A mistake often seen from shippers, is the misconception that makes them think if they use multiple brokers instead of just one, they increase their chances of covering a load. In reality, this practice only generates a distortion in the market that ends up costing the shipper more money in the end.
For years I have been explaining this simple concept to our customers and friends but after seeing what has happened with rates in certain lanes during this past few months I feel that I need to write about it, maybe this way some shippers might keep this information in mind the next time they find themselves in a tight truck market.
To understand the concept, you must become familiar with some of the basics of truck brokerage.
1) Freight brokers, all hunt for trucks in the same ways, from the big ones to the small mom and pop brokers.
2) Freight brokers all use the same trucks. Big or small brokers, all share the trucks available in a market and they all have contracts with all of them or will sign one in minutes if needed.
3) Even asset-based brokers (very few are and those have very little equipment), will not have their equipment available most of the time and will go out in the market looking for trucks.
All Freight Brokers use the same methods to attract trucks. Once a Shipper calls a broker with a load, the broker starts to alternate all these methods in order to cover the load, the load might go into truck stop screens, load boards, emails to truck lines, phone calls, broker’s web site, etc.
As the shipper calls the second broker with that same load, the second broker will do the same as the first one. Now we have 2 loads in a market where there’s only 1. If the shipper calls 15 brokers, he generates a fake market with 15 loads when it’s still only a 1 load market.
Now, what do you think happens when a trucker realizes there’s 15 loads on a lane and he’s the only available truck to cover any of those loads?
He reacts based on “supply and demand” economics, he will immediately raise his price to move a load in that lane and will start answering brokers’ calls offering the truck at a higher price. Then he will continue to “play” all brokers offering the same truck but each time at a higher rate.
Each broker will in turn call the shipper and will tell him “I found a truck, but they want more money than usual”. At this point, the shipper tells the broker to secure that truck at the higher price. But we cannot forget there’s more brokers looking for the same truck, so the truck might get a higher price offering from another broker that might “steal” it away from the deal, only to call the customer back with an even higher rate.
When the customer goes back to broker 1 he already lost the truck to broker 2 who offered more of the shipper’s own money to the trucker. The process repeats itself until the shipper pays the maximum possible price for the truck.
Through his own market distortion, the shipper has now spent much more than he would have if he had trusted one broker with the mission of finding that truck in the first place. If this same shipper had given the load to only one broker, that broker will eventually have found the truck that was available to do that load and the shipper would have paid a price much more in tune with the reality of the market on the specific day.
My advice to Shippers, using multiple brokers will only generate higher prices for yourself by creating a fake market. It creates a situation that will always be expensive for you, the shipper, and unfair for the carrier. Find a broker you can trust, one that will be by your side year-round regardless of market conditions, and one that has the level of customer service you like. That way you will always enjoy better results.
When a broker tells you there’s no trucks in an area, he’s not lying or has less resources than other brokers, chances are there might be one available in a few hours, patience is key to avoid creating a fake demand when that truck does become available.
The logistics and transportation industries are full of challenges, don’t hesitate to contact me via LinkedIn with questions, comments on this or any other article or just to say hi. I’m here to help.