Truck brokers will see a huge upswing in costs if federal regulators make a broker transparency change requested by owner-operators, according to logistics company ArcBest [NASDAQ: ARCB].
Barney Long, deputy general counsel for the Fort Smith, Arkansas-based company, told the Federal Motor Carrier Safety Administration (FMCSA) that the revisions being sought by the Owner-Operator Independent Drivers Association (OOIDA) will increase equipment, software programming and personnel costs to at least $500,000 annually for every broker. Brokers, in turn, will look to the market to recover those costs.
“Essentially, any benefits received from carriers in modifying [the regulation] will result in a substantial detriment to shippers, consignees and consumers and most likely to carriers as well,” Long warned in a letter filed last week with the FMCSA.
The FMCSA in August agreed to consider a petition filed by OOIDA in May to improve broker transparency by:
- Requiring brokers to automatically provide an electronic copy of each transaction record within 48 hours after the contractual service has been completed
- Explicitly prohibiting brokers from including any provision in their contracts that requires a carrier to waive their rights to access the transaction records as required by 49 CFR §371.3.
FMCSA is also looking at a similar request by the Small Business in Transportation Coalition (SBTC) that the agency require broker contracts to exclude any stipulations or clauses that exempt brokers from having to comply with transparency requirements.
“With freight rates reaching historic lows, small-business truckers are struggling,” OOIDA stated in its petition. “Many have expressed frustration about the lack of transparency between brokers and motor carriers. The problem is that the regulations designed to provide transparency are routinely evaded by brokers or simply not enforced by DOT.”
As of Monday, the OOIDA/SBTC petition has generated more than 800 comments, the majority of which are from small owner-operators that support the petition (a significant number of these appear to be from a replicated form letter). A smaller number of brokers – with some operating midsized fleets – oppose it.
In addressing OOIDA’s “48-hour” request, ArcBest, which specializes in less-than-truckload freight, asserts that knowing what a broker is getting paid for a load within 48 hours after the carrier delivers the shipment “seems senseless and will simply result in additional costs” for the broker.
“It is the carrier’s responsibility to determine during contract negotiations or prior to picking up a shipment whether the offered pricing for a load is sufficient for the carrier to transport it,” Long wrote. “What good does receiving transactional information within 48 hours after services have been completed? The receipt of transactional information after transportation services are completed does not provide any assistance to the carrier. If a carrier cannot recover its costs and an acceptable profit level on a shipment, the carrier should not haul the shipment. This is basic business sense.”
Long also took issue with assessment of the freight market by owner-operators after the onset of the COVID-19 pandemic in March, with many subsequently accusing brokers of price gouging.
However, Long asserts, “what is really being disguised and disregarded is that carrier capacity exceeds available shipper loads. Due to such excessive carrier capacity levels, carrier load pricing diminished during a short period during this pandemic. Carrier pricing has since rebounded and is near the historic pricing levels reached in 2018. COVID -19 just happened to be an event that for a short period created a glut of capacity that drove rates down in favor of the shipper, not the broker.”
Data compiled from FreightWaves’ SONAR Outbound Tender Reject Index (OTRI) reflects this trend (see chart above). Tender rejection rates are highly correlated with spot market rates and other financial measurements: When rejection rates increase, spot rates do as well. When spot rates increase, carrier revenues increase as well as profit margins and cash flow.
- Owner-operators seek DOT enforcement of broker regulations
- FMCSA poses questions on broker reporting requirements
- Will capacity return to trucking?