Freight Managers Revise Business Strategies to Assure Financial Stability During Recession

This story appears in the March 30 print edition of Transport Topics.

For freight brokers adept at working in the middle of transactions between carriers and shippers, the recession is changing the game.

Brokers who have long enjoyed a rising tide of business are now feeling the twin pressures of falling demand and rates, top executives at 10 companies said in interviews. At the same time, they’re being squeezed between carrier payment obligations and collecting from shippers whose finances may be shaky.

In response, brokers are pulling from every available avenue —diversifying their offerings, tightly scrutinizing shippers’ finances, upgrading technology, refining marketing and building customer relationships.

“This environment is probably the most difficult because there are so many challenges at the same time,” said Paul Loeb, chief executive officer of Command Transportation, a non-asset-based carrier with headquarters in Chicago. “It used to be you were juggling just one thing, such as fuel. The freight rates have gone back to ’90s levels. The capacity is in surplus right now.”

“Customer payments are a concern, given the uncertainty across many vertical industries,” said Greg Sebolt, chief operating officer of Coyote Logistics. “Blue- chip companies that once were solid payers now are stretching a bit — or borderline bankrupt.”

Something else is even more important, Loeb and several other brokers told Transport Topics.

“The biggest challenge today is the health of our customer base,” he said. “Also, we spend a tremendous amount evaluating who our customers’ customers are. If we are hauling for a maker of boxes and their main customer is General Motors, there is a residual effect.”

As a result, brokers’ vigilance is increasing, executives said.

“We are doing more frequent reviews of customers’ financial situations — more Dun & Bradstreet [credit] checks,” said Jim Damman, president of Exel Transportation, the brokerage arm of DHL Exel Supply Chain. “We are more carefully managing receivables. If we’re not paid, we’re following up after seven days, where before we might have waited two or three weeks.”

DHL Exel ranks No. 2 on Transport Topics’ list of the 50 largest logistics companies in the United States and Canada.

Brokers closely watch DSOs — days sales outstanding — which average about 30 days.

“All brokerage companies have been working hard to not see DSO creep,” said Mitch Weckop, general manager of brokerage at Schneider National Inc.’s logistics unit, No. 6 on the TT list. “Shipper bankruptcy is a concern. We’ve had no increase in bankruptcies. If we hadn’t improved our [monitoring] capability in the past year, the risk would have been higher.”

Geoff Turner, CEO of Choptank Transport, said DSOs are up about two days and receivables due in 60 days rose approximately 10%, in line with industry trends.

 “We’ve had a minimum of 20 customers come to us since September and ask for 60-day terms,” Turner said. “That is a red flag for us. It’s not so much the lack of business for us as it is the threat of not getting paid. We are still obligated to pay the carriers. There is quite a risk there.”

Weckop reinforced that point. Faced with receivables uncertainty, Weckop said he and most competing brokers are saying “no” when customers ask for easier credit terms.

“We are market makers,” he said. “We have become a bank in some respects. If you let [receivables] creep when margins are under pressure, that doesn’t work.”

Jim Butts, senior vice president of C.H. Robinson Worldwide, said his company typically pays carriers two or three weeks faster than it receives payment from shippers.

Robinson and other brokers use “quick pay,” which provides partial payment before a load moves, and the rest two or three days after delivery — in exchange for a discount.

Bob Voltmann, president of the Transportation Intermediaries Association, said those discounts can be as small as 2%.

Brokers also are using more sophisticated technology to monitor the timeliness of payment activity.

Weckop said Schneider’s brokerage unit is installing Oracle Inc.’s transportation management system, which eventually will be used by every part of the carrier. Others, like Coyote, use their own software, while suppliers also offer options.

“Companies may not be able to afford to do research on all their customers,” said Winston Astin, who is CEO of TransCredit, which sells shipper credit information. “It’s time to address this business differently. Seventy-eight percent of bad debt comes from customers who have been doing business with a broker for two years or more.”

Voltmann said TIA has created a program that allows third parties’ credit managers to discuss and compare individual shippers’ payment practices.

“The traditional way of protecting yourself through credit insurance is beginning to fall apart,” Voltmann said. “Lenders are getting very leery of offering that.”

Schneider’s Weckop said that in addition to monitoring receivables, Oracle’s technology links collections with sales and marketing.

Carriers’ strategic changes are helping brokers as well.

As some of the largest fleets, such as J.B. Hunt Transport Services and Werner Enterprises, retreat from one-way long moves to focus on dedicated carriage and shorter hauls, they’re offering brokerage options to customers and calling on the brokers’ services to move freight at a lower cost because someone else’s equipment is being used.

So are other fleets such as Marten Transport, USA Truck, Celadon Group and Knight Transportation.

“We are seeing more and more carriers accept that additional freight is moving to brokerage,” said Joel McGinley, executive consultant for Internet Truck Stop. “They didn’t use to want to do business with [brokers]. One possible conclusion is that they will focus more on running equipment and give up sales and marketing. You don’t see many carriers expanding their sales force.”

“It’s easier for brokers to weather a storm when people and computers are your primary costs,” McGinley added. “You don’t have payments on assets. As more carriers go out of business, that creates a sense of concern for the shipper.”

While some large carriers are forming new business relationships, the brokers are diversifying their offerings. Some also are offering freight forwarding, which includes insurance and claims handling services.

“The marketplace wants third parties to have the responsibility of the freight forwarder and the flexibility of the broker,” Voltmann said. “The big companies that are part of TIA have done that. They pay cargo claims. They have insurance. They manage the entire process, soup to nuts.”

“It’s a difficult time for many companies — especially asset-based carriers,” Exel’s Damman concurred. “We believe we can offer a variety of alternatives to customers; they are looking for all options.”

Sebolt said Coyote Logistics added supply chain services, network optimization and consulting for shippers.

“Companies can use the transactional element of brokerage as one of the legs under the table to provide additional value-added services that will separate the true 3PLs from brokers,” he said.

Brokers “that simply match a load and a truck will struggle,” Sebolt said, because of the intense competition for freight being moved at today’s low rates.

Schneider takes a different approach, using other company units to perform related services such as freight forwarding, Weckop said.

“Customers are looking for providers who can reduce their uncertainty and risk profile,” he said. “We are seeing [the recession] more as an opportunity because, frankly, the current economic condition is shining a pretty harsh light” on brokers.

In addition to watching customers’ finances closely, broadening service offerings and taking other steps, brokers are working on building stronger relationships with both carriers and shippers.

For example, C.H. Robinson is building carrier relationships with a 160-person department that works with 32,000 carriers and helps new entrants, thereby boosting competition.

“That’s healthy for everyone,” Butts said. “A diversified carrier base helps provide options. If you get concentrated, with a few carriers, that can be a problem.”

Exel’s strategy for relationships is different.

“We try to strengthen those relationships with our core carriers and help them through this time by trying to head more freight in that direction,” said Damman, whose 50 largest fleets haul 50% of business.

“It’s very important for anyone in this environment to have priorities set right,”  Damman said. “This [economy] will turn. We are using technology and building carrier relationships, so we are ready when it does turn. I don’t think anyone in this business should lose sight of that.”