Trucking and logistics leaders said even brokers who have prioritized compliance and security may face a more difficult operating environment. (Mark Schiefelbein/Associated Press)
key takeaways:
- The U.S. Supreme Court’s Montgomery v. Carib Transport II decision has increased scrutiny on carrier selection and risk management for freight brokers and motor carriers.
- Industry leaders said the decision will increase insurance costs, litigation risks and compliance burdens, with smaller brokers and carriers facing the most stress due to limited resources.
- Companies are tightening inspection standards and insurers and shippers are reevaluating partnerships, a shift that could spur consolidation while risking less competition and higher supply chain costs.
Small freight brokers and motor carriers in particular may face additional pressure following the U.S. Supreme Court’s Montgomery v. Carib Transport II decision, which has increased scrutiny on carrier selection and risk management in the transportation industry.
Trucking and logistics leaders said even brokers who have prioritized compliance and security may face a more difficult operating environment as customers and insurers reset expectations in response to the high court’s decision.
“This is going to be a really challenging decision for small brokers, even small brokers that were doing everything right, just because of how the shipping community reacts to this,” he said. kenneth johnsonExecutive Chairman of Leonard Express, which operates property-based and brokerage divisions and is ranked 84th on the Transportation Topics Top 100 list of the largest for-hire carriers in North America.
Johnson said changes in shipper and insurer behavior, rather than any single operational change, are likely to create new pressure points for smaller transportation providers.
He said businesses with fewer resources to absorb additional costs may feel the impact the most chris burroughsCEO of Transportation Intermediaries Association.
“This is a real concern, because most freight brokers are small businesses and do not have large legal departments or unlimited compliance budgets,” he said. “A patchwork of state-level standards could increase insurance costs, litigation risks and operational burdens.”
During a press conference promoting consulting firm Kearney’s State of Logistics report, partner andres mendoza pena That said, additional pressure could contribute to long-term structural changes in the brokerage market.
Alex Fraser from Cox Fleet discusses how fleets should respond when a roadside breakdown occurs, testing their safety, compliance and customer service systems simultaneously. Tune in by going above or RoadSigns.ttnews.com.
“There will be significantly increased scrutiny around carrier selection and train management,” he said. “When you combine this with the opportunity to invest in AI tools and solutions, it is not difficult to predict a scenario in which you see a consolidation opportunity in freight brokerage.”
More robust diligence is already driving spending across the region, he said. din albertVice President of Operations for Grand Island Express, which has both property-based and brokerage divisions.
“The type of testing that is becoming necessary is really not very affordable for a small broker operation and will probably drive some small brokers out of business,” he said.
Leonard’s Express’ Johnson said shippers may begin to favor larger partners who can better absorb legal risk and defend themselves against potential claims.
“They want to keep themselves one step away from any potential liability,” he said.
He said the change is also likely to alter purchasing behavior among mid-market shippers shannon breenCEO and founder of freight brokerage FreightVana.
Clients who often rely on smaller brokers to help reduce costs may want to reevaluate those decisions, he said. “I may like that price, but what risk am I taking?”
For carriers, this decision presents new hurdles. Brokers often require carriers to hold their motor carrier authorization for a minimum period before accepting loads, and some companies are reviewing their policies.
RDS Capacity Solutions, for one, is considering increasing its minimum requirement from nine months to one year, while Fratvana already requires one year.
“Such a change favors carriers with longer operating histories,” said John PembertonCEO of Pemberton Truck Lines. “I think shippers are going to be more selective and selective with the carriers they partner with.”
The decision could also hurt carriers without a formal safety rating from the Federal Motor Carrier Safety Administration. TIA’s Burrows said more risk-averse brokers may avoid carriers with limited data, even if they are compliant.
Insurance is emerging as another pressure point as costs rise and availability decreases. Breen said that due to the change in circumstances, Freightvana was planning to enter into an insurance captive for property and brokerage coverage.
The contingent liability coverage that brokers carry for cargo-related incidents is already underwritten by a limited number of providers, and Johnson said it is likely to be more difficult and expensive to obtain.
“For a broker who is a two or three person office, will they be able to afford contingent liability insurance or even be able to secure it in the first place?” He said.
Breen said many smaller brokers currently rely on only the required $75,000 bond and may struggle to secure additional coverage.
“We’re going to send them to shippers. Shippers are going to deliver them to consumers,” he said.
The type of testing that is becoming necessary is really not affordable for a small broker operation and will likely drive some smaller brokers out.
Deen Albert, Grand Island Express
Capacity is another concern, Breen said, especially when smaller trucking businesses have trouble getting inspections or ensuring consistent freight delivery.
“If there isn’t a healthy place for small truckers to come and work and be able to build these businesses, that’s a huge part of the trucking industry,” he said.
Some industry leaders see this change as a reform that could weed out less secure and non-compliant operators and help level the playing field for companies that have already invested in security and regulatory compliance.
Johnson of Leonard’s Express said, “There have been some bad actors in the industry over the years, and it’s time for them to go.”
However, one potential threat is to push many of the smaller brokers and carriers out of the market.
“The risks are less competition, less choice for shippers, higher costs for consumers and less flexible supply chains,” said TIA’s Burroughs, noting that smaller providers play a critical role in serving niche markets and rural communities.
