Week of October 16, 2023
Kara Smith Brown
CEO | CRO | Advisor | Best Selling Author | B2B Lead Gen + Demand Gen
Freight Brokers Revolutionize the Trucking Industry with Unprecedented Influence
“Freight Broker” is truly NOT a dirty name. Since the turn of the millennium, the freight brokerage sector has seen remarkable growth, representing a significant shift in the trucking industry. In 2000, freight brokerage accounted for a mere 6% of the market. Fast forward to 2023, and it now represents a substantial 20%, exhibiting more than a threefold increase.
Freight brokers have evolved into an essential cog in the wheel of the trucking industry. They handle attractive, carrier-friendly freight and play a pivotal role in dictating shippers' routing guides. Their influence in the industry is palpable and continues to grow.
The deregulation of the trucking industry in 1980 paved the way for an influx of motor carriers. Today, 99% of these carriers operate fleets of 100 trucks or fewer. These smaller carriers have managed to weather difficult market conditions, largely due to the steady supply of freight from brokers. This symbiotic relationship has enabled small carriers to endure longer in the freight cycle than previously anticipated.
Interestingly, the current freight cycle has seen small carriers persisting longer than expected. This longevity can be attributed to the unwavering support provided by freight brokers.
Looking ahead, it's projected that the trucking market will reach a capacity balance in approximately 78 weeks. However, the road to recovery may be longer for freight rates. They are not expected to see a significant increase until at least the second quarter of 2024.
One of the critical factors affecting the pace of recovery is the high number of freight brokers, which has slowed the process of reducing capacity during downturns. This prevalence of freight brokers, while providing a lifeline for smaller carriers, has also created a buffer that decelerates the purging of capacity.
In conclusion, the freight brokerage sector has grown from a minor player to a major influencer in the trucking industry. Its role in supporting small carriers and dictating shippers' routing guides is undeniable. As we navigate through these changing times, the freight brokerage sector's impact on the trucking industry's future trajectory will be fascinating to watch.
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Examining the Challenges Facing Freight Forwarders in the Marketplace Industry experts are discussing the challenges facing freight forwarders in a changing market. One significant challenge is the ongoing shift of cargo from air to ocean, driven by cost-saving and environmental considerations. While air freight had a surge in demand during the pandemic, there is a long-term trend of cargo moving to ocean freight, which tends to offer lower margins for forwarders, as well as lowered carbon emissions.
Another noteworthy trend is the decreasing average size of shipments, influenced by the growth of e-commerce and changes in cargo handling. Smaller shipments result in forwarders receiving a higher volume of quote requests and increased expectations from shippers for cargo tracking, all while operating on lower margins. This dynamic is putting pressure on forwarders to reduce their cost per transaction.
Digitization is a potential solution to these challenges. With shrinking shipment sizes and growing numbers of shipments, technology investments can streamline operations, reduce costs, and improve efficiency. Furthermore, the shift towards digital solutions is critical in a market where margins are under pressure and labor costs are rising.
Cargo volume increases from China to Mexico indicate the need for forwarders to consider supply chain diversification. This trend suggests that supply chains are becoming more intertwined, driven by factors such as labor costs and geopolitical considerations rather than just efficiency.
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U.S. Government Prioritizes Expansion of Michigan Soo Locks with $700 Million Investment
Initially opened in the 1850s in response to increased copper mining, about 10,000 ships pass through the Soo Locks each year with limestone, iron ore, grain, and other needed items. Making a trip across the Great Lakes and Canada, the navigation system allows large ships to bypass rapids directly below Lake Superior as they make their way to the Midwest and further. While every few decades, the locks were upgraded, more recently, they have not been. More specifically, the vital Poe Lock has been shut down for repairs 20 times in the last 10 years. As a link in the U.S. industrial supply chain, nine outages have occurred in the previous four years. These outages have been cause for concern because the Soo Locks are responsible for moving 90% of iron ore for automakers and manufacturers nationwide.
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The Biden administration has invested $700 million from the $1 trillion infrastructure law to build a new lock, with construction crews working to complete the project. Despite the government's investment, it is unsure whether the expected upgrades to the lock can get the funds they need in time. The $700 million almost doubles the money already dedicated to the project, placing the overall funds at $1.6 billion. This is only about half of the full amount needed to finish the project. Expected to be complete by 2030, Congress will ultimately need to provide additional funding.
A total of 13 of 14 North American integrated steel mills are heavily dependent on this navigation system to transport iron ore from Minnesota and Michigan. In addition, the locks are known to be the only practical solution for transporting raw materials because the distribution of iron ore and other supplies by trains or trucks would be too expensive. Approximately 450 to 500 workers are expected to work on-site in 2025 and 2026 in efforts to modernize the U.S. waterway.
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Strengthening the US Supply Chain - Bills Focus on Building a Competitive Landscape in the United States
After experiencing notable shortages and delays of a wide variety of products during the COVID-19 pandemic, the United States continues to work on measures that promote and manage supply chains to be prepared for disruptions with a coordinated, strategic approach in collaboration with the private sector.
As the supply chain continues to undergo disruption scenarios that include labor shortages, strikes, and increased demand, proposed federal legislation would establish capabilities that ensure American supply chains are strengthened, managed, and resilient to threats.
Led by Representatives Jim Banks and Rosa de Lauro, the Strategic Homeland Investment in Economic and Logistical Defense (SHIELD) Act bill, would establish an Office of Economic and Security Preparedness and Resilience to coordinate efforts among federal agencies and industry to continuously map, monitor, and analyze supply chains that are critical to the national security of the United States.
It’s no easy task to protect and manage domestic and international supply chains in an increasingly volatile world as there is no one solution to improving supply chain practices. Only a combination of initiatives, innovative solutions, and best practices can help lay the foundation for a successful industry.
“Our over-dependence on foreign manufacturing has hampered our ability to quickly respond to supply chain challenges and meet the needs of America and its citizens,” said Rosa de Lauro, Representative for Connecticut.
Scott Paul, President of The Alliance for American Manufacturing (AAM), a non-profit created to strengthen American manufacturing, expressed “We must build more domestic capacity in critical manufacturing sectors and consider localization of supply chains a best practice.” Paul urged the federal government to develop a more complete set of tools and authorities to identify, prevent, and mitigate supply chain vulnerabilities.
The measure would pave the way for policies meant to enhance resilience along supply chains as well as prioritize security for domestic production sectors. Legislations create the framework for the creation of well-paid jobs for American workers.
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