Yes I am talking about you being a Freight Broker.
As the “man in the middle” you have risks coming at you from the top and bottom of your business model.
Your first role of course is as a salesperson, securing shippers for your business. Without
shippers you have no income, but there are caveats…what if the shipper doesn’t pay you.
Ouch! Not only did you not get revenue but you get a double whammy when you must pay
the trucking company that delivered the load. So how do you mitigate these risks?
There will be more on this later.
But now let’s turn to the other risk you face. It is a lot more complex due to the uncertainties that are inherent in turning your livelihood over to someone else…the trucking company…the one you are going to depend upon to “deliver the goods” that actually belongs to someone else…the shipper, aka your customer, aka the provider of funds to pay for your entire operation. Wow that’s a lot of responsibility you intend to pass along and a possibility that you could be held
liable for their actions. May 23, 2019 — The federal jury rendered their verdict against not only the other driver and his company but also found against the freight broker, C.H. .. for $18.6 million.
So how do you mitigate these risks?
There are 24,000 are so registered freight brokers and everyone would prefer their loads were tendered to J.B. Hunt, Swift, Werner, etc., but reality is that today we have circa 300,000 MC registered truck lines as of June 13, 2021. So get out your dart board and let’s pick a few to move your loads.
| #of trucks |
#of companies
|
|
| 1 truck |
162,816 |
243,959 Common Authority |
| 2 trucks |
41,685 |
58,641 Contract Authority |
| 3 trucks |
19,061 |
|
| 4 trucks |
11,825 |
80% of truck lines with 1-9 trucks (217,000)
|
| 5 trucks |
9,227 |
have Common Authority |
| 6-9 |
25,552 |
|
| 10-14 |
9,600 |
|
| 15-24 |
8,340 |
|
| 25-49 |
6,233 |
|
| 25-49 |
6,233 |
|
| 50-99 |
2,929 |
|
100-499 |
1,546 |
|
| 500-999 |
116 |
|
| 1000+ |
95 |
|
Let’s start with the basics, can a company with one, two or five trucks be as competent as a company with 20? The answer is yes and chances are quite high that you will be dealing with a lot of these small companies… note they number 245,000 (81% of all truck lines). but here you must “ do your “due diligence”. You can’t assume they have adequate insurance, minimum liability required by FMCSA is $750,000 for general freight. Should it be more? Probably not as the “nuclear verdicts” are most often sought after companies with “deep pockets” and increased insurance premiums has put more than one competent trucking company out of business. However this means you need to protect your brokerage with liability and cargo insurance.
Regardless of size you should have knowledge about their drivers. Do they have a clean record or is there a trend of drug and alcohol arrests. Last year there was more than 56,000 drivers cited for drugs or alcohol. Is the company you are about to hire plagued with moving violations or chargeable accidents. This data is a slippery slope evidenced by the fact that the FMCSA has withdrawn their safety ratings long ago due to errors in the data. That said there are *independent companies that can provide you with what data is available that will give you a heads up on these issues.
Another metric that can prove invaluable on your “due diligence” is reviewing a truck line’s out of service (OOS) frequency. These are unsafe issues often found at road side checks, weigh stations, etc and are performed by DOT officers or State Highway Patrol officers. Frequent OOS points toward poor truck maintenance… an indicator of poor management or lack of financial ability to keep their trucks in proper working order or both.
As a broker you must pay attention to the items above to avoid operating at a higher risk.
Let’s return to the beginning of this article…your risk when choosing a customer. You do choose don’t you? Or do you just take business because more sales does in fact drive us all to be somewhat blind to the risks… I mean let’s face it what can be bad about more and more sales.
How about you don’t get paid! Wow you not only lost the revenue you thought you were getting but you had to pay for all the costs involved in your operation plus pay the truck line to boot.
That is a lose-lose proposition;
lets break it down to one load: Load Avg $1,800, avg truck cost (85%) $1,530, sales & ops cost $144, profit $126. So you just spent $1,674 for money you will never get, run that through your calculator and you will need to handle 13 more similar loads just to be back where you started. That is a lot of work!
Over the past 34 years our files at TransCredit reflect a lot of brokerages that closed their doors because of shipper bad debt.
So when should you choose who you will or will not do business with and when is it alright to take the business without choosing, otherwise when is the lack of risk worth “throwing caution to the wind”. That decision is personal to each brokerage; however let’s be honest…no one likes to lose any amount of money not even a dollar that you have worked hard to earn. What you should do again is due diligence when it comes to credit extension; that means getting a credit report so you can see how that potential customer pays its bills, especially freight bills. Why is it so important to separate how freight bills are paid …what business are you in? That should say it all. You are most likely to get paid like other freight brokers, forwarders or carriers.
The point is…do everything you can to not get blindsided. How best to do that is to set up your operations to schedule regular credit checks on all your customers not just the new ones. Best policy it a window no longer than 120 days apart. Of course you need to accomplish this with
a minimum of effort and cost, fortunately there are **
credit companies that specialize in the transportation industry
that offer “unlimited access” to their credit data and can provide you
with a portfolio of all your customer’s reports with instant access and go a step beyond with an alert system to notify you if one of your customer’s credit rating slips.
Hopefully you will take these worthwhile guidelines, incorporate them into your business model. Doing so will replace a lot of the “risky business” with profitable and enjoyable work for your brokerage.
**TransCredit Carrier Scores
** TransCredit Unlimited Access