If every broker on every load had to tell both the shipper and the carrier the buy and sell price on each load, what would happen? Nobody knows exactly, but for owner-operators engaged in the broker transparency debate, 55% thought access to such information would bring a welcome advantage in load negotiations, according to Overdrive polling earlier this year. Nearly 1 in 5 respondents in the same poll noted it could help them steer clear of brokers who keep too much of the money in the load.
Early results of our ongoing two-question survey shows 79% of respondents think the Federal Motor Carrier Safety Administration's November transparency proposal, if implemented, will boost rates, while 11% see negative outcomes in freight markets. (You can take that quick survey here.)
In his outlook on potential impact, Avery Vise, vice president of trucking for FTR Transportation Intelligence, wasn't as rosy as that 79% of owner-operators. While providing carriers transparency into broker's financial arrangements with shippers "could result in marginal upward pressure on spot rates," he said, he very much doubts "it would make a significant difference."
DAT's Chief of Analytics Ken Adamo has said the same, and both Owner-Operator Independent Drivers Association and FMCSA reps also doubt the new regulation will lift rates.
"No level of transparency trumps market conditions" when it comes to rate setting, Vise said. "If carriers have low utilization, they will take loads at lower rates than they would prefer. Ultimately, brokers will pay the rates needed to get capacity when and where they need it, and if they do not need to pay more, they won’t."
As previously reported, broker transparency wasn't intended by regulators or advocates to move the needle on rates, but rather more to the point to advance carrier rights to settle claims and chargebacks, and to keep honest brokers honest by balancing out the information assymetry between brokers and carriers that exists in the market today.
[Related: Broker transparency: About boosting rates? Or a fight for carrier rights?]
Yet Vise felt brokers' margins, the difference between their revenue incoming from shippers and what they're paying the carrier to move the loads, could feel the force of the transparency hammer. Vise suggested the real pressure on brokers wouldn't come from carriers, though. Under the 371.3 regulation, both existing and proposed, shippers would have the same right to broker transparency. "Shippers would have the same visibility and would be expected to be at least as aggressive," he said, in wanting to push prices down as carriers would be aggressive in the other direction.
Brokers frequently have carriers waive their right to transparency or otherwise deny them access to records. But what about when a shipper asks?
"A somewhat more likely outcome" than rates rising, Vise said, "would be a squeeze on broker margins, as they could be forced to manage conflicting expectations from both sides in a way that they do not now."
Increased transparency would thus represent a double-edged sword for brokers, enabling carriers and shippers to ask probing questions that take time and resources to answer, Vise suggested. "In addition to direct margin impact, brokers could see either higher personnel costs or reduced productivity, or perhaps both," he added. "The process of electronically transmitting the data might not be difficult or expensive, but having to explain or justify their actions to carriers and/or shippers constantly arguably could be a burden on brokers."
The details of FMCSA's new rule proposal also complicate matters. "First, the agency is not proposing [to require] routine distribution of transactions but rather distribution upon request," said Vise. "That is significant, because brokers’ business partners will need to devote some time or resources to managing the process."
Brokers Overdrive has spoken to about rate transparency say that, under current rules, requests to view records come in very infrequently, if ever. Most carriers seem too busy to exercise their right to transparency, provided it hasn't been waived away.
[Related: Why brokers don't want to give owner-ops transparency in freight transactions]
Vise has already illustrated how big shippers might use the data, but what about big carriers with a large office staff?
"Larger entities with higher volumes" might find requesting rate transparency worthwhile, "but very small carriers that depend so heavily on the spot market could be hard-pressed to justify the effort, especially if their primary job is driving a truck."
Expect more confidentiality clauses in broker contracts
In the agency's recent transparency-change proposal, FMCSA addressed the now-common waivers brokers have used in contracts with carriers to shield truckers from exercising their right to freight transaction records. Vise said the agency "suggested that while it does not believe brokers could force carriers to waive their right to review under the proposed rule, brokers could insist on confidentiality, and you can presume they would."
Even if FMCSA succeeds in blocking waivers with their effort to upgrade broker transparency from a right of carriers and shippers to a "regulatory duty" of brokers to provide, freight middlemen are likely to have carriers sign confidentiality agreements as to rates. And Vise sees a big implication there.
"Enforcing that confidentiality against individual carriers would be impractical," Vise said, "but confidentiality clauses surely would bar any common mechanisms for sharing the data."
Don't hold your breath on some tech company turning broker transparency data into some type of aggregated rate average from the shipper side, he suggested. Carriers hopeful for such a tool might look at DAT's forays into broker transparency and publishing aggregated shipper-buy rates, in that case paid to brokers and based on data gleaned directly from both brokers and shippers.
Speaking of DAT, don't they already publish contract rate averages? Vise pondered what exactly broker transparency, which has been on the books as a regulation since 1980, brings to the game in today's digital age. He stopped short of calling FMCSA's broker transparency NPRM meaningless, but imagine how much more impact it would have had in, say, 1999, before widespread market data were published.
"Another limitation on the impact of the proposed [transparency] rule is the access carriers and shippers already have to tools that help them assess market rates," he said. "Carriers and shippers already have greater visibility in this area than they did a few years ago," let alone decades back.
"The potential for improved decision-making" as a result of increased transparency for owner-operators and other carriers, Vise believed, "is not as great as it might have been in the past."
What do you think? Weigh in via the two-question survey following FMCSA's recent proposal at this link.
