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Freight Brokers See Shippers Ignoring Smaller Motor Carriers At Their Own Peril

FreightWaves

If you wonder where the truck drivers are, look to smaller fleets as their driver numbers surged over the past eight years. But with customers only tapping this pool of drivers occasionally, shippers leave themselves exposed to volatile spot rates, according to freight brokers.

Data from the Federal Motor Carrier Safety Administration and freight brokerage Tucker Company show that since 2011, the number of drivers working for fleets with 500 or fewer trucks grew 32 percent to just over 1.5 million. By comparison, fleets over that size saw driver growth of 20 percent to 944,781.

Driver supply has grown even faster in even smaller segments. Fleets with up to 100 trucks saw driver supply grow 40 percent to 1.1 million, while micro-fleets up to six trucks saw 69 percent growth.

"If you're a large truckload carrier, the driver shortage is real, but it doesn't mean there aren't drivers out there," said WIlliam Cassidy, senior editor of trucking for the Journal of Commerce, at the TPM 2019 conference.

Jeff Tucker, Chief Executive Officer of Tucker Company, said the perceived driver shortage stems from shippers that became less willing to work with freight brokers to secure truckload capacity.

"Two years ago, our sales reps were hearing from shippers that ‘we're not adding brokers, we're cutting back on brokers," Tucker said. "The data show that by a ratio of two-to-one, drivers are going to smaller fleets. Big shippers are not dealing with small trucking companies. The brokerage community is."

With most of those smaller fleets looking to the spot market rather than contractual freight, Tucker said "shipper behavior" has to change in terms of tapping those smaller fleets on a more regular basis. Instead of using them for surge capacity, Tucker said more consistent use of those fleets could smooth out volatile spot freight rates.

"Many shippers will use brokerage as a safety valve," Tucker said. "That's not integrating regular capacity into your program. [Shippers] are perpetuating that spot market and perpetuating high prices."

Despite that shipper reluctance, freight brokerages are on a growth path, now accounting for 23 percent of all loads, a five-fold increase from 2000.

Further growth may be challenged as trucking capacity is at its loosest in a year. C.H. Robinson Worldwide's (NASDAQ: CHRW) shipper routing guide index was at 1.4 during the fourth quarter, Cassidy said. The number is the average number of carriers C.H. Robinson brokers have to go through before a tender is accepted. That number is considered a balanced market, Cassidy said. Last year, the index occasionally spiked as high as five, he added.

Contractual rates could rise three to five percent this year as shippers seek to secure capacity, said Mark Ford, chief operating officer of BlueGrace Logistics. Shippers are also delaying their bid cycle as the seek to see where rates may bottom out at.

But Ford said shippers should also look to brokerages as a source for their contractual freight, rather than just spot freight. That would provide more consistent work for drivers and give shippers an edge when tapping the spot market.

"I am hoping to see more consistency in the contractual awards," Ford said.

Matt Pyatt, co-founder and Chief Executive Officer of Arrive Logistics, said major shippers are looking to use a more limited number of brokers than previously. But those brokers are also receiving more commitments for regular freight.

"In 2018, [shippers] were adding as many capacity providers as they could to get their freight moved," Pyatt said. "Now we see a lot of these of shippers isolate themselves by consolidating their broker base and actually giving them a meaningful award."

These larger contractual commitments though, only come when brokerages can add value to shippers, Pyatt said. He added that the increasing availability of digital tools allows brokerages better visibility into trucking markets.

"With technology, whether it's FreightWaves or any other data, there's so much more transparency in the market that the shippers are learning to lean on their partners more and give them a more substantial award," Pyatt said.

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