Higher Rates on Spot Market Affect Broker Use
April 05, 2012
Carriers are continuing to move away from the use of brokers, although not as much as in 2011, according to Transport Capital Partners.
In light of small rate increases and the challenge of renegotiating accessorials, more carriers are moving to brokers to find higher rates on the spot market.
In TCP's First Quarter 2012 Business Expectations Survey, carriers were asked if they have used more or less broker freight services as a share of their total revenue during the past three months. In both February and August of 2011, the percentage of carriers using more or less broker freight services was similar - around 12% to 15% for those using more and around 82% to 86% for those using less.
The number of carriers indicating they are using more broker freight services has doubled, from 15% in August 2011 to almost 33% in February of 2012. Likewise, 67% of carriers surveyed said that they were using less brokers.
"Load boards are indicating that spot freight rates in lanes are above long term rates and that the first quarter seasonal slowness may also have induced carriers to seek broker loads to keep drivers and equipment busy," says Richard Mikes, TCP partner.
More large carriers ($25 million or more in revenue) are using brokers than smaller carriers, but there is not a large difference - 34% of larger carriers versus 28% of smaller carriers.
According to Lana Batts, TCP partner: "While some carriers might use brokers to increase freight, TCP believes that most of these carriers are attracted to the spot market due to higher rates."
Despite the increase in the use of brokers, the amount of freight that makes up a carrier's total revenue is still relatively small, with 47% indicating it is less than 5%. Larger carriers seem to be taking more advantage of spot market rates than smaller carriers. "This trend, if continued, challenges thoughts by many observers that smaller carriers predominate in broker use," says Mikes.
"In a period of tightening capacity however, the slightest change in the spot market can adversely affect a shipper's ability to attract capacity. Historically, contract rates have been significantly lower than the spot market in times of tightening capacity," says Batts.