Small Brokers Compete for Big Business
By Ann Grackin - ChainLink Research
Brokers play a vital role in the logistics market. Shippers look to
brokers to bring knowledge of the logistics market to find viable
carriers to move their freight. Conversely, carriers leverage
brokers to find customers.
However, there is serious competition in the logistics market—
not just between brokers, but with other segments of logistics
services that compete with brokers for business. With so many
players entering the field as well as new forms of competition, it
is getting harder for the broker to win—and keep—business.
So the question comes:
How can small brokers compete and win big business? Winning
means not just gaining new accounts, but also profitably
meeting customers’ increasing needs. Scaling to meet bigger
challenges can stretch any organization, so we must then ask:
How can small brokers scale to meet the requirements of big
business?
Armed with advanced cloud technology, not only can the small
broker compete and match the capabilities of the larger broker
at a competitive price, but also be that strategic partner,
providing the extra, ongoing, superior customer relationship
smaller brokers are known for.
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Table of Contents
Small Brokers Compete for Big Business ................................................................................................... 1
The Broker Challenge .................................................................................................................................... 2
Scaling to Take More Business—Profitably .............................................................................................. 3
Providing that Extra Service ...................................................................................................................... 5
Broker Competition—What It Takes to Compete Now ................................................................................ 6
Productivity, Profit, Power and Performance ........................................................................................... 6
Winning and Keeping Big Business ........................................................................................................... 7
Conclusion: Playing to Win Big Business ....................................................................................................... 9
The content in this paper was created after discussions with over ten brokers, covering their business
challenges and future objectives.
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The Broker Challenge
Centuries of trade have taught us a few things about
logistics—it can be a very unpredictable world. And
complex. The route to market often includes significant
hand-offs between players due to the many options and
modes of transportation in the US, as well as the many
types of enterprise—large and small, regional and
national—who move the nation’s freight. Large
organizations often don’t have the capacity or the local
expertise to fulfill their nation-wide customers’
requirements. They turn to small or specialty carriers to
help ‘fill in the gaps.’ Specialty and industry-specific
carriers are also called upon to move anything from
aircraft parts to that wedding dress.
Cost variability and delays due to unforeseen events are
driving shippers and their customers to seek someone to
find them a better deal—more flexibility, more visibility,
better service—at the right price. That someone is their broker.
As tough as it is to make money in the logistics industry, the broker sector has seen an increase in new
companies entering the field. This is a reflection of a few issues: The Western economies are picking up
momentum. At the same time, outsourcing to the East for manufacturing has increased the need for
logistics in the West. As imported goods move into the local markets they need a variety of logistical
modes to reach the customer, whether intermodal rail and/or truck. That means even more business for
the broker. In addition, large asset-free distributors rely on a rich selection of the so-called
owner/operator and small trucking fleets to deliver in their local markets. All these changes have led to
more shippers seeking out the best means, the best rates, and dependable service to ensure reliable
freight movement.
A decade ago, brokerages were not very large companies, but a few have managed to break through
barriers and have truly astounding growth. What does it take, then, to grow? Let’s take a look at the
brokerage business today and see what it takes to compete and win. Winning not only means increasing
sales, but running a profitable business.
In this article we will look at the small broker challenges and what it takes for them to win business.
MercuryGate developed their TMS capabilities for small and midsized companies to compete
successfully. We will highlight some of these features that help small brokers win big business.
Scaling to Take More Business—Profitably
Interestingly, many brokers could have more business even without additional aggressive sales moves. It
turns out that many have to turn away business because they often can’t handle peak loads. This
problem is exacerbated with specialty freight such as bulk and refrigerated items. But generally, there is
enough capacity. It’s all about finding a match. Since competition is stiff in the broker market, shippers
can demand and get more value in the relationship. And that is the challenge. Putting on more
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headcount to meet more opportunities is one solution, but headcount is a double-edged sword. On one
side it does let you take in more business. But the data shows that many of the companies that rely on a
headcount-only approach are less profitable.
The challenge is to maximize service profitably. Those peaks and valleys in the freight world make it hard
to effectively manage the work load, especially with that variable demand. And with so many manual
activities, it takes a long time for a new employee to be able to carry his load, so to speak. Ensuring
profit-per-employee is a real challenge in any service business, but with variable demand, the business
has to ‘eat those costs’ during the low periods. Small brokers just can’t afford that.
The economics of a brokerage business are straightforward. As a people business, it’s all about getting
smart people with the right expertise and providing everything they need to be as productive as
possible. Automation and the availability of online information enable employees to access critical
information such as rates, regulations, and service providers. Of all the operating costs in the brokerage
business, IT costs are fairly low relative to the value they provide.
Managing a brokerage business also has legal, regulatory, and financial implications.1 Staying on top of
the requirements for each customer’s shipment requirements is data intensive. The shipper is looking
for a broker who can assure them that they possess the requisite knowledge for their type of freight.
Equally important is that everything executes and adheres to the fine print. Even within this United
States, freight is highly regulated by state.2
The shipper is relying on the broker to identify qualified carriers. Not only, in the immediate sense,
carrier availability (schedules and equipment for the shipper requirements); managing quotes and
negotiating rates; but also ensuring that a carrier is top notch. 3 The broker is responsible for assuring
the shipper that this carrier can be trusted to carry their cargo. And once the process is launched, can
the broker provide visibility through to a successful outcome? A paper-based or a components approach
(many small software modules) fails this test.
Other logistic services providers such as 3PL or distributors as
proxy for the shipper can be even more demanding, since they
often have further depth of knowledge on the carrier market.
They also have a high need to integrate between shipper,
broker, and carrier to provide the end-to-end information.
Naturally, carriers want to transact with brokers who can bring
them business. So to a great degree, the broker needs to
please both the buyers and seller of capacity. “Trust, but
verify” is most important in this industry. Good carrier
1
Shipping regulations, bills of lading, insurance, various carrier licensing, as well as customer compliance mandates for scanning, traceability,
temperate monitoring (cold chain) dock reservations, etc.
2
The Department of Commerce, various state laws, Department of Transportation, and various city ordinances, what to say of other regulations
that may cover the product categories such as refrigeration, hazmat, etc.
3
i.e., has a good performance and safety track record, the expertise and equipment, the proper insurance, and can really do the job.
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relationships allow brokers to compete for bigger business, knowing they can rely on reputable carriers
and negotiate for better rates and preferred delivery schedules.
On the back end, the financial arrangement with these service providers, sales agents, and the shippers
needs to be accounted for. Rate variance, commissions, special fees, all need to be accounted for,
ensuring accurate settlement, invoicing, and payments. The broker needs to manage all sides—billing
shippers, paying carriers, and paying commissions. Errors, accidents, goods damaged in transit, late
shipments, and fines occur that can delay or thwart the shipper’s payment. Even when things go well,
this is still a complex and time-consuming task. Late payments can seriously impact cash flow and
damage the broker’s reputation, which small businesses can ill afford.
The real economic challenge for the broker, then, is cash flow—gaining and maintaining profits and
ensuring that payments and settlements happen accurately and in a timely fashion. Precision in billing
shippers, paying the carriers, and paying commissions to partners is critical. Often, there are also gain
sharing arrangements that need to be transparent, reported on, and settled. Those are advanced
calculations and accounting to cope with. But many shippers are looking for just that kind of ‘deal.’ The
ability to address that “what can you do for me” is the key to the broker’s ability to compete for
business.
Large organizations may compartmentalize their expertise, upfront sales, and customer service from
their back office invoice and payment. But the small broker does it all. The small brokers who rely on
manual or small un-integrated tool sets are at a disadvantage, since across the process, from tendering
loads to the subsequent settlement is often accompanied by administrative frustration.
Providing that Extra Service
Brokers today have to speak the language of their
customers and offer them a competitive advantage. Value
proposition, such as cost management, improved supply
chain metrics and ‘green logistics’ options all play a role in
the logistics strategies of shippers today. Small brokers have
cultivated special relationships with their customers based
on that extra service. However, shippers expect the broker
not only to provide those benefits, but also be price
competitive. So brokers need to up their game all the time
and have a compelling argument for increased service
charges or do it all at competitive rates.
As brokers establish a strong relationship with a customer or offer additional expertise, they may also
seek to expand their business model. Often, a broker has an industry freight as well as mode specialty
(truck load, LTL, or rail/intermodal). Yet brokers can grow their revenue both in volume of deals and also
extend the modes they cover. Again, scaling challenges will confront the broker who decides to open
themselves to bigger business opportunities.
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Broker Competition—What It Takes to Compete Now
We have talked about the competencies and challenges brokers face today. Now let’s look more at how
brokers—particularly the small and midsize brokers—compete for and win big business.
Productivity, Profit, Power and Performance
What we are talking about, in essence, is productivity through information management. In today’s
world, the road of productivity is paved with technology. Many of the broker’s tasks (large and small)
can be automated today, easing the burden across the whole process—both strategically and
tactically—from onboarding new customers to each and every transaction.
Often small brokers rely on component software tools and a paper-based back office. That’s not
scalable. A fully functional TMS, on the other hand, that is modeled to support all the business processes
ensures that customer-facing transaction work is done well, but productivity boosters are there to
support the users’ back-end tasks. Great examples are tools that allow the user to ‘template’ tasks using
defaults and industry archetypes for everything from new customer portals, carrier records, and rate
tables, to quotes.
Skill and fast on the draw responsiveness are essential for the small broker. You may be small, but you
can still be fast—or faster than the competition. Productivity, for brokers, means methods for optimal
carrier selection and improving collaboration and communications to work through what are often
complex arrangements (multi-leg and multi-mode) or special handling issues associated with the freight.
It is imperative to be able to gain access to the needed online information—fast—to match the
customer’s load to available capacity and ensure the right documentation is provided to get the
shipment on the way. Sorting through multiple systems to put this all together adds delays and
introduces errors in the process. Errors are costly—and the broker may eat those costs. Errors lead to
lost payments, profits and customers. The industry is plagued with paper, errors, and missed promises.
You don’t want your business to be in that camp!
A TMS, particularly one that is fully integrated on a single platform, can pull all those interactions,
transactions, and paperwork into a unified view of the customer and a single unified view of the
shipment. Automated workflows that can guide the user through the process are extraordinarily helpful.
This aids the small broker (or any broker) who may have employees learning on the job. Again, that
productivity issue is addressed, cutting the time to complete transactions while maintaining quality
assurance. Workflow in the software world has been somewhat taken for granted. But usually these
‘smart’ workflows are not available if using component/tools approach. It is no small feat to create an
intelligent workflow capability, especially in the transportation market, with so much complex
information. Having intelligent workflow capability is real productivity booster—and error reducer!
There are many elements, surely, to winning new customers. Your expertise must be backed up by the
ability to act on your knowledge. Today, brokers can use fully functional TMS systems to provide the
power we are discussing: automated tasks and transactions, and the information needed to optimize
performance through ready access to market data and analytics across all phases of the customer
relationship. In particular, today’s cloud solutions make it fairly easy to sit down with your customer and
advocate a better way for them and demonstrate how you can provide it. In logistics, many deals are
won by the ‘let me show you’ approach, and having information and technology power is the platform
you stand on.
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Winning and Keeping Big Business
Demonstrating capabilities for the customer and also
providing support for the sales process are important
aspects of acquiring a customer. So, if you are the small
broker trying to win business, what are some of the
capabilities you might need?
Sales Management. Often when purchasing
transportation software, users don’t consider the whole
business —nor do most TMS software packages.
Specifically, we mean sales.4 Supporting direct sales or
sales agents so they can win the business is critical.
Winning complex freight deals mean that the sales
professional needs a way to demonstrate service
capability. But also it means sales management—whether direct sales or sales agents—must have
robust financials to calculate costs for the customer and behind-the-scenes sales activity management
such as lead management, margin and commission calculations. MercuryGate’s CRMLite supports sales
force automation to support a full set of the sales person activities for direct sales or an agency model.
Commissions can be split multiple ways by percentage based on the role of that person in the process.
CRM. Big companies can purchase sales force automation or CRM systems. But small brokers are
confronted with yet another purchase. If they choose that route, then they have not only another
software purchase, but also another integration expense. Therefore, MercuryGate developed a CRMLite to support their smaller customers.5 Using CRM-Lite, which is available within the single TMS
platform, means the customer’s information is already there, enabling a handoff from sales to
operations.
Knowledge and connection to the carrier market. Things happen fast in the freight world. So the
broker needs to find a match quickly with the assurance that this is a reputable carrier. For the broker,
having access to information and understanding the carrier market is essential. A CIM (Carrier
Information Management) designed for just that is within MercuryGate’s Carma.
Carma allows the broker to understand, manage, and communicate to the carrier market. There are
many so-called directories on the web in the industry. But they are merely marketing. They don’t reflect
actual relationships, or important current credential and business information about carriers such as
their capabilities, equipment, current insurance, safety record and other important information. The fact
that this is cloud-based allows the carrier to update the information so that the small broker remains
productive.6
Carma is not a passive one-and-done feature. Carma goes beyond just posting information. It enables
the management of the relationship between the broker and carriers with prebuilt connections, as well
as global trade management functionality. Carma’s capability allows the broker to organize their
information in such a way that they can have rapid access to the right carrier: one who has been vetted.
4
Since we are talking in this article about winning the business, sales is key!
This can also integrate to an external CRM package, as an alternative.
6
It is certainly in the carrier’s best interest to do this, since the broker is bringing them sales opportunities.
5
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This is another area where the broker can demonstrate to customers their expertise, responsiveness,
and ability to see across modes to service the total needs of the shipper, if required.
Rapid onboarding of the customer. Though brokers have regular customers, they also field business
from infrequent shippers or new opportunities. Not only is this an internal productivity issue, but also an
important demonstrative capability. “Can you scale quickly to meet my business?” is a frequently asked
question. Gathering information about the customer and their freight requirements is a data-intensive
exercise. Having templating to create unique customer portals for customer self-service, reusable
configurations, and intelligent workflow, can support that rapid onboarding and other customer-facing
tasks. MercuryGate, in fact, has a one-click capability, called ezClick, threaded through all functions of
the system, that effectively guide the quick route through these many tasks.
Quoting, rating and transparency. Quoting rates is a complicated affair, where rates are determined
by mode and by lane. A broker is often comparing multiple carrier-multi-mode options and looking to
negotiate the best deal for the customer. Brokers need methods to visualize and stream-line this
process. They may have some negotiated rates with certain carriers, but in many cases rates fluctuate
daily. Then there are all the accessorials, fuel surcharges and other charges that may be part of the
agreement. The rating and optimization engine is all part of MercuryGate’s solution to rationalize and
optimize the process.
Customers who have irregular schedules and freight pose a huge challenge to a broker. Creating
opportunities to define and negotiate lane, acquire discounts for your customer, etc. are a few of the
issues.
Some regular shippers are shopping for the best brokers, carriers, and prices to place their regular
shipments with. One option they may look for is gain sharing. In selling to big businesses and winning
these larger and more reliable customers, this is an enticing offer. Without great software to help you
process the financials, enterprise deals and gain sharing and other discounts are difficult to achieve.
Transparency is important here, since the customer will want to see the decision process, compare rates
and see how the ‘deal’ was calculated. Surely, providing this puts the broker at a competitive advantage.
Managing from the carrier-broker perspective. The carrier is a critical member of the relationship
and needs to be attended to. Carriers want to ‘market to’ entities from whom they can get the most
business and who pay fairly and promptly. So having technology that allows for mutual information
sharing and visibility through Carma, to loads, rates, and agreements is a distinct advantage. Although
there are many big carriers in the market, the US is rich with small carriers (owners/operators) who are
busy moving freight and may not have the time or technology to be as rigorous in data management.
Having a system that enables these carriers to update information removes obstacles in tendering loads.
Risk management. Risk mitigation is critical in the transportation industry. Not all players are what
they appear to be. Bad things happen to good freight and there is an ever-widening arena of risk in
products, compliances, and regulations. Can the carrier keep up with them all? With these increasing
requirements, small truckers may have lapses in compliance. “Trust, but verify” can be achieved with
Carma, the CIM capability.7 Integration to the leading carrier monitoring service8 reduces risk for the
broker, alerting the broker if there are changes in the carrier’s credentials. (HELP!!! Fix footnote format)
7
Carma can be updated from other information sources like RMIS, Transcore and Carrier411 for Carrier information.
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Performance, analytics and reporting. Providing analytics to demonstrate the customer’s rates and
how you can help them control their freight costs is critical. But growing brokers can also analyze their
own business, understand where they are making money, where their profits or losses are, and use this
information to guide their business growth. The TMS that supports a top-down view of your whole the
business should be an aid in the overall business management, not just a software adjunct to your use of
a myriad of spreadsheets.
Short-circuiting the process through social supply chain. All this is great, but execution is where it
matters most—in that day-to-day support. An important emerging trend is the use of social supply
chain—social networking as an aid in the broker/carrier relationship. In the transportation world this
means pairing the transaction with the people who are engaged in the process.
One approach that speaks to the heart of the brokerage business is a product by MercuryGate—
FreightFriend™. It synchronizes the serial and messy multi-threading, fax, email, and phone calls by
supplementing an automated electronic transmission with an online and secure dialogue platform. Like
other enterprise social network platforms, only trusted members become part of the network, so
brokers who have done their homework on carrier authorizations can invite or accept invitations from
your carriers.
Unlike other social networks, this is not a chatting, ‘friending’ site, but rather one that leverages a
private network of vetted professionals and companies. Carriers can post capacity on FreightFriend™
and control who sees them. Conversely, brokers communicate their available loads to partner carriers
while protecting the information from competitors. Small brokers who have been using this have found
huge productivity gains from this approach.
Conclusion: Playing to Win Big Business
Small has to do the same as big but with fewer resources! The
broker has many competitors—even some customers are taking
on this role.9 Hence, they need to level the playing field with
the most advanced solution as their companion when they
compete.10 Historically, small players had tools or disjointed
components to work with. Now they can have access to the
same functionality that the bigger players have, on a single
platform. And using the productivity boosters discussed in the
preceding pages, they still can keep it simple. Having advanced
capabilities and demonstrating the platform during the sales
cycle will elicit trust from the customers. That trust can be a
business-multiplying factor.
8
These monitoring services monitor the industry for changes in insurance, operating authority, carrier safety ratings, CSA 2010 BASIC scores,
and other type of data by carrier.
9
Walmart and other retailers, for example, are coordinating much of their shipping; and their small suppliers, especially, are taking advantage
of this.
10
In contrast to the many firms in the logistics industry that jointly go to market with their technology partner, but boast about their own
technology competencies.
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Playing to win means having the right game plan and technology. Today’s cloud solutions reduce the IT
risk when implementing new technology. The SaaS model provides companies with web access to their
solution without requiring on-premise installations. This also reduces the broker’s investment in
hardware and onsite support personnel.
Speed-to-benefit is also critical for small businesses. Configured for the broker, with many short cuts
through workflow enabled by ezClick, these pre-configured broker-focused screens and connections to
web services and trading partners shorten the go live process from months to weeks.
But MercuryGate does more. They have a ‘no pay till you go live’ model—unique to the industry—
reducing your technical and business risk. For a small business on the way up, this has to be an
extraordinary opportunity. Cash flow management is a constant challenge for small brokers. A pay-asyou-go model that increases the speed to return-on-investment preserves that cash. Having working
capital provides the freedom to make critical decisions and investments that allow you to be more
competitive.
Increasing cash also means increasing cash, decreasing DSO, and velocity. Anything the broker can do to
improve the sales cycle, their own productivity, visibility, and accuracy is money in the bank for them.
They will get paid faster, manage settlements faster, and avoid delayed payment from shippers due to
faulty information. The broker’s customer has intense pressure to ensure an end-to-end, successful
outcome. Having the broker/partner to enable their performance builds customer loyalty. Having a
single platform TMS solutions increases information and cash velocity for the broker and the shipper. It
will be appreciated!
The brokerage market is changing. Growing customer requirements and increased competition are
changing the playing field. The broker who uses a deeply functional TMS solution on a single platform—
one that can scale across modes and around the globe—presents a real growth opportunity that many
brokers are taking. This capability can take them on the path beyond strict brokerage, to expand to
multi-mode international freight forwarding, 3PL or 4PL managed services. Seizing those opportunities
knowing that the platform scales, without having to seek a new solution, avoids disruption in business
growth. In fact, many MercuryGate clients have stated that implementing the MercuryGate TMS was a
catalyst for them to think bigger.
Ultimately, the value propositions of automation and visibility are so important to brokers and their
customers that the broker who can deliver this is bound to have the competitive edge.
In subsequent articles we will discuss the broker business model; further articles will discuss what you need to
understand about cloud technology and go into some depth on how cloud technology supports the specific needs
of the logistics sector.
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About MercuryGate International Inc.
MercuryGate enables partner collaboration and delivers solutions for shippers, carriers, brokers, freight
forwarders and third party logistics providers to plan, optimize and execute global transportation movements with
complete end-to-end shipment visibility. Through a configurable workflow engine, MercuryGate customers are
able to manage their parcel, LTL, and truckload shipments as well as complex multi-leg ocean, air, and rail
movements, visit www.mercurygate.com.
About ChainLink Research
ChainLink Research, Inc. is a Supply Chain research organization dedicated to helping executives improve business
performance and competitiveness through an understanding of real-world implications, obstacles and results for
supply-chain policies, practices, processes, and technologies. The ChainLink 3Pe Model is the basis for our
research; a unique, multidimensional framework for managing and improving the links between supply chain
partners.
For more information, contact ChainLink Research at:
719 Washington Street, Suite 144, Newton, MA 02458.
Tel: (617) 762-4040. Email: [email protected] Website: www.clresearch.com
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