In case you missed it, Convoy, a Seattle trucking startup that attempted to disrupt the brokerage market backed by some of the biggest names in tech, went under in a dramatic fashion. After a short, eight-year run, the company closed its doors, leaving hundreds unemployed without severance packages. Convoy is not an example of a classic trucking firm, of course. The firm hoped to revolutionize the industry like Uber did to the taxi industry, and their vast overestimation of their potential ultimately led to their rapid demise. But where does that leave everyone else?
As of 2023, a freight recession is in full swing. Convoy is just one of many freight companies that couldn’t keep the lights on in the past few months. Is Convoy the writing on the wall for brokerages across the board? To give an educated prediction regarding the future of freight brokers, let’s take a look at their past.
How brokers flooded the market in the first place
Prior to 1980, brokers were virtually non-existent. Trucking was so strictly regulated that it was extremely difficult for newcomers to break into the industry at all, resulting in minimal competition. The downside of the lack of competition was painfully elevated rates industry-wide. Trucking charges were as much as 75% higher in countries with a highly regulated transportation market than in lightly regulated countries, like Belgium and the Netherlands.
Some economists argued that fewer regulations would result in lower rates and better services. President Jimmy Carter agreed, and he appointed several advocates of deregulation. Congress enacted the Motor Carrier Act (MCA) of 1980, turning the industry on its head. The Interstate Commerce Commission (ICC), the agency governing trucking from the late 1800s through 1995, suddenly had significantly less authority over trucking. The industry wasn’t completely deregulated, but restrictions were lightened enough to make it much easier for people to get their foot in the door and compete with longstanding carriers.
Brokers were still few and far between for decades. Only about six percent of freight was handled by them in 2000, compared to 20% in 2023. There are numerous other economic factors that contributed to the rise of freight brokers, but deregulation was the catalyst. It enabled them to flood a free market that previously hadn’t existed. While a free market remains a boon for brokers, it also has the potential to be their downfall.
The freight market is always volatile, and brokers aren’t immune
The benefit of regulation was relative stability. A free market, however, comes with natural rises and falls. It’s self-correcting, but that leaves business owners to plan carefully. Manage resources carefully during upturns, and you have a much better shot at outlasting the competition during economic downturns. 2020 was an opportunity for brokers.
They made bank during all of 2020 through early 2022. That span served as their window to prepare for the inevitable slowdown that would follow– The very same slowdown that put overly ambitious Convoy out of business. According to a recently published article on freightwaves.com “…many more sizable freight brokers shut down suddenly. And the reason is a significant change in the financing climate.”
Where that leaves freight brokers going forward
In a free market, that’s what every business owner should anticipate, and that’s where Convoy fell short. The unconventional brokerage believed they were so revolutionary, they could operate outside of the rules of the industry. They lost that bet. While Convoy was an atypical brokerage, it still serves as a valuable example. Disrupting a well-established industry’s rules of the road is a risky business, and it’s much safer to read the instruction manual that comes with the game.
In this case, that means always thinking ahead. After all, the time to stock up on emergency supplies is before a hurricane warning, not after you’re already running out of water. Many mid-sized brokers have also announced layoffs. Smaller brokerage firms that are two insignificant for media coverage are likely facing the same struggles behind the scenes. The cost of running a brokerage today is steep, and the pressure is mounting. Brokers aren’t disappearing anytime soon. That said, the ones who are most likely to live long enough to see the end of the current freight recession are the ones who prepared for it in the first place.