DAILY NEWS Dec 15, 2013 8:14 PM - 5 comments

The future of freight brokering in Canada: Part 3 of 3

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By: James Menzies
2013-12-15

MISSISSAUGA, Ont. -- After selling MSM Transportation to Wheels Group last year, Mike McCarron joined Wheels to oversee mergers and acquisitions in a bid to consolidate the Canadian 3PL space.

To gain a greater understanding of where the freight brokering segment is headed, McCarron called together several leading brokers for a roundtable this week, hosted at Wheels Group’s headquarters. Also on-hand was Level5 Strategy Group, which will be compiling a white paper on the subject. Trucknews.com was invited to report on the discussion and will be publishing a three-part series this week.

The participants included:

Manny Speranza, FBI-Freight

John Tittel, Hot Freight International

John Flaherty, HTS Freight Logistics

Ian MacDonald, ShipNorthAmerica Transportation

Larry Cox, Polaris Transport Group

Eric Carusi, Transpro Freight Systems

On consolidation

Consolidation - both in the carrier and freight broker spaces - was a popular topic during the discussion. Freight brokers who took part said they haven’t yet felt the impact of consolidation in the carrier community, but they do worry about how they’ll be affected by a shrinking pool of small carriers.

“If there is a reduction in the number of carriers, that could be construed as good or bad, but the most important thing for our industry is we need good, quality carriers; without that, we’re out of business,” said Flaherty.

Tittel said there will always be a place in the market for small carriers, who can often provide greater attention to detail than the conglomerates.

“It concerns me, the threat of small and medium-sized companies disappearing,” Flaherty added. “I don’t want my only choice of carriers to be the TransForces and Contrans’. As a broker, I need to be able to draw on lots of different choices for my customers. Sometimes my choice is the large carrier and a lot of times it’s not. It’s easier to build good relationships with small to medium-sized carriers.”

However, Cox pointed out the increasingly stringent regulatory environment will force many small companies out of the business.

“Re-regulation is designed to drive the little guys out, because they can’t afford it,” he said of ever-stricter border crossing and hours-of-service rules. “(Smaller) carriers are being winnowed out.”

Polaris runs its own trucks and as such, Cox said he’s often approached by small and mid-sized trucking companies looking to sell. Usually, he said, “the business is worth nothing…a trucking company is worth the firesale value of its equipment.”

A transaction-based freight brokerage, without the assets, could be worth even less, added Speranza.

“We’re going to see broker consolidation happening too,” he said. However, he said brokers who don’t have their customers under contract won’t be salable. “We started contracts about three years ago,” he noted.

Another barrier to selling your freight brokerage is being too involved as an owner, Flaherty added. He said customers must have strong relationships with the company itself - not just the owner. He suggested freight brokers looking to sell should slowly step back from the business so a prospective buyer knows it can function without the owner.

Keys to future growth

Freight brokers included in the roundtable discussion all agreed opportunities exist for further growth. But where exactly are those opportunities? Looking to the US market is one underutilized strategy, according to Speranza, who urged brokers to look beyond their backyards when looking to grow.

However, most of the brokers present also indicated their domestic business is booming.

“There’s a lot of manufacturing movement to the US, but we’re seeing our percentage of revenue locally increase,” Carusi said. “We’re doing more business here. You want to focus on the US market because it’s such a big opportunity, you can sometimes forget your neighbour next door.”

Flaherty advised brokers to be in tune with what their customers are doing. He tells salespeople to take notice if a customer is doing construction in its backyard, which may indicate an expansion that could lead to future opportunities. The key, he said, is to know what your customers’ demands will be before even they do.

“Plant a seed in their head ahead of time that if they are going to see growth, we’re in a position to handle it for you,” he said.

Make sure your customers know what your capabilities include. For example, a printing company that usually ships dense printed material will eventually need to bring in a new printing press. Are they aware your business can provide heavy haul transportation?

MacDonald said versatility is key, including having access to specialized equipment such as heated trailers or trucks with liftgates.

“There’s money to be made in those markets,” he said.

And lastly, don’t be afraid to stray from your comfort zone. Speranza spoke of a time his company designed a specialty trailer for a carrier that was hauling mining equipment. Another company found out about the trailers and asked FBI-Freight to build similar trailers for it.

“We said ‘Absolutely we can do that’,” Speranza recalled. “We never dreamt of this as being a part of our strategy, but we gained other customers…When I hear people say it’s flat out there, I don’t buy it. There are tons of opportunities out there.”

- This marks the conclusion of our three-part series on the future of freight brokering in Canada. To read Part 1, on the outlook for frieght brokers and on building and maintaining relationshps, click here. For Part 2, on the sales evolution and technology, click here


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Reader Comments

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Johnny6

Loaders, don't rest on your laurels quite yet. It is your presumptive opinion that I've missed the point of the article. Nobody said that brokers set freight rates. Having said that, brokers help to drive rates lower and keep them there. If service providers had the power to arbitrarily raise their rates, we wouldn't be in the mess we're in. To imply that cost savings can only be had through brokered procurement is erroneous. It is my hope that the golden days of brokered freight is behind us. It is your right to think and wish differently. There is something fundamentally wrong, when the brokers are thriving amidst the shadows of financially strapped Carriers and under paid drivers. That is the Elephant in the room when it comes down to the "future of freight brokering in Canada."

Posted December 17, 2013 06:30 PM


loaders

Johnny6, you've missed the point of the article. Rates are only part of the service that shippers are looking for from a transportation partner. Streamlining the procurement process by sourcing freight through a full service broker as opposed to direct dealings with numerous carriers, is much more cost-effective and a much better use of a transport managers time. The idea that brokers somehow set freight rates is an old, obsolete myth. The service provider aka, the carrier, will always have the final say in what his compensation will be. I wouldn't be so sure that the days of 3Pl`s are drawing to a close, in fact the opposite is more likely to occur.

Posted December 17, 2013 01:32 PM


Mickey Roy

I must say, as a 3PL and a carrier I can tell you, these days the trucking side does not maker $$$, on our 3PL we do and let me add, as a carrier we understand the cost of the trucking side and pay good rates to our 3PL carriers...in return we get great service, between the 3PL's that offer sh*ty rates and play carriers off each other...I say get out of our business! Trucking rates have remained the same for years...yet costs have jumped 3 folds. If is wasn't for our main client who demands company assets to some of their loads I'd sell the trucks and get back to lower blood pressure and maybe have a life! Just my $0.02

Posted December 16, 2013 11:02 AM


Johnny6

"As one of the basic functions of the 3PL is to lower costs for customers." Therein lies the problem Abby Dave. This blueprint for cost savings has upset the balance of cost structure within the trucking industry. At one time, there was room in the pricing to include four points of contact within a given rate. Shipper-Broker-Carrier-Driver. Rates are too lean in many lanes now leaving little in the pockets of the Carrier once the Broker takes its cut off the top. These Brokers have gotten too big over time and have tied up such a large volume of freight that Carriers are left with little choice but to move brokered freight up and down the highway for considerably less than it costs to move it. We've tipped the scales in favor of Carriers now. Cost savings can bear fruit for shippers in the current environment if they bypass brokers and lock in Carrier direct rates. Hopefully the golden days of 3PL's will soon be behind us.

Posted December 16, 2013 10:13 AM


Abby Dave

Firstly, the lack of comments on this topic is telling. Does it not resonate with readers, or are the right people not reading this? 3PLs have been a larger part of my business (10 co truck fleet) as time passes, now up to about 50%. I think this reflects some customer desire not to deal with small carriers, for various reasons. If we see an economic upswing, some customers will bypass 3PLs who can't meet their needs, and go back to dealing directly with carriers, as one of the basic functions of the 3PL is to lower costs for customers, and that will be a challenge in a tight truck environment, with 3PL margins on top of rising rates. Some of my best, and favourite, customers are the 3PLs, as we speak the same language, and some of the people we would never haul for are 3PLs, as they are lying sobs. Sort of like the way some 3Pls feel about carriers, I guess. Imagine that!

Posted December 16, 2013 09:30 AM


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