Licensed transportation brokers: their joys and frustrations.

On the tenth anniversary of the 1980 Motor Carder Act, the authors conducted a survey of trucking company CEOs regarding their reactions to trucking deregulation. One of the points made by a few of the respondents involved transportation brokers. Their observations were not complimentary. Two verbatim statements follow:

* Brokers are parasites. They contract with shippers for freight and then ruthlessly shop among truckers for the lowest rates. They only care who can get it there the cheapest, not the safest. Shippers used to deal directly with carriers and we could establish a rapport. Today, they often use a broker, who takes a percentage and then finds anyone to move freight. Brokers take no risks and invest nothing in the trucking industry except a phone!

* Brokers have become a curse of this industry. They have no authority, no trucks, or any equipment at all, and yet they manage to command a decent percentage of the revenues for shipping a product from city A to city B.(1)

As a result of those comments, we decided to survey licensed transportation brokers regarding their opinions about their career area. But first, some background information. Transportation brokers provide a service to both shippers and carriers. For shippers who have freight to be transported, brokers will find a truck that will efficiently and economically transport the shipment. Brokers work with many carriers and can generally provide shippers with timely, low-cost transportation. They charge the shipper a competitive rate and in turn work with truckers who have empty cargo capacity for the shipment involved. The shipper pays the broker and the broker typically pays the carder about 85 percent of the revenue collected from the shipper.(2)

Carriers benefit from this relationship because brokers assist them in their sales and marketing activities. Brokers generate additional freight that truckers need to run an efficient operation. In many cases, carriers also have a sales force, and brokers are used to supplement the efforts of the in-house salespeople.(3)

In 1986, the Interstate Commerce Commission examined the service provided to both shipper and carrier by brokers and then observed, "In short, the explosive growth in the brokerage industry reflected a need in the surface transportation industry for innovative middlemen who aggressively identify and meet the needs of both shippers and carriers."(4)

Transportation brokers have needed a license issued by the ICC to operate in interstate commerce since the 1935 Motor Carrier Act. Prior to the 1980 Motor Carrier Act, there were relatively few licensed transportation brokers. In 1975, there were 70.(5) However, the 1980 Act liberalized the rules regarding the ICC issuance of broker licenses. Thereafter, the ICC was to issue a license if the applicant was fit, willing, and able to be a transportation broker of property - other than a household goods carrier and if the applicant attested to his or her desire to comply with the transportation laws of the United States and the regulations of the Interstate Commerce Commission.(6)

Transportation deregulation in 1980 also eased the ICC requirements for the issuance of motor carrier for-hire interstate operating rights.(7) The result was a flood of applications to the ICC for interstate operating rights - the great majority of which the ICC approved. In 1975 there were 16,005 motor carrier interstate for-hire property carriers authorized by the ICC.(8) By 1993 this number had grown to 53,205.(9)

This new transportation environment created an opportunity for transportation brokers. Shippers needed intermediaries to keep track of all the new trucking options available to them, while carriers needed additional sources of freight. This was especially true of new carriers, who frequently utilized brokers as their main source of sales and marketing activities. For these reasons, the brokerage business has grown tremendously, from 70 licensed brokers in 1975 to over 8,000 in 1993.(10)

Much has been written about transportation brokers, as will be noted briefly in the next section on transportation broker research. However, almost nothing is available regarding the "human relations" aspect of the brokerage business. That is the purpose of this article. Specifically, this article will answer these questions about transportation brokers: (a) If you could start your career over, would you still work as a transportation broker? (b) Has your personal income met your expectation? (c) What is the single greatest joy in your position? and (d) What is the single greatest frustration in your work?

REVIEW OF TRANSPORTATION BROKER LITERATURE

Transportation brokers are third-party logistics providers. This indicates that they are independent businesses that are intermediaries between the shipper and carrier. There are a number of other third-party logistics service providers - shippers' agents, freight forwarders, shippers' associations, public warehouses, protective packaging consultants, materials handling consulting engineers, electronic data interchange network providers, etc. In addition, there has been a rapid growth in the utilization of logistics service providers that perform most or all of a firm's logistics functions as independent contractors. This is known as outsourcing. While this concept is very common in some aspects of business - advertising is frequently outsourced to advertising agencies(11) - it is now rapidly growing in utilization for logistics activities, especially in the last ten to fifteen years. (An exception is the traffic function, which, for many decades, has frequently been outsourced by smaller companies.(12)) The use of any of the above third parties has advantages and disadvantages. These issues have been addressed in a number of academic and trade publications.(13)

Other studies have examined the size and characteristics of transportation brokers.(14) In addition, a number of potential legal complications involved in the utilization of transportation brokers have been discussed.(15) There have also been studies that examine the pluses and minuses of using transportation brokers from the carrier viewpoint.(16) Finally, there are analyses of the pros and cons of using transportation brokers from the shipper point-of-view.(17)

RESEARCH METHODOLOGY

To address the "human relations" issues noted previously, a survey of transportation brokers was conducted. After the questionnaire was initially drafted, it was pretested in person with a small convenience sample of transportation brokers in St. Cloud and Minneapolis, Minnesota. Based on feedback from these brokers, changes were made in the wording of some of the questions. The sampling frame consisted of all brokers listed in the Transportation Brokers Conference of America 1993-94 Membership Directory and Handbook.

An initial sample of 550 brokers was then selected. Each was sent a one-page questionnaire along with a cover letter requesting the broker's assistance. To help enhance the response rate, a preliminary letter was sent to each broker approximately one week prior notifying him or her of the pending survey. Also, a postcard was sent to each broker about five days following the survey. This postcard served both to thank those who had returned the questionnaire and to remind those who had not yet returned it to please do so.

Twenty-eight questionnaires from the initial sample were returned by the U.S. Postal Service as "undeliverable," yielding a net outgoing sample size of 522. A total of 228 brokers responded to the survey, representing a response rate of 44 percent. This response rate is considered exceptional, especially given the professional status of the target sample. Responses from these 228 transportation brokers, then, form the database for this study.

A limitation of this research is the ability to generalize about all licensed transportation brokers (over 8,000 in 1993) based on our sample survey of 550 members of the Transportation Brokers Conference of America: about one-half of its approximately 1,000 members. Our findings accurately represent the membership of the TBCA - but these respondents are less-than-perfect surrogates for all licensed transportation brokers for the following reasons.

We spoke to Annette E. Petrick, executive director of the TBCA, and she indicated the following to us:

1. The TBCA believes there are between 3,500 and 4,000 active licensed transportation brokers. The ICC list is a much larger number because when a broker goes out of business, he or she frequently does not notify the ICC. In addition, many licensed transportation brokers are subsidiaries of a common or contract carrier, and frequently are not actively involved in the brokerage business. Therefore, the ICC registry of licensed transportation brokers is not a credible list, because many of its firms are not actively participating in the transportation brokerage business.

2. The TBCA does not believe an accurate list of active licensed transportation brokers is available at this time. At present, the TBCA is attempting to compile such a list from vendor sources - companies that sell business services and products to transportation brokers, such as business phone systems, fax and other data linking systems, computer software firms, etc. and this is how they have estimated the number of active licensed transportation brokers.

3. TBCA membership is used by their members as a means of informing shippers and carriers that they are pledged to operate as an ethical business by carefully following the TBCA Code of Ethics.

4. TBCA members are typically more established transportation brokers compared to all licensed transportation brokers, as will be noted below in more detail.

In summary, the authors used the best list of active licensed transportation brokers now available. Still, it is likely that our findings do not totally represent all licensed transportation brokers, because TBCA individual members, compared to non-TBCA licensed brokers, tend to be slightly older, their companies use a greater number of carriers. and their firms have much higher total annual revenues.(18)