Bracing For A Broker Shortage

It seems that $75,000 can nearly cut a market in two.

Roughly 40 percent of U.S. brokers lost their licenses at the end of last year because they could not comply with a new congressional mandate that increased surety bond levels from $10,000 to $75,000. These bonds are used to pay claims to truckers over late payments or non-payments for hauls and other services.

The market has gone from around 21,000 brokers to nearly 12,800, according to Federal Motor Carrier Safety Administration (FMCSA) data. Brokers began having their licenses revoked on December 2nd when a grace period for reaching the new bond limit expired. The new limit and the grace period were set in the 2012 reauthorization bills covering the Department of Transportation.

According to the FMCSA, notices were sent out to just under 10,000 brokers in order to coax them to come into compliance or provide them with resources to surrender their licenses. The agency, which is part of the Department of Transportation, wouldn’t say how many brokers voluntarily surrendered their licenses.

This regulatory constriction follows years of low growth and very thin margins for brokers, making it unlikely that independent carriers will step in to fill these 8,200 holes. Even if they were willing to take on the expensive business, bonding companies and insurers are going to be very careful about which newcomers they support. Currently, new brokers are finding themselves in need of collateral or a bank letter of credit just to get the conversation started.

The questions about the brokerage licensing market are whether the increase was necessary and if the right limit was reached.

Proponents said that raising the limit was acceptable because the bond requirement has remained stable for more than 25 years. Moving the bond up to better align with cost increases is a decent argument and even the Association of Independent Property Brokers & Agents was willing to concede the limit could be raised, though it wanted to cap the increase at $20,000 or $25,000.

It’s very likely that the market will stay contracted and businesses will be forced to focus on a small number of larger brokers — those that require minimal independent partners to have an expansive footprint. Pricing controls will move to these larger firms and will likely result in truckers lowering rates to secure business, while brokerage fees are projected to rise.

Early in 2013 we saw an increase in shippers establishing their own brokerage businesses. Establishing this division may help shippers save on their costs, especially if they can incorporate a match-back system. These systems coordinate loads and empty container hauls, eliminating moves that simply burn money.

The industry will see a growing space for IT companies to move in and create profitable platforms for matching and control. The cornerstone of these systems will be to make sure that data is accurate, specific to demand and availability, and updated continuously.

As platforms incorporate more manufacturers, shippers, truckers and even non-vessel-operating common carriers, blind spots are reduced and it becomes easier to adhere to federal regulations. These systems also can help ensure compliance with licensing requirements and hours-of-service governance. The “Holy Grail” of match-back and other brokerage systems has always been tracking the last mile, and market consolidation may make finding it the necessity of 2014.