January 29, 2003 10:00 AM, EST

Opinion: Small Carriers: Going for Brokerage

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B>By Don Thornton

I>TransCore Commercial Services

It's a dilemma many smaller carriers grapple with: How do you retain loyal customers and still expand into new profitable lanes? In some circumstances, in-house brokerages provide a logical answer to the industry’s capacity-and-demand problem. We have seen a growing number of small- and mid-size carriers adopting the in-house brokerage model to relieve growing pains as they expand their business.

Many large carriers, aided by expensive software systems, have benefited from in-house brokerages for years. Now, new technological developments and the current wane in trucking capacity have made establishing a successful in-house brokerage within the reach of smaller carriers.

Specifically, these carriers are opening in-house brokerages to accomplish three goals:

Maintain ownership of customers and ensure their needs are well served in the face of unforeseen challenges. Periodically, a carrier will not have a suitable piece of equipment available to meet one of its freight provider’s needs. Maintenance problems, driver illness or even inclement weather are typical reasons. A carrier with brokerage authority, granted by the Federal Motor Carrier Safety Administration, can easily deal with these inconveniences. With the freight provider’s approval, the carrier’s brokerage can pass the shipment to another trusted carrier to complete the movement. By tendering the shipment to a trusted partner, the initiating carrier is confident both that the shipment will be delivered with the care and timeliness that it would have provided, and that the partner will honor the original business relationship.

Utilize equipment more profitably. In other instances, a carrier is tendered freight that must travel to a destination where the carrier has a low probability of obtaining a profitable backhaul or has a high deadhead factor. In this instance, the carrier with broker authority can offer the relatively unprofitable load to another carrier, keep its own equipment for a profitable movement and make a profit on the original load.

Expand its customer base without risking capital investment. A carrier with aggressive growth plans can use its brokerage to seek freight that moves along lanes unfamiliar to the carrier.

Transportation management system (TMS) software can help carriers establish an in-house brokerage as smoothly and cost-effectively as possible. While many types of TMS exist, the most effective for a carrier-broker operation should seamlessly integrate operations and dispatch, accounting and freight exchange functions between the two business centers.

Customer service is essential to both the carrier and brokerage. Accurate, timely information is vital for communicating among employees, shippers and carrier partners. Eliminating redundancy streamlines the process of dispatching freight. For example, brokerage software that imports order information from the existing carrier order and dispatch software avoids duplicate data entry, and ensures that there are no miscommunications as to which arm, broker or dispatch, is handling a load.

A unified accounting and management system is as essential for a brokerage as it is for a carrier operation. The system should provide single data-entry capabilities and generate accounts payable, accounts receivable, carrier settlements and more. Up-to-the-minute information on where the money is as it transfers between shippers, broker and carrier helps a brokerage make the right decisions.

One of the most inefficient brokerage routines involves searching a Rolodex to manually match a load to a carrier. Some automated freight-matching systems link with TMS operations and dispatch functions, improving efficiency by eliminating double entry of data. If core partners are unable to handle the brokered load, access to the spot market via a freight-matching application can identify a host of other candidate carriers.

What do carriers do when they already own TMS software tailored to their carrier business but not their brokerage business? Once they have brokerage authority, some carriers “license,” or purchase, combination carrier-broker TMS packages that address both operations. Licensed TMS software may deliver integrated carrier-broker data capabilities. However, these systems require substantial up-front investment and on-site assistance to handle routine software upgrades.

One alternative to licensing or purchasing TMS software is to pay a monthly subscription, reducing up-front costs. Many suppliers now offer TMS software via the Internet. Under this model, commonly called an application service provider (ASP), carriers pay a monthly fee to use software over the Internet, and receive upgrades and system improvements for no additional cost. However, the ASP model has met resistance in the transportation industry, as it requires customers to store sensitive business data in the supplier’s potentially insecure location.

A third alternative to both the licensed-software and the ASP model is the server appliance, an inexpensive computer server small enough to fit on an office desk. Server appliances combine the best qualities of the licensing and ASP models, housing TMS software, securely storing a carrier’s sensitive business data at the carrier’s site, and connecting to the Internet to access subscription TMS software updates and other tools. Many carrier-broker operations are looking to server appliances as a way of capitalizing on the financial benefits of the subscription model, while satisfying important data security concerns.

The bottom line is this: When considering opening an in-house brokerage, carefully weigh the available tools that will help you get the job done efficiently and meet your business goals.

The writer is vice president of carrier services for the Commercial Services Group of TransCore, which provides an electronic freight exchange and fleet services. Earlier, he had been vice president of business development and technology for Market Transport, an Oregon truckload company.

This article appeared in the Jan. 27 print edition of Transport Topics. Subscribe today.