Op-Ed on LTL Transactional Brokerage via Agent Models

One Opinion:?LTL Does not Fit in a Transactional Brokerage Environment, and Sales Agents Can Suffer

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Introduction

Sometimes the powers of LinkedIn and social media in general can work against you, as context is largely excluded from a brief, and pointed post.

I wrote this LinkedIn post last night – and it seems to have gotten quite a bit of attention – as well as some unintended reactive engagement with some folks feeling like their way of life, in a business sense, was being called out.

I will attempt to better lay out my position through this article.?I still stand by my original sentiment that as an industry – LTL is not served well by the typical transactional brokerage model that we often see in truckload.

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Establishing Common Ground

First let’s define the term “broker.”?According to Wikipedia, a broker is a person or firm who arranges transactions between a buyer and seller for a commission when the deal is executed.?Often a broker can also act as the buyer or seller (or both) which makes them a principal party to the deal.?In LTL – we often see the broker both buy and sell as they resell rates that they’ve established with carriers.

So, if a broker is largely a transaction arranger – that means that their real value is from finding buyers for sellers, and sellers for buyers.?This works perfectly well in the full truckload arena, as there are thousands upon thousands of both shippers and carriers, and the main issue is just matching the right carrier with the right load.?

There is primarily one variable there…that being the origin and destination pairing of the freight.?At any given time, there could be hundreds or thousands of viable carrier options for a single truckload, and the experience will ultimately be the same regardless of who hauls that freight – albeit for some outside factors like traffic, weather, and other variables not within either party’s control.

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LTL is Difficult err Different

Now in LTL, this couldn’t be further from the truth.?Most LTL carriers have very defined, static networks of serviceable points – meaning that the one dynamic variable on the truckload side is really the only fixed factor in LTL.?It’s not hard to find a carrier based on geography.?It’s all over the internet!?Just a quick Google search or TMS rate-shop away.

Beyond the geographical fit however – both the shipper and carrier have many elements of responsibility and control that will impact the experience, costs, and outcome for the other party.

The shipper influences the type of commodity they are shipping, as well as the value of it, how fragile it is, how it’s packaged; whether it’s palletized, loose, or crated; and most importantly – how accurate the details on the bill of lading are, which describe the shipment’s characteristics and directly impact the charges associated with the handling of the freight.?They also hold the key to the service expectations around transit times and on-time delivery.?The shipper also must request the correct accessorials during quoting and input the accurate actual NMFC item and class.

The carrier controls their on-time pickup and delivery of the freight, safely securing it in the trailer amongst many other shipments, the handling and moving of the shipments at cross-dock locations, as well as the accurate data entry, billing and possible reweighing or inspection of the physical goods.?They must also provide continuous visibility to it’s location, and digital access to information and documentation around that transaction.

There is a massive amount of moving parts here – and to boil all of that down to a quick rate quote, where all of the viable information impacting cost may or may not be included, then followed by a provider choice that’s usually heavily influenced by the cheapest rate on the screen – is much, much more than a seller finding a buyer, or a buyer finding a seller.?

There is technical knowledge needed here that goes way beyond the skillset needed to book a flight on Priceline.com.

A third party “matcher” shouldn’t be the one facilitating and responsible for that transaction.?Yes, they can add insight and services in different ways – but to be the pure middleman – that just doesn’t work.

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The Bigger Picture

Of course – there will ALWAYS be exceptions to every rule.?I firmly believe that in multiple LTL scenarios – the brokerage, agent, shipper and carrier operate in peaceful harmony, with nothing but a warm bliss in the air and hop in everyone’s step. ?

However – is it the BEST model for the industry??No, I think not.

Look at the large agent model brokerages in the industry and how fast they grew.?They are cash cows for the most part.?Quite often the target of private equity money or larger mergers and consolidations.?I want to point out however, that just because something grows quickly and makes money – doesn’t mean it’s the best for everyone involved.?

The smaller, less technical agents haven’t historically had much else to choose from.?It used to be that to have access to a decent TMS, back office support and rates/capacity from LTL carriers you had to join the “team” in order to get out there in the market and sell.

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Future Looking

That’s changing!?In 2022, the TMS options are endless.?There is new tech around back office support, invoice auditing, and near-shore labor solutions that mean multitudes of new possibilities for smaller logistics service providers who didn’t have these choices even five years ago.

When tasks are kept in house – which requires capital, leverage, and resources – it’s because the friction or cost to outsource is too great for there to be any ROI involved.

The internet, and recent surge in logistics startups, is changing all of that!?We are currently seeing an unbundling of services and technology in our industry that mean daisy chaining or stacking various solutions together to be executed by a small entity can be just as effective or even more so than having everything under one roof and controlled by one group.

The internet driven economy and new logistics technology solves for automating the rote, repeatable tasks, and removes the dependency on the middleman.?This can be seen in many other industries, time and time again.

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One Potentially Wrong Assumption

Another assumedly controversial statement is that not all shippers should be working through a 3PL or broker.?Any shipper too small to engage in a fully managed transportation solution, as I talked about here, should probably be using a TMS-lite with full API capabilities, and plugging in their direct LTL carrier pricing through that.?Not to say they can’t benefit from third party and LTL expert services.?However maybe those should be in the form of data improvement, pricing analysis and benchmarking, LTL advisement, and introductions to carriers they may not know of.?Running a small shipper through transactional pricing doesn’t always end well.?

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Does the Upside Match the Downside

Lastly – a large part of my thought process when writing about my disdain for transactional LTL through agent models was this:

It’s usually the agent, often a single owner-operator or very small company, that’s left holding the bag on any extra charges from LTL carriers.

We’ve already established that this type of discrepancy can often happen, with the percentage of rebills or invoice corrections being much higher on the subsect of transactional LTL shipments moving through broker blanket pricing vs direct or managed scenarios.

The large broker will want to pay the carrier to protect that relationship especially with their name on the bill-to, and often on the other end of the spectrum, the shipper is not willing to entertain the additional charges due to their lack in quoting expertise.

I have seen time and time again, a broker agent absorbing these extra charges, or even paying their clients claims because they don’t want to lose the business and are under the impression that those types of favors are what keeps a partnership strong.

I believe that bad habits and cycles perpetuate when business is handled in this matter.?It’s not healthy for a carrier to either win big or lose big on business ran through blanket accounts – when the level of the pricing itself has absolutely no correlation with the costs associated with these transactional shipments.

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Summary

This is all just one person’s opinion.?Really not even sure who to blame, because we’ve all engaged, all are guilty.?Carriers have historically given competitive tier one blanket programs while only looking at potential volumes, and not anything on the costing side.?Large brokerages were smart enough to implement these agent models, because they grew quickly and gave folks who were new to the industry a spot to break in and make a good living.?Many small shippers remain uneducated on LTL and are enabled in their bad habits around quoting and tendering their freight.

I do believe that technology will force the market to evolve in a manner we have yet to see in LTL.?Just like 2021 was a record year for capacity – and it accelerated or highlighted various trends that were already in motion or just under the surface – as technology grows a stronger force in LTL – it will force bad behaviors and frameworks out.

As long as we learn, improve, and keep moving forward – we will all be ok.

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?-????????CG