With the multitude of factors that are currently at play in the transportation industry, some have said that we are entering uncharted territory. Capacity is tight and rates are going up, while technology is pushing traditional boundaries and creating pressures on brokers and carriers to adapt and grow. And to further complicate matters, the ELD (electronic logging device) mandate launched in December!
Here are some of the most important trends brokers and carriers need to watch out for in the coming year and beyond.
Broker Market Expected to Grow
Freight Brokerage Market in Americas 2018-2022 claims that the freight broker industry is expected to have a compound annual growth rate (CAGR) of 4.33 percent within the next four years. While this is welcomed news, brokers' success is tightly linked to the rest of the industry.
A somewhat more complex pictured emerges with the still looming driver shortage that seems to have no end in sight. Pressures created by the shortage are pushing for technological advancements which may end up resolving the issue in ways that will require brokers to shift and expand their own capacities. There may be some time left before these processes fully appear on stage though there has already been much talk of the "Uberization" of freight, among other challenges.
As the trucker shortage continues and demand for carrying capacity rises, so do freight rates. Rising rates are in part due to driver pay increases but also because of the continual upward climb of fuel prices.
This leads both shippers and carriers to look for productivity enhancements that can make the best of the limited capacity. This includes measures like drop-and-hook, faster dock turnarounds and better coordination.
A bit of improvement may also come by way of about 60,000 trucks entering the market. Yet, with few drivers available, these trucks may end up mostly serving as replacement capacity rather than new capacity.
As things stand currently, carriers have an advantage which they may very well soon lose, given the technological improvements that are supposed to be in the pipeline.
Technology and Innovation
Tech improvements like load matching to autonomous vehicles are promising solutions to a host of problems plaguing the industry. If carriers have the upper hand, technological innovations hold the promise of providing shippers with more options and level the playing field.
Automation and autonomous vehicles in particular stand out as some of the major contenders for the prize offered to those who crack the labor shortage challenge. While they have the upper hand, carriers must begin considering how they will adapt to a transportation world in which Tesla and Amazon are key players.
The ELD Mandate and Tax Reform
In terms of legislation, a few things stand out. The tax reform bill is expected to lift burdens from the industry and free up resources that will probably go into increasing capacity or raising wages. Investment in infrastructure, if passed, will also be welcomed particularly if it addresses the various deficiencies of the transportation network.
The potential downside is the ELD mandate which begins officially on April 1. Following the enforcement date, a productivity drop between at least 4 percent and 6 percent is expected. Some are even expecting a number of owner-operators to exit the market altogether, due to not being compliant with the new requirement.
Challenges for Freight Brokers
As detailed in a recent whitepaper by Cerasis, the Uberization of freight will redefine freight management. But it is also expected to change the landscape for freight brokers. As the whitepaper further shows, third-party logistics providers (3PLs) who also work as brokers are posed to become more favored by shippers in the coming year.
This poses a challenge to freight brokers whose numbers have been growing at a steady pace over the last 4 years. To meet these challenges, brokers will need to orient themselves towards adopting new technologies.
They may further be required to consider expanding their services and assets in order to meet the needs of shippers and retain already existing relationships.
Cost-cutting strategies can be carefully considered as well. One strategy brokers and forwarders can consider is taking steps to get a lower premium on their freight broker bond.
Vic Lance is the founder and president of Lance Surety Bond Associates. He is a surety bond expert who helps freight brokers get licensed and bonded. Lance graduated from Villanova University with a degree in business administration and holds a master’s degree in business administration (MBA) from the University of Michigan’s Ross School of Business.