We are seeing more web-based load brokers, and now even Uber is getting into the act with its new Uber Freight initiative. The concept of all these efforts is simple: Provide a web-based marketplace for shippers to find low-cost trucking services in the spot market. These web-based "3PLs" actually are property brokers, but their model is much simpler and risk adverse than the standard broker-carrier relationship.
Web-based marketers assume no liability for cargo loss or damage, warrant only that the motor carriers are licensed, authorized and insured and accept limited risk for payment of freight charges if the shipper does not pay freight charges.
This approach is much more akin to the traditional role of brokerage, which is to locate a service provider at the lowest possible cost acting primarily as a shipper’s agent. The potential benefits to small carriers are clear, including:
Access to freight in the spot market without the need to sign draconian shipper-broker contracts with "gotcha" provisions for claims, offsets and unconscionable indemnity provisions.
Web-based access to shipper-direct traffic that could – in theory – remove the 15% to 25% markup traditional brokerage collects out of the billed freight charges
Whether the Uber model will succeed remains to be seen. Particularly questionable is whether major price-conscious shippers will abandon their standard multi-page contracts and commoditize truckload traffic for the resulting savings. If the website-based brokerage offers access to small carriers to freight, it would seem to be a win-win situation for shippers and carriers alike and a matter of major concern for the traditional transactional brokerage.
Before embracing this new paradigm, a small carrier should recognize that an organized web-based reverse auction or "hunting ground" for lowball rates may be attractive to shippers, but non-compensatory for small carriers. While freight rates are based on supply and demand, costs of operations – particularly driver wages and increased regulatory burdens – increasingly will require profitable carriers to charge more, not less, for the services rendered.
A few years ago, many shippers auctioned off their freight using Covisint and other web-based platforms to bid lanes on a biannual basis. What carriers learned is important to remember. You need to make a profit on every shipment. Unless you know your costs and can figure in your deadhead and head haul margins, participating in spot market pricing or auctions can be injurious to your health.
Henry Seaton is senior partner of the law firm Seaton & Husk, which specializes in transportation law, and author of Rules of the Road: A Practical Guide to Legal Issues in Truck Transportation.
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