Contracted Lanes In A Volatile Freight Market | Final Mile 132

Nate Cross & Ben Kowalski answer your freight brokering questions and discuss:

📦 Contracted lanes worth it in today’s freight market?

📈 Cheap freight ending — raise rates and reset expectations

🏢 Using spouse’s authority vs getting your own MC?

Support Our Sponsors:

Togo: Click Here

OperFi: Click Here

QuikSkope - Get a Free Trial: Click Here

DAT One - Brokers & Carriers: Click Here to get 10% off your first year!

DAT Outgo Factoring for Carriers: Click Here

AscendTMS: Click Here and use promo code RA-freight360! to get AscendTMS FREE for 90 days!

Recommended Products: Click Here
Freight Broker Basics Course: Click Here
Join Our Facebook Group: Click Here
Check out all of our content online: Click Here

Transcript

Welcome And Listener Questions

SPEAKER_00 0:19

All right, welcome back for another QA session here on the final mile. We got three great questions today from you, our audience, and we're going to answer them. If you guys are uh brand new, check out all the other content. Got the Freight Broker Basics course on the website, and please check out the sponsors to help support this channel. They're listed down in the show notes. All right, our first question with the current freight market, is it wise to even get involved with contracted lanes? So it's it's ironic. We have this question. We just wrapped up a really good podcast episode. If you haven't checked it out, we have a full deep dive on this. But for a quick answer here, um, what is what does this mean first? Is you know, with the market tightening, meaning that the amount of carriers that are available is shrinking as we're seeing either a flat or in some cases increasing demand for shipping, it's gonna drive rates up. And what that can cause is um with contracts, usually a customer is saying, I want a dedicated guaranteed price over a certain period of time, right? Um, we had a similar discussion about this during the COVID craziness when rates were going absolutely nuts. And the kind of the solution that worked out was mini bids, meaning, like, we're not gonna do a 12-year bid anymore, but we're gonna break it down and try to keep our bid, you know, our pricing stable for maybe four weeks or six or eight weeks, something like that. Um, my answer to the question is I would heavily caution you on a 12-month bid right now because we don't know what's gonna happen, and we can only assume that with optimism and what the market's doing, that rates will go up. So we just don't know how much and whatever else external to capacity is gonna impact those the level of rates. So um, is it wise to get into it get involved with contractor lanes? Um, I think if you can structure in a way that you've got some flexibility, then yes, because you could be contracted to be awarded the lanes, um, but if there's a caveat in there where you have a flexibility to re um reprice those awarded lanes every so often to keep in line with the with the market, um, I think you can be safe there. So, like we had a customer, um, I think it was like two months ago, and they wanted like a three-year commitment or something like that. And we're like, well, we're not we can't commit to price for three years, and we're able to work to work it out because they were so used to like the last three years is the same. It's like we we could commit to servicing you for three years, um where you know you don't have to spend time trying to find a broker every single load, but uh, or a truck every single load, but like the pricing is gonna fluctuate, like fuel is gonna fluctuate, you know, uh line hop rates are gonna fluctuate. We don't even know what kind of like external factors are gonna impact this, but yeah, contracts. Um, I don't even like to dabble in them as a broker, really. I I enjoy the spot market because you're that's when you're truly giving your value to your customers. I think larger fleets are more designed for predictable contract lanes, but what's your take?

Spot Market Versus Contracts

SPEAKER_01 3:32

Yeah, I mean, you kind of summed it up. It's like contract rates can make sense for a broker. One, if you have a carrier that is willing to also take that contract rate for the same period. So if like you can hedge the expense, what you pay a carrier, in line with what you're gonna commit to the shipper, then they make sense, right? But there is still always the risk that if rates go up, that carrier bails on you and takes someone else's freight, right? So that risk is always there. The other way to kind of mitigate it is like if you have them for 12 months and you've got seasonality, that you have enough lanes that when this season is really expensive for this lane, you have another lane where that season is really cheap. And in those scenarios, like you can make them work when you have enough lanes that basically blend out that risk amongst them, which is the other reason like brokers will take this, right? And then as a broker, if you can do that and get contracted carriers for yourself, that then can make sense. But in this market, to this question and to what we talked about in that whole episode, like it's pretty unlikely that anyone's contract rates are gonna hold this year, whether you're a shipper directly with a carrier or you're a shipper working with a broker and a broker directly with a carrier, because like they're gonna fluctuate so much that they're going to change. And like, I the only thing I would add to what you said is like there's kind of two sides to this coin. I mean, if rates are down and you think you can make money for five or six months based on what the shipper will give you the lane for, and it might get expensive later, maybe it's worth taking that risk. And then you just have that conversation a month or two when the rates move and you go, hey, listen, we thought we could keep it for this whole year, but it's not gonna hold. We either need to give this back or get an increase. Because the thing is, when that happens, and again, what we dug into the episode, if it's gonna happen to you, it's happening to every other broker and every other carrier in the market that that shipper's gonna talk to anyway. So even if you get it and you have to give it back halfway through the year, everybody else is gonna give the lane back anyway. So whether you take it or someone else does, that shipper's position is probably gonna be the same whether you accept it or not. And at least if you're involved and you get a chance to do good business with them for a few months, maybe you have an opportunity to, you know, create enough trust and value that they'll ride through the fluctuations with you. Yeah. If you don't take anything, you kind of have no shot to even fix it when it gets worse later.

Hedging With Carriers And Seasonality

SPEAKER_00 5:50

So, band rates, and this is excluding fuel, um, are up between 20 and 30 percent in the last three months. Like that's that is a big swing. So um, next one, this is actually a uh a post someone put into our Facebook group, and I thought it was worth um thought it was worth adding in here and having a short discussion around because we again it kind of ties into the episode we just did. Um, he said, if I could take a moment to give the brokers in here some advice. The days of cheap freight are over. I've heard a lot of companies or I've heard a lot of complaining about some lanes and brokers giving me the tired excuse that you're losing money on loads. The solution is simple. Charge your customers more. Let your shippers know that if they want to try their luck with another broker, um, that the carriers are all the same and the pool is getting thinned out with recent and future enforcement efforts to remove unqualified CDL drivers. So this is like great advice. Great, it is really good advice, right? Because um, we mentioned it in detail on the episode that we did that came out last week. Is um, you know, if you if your cost goes up to hire a truck and you don't charge your customer more, well, your margin thins out. And at some point, um, we've talked about it on other in other content, but like there's a there's a break-even cost per load. I actually just did this with Pierce. We looked at like, you know, all we we looked at a sim a single month and we looked at like what if we you know based on cost of technology has gone way up recently, right? Like compliance tools, fraud prevention tools, like you know, everything gets more expensive, right? People's salaries go up, like this is just part of business, right? You have to look at all the business you do, the cost of all that business, divide it over, you know, the the loads and figure out like what is my like break-even cost per load. And it's gonna be different depending on what kind of company you are and where you're at, and if you got some thin margin customers versus some beefy profit customers and all that, all that stuff, right? But if you start thinning out your margins, you eventually get to a point where you're losing money as a company on on your income statement, and you can't do that, right? And we don't do this job and deal with all the chaos and stress of this job as a charity. Like this is a this is a profession, it's a business at the end of the day, and um you need to, you know, you should have that conversation with your customers. And we we give you the whole breakdown. Check out episode uh 230 or 332 if you want a full deep deep dive on it. But um, yeah, have that conversation. I don't know. What are your what are your thoughts here? I think it's great advice, and probably a lot of people in that Facebook group probably haven't experienced this kind of market shift before.

Why Many Contracts Won’t Hold

SPEAKER_01 8:41

I think again, yeah, it's really good advice. The thing that I would just kind of add to this is when I do have these conversations, like I kind of give my customers the choice, right? That's the thing that I always do. It's like what we talked about in the episode, what so what, what now is like, here's what's going on, here's what it means for you, here's what I think is likely to happen now and in the future, right? Based on what I see and what I do, right? Now, once I tell them the scenario that is changing the environment and why it could affect them and how, kind of give them like the two choices like, hey, like you're probably still gonna get some cheap rates from some folks. But here's what that means. Some of those loads will pick up, but a good percentage won't. So you will end up having to recover a lot of loads last minute. When that happens, Mr. Customer, you will pay more for that load when you go to recover it the same day. So it will seem cheaper, but probably when it's all said and done, you probably won't even save as much as you think you will, and you'll do more work. But that's your choice. You can roll the dice and see how that goes for a couple of weeks. Use some of those folks, see how that works. Maybe get a week or two, maybe get another month. Maybe you don't get any of them picked up, but like that's what it's probably gonna look like with other folks. Here's where my rates are and why. Like, I'm not gonna promise you something I can't fulfill. I'm not gonna be able to promise you a cheap rate when I know it will go up tomorrow, or that that cheap truck I had today won't pick up, or that I don't trust them with your business because like I don't want to have to work through a claim with you guys that might not get paid or won't get paid. I don't want your customers to have damaged freight. So, like, the way we operate our business and the integrity we have in our profession is like we only want to use people we know and we trust to work with. If you're okay rolling your dice rolling the dice with your freight with some random companies that you don't know if they're legal, they're maintained, or have insurance, like that's your prerogative. That's where your savings is gonna go. And this is likely what it's gonna look like, right? So when you give them those options, the thing I always love about that is when you do that and then it blows up in their face when they keep doing what they said they would. When they come back, it's it's not about being right. It's more that, like, well, that's it reinforces that you knew what you were talking about. Correct. Like when you tell somebody this is what's likely to happen, and then it happens, they trust you more when you talk to them again. They're like, Yeah, you know, I was hoping it didn't, but you you are right. Like, and the way it played out was exactly how it did. So, like, we kind of don't want to do that anymore. Hey, fine. It's not about like I told you so. It's just that like it verifies that you are good at what you do, which gives you more trust and likely more business.

SPEAKER_00 11:14

Yep. All right. Last one here. Um, if the LLC and company are in my wife's name, the authority is in her name. Can I run the company as the manager and use the company's authority, or do I have to have my own? I just don't want to have to pay for it two times. Um, so we'll assume this is a brokerage. Um, you want to take this one, Ben? It's pretty we actually people get oftentimes confused. We're not like stock brokers where everyone needs to be individually licensed, but want to break this one down?

SPEAKER_01 11:44

The LLC and company are in my wife's name. Okay. And the authority is.

SPEAKER_00 11:50

Husband-wife combo, the wife opened a brokerage, it's in her name. He wants to run it as a manager. He's asking if he needs to go get his own authority.

Take The Lane Or Pass The Risk

SPEAKER_01 11:56

Oh, yeah. No. So like they're two different things. Like the MC number, your authority, right, is going to be literally owned by the company. And the company is owned by your wife. So who is employed in that company has nothing to do with the ownership. So, like, you can be a manager, you could be whatever you want, and your wife could hire anybody she wants. Like, at the end of the day, she just owns the company, and that company owns the authority. But anybody can work for that company and do any job underneath it.

SPEAKER_00 12:27

Think about this, Ben. Like, you and I have been in brokerage at multiple companies for combined over 20 years. Like, neither one of us has ever gotten our own authority. Never had to.

SPEAKER_01 12:36

Correct. And also, like, the LLC that owns the authority, like, you can change the ownership of the LLC if you so choose, and you could be added to it. Your wife's family can be, you could literally add anybody and change the ownership of the LLC. It's the company that exists that owns the authority. It doesn't really matter who owns the company, and it certainly doesn't matter who works there. So those two things aren't, they're not really, I guess, tied to each other in a way that inhibits your ability to make decisions as to who's doing what on a day-to-day basis.

SPEAKER_00 13:09

Yeah, the one the c thing I'll caution there is um if she's gonna be an absentee owner and you're gonna be the one doing all the the majority of the things, I'll caution you on this is that like oftentimes if if a uh if uh someone wants to verify that who they're working with is legit, like if a if a carrier's like, I don't know this brokerage, I want to make sure that it's not a scammer stealing someone's identity. Let me call the FMCSA contact. If your wife's not gonna answer the phone, right? Or maybe they're maybe they're using a um a third-party platform and you're not listed as an authorized user, you know, it's just gonna add a hurdle to it. So um you may want to make sure that if you're managing it, that she's available if there's a you know, call from a factoring company or a motor carrier or insurance company, whatever, right? Um, but yeah, the ownership doesn't matter whose name the company's in. Um you can hire. Brokerage has to be licensed, not the individual working inside of it.

Facebook Post: Charge Customers More

SPEAKER_01 14:13

Correct. This is definitely a generalization, right? But like the only things that you typically need the ownership or operating documents, right? Operating agreement for the LLC, right? And it's different for S-corps and different companies, but basically the documents that say who owns this entity, right? The only time you really need the owner with those documents is like opening a bank account because you need to show that like I legally own this company and I am that person. So here's my ID and here's the document that says I'm an I own this company. So it's like getting a loan for a company, opening a bank account. Um honestly, beyond that, like the title of the person that works at the company can almost do just about any of those things. Like I can be an authorized anything. If you're an executive and you have a title, you can usually talk to insurance companies. You can make decisions on behalf of the company, sign contracts on behalf of the company. You just typically can't borrow money where the company is like responsible for it, and you can't open a bank account. Like those are usually the two big things where you really need the owner or need to be on the operating agreement to actually be involved in it.

SPEAKER_00 15:16

Yep. It's a good question, though. We get it a lot. I just want to always remind people like we're we're not like you know, real estate brokers or insurance brokers or stockbrokers where they're individually licensed. Yeah.

SPEAKER_01 15:30

And that's the other thing, too, right? Like, I've worked for lots of companies, right? But like my title as an executive allows me to make most of the decisions day-to-day. Like, rarely do I need the owner, even when I'm doing this with clients and things, if I'm an executive for whatever a year or two because I have the authority to do that, right? Yep. So I can't open a bank account, can't borrow money. But beyond those two things, usually it's pretty much anything your wife and you decide want to happen on a day to day basis.

SPEAKER_00 15:59

Yep, exactly. Good questions. Appreciate you guys sending them our way. We'll keep answering them. Final thoughts.

SPEAKER_01 16:05

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

SPEAKER_00 16:09

And until next time, go bills.