Freight 360

Freight Broker Evolution - From 1935 to 1980 and Beyond | Episode 273

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  • Dive into the evolution of freight brokerage, from the Motor Carrier Acts of 1935 and 1980 to the transparency mandates of CFR 371.3(c), reshaping the industry into a dynamic and competitive space.
  • Discover how deregulation transformed brokers from salespeople into critical financial facilitators, similar to Uber’s disruption of the taxi industry.
  • Explore challenges like accident-related driver terminations and appeals processes, alongside comparisons of regulatory landscapes across North America.

This episode unpacks key historical shifts and current trends shaping the freight brokerage industry.

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Speaker 1:

Welcome back everybody. It is episode 273 of the Freight 360 podcast. It's going to be a little bit of a deeper dive into last week's episode on. We talked about transparency. We're going to go back kind of the history and evolution of brokerage today and how we got to where we are, and that should give context to a lot of folks listening. But make sure you're checking out everything else. If you're looking for a specific topic, you can use the search bar on our website, freight360.net. We get a lot of people asking like, hey, do you have any sales or prospecting content? Just type in literally sales prospect and you'll get everything that has anything to do with that, whether it's a blog, short video, full podcast etc. Cetera. Keep sharing us and check out the Freight Broker Basics course. If you're looking for an educational option, that's on our website as well let's get into it. Ben, I know I'm always asking how's Florida? But apparently it's cold or it's cooler than normal. So what's the latest?

Speaker 2:

It's like in the 50s this morning. I mean it's been cold all week. The whole country's trying to get some colds, right. Yeah, I mean it's nice. We had the Christmas parade over in town tonight. So I appreciate the cold weather when you're doing Christmas stuff. So it's nice. Putting up the Christmas tree, building a fire and just I don't know makes me feel more like growing up in the North. I still definitely miss the seasons. It's definitely one of the drawbacks of living down here. But totally.

Speaker 1:

We got a couple feet of snow, lake effect snow over the uh thanksgiving long weekend here in in western new york and we're gonna get another. They're calling it seven inches, who knows, maybe a foot tonight. Um, this is, this is what happens, though are you skating rink up yet?

Speaker 1:

No, so I haven't done it since I moved into this newer house. My backyard is not nearly level enough and I think if I do it again, my kids are going to start doing like skating lessons this winter, at like at our ice rink. And if they pick it up, I think I would rather look at one of those kits where, like you know, instead of me building it from scratch from a bunch of lumber, from lows you know, you just buy like one of the kits and, um, do it that way, we'll see, we'll see. I gotta feel it out. I haven't skated in a couple years myself but an hoa up there no oh nice yeah, zoning issues with the community, no, the only thing.

Speaker 1:

Like there's something on our neighborhood, where I think it's the town, like you can't have, they basically don't want people to have a guest house. So basically you can't build like a detached garage with a living space, like there's some kind of regulation on that and every like every street's a little different garage with a living space, or like there's some kind of regulation on that, um, and every like every street's a little different. Like some some places you have to. You can have a pool house but not a shed. So or you have to apply for a permit I don't know, there's some dumb rules, man, but anyway, um, not to get too off topic, we're gonna have steven on with us today and we're gonna get. We're gonna get into sports here and, if I'm not mistaken, you two faced off Against each other this past weekend Bengals, steelers and I gotta tell you, man, that game was A shootout. It was like Touchdown, other team touchdown.

Speaker 2:

That was offense, no joke.

Speaker 1:

It was like 21-21 when I Swapped on to a different game, but ultimately Steelers had it by six. Take me through Did you guys both watch it?

Speaker 2:

I watched all of it. That was Russell Wilson's second best game in his career. It was like over 400 yards and if you would have asked I think anybody if Cincinnati put that many points up, could the Steelers win? I don't think anybody would have thought. I mean they definitely. And also Pickens had a ton of really silly, ridiculous penalties. I mean there were a couple that probably should have been called, but there were some that were just absurd, that, like we lost significant yardage field position just from honestly dumb shit. That shouldn't have happened.

Speaker 1:

Steven, what do you think you said you were already done with the bungles, as you?

Speaker 3:

call them yeah. Over this season, zach Taylor can go with the rest of them and we'll find a new defense. I mean, it's a shame, because if you look at Burrow's stats, I mean he is a top five quarterback Him. Jamar Chase and the receiving squad are crushing it and we keep losing every single week.

Speaker 2:

To what you said, like I think Burrow has four games or four or five losses this year where they put up over 35 or 38 points and lost. There are only two other games, I think, in the NFL this season for any team that scored that many points and lost and I think they said Tom Brady in his entire career when he put up that many points, only lost twice.

Speaker 3:

right, and to your point, I mean you definitely can't blame the quarterback, yeah it's like my fantasy team Every year I put up a ton of points, but the team I go against just puts up a ton of points. That one week and I lose.

Speaker 1:

But whatever. Well, anyway, elsewhere in the NFL, if anybody watched the Black Friday game, the Chiefs Raiders in total Chiefs. If anyone out there is a Chiefs fan, like cool, I'll see you in the playoffs. But literally you can't make this stuff up. The Raiders are up 17 to 16. I'm sorry, the Raiders are down 19 to 17. They're in field goal range to do a game ending field goal. They're like seven seconds left. They're like we'll take one, we'll do one more play, get a little bit closer.

Speaker 1:

There's a false start. It ends up, the play gets whistled dead. The quarterback whoever like fumbles the ball because he didn't even know he didn't call for the snap, it was just snapped erroneously. So then Kansas City recovers it. The refs get to the sidelines and they're like you know what? That wasn't an off, that wasn't a false start which would have blown the play dead. Um, they're like that was a illegal shift which made it a live ball, which means Kansas City got it on a turnover, which means the game's over and Kansas City wins. And it's like are you kidding me? Can't get a break over here? Um, but anyway, yeah, chiefs still only have one loss. Um, bill's game. I was there on, uh, sunday night awesome electric at uh the stadium and shoveling the stadium out before no, no, they had.

Speaker 1:

Yeah. It kind of annoys me like they tell these they're advertising. It's like, yeah, twelve dollars an hour. I'm like, dude, you can go work at walmart where it's heated inside for 20 bucks an hour and you're gonna like ask your fans. They're like, oh, but it's gonna be a memory and I'm like all right, whatever sales pitch.

Speaker 2:

Yeah, hats off you're gonna tell your kids someday like, yeah, I was there shovel the stadium out 24 shoveling snow I was able to afford two beers After three hours worth of work, but hey.

Speaker 1:

Yeah for sure, josh Allen looked really good. There's that, you know, the Superman Dive play. After he threw it to Murray, cooper had a pitch back to him. He like joins McCaffrey and a couple others. He had a receiving touchdown, running Touchdown out of the pat. You know Multiple passing touchdowns in the same game. So yeah, wild, really excited. Touchdown, running touchdown, multiple passing touchdowns in the same game. So yeah, wild, really excited for the next handful of games here for Buffalo.

Speaker 1:

Just a fun game to be at College, really quick. We don't usually hit on college. Some wild upsets. First of all, if anyone's a Georgia fan, they almost lost but they pulled off after eight overtimes over Georgia Tech 44-22. But the big one, ohio State-Michigan and this is like a polarizing. I'm not a fan of either team, I don't dislike either team. I know Ken Adamo is a big Ohio State fan, right, and I got a lot of friends that are Ohio State fans and there's just a depression that goes into those folks when they lose to Michigan, which their current coach seems to have a tough time beating Michigan.

Speaker 2:

Four straight year losses, I think.

Speaker 1:

But it was just wild man. They couldn't do anything, couldn't get the points going and then at the end of the game, just a massive brawl. Michigan tries to plant their flag at midfield and a big fight breaks out. It took about 100 cops to break them up and they're macing players on both sides. But yeah, to all you Ohio State fans, sorry for your loss. If you're a fan of that team up north, good job on the victory. And yeah, it's always a fun one to watch every year. But all right news, we put out a good newsletter yesterday Check, I think it was. I shared one of the things. Well, I shared Stephen's article, which we'll talk about today, so I'll skip that. But Dean had a good one on the safety, the results of, like, the safety week and, um, the most common like offenses that drivers had. It's, it's all the preventable stuff, it's like breaks, like the stuff that like, if you just have a regular maintenance program, um, it's too easy, but you get folks that are most things in life money they're trying to cut corners.

Speaker 1:

I was literally talking to someone yesterday about like it's too easy, but you get folks that are on money they're trying to cut corners. I was literally talking to someone yesterday about, like you know, if a carrier fails, you know three, or I shouldn't say fail If they're over the federal threshold in like three or more of the five safety categories like it's hard. If you even think about maintenance, it's hard to fail that many if you're like, you're like blatantly doing stuff wrong. So, um, I encourage everyone out there if you have assets or if you're thinking about getting assets, um, yeah, you know, maintenance and your, your safety stuff is really important, not just for the safety of you and those around you, but it's the reputation of your company when it comes to being approved by certain brokers or even shippers directly. Good stuff. Anything else in news before we just get right into the evolution of freight?

Speaker 3:

Did you see the Warner lawsuit going on in Texas right now.

Speaker 2:

Yeah, I think it's going on for the driver 400 million, something one, or what was that?

Speaker 3:

Yeah, so the passenger car on the camera on the other side of the highway was going 60 miles an hour, lost control and hit the Werner driver that was going 50 and a half miles an hour or whatever, and so it was the driver's fault.

Speaker 1:

But warner got sued and they were on the other side of the road yeah, so highway, and then they were oncoming.

Speaker 3:

The oncoming van lost control, went across the median, hit the warner driver going the other direction and uh, is there a median or a barrier in between I? Think it was just like a grass. I'm not 100% sure I was catching up on Matt Leffler's content about it.

Speaker 1:

I did see that yesterday. Okay, so basically they sued Werner trying to say like the driver had some fault, well they won. Originally, really, yeah. And Werner appealed, say like the driver had some fault, well, they won originally, really yeah.

Speaker 3:

and Werner appealed it because I mean it wasn't the driver's fault he got ran into.

Speaker 1:

And, unfortunately, somebody lost their life and the rest of the family got injured. What it reminds me of is I always thought about this when I worked. When I worked for conway, um, the company had a, a policy where if a driver was ever involved in a an accident that had a fatality, or if the driver ever had a like, a, an overturn, like if they ever tipped over, um, doesn't matter the circumstance, automatic termination. And I was always like well, what if? And they're like no, no, no, no, no defensive driving. And I'm like all right, I get the overturned thing. You're either driving when you shouldn't be, because there's a ban based on the wind, or you're taking a turn too fast. Those are preventable. But if somebody hits you and you tip over, like yeah, or the the fatality one, like this case, like if a driver, just like you know, erratically comes, into your lane and there's the laws of physics and I'm like there's only so much.

Speaker 2:

You could do reaction time with 80, some thousand pounds moving down the road at the legal speed limit if somebody is coming at you at 65 miles an hour so.

Speaker 1:

So I always thought that was a little suspect, but yeah, that's wild. So what? It got overturned then through an appeals process or what Well it's in appeals right now.

Speaker 3:

They had the hearing yesterday, okay. So I'm not sure what the result of that is, but I'm sure if you follow Matt Leffler he'll have it. The second it's, it's ruled, yeah that's good.

Speaker 1:

The armchair attorney um, cool. So if you guys didn't get a chance to read steven's article, he did a a good piece last week on uh, it's what's. If you go to our website or anywhere on social or check out our newsletter, the links in there. But it's titled from regulation to deregulation, the the Evolution of Freight Brokers and Transparency Laws. Stephen, it's obvious why you felt the desire to write a piece on that, because everything that's been going on. But this is something that we've never really. You know, we talked last week about 1980 deregulation, cfr 371, all that stuff, and when we get to that point in the discussion I know we had some unknowns that we fact-checked and have answers on today as far as when everything changed, but we never really talk about the early days and I think you did a great job at digging into that stuff last week. So why don't you kick it off and kind of take us through, um, the beginning, like how did you know brokerage all start and and all that?

Speaker 3:

um, and then we'll kind of we'll walk through its evolution yeah, so in uh and what I researched the trucking industry, um, one of the main pivot points is, uh, the motor carrier act of 1935. A lot of people think that 80, 35 was the first one in 1980 was the repeal of those regulations and the reason that the 1935 act came along was the uh, they'll say, like you know, price manipulation and and markets and fraud and all that stuff. Because there were freight brokers prior to 1935. They were not federally regulated in any sort and any, unlike today where there are some regulations, but they were the cause of some price manipulation and theft and fraud and all that kind of stuff. You know the mafiosa era of our timeline. And then the 1935 Act came about mainly because the railroads were lobbying, they were losing business to this unregulated industry of trucking and they lobbied the ICC and the federal government to bring them in.

Speaker 1:

So the ICC has an Interstate.

Speaker 3:

Commerce Commission? Yeah, interstate Commerce Commission, I believe, and I think the railroads were brought under. That factor in, I believe it was 1887.

Speaker 3:

So they were pushing them to get into that so they could stop losing business to all these trucking companies. So then 1935 starts, and now freight brokers, property brokers, have to register with the ICC to get a license to be a property broker and also trucking companies, and one of the stipulations was is you had to prove that your service would have a general purpose of good for the community. This was for trucking and this was for property brokers.

Speaker 1:

So I'm guessing they're trying to get rid of any of the mob-based schemes, scams or just bad stuff in general that was happening.

Speaker 3:

Yeah, so that was kind of. They were really just trying to tighten up who can participate in the industry and even so far, like if you're part of the TIA. You know, you get those emails that say here's the list of new entrants, you have 30 days to comment on whether you think they should be a TIA member or whatever. Icc did the same thing. You would register to be, you would give your answers, they would review your answers and then the public would be allowed to then review your response to determine if you could be a broker or whatever you know what's interesting about that?

Speaker 1:

Because, ben, we've talked about so many times in our earlier content, like how to start your brokerage, and one of the one of the steps is there's that protest period, right, like once you file for your authority. I think it's like 14 days still, but, like Stephen just mentioned, the TIA like literally sends an email out to everyone saying like hey, here's the new folks that are applying to become TIA members. I've never once seen like a list of from the fmcsa. Like, hey, here's the people trying to get their authority. Do you want to protest it? Um, just another example of how the fmcsa doesn't uh use much of the uh abilities that they have to stop the bad from coming in. Um, another thing too like you think about Canada We've talked about it a few times there's only two provinces in Canada that regulate brokerage at all.

Speaker 1:

In Canada, it's Ontario and Quebec. Every other province in Canada there's no rules. Literally, it's the Wild West, mexico. I don't even know. I don't even know if they probably just do whatever they want Bribe off the cops. I don't even know if they just probably just do whatever they want Bribe off the cops, I don't know. Crazy, all right, sorry, not to go on a tangent.

Speaker 1:

All right, so 1935, the motor carryout comes around, and now you've got to register.

Speaker 3:

So trucking companies too, though Brokers and carriers Anyone trying to service freight over the road within the confines of a motor carrier or a property broker or the household goods. Those were all part of that. But it was restricted to specific commodities and geographical areas, which is the craziest part. So the Explain that. So there were some I can't remember which ones, but there were some commodities that you could put on a truck that was not governed by the ICC and regulation. So you were still operating in that pre-1935 context and there are comments during the 1980 deregulation where carriers were talking out about deregulation because of the issues they dealt with with brokers that would operate in that space that was unregulated because of the commodities. So when you got your authority as a carrier, you were relegated to not only geographical areas but commodities that you could haul and brokers. At this time there was only five active left and the main reason was because it was so difficult to get to match up carriers that were authorized to work in geographical areas.

Speaker 3:

Exactly, yes, you're trying to find these people with the authorities that can haul this specific commodity in this freight in this area. And that's why, like trip leasing was a thing. So to get it for a broker, for you to haul freight for another carrier or a broker, you actually had to go to their physical location and get the driver, had to get a trip lease before they could go pick up the freight. So if you think about it, you're a broker where I'm at in Cincinnati and you've got a driver saying, hey, trying to pick up a load in cleveland, he has to physically come down to cincinnati sign some paperwork, then go back to cleveland to pick up the freight and take it to wherever.

Speaker 3:

Um which was one of the reasons for the deregulation there was that the inefficiencies in the supply chain. The things could not get picked up on time so you couldn't have this just-in-time supply chain that we have now in manufacturing. There was a study done after I think it was a year after deregulation where the cost of warehousing product had dropped by 10.8%, which, if you'd factor in for inflation, would be $42 million in just warehousing costs spent, gone out of suppliers' budgets.

Speaker 2:

And to be honest, that kind of doesn't surprise me If you think back to that time period. One I don't even think the FBI was established until at least the mid or late 30s. It might have been the late 20s and it was basically Hoover was able to get it proved because bootleggers were able to commit crimes across state lines but law enforcement had no ability to chase a criminal to the next state. So all of basically the country's ability to fight crime was geographically defined until they started passing those things. And then wire fraud and that also was chasing gambling. The reason they started that was because the mob figured out a way that they could take bets through wire services out of small areas of the country and pull money across state lines and not be running afoul of any laws because they weren't in that state.

Speaker 2:

So it does kind of make sense and also like a lot of business back then was very regulated in a sense to keep profits within certain areas, not even geographically but in commodities right, like steel industries. You didn't have labor unions back then. The railroads free, that like they were run very much towards the goal of a monopoly. You know they passed the I forget what it was and like the teens or whatever, to fight monopolies. But that still persisted in the way they behaved, like they really protected the moats around their business. They didn't want anybody moving their stuff. They didn't want anybody else to be able to buy a competitor's good. They did everything they could to protect those businesses.

Speaker 2:

So, like to me, it kind of makes sense that it played out that way. But to your point, you know, as things progressed over that 40 years into the 60s and 70s, a lot of those things started to change. Right, like the federal government started cracking down, creating new laws to go after organized crime. They lost some of the foothold over the unions. Jimmy Hoffa Right. And the famous story and like how he ran the largest union in the country. He was as powerful, arguably the Teamsters right.

Speaker 1:

The.

Speaker 2:

Teamsters. Yeah, I mean he was at the time he was almost as powerful as the president of the United States because he could literally stop all of trucking in the United States with a phone call, Like if you can stop the goods and services, you have tremendous influence, right. And then they found out he was funneling so much of their pension money right into the mob that they invested into vegas and things. So I mean, like it kind of makes sense that things play out that way. In that context I'm kind of curious what the 70s look like versus the 80s.

Speaker 1:

As I went ahead, I looked up really quick, just a little, uh, to add in some stuff here on the, the, the uh motor carrier, motor carrier Act of 1935. Is that what? It is right, yeah? So a couple of highlights here, specific to freight brokers so yeah, it said you had to require proof of quote, public convenience and necessity to make a more controlled environment for brokers. And the other part here, yeah, here, yeah, basically the authority was granted from the icc which you mentioned. So that's so okay.

Speaker 3:

So we live in that era, then, for 50, for 45 years yeah, 45 years okay so one of the things that is a lot of people forget now and and kind of what the transparency stuff. I'm not saying it'll lead to this, but there there's a, there's an argument to be made for that. But during that time of regulation um, like the idea of an rfp, like that wasn't a thing. Rates were indicated on lanes and the way that was determined is, if you were a carrier and your authority service this commodity on this lane, you had to post your rate to the ICC and then they had 30 days to determine if your rate was good or bad and then your competitors got to weigh in on whether your rate was good or bad. So if you had a new customer in this lane with the commodity that you're allowed to haul, you had to post the rate that you'd be hauling it for, and any of your competitors or people around you could say, no, that's too much, they can't be, or that's not enough, they need to raise.

Speaker 1:

Wasn't there something like a 10% Whatever the rate was it was authorized? Like whatever the rate was it was authorized, you had to operate within like a 10% window of that or or my way off. Okay yeah.

Speaker 3:

Yeah, and the reason was for the brokers operating in the space Cause. Then that 10%, if, if you or your company couldn't haul what you're supposed to because of the, the regulation, how it was set up, in the broker, your, your bonafide agent for you, your carrier, put it on another carrier, that 10% was for to go back to the broker and that's why the transparency was set in place. So there was that, that window of 10% so that the broker could get their commission if they were, you know, to find the carrier and do the trip lease and get all that.

Speaker 2:

So again just to recap, the rates were regulated. As a motor carrier you had a specific either a commodity or list of commodities you were licensed to haul. Then you needed to get through a regulation to have the price for that shipping lane approved for your customer. So I haul meat and my customer wants to send that meat to their customer from Florida up to Nate in New York. I go okay, I want to charge this guy whatever a dollar a mile. Back then I'm sure it was less with inflation. Whatever it is.

Speaker 2:

I submit that rate to the ICC. They then put it out for all the other trucking companies that move commodities on that lane. They can say, hey, this is in line with what we're doing. It's either too much or too little. It then gets approved. Now I can run that and if my trucking company can't move that load for my customer because of whatever reason guys are sick, trucks are broke down I can have my broker right call Nate's trucking company and Nate could run that load for my trucking company. But Nate right needed to lose 10% off his rate that I would get as a broker for fulfilling that contract.

Speaker 1:

I believe it said it was up to like you had to be within 10%. You had to pay within 10% of that approved rate.

Speaker 3:

So if you paid a little less, that results in a margin, then Got it Naturally and those rates were publicly posted, so like your customers would actually know what rates you're moving commodities in regions before even contacting you. Yeah, so you don't need an RRP.

Speaker 2:

They could kind of look and go like this is what it costs to move this truckload of meat or widgets from here to there. This is what the ICC says. I'm going to go find a carrier that wants this business. Hey, these are the rates that it looks like everyone else is charging. Where are you going to be at? So there's no need for competition at that point.

Speaker 1:

So think about this. Right we go back to COVID 2020, 2021, right Carriers would literally buy more trucks and just find the highest paying stuff and chase it around the country. This prevented any of that.

Speaker 2:

Literally Correct.

Speaker 3:

Rates are set.

Speaker 1:

You're not allowed to go chase stuff that's not your commodity or not your region. The government is literally telling you here's your place, stay here, stay in your lane Literally. Which creates a ton of inefficiencies.

Speaker 3:

Yes, yeah, and and which creates a ton of inefficiencies. Yes, not only that, but near the end of regulation, which I got a couple anecdotes, but near the end of regulation it was next toastern law, I think put it out in like 1993. It was easier to buy a company outright and get their authority than it was to apply for a new authority, because you couldn't get past the, the needs, the convenience and needs of the public.

Speaker 1:

Because it was already being met of what it was.

Speaker 3:

Right, Exactly, and so like, for example, the company that my dad used to work for. They were built off the fact that the owner's father sold Subler Transfer in the 70s like 75. Yeah, for an exorbitant amount of money, because he's selling the authority and then within a couple of years, that authority that this person bought was worth zero dollars because they'd opened it up to everybody and he obviously invested the cash and then later on they would start another trucking company.

Speaker 2:

And that makes sense, right? Because if you think about how that came into existence, right, it came into existence when all of trucking was unionized. So they're one organized, they're all paying dues to one party that is lobbying for their benefit. Well, what's in the best interest is the people that are already there paying dues not letting new people in being able to regulate to make sure everyone's making as much money as you want and you don't let anybody else in, and that's to the benefit of it, except it's not exactly efficient. To Nate's point, Nobody can get into the trucking business and everything is regulated to basically the existing companies, so there's nobody that can come in. There's no free market. You can't. Hey, I want to plant my flag and own a trucking company someday.

Speaker 1:

You literally couldn't do it unless you bought one it reminds me of what's the thing in new york city with like cabs they have to have, yeah, the medallions which changed through uber and uber and really good case study and even watching the movie to understand how that broke down.

Speaker 2:

But it's very similar and that off actually operated a lot kind of like indentured servants, like you had to go work with a guy who had the medallion. You had to run against the clock every day, like one of the reasons why everyone said cab drivers drove terribly and caused accidents was because when they interviewed and they went dude, I start my day owing $200. I only have this many hours to make that money and then some, because every day I go to work I start in debt and there was really no free market for cab drivers because of a very similar system.

Speaker 1:

Yeah. So I want to revisit now where we. You asked me last week on the show about the. When did the transaction change from a single transaction to two right? So basically, previously shippers paying motor carrier broker receives a commission off of whatever the rate was. Okay, you know, whatever the rate was okay. So in 1980 the motor carry act of 1980 deregulated with with the icc had uh previously.

Speaker 2:

I want to know why too. Can you start with why it was? Because I remember you had told us like even the reason it was deregulated wasn't for brokers. I think you had said the major reason was carriers didn't want it right. What was the actual motivation to change this in the late 70s into the 80s?

Speaker 1:

I mean, I'll fact check it right now. Stephen, do you have anything on that?

Speaker 3:

Yeah, so deregulation as a whole was because of the inefficiencies in the market. So the large shippers were complaining to the government that the trucks were not showing up on time, things were not moving fast enough. And then, as I mentioned earlier in this, there was that case point on warehouse storage that somebody had done a study the first year after deregulation and found a 10.8% drop in spend, and then after deregulation they were opening up free market, because that was kind of the thing during that time.

Speaker 2:

In the late 70s. Yeah, you have massive inflation yeah.

Speaker 1:

I have all your answers right here and it's exactly what I thought. I want to make sure I didn't say it wrong, though. So, basically, this is part of a nationwide change and shift in the way we did things. So in the 70s, initiatives with the Nixon administration and then eventually carried out through Gerald Ford and Jimmy Carter, was all about deregulation across across the board. So, yeah, when President Carter signed the bill, here's what he said this is historic legislation. It will remove 45 years of excessive and inflationary government restrictions and red tape. It will have a powerful anti-inflammatory effect, reducing consumer costs.

Speaker 1:

There's another point will benefit from this legislation? Consumers will benefit, because almost every product we purchase has been shipped by truck and outmoded regulations have inflated the prices that each one of us must pay. The shipper who uses trucking will benefit as new service and price options appear. Labor will benefit from increased job opportunities and the trucking industry itself will benefit from greater flexibility and new opportunities for innovation. So, yeah, this was all about the. It was about the consumer, about the trucking company. Remember, brokers were very limited in their ability to operate and how many they could, how many existed. The deregulation is what allowed people to then flow into this space.

Speaker 2:

Well, you're right and at the time right like think about that like late 70s, massive inflation, like 15%, like interest rates, I think my parents told me and they bought their house in like 79. The interest rate was like 16% of the house. You had gas lines. You could not get gas when you was so limited. So everything's getting expensive, nobody can get gas, nobody can afford anything. The government goes hey, we've got to cut this red tape to make things cheaper and more efficient, right?

Speaker 1:

Yep, exactly. So then this act happens. It's signed into law in July of 1980. Obviously, whenever you have a big sweeping change like that, it takes a lot of time for the evolution of it to really set in. So part of that deregulation put in place that, hey, now that brokers are allowed to operate more freely and we're going to open this door up, if they're going to be paid commission by a carrier we need to make sure that they can see transparently what the price being paid is, so they know what their commission is going to be. So that's why CFR 371.3C was created was to actually protect the freight broker, create direct relationships with shippers and allowed for a two transaction system where I, as a broker, I can potentially just go charge a shipper myself and pay a carrier, if I can work that out.

Speaker 1:

It took years, though the research I did said it took until about the mid 1980s until that two transaction system became the normal way of doing business.

Speaker 1:

So for the first handful of years of deregulation you still had a lot of people doing it the normal way of doing business. So for the first handful of years of deregulation you still had a lot of people doing it the old way of like hey, I'm going to go find a load for you, mr Trucking Company, and I'm going to find a truck for you, mr Shipper, but you're still going to pay the carrier direct and the carrier is going to pay me, and that's why we have CFR 371 is so I as a broker am getting fairly compensated for the work that I did. And then eventually the broker's like well, I'm allowed to just charge a shipper myself and pay the carrier a lesser amount because it's deregulated now. But think about how long it takes to develop these relationships, establish brokerages right, expand your network. I took years and years and years before that became the norm and then that regulation essentially became, you know, pointless. It's not the way we do business anymore. Get rid of it. But here we are, 20 years later.

Speaker 2:

So two questions the one wasn't that a regulation originally opposed by trucking companies and the proponents were brokers?

Speaker 3:

Yeah. So if you go, if so, if you look up 371.3C and on the FMC USA website there's actually a link to the original document and you can see the comments on the Federal Register. And Yellow Freight was the one that I've shared a lot, saying that they opposed it because there was no need for commission for the brokers. They opposed it because there was no need for commission for the brokers and the federal government that was regulating at the time came back and said well, if you don't pay them a commission, then you're just getting a sales and traffic team for free. And we don't stand by that. And the Property Brokers Association at that time was pushing heavy for it because it was a one-transaction system.

Speaker 3:

And if you look at one of the interesting things is, if you do a Google search on, like, the history of freight brokerages, all of them start with a company called American Backhaulers which I'm not sure if you're familiar with Yep who was started by Jeff Silver, the father of Andrew and Matt Silver. I think they started in 81. He would be. I would love to talk to that guy because I'm sure there's some more information in there that I'm that he could expand on. But he started American Backhaulers in 81. They sold five years later to CH Robinson, which is credited with being the first broker. They actually started in 1905. Which is credited with being the first broker. They actually started in 1905. They were a produce broker and they brokered their own produce with their own trucks. I'm not sure how it all worked, but they've maintained property broker status from 1905 to today.

Speaker 2:

Here's the thing that I wanted to tie into what Nate said and this would be my guess, and this is what I would love to ask him is if you can't get into trucking without buying a company for 45 years, you don't have a lot of people trying to get into there because you can't right. Even once you change it, the laws and people that did want to can't get in. To Nate's point, it takes time. So one, when you regulate the number of trucking companies, it will take years for people to realize they can now get in that business and can learn it and can do it, which, to Nate's point, would take time. So I bet, as the carrier base expanded right and as brokers were finding more shipments that they could put on different trucks, as new trucking companies came into business, like the network expanded right and as time went on, like, okay, and this is the thing that I have a very big point of contention with. The argument currently is that everyone on the trucking side wants to say that brokers are the issue, but economically speaking it is. Brokers don't have anything to do with the supply and demand of freight, that's just the things we buy in this country. Ok, what the other side of that is the demand to move the freight or the demand for a truck. It's the number of carriers that are able to move freight that has expanded. That drove rates down. So as all the trucking companies came into the industry after this regulation, I'm sure and to the point of the regulation pricing came down because you have competition right.

Speaker 2:

It's the same reason. Pricing goes up and down in the current market. Lots of carriers run in when there's a problem, like COVID, and then prices go up until too many come in and you have an oversupply. Then prices come back down. That is the way supply and demand cycles. That's why it functions. For so long it expands until it can expand and then it shrinks for a period. Then it expands again. That has nothing to do with anybody in the middle. It has to do with the economy and what we're making and buying in the US and the number of companies that can move the thing that we're making and buying. Brokers in the middle have't have anything to do with the pricing aspect of it. It's if a carrier is willing to run it and another guy is willing to run it cheaper. It's not the broker's fault for picking the cheaper one, it's that there are more carriers willing to run for less rates. It's the supply of trucking companies that drastically affects the rates, not anybody in the middle.

Speaker 1:

Yeah, I want to give you a. So I can't believe I haven't shared this story before, but this is so. Pierce Worldwide, where I work. When we went to DC a couple years ago the first time we were really arguing transparency. My boss, Kevin Pierce he's the current owner he explained beautifully the evolution of the single versus double transaction and the transparency needs.

Speaker 1:

So basically, if you go back, his dad, Warren Pierce, drove truck in the 60s and 70s, founded a brokerage in 1981, right after deregulation, so one of the oldest freight brokerage companies around there. It's changed names and authorities over the last 40 some years, but it was originally Warren Pierce. Truck Brokers, I think, was the name. And he said and he explained it to the congressman he said at the time we were transparent because if the trucking company was paying me, we would charge a 5% commission to find them a load. If I was funding the load for them aka I'm going to go invoice the customer and pay them we do 10% and he had it set in stone that way from the beginning and that's how it was.

Speaker 1:

And then eventually the brokers just started to cash flow all on their own. It was like, well, there's no need. There's no need for us to be transparent about this anymore, because at the end of the day, if, like if I'm as a broker, like you said, if I'm not funding the transaction, I'm doing this finding you a load, Well then I'm just a salesman and you have five percent commission. Sure, Cool, All good. But I want to make sure I know what the sale was, so I get my commission on it. The same way, if you're a salesman for anything, you want to know what the actual profit on that was, so your commission is calculated properly. But now that I'm no longer just a salesman for you, but I'm legitimately the bank and I'm funding all of it, Well there's really no need for you to know exactly what all that is, and that's where fair market comes into play.

Speaker 1:

No need for you to know, exactly what all that is, and that's where fair market comes into play. But that's a great example of why it was there to protect the broker, but it went away from it so fast.

Speaker 2:

And I want to go into two examples of why that matters. When a carrier says, well, like I should just be able to get whatever the shipper pays, the first I would say is, like there are lots of instances where a broker moves a load for a loss. I don't know any carrier that's going to be willing to eat a loss just to help that customer, right, because they don't have a long-term benefit. Maybe if they work directly with that shipper they would, but through a broker they don't really get a long-term benefit, so it doesn't make sense.

Speaker 2:

The second point is there are many times where a shipper will pay more than the shipping rate to find a truck that nobody can find.

Speaker 2:

So if a broker has six people making calls for six hours to find any truck in a very rural area where there aren't many, or finding a truck in another city that is willing to deadhead and then pick up that load, right, that money is not being paid to move that.

Speaker 2:

Good, like they're paying for the shipment, but they're paying a premium to find what nobody else can, right?

Speaker 2:

So also, like, economically, like why would a trucking company get a better rate because the brokerage had to work harder to match that truck that actually is going to move the load with the shipper that need it. Right, like that's the point of free market capitalism, is that the incentive allows the intermediary to work harder to find more freight for a truck. And in an environment where more trucks are competing with each other for freight, there's a benefit to the trucking company because they just ended up with a load they never would have found, because this shipper needed a load urgently 400 miles away. And they're willing to pay them dead miles. Hey, I'll give you two bucks empty a mile and then I'll give you two bucks 10 cents a mile for loaded miles. Like it's not that they're not getting paid, but the premium is not for the service of just moving the load, it's also locating the right truck in the right time frame with the right criteria, service records, maintenance and all these other things.

Speaker 1:

You know what else too is. If I'm a motor carrier and my issue is with broker margins, I am more than welcome to go contact a shipper directly, correct or start my own brokerage. Talk to a lot of shippers, broker to myself if I want on some loads and broker out the rest of them. There's nothing stopping anybody from doing this.

Speaker 3:

So yeah, I was going to say before we go down that path, the one thing I want to point out.

Speaker 1:

We did that enough last week.

Speaker 3:

The one thing I wanted to point out. Ben was talking about supply and demand and market, and so one of the things that happened post MCA 1980 and someone will have to fact check me, but I'm pretty sure I'm right is there was, almost within that first year, a 40% reduction in shipping rates to carriers because there was a massive influx of brokers, trucking companies, trucking companies People were popping up all over the place and it was just it just flooded the market and bankruptcies were just stacking up, almost very similar to what we're seeing now. The COVID happened. People bought a bunch of trucks, just like Nate was saying earlier, and flooded the market. The same thing happened in 1980. And if you play transparency out while you're not, you know, incentivizing new people to the market, you're exposing rates, and to think that that would not drive rates down is a big deal. It is just a lack of awareness of historical context Trucking.

Speaker 2:

Yeah. Yeah, the other interesting thing I think that correlates with this is and I haven't dug into this at all, but waste management is based in Florida. The guy who started it, wayne Huizenga, I think.

Speaker 1:

I think he owned the Dolphins for some point and I don't think he might not even be alive, but definitely billions of dollars.

Speaker 2:

He did this with garbage pickup. Be alive, but definitely billions of dollars. He did this with garbage pickup. In the 50s and 60s there were local garbage companies that would argue with each other and fight for communities contracts. Those communities would pay that local trash company. They would pick up the trash in your community and take it to a dump. There was not municipal trash services. There were not regulations as to who would do this, so the mob was heavily involved. In the 50s, 60s, specifically in New York, you couldn't get a trash contract without paying them a kickback. Well, as that got deregulated and my guess is somehow trash is probably still included somewhere in there, because around that same timeframe that's when he was able to consolidate and be able to use economies of scale hey, I'll buy trucks, and if I buy more of them they're cheaper. And if I can pick up your trash and sell my service to your municipality for cheaper than the local company, everybody wins. Well, they became a national player and ended up being able to grab other markets and everybody got to have their trash move cheaper.

Speaker 2:

Right now again, anyone can argue whether progress and change is a good thing, but at the end of the day, like if you're going to live in the United States, like that's one of the things that is the foundation of how the country functions. Same thing happened when Walmart came in in the 90s and started putting small mom and pop businesses out and all these other families. It's not that they did anything illegal, they just sold things cheaper, and when you sell things cheaper, it drives prices down. Smaller companies went out of business. This was a huge thing and you know common culture in the 90s and 2000s because so many communities were shifting into this model. We're seeing it shift a little back now where, like we don't shop that way anymore.

Speaker 2:

But like the one thing that's constant is change in the United States and how we do things, and the only reason change can continue to make progress is because of free market Meaning the fact that if I sell something cheaper than the two of you, that's my. I got to deal with that. But if I could make the thing cheaper than two of you and stay in business, it's not my fault that I am able to charge less rates than the two of you. And you guys shouldn't be going to the government and saying well, let's regulate the widgets that we all compete and sell, because Ben sells them cheaper and I can't make money on that Like that is completely against everything that makes the United States' economy function the way it does.

Speaker 1:

So here's a stat from the US General Accounting Office. Rates charged by LTL carriers fell 10 to 20 percent. Shipping rates overall declined upwards of 40 percent after deregulation. That is good for the consumer.

Speaker 2:

Consumer. Everyone in the box thinks.

Speaker 1:

You could make an argument that the trucker was through federal regulation, was gouging the American public for 45 years. But it wasn't their choice. It was regulated and set in stone.

Speaker 3:

One of the fun things in doing this is I talked to my grandfather quite a bit, who got started in trucking in the 70s and he actually worked for Victory Express. If anyone knows the history on that, victory Express was bought by US Express, which is the Fuller family company, and then they ended up selling to Nice Swift not too long ago. But he was in operations and one of the things he talked about was the interactions with the teamsters and, uh, and he said you know, james bond got the under desk gun from trucking companies, not from cia, because of the conflicts with the teamsters and wow, drivers and all that stuff. Uh, yeah, regulation was a wild time.

Speaker 2:

The stories again. Like I grew up in Pittsburgh so like there was definitely a lot of mob influence, and even in Ohio and into Pittsburgh and like the stories my dad he worked in the steel mills and just how things were done like to your point from the business side. I mean, I think it would shock people things that were like very commonplace and common context back in the 70s and 60s when, like my dad literally got you the contract, kept it, like that's how lots of those things actually played out back then.

Speaker 3:

Yeah, my dad actually, when he was in high school, worked at the shop at Victory and I can't believe I've never told this story before, but there was a day a driver got fired and he took off with the truck and trailer and they couldn't find it. And about a month later the trailer showed up back on the lot and when they went to open up the trailer the semi had been ripped to shreds and pulled in pieces and was stuffed in the back of the driving. That's where they found it.

Speaker 2:

Send a message Undeniable.

Speaker 1:

Well, there's your history and the evolution of how we got to deregulation, because I think it's important. You know we all talk about deregulation. That's kind of like where the story begins for a lot of freight brokers, if they even think back that far. But understanding how we got to that point, you don't have to be curious on this like the story of the first ever freight broker. Were they even called that? Probably not. They probably were called something else. But um, yeah, there's got to be some historian out there who's like done all the you know, all the digging to figure it out.

Speaker 2:

But I'm yeah very much curious how it functioned in like the 20s and 30s, like that stuff fascinates me. All the movies and all the stuff like how things existed and how and when they were shaped and changed to me, I think, is like incredibly interesting.

Speaker 1:

Yeah, so well, cool Good stuff. Steven, Thanks for doing all that work and putting that article together and and joining us today to talk through it. Steven, any, I gotta give you like a sign off here. What do you get? Anything? Final, you got a little tagline or anything you want to say.

Speaker 3:

No, I mean, if transparency is your thing, whether you want it or not you know. Go to the FMCSA website and leave your comments if you're so compelled to, and you'll be watching this on Friday, if you. If you want to see more of me I'm supposed to be on what the Truck at noon talking more broker transparency. If that's your thing, join me. I've got opinions.

Speaker 1:

Awesome Ben, what do you got?

Speaker 2:

Whether you believe you can or believe you can't, you're right.

Speaker 1:

And until next time go Bills.

People on this episode

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Benjamin Kowalski

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Nate Cross

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Stephen Ruhe

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