Small brokers and carriers face pressure after SCOTUS ruling

Even brokers that have prioritized compliance and safety could face a more difficult operating environment, trucking and logistics leaders said. (Mark Schiefelbein/Associated Press)

Smaller freight brokers and motor carriers in particular could face additional pressure following the U.S. Supreme Court’s Montgomery v. Caribe Transport II ruling, which has increased scrutiny on carrier selection and risk management in the transportation industry.

Even brokers that have prioritized compliance and safety could face a more difficult operating environment as customers and insurers recalibrate expectations in response to the high court’s decision, trucking and logistics leaders said.

“It’s going to be a really challenging ruling for small brokers, even the small brokers that were doing everything the right way, simply because of how the shipping community responds to it,” said Kenneth Johnson, executive chairman of Leonard’s Express, which operates asset-based and brokerage divisions and ranks No. 84 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.

That shift in shipper and insurer behavior, rather than any single operational change, is likely to create new pressure points for smaller transportation providers, Johnson said.

Businesses with fewer resources to absorb added costs may feel the greatest impact, said Chris Burroughs, CEO of the Transportation Intermediaries Association.

“This is a real concern, as most freight brokers are small businesses and do not have large legal departments or unlimited compliance budgets,” he said. “A patchwork of state-level standards could increase insurance costs, litigation exposure and operating burdens.”

During a press conference promoting consulting firm Kearney’s State of Logistics report, partner Andres Mendoza Pena said the added pressure could contribute to longer-term structural changes across the brokerage market.

“The scrutiny around carrier selection and carriage management will increase significantly,” he said. “When you couple that with the opportunity to make investments in AI tools and solutions, it’s not hard to foresee a scenario in which you see a consolidation opportunity in freight brokerage.”

More robust diligence is already adding expense across the sector, said Deen Albert, vice president of operations for Grand Island Express, which has both asset-based and brokerage divisions.

“The types of vetting that are becoming necessary are really not very affordable for a small broker operation and will probably push some small ones out,” he said.

Johnson of Leonard’s Express said shippers may begin favoring larger partners that can better absorb legal risk and defend themselves against potential claims.

“They’re going to be looking to put themselves a step further away from any potential liability,” he said.

That shift is also likely to change buying behavior among middle-market shippers, said Shannon Breen, CEO and founder of freight brokerage FreightVana.

Such customers who often rely on small brokers to help minimize costs may re-evaluate those decisions, he said. “I might like that price, but what risk am I taking on?”

For carriers, the ruling introduces new hurdles. Brokers often require carriers to hold their motor carrier authority for a minimum period before accepting loads, and some companies are reviewing their policies.

RDS Capacity Solutions, for one, is considering increasing its minimum requirement to one year from nine months, while FreightVana already requires one year.

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(Pemberton Truck Lines)

“That kind of shift favors carriers with longer operating histories,” said John Pemberton, CEO of Pemberton Truck Lines. “I think shippers are going to be more picky and choosier with the carriers that they partner with.”

The ruling also could hurt carriers without a formal safety rating from the Federal Motor Carrier Safety Administration. TIA’s Burroughs said more risk-averse brokers may avoid carriers with limited data even if they are compliant.

Insurance is emerging as another pressure point as costs rise and availability tightens. Breen said FreightVana had been planning to enter an insurance captive for asset and brokerage coverage as conditions shift.

Contingent liability coverage that brokers carry for cargo-related incidents is already written by a limited number of providers, and Johnson said it is likely to become more difficult and expensive to obtain.

“The broker that is a two- or three-person office, will they be able to afford contingent liability insurance or even be able to secure it in the first place?” he said.

Breen said many small brokers currently rely only on the required $75,000 bond and may struggle to secure additional coverage.

“We’re going to pass them through to shippers. Shippers are going to pass them through to consumers,” he said.

The types of vetting that are becoming necessary are really not affordable for a small broker operation and will probably push some small ones out.

Deen Albert, Grand Island Express

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Capacity is another concern, Breen added, particularly if smaller trucking businesses have trouble getting vetted or securing consistent freight.

“If there is not a healthy spot for small truckers to get vetted, to be able to work and create these businesses, that is a seismic chunk of the trucking industry,” he said.

Some industry leaders view the shift as a correction that could remove less safe and noncompliant operators and help to level the playing field for companies already investing in safety and regulatory compliance.

“Over the last few years there have been some bad actors that have come into the industry, and it is time for them to go,” said Johnson of Leonard’s Express.

A potential danger, however, is pushing too many small brokers and carriers out of the market.

“The risk is reduced competition, fewer options for shippers, higher costs for consumers and a less flexible supply chain,” TIA’s Burroughs said, noting that smaller providers play a critical role in serving specialized markets and rural communities.