Are Brokers Keeping The Profits? | Final Mile 148

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

🚛 Should brokers post rates or leave them off?

💰 Why can brokers profit while carriers struggle?

🛠️ Why do new broker want to see inspections for a carrier?

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Transcript

Listener Q And A Kickoff

SPEAKER_00 0:00

Welcome back for another final mile episode here. This is all QA from you guys. We got a lot of good questions via the comment section on YouTube and another good one from our Facebook group. So make sure if you guys haven't joined or subscribe to the YouTube channel or join the Facebook group, do that. There are links in our description for the Facebook group. And you can find us on YouTube just at Freight360 or the website Freight360.net. Check out all the sponsors in the description box to help support the channel and share us with your friends. It helps us get in front of more people just like you.

Should Brokers Post The Rate

SPEAKER_00 0:36

So, Ben, our first question today is I've always booked loads. This is a guy that went from care uh driving into brokerage. He said, I've always booked loads based on the load details and the rate posted. Is it better to post rates or not to post rates? Um so I actually the answer is going to be likely post the rate. Now let me tell you why. So the I had a really good conversation. This is probably like 12 years ago with one of the um, it was a like the sales rep for one of the load boards at my previous company, and he's in town for an event. And we were talking about like, you know, posting rates, and they, I think they were introducing like a book it now feature or some something new. And he was like, Man, he's like, he's like, I want to be able to talk to your team. Um, so we had like a conference, so he ended up doing like a session with them. Um, and he was like, you guys really should be, if you're, you know, if you're willing to, like, you should be using that posted rate feature. Um, and because people would push back and they're like, well, like, what if someone else posts higher than me? Or what if my rate just seems too low, or whatever? And he's like, Well, if you post nothing at all, he goes, here's what happens, here's what happens. He goes, carrier's empty, and they want a load, you know, that's reasonably near where they're gonna be empty when they're available, you know, either later that day or the next day, whatever. So they're gonna go into the load board, they're gonna go to the available loads, and they're gonna type in their location and you know, maybe a radius of 50 miles, 100 miles, whatever. He goes, most of them will then sort the results based on the rate. Highest paying up top, and then it goes down the list, right? Um, so even if you're not the highest, right? It's gonna show how far your load is from that person's search. That's called the deadhead to origin or DHO a lot of times. So somebody might be paying 50 bucks more than your posted rate, um, but they're 200 miles away, right? So um, what happens if you don't post a rate at all? All the way to the bottom, right? There could be 50, you know, loads up there that all have rates on them, and then yours is all the way at the bottom, even below the embarrassingly low offered rate from you know some dude at TQL, sorry, TQL, um, or CH Robinson. Um, but yeah, I mean that's that's really the kind of the science behind it. And again, that rate doesn't have to be a guaranteed that's what it is, right? That's this is where you have a range, right? You know, you understand maybe what your customer's range is gonna be in or what their target has to be this, can't move it, right? So then you're gonna set like, yeah, here's my target, and then here's the most I'll pay. So I've got this this whole range. And if you're not using that kind of um that kind of thought process and methodology, you you probably should. Most TMSs will have like a target pay rate and you know, what's the max? Um, but that's really it, right? You you that rate is there for visibility and to get somebody on the phone. Thoughts on rate, how you know, how maybe where do you try to price it when you're throwing it up there?

SPEAKER_01 3:45

I agree too. And like it's different in a tight or loose market. If it's like really hard to find a truck, you're definitely getting more hits with a rate. If it's very loose and there's tons of trucks and not a lot of freight, sometimes you can do just as well without a rate. So, like, there's some exceptions, like everything. Yep. And also, like, this is another example. Like, when I used to do a lot of pipe loads, which is mostly through truck stop, and that was mostly like um east Texas to West Texas, where the oil fields are, and like most of the pipes manufacture in a pretty like small radius, like 200 miles. I learned this after like a couple weeks, was like it was really tight, which is why it was a really good industry to be in at that time. And um, one of my carriers that I used all the time told me, he's like, hey, dude, you know, like um if you don't post a rate above a certain number, like you won't even get in front of a carrier. And I went, what do you mean? He's like, Oh, he's like, a lot of the carriers down here, there's extra capacity, but they literally set trucks up every day with like a bell on it that if the rate goes above whatever three bucks a mile, that's when it dings. Yeah, that's when you pay attention. They literally won't get in their truck and it's not worth their time until it hits a certain number. And he knew that because like I was paying above market at the time. And he's like, dude, I'm like, why can't I find any more trucks? You're telling me there's a bunch down there. He's like, How are you posting your loads? And I explained it to him, and he's like, Oh no, dude, like you need to put your money out there. And I was like, Well, aren't I gonna end up like because sometimes if you do have more money than the lane and you post high, you like move the market against yourself, especially on like one lane. Again, like if you're just shipping like all Houston to Odessa, right? Like 10 loads a day every day, and you start putting a very high rate, you end up paying every carrier that you've been working with now the top rate, and you end up like diluting your margins over the week. So, like economically, I'm like, do I really want to do this? And he's like, dude, if you've got more loads than you can move, you'll make more money. Because I'm like, oh, I'm like, I'm moving 10 or 15 loads a day. I could be moving 20. I couldn't get the extra trucks but had the loads. And he's like, Oh, yeah, like just use truck stop, put your number out there, and you're gonna notice. And I'm like, literally immediately, all these carriers just started calling me. And I built my I built my carrier base up in like a week of what it took me, like two months to do, just with like that one thing that you were saying. Because they'll accept that. And they're just like, Yeah, like if it's not worth it, I'm not taking it.

SPEAKER_00 6:05

Yep. Uh, next question.

Why Brokers Profit While Carriers Struggle

SPEAKER_00 6:09

I see a lot of brokers making a killing, but hear nothing but complaints about rates by small carriers. Do you know why there's a disconnect? I would have thought that if brokers are doing well, then carriers are doing well as well, but that's not the case. Do you have any insight on that? How can brokers be doing well, but small carriers struggle with rates? All right, so this is uh I you can pull this entire concept away from how brokers are doing. There is going to be a wide range of profitability of a small carrier. Okay. And, you know, the the average carrier out there, the actually the vast majority of carriers out there are a small carrier, right? It's like 90% of carriers have what, like seven or less trucks or 20 or less trucks. Like they're smaller, right? They they're gonna use brokers a lot because they don't have a dedicated sales team, and they probably don't have all their capacity dedicated to a direct shipper. Now, and we did a really good um educational piece with DAT like a year or two ago with Dean Croak from DAT about you know, carriers figuring out what their break-even is and their profitability per mile, um, you know, basically what it takes for them to be profitable. All right. And we start to see, and there's probably less and less of it now, but there's probably still some of it, but you see carriers that have been financially either illiterate, irresponsible, or just have a lot of room for improvement on what how they're operating, right? Um, back to our last question about posting loads on a board. The first call that you get from a carrier doesn't mean it's the right carrier, the best fit for that load. Vice versa, for a carrier, the first load you call on doesn't mean you have to take that load because it's available. It might not be the best fit for you. So we're talking about things like how far do you have to go to get there? How many empty miles are you willing to take or are you routine routinely taking? Um, and then when you include, when you start to factor fuel prices into that, that gets exact, you know, it gets uh way more impactful. All right. Then you've got other things like insurance premiums. When's the last time the small carrier took the time and shopped their premiums? You know, they've maybe they've been driving safe for three years and had no incidents or anything like that. Um, they might be able to get a better rate. Okay. Maybe they want to adjust their deductible or something, and um they're able to decrease their insurance costs. Um, maybe it comes down to the cost of their equipment. Are they paying way too much for their a truck note or a lease or something like that, and they've got to reevaluate their fleet? Those are huge things to consider, right? A truck that's a 2026 model versus a 2021 model, right? If you know, they're probably both going to get the job done, but you don't have to go out and buy a brand new truck and pay a ton of interest on a very expensive depreciating asset when you can go a five-year-old one that, or yeah, five-year-old one that's got, you know, hundreds of thousands of miles on it or whatever. So um I think, and then you look at overhead too. Like, are you overpaying your dispatcher or are, you know, the way you're routing yourself around the country, are you not doing it in a way that's going to get you optimal rates, you know, for one leg versus another versus another? Um, DAT has a really nice like tri-hall feature that kind of gives them um the idea of like, well, here's this lane, and if I do this, then here's the average rate from here to the next city, and that next city back to my original origin, kind of gives you like a triangle around the country to keep yourself circulating throughout the weeks. Um but those are kind of the big things I look at because I I'll tell you that we when I look at our our you know recent numbers in on the brokerage side, our average revenue per mile, because I track like an like a nerd, our average revenue per mile, that's our customer rate, has gone up and it's gone up commensurate with our average carrier rate per mile. So we're passing through essentially um the increased profits to the carriers. And ultimately then our average profit per mile goes up. So if one of them went up, let's say 10%, pretty much all of them went up 10%. Now you've got isolated incidents or you know, individuals in the company where that differs. Um and yeah, there probably also are some brokers out there that are um just really working the system and either lying about what they have in it or just shopping for the cheapest carrier. Um, as a carrier, it's ultimately up to you if you want to take a load at a certain rate. We don't set the market. The the I think the carriers ultimately, based on who's willing to do the work for what rate, is who's setting the market. What are your what's your insight on that one, Ben?

SPEAKER_01 11:00

You covered a lot of what I was gonna say. The other thing too I was gonna say is like there's just businesses also are kind of like people. Like everybody knows somebody that spends more than they make, no matter how much they make, and they're always complaining. Like it's not really anything other than their own choices and who they're blaming for their situation, which is usually the environment, the market, whatever, the industry, the economy. And it's like really just like you're just not doing as much as some of the other people you're comparing yourself to, and you spend more than you make, which is some of that, like you said. New truck versus old truck versus like, are you managing your finances well? The other aspect is like a lot of carriers are doing really well, and some are always not going to be doing pretty well. Like, what is your bias in who you're talking to? Like, it could be carriers that are relying on one broker and one lane and aren't spending the time to call other brokers or call shippers directly, or to look at how they're matching up dead miles, which you talked about. Like managing a business has so many variables into it. In addition to just like, are you being prudent on how much you spend versus you make? Also, it has a lot to do with like how much time and effort are you spent into like getting that higher paying business? Because there's always better like we were just talking about loads. There's always a very high paying load on every lane and a very low paying load on every lane. How well did you do it getting that load booked? Are you waiting until the very last minute hoping it's gonna pay well, or are you trying to work a little into the future? There's a lot of disparity between the best paying load and that that's just like every day. Not to mention, like, how far away are you from when you deliver to where you pick up dead miles, right? In addition to like how long are you sitting there to load and unload? Maybe you're running loads where you're like didn't even negotiate detention, and your rate per mile is really good, but you spend a lot of time sitting there not getting paid. The rate per mile could be eight dollars a mile, and you could still be losing money because you're not managing your dead time very well, right? Or your dead mileage or your dwell time.

SPEAKER_00 13:02

So I'll I'll get real granular here. I pulled up Dean's cost to operate a truck matrix here, and I'll read through these are the types of costs that you should think about. Can you do any better on them? Meaning, can you can you trim the fat anywhere? So he's got I'll just go top to bottom in the order he's got him listed. Truck payment, trailer payment, uh public liability and property damage insurance, bobtailed deadhead insurance, cargo insurance, medical insurance, workers' comp insurance, license plates, permits, and scales. So those are what he would consider your fixed expenses. All right, they're not gonna change based on the amount of business you do in a given month, for example.

SPEAKER_01 13:46

What do you got? I had one to this, right? Like this is a company I looked at last year. This company made really good revenue, but they bought really old trucks, right? And thought they could do better, but ended up spending like tens of thousands of dollars like every other month on maintenance, which made their business literally unprofitable, even though they were getting high paying loads. In addition to that, every time the truck was down, they weren't making money at all and spending money. So there's that double effect of like my truck doesn't run for two weeks. I have a big dollar amount going out and no revenue coming in at all. And then you have a double effect pushing the profitability down, which is just one example of like two truck company.

SPEAKER_00 14:29

Yeah, what that leads me to then what Dean has as the variable expenses and maintenance is on there for the you know that exact reason. So we've got, you know, again, think about this. If you're running a small trucking company, a lot of what I mentioned before you don't have control over. Like if you're paying health insurance for your drivers, et cetera. Um, but now here's where you you might be able to. Not all of them, but some. So you've got fuel for the tractor, fuel for the reefer, lodging. Are you paying for lodging for your drivers? Um, maintenance repairs and tires. That's like the eye glaring one that it's like, yeah, you want to buy a cheap old truck, and you maybe you went too cheap and too old. Well, your maintenance costs are going to be um higher, right? And there's a balance there. Um Vice.

SPEAKER_01 15:11

And they could be obscene. That's the thing I want to point out too. Like, I mean, like I've seen maintenance expenses on like two trucks that were like 2017, 2019 or whatever, literally go into the six figures on just two trucks. Like these numbers get really big really fast when you are trying to like, I don't know, because like I I'm not saying you like don't ever buy a used truck, and I'm I'm just pointing out that like these are some very drastic but real life realistic situations that happen. And I carry like, oh, the market's terrible, and it's like, well, also like you took a risk and it didn't pan out. I'm sure there are other people that bought the same age trucks, didn't have any or had very little. Yep.

SPEAKER_00 15:48

But all so well, and the list goes on. So professional services like paying your accounting person. Do you have someone in house that's doing a full-time when maybe you could just hire an accountant or do it yourself if you have the free time?

SPEAKER_01 16:02

Or paying a lot of money for an accountant that doesn't do the job very well, and you end up spending the money and not getting the work and then having to hire a second accountant to clean up the work the first guy you paid did.

SPEAKER_00 16:11

Like driver wages, yes, license permits, scales, tolls, payroll taxes, miscellaneous expenses. Um, so what on those variables can you impact, right? Can you really impact fuel? Not a ton, but if you're going to run less empty miles, yes, in a in a way you can lower your fuel costs.

SPEAKER_01 16:32

And you can negotiate some pretty significant discounts through different fuel programs. Like those are not nothing. They're not like the, you know, I'm saving 50 cents here or there. Like you really do get thousands of dollars when you negotiate those well.

SPEAKER_00 16:45

And so what's interesting is like in a lot of gas stations do it for regular, you know, personal daily driver people too. If you link your bank account to their, you know, their store card or whatever, we they know that they're saving a certain percentage from the card processing fee, and they can pass that through to you as the customer and get a discount. So you see fuel, fuel car programs, um, definitely worth looking into. Maintenance, yeah, preventative maintenance is massive, right? Um, we have we do this thing in the army called a PMCS. It's preventative maintenance checks and services. So when you go to operate the vehicle, there's a list of things that you do before you drive that vehicle. You're, you know, and if you're operating a truck, right, you're gonna be checking things like tires, brakes, your um, your fluid levels, um, all that stuff, right? Because it is a lot cheaper to pay to get an oil change. I'll just keep it very simple, right? To pay for an oil change um than to not do it because you wanted to save money and just try to get a little more out of it, and then you've got a major repair in your engine. So um, and again, we talked about like the accounting side. Are you overpaying for you know someone that you don't need? Do you have administrative overhead that is unnecessary? So, like one of the things that we do um is we have some people that are dual hat that do the same job for the trucking side and the brokerage side because you don't need there's not enough work for an entire person to be filled up with their job, um, it just at one of the at one of the companies. So maybe they're dual hat or something. Or you got someone who wears multiple hats in the same company, right? Maybe they're dealing, they're doing the accounting and they're also dispatching and they're doing, they're managing all of the drivers' um uh physicals and miles and all all the things, right? So yeah, that's a good question, though. Um I definitely think you've got to take a look at where you're spending money. We kind of went down a rabbit hole there. So let's get to our last question.

No Inspections And Broker Trust Checks

SPEAKER_00 18:48

And that is I've been denied several loads due to no inspection. My trucks are fairly new, all of them are 2023s. I have one for almost a year, and the others for about three to four months. So why do I need an inspection? So, Ben, talk us through when a broker is looking at inspection history. What does this why does this matter?

SPEAKER_01 19:09

To the average. It used to be fraud prevention because like if you didn't have an inspection, you might not be a real trucking company. Um that's where it originated, but like it's kind of not really as much of a thing anymore, but I guess it still kind of is. Clearly, other people are still having issues with it. But like, I don't know too many brokers that are looking at that anymore, but I guess there still are.

SPEAKER_00 19:31

They are there are, and so here's my take on it is that you're right, it was because of fraud. Like if if a carrier had been in business for three years and didn't have an inspection, like kind of looks odd, especially if they had 20 trucks. But if like in this case, this person's only got a few trucks and has have has had them for like a year or less. Um, sounds like they're newer in business. Um, there's other ways to prove that you're a legit company, right? It could be, oh, I've integrated my ELD with a company like Highway, or I have built up some sort of realistic trust with this brokerage because I can send them a picture of my truck through a verification tool that shows the VIN number and the truck and trailer number, etc. There's other ways to verify that you have actual trucks and you're a legitimate business. So but that's where it comes from is we saw with a lot of fraud years ago that these carriers that were double brokering, um, they didn't even have trucks. They might have reported that they had trucks, but they never had an inspection. They were never seen on gen logs because they didn't actually have any trucks. So that's where it all kind of stems from. But there's other ways to verify yourself. So anyway, good questions.

Final Thoughts And Sign Off

SPEAKER_00 20:46

Keep sending them our way and we'll keep answering them. Final thoughts, Ben.

SPEAKER_01 20:50

Whether you believe you can or believe you can't. You're right. And until next time, go bills.