In the year 2000, freight brokerage was a minor player in the trucking industry, constituting just 6% of the market. Jump ahead to 2023, and freight brokers now oversee over 20% of all trucking freight.
Mainstream Influence
With their growing market share, freight brokerages have transformed the conventional freight cycle. In the early 2000s, finding a freight broker leading a shipper’s routing guide was unusual. During that time, brokers typically managed freight that asset-based carriers refused or that didn’t meet their margin requirements. They also served as a last resort during capacity surges.
But since then, there has been a remarkable shift. Through investments in technology and customer service, freight brokerages have developed a more attractive offering than asset-based competitors, resulting in a more substantial presence in routing guides. Today, it’s common to see multiple freight brokerages holding top positions, outcompeting their asset-based rivals.
Enhanced Freight Quality
Freight brokers now handle far better quality freight compared to 2000. In 2023, brokers frequently deal with highly desirable, carrier-friendly loads. This shift is due to shippers of all sizes relying on brokers’ extensive carrier databases to ensure timely deliveries. Small carriers also depend on brokers for leads and business opportunities.
The Role of Deregulation
The Motor Carrier Act of 1980 played a pivotal role in the development of the freight brokerage industry. Prior to deregulation, the trucking industry was under strict control by the Interstate Commerce Commission (ICC). Deregulation removed these restrictions and led to more competition, lower shipping rates, and an increased reliance on backhauls.
Brokerage Growth and Evolution
As more carriers turned to brokers, a new wave of professional brokerages emerged. Larger carriers even established in-house brokerage divisions, providing an additional revenue source and a means to manage excess capacity.
Empowering Small Carriers
Freight brokers now act as shippers’ traffic managers and carriers’ sales agents, handling thousands of daily freight transactions. Small carriers, in particular, rely on brokers for sales, customer service, and a continuous stream of freight. Those without broker relationships are at a disadvantage.
Inspired by: https://freightwaves.com/news/freight-recession-unlike-any-other-in-history
Changing the Freight Cycle
Unlike previous cycles, where weak carriers exited the industry when rates dropped, the current cycle has seen small carriers enduring. Freight brokerages have played a critical role in supplying small truckers with quality load opportunities, even during rate declines.
A Decade of Transformation
In the 2008 freight recession, brokerages accounted for only 10% of the trucking market. Today, they represent 20%, along with improved freight quality.
Incorporation into Routing Guides
Over the past decade, brokerages have secured primary positions in routing guides. Their preference for small carriers has strengthened the position of the smallest players, increasing their market share.
A Surge in Capacity
The number of trucking companies grew by 28% from 2019 to 2022, with most of these newcomers being small carriers drawn by pandemic-induced high rates.
Market Dynamics
Like Newton’s law of gravity, the trucking industry operates in cycles. When capacity tightens, new entrants flood the market, lowering rates. Brokers have slowed down the process of capacity reduction, positioning themselves as core carriers and maintaining load volumes even in downturns.
The Road Ahead
It is expected to take another 78 weeks to reach market balance unless there’s a sudden surge in company closures. This suggests we are only halfway through the current downturn.
Anticipated Rate Changes
While rate increases may occur anticipating a capacity reset, many analysts, including Freight Waves, do not foresee substantial rate hikes until at least the second quarter of 2024. Hence, the attrition process will likely continue as the market gradually phases out the weakest participants.