Brokers, 3PLs Gaining Share as Recession Spurs Competition

This story appears in the June 29 print edition of Transport Topics.

Freight brokers and other third-party logistics providers say their non-asset-based models are helping them to steadily gain market share during the ongoing recession.

The change may be a long-term trend or the effect of cost-conscious shippers, asset-based carriers’ diversification, stronger customer relationships — or all of the above — but freight brokerage is playing a larger role today in threadbare shipping markets, industry experts told Transport Topics.

“Our business and the whole brokerage business have been growing for the last 20 or more years,” said John Wiehoff, chairman and CEO of C.H. Robinson Worldwide, which uses more than 50,000 carriers. “We have been taking market share for quite some time now because of shippers’ acceptance of 3PLs.”

“We may be a short-term marriage of convenience for some, but we don’t feel that’s the long-term driver of the market,” Wiehoff told TT. “The things we want to be good at are people, technology, building relationships and account management — that is what we believe we are bringing to the marketplace.”

George Abernathy, executive vice president of 3PL Transplace Inc., said asset-based carriers “have become more broker-like” in response to market pressure and stronger brokerage companies that are gaining share.

Ten of 11 publicly traded dry-van truckload carriers also do brokerage business, including Werner Enterprises and J.B. Hunt Transport Services.

Derek Leathers, chief operating officer of Werner, said shippers are more interested in exploring brokerage options the company offers as they search for lower rates.

“The day of carriers being all things to all people is over,” said Leathers. “The aggressive rate negotiations have taken away any incentive to do that. A blended solution is what we are trying to achieve.”

That means focusing Werner’s assets on freight lanes where volume is very dense and using third-party carriers on other routes, he said.

“We are seeing an evolution that has been occurring all over the brokerage world,” said Dahlman Rose analyst Jason Seidl. “Brokers have gotten larger. The success that brokers are having now is because shippers are looking for the lowest-cost provider, and that is brokers.”

“They [brokers] are proving their mettle and building relationships with shippers,” said Andy Vanzant, vice president of sales for Roehl Transport, during a conference call.

Roehl began a brokerage operation 18 months ago “almost as a last resort” to offer more freight options and retain customers, Vanzant said.

Others don’t see a market-share shift.

“I’m not convinced that [brokers] are gaining market share,” said John Smith, CEO of CRST International. “We have our own brokerage, and we have lost some brokerage accounts because [shippers] want to use asset-based carriers. On the asset side, we have lost business due to brokerage.” “I do not believe that brokerage has taken market share during the downturn,” said Noël Perry, senior consultant at FTR Associates and a former CSX Corp. and Schneider National executive.

“Asset players tend to switch their overflow freight from brokerage to their idle assets when freight falls,” Perry said. “This phenomenon should temporarily slow the long-term trend toward brokerage that I expect to see resumed when freight begins to grow.”

Hard evidence of share gain does not exist, experts say, but multiple anecdotal indicators point that way.

J.B. Hunt’s brokerage loads rose 80% in the first quarter, and Werner’s brokerage business rose 21% last year.

A Transportation Intermediaries Association survey found that brokered freight volumes held steady from the fourth quarter to the first quarter, while American Trucking Associations’ tonnage index fell 3% over those periods.

Consulting firm Armstrong & Associates measured a 6.7% in-crease in brokers’ net revenue, the difference between the price shippers pay and the cost of transportation, from 2007 to 2008.

Abernathy and Leathers agreed that when the market improves, small, undercapitalized brokers will have difficulty.

“Small brokers with no capital to back them that suffer liability accidents have a chance of survival that is less than zero,” Leathers said. “The large, well-capitalized brokers, of which we believe we are one, will survive.”

“There will be a fall out among some of the brokers who don’t have a depth of capacity,” said Abernathy — although he said he expects well-financed brokers with a large corps of carriers to thrive.

“The pie for the brokers will grow in the future, but more parties will be trying to carve it up,” Seidl said.

“The logistics companies are here to stay,” said TIA President Bob Voltmann.

“[Brokers] keep adding value by making themselves more relevant. They are showing that they can take shippers’ freight, move it successfully and find good-quality carriers with good rates in any market,” Voltmann said.