You’re not alone if you’ve been feeling the pinch in your brokerage margins lately. The freight market is a beast right now, and brokers are getting squeezed from all sides. Let’s break down what’s going on, using real numbers and insights, to see how you can stay ahead of the game.
What’s Happening in the Market?
Overcapacity: The freight recession has left us with too many trucks and not enough loads. This oversupply means rates are lower, and while brokers might be able to offer lower rates to desperate carriers, the overall market conditions still make it tough to maintain healthy margins.
Spot vs. Contract Rates: The spread between these rates has narrowed, putting more pressure on margins despite lower carrier rates.
Rising Costs: Insurance, labor, and other business expenses are climbing. It’s getting more expensive to run a brokerage, plain and simple.
Fuel: Fuel prices have seen a slight increase, adding to the operational costs for brokers. This is yet another factor squeezing margins.
Hope in the Distance:Â
According to Arrive Logistics’ May 2024 Update, rates are slightly up as we head into summer. Spot market activity is inching higher, but overall economic activity is flat. This slight uptick is a glimmer of hope, but it’s not enough to offset the other pressures.
Capacity Trends: Capacity is still volatile but generally enough to meet demand. However, continued exits from the market could tighten things up.Import Trends: Strong import forecasts are supporting over-the-road (OTR) freight demand, which might help in the long run – if you can hold out for it.Â
But while there are some glimmers of improvement, these gains won’t be felt for a while, and with the freight brokerage market increasingly contracting, how will you survive until a turnaround? Signing new shippers, securing more loads, and pricing profitably have been major challenges in this brutal market environment.
Poll Insights: What’s Really Hurting Margins?
FreightCaviar ran a LinkedIn poll on May 14, 2024, asking what you think is the biggest pressure on freight broker margins. Here’s what you said:
Adoption of Automation & Tech: 10%Surge in Industry Investment: 11%New Competitors: 27%Rising Costs: 53%
Over half of all respondents pointed to rising costs as the main culprit. Let’s dig into that.Â
Fuel Costs: Fuel prices have improved from 2023 levels but remain volatile. U.S. refinery utilization dropped to 81% in early 2024, affecting inventories and causing regional price increases​. Insurance and Surety Bonds: Due to increased liability and cargo claims, premiums are on the rise. Plus, Mihail Rasner, President of MiRUnited, discussed the escalating surety bond costs largely driven by freight fraud: “Last year, we paid somewhere in the ballpark of about $18,000,” he shared, contrasting it with this year’s staggering quote of “$40 grand for the exact same thing.”Marketing Expenses: Marketing is major. Higher expenses for advertising and customer acquisition are a fact of the gig. Office and Administrative Expenses: This expense continuously fluctuates with changes in space and operational needs.Labor Costs: Entry-level freight broker salaries are around $48,000. Experienced brokers earn more due to commissions and bonuses​.
Industry Analysis: Brush Pass Research Insights
Brush Pass Research highlights a significant transformation in the freight brokerage landscape:
Revenue Decline: The industry saw a steep 15.1% revenue decline in 2023. Market Concentration: The largest 150 freight brokerages account for 70% of the industry’s gross revenues. The top 3.5% of the 27,450 freight brokerages with active authorities account for 88% of gross revenues.
According to Kevin Hill from Brush Pass Research, the broker population fell 12% from its peak in November 2022 to March 2024, a larger decline than the 8.5% drop in the carrier population over a slightly longer term. This steep decline in broker numbers shows the intense pressure brokers are facing in the current market
Q1 2024 Earnings Insights from Major Brokerages
C.H. Robinson: Reported a net income of $92.9 million for Q1 2024, down from $114.9 million a year earlier. Total revenue decreased by 4.3% to $4.41 billion. The decline was primarily due to lower truckload pricing because of an oversupply of capacity relative to freight demand. They’ve adopted a new lean-based operating model in order to improve earnings. J.B. Hunt: Reported Q1 2024 revenue of $2.9 billion and net income of $127.5 million. The company has faced challenges with integration costs and maintaining margins.Overall, the largest brokerages (top 50) have been hit hard by the freight recession, with the top 20 seeing a 13% decline in gross revenues year-over-year in 2023.
Adapting to Survive: Cost Control and Automation
Many brokers are worried about the practicality of implementing AI, even though large brokerages like C.H. Robinson are pulling full steam ahead in that realm. But there’s a simple way to leverage AI for cost savings now and in the future.Â
To keep your brokerage afloat, cutting operational costs is the name of the game. Here’s one way you can do it.
Using AI for Back-Office Automation
Automating your back-office processes can save a ton of money. You need a tool that automates invoice processing, manages disputes, schedules carrier payments, and centralizes AR and AP operations.
So, while you may not have much control over external market pressures eating away at profits, you do have cost management strategies within reach.Â
Automating invoice and payment processes with tools like Epay Manager can drive significant savings, especially amid rising external costs. Using Epay Manager, brokers can handle three to five times more invoices per back-office team member.Â
Of course, the freight market is tough right now, and some outlooks don’t see that changing until Q2 2025. But by focusing on cost control and leveraging automation, you can protect your margins and prepare for whatever comes next.
Future-proofing starts with automating your back-office work. Epay Manager Powered by OTR Solutions has developed an AI-Driven NLP Invoice Automation that uses over 145 recognized attributes and 166 business rules to automatically classify documents submitted by carriers, reducing the amount of manual issue spotting needed. Click here to learn how Epay Manager can help revolutionize your back office.
