How broker agents can endure a soft freight market
In a soft freight market, one big challenge brokers face is securing new contracts at favorable rates.
Today’s market conditions, in which capacity is loose and rates are low, mean shippers have the advantage when it comes to pricing power.
“Right now everyone’s just very, very hungry because there is additional capacity in the marketplace, but those that have those relationships with customers are the ones that still have the freight at the end of the day,” said Brian AuBuchon, vice president of logistics at TAB.
To understand the stark difference from last year, one only needs to look at SONAR’s Outbound Tender Rejection Index (OTRI). During the first week of August, the U.S. OTRI fell to 6.38%, which is 1,450 basis points lower than the same time last year. A week later, the OTRI shrunk to 5.82% — a deep dive from the start of the year when it was at 22.5%.
The OTRI measures the amount of contract freight offered by shippers that was declined by midsize to large carriers. When demand surpasses available capacity, the rejection rate increases.
A low rejection rate, as is the present trend, indicates more available capacity and a shift toward lower rates as shippers have more leverage for price negotiation.
For broker agents, especially those without a solid customer base, looser capacity can mean resorting to less favorable options to find freight.
“If you don’t have customers that are committed to you throughout the year, you’re just going to basically rely on their overflow freight. What’s being offered to them is essentially freight that is not being given out to their customers or their carriers that have committed capacity,” AuBuchon said.
Contract freight provides carriers and brokers with pricing agreements that give them greater knowledge of and control over revenue.
When brokers turn to the spot market to find freight on load boards, they are left dealing with greater rate fluctuation from load to load. Seesawing revenue means business growth is left up to the chance of the market. Some loads are profitable while others are not.
Brokerages that already have a deep pool of customers, like TAB, allow agents more opportunities to tap into these resources instead of cold calling and relying on leftover freight.
TAB, which is the brokerage division of the carrier Artur Express, has built a vast network made up of long-established customers and assets over the last 25 years. The business hauls daily for more than 200 customers with contracted rates.
Agents who partner with brokerages aligned with larger carriers are especially at an advantage. Shippers seek carriers with sufficient capacity to handle not only a few of their shipments but perhaps hundreds.
“Partnering with not only an asset-based logistics company but a medium to large-size asset-based logistics company is right now more than ever imperative to survival and being able to grow your business,” AuBuchon said.
TAB can provide shippers not only capacity from Artur Express’s fleet but also from contracted carriers. This type of model appeals to shippers because the carrier is more likely to be able to have or find the capacity to move their shipments. They know that loads will be delivered through either an Artur Express asset or a contracted carrier.
Long-standing good rapport with shippers not only benefits a broker agent’s overall profitability but also day-to-day work life.
“Most of the customers that are with us have been with us for many years. That also gives us a lot of flexibility or leeway to resolve problems. If we have a problem with a shipper or a company that we’re delivering to, we can typically get somebody on the phone that can help us,” AuBuchon said.
TAB’s broker agents work and live worldwide. With a global workforce, and a broad network of customers, growth and partnership opportunities for agents are endless.
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