TMW recently sat down with Robert Voltmann, President and CEO of Transportation Intermediaries Association (TIA) to discuss a number of topics related to the 3PL industry. In this blog, he discusses possible impacts to the industry under the new Trump administration and the benefits to carriers of using brokers.
TMW: Tell us who TIA represents.
Robert Voltmann: Our guys are the third-party logistics companies. Every industry has some type of middleman, and ours are the middle guys in transportation, which means they have two customers in every transaction: The shipper and the carrier, and they have to make both happy in order to make money. It's a $160 billion industry with about a $9 billion payroll, employing between 125,000 and 130,000 people and it pays head of household wages. So we have members that are involved in every type of transport, domestic and international, and within the various sectors, including trucking. The majority of business for the majority of our members is trucking-related, but 80-plus percent of US logistics is moved by truck, so that just makes sense.
TMW: What are some of the potential changes the 3PL industry can look forward to from the new administration?
Voltmann: In a general sense, the amount of change is unprecedented. Not in modern history have we had someone who has totally been disconnected from the political process coming in as president, and running on a platform that was very different than we've had from either party. Certain sectors are going to do very well based on his picks for energy and environment-related departments.
The oil industry is going to do very well, so for those parts of our membership that support that industry, they’ll have a lot of work: moving pipe, drill bits, mud and sand, and the liquid used for fracking. That industry under this administration is going to just explode.
The folks involved in NAFTA trade are a little leerier, since 86% of NAFTA movements are by truck. Those who work for the auto industry are a little more leery because NAFTA has been a boon for the auto industry, building parts of vehicles in all three countries and then moving them around. So in that regard, this administration is a toss-up. For those involved in international trade, because we are definitely an importing and exporting country, there are questions.
TMW: What are some of the potential impacts on the international trade front?
Voltmann: Everything moves by truck at least once. If a container gets loaded in Shanghai and shipped to L.A., even if it gets unloaded onto a train, at some point the goods are going to be delivered from a warehouse or distribution center by truck, or it goes to the ship by truck, or to and from the rails. So international is trucking. If the president is serious that he's going to curtail international trade, that could have a devastating effect. We hope, and based on his nominations, that it's going to be more nuanced than his campaign rhetoric would have led us to believe.
TMW: If that turns out not to be the case, what parts of the country will suffer the most adverse effects?
Voltmann: I think it hits everybody. To put it in perspective, in 1928 one of out every three manufactured goods in the world was traded globally. After we imposed tariffs which led to the Great Depression, we didn't hit that level of global trade again until 1997. Today, two out of every three manufactured goods is traded globally. What happens if we lead the pack with nationalism and tariffs, like we did in 1928, and that lead is followed by other countries? Today there are twice as many goods traded globally as they were in 1928. Does that mean the ensuing depression would be twice as big? And the Great Depression affected everybody, to some degree or another. Not everybody was in bread lines, of course, but it did affect the whole country. So, going back to Adam Smith, "Trade is good. More trade is better." We shouldn't be afraid of trade.
TMW: Let’s talk about the importance of brokers in big picture of the supply chain.
Voltmann: Brokers function in the marketplace as salespeople for small trucking companies. 80-plus percent of the trucking industry is made up of companies with five or fewer trucks, so they don't have their own sales force. They may have a couple of regular customers that send them outbound, but then they need loads coming back, which is where the brokers come in. It's taken a terribly inefficient system and brought order to that chaos. Now we have the fewest empty miles and the most efficient logistics system in the world. We're still about 20% empty miles and we're working to squeeze that out, and as more shippers start to use brokers, that will take effect.
TMW: What's the percentage of cargo being shipped using brokers?
Voltmann: It's somewhere between 20% and 24%. We see it continuing to grow. Wall Street sees it continuing to grow, as we see more mid-sized and smaller shippers turn to freight brokers.
TMW: What's the advantage for the shippers using brokers instead of going direct to the carriers themselves?
Voltmann: The benefit is neutrality. What the broker allows the shipper to do is hire the right conveyance at that moment. They're not worried about filling their own trucks and covering their own fixed cost. They're worried about moving the shipper's goods at that moment in the most efficient way. And I emphasize "at that moment," because tomorrow it may be different. An hour from now it may be different. But right now, using that truck may be the most efficient way to move those goods, in an hour, or maybe tomorrow, it may be more efficient to use a train. The broker is neutral when it comes to the shipper, or agnostic as it goes to the equipment. Their goal is to make the shipper happy by moving their goods to market at the most affordable price. And their goal with the truck is to keep it moving and keep it loaded. Get the driver paid.
TMW: And it’s still a human-to-human interaction, not software driven?
Voltmann: Correct. Transportation is still a service industry and things go wrong. You're moving things in a big truck on highways, through construction, congestion, usually in a tight time frame. Somebody has to monitor that whole process, and the broker does it for the shipper at no additional cost. The broker invests in software and provides it to the shipper at a variable cost rate for the same price they would've incurred to hire the truck and then buy the software themselves. The other function brokers provide to a shipper is a financing function. The broker's paying the truck in less than 30 days and we know on average, they're being paid in 45 days by the shipper. Well, if you play your cards right, you could sell your goods before you actually had to pay to move them to market.
TMW: And the advantage for the carriers?
Voltmann: Number one, they don't have to have a salesperson in the field to stay loaded. They're dealing with the broker instead of numerous shippers. Unfortunately, some trucking companies that have their own logistics departments which can create problems because they're very different businesses: One is sales-oriented, one is operations-oriented. It just works best when those are separated functions. There's no problem having a trucking company having a logistics division, it just works better when there's a degree of separation because the sales cycle is different, the compensation's a little different. We can help those companies set that up and run profitably. They really should look at brokerage as a profit center, not as, "Oh I got this problem freight I gotta get rid of." It shouldn't be an afterthought.
TMW: What does TIA specifically do for their members in this regard?
Voltmann: We take we take an enveloping approach with our members. We really work hard to work with our members to run profitable family businesses. Ninety-plus percent of our members are family-owned businesses. When we identify a problem, we pull a group of members together, develop a best practice guideline, and then work with the members to adapt those best practices to run the most profitable business they can. We catalog how our asset-based members operate. Are they two totally separate businesses. We have some members that the brokerage and trucking company do no business together. We have others in which each gives the other a first opportunity. What are the best practices? What are the best practices with regard to compensation, and the sales cycle, and set up? We're trying to catalog those things. We will produce a workbook for them with answers. We're zealots that you should have a logistics division. You should do it right, treat it as a separate profit center, and we can help you.
For more information on TIA membership, click here.
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