How Freight Brokerage Closures Impact the Supply Chain
Freight brokers are an important tool in keeping many companies running smoothly. They connect shippers and carriers to make sure goods get to where they need to be.
Unfortunately, the transportation industry has experienced a rough year. So far, more than 600 trucking companies have gone bankrupt, including 11 major carriers. That’s more than twice as many closures as last year. With more carriers closing, it’s more difficult for freight brokers to do their job.
How pricing works with freight brokers
Freight brokers are often stuck in the middle of a pricing battle between carriers and shippers. Some of the factors that impact pricing include location, contract rates, load volumes and regulations.
When shippers have more pricing power, they negotiate for the lowest possible cost to ship their goods and improve their business’ profit margins. Carriers want to negotiate to carry the shipper’s goods at a fair margin for their business costs. Brokers negotiate between the two to find a price that works for everyone. Brokers depend on a business model that requires them to pay carriers the lowest amount possible.
Recently, shippers have had more pricing power than carriers, but the economy is shifting again. The pricing struggle between shippers and carriers is beginning to even out.
The amount a broker charges makes a big difference in how much carriers earn and how much shippers profit. Some brokers may promise a lot of coverage at rates below market value, which can hurt carriers in the long term. This is also bad for the shipper as the carrier they’ve trusted with their goods is no longer available, along with those low shipping prices they’d come to expect.
What happens when a freight broker closes?
Truck lines aren’t the only businesses experiencing financial struggles this year. The freight broker model generally has the broker pay the carrier first and then receive payment from the shipper. If the shipper is slow to pay or doesn’t pay at all, the freight brokers feel the squeeze. Without cash on hand, freight brokers are forced to close up shop or to file for bankruptcy.
Sometimes, a broker doesn’t pay the carrier first. Scam companies may be collecting the money from the shipper and not passing it along to the carrier. Some companies may not even bother to file for bankruptcy but will instead try to fade away.
There are some actions carriers can take to regain their money. The broker’s bond is one option; however, other carriers are likely also trying to collect so everyone likely won’t receive the full amount. Carriers can also try to collect payment from the shipper or consignee. Even if the shipper has already paid, they are often still liable for outstanding payments.