What fleets need to know about the evolving freight market

Matt Cole: How fleets can win in the emerging defensible carrier freight market.

Jason Cannon: Hey everybody. Welcome back I'm Jason Cannon and my co-host is Mike Cole.

When the Supreme Court ruled earlier this year, the freight brokers could be held liable for negligent hiring and truck crashes, it changed the freight market dynamics, not for just the brokers, but shippers and motor carriers to

Matt Cole: With that ruling, brokers and shippers must be more selective about the carriers they work with. Meaning carriers have to be able to prove they are defensible in the event of a crash. A new report from Triumph Financial takes a look at the broader freight market, how carrier selection is changing it. at?

Ben Volkwyn: Yeah. So from our side, I mean, we started with what actual settled freight transactions were. And on our side, we just started to ask this the question. We're looking at the same market, but it's producing absolutely different outcomes across various broker segments.

And so for us, the question was the largest brokers were generating the strongest volume growth. While we were seeing some smaller and mid-sized brokers with general stronger total margin growth now on our side, our goal was to go and see how how can we explain this divergence in behavior that we're seeing.

So how do we connect it to these changing economics in freight and then give brokers, carriers and shippers a lot more useful way to interpret the market than any single average or or sentiment measure. So to as it was important to start with behavior and not just with theory.

Jason Cannon: Between regulatory efforts that are cracking down on English language proficiency and non domiciled CDL holders on top of the Supreme Court's Montgomery decision, the freight market landscape has shifted significantly over the last 12 months or so.

Ben Volkwyn: I think it's it's fair to say that capacity decisions tended to center around two key questions. Right. Is there a truck and what does the truck cost increasing. What we're seeing right now is there's there's a third question that's coming up.

And that is can I confidently deploy this carrier. And so what that means is, is what does compliance look like. What does safety look like. Insurance, identity controls, operating history, even liability management are all playing a very, very key role in in the carrier selection process. And so what we kind of started seeing now is that there is this shift from abundant capacity to defensible capacity.

And so defensible capacity is essentially capacity that can be verified. It's insured and then can be deployed with real confidence.

So it's it's not the fact that we're seeing trucks are suddenly disappearing. The truth of the matter is the pool of capacity that brokers or shippers are actually willing to able to work with has just become really, really selective. And so to us, the issue is not just whether or not the truck exists, it's whether or not that truck can be deployed with confidence now.

Matt Cole: Triumph's Mile Marker report in part, looks into completed broker to carrier transactions and measures them against recent history performance.

Ben Volkwyn: So when we thought about it, the the broker buy rate index tries to measure the all in rate per mile that brokers by carriers for long, all freight across the continuous 48 states.

When we tried to build it, we made sure that it was built off of completed broker to carrier transactions. So in that case, we made sure it's not surveyed. It's not modeled quotes. These are real vetted and verified transactions.

So the latest results that we released in our August report, we saw that van showed 45.1% year over year increase. We saw reefer was up 43.8%. And then on the flat based side, I mean, it was staggering to see it was up 48% year over year.

Now the callout that I'll make is that across all three equipment types, we saw it absolutely remain sharply elevated year over year. But what that also points to is it was a broad change in the cost of deployable capacity, rather than any isolation in a specific equipment move or a equipment type.

To us, I think by rate style, as that brokers are actually paying to secure the truck, and that is after the freight has been vetted and verified moved.

Jason Cannon: The report also analyzed broker margins across three primary equipment types van, reefer, and flatbed to see how brokers are performing in the shifting freight environment.

Ben Volkwyn: On the Triumph broker margin index, what we try to measure there is very specifically what is the gross margin percentage below by equipment type look like.

And to us we're we're very aware that margin on its own doesn't tell holistic story.

But what we did find from a margin percentage point of view is on the van side, we saw margins right around 13.7% for van refer around 11%. And once again flatbed being a little bit higher at about 14.7%.

Now each of these continue to improve month over month. But I'll be honest, the longer term picture still shows some pressure, particularly when we start thinking about van and reefer equipment types.

Now, a really important point that I think is worth noting is that margin percentage by itself cannot be read and interpreted with a realistic picture.

So think about it this way, right? A broker can earn a smaller percentage on a more expensive load, or move more loads and still produce more total margin dollars.

And so the way we interpret it is, is to say like, okay, this is why when we read this index, we read it alongside what the by rates are, what the total margin is and as well as what the volume is.

As sometimes, like the team likes to say, at the end of the day, businesses pay expenses in dollars and not in percentages. And so you you do need to look at it when you try and figure out where the industry is at today.

Matt Cole: So how has the changing market affected both brokers and carriers so far?

Ben Volkwyn: I'll say this, right, larger brokers definitely appear to have been a fit or for those enterprise relationship having real network density. And so what you tend to see there is that they continue to accumulate a little bit more volume. Like we're talking about 15.2% year over year volume growth.

On the flip side, some of the smaller and midsize brokers, they appear to have benefited a lot more of being flexible, being nimble, and being able to really participate in the spot market.

And so what you saw there is that go to tended to to go take a gross margin and and total margin growth was up by about 37.4%. So you could clearly see them more participating in that quick upside swing less. So being part of that sticky contract negotiations on the carrier side. I think the implication is a lot more directional, but really important.

I think we're getting to the point where brokers and shippers are very, selective in the way that they're thinking about their freight. So carriers that that can demonstrate strong safety, compliance, insurance, operating history, all these types of verifiable business practices, they're the ones that are seeing a larger share of that freight come through on their side. Now,

I'll say carriers that cannot meet or clearly document those standards. I think they'll continue finding it hard to find quality freight, a little bit harder to access. So

I'll say this, that at the end of the day, right now, there's definitely not one broker market. Right now, different broker models are succeeding in different ways.

And I think directionally for carriers to participate in quality, they they just need to make sure they're verifiable. And part of that use usable category.

Jason Cannon: Now, it's never easy to predict what's going to happen in the freight market. But Ben highlights some areas that he's watching over about the next six months.

Ben Volkwyn: I think you touched on the fact that we've seen so many regulatory pressures recently, and that the truth of the matter is that there's a structural change that has happened in the industry. And so I would say that over the next six months, instead of keeping your eye on whether or not rates will continue to be elevated or there would be some sort of change in the market or anticipation, I think there's a bit of a balance of metrics that you need to keep your eye on.

I think right now it's important to keep your eye on what by rates are doing. How fast are they moving?

You need to keep an eye on on is freight volume actually coming back or is freight volume staying under pressure? Is there any consumer demand coming back? Is there any construction demand coming back?

How's broker margins being affected? I mean, yes, on the one side. Gross margin or margin percentage doesn't tell the whole story. But if they continue to be squeezed, that will have secondary effects in the industry.

So rather than than really anchor on one of these forecasts, I think you'll break them down in components right by rates will tell us about the usable capacity costs volumes will tell us about the freight demand. Is it strengthening. Is it softening across margin and total margin dollars that will tell us who's really capturing the different economics. Right.

So my expectation is that it's not going to be a clean or a uniform turn over the next six months. I think it's going to be slower and more uneven adjustment as we continue tuning into this, adjustment of trusted, verifiable capacity and to continue gaining leverage.

Even the overall demand softens, we might still find ourselves in a position where quality still trumps the quantity of of the demand. And so I'd doing any predicting or precise rate or timing, I think the next six months, very much less about calling one number and more about watching whether or not price, volume and margins actually continue to diverge.

Matt Cole: Ben has mentioned a few times that carriers need to be defensible and verifiable to win in the current market. What does that really mean?

Ben Volkwyn: I think at Triumph, we're in a fortunate position to see multiple facets and participants across the industry. And so I think from the perception that we're seeing and what we're hearing back to become the carrier, that a broker or a shipper can confidently defend on choosing is becoming increasingly important.

I think it's so important you need to keep that authority. Your insurance and your operating documentation needs to be current. Needs to be pretty easy to verify, easy to pull up.

I would encourage investing in safety and compliance discipline. It's protect against both identity and your payment credentials, because those are going to become increasingly a reflection of how you operate your business.

I think it's important to build a consistent service record and communicate your your exceptions pretty early. Communications. Absolutely going to be key between your brokers and your shippers.

And then at the end of the day, I think knowing your true cost to operate and be selective about the freight that does not support the business is also going to become increasingly important. Just taking every single load that comes across might not necessarily be the most prudent way to operate the business.

So larger carriers may have more resources, but I do think smaller carriers can compete by being both responsive, transparent, and then once again, well-documented and easy to validate. So as we enter into what I, what I think we would call an a defensive capacity market trust and operational readiness or commercial advantages and and shouldn't be seen as just purely administrative over it.

So do not compete only on being available. Compete on being verifiable, reliable and easy to be deployed.

Jason Cannon: That's it for this week's 10-44. You can read more on ccjdigital.com. While you're there, sign up for our newsletter and stay up to date on the latest in trucking industry news and trends. If you have any questions or feedback, please let us know in the comments below. Don't forget to subscribe and hit the bell for notifications so you can catch us again next week.