April 30, 2017

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Examining the broker-carrier relationship

WOODBRIDGE, Ont. — Bringing together a large room full of freight brokers and carriers is always sure to create a lively dialogue, and that was exactly the case at the TransCore Link Logistics annual meeting and golf tournament held yesterday.

Asking Mike McCarron of Left Lane Associates to moderate the discussion ensures a little extra liveliness. Yesterday, he asked four members of the carrier and freight brokerage communities to explore the current state of affairs, the broker-carrier relationship and the future of the small broker, among other topics.

Panelists included: Mike Fontaine, general manager of C.H. Robinson’s Toronto office; Bob Cascagnette, vice-president of sales for Highlight Motor Freight; Michelle Arseneau, GX Transportation; and Jon Saunders, vice-president of finance with Polaris Transportation Group.

The state of business

To start, Panelists offered a tepid overview of the economy and trucking conditions in general.

“We’re finding out there, business is kind of slow,” said Fontaine. “Rates have increased outbound but decreased further inbound. Overall, rates have gone down a bit. It’s not 2009 but it’s not a great year out there.”

Arseneau said business at GX Transport has been “pretty steady” but she said customers seem unsure of what is in store in the future and are being conservative with their growth. “People are doing their best to hold onto what they have,” she said.

Saunders said Polaris, despite the slowness of the overall economy, has been investing heavily in IT infrastructure so it’s able to “right-size” quickly when necessary.

Cascagnette, on the other hand, said Highlight Motor Freight has been growing rapidly and its biggest challenge is finding qualified drivers.

“We still have a driver shortage,” he said. “Every year we’re adding vehicles. In the last three years we’ve added 120.”

The carrier-broker relationship

McCarron asked panelists how the relationship between freight brokers and carriers has evolved.

“I think the relationship is getting stronger on some levels,” Fontaine said. “There are a lot of good, quality brokers out there. The real problem is the really bad brokers out there that give us a bad name.”

Arseneau said the good brokers will provide all the information you need up-front to deliver the load correctly, whereas the bad broker will leave out details, “play games on payments and bastardize the whole process.”

She said it’s also becoming more difficult to reach decision-makers. It used to be a matter of getting past the receptions, but now, “there is no receptionist,” she said.

Fontaine added the freight brokerage industry as a whole has evolved by becoming more diverse. He noted 40% of his staff are women and in the Toronto office, C.H. Robinson’s employees can speak 31 languages.

The future of the small broker

There was a lively discussion about the future of small freight brokers and their ability to compete.

“I don’t believe there will be a future (for small brokers),” Cascagnette declared, noting it will be increasingly difficult for small brokers to deal with dragged out payment terms from customers.

Fontaine disagreed.

“There will always be small brokers,” he said. “I think what is going to hurt them over the next several years are contracts. They’re more prevalent than ever before. Until recently, we had zero customers contracts. Payment terms are a big thing. The margins aren’t there. Relationships still matter. Today, a lot of companies are looking at risk. Negligence. Lost loads. Insurance coverage. I’m not sure how small companies can handle this…We invest $100 million a year into technology. It’s going to be very hard for the small guy to do that.”

Saunders said small brokers will have to provide exceptional service to survive. “You’re not going to win on IT and you may not win on the breadth of services offered but you can win on customer service,” he said.

Cascagnette’s advice for small players is to develop a niche and become the best at serving it. He said Highlight was launched to become the top carrier serving the eastern seaboard and it spent its first five years focused on that one lane before expanding elsewhere.

“Pick an area and service it,” he said.

Fontaine agreed. “Definitely go for the niche,” he concurred. “Don’t try to be everything to everybody; it costs a lot of money and you need a lot of resources.”

How will you be paying?

Panelists agreed electronic funds transfer is preferable to payment by cheque, but said there are still many small brokers who insist on paying the old-fashioned way.

“Sending a cheque is one of the payment delay tactics people still use,” Arseneau said, noting her company now handles 95% of all payments electronically.

Cheque payments add an administrative burden to the transaction and also slow payment times, panelists agreed. Arseneau said there are benefits to paying invoices promptly.

“Anytime anyone can pay us in less than 30 days, there’s an opportunity to do some type of rebate program or it will factor into their rates,” she said.

Fontaine said even a big player like C.H. Robinson is struggling to get customers to pay quickly, with some dragging payments out to 90 or 120 days.

“The customers, to a point, have the bat and the ball,” he said, noting the company’s average payment time on accounts receivables is 60 days. However, the panelists who operate brokerages have noted they are taking advantage of the opportunity to expedite payments to attract more carriers. C.H. Robinson offers a quick pay option where payment is issued to the carrier within two days, minus a 2% commission. Its standard payment term is 20 days.

The effect of ELDs

Panelists agreed the looming electronic logging device (ELD) mandate in the US and, eventually in Canada as well, will reduce capacity and has the potential to drive up rates.

“It’s going to eliminate a lot of smaller players that don’t have the cash flow available to upgrade their trucks and install these systems and maintain them,” Cascagnette predicted.

Arseneau added considerable internal resources are required as well to implement the devices.

“You need to have the expertise and bandwidth within the company to follow that project through,” she said. “It’s expensive and will consume a lot of resources for companies that aren’t there now.”

Fontaine expressed hope rates could go up as carriers that are not able, or willing, to comply with the new standard are removed from the industry.

Cascagnette pointed out the standard will also force new operational realities onto the shipping community.

“It’s going to turn a few of these overnight lanes into two-day lanes,” he noted.

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