By Steve Hull, Manager, ALC, Portland
What a strange year it’s been so far in 2020, with so many changes and challenges in the perishables space! One item, that could greatly affect the business models and proprietary information of grower/shippers, has gone under the radar.
In a nutshell, a minority of motor carriers and carrier trade associations (such as OOIDA) are pushing the Federal Motor Carrier Safety Administration (FMCSA) to update the terms and enforcement of an existing section of federal code relating to freight costs paid between grower/shippers, brokers, and carriers. 49 CFR 371.3(c) was initially written back in the days of deregulation in 1980, and requires brokers to allow carriers to view the rates paid by the transportation buyer to the broker.
In practical terms, however, carriers have rarely asked to view that information. The majority of renewed interest in the regulation came about in Q2 of this year. Coinciding with historically low shipping volumes nationwide, normal supply and demand market forces caused a sharp fall in freight rates to carriers. Basically, a lack of supply (not as many available loads) caused a decrease in demand (lower freight rates). Carriers in turn, wrongly accused brokers of price gouging and other unscrupulous business tactics.
How does this all apply to grower/shippers? Just like forklifts, pallets, and packing material – the linehaul freight cost of getting your goods to your customer is something you purchase out of your operational budget. When the code was written back in the 80’s, it was more normal for carriers to pay a ‘commission’ to the broker. But now, the way most freight transactions occur has changed.
Per an article about this topic on Overdrive Online, Jason Craig, of C.H. Robinson stated on a recent listening session with the FMCSA, many brokers treat the contracts with shippers and carriers, as “separate transactions” and that “the price paid by the shipper does not affect the price paid to the carrier any longer.”
If changes are made to the code, the proprietary pricing you pay to a broker could be mandated to be given to a motor carrier. For every load. In essence, your buying power and negotiated pricing would be laid bare for all to see.
An important point as well, you could be barred from inserting language into any shipper-broker contract to keep your pricing from being disclosed. A dire scenario would be one that causes you to change your business practices.
You could even decide to end yearly, or quarterly, RFPs to brokers! All because a few carriers didn’t like the rates they were being offered by some brokers for a few weeks in early 2020. (And to get you up to speed on rates in Q3 and Q4, per DAT, there are many lanes that are seeing record high truck rates being paid to carriers.)
What can you do? You can read up on these broker carrier issues here. And more importantly, FMCSA is still accepting comments from anyone interested in voicing their opinion. The comment period is open until November 18, 2020.
You can use this link to submit your thoughts, comments, and concerns. You can also reach out to your freight broker, to discuss how any changes would affect your specific business.
Steve Hull is manager of the Portland office and has been with the Allen Lund Company for 24 years. Hull is a graduate of the University of Southern California completing a dual major in political science and U.S. history.