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Brokers see small improvement in gross margins in Q4

Quarterly TIA report shows that alongside the strong freight market, 3PLs did not reap a windfall

Photo: Jim Allen/FreightWaves

Brokers managed to squeeze out a slight improvement in their average margins in the fourth quarter of 2021.

That’s the key number in the quarterly report of the Transportation Intermediaries Association, the trade group for the brokerage community.

The gross margin percentage for the quarter rose 10 basis points (bps) to 13.8%, up from 13.7% in the third quarter. The relatively limited increase came even as the invoice amount per shipment rose 6.9%, to $2,586 from $2,418.

But although the margin rose slightly from the third quarter, that wasn’t the case compared to the fourth quarter of 2020. Average gross margin declined 70 bps from a year earlier when it was 14.5%. The average invoice amount per shipment in 2020 was $2,106, with the fourth-quarter 2021 figure rising 22.8% over the course of the year. 

The decline in margin from a year earlier is in keeping with recent margin weakness. The TIA said in its report that “as usual in hot brokerage markets, gross margins remained below long run averages.”

Commentary in the report by the TIA’s chief economist, Noel Perry, was relatively pessimistic. “The brokerage numbers continue to show signs of market stress, with shippers still increasing their use of spot markets,” he wrote. “Such a preference recognizes the brokerage industry’s unique ability to handle stressed freight.”

But the dominance of the spot market has probably peaked, Perry said. “Recent economic developments, headlined by inflation and the war in the Ukraine, promise an inflection in spot market demand.” 

The gross margin percentage for the brokerage community has not risen on any sort of steady upward trend despite that hot freight market. The rolling gross margin for truckload activity over the last eight quarters, starting with the first quarter of 2020, came in at 14.8%, 16.1%, 10.2%, 13.4%, 13.5%, 12.9%, 14% and 13.4%.

The distribution of the gains among small, medium and large companies was uneven in the comparison between the third and fourth quarters. Total loads for the largest companies, which TIA defines as having more than $100 million in revenue, were up 5.7% to 1,075,541 loads, while the smallest companies, with revenue less than $16 million, were up 3.1% at 8,156 loads. Loads for the medium sector were flat at about 152,000.

But the margin for the largest brokers slid to 13.5% from 14.2% between the third and fourth quarters. The middle sector suffered a 40 bps decline to 12.8% from a year earlier, while the gross margin for the smallest companies not only rose 80 bps but at 19.7% was considerably higher than for the other two categories. However, given that the smallest brokerages only account for less than 1% of all loads, that strong performance did not move the needle on the overall gross margin of 13.4%.

The strong trucking market was highly visible in the comparison between the respective fourth quarters. Fourth-quarter 2021 shipments were up 22.3% from a year earlier; the invoice per load rose 27.7% to $2,558; and the gross margin was up to $344 from $268, a gain of 28.3%. 

But that doesn’t mean profitability was improved. The gross margin for truckload activity was 13.4% in both the fourth quarters of 2020 and 2021. 

In another sign that the small fry did well, the gross margin for the smallest brokers was up 130 basis points in Q4 2021 from a year earlier, rising to 19.7%. The margin was flat for the other two categories, but given that the smallest companies don’t even account for 1% of all the loads handled, the overall gross margin for the industry was flat from a year earlier at 13.4%.  

Other highlights from the report:

— Total LTL loads serviced by a broker dropped 4.5% in the fourth quarter compared to the third quarter, down to 123,105 from 128,952. The invoice per load was up 4.5% to $482, the gross margin per load was up 3.3% to $100, but the gross margin was down 30 basis points to 20.7%.

— Although the amount of freight brokered in the LTL sector is far less than for truckload, it is more profitable on a gross margin basis. The rolling numbers for the eight quarters ending in the fourth quarter of 2021 are more than 20% for six of the eight quarters. The two that are less than 20% are still higher than the average truckload margin for the eight quarters. But the dollars are small, with seven of the eight quarters coming in at less than $100.

— Intermodal margins are even less profitable when measured on a percentage basis. The gross margin for intermodal in the fourth quarter of 2021 was 9.4%. It was 8.8% in the third quarter of 2021 and 11.6% a year earlier in 2020.

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.