Understanding Freight Broker Margins | Episode 251

Freight 360

July 5, 2024

Managing margins in freight brokerage is no small feat. We’ll discuss the strategies to balance shipper and carrier needs, the nuances of carrier pricing, and the importance of maintaining healthy margins for financial stability. We offer practical tips on strategic timing in booking loads and effective negotiation tactics, all while underscoring the value of transparent pricing in building trust with customers. Tune in for a wealth of knowledge aimed at helping you foster a sustainable and successful business in the freight industry.

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Show Transcript

See full episode transcriptTranscript is autogenerated by AI

Speaker 1: 0:19

All right, welcome back for another episode of the Freight 360 podcast. It's 4th of July week. We're actually recording this before the 4th, but when this drops I hope everyone is feeling good and doesn't have any missing fingers or appendages from fireworks and is hydrated enough and didn't overindulge. But if you did drink some water and some Gatorade. But happy 4th of July to everybody and to our friends up north. I hope you had a good Canada Day earlier this week. Episode 251. We're going to be digging into some margins discussion today, but first make sure to check out all of our other content. Share us with your friends, leave us a comment and subscribe if you haven't done that. And Freight360.net, you'll also find the Freight Broker Basics course. That's our educational option for how to get started in this industry and build your own company. Ben, how are we doing, man? What does the 4th of July look like for you?

Speaker 2: 1:24

Dude, I have no idea. Probably housework, to be honest, yeah congrats.

Speaker 1: 1:28

You just moved into the new house, right. How's it going? The?

Speaker 2: 1:30

house is great, but there is a laundry list of things that need to be done, some immediate, some long-term, and just trying to work through all of those things while unpacking, while moving freight, while doing all the other stuff.

Speaker 1: 1:45

Yeah, I can see you got a slightly new background there. You have the same stereotypical picture that you normally have, but how's?

Speaker 2: 1:53

the office.

Speaker 2: 1:54

I also have the thing I got from you, the Buffalo Polish, which is right in front of it. My office is now mine, which is awesome. I'm no longer sharing it. I used to kind of share it with my wife, so now we both have our own offices. So I got like a full putting green behind me. I have quite a bit of room, got my own bathroom and I'm trying to decide actually what the background is going to be. I was trying to think about what I want or what it would look like, don't know yet. I was thinking about doing something like super commercial, like freight 360, maybe doing like our logo on the wall behind me. I don't know. Brainstorming different ideas, all gold, everything, yeah, um.

Speaker 1: 2:33

Well, for anyone listening that's a homeowner or thinking of owning a home someday, here's the one thing I'll always say is, a house will take as much of your time and money as you want to let it have and take. So when you said I've got a laundry list of things, dude, it's hilarious. I do too. I have a laundry list of items from my last house that we never did and it's probably in my phone somewhere, and I've been in my house now for almost two years. I have a pile of pictures that go on the wall that have not been hung up yet on my second floor. So, um, yeah, things to get done, they'll get done, um, but yeah, that's a nice point.

Speaker 2: 3:09

I'm not in a rush. There's some things you want to get to obviously be able to live in it. So I mean, like those things more like unpacking the garage and getting pots and pans and the cupboards so that we can cook and unpacking my closet. That's going to take like the better part of your day. But yeah, to your point, beyond that, like I'm not in a rush to do a lot of them, I've got plenty of time to do for sure.

Speaker 1: 3:28

Yeah, for sure um, what do you do for the fourth, by the way, so we have it's always a busy, busy holiday for my family, um, and my wife's family, so like it's like a whole thing. The third, which is today we're going to be doing, we're marching in a parade. My wife's cousin is the district attorney and he's running for election this fall, so we're doing a parade for him and then having a party at our house tonight, and then tomorrow another family party, another parade, fireworks, the whole nine. So it'll be good. And then, I don't know about Friday, it's kind of like You're like Kind of already At the weekend At that point, but I'll probably Get some work done and then Eat some leftover food and whatever fireworks Haven't been shot off, I'll get them Set up in the air.

Speaker 2: 4:19

So I'd like to be able To do that. We'll see. Like I know, a lot of our neighbors have boats and we got a dock out back, so I don't know. Maybe someone will take that out. I know they do fireworks down by the beach and they're supposed to have something at the pool or whatever. We haven't met anybody. I haven't even literally walked around the neighborhood yet. So, and probably a lot of that this weekend as well as nice whatever there you go um.

Speaker 1: 4:38

I don't have anything for sports, is there?

Speaker 2: 4:41

anything, nothing sports related. I did see though and I can't remember the exact number, it was a post, but it was sports related scotty shuffler finished with an average score I think last year, or maybe like year to date, was like 68.73, and he's seventh of all time, you know, for lowest average throughout, I guess, guess the entire season. And the other interesting thing was Tiger has won through six, like literally the lowest, the second, the third, the fourth, the fifth and the sixth, and then Scottie is now seventh for lowest average through an entire year. But I thought that was pretty interesting stuff.

Speaker 1: 5:18

Well news. The big rumbling this week has been CH Robinson the report. It came from Freightwaves, I think, initially, and it was like they laid off 70 people or 80 people or something like basically half of their sales team and we're like everyone's, like they're the largest freight brokerage in the country there's no way.

Speaker 2: 5:37

They only have 150. And it's like smaller than an office at TQL, like that's smaller than a small office at TQL. There are floors in the Pittsburgh office that had that many people at TQL yeah.

Speaker 1: 5:47

Insane. I think you and I and Steve and I talked about this a little bit in a text earlier this week, but it was basically. It's either misinformation or the way that they title their employees is different and they laid off a chunk of a certain type of role, like maybe like a national account manager or something like that. I know with their business model, I've talked to some folks who used to work there and there's a lot of pricing people. There's a lot of carrier procurement folks and it's very contract and bid heavy, so they might have a smaller amount of actual like your concierge level customer account managers or your sales people, if you want to call it that, that handle certain accounts. I don't know. There's 100%. There's definitely more than 150 customer facing people in that company. What do you, what is your take on that?

Speaker 2: 6:50

Same thing. I'm like it was either. I'm like I know that their model has always been cheap freight and low service, meaning like they're going to underbid most of the market and they're going to give back you know 10 or 15% of those loads every week because they can't get trucks on them right. So like that's their model and you know kind of like their niche in the market where tql, for example, is high service, high margin, right like there you're find your truck last minute, you're gonna pay to get it, but they'll get you one.

Speaker 2: 7:21

Ch always competed on price so it didn't surprise me they had the less reps. But there's still got to be like account managers that are probably just overseeing their existing customers and maybe they only have 80 or a hundred people going at new business. To me is still a very low number. But again, I mean you would have to be able to see the entire company's hierarchy and really dig into how and what their staffing looks like and how they hand that stuff off. I'm not as familiar. I've never worked or coached anybody directly at CH. I've met a few folks that have used to work there. I've worked more directly with Echo, coyote, folks at TQL and midsize brokers and even a lot of other ones that aren't like the huge name. So I'm like I'm the least familiar with CH's internal operations of pretty much any of the other brokerages.

Speaker 2: 8:12

Other than what it seems like from a competitive standpoint, like we just always knew they were cheaper, knew how they were approaching it and customers would give me feedback on you know their experiences with them.

Speaker 1: 8:22

So there's a guy. This is going back like probably 10 years, but like when I was talking with a guy the one summer, I like ran into him. I knew him from like years back and he's like, yeah, he's like, he's like you work in freight, right. And I was like, yeah, uh, we're gonna freight brokerage. He's like I just started at ch robinson, the office in our area this is again like 10 years ago, though and I was like, oh sweet.

Speaker 1: 8:43

I was like you know, what are you like, what are you doing there? And he's like it's like yeah, man, just a broker. And like he didn't know what he was talking about because he's so new. And I was like, oh sweet, so like you got your own customers. He's like no man, he's like I'm just booking trucks, I'm a broker. I'm like, oh okay, like you know, like every company kind of calls their roles different, but he couldn't tell me like I was like, oh, it's like who who gets the accounts for you guys? It's just like he's like, oh no, I don't know, the company just has just has the business. So like he didn't even know where the freight came from within his branch in western new york. So I'm like it makes me wonder if they have like some sort of like national level thing.

Speaker 2: 9:21

Hey, if anyone listening is from ch, let us know, reach out to us and we can anonymously get some details from you or you know, not anonymously, up to you where somebody services that account for maybe a few years, maybe a shorter time, and then a whole department just has loads that they got to cover all day and they're just covering loads Right, and there's very little communication back and forth between what is happening in the right hand and the left hand. And to me like there's efficiency, which is why CH does it. But the huge downside is service takes a huge tank because the person the customer is talking to doesn't usually get the information or any information at all about what's actually going on with their load Right, because they literally don't know. Like the team, like you just said, that's covering the freight isn't like sending messages back to the rep going hey, like we need an extra 250 bucks to move this load today, bucks to move this load today, they likely just go, can't cover it and then they just reject the tender.

Speaker 2: 10:26

Where you know, smaller freight brokerages I think have a big advantage on service because they're able to communicate what is actually happening in the market. Hey, I know we're out on this lane. That's 4th of July weekend. Like we looked at some lanes this week, same thing. Like you know, normal rate on that might've been 28 to three grand. We're here in you know, 35 to four, like this week. So Yep, yep.

Speaker 1: 10:46

Big advantages. I think a small company you know exactly. So other news from freight caviar the top five countries that were was it DAT. It was for accessing basically load board services for frame brokerage United States, macedonia, moldova, lithuania and Pakistan and it did say basically VPN usage could be skewing that data. But I was shocked to see Macedonia as number two. I haven't see Macedonia as number two. I haven't heard of.

Speaker 2: 11:25

Macedonia. I didn't know Macedonia, honestly, was like a modern day country, like when I think of Macedonia, I think of like Alexander the Great and like two, three thousand years ago history. Honestly, when you said that, it kind of like surprised me, like looking up on a map, that's funny.

Speaker 1: 11:43

Yeah, it's well, it's european um. And then let's see. Lastly, the gap between contract rates and spot rates is closing today. Market today marks a new low of a 47 cent split between them. If we reach a 30 cent split and hold, that would signal the end of a market cycle. The way spot rates are trending since April, we could see the market flip by October, and that was from Tanner DeHart on Twitter X. So yeah, I did see that this week too. Hey, that would be a Q4. So, basically, a two and a half year cycle is what it would sound like. But I do think when we talked to ken ademo earlier this year, didn't he say, like it's, it's gonna be a 2024, but late 2024, when he thought the market would get back to where it should be or flip, yep, and everyone's just like, oh, I just feel so far away. But yeah, hey, this is like the new normal. Now, though, I'm like used to capacity being so loose, rates being so low, people like it being just so hard to get new customers in the door.

Speaker 2: 13:05

Anecdotally, it'll be a breath of fresh air when the market, you know, looks different To that point, like I'm hearing from lots of coaching clients we work with, are seeing a lot more volatility in lanes, like days of the week they're seeing rates spike more like you would have seen in the traditional market, right and again I know Ken made a mention of it and it also ties week they're seeing rates spike more like you would have seen in the traditional market, right and again I know Ken made a mention of it and it also ties in with that other news article saying that you know, like transportation capacity in June was no growth, like literally stayed flat for the first time in two years. So before it starts to shrink it's going to stop growing, which means that's trending in a way that's favorable to freight rates. And I don't know, I'm seeing it, we're seeing it. People I talk to are seeing it more and more. They're digging into their lanes, they're pricing, they're just getting caught in situations we haven't seen in two years right, where like rates had been so consistent for so long. In fact, I talked to a guy last week, a few people that were like telling me they're like, yeah, you know, I know these lanes, these rates have been good for. You know, ever I've run them. I know how to quote them and I'm like, well, they've been that way before, but that doesn't mean they'll be that way next week, the week after or the week after, right, and that's the thing I think is really important for any listener out there the week after or the week after, right, and that's the thing I think is really important for any listener out there, especially if you're quoting freight right, as as you're starting to hear more about this, like, start digging in more, looking at your lanes, if you can.

Speaker 2: 14:33

Dats predictive model is really pretty good to give you like some insights. Like it's not going to likely, in my opinion, guess what it's going to be three months from now accurately, but it's starting to get ranges right, like we talked about that Morgan Stanley report that was showing like a predicted market flip in the next six months. Like more and more analysts are seeing this in different areas of the country. The more this happens, the more we're going to move towards the traditional freight cycles that we're used to seeing, which is good for everybody.

Speaker 2: 15:03

And the other thing I want to point out for this and I think this is often overlooked, especially people that have come into the industry recently is the industry gets worse for brokers first, then it gets worse for shippers. Then the opportunities start to come faster. And it always happens in that order right. Because if a lane shifts right, like on the rate of any lane right, and say it's been consistent, and now we start to see this market volatility, you're not going to be able to cover your load, or you're going to take a loss because the market starts jumping. Well, that shipper doesn't really notice it. Maybe one broker goes hey, I couldn't cover your load. It seems a little different, but it's not drastic no-transcript.

Speaker 2: 17:06

Increase their rates and that creates the opportunities to get new customers, because now the service is not flat and consistent. That change that they're experiencing makes them more open to talking to other brokers or new service providers, because they genuinely need help Right.

Speaker 1: 17:23

Yeah, no, absolutely, man, that's very, very true, very true.

Speaker 1: 17:29

It feels like so long ago when, I think, when you were explaining that, and I'm like, yeah, I remember like rates will go up and then, um, basically you started to see like mini bids even, like customers are trying like anything they could to avoid like everything being spot freight, yeah. And then, like I just remember the frustration of like carriers and this this means no offense to carriers there were some greedy carriers out there that were like you know, I'm going to get $5 a mile and whatnot. And you think about it and it's like, yes, you know that is supply and demand, but I don't think I guess, when rates got, I think they got almost too high, too fast and it ended up it was just chaotic. You know what I mean and we're going to talk about margin today and what I think you know. We can talk about what healthy margin is and how it all impacts business overall. But yeah, I don't think we're going to see another 2020, this next cycle, I think, just because of the circumstances with COVID shutdowns federal money.

Speaker 2: 18:39

I think that was all a big whirlwind that threw everything the way that it did so yeah, correct well, right into the topic that's a pretty good segue right into what we're talking about, which are margins rates.

Speaker 1: 18:52

Yeah, I wanted to talk margins today. Um, ben, if you remember and I won't say the names, but you and I couple months ago we were talking on the phone when I was driving and we talked about the process of sourcing carriers, and I think there was an issue with somebody who you and I have both worked with and that their concept was yeah, take the first carrier that is available, regardless of the price. There was no negotiation, there was no real sourcing. It was oh, there's a carrier that's available, boom, take them. And then you end up with like 8% margins, 7% margins, things like that.

Speaker 1: 19:33

And I've had teams in my company that have the same way Like I. Literally I talked to a girl yesterday and I was like, hey, I was like you know, this is what your team looks like right now. Here's the last couple of months You're profitable and your load counts, looking well, I said, but your margin percentage is really thin and it's not like you're. You're not like it's not even just negotiating higher necessarily with a certain carrier. It's finding a different carrier, an opt, a more optimal carrier, things like that. Because, um, there's a lot that goes into the price of a truck and what I might want to get paid to haul load might be different than what you might want to get paid to haul that same load, because of things like our maintenance costs. Um, how far I have to drive empty to get to my pickup. Um, the you know how attractive is that destination for me? Uh, you know things of of that nature that all lead to the price of the truck. And the reason that margin is obviously important is that margin is literally what freight brokerages use to cover all of their expenses and to pay their employees and have company profits. So you could say all day long yeah, I did $10 million in business last year. Okay, but what was the profitability of that $10 million in business If it was $100,000, that's 1% You're not going to like and you have to cashflow all that or pay factoring fees or whatnot.

Speaker 1: 21:17

So, um, you know the the way, the way in which your margins let me rephrase that your margins do impact the health of your business overall. That might sound like an obvious statement for anybody that does any kind of business, but for freight brokers that are new to this industry, they oftentimes don't realize they're just like oh, yeah, I can make 50 bucks, I'll do it. It's like yeah, but you made $50 on a $6,000 lane. The cost to cash flow that is likely more than $50. So you actually just lost money, right, correct? And if you're a W-2 rep, you're oftentimes going to see things like a minimum profit on a load to take it, or you're not going to be eligible for commission until you hit certain metrics and every company is a little bit different. But there's a reason for all that.

Speaker 1: 22:08

To go a step further, when I analyze the health of a book of business within Pierce Worldwide Logistics, where I work, I look at. The two biggest metrics I look at for customer by customer is margin percentage and days to pay. Because if somebody has a thinner margin and they're paying slow, that's double bad news. Right, you can maybe have one without the other. Having both healthy is great. Like they pay fast and their margins are high. It's kind of a rarity.

Speaker 1: 22:40

But let's say they pay really fast and their margins are thinner, well, that's not that much of a cashflow burden. Then it's actually probably helping your cashflow because they're paying fast. And, on the contrary, if they're paying slow but the margins are really really heavy, well, it kind of offsets it. It's worth a cashflow burden because that amount of fat margin that comes in, but you can't. Having bad on both of those metrics is a really, really dangerous place to be and it's a place that'll get you out of business really fast. So I just want to kind of set the stage right with you know, with that. I know that was kind of a long rant, but what's your take on that? You know, how do you, how do you approach margin when it comes to coaching somebody or someone that's newer to this business.

Speaker 2: 23:21

Well, I think the first thing is exactly what you outlined, the context, right? What is the whole situation related to? Margin is important, right, because I think even for agents, right, especially agents that work under an agency, right, what they see is their commission split off a load, right? So, to your point, hey, I booked a $2,000 load and I got a $75 margin. Oh, I'm getting maybe 60% of that or 70% of that or 50% of that. That's extra money in my pocket. If it's an easy cover, why wouldn't I do it, right?

Speaker 2: 23:54

Well, the bigger picture is, to your point, there are lots of expenses that go, even with an agent, like even just your load boards, right, that go even with an agent, like even just your load boards, right? 200 bucks a dat, 200 bucks, truck stop, 10, 20 bucks for email, another 30, 40 bucks, maybe 80 bucks for a TMS user, right, like you're four or 500 bucks just to start, right? And then you're moving loads that honestly cost money in some ways, right, like some agencies have insurance, right, receivables insurance. Some are factoring and those factoring numbers eat up margin quickly, right? So, yes, that agent might get a $35 commission, but the whole company literally lost money in that transaction. So understanding the value of margin to the whole business is going to make you one more effective at your job, you're going to be better at it, you'll have a longer career because if you keep doing that, yes, you can probably get away with it and maybe somebody is not going to give you a bunch of grief for doing it here or there. But what happens is is once people get in the habit of doing it, they do it more and it's really hard to get them to stop because also, the customers get used to it, the carriers, and they're not learning.

Speaker 2: 25:07

I think what I want to segue into is like how do you actually create margin? Right, this is the hard part of being a freight broker, right? I think lots of people come into the job with the assumption of customer gives me a load, they're going to pay me enough that, whatever the carrier's off me, there'll be some in the middle Meaning like oh, nate, you're my customer, you give me a load and you tell me your target rate's two grand. I'll post it up and a carrier will take that for $1,700. Like, that's not the case. The shipping company will offer you a rate. It'd be nice. Yes, they're going to offer you a rate that is, in sometimes lower than what a carrier wants, in fact, in a new.

Speaker 1: 25:45

very oftentimes it's because it's a wish list price for them pay what is needed for a fair service and fair rate.

Speaker 2: 26:06

Same thing for the carrier, right, and you can't really like begrudge or be upset with either side for trying to do their best Shippers job and what they get paid to do is move their goods that that company sells at the lowest rate and the highest service. That's the performance that their manager holds them accountable to. The lower they pay with, the higher the service, the more bonus they get, the more promotions they get. That's their incentive. On a carrier, you are trying to get every single dollar you can, and, especially in a market that has been down for this long. They've got to cover operating costs, sometimes deferred maintenance, insurance, like all of those things have gotten more expensive and gone down. Insurance, like all of those things have gotten more expensive and gone down. Right, so you're in a scenario where the shipper is trying to pay you less, the carrier needs to pay more and you have to be able to get both of them to move in the other direction. You got to get the shipper up and you got to get the carrier sometimes down, but it depends on the situation, right, and like you said, a few common things to just think about. Is that like if you book a truck two or three days in advance of a load, right, you are almost always going to end up with a lower margin. And here's why right, because the carrier is going to plan ahead. You have less risk. That's why brokers do it. They're like, hey, I don't want to worry about this load for Friday, I'm going to book it Wednesday.

Speaker 2: 27:20

Carrier said they'll take it. Yeah, I got a 6% margin but I don't have to worry about it right Now. The carrier was willing to. But then the carrier maybe want to go there. And that's the thing. You've got to ask a lot of questions to try to understand, because just because somebody is willing to doesn't mean they want to or that they have to. And that's your margin percentage, right On the carrier side.

Speaker 2: 27:42

You pointed this out a minute ago. If that carrier say my load is Memphis to Detroit and it's Tuesday to Friday, right? Well, if that carrier ends his week in Detroit because he lives there every Friday, and I am able to understand that he wants to go there not just wants to, but needs to go there because that's where he lives so like, that load is a very good fit for that situation on that day for that carrier and I'll take another carrier that is also going to be in you know, the same pickup location the same day. But like he really wants to get home to Ohio on Friday, yeah, he's probably willing to take your load to Detroit, but then he's going to have to drive home empty miles to get to his family for the weekend, so guess, what you're going to have to do Pay him a little bit more.

Speaker 2: 28:25

This is the difference in your margin, right? So actually waiting to find the right carry and the right fit is going to impact your margin, and then the days at which you do it right, like this is just. The truth of it is there are carriers that wait until the day of to book their loads right, and that is just a gamble. It goes both ways. Sometimes they get lucky and a shipper really needs a load moved and they get above market rates, waiting till the day of. But a lot of times they can't wait anymore, which means they're up against the clock and they've got to take the best load available. So typically, if you cover your loads day of as a freight broker, you end up with a larger margin than when you cover them ahead of time, because the carriers that are empty that day and don't have a load kind of have to pick the best of what's left.

Speaker 1: 29:10

Yeah, precisely so one of the one of like the actual practical tips that I've given people, whether you're on a team or if you're just working by yourself is have some sort of like a target pay amount, right, and that's what. That should be your starting point. And we you know we talked earlier about the CH Robinson how there's like the different business models and no one's talking to anybody in certain companies. This is where it's extremely important for an account manager or someone who's pricing the customer should be there's got to be some line of communication with whoever's covering that freight if it's not the same person, right? So let's say we'll just go through an example, right? Let's say an arbitrary customer says we're trying to get this move for $2,000, right. So you say, okay, two grand, and we can come back to this and we'll talk about you know how to try and get a little bit more um out of your customer. But let's say two grand is your starting point, that's your goal, all right. Now you might say, all right, my target is a 15 margin. So we'll say a hundred and no, did I do that wrong? Uh, seventeen hundred dollars, right, seven hundred dollars is my target pay amount to my carrier. That's $300 margin, it's 15%. It's pretty healthy Carrier rep. When they see $1,700 is our target pay amount. And they're talking to carriers, whether it's through outbound calls or they're fielding inbound calls or they're going through their preferred carrier list, whatever, it is okay. And if a carrier says, yeah, I can do that for for 1900. Well, you don't just say, oh yeah, that's less than two grand, I'll take it. No, because you have a target of 1700. You're not even close to that. You're way up. You're closer to break even than you are being hitting your profit number there.

Speaker 1: 30:55

So it is very, very important to make sure that you've got some sort of communication, whether it's an internal note or some sort of shared board that you guys are all looking at. But you might talk to, you know, the first person you talk to might say $1,900. The next one might say $2,100, which would be at a loss. The next one might you know. And then you can talk to these carriers and find out what's important to them and then if you find the right carrier at the right price that's close to your target, or if not at your target or better, then that's good. But if you don't, if you can't find that, then you could talk about going back to your customer trying to explain hey, here's what I'm hearing from carriers. We're not able to get even close to this and you have basically one of two options without taking a loss. Right, you can talk to your customer about getting a little bit more out of them to secure one of these carriers. That's a good fit.

Speaker 1: 31:44

Or, number two, you just don't take the load. And there's different schools of thought when it comes to taking loads at a loss versus never taking loads at a loss. I believe that you can do it from time to time. I wouldn't do it intentionally often because I think it sets a bad precedent with your customer. Do it intentionally often because I think it sets a bad precedent with your customer. But yeah, I mean, it's basically be cognizant of what that margin is, where you want it to be, and it can be different for every customer. Remember, if a customer pays fast, your target margin might be like 10%, right, and if they pay slower, it might be like we're not taking anything unless we're at at least a 15% margin because of the headaches and how slow they pay, et cetera. Yep.

Speaker 2: 32:27

Right, so right, taking anything unless we're at at least a 15 margin because of the headaches and how slow they pay, etc. Right, so right, like, just take that same example, right, so say, I got two or three carriers that are viable options, um, and my target right is 17, okay, and first carriers at 19, two or three at 21, right, maybe one at two, grand, right. What I'm going to do is try to understand what and what works for that carrier. One, when and where are they going to be empty is a big one, because if they're going to be empty very close to my pickup time, very far away, there's a pretty high likelihood they don't make it to my pickup. If that's an appointment, that matters First come, first serve matters a little less right, but that is important to me and to my customer, right? Second thing I'm going to try to understand about the carrier is like what direction are they looking to go? What is important to them? And if it happens to match up with this lane, then I know there's a better likelihood that that's a fit right. So what I'm typically going to do is like hey, look, I know you want to be at 19. I got 17 into this, right. Let me ask you, if I get my customer to approve a bit of an increase, do you think you can meet me in the middle and maybe get at 18, right, and say that carrier needs that lane and it is a fit and my shipper works for them, they're fast to load and everything else being equal, like the carrier's? Like, yeah, I think maybe I can do 18.

Speaker 2: 33:34

What I'm going to do, right is I'm going to go back to my customer, right, and I'm going to go hey, I got a few options. And this is where communication is important and this is the value add as a freight broker. When I call my customer, I'm not just going to be like, hey, can you give me an extra $100 on this load so I can book the truck. What I'm going to do is explain very simply what the market just told me. Hey, listen, sally, I got two or three guys. Carriers had good ratings, good, good safety scores, good driver scores. Like they're all going to be empty, kind of in your area and I think we'll make pickup time no issue. They got the insurance you're looking for. I got two or three that are like 21, 22, 2300, right, I know your targets too. I've got one guy I think I could bring in at like 21. Would that work for you? Do you think you can get an approval for an extra hundred? So again, remember what I said mathematically, carrier has tentatively agreed to 18. I am not telling my shipper that carrier is agreeing to 18. I'm telling my shipper, I'm incorporating that 300 right back into it. So when I call my shipper it's look, I think I can get you this truck for 21. The other options are all more expensive, but this is the best option for me to make sure it gets picked up on time.

Speaker 2: 34:49

And here's the important piece. This is the piece that I think a lot of people miss. No, first off, nobody wants to have this conversation, so they just email rates. It doesn't work when you email it. It only works if you actually have the conversation. So I'm on the phone. And here's the here's like the pivotal piece as I go.

Speaker 2: 35:12

Hey, sally, I've got the driver still on hold on my other line. I've got to give him a yes or a no because he's got another option. Do you want to approve 2100 or would you like me to let this guy go? Now, like in my head, I see that as like the fork in the road. I'm like we're at the fork. You got two, pass Sally, and I need to know now do we take him for 21 or do I let him go and we lose the option? After I've already explained, all my other options are more expensive. This is the cheapest, the best one I've got. They can still make it If you pass on this. I can't promise you or assure you I get this covered for less than 23. Now, sally, I know you want to be a two. Will you approve 21 for this guy, or should I cut him? And then I say nothing, silence, I'll hit mute on my phone.

Speaker 2: 35:56

And now I'm putting Sally in the position she doesn't want to be in. She has to actually make this call on the spot, not wait around, not email me later, not see, and this is the important piece. I don't want her to call all the other brokers to see if she can get a better rate. I want her to tell me right now you take this or I cancel it, meaning that option is gone. She wants me to email it so she can email all the other brokers and go. Can you get me two grand before she says yes to my 21? So she can email all the other brokers and go, can you get me two grand before she says yes to my 21? So I take those options off the table by making her tell me.

Speaker 2: 36:30

In this moment, when I mute my phone and I just use silence, silence makes her have to sit there and make the decision. She doesn't want to. This is why all the shippers send emails and ask you to email rates back. It's so they can play all of us against each other and keep all of the leverage negotiating. My job is to make them make this decision in a way that benefits everybody and doesn't allow me to be bid against anybody. So sometimes they'll say no, and that's fine.

Speaker 2: 36:55

Guess what my next option is going to be, even if that truck's still available in a half an hour, that truck's now $2,300. You'd be like, well, ben, can you get it? Nope, he's gone. I got you another one, and the reason I'm going to increase that is not just to make more money on this load, it is to set the habit and the tone that when I say this option is gone if you come back to me 20 minutes later or an hour later, even if theoretically I can get that truck and that truck is still available. You're going to pay more because I don't want you to keep doing this to me Every time I've got to hustle to find you a truck last minute.

Speaker 2: 38:47

If I'm going to go, spend 45 minutes to go find you the option get you the truck that you need to pick up in three hours. I don't want to waste all my time while you wait an hour to decide what to do with it. Then the truck's gone and I don't get paid for any of my work. That is what's really important, right? So now I get them to 21. I can go back to the carrier. Get him the 18. That's a fair rate.

Speaker 2: 39:07

Why? Because the shipper started too low and they paid fair. Carrier started a little too high. He came down reasonably. Everybody wins. Truck gets the load they want, shipper gets the load picked up when they want and I get paid for the time it took me to do the work to get them the truck in that short window of time. Right, and that's the piece that I think people are hesitant to do because, well, it's uncomfortable to make somebody do that. It's uncomfortable to have that conversation sometimes. So it's just oh, just send emails and then they'll email us and go well, why aren't I getting any loads? This is why I'm not getting loads right. This is why-.

Speaker 2: 39:40

Don't hide behind the keyboard. You cannot make. This is a full contact business. Like you can't make money just by emailing rates. I mean, theoretically I guess you can. That's what CH does, but you need massive volume, massive carrier relationships and be able to leverage those things. They operate differently than most of the brokers that we work with and most of the brokers that are in the industry.

Speaker 1: 40:04

Right yeah, so I pulled up one of our blogs from our website because I wanted to be able to reference some stats here. So this one was called how Important Are Freight Broker Margins? It's from 2020, so it's a little outdated, but so this is. So three and a half years ago, at this point, the average freight brokerage margin was around 15% and yielded $270 per load in profit. I would be that was 2020. I'm sure it went way higher into 2021 and it might be back around 300 now. It might be 350 now. I have no idea. Those were stats from the beginning of COVID times. But here's what I would tell you.

Speaker 1: 40:50

When it comes to margin and people, you'll hear drivers that'll be like man. Brokers are thieves. They're making too much money. There's a big expense to run a brokerage. Cash flow is probably the most expensive part of it. But if you look at like take CA Robinson out of it If you look at the average mid-sized brokerage who's been in business for at least 10 years and you ask them what's their average margin, that's going to tell you exactly what you need to have your margin at to be healthy and sustained long term. And it's usually around 15%, right? Maybe a little less, maybe a little bit higher. But when you have brokers that come in and their whole goal is we're going to be cheap, we're going to do things lean and thin, we're just going to use a bunch of technology. We're going to do things lean and thin. We're just going to use a bunch of technology. Auto sourcing carriers the concept's great, but those companies never succeed long term. We've heard the whole digital freight brokerage movement that started to be talked about seven, eight years ago. Where are they? They didn't take over our industry. You know what I mean.

Speaker 1: 41:58

Like, at the end of the day, when it comes to, uh, relationships with customers and with good partner carriers, um, having a strong interpersonal tact and relationship between you as the broker and them as the customer carrier is going to be very, very important. Price is, obviously, is a is a focus. But, like you said, ben, when you call Sally, you say, hey, I can get this guy for 21 right now. Do you want him? Right? If you have a strong relationship with Sally, she's going to give you the benefit of the doubt more often than if you don't have a relationship with her and all she cares about is oh, if you're brand new, it's got to be price, price, price. You're not going to get that, but it is okay, in my opinion, to say no to a load. Hey, the carriers that I'm working with here I'm not even in the ballpark with you, I'm sorry.

Speaker 1: 42:50

And that's honest, transparent feedback to your customer, which can do a couple things. Number one it can call their bluff that all they've got in it is $2,000. But also it gives them value add that this is the pulse of the market right now. This is what Nate or Ben is seeing out there when he's trying to source carriers for us. We don't have to cover every single load. Our job as a freight brokerage is an intermediary. We're going to be able to provide access to the market, and access can be different options. Right, yeah, this one is available today. It's going to be 2100. If this can wait till tomorrow or next monday, I can get you one at 2000 or at, you know, 1950 or whatever that case might be.

Speaker 2: 43:27

So well, and I think steven just added this too, and I'm going to add some context right, like where does that money?

Speaker 2: 43:34

go so and that's a really good example, right, right? He he put this in the chat says you know, carriers and owner operators watching are asking you charge $300. We'll call it margin right On a load, right, and they go. Detention doesn't even pay that much and they're sitting there for you know a couple hours with a you know a tractor trailer that costs hundreds of thousands of dollars, right On site not getting paid that much.

Speaker 1: 43:59

Here's basically $300 an hour, saying that it only takes an hour for us to do this. That's what I wanted to get to right.

Speaker 2: 44:06

Okay, so the first thing is that $300, say it's a thousand dollar load, and a $300 margin Say it's a 30% margin on a load, we'll double it for the example, right, a profitable brokerage in your example that has been around 5, 10 years, that is able to sustain up and down markets and stay in business, right, like their average margin percentage on a load might be 15%, which would be good, right, but here's what hits the bottom line. Those brokerages like 3% to 5% is actually what hits the bottom line of that margin. So, out of that $300, the owner of that brokerage should expect to take in somewhere between $9 and $15. That's how much profit actually goes into the owner's pocket, usually in net income, right, and net income right. The rest of that money goes to insurance, goes to load boards, goes to technology, goes to an office space, usually, right, leasing computers and everything. Salaries, commissions, cost of cash flow Exactly, now the salary piece.

Speaker 2: 45:12

We won't get into cash flow yet, but now the salary piece is you've got to pay people 50 grand a year at least to be able to sit there and they've got to make hundreds of phone calls a week for weeks on end before they've got customers and loads. You've got to pay for that. And now to your point, the cashflow. This is the thing that I think lots of owner ops overlook. Right, they're factoring lots of loads, so they're getting paid fairly quickly, but they're paying 3% to get that money faster. Right, brokerages are also doing that, right. So when you've got a customer even like a kind of a midsize customer, like if you're moving 25, 30 loads a week, you've got $75,000 to $80,000 that you're paying out every other week to carriers and waiting three weeks to get your money. So on a monthly basis you might have $400,000 literally lent out and money paid to carriers while you're waiting to get paid from your customer. Right, there's a cost to that, even if you self-fund it. Right? Imagine if you had $400,000 in a bank account and earned no interest on it. That'd be kind of ridiculous. Imagine if anybody out there has half a million dollars and just gets no interest on it. Like that'd be kind of ridiculous. Like, imagine if anybody out there has half a million dollars and just gets no interest. Nobody would do that right. So there's a cost to that money that also gets paid by the brokerage, whether it's their own money or it's a factoring company and that's not a small number. And when you add all those up, that's why that margin is not what it appears to be to the trucking company sometimes and also to maybe even an agent in a brokerage, because they don't see all those other bills that have to go out every month, there's not a lot left over.

Speaker 2: 46:43

And now let's go to the last piece, which is the time right. You have to spend hundreds of hours developing relationships with shippers to get the loads, and that service directly benefits owner operators that get paid to drive. You can't be on the phone all day talking to shippers and answering the phone and driving a truck. And as a freight broker, our value to a shipper isn't to get loads and book them next week. It's to be available whenever that shipper needs something, because that shipper doesn't know when they're going to need help. So most of the help that we provide back to the shippers in our industry are it's three o'clock in an afternoon the day before 4th of July and four loads didn't pick up today that need to go out before the holiday weekend because they're all perishable and they'll all be worth nothing come Saturday.

Speaker 2: 47:30

That's where brokers come in and then they match that need that the shippers have with the carriers that are waiting to get paid more. And you know what? That carrier that waits until 3.30 this afternoon to geta better paying load will probably get paid more today, and they should because they took more risk. They're available, waiting for, they know mistakes are going to happen and they should get paid to take that risk. That's why this afternoon you're going to see a thousand or two thousand dollars over a market rate to book a load to pick up tomorrow or Friday and that's why the carrier should get paid for it. They are giving up their weekend, they're giving up their holiday to move that freight and to take that risk and the shipper benefits from it because that shipper is hopefully getting those loads booked by six o'clock so they can leave work and go and spend their time with their family tomorrow and know that work's done.

Speaker 2: 48:16

And then the brokers whether we're with our family or not are going to be fielding phone calls from carriers to make sure they have the right pickup number, they're at the right facility and if they break down, we'll find another truck tomorrow without that shipper having to deal with that problem on their holiday, right? And all of these things come at a cost. That's where this margin comes in, right? I think lots of carriers think that, like we get loads as broker, like here's your 30 loads for two weeks from now, start booking them ahead of time, and then we just send loads out and then just rack up margin and then go and watch TV the rest of the day. Like that isn't how any of this works. Right? We create the market that benefits both of them, both the shippers and the carriers, and the rates aren't going to be the same every day because the situation isn't the same every day. Right Time of day, day of the week, commodity you're moving, all those things.

Speaker 1: 49:06

I love it, steven, in the chat you mean freight brokers don't get. Yeah, like you know, drivers get their 34 hour reset. Brokers you don't get a 34 hour reset. No, we don't Right. You're absolutely right. The there's a.

Speaker 1: 49:19

There's a comment that I often hear and it's very straightforward when you know and this episode is not to you know stick it to a carrier for by any means, but if there's a reality check that's needed to be had here, um, carriers are, by all means, have the right and the legal authority to go solicit freight directly. So if a carrier is unhappy with the concept of brokers having a margin, then you have a couple of options. Number one, go get the freight directly yourself. Or, number two, open a brokerage and you could run. You could do both sides of it right. The reality is, the role of the freight broker is oftentimes to create efficiency within the supply chain that otherwise wouldn't exist, with the vast majority of trucking companies being small businesses. Right, we're trying to connect all these dots to all these trucks, to all these shippers, and get them all plugged and play, and we don't do a perfect job at it. That's just not the reality. But if a carrier says, well, I want X amount of money for this and another carrier says, well, I don't need that much money because I don't have a truck, payment at 50% interest or whatever. Like, hey, I'm going to run this at market average and that's just the reality of how this works. That's supply and demand and it's a capitalistic country that we live in and it's a capitalistic market. But my big takeaway on all of this is margin can make or break you and this can go two ways. Obviously, low margin, slow paying we already mentioned it It'll kill your cash flow, it'll push out of business.

Speaker 1: 51:07

On the flip side and this happened two months ago to a guy that I know he got greedy right.

Speaker 1: 51:15

He had his margins on a customer close to 40 percent and you know there was some justification on some of the stuff here and there because it was very, very high touch, very high value, very you know a lot that went into it, but 40 percent on average for a long time on a lot of business.

Speaker 1: 51:39

He got greedy and they bring in a new person in their department that tenders out the freight and he very quickly lost a lot of lanes and then within a few months lost every lane and then shortly after that he got ghosted by the customer altogether, wouldn't even have, couldn't even have a conversation. He even like tried to save face and was like all right, yeah, I can drop $500 off this lane. And they're like you can just take $500 off the lane, like you had that much extra money in it, like this whole thing for years, right, cause COVID rates were a real thing, hours off the lane, like you had that much extra money in it, like this whole thing for years. Right, because covid rates were a real thing. And then as pricing came down for carriers and he just he maintained and maintained, got greedy and then what was originally 18 20 margin became 40, 40 or higher at times. So, yeah, that'll, it'll catch up to you.

Speaker 2: 52:36

I've learned that lesson many, many times. So the one thing that when I was trained and what you learned is, like, if you can get it, get it while you can. Right Cause it's only temporary, right. So when I was learning freight brokerage, like that was a lot of the mentality at the big brokerage right, high service, high margin, and some of it, like to your point, is really justified. Right, like, if you're moving something very oversized that needs very specialized equipment. Right, like there were things I moved that literally probably took me like the better part of like probably 10 hours to 12 hours to book this load. Right, because you had to secure the trailers. They have limited availability, you've got to schedule it, you need to arrange pilot cars, you need routes done to see which bridges they can go around over. So, like, for sure, there is some situations that require so much time that you can justify a margin on those situations. However, right, let's take a normal situation that you just said, or like not that COVID was normal. But like, say, the market flips and you're getting really high margins for a month or two and the customer's okay, paying it because they're paying everybody increased rates, because it's just a tight market. Right, like the freeze over in Texas a few years ago, where there just weren't enough carriers and the shippers had to pay more to get their freight moved right.

Speaker 2: 53:56

But what you see to your point is brokers will hang on to it as long as they can because there's more money there and they are hesitant to be honest with their customers, what inevitably happens always. I've never seen an exception to this right. Either that company will talk to a new broker and they'll go hey, can you quote these lanes for me to give me an idea on those rates? And they'll look and they'll be like wait a minute, how come you're so much cheaper than the guy? Then maybe they'll get a second quote and that'll be in line. And they're like wait a minute, why is our current provider, 50% above everyone new? That says they can move it. Then they'll give them a test load to see if they can run the freight for the lower rate. And then they do. Then they do it again. Then they start to realize this guy has not been honest with me at all, to your point, and they start trusting you a little less. Then you start seeing a little less freight. I was moving 25 loads a week, now it's 23. Now it's 20. Now it's 15.

Speaker 2: 54:44

This is what's happening behind the scenes, because somebody is always trying to take your business and they're willing to be more honest than you are and you think you're just going to make this forever. The other thing is you are creating financial pain for that shipper, which means at some point somebody is going to look at this and go do an audit or have maybe a consultant come in and be like hey, can you look through our freight rates and see if they're in line with the market. Then they're going to find out that this person wasn't honest for weeks or months. Now, once you lose trust right, it's like that old proverb you always laugh. It's like like integrity takes a lifetime to establish but a moment to like basically piss away or to lose, right. Like it takes you forever to build trust but it only takes you one, one instance of lying and they don't trust you forever after that point, Right. So like I think it's really important for brokers to keep that in mind.

Speaker 2: 55:36

Even as markets move, where you make larger margins, like, I always try to go back at a certain point If I'm starting to see my margins widen and the carriers are coming back down like I'm starting to communicate that with the customer I'm not going to drop my margin from 40 to 15%, but you know I'll knock off a hundred bucks and knock it to 30.

Speaker 2: 55:54

And if the carriers are still lower the week after maybe I'm down to 25. And I'm communicating this back with my customer because my objective isn't to make the most money every week or every month, it's to work with this customer for the longest amount of time possible, because we spend the most time and money to get a customer. So if you lose it you got months to get another one like that, if not six months. So to me it makes far more, even financial sense, to be honest, to work on fair margins as soon as you can Give your shipper the discount, even though it feels counterintuitive, because that will pay dividends into the relationship that you can work with them for years. Because I've never seen one of those accounts that are fat margin that lasted more than six months, maybe a year at the most, and then they're furious and never want to work with that company ever again and anyone they've ever talked to will never want to work with you ever again.

Speaker 1: 56:47

Yeah, the last thing I'll add and this is just a caveat is to prevent the appearance that you're, to prevent the appearance that you're overcharging your customer. If there's any special costs that go into your quote, such as, hey, there's a special insurance cost on this logo, it's high value, right, make sure that your customer is aware of it and what the cost of that policy is, because if they go and run quotes against Joe Schmo, who doesn't get that extra insurance, it appears to be cheaper. That could make you look like you're overcharging. But I did this a few years ago for an oil field project where there was special insurance and other things that went into it. We made sure that the customer knew like, hey, when you're evaluating this mini bid for this project from everybody, here's what our line haul is, just the straight up line haul, and here's all the extras that you know. There's no margin on this for us. We're just straight pass through on the cost, you know, et cetera. So that way it was transparent.

Speaker 1: 57:51

And some people are like don't share your breakdown of your, you know of your, your, your project or whatever I'm. I think it depends on the situation, right, I want to make sure that if, if someone from you know let's say there's a brand new kid out of college that it's their first time ever quoting a customer, they might not know they got to include X, y and Z right and they might appear that they're cheaper than me, when the reality is they're not providing the same offer services. So just keep that in mind Very, very important. Any last thoughts on margin that we got to squeeze in here before we wrap up no, I think you put a really good bow on the end.

Speaker 2: 58:30

I was going to allude to the same thing, right, and I'll give you just a little brief thing. I used to do a lot of additional services when I moved lots of steel, meaning like we coordinated everything, like ran the stevedores at the ship, we made sure every PO we organized in Excel, we sent the entire list to every receiver, as well as the shipper, as well as the forwarder, to know what was moved every day, which POs went where right, and that took like literally an extra staff person to arrange this every day and to make sure it was done, and then to coordinate everything after. Right and to your point, like I added that cost in and I let them know hey, this is a service we'll provide for you. It's included in the margin. If you don't want us to, somebody has to do that. We're more than happy to do it. But if we don't do it and you want a lower rate, then somebody on your team has to do this, because somebody has to be tallying this up every day and the people loading the trucks at the port can't do it.

Speaker 2: 59:28

So you know that was a scenario where, to your point, like you want to make sure they understand what they're getting and what they're paying for and allow them to choose, like I've always been a big advocate of, because to me, when I showed them that and I'm like, listen, we'll do this after a month for sure, everyone still went, well, like, this is expensive, we think we can get somebody cheaper. And I'm like great, do you have somebody that's going to do this? If you guys take over arranging this, and they're like no, that's why we're still going to use you, because they had to literally hire somebody, find someone that knew how to do this, that was going to be able to communicate, that wasn't going to drop the ball, because if there's a mistake made, there's huge costs to that Redelivery, all these things. So like when they understand that people are more willing to pay for, when they understand what they're paying for as opposed to comparing, like you said, price to price.

Speaker 1: 1:00:19

You know what is in that price, because they're not all created equal, for sure. Yep, exactly. Well, great discussion. Let us know what you guys think in the comments or leave us questions, if you have them, and we'll get to them on our final mile series, which comes out every Tuesday. Ben, final thoughts Whether you believe you can or believe you can't, you're right and until next time go Bills.

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Freight 360
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