Insider Look at Carrier Rates During the COVID-19 Pandemic

Patriot Freight Group has always been a carrier-friendly broker, and now more than ever we are solidifying our relationship with carriers across the country. Like many industries, shipping and transport have suffered substantially since the outbreak of COVID-19. Carriers are understandably concerned about lining up the next load and how much it’s going to pay. 

These are the times when your professional network and partners really matter. We’re working hard to line up loads, but the jobs aren’t quite what they used to be. Many carriers are taking note of the recent rate drop, which is the product of various contributing factors.

Pre-COVID-19 rates are not to be had right now, but carriers can help minimize the decline and get things back on track. 

Broker Margins Aren’t the Issue

When you work through a broker it’s easy to assume the rate changes are on their end. But that’s an incorrect assumption. Brokers don’t set rates, they are dictated by the market.

This is a misnomer that unfortunately made the media rounds after President Trump incorrectly suggested there is price-gouging in the transportation industry at the moment. Instead of attempting to unfairly blame brokers, it would be more helpful for the federal government to work on passing legislation to help truckers, as it has helped many other workers affected by the pandemic. The real issue, as the Transportation Intermediaries Association puts it, is, “there are too many trucks chasing too little freight.”

Shippers are trying to get the best rates to lower their expenses. Brokers are trying to get the best rates for themselves and the carriers. Ultimately, carriers accept the rates and those become the norm.

Robert Voltmann, President and CEO of the TIA, recently announced the association’s latest report shows the average broker margin is 16%. This is their cut for lining up the shipment and managing the process as well as paying for all the third party logistics overhead needed to make it happen. That means the carrier gets 84% for making the delivery. 

Those margins aren’t far off from the pre-COVID-19 rates. Furthermore, the TIA found “all of the publicly traded 3PLs reported losses in revenue and gross margin in the first quarter.” Brokers are hurting just like many other small businesses.

Brokers have incentive to get the best load possible and treat carriers right so the job gets done efficiently because their pay depends on it. Therefore, third-party logistics brokers and carriers need each other. It’s a symbiotic relationship. Things will be tough all around until business picks back up.

Unfortunately, brokers have no control over how many shipments are needed. That’s purely driven by supply and demand.

Supply and Demand During the COVID-19 Pandemic

We are living in an unprecedented time when there’s been a massive disruption to our $22 trillion economy. Almost overnight the nation began sheltering in place. The need for some products has risen, but there’s been a stark dropoff for many others.

As a result, the GDP shows the U.S. economy contracted about 14% in March 2020 alone. 

On top of that millions of people have lost their jobs and are tightening their spending as much as possible. Even after shops, stores and restaurants reopen there are going to be a lot fewer people with discretionary income to spend. 

There are simply fewer loads being run today than just a few months ago, but there are just as many carriers needing work. The increase in competition drives rates down.

When things get back to normal the rates will increase because the number of shipments will increase. Carriers will once again be busy and the shippers will be the ones competing. 

Free Market Economy Factor

Shipping is an example of the free market economy – an economy driven by supply and demand. Carriers are free to accept or reject the rate offered for a job. If carriers accept cheaper rates the rates are going to go down.

It’s the same concept that is seen in the real estate industry. Real estate agents don’t decide what price a home will sell for, buyers do. Homes will sell for the price that buyers are willing to pay. 

If rates are too low and no one is accepting them, shippers (and by proxy brokers) will increase the pay for a job until it is accepted by a carrier. Carriers have a choice in whether or not to accept a load and which brokers they want to work with. Truck drivers may need to reach out to other brokers to get to a better idea of going rates to decide if accepting a job is financially feasible.

Patriot Freight Group is Here for Our Carriers

First and foremost, we are working hard to secure as much freight as possible so that there is work for carriers. Patriot Freight Group is extremely competitive and working our way through the pandemic. 

During these difficult times, rate confirmations from Patriot Freight Group provide additional assurance. All rates are negotiated and accepted for every load via rate confirmations. The carrier is agreeing to the rate via a formal contract, which is a benefit. This gives the carrier financial protection and ensures the rate won’t drop if all requirements are met per the rate confirmation.

If you’re a carrier looking for a broker partner that has invested in on-boarding programs that make the job easier and a professional team that will support you, contact Patriot Freight Group. We’re always looking for talented, experienced carriers that can keep freight moving.

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