Articles Category: Credit Reporting

NAVIGATING FREIGHT MARKET VOLATILITY

Content Provided by TransCredit

The freight market is highly susceptible to volatility, influenced by various factors such as economic conditions, fuel prices, capacity fluctuations and unforeseen events. Navigating through these market fluctuations is crucial for the success of freight brokers. Here, we will explore effective strategies that help brokers thrive in a volatile freight market. By understanding market dynamics, diversifying their approach, embracing technology, and fostering strong partnerships, brokers can position themselves for success amidst uncertainty.

STAY INFORMED AND ANALYZE MARKET TRENDS

In a volatile freight market, knowledge is power. Freight brokers must stay informed about market trends, economic indicators and regulatory changes that impact the industry. Regularly monitoring market data, industry reports and economic forecasts enables brokers to make informed decisions and adjust their strategies accordingly. By analyzing historical trends and studying market dynamics, brokers can anticipate market fluctuations, identify emerging opportunities and mitigate risks.

DIVERSIFY YOUR CUSTOMER AND CARRIER BASE

Relying too heavily on a few customers or carriers can expose freight brokers to significant risks during market volatility. Diversifying the customer and carrier base spreads the risk and reduces dependency on a single source of revenue. Brokers should actively seek new customer relationships, target different industries, and explore niche markets. TransCredit offers credit reports and data on shippers, distributors and manufacturers that can be filtered to specific areas if you want to prospect new business. Similarly, developing a network of reliable carriers with diverse capabilities and equipment types helps mitigate capacity constraints and provides flexibility during market fluctuations.

OPTIMIZE OPERATIONAL EFFICIENCY

Brokers should streamline processes, eliminate inefficiencies and leverage automation tools to reduce manual effort. Effective load consolidation, route optimization and carrier selection strategies can minimize costs and maximize productivity. By continuously evaluating internal workflows, brokers can identify areas for improvement, implement lean principles and enhance overall operational efficiency.

BUILD STRONG PARTNERSHIPS AND COLLABORATIONS

Building strong relationships with customers, carriers and industry partners is essential. Collaborating with customers can lead to long-term contracts and stability. Brokers should strive to understand their customers’ supply chain challenges and offer tailored solutions. Strong partnerships with reliable carriers ensure access to capacity during periods of high demand and allow brokers to negotiate competitive rates. Additionally, collaborating with other industry stakeholders such as freight forwarders, 3PL providers, and technology vendors can unlock new opportunities, facilitate knowledge sharing, and enhance business resilience.

MAINTAIN FINANCIAL FLEXIBILITY AND RISK MANAGEMENT

Market volatility can impact cash flow and profitability. Freight brokers should maintain financial flexibility by having adequate reserves, managing credit lines and establishing contingency plans. Regardless of how well a customer has paid you in the past you should be diligent in frequently reevaluating their credit worthiness. Utilizing a service like TransCredit can provide valuable insights into the financial strength of a company. Additional risk management strategies such as hedging fuel costs and utilizing insurance coverage, can protect brokers from unforeseen events and mitigate financial risks during market fluctuations.

CONCLUSION

Market volatility presents both challenges and opportunities. It is important for freight brokers to adapt to changing market conditions and seize the opportunities presented, all while mitigating risk. By implementing the strategies discussed in this blog, brokers can not only navigate but also position themselves as resilient and successful players in the industry.

In an ever-changing freight market, the ability to anticipate, adapt and innovate is paramount. Embracing technology and leveraging data-drive insights enables brokers to make informed decisions and stay ahead of the competition. Building strong relationships and collaborations fosters stability and opens new avenues for growth. Ultimately, brokers who proactively embrace change and manage risks will be well positioned even during turbulent times.

For more information, please reach out to us.

Tips to Avoid Fraud in the Supply Chain

Freight brokers play a crucial role in the transportation industry. They act as intermediaries between shippers and carriers, helping to match cargo with appropriate carriers, negotiate rates, and ensure timely delivery. However, one of the biggest challenges faced by freight brokers is the risk of double-brokering.

What is Double-Brokering?

Double-brokering is a practice where a carrier accepts a shipment from a broker and then subsequently tenders the same shipment to another carrier for transport. This means that the carrier is essentially acting as a middleman and profiting off the work of another carrier, without doing any of the actual transportation work. This practice is unethical because the carrier is misrepresenting itself as the actual carrier of the goods, when in reality they are acting as a broker.

 

Why is Double-Brokering a Problem?

Double-brokering is a problem for a number of reasons. First and foremost, it is illegal. The Federal Motor Carrier Safety Administration (FMCSA) prohibits carriers from brokering loads without first obtaining a brokerage license. Carriers that engage in double-brokering are essentially acting as unlicensed brokers, which is a violation of federal law and subject to fines.

Secondly, double-brokering can create a number of issues for the parties involved. The carrier that actually transports the goods is most likely not aware that the shipment has been double-brokered and did not agree to the terms and conditions of the initial agreement between the broker and the originally contracted carrier. This can lead to disputes over payment & liability amongst other issues.

Additionally, double-brokering can create a number of logistical challenges. If the carrier that actually transports the goods experiences delays or other issues, it can impact the delivery schedule and create additional costs for the shipper.

 

How Can You Avoid Tendering Loads to Carriers Who May Double-Broker?

While policing double-brokering is a shared responsibility of both freight brokers and carriers, in this article we will discuss the steps brokers can take to avoid tendering loads to carriers who may double-broker their freight. Here are some best practices that brokers can follow:

  1. Conduct thorough carrier screenings

One of the best ways to avoid double-brokering is to conduct through carrier screenings. Brokers should verify that carriers have the necessary licenses and insurance, and should also check their safety ratings, inspection reports, credit ratings and other key metrics. By conducting thorough screenings, brokers can ensure that they are only working with reputable carriers that are qualified to transport their clients’ goods.

  1. Work with carriers who have been in business for more than year

Many carriers and factoring firms will not extend credit to brokers who have been in business for less than a year. They do this to mitigate risk and this is a practice that should also be considered by brokers when deciding which carriers to work with. There is not a large barrier to entry to set up carrier authority so new MC#’s pop up daily. Carriers that are less experienced may not have the necessary infrastructure and resources to transport goods efficiently and effectively which may lead to them double-brokering your freight. By working with carriers that have been in business for longer periods of time brokers can minimize the risk of double-brokering and ensure their clients’ goods are transported safely.

  1. Build relationships with carriers

Building relationships with carriers is another effective way to avoid double-brokering. Brokers can develop a network of reliable carriers they trust and can work with them on an ongoing basis. By establishing a good rapport with carriers, brokers can gain insight into their operations and can develop a better understanding of their capabilities, strengths, and limitations.

  1. Be aware of dispatch service providers

One way that freight brokers can inadvertently double broker shipments is by interacting with dispatch service providers. Dispatch services are third-party companies that essentially find loads for smaller carriers and help with their back-office support. While dispatching services can be useful to smaller owner operators in some cases, they can increase the risk of double brokering. There are many dispatching services that find posted loads from brokers or shippers on load boards and then give them to a carrier under the guise that they are an employ of the trucking company. When you work with a dispatch service you may be opening yourself up to a lack of visibility, a lack of control and a lack of accountability if something should go awry.

  1. Use load tracking technology

Load tracking technology is another valuable tool for brokers to minimize the risk of double-brokering. This technology allows brokers to track the location and status of their clients’ goods in real-time, which can help identify any issues or delays that may arise during transport. Load tracking technology can also provide brokers with valuable data on carrier performance, such as on-time delivery rates, average transit times, and other key metrics. By using GPS and/or electronic logging devices you can ensure that loads are being transported by the assigned carrier and prevent unauthorized assignments.

  1. Include anti-double-brokering clauses in contracts

Broker can also protect themselves from double-brokering by including clauses in their contracts with carriers. These clauses can stipulate that carriers are prohibited from double-brokering shipments and can also outline the consequences for doing so. For example, the contract may stipulate that carriers will be liable for any damages or losses resulting from double-brokering and may also provide for termination of the contract in the event of a violation.

As a freight broker, it is essential to be aware of the risks of double-brokering and take steps to avoid becoming a victim. By following these best practices brokers can ensure that their clients’ goods are transported reliably, legally, and can protect themselves from the risks associated with double-brokering.

Broker Credit Ratings on Factoring Rates

By: David Yoe, VP of Operations and Business Development, TransCredit

A freight broker is a middleman who helps connect shippers with carriers to transport goods. While a broker’s role is to facilitate the transportation process, their credit score is an important factor that impacts their factoring rates when they use factoring services. Factoring is a financing option that allows freight brokers to get paid faster by selling their accounts receivable to a factoring company. The factoring company will advance the broker a portion of the invoice value, usually around 80%, and then collect payment from the shipper when the invoice is due.

A Freight Broker’s Credit Score

This is an indicator of their financial stability and ability to repay debt. It reflects the broker’s past credit behavior, including payment history, outstanding debt, and the length of their credit history. The higher the credit score, the lower the risk for the factoring company, which means that the broker can expect lower factoring rates. On the other hand, a lower credit score will increase the perceived risk for the factoring company, leading to higher factoring rates for the broker.

In general, factoring companies will consider a broker’s credit score as one of the key factors in determining their factoring rates. It’s important to note that while a good credit score is desirable, it’s not the only factor that influences the factoring rate. Other factors, such as the broker’s business history, the size of their accounts receivable, and the industry they operate in, are also taken into consideration when determining the factoring rate.

Factoring companies also look at the creditworthiness of the shippers that the broker is working with. Shippers that have a strong credit history and are less likely to default on payment will increase the perceived security for the factoring company, which may result in lower factoring rates for the broker. In contrast, if the shippers that the broker works with have a poor credit history or are in a high-risk industry, the factoring rate may be higher to reflect the increased risk.

It’s also important for freight brokers to understand the difference between personal and business credit scores. Personal credit scores reflect an individual’s credit history and behavior, while business credit scores reflect the financial stability and credit history of a company. A broker’s business credit score may be different from their personal credit score, and both may be considered by factoring companies when determining the factoring rate.

Getting the Best Factoring Rates

Freight brokers should take steps to improve their credit score. This may include paying bills on time, reducing outstanding debt, and establishing a strong credit history. By improving their credit score, brokers can demonstrate their financial stability and increase their chances of getting favorable factoring rates.

In conclusion, a freight broker’s credit score is a critical factor that impacts their factoring rates. A good credit score demonstrates financial stability and a low risk of default, which can result in lower factoring rates for the broker. On the other hand, a poor credit score can result in higher factoring rates, making it more expensive for the broker to access funding. Freight brokers should take steps to improve their credit score, including paying bills on time, reducing outstanding debt, and establishing a strong credit history, to increase their chances of getting favorable factoring rates.

TransCredit has been one of the primary credit reporting agencies in the transportation industry for 38 years. If you are a freight broker, we encourage you to contact us to find out what your company’s credit score is and to explore the options we have available to update, manage and monitor your report.

 

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