As the world moves to a more connected environment each day, the transportation industry has been forced to evolve along with it. Shippers and carriers, suppliers, and the intermediaries who coordinate between them have seen exponential growth over the last several years. The trends for 2018 and the years ahead look promising for licensed freight brokers and the customers they serve, but there are several areas of change of which they must be aware. Below are the most prominent changes coming to the freight and transportation industry this year.
The most pressing change in the marketplace for freight brokers and related businesses is the unprecedented growth on the horizon for the transportation industry as a whole. In a recent report, the freight brokerage industry is estimated to grow at a rate of 4.33% from 2018 to 2022, higher than in years past. A significant portion of this growth is linked to the uptick in import and export business throughout most of the developed countries in the world. A booming economic environment coupled with increased consumption of goods means more opportunities for intermediaries tasked with connecting suppliers and carriers. New freight brokers have an opportunity to get in on the predicted growth, so long as they recognize the need for smart business practices in place from the start and an understanding of the other trends impacting the current marketplace.
In addition to increased volume, the freight industry is also experiencing increased costs of doing business. At the end of 2017, spot rates were on the rise, due in part to a capacity crunch in the market and higher demand for freight. Similarly, contract rates for longer-term freight business agreements increased in the last quarter of 2017. The greater pressure on the market to deliver goods quickly combined with increased fuel costs across the board means freight brokers and others in the industry can anticipate a continued rise in the cost of doing business.
The forward movement of technology has touched nearly every line of business in the developed world, but transportation and freight have been slow to grab hold of the new wave. However, the last few years have shown shifts in the marketplace thanks to disruptors entering the freight business in droves. Technology-focused companies, like Uber and Tesla, have created a buzz in transportation with programs designed to connect suppliers and carriers digitally, as well as autonomous vehicles to complete deliveries efficiently and with lower costs. On-demand freight is becoming more prominent in the space, pushing freight brokers, suppliers, and carriers to take note and adjust as needed.
Changes to Regulatory Requirements
As more individuals enter the freight industry, it is no surprise that updated regulations are quick to follow. Over the last two years, regulatory shifts including the ELD mandate, effective in April of this year, have forced some brokers to drastically change business strategies, with some leaving the industry for good. While the addition of electronic logging devices is beneficial overall to the industry and its need for improved compliance standards, the cost of adjusting to the change leaves some businesses without much recourse. Tax reform has also influenced the freight businesses, giving some new entrants an incentive to push forward despite broad changes in the industry. A reduced cost of operating a legitimate freight brokerage operation means it may be easier for some companies to continue their profitable reign, while others may struggle to find their groove both logistically and financially.
Now, more than ever, businesses in the freight industry have an opportunity to thrive as capacity continues to shrink among suppliers and carriers. The growth trajectory of the intermediary business model is high, but it is not without concerns over added costs, increased competition, and regulatory compliance. Freight brokers can be profitable in this new era when these trends are considered holistically.
Eric Weisbrot is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry under several different roles within the company, he is also a contributing author to the surety bond blog.