both line haul rate increases and load to truck ratio increases. Every single stat across the board shows a trend going in the direction of capacity. You don't want to say it's getting tight. It's literally correcting itself. The natural way that it should be to get us back to a place where there's an equilibrium and rates return to a normal level, versus where they've been stagnantly low for a couple of years now in a free market economy what happens in a regulated economy, or even to the extreme, like a communist economy, where they just tell everybody what they can charge and what they can earn?

Speaker 2: 53:47

right, it's one less efficient. So the other thing I wanted to point out for anybody thinking through this and for sure advocates of this right, okay, let's go back to COVID, and in COVID, when you're able to make $3.50 a mile, remember, you're only going to make $2 a mile now. So in the down times you make $2 a mile. And when it's really hard to go to work and everybody's stressed and nobody wanted to be out of their house and everybody was really praising truckers for what they were doing and keeping the country moving, when most of it was shut down, you didn't get to make that money, because you don't just get the benefit in a down market, you also get the detraction or the loss when you would have made more money. Right? And the other side of that is let's talk about the reason for one second why this actually happened.

Speaker 2: 54:29

Because we all locked ourselves in our house for two years, bought a bunch of shit all in a very short amount of time, bought TVs, remodeled our houses, took mortgages out, put in new bathrooms, spent so much money on stuff in such a short period of time, okay, well, what happens after you do that? For two years, nobody needed to buy stuff for the next few years. So you have people doing less building of homes, less remodeling of homes. You're not going to remodel your house two years after you did it. You don't need a new TV 18 months after you just bought three of them. You don't need a new Peloton. You don't need a new couch. You don't need any of those things because you just bought everything you needed, because you were locked in your house and didn't spend money doing anything else.

Speaker 1: 55:10

So that's what happens.

Speaker 2: 55:11

Oh and, by the way, interest rates were low and there was COVID money being handed out by the government, and in addition to that, right that stimulus that made us buy even more things, all these people that weren't in trucking came and left other jobs to capitalize on that. They came into the industry. More trucking companies bought more trucks, people made more money. They all benefited. Well, that expanded too much.

Speaker 2: 55:33

And then, when the country started buying less things for the next few years even cars, right, all of the prices of these things have fallen. For the same reason supply and demand. When you buy less cars, they don't get more expensive, they get cheaper as a country or an economy. When you buy less goods, they don't get more expensive, they get cheaper, which is what is supposed to happen. That's what makes prices go up, hence inflation. This is why inflation has come down. We're buying less things for the next few years because we bought a bunch of it. Then, right, we have garages full of stuff, so there's less stuff to move.

Speaker 2: 56:06

But the same trucking companies that expanded to take care of the boom are still in business. One major reason because they got COVID money that helped them stay in business longer than they would have, which has also extended this period of three years of a down market, which has never happened. Normally it cycles every year, 14 months, which is why it never seems that bad before it gets better. We just happen to be in this very temporary down market for this long because we were in this crazy up market for COVID, right Like it will work itself out. These things won't be an issue come three months from now and carriers are getting better rates and the market starts moving in a different direction, and everybody will forget all about this, because all anybody ever wants to do is find someone else to blame for their issues, because it's not me or me running my business, it's not me managing my cashflow, it's not me saving money, it's not me buying too much stuff.

Speaker 1: 57:04

The government should come in and fix this. Let them come in right now and fix this, because that's going to solve all my problems, right, yeah, well, hey, this was a great discussion. Clearly we've got three of us that have given some honest thought and feedback on this topic. We're not just opinionated because we're on the brokerage side of it. I've been on all three sides of this transaction. I've been the shipper, the broker, the carrier. So this is market cycles we're going to see it over and over again. Regulatory changes we're going to see it happen. People having opinions on regulatory changes we're going to have. That's going to always be part of the world we live in. Stephen, glad we had you on today and we'll keep keep tracking things on social media to see where everything's going. Ben, any anything else you want to add in or any final thoughts here?

Speaker 2: 57:57

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

Speaker 1: 58:02

And until next time, as always, go Bills.