Shippers, why are you still using brokers or spot?
I ask this question to shippers a lot, and when I say a lot, I mean A LOT. The top five answers are on the board:
- I don’t have a choice when I need to move a load.
- I’m not sure, I think someone has a relationship with them. It’s the way we’ve been doing it around here forever.
- They are part of my TMS and our tender process.
- They provide good service
And now my personal favorite...
- It’s convenient.
It’s hard to believe that billions of freight and transportation dollars are on the line and the best solution is a broker, DFB or the spot market. Taking control and bringing the broker's capacity and service in-house- through technology- is the key, here is how you get there.
I don’t have a choice when I need to move a load. Yes you do, however it means change. And change can sometimes be unwelcome. In order to survive, you and your company need to be adaptable. Investing in solutions which reduce friction and cost to enable you and your team to focus on the real issues, not spending the majority of your time putting out fires. The broker paradigm is not a fire extinguisher, it is a cup of water on a four alarm fire, and an expensive one at that. The issues need to be solved using a software solution that automates and eliminates the broker. Opening up the fire hose giving you direct access to millions of small carriers that brokers shelter and use, providing better service to your customers and eliminating the broker and the hidden margins.
By eliminating the broker, you receive the carrier information immediately, and your organization can track the carrier through TMS/control tower integration or directly in the software, automating the track & trace. And the carrier sets the price, so they are paid without a middleman taking margin. Plus, you’ll reduce the cost of the load by 10-20%, needless to say a very large number over the year. Tender through payment is managed systemically as is all compliance (insurance, on-time, detention, assessorials, etc). This is a much better choice then going through a broker or to spot. By implementing technology you’ll obtain a compliant carrier base to tender loads after primary, and you’ll pay 10-20% less.
I’m not sure, I think someone has a relationship with them. It’s the way we’ve been doing it around here forever. This is not a compelling argument in any size, shape or form. Companies that don’t change fall by the wayside as their competitors overcome them with technology and improved practices-- welcome to the Amazon generation. Working through the relationship battle is a little more tricky. The higher the relationship goes, the harder it is to get the organization to make a change. However, everyone should have a fiduciary responsibility and be held accountable. Everyone should be open to technical advancement that save company time and money.
They are part of my TMS and our tender process. Depending on where you are in the tender process will significantly determine how much you are overpaying for the freight. Instead of tendering freight to brokers, software can open the door to carriers you don’t have access to-- the broker’s carrier pool. Optimal Transportation Spend (OTS) can focus on carriers that comply with your internal scorecard, the attributes of the load and those that have high service levels for specified lanes. This process is 100% controlled by you and is configurable to match your compliance metrics. In addition, if you identify a carrier that has performed well, you then have the ability to migrate that carrier into your carrier pool. With OTS, you are in complete control.
They provide good service…..and are my all time favorite vendor. Do they provide good service? Good is not great, the demarcation line always moves. In a tight market, service is barely passable and you are probably held to the will of the broker. Spot is even worse. The new catchphrase is transparency, so don’t be fooled. Are your brokers transparent to who the carrier is, the rate that they are paying them, the penalty they place on the carrier for quick payments? Even in a cost plus model, the transparency is skeptical at best. If good service is just covering the load, and to some it is, then maybe the broker provides good service. However, it’s really just okay service, and okay service should never be enough. DFBs, fall into this same category because they too take margins from the hard-working carriers. Carriers will always provide better service when they are setting the price and getting paid that price. Service levels also rise dramatically because moving freight is in small carriers' blood because it is their livelihood.
It’s convenient. It may be convenient, however convenience comes at a high price with a lot of downside. The broker conveniently takes the load, however inconveniently can’t provide visibility to the asset, the carrier or the driver. Why is that? Because 80% of the time, the broker doesn’t have one, they are just accepting for volume so another broker doesn’t get their hands on it. They may even lose money on the load, it doesn’t matter, it’s all a numbers game... with your freight. OTS automates that convenience, so you (the shipper) and the carrier are the benefactors. The return on investment is well within nine months, all the while the carrier is making bottom line profits.
More hurdles- maybe not. While discussing OTS with a large beverage company, they thought they would lose much needed capacity if they stopped using brokers. They also felt their TMS would lose efficiency if they added all of the carriers needed per lane. In part they were correct about TMS limitations, but when we broke it down using their own numbers, it was easy to see how it becomes doable. Here’s the ROI of OTS:
|Weekly Volume (100 Lanes)||1,000 Loads|
|Primary Carrier Acceptance Rate (70%)||700 Loads|
|Loads Turned Down (30%)||300 Loads|
|Secondary & Tertiary Carrier Acceptance Rate (30%)||90 Loads|
|Loads Offered to OTS Network (= 1,000 Loads minus 700 Primary & minus 90 Secondary Accepted Loads)||210 Loads|
|OTS Acceptance Rate (90%)||189 Loads|
|Avg. Load Cost||$1,000|
|189 Loads OTS Avg. Savings Per Load (15%)||$28,350|
|OTS Avg. Savings Per Year (15% Across 52 Weeks)||$1,474,200|
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