Middle-man Mania

Second-generation executives are proving themselves in the field By Mike McCarron

I’ve spent a lot of time dealing with freight brokers, and in fact have been in the middle myself. I figured I knew the business. But as I prepared to moderate two industry events, I realized that this old dog has a lot to learn. The first event took place last fall in our boardroom. I invited six industry leaders to sit down for a state of the union. These are all “first generation” brokers-baby-boomer entrepreneurs who have been breaking trails for an industry that didn’t exist 30 years ago.

This second event took place this past winter at a local hotel. I moderated a panel for the non-profit transportation association Delta Nu Alpha that featured the “next generation” in the freight brokering business. This is the under-40, Gen-Y crowd whose companies are sniffing up the rears of the lead dogs and starting to make fresh tracks of their own.

I learned a lot from my time with both groups. It’s knowledge worth passing along.

Status Quo

Things are eerily quiet on the M&A front.Iit’s rare to hear of a freight broker changing hands. Surprisingly, in spite of their age, baby boomers seem content to hang around. They don’t seem as interested in cashing out as I thought.

These freight brokers have made wheelbarrows full of cash in transportation and real estate. Many are sticking with it simply because they haven’t figured out a way to get the hell out.

All in the Family

More and more freight brokers are being run by the kids. In one way, it’s the owner deferring the uncertainties of selling his business. In another, it’s also a great setup for president mom and dad. They can continue to pluck from the nest of the golden goose from their condo in Lauderdale and/or their cottage in Muskoka. Getting Junior a well- paying gig in a market where prospects aren’t bleak doesn’t hurt the math. Status quo is proving to be a-okay!

The Next Generation

Wow. Was I ever impressed by the next-generation studs that I interviewed. All of them were smart, engaging, and confident enough to be grilled by me unscripted and “on the record.” They are well educated and possess a set of skills that old bastards like us will never have. They also got their on-the-job training during the dark days of 2008. It’s made them formidable competitors for first-generation brokers and carriers alike.

Blurred Lines

Ten years ago a broker was a broker and a carrier was a carrier. Today the lines are blurred. Hybrid transportation companies have evolved and are using assets and non- assets to build dynamic transportation products.

Now, specialty brokers are popping up allover the place. They focus on a particular vertical market niche like flatbed, expedited, seasonal, or chemicals. They’ve been around for years but their presence is really increasing. In the US, research done by Carrier Direct shows that the “amount of LTL freight moving under blanket-wrapped programs by brokers has grown from US$575 million in 2007 to US$2.5 billion in 2012”-even though the market shrank by US$3 billion.

Culling in US

The US$75,000 surety bond requirement has helped cull the freight broker herd. According to James Lamb, president of the Association of Independent Property Brokers and Agents (AIPBA), “In December, there were 21 ,080 independent brokers. Today there are 12,996.” Losing 39 of the industry over a lousy 75-grand entrance fee almost floored me.

These stats also indicate how many brokers in Canada are on life support. If you apply the 10 Canada-to-USA rule, there are 2,108 freight brokers in Canada and 822 wouldn’t be able to write that cheque. It really makes you wonder how long the smallest can hang on for.

Rise of Mega Brokers

One reason the small guys are in trouble is because people with brains and dough are investing in the growing third-party space. Big brokers are being gobbled up and folded into mega-brokers with the scale and technology needed to survive (Adrian Gonzales, an industry pundit, suggests that one day computers could replace freight brokers, although a lot people don’t seem to buying into that theory).

During my research, one theme came through loud and clear: it’s a great time to be a freight broker. We’ll see how long that lasts. Someday, the dog-eat-dog environment at the top of the food chain is going to work its way to Canada. Until then, Mom and Pop Broker continue to hang in there, Junior has the reins, and his contemporaries are setting a fast pace in a capacity-short freight environment.