The freight business is booming as consumers spend all that cash they saved by staying home on stuff they think will make life at home more interesting.
The last time rates were this high was 2018, and carriers responded by expanding their fleets instead of building up rates and margins. When those new trucks actually hit the streets in 2019, the economy had slowed and the capacity pendulum had swung in the customers’ favor.
If you need an example of why trucking cycles don’t align with economic cycles, look at the capacity picture in 2018 and 2019.
I do sense that carriers are thinking different this time around.
In the past six months our phones have been ringing off the hook with carriers looking to purchase freight brokers or for advice on how to start one.
Being a middleman is nothing new for big fleets. In fact, there are thriving freight-broker operations behind the brands at most of Canada’s large carriers. They know the added value that a third-party non-asset-based solution can bring to their business.
There’s no reason why smaller and midsized truckers can’t reap the same rewards. Here’s why nearly every fleet should look at adding a broker component to their product mix.
Grow your existing customers
How often have you said “no” to a long-term customer because you didn’t want the hassle of adding iron and finding drivers? It hurts even more knowing that you’re opening the door to competitors.
A broker solution lets you say “yes” to covering the load instead of “let me think about it and get back to you.”
Increase your business value
Becoming a carrier-broker hybrid will increase the enterprise value of your company.
Fleet owners don’t like to hear it, but freight brokers trade for higher multipliers of normalized EBIDTA (Earnings Before Interest, Depreciation, Taxes and Amortization) when compared to similar-sized trucking companies.
Freight brokers are generally more profitable relative to their sales, and business buyers also see the operations as less risky and more nimble than carriers. They add valuable Stickum to the customer relationship and make it harder for a competitor to take you out at the knees.
To that point, we recently had a situation where a midsized broker with a small fleet approached us about selling the entire business. To maximize the sale price, our advice was to sell the trucks first. The broker division became more valuable as a standalone entity than a hybrid.
In this case, selling the trucking assets as a first step put more cash in the owners’ jeans, despite the fact that the business was significantly smaller.
Hide your trucks
One strategy many truckers employ is to hide their trucks behind their freight brokering division.
Instead of selling their trucking services directly to prospects, they sell their third-party solution. This allows their trucks to haul the shipments best suited to their geographical footprint, hours of service, and availability of backhaul.
Nothing better for an LTL carrier than to sweep the customer’s dock, cherry pick the freight that works best, and broker the rest. Chances are, what doesn’t work well for your fleet is prized by another trucker!
At MSM we were one of the first hybrids. If we didn’t have a guaranteed backhaul waiting for us at the other end, we’d leave our truck parked against the fence and let someone else deal with it.
Saving empty miles is another bonus to having a freight broker in the house.
Industry outsiders often ask me the difference between a freight broker, a forwarder, and a 3PL. In simple terms, there is none. They’re all middlemen who provide non-asset transportation services. Some operate as transactional skid-chasers on cross-border freight, while others specialize in unique vertical or geographical niches. Other carriers have evolved their third-party operations into 4PLs that offer complex high-level supply chain solutions.
At MSM we opened a global freight-forwarding division during the Great Recession. Suddenly we were servicing countries I’d never heard of, with names I couldn’t pronounce. But our long-term loyal trucking customers loved it and the new venture grew like a weed.
Starting or buying any new business is a daunting task. But this grizzled industry veteran can assure you the difficulty factor in being a middleman pales in comparison to being a trucker.