Broker Group CEO Warns Full Transparency Will Put 3PLs & Owner Operators Out of Business
BROKERS FIGHT BACK, part II: In part 2 of Transportation Nation Network’s exclusive two-part interview with Robert Voltmann, CEO of the Transportation Intermediaries Association, he reveals why brokers require carriers to waive their right to review the transaction record, and what happens if they refuse.
Plus, he warns critics pushing for full rate transparency why they should be careful what they wish for, and much more.
Alexandria, VA – The head of the largest association representing third party logistics (3PL) companies is not backing down to those pushing for full rate transparency in the shipper/broker/carrier relationship and revealing why he believes they should be careful what they wish for.
Robert Voltmann, CEO of the 1,700-member Transportation Intermediaries Association (TIA), has been watching with keen interest the recent uprising among many small business truckers furious over low freight rates.
After President Donald Trump recently expressed his belief that brokers were price gouging independent contractors amid the COVID-19 national emergency, Voltmann says that he, along with his members, quickly realized they were in for an unprecedented battle.
“We’re certainly taking it serious,” he told Transportation Nation Network (TNN) in an exclusive interview last week.
Voltmann, whose TIA membership is comprised of a wide range of brokerages including the biggest players in the space, have come under intense criticism during the pandemic as freight rates have plummeted.
The furor sparked an almost three-week protest in Washington D.C. and trucking groups such as the Small Business in Transportation Coalition (SBTC) and the Owner Operator Independent Driver’s Association (OOIDA) to demand that Congress and the Federal Motor Carrier Safety Administration (FMCSA) take action to crack down on 3PL companies.
The controversy and D.C. protest has even led to the United States Department of Justice (DOJ) opening an investigation into alleged violations of the 1890 Sherman Antitrust Act, which criminalizes corporate collusion for the purpose of price fixing.
In part I, Voltmann dismissed such allegations.
“We’ve not done anything,” he said. “Let the Justice Department investigate. They won’t find anything.”
Click HERE to read part I.
“If they don’t waive that right they can’t move that shipper’s freight”
At the core of the outrage directed at 3PLs in recent weeks is the lack of disclosure of freight rates paid by the shipper to the broker, and the widespread practice deployed by many brokers requiring carriers to waive their right to know.
Critics argue brokers are seeking to hide transaction records in order to conceal profit margins of as much as 60 percent, despite the fact brokers are required to comply with the now famous 49 CFR 371.3 provision.
Voltmann went on the record with TNN in an attempt to dispel these notions.
“Most shipper contracts today have strict confidentiality rules in them. So, the reason the broker asks the carrier to waive that is because if they don’t waive that right they can’t move that shipper’s freight,” he explained.
To illustrate his point, he posed two examples.
“Does Coke want Pepsi to know what their cost of transportation is? Hell no! Does Proctor and Gamble want Johnson and Johnson to know what their cost of transportation is? No.”
FYI: Someone else used the Coke vs. Pepsi example this week.
Click HERE to find out who.
Voltmann argued that since de-regulation in 1980, shippers are not under price transparency regulations, and 371.3 now needs to be “modernized” because it essentially places an undue burden on brokers.
Why? Because shippers insist on these non-disclosure provisions to be included in their contracts with 3PLs.
Brokers have little choice but to agree to these terms, Voltmann insists.
“That’s going to hurt them a hell of a lot”
If the carrier requests to view transaction records, TIA advises members to allow them to do so during normal business hours at the broker’s headquarters.
Critics argue this is simply a way of skirting the regulation, but Voltmann warns that carriers should think twice before choosing to exercise their right under 371.3 or face the real prospect of losing business.
“What happens is, if a carrier doesn’t waive their right under 371 the broker can’t use that carrier with freight in which a shipper has put a non-disclosure provision in. I have no idea what the percentage of that is. Let’s say its 50 percent of shippers with these non-disclosure agreements. We already don’t have enough freight to serve the owner operators, and now you take 50 percent of the freight we do have away from them? That’s going to hurt them a hell of a lot.”
Is this true?
Do shippers really demand brokers refuse to book loads with carriers that have asked to view the transaction record?
In pursuit of an answer, we turned to Gail Rutkowski.
Rutkowski is the executive director of the National Shippers Strategic Transportation Council (NASSTRAC), which is the shippers association for transportation and logistics professionals who manage freight across all modes.
“If a shipper found out the broker was disclosing the transaction to any carrier, they would refer to their confidentiality clause in their contract and say that the broker is in jeopardy, they’ve broken that contract clause,” Rutkowski said.
While she says such demands would not be “carrier specific,” she was clear that shippers expect brokers to abide by the contractual agreements.
“I don’t want my rates disclosed to anybody for any reason. What I agree to pay the broker or the carrier is nobody’s business but ours,” she stated.
“We’ll go out of business… so will the owner operators”
OOIDA is asking Congress to step in and require brokers to provide an electronic copy of the load transaction to the carrier upon delivery, thereby disclosing the rate the shipper paid and the margin the broker made as well.
The SBTC and OOIDA is asking the FMCSA to strictly enforce 371.3 and disallow brokers from including provisions requiring carriers to waive its rights.
What if this happens?
Voltmann and Rutkowski agree it would be the death of the brokerage industry and… many small business truckers.
“If Congress were to come in and say 371 is now mandatory, shippers will stop using brokers,” Voltmann said. “That means all those owner operators are going to have to field their own salesforce. We’ll go out of business. If the brokerage part of the industry disappears, so will the owner operators.”
“The marketplace would go away, and honestly, I think it would be the death of owner operators as well, not just the brokerage industry,” Rutkowski predicted. “If the brokers go, the owner operators are going to go. Because shippers aren’t going to have the time to contract with every individual owner operator that’s out there.”
Rutkowski says that what would likely happen is the spot market freight would get sucked up by large asset-based carriers with brokerages.
Specifically, she mentioned Werner, US Xpress, and J.B. Hunt as some of the likely winners in such a scenario.
Additionally, Rutkowski said shippers would also demand new regulations be placed on carriers.
“Then the carrier needs to disclose how much it costs them to run the load. If we’re going to be sharing profit margins then every party of the transaction should be sharing that same information. You can’t penalize one party of the transaction,” she argued.
“We’re explaining ‘it’s the marketplace'”
Voltmann says TIA is mobilizing its members to make their case to U.S. lawmakers and regulators.
“We’re explaining ‘it’s the marketplace,'” he stated. “Brokers represent 25 percent of the overall freight market. So, they’re not driving market price.”
Plus, Voltmann argues the COVID-19 recession has created an unprecedented business environment.
“All American life has been upended and its unfortunate that the small carriers are at the short end of that stick, but my members are their sales force. They are trying to get the best rates they can to serve those carriers.”
“We are definitely rethinking that now”
Voltmann also revealed TIA members are once again discussing the possibility of petitioning the FMCSA to revise 371.3, which he concedes maybe they should have already done.
“The reason we never petitioned to remove that was because we felt like there was a market-based solution in which motor carriers voluntarily waived their rights under it by contract. If they didn’t want to waive their rights they didn’t have to, but then they couldn’t move the shipper’s freight in which there was a confidentiality agreement. So we never saw the reason to remove the provision. We are definitely rethinking that now.”
To be clear, Voltmann pointed out the TIA’s “model contract” with carriers does not include a provision requiring carriers to waive its right under 371.3.
Critics have argued the widespread use of these provisions among brokers is an “evasion of regulation.”
Again, Voltmann dismissed this allegation.
“If companies come to this conclusion totally on their own, it’s market driven,” he commented.
Did you miss Part I?
In part 1 of TNN’s exclusive two-part interview with Robert Voltmann, he weighs in on the newly launched United States Department of Justice investigation into alleged freight broker price fixing and collusion.
Plus, he responds to claims that brokers are price gouging truckers amid the COVID-19 pandemic and more.
Click HERE to read it now.