Beyond the obvious difference that one owns equipment and the other doesn't, many people don't fully grasp the unique values each provides to shippers. In this blog, we'll discuss the advantages of both freight brokers and motor carriers, and how shippers differentiate and sometimes equate them, particularly when it's to their benefit.
The Role of Motor Carriers in Shipping
Imagine having five drivers and five trucks. The primary thing to understand is that they only generate revenue when they are loaded with cargo and are en route. This seems quite straightforward, doesn't it? But what implications does this have when all your equipment only profits when it's loaded and on the move? It signifies that any time your truck is idle or parked, you're not earning money.
The key takeaway from this is that to operate profitably as a carrier, you need as much predictability as possible. It's very common for shippers to invest more time in reviewing all of their lanes with each carrier. They do this so the motor carrier can examine the other lanes they run and the other customers they serve to determine whether the driver can handle the shipments or loads the shipper is requesting them to manage or bid on.
The Shipper's Bidding Process and Its Impact on Motor Carriers
Keep in mind that a motor carrier requires time to ensure their truck is empty and can make the pickup by a certain time and day. The more convenient the lane is for the carrier, the more likely they are to want it. The shipper's bidding process is designed to leverage this.
Sometimes, a carrier may negotiate a rate lower than the market rate because the lane is particularly desirable to them. For instance, the carrier might have a customer they've worked with for years, and the cargo, loading times, load weight, and volume are all favorable for the motor carrier. Let's say this customer has a weekly load that delivers 250 miles from where the driver lives just before the weekend. This driver typically heads home empty to spend the weekend with their family. If there’s a shipper with a load available every week at the time the driver is usually empty, and that load delivers five miles from the driver’s house, it’s very likely the driver may be willing to take on this load for a discount.
The driver negotiates a discount to ensure the shipper gives him that load every week. This is beneficial for both parties: the shipper gets a below-market rate, and the carrier can count on making some extra money when they would otherwise be driving empty miles. Makes sense, right?
This is one of the reasons why, as a broker, when you quote market rates, the shipper may truthfully tell you that your price is too high. The shipper is comparing apples to oranges, or, in this case, motor carriers to freight brokers.
The Unique Value of Freight Brokerages
Now, freight brokerages operate quite differently from motor carriers. They don't have truck payments or drivers to keep running as much as legally possible. The most significant cost for a brokerage is labor and time, paying people to research the market daily, and establishing contact and relationships with as many shippers and carriers as possible. The value provided by the brokerage isn't predictability; it's access to the open market.
From a shipper's perspective,they engage with a freight brokerage for better access to this market. The reasons shippers need access to the market boil down to two main factors: time and service levels.
Time: A Critical Factor in Shipping
Let's cover each of these points separately, beginning with time. Recall that motor carriers depend on predictability to position their trucks, ensuring they are empty and near the pickup location by the time they're needed. When a shipper unexpectedly receives freight, they may not have days or weeks of notice. For instance, a customer might require an extra truckload of material the same or next day. When such an order passes through the company's sales department and reaches the shipping department, there might be only a few hours before it must be picked up. Such orders aren't a good fit for motor carriers; they will almost always be tendered to a broker who can access every empty truck within a couple hundred miles, making the pickup on time and meeting the shipper's procurement requirements. That's why a shipper is almost always working with at least one or two brokerages, no matter how slow they might be.
Service Levels: A Key Differentiator
The second point is service. Motor carriers are driving extensive miles and must depend on shippers and receivers to load and unload within certain time frames. Unforeseen occurrences on the road, such as traffic, accidents, and weather, can cause the driver to miss a pickup. In addition, the loading time at previous shippers and receivers can also result in a driver missing a pickup, creating a problem for the shipper through no fault of their own. Things happen. When a shipper has a load that must be delivered at a specific date and time, the shipper needs to access the available truck market to maintain the service they promised to their customers, i.e., freight brokerages.
Key Takeaways: Freight Brokers vs Motor Carriers
The key takeaway from these differences is that shippers have different types or categories of freight. They have loads that move as scheduled and are known about well before they ship, and other loads that come in last minute and still need to be moved on time and on schedule. Each type of freight usually suits either a motor carrier or a brokerage better. Therefore, when a shipper asks you to quote or move a load, ask more questions. Ask if it's a last-minute order that just came through, or if it was scheduled and became available because their scheduled truck couldn't make it. Ask if it still needs to be picked up and delivered on the previously scheduled dates. If it does, it's very likely this load will "need" to go to a freight brokerage. If it doesn't, and they have to wait for the scheduled truck to arrive a day late, would their customer take issue with it? These questions will better help you identify opportunities as a freight broker or a motor carrier.
For more insights into the world of freight brokers and motor carriers, check out our other blogs.