new thread: WHORING YOUR RATES AND WHAT TO DO TO STOP IT

Business and Competition

Jim L had a good suggestion regarding forming some kind of association that would set minimum standards for Brokers and Carriers within which to operate. All well and good I think, provided that the members leave their egos, and their fixation about acting in their own self interests at their front door when leaving for work. As long as human beings operate in this as well as any other business, there will be conflicts and work for lawyers. This is true I think, because most people I've encountered who experience frustration in their business or personal lives, make decisions influenced by what they think or how they feel. My own thinking has at least a 50% chance of being wrong, and how I feel changes constantly. I've never seen it tougher for Carriers than it is right now and Brokers are not having an easy time of it either.

How to survive? First ask why you want to. Not having a down sizing plan to use on a timely basis if things get really, really slow, or having an exit strategy from any business, will be made abundantly clear with business failures. Bankruptcy is the market's way of eliminating inefficient and unproductive firms.

About half of young firms that go bankrupt do so primarily due to factors beyond their control, namely economic downturn and increases in competition, while the other half fail primarily due to basic internal weaknesses. Firms that go bankrupt also lack the basics in marketing capabilities. Marketing strategies attract clients and a firm cannot succeed without customers. The problems that bankrupt firms face in this area are substantial—they fail to establish a market niche and
often fail to locate in a suitable location.Even in the case of bankruptcies that originate in external events, internal weaknesses are important factors contributing to failure.

Some firms fail simply because they could not build the basic internal competencies to survive. These are the businesses that fail due to factors within the control of owners or managers. The basic internal competencies that are most frequently lacking here are strong general
and financial management skills.

Basically, an ounce of prevention is worth a pound of cure. Developing adequate equity and making greater use of outside expertise is seen as the route most of these firms could have used to reduce their chances of bankruptcy. Internal deficiencies still figure prominently in the demise of firms that fail due to external shocks.

And that folks, is why this business will always have conflicts.

"Can't we all just get along - at least until i get reloaded?"
 
Activet, the National Transportation Brokers Association has taken the first step in setting the minimum standards that you suggest. They recently adopted and published a Code of Ethics that all members must adhere to. I believe it is posted on their website, NATIONAL TRANSPORTATION BROKERS ASSOCIATION. Obviously, this is just a start and will apply only to members of this group. As far as minimum standards for carriers, I assume that "buyer beware" still applies as I have yet to see or hear of anything else. Perhaps sometime in the future, organizations such as NTBA and maybe the Ontario Trucking Association can work jointly to develop a set of standards for conducting business. In the meanwhile, let's all continue to use this forum for its intended purpose, reporting unethical or illegal practices, and encouraging rational, meaningful discussions that relate to and perhaps enhance our industry.
 
The original Point...

The original point of this post was how to stop whoring your rates. It's really beyond me why almost every post gets into brokers=good carriers=bad or carriers=good brokers=bad.

I digress, back to the point. Here's how I qualify whether or not to quote:

1. Timing - does the rep know when it's moving ie- it's actual business.

2. Do they have a problem that we can solve - if they don't we don't quote.

3. It's business we want.

4. Know the competition

5. Know the budget

6. Know who the decision maker is at the account.

7. Know the decision making process.


We score each one of these points based on the customer's answer to the questions. We set a minimum point threshold before we allow our reps to proceed to pricing.

Rain in the sales reps...control the pricing. That's my strategy anyway.
 
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If you're in business then you have to accept that people are going to ask for your rates and that most are shopping around for a deal. That's a given and is true regardless of the industry you're in. So my approach on the rates question is that if you ask me for my rate then I'lll give you one...if you ask me for 100 rates then I will provde that too. It's ok.. I know I'm not the cheapest so I always provde service level details along with my price... If you want to use me that's great..if you don't then that's fine too.

We can't get too hung up on trying to establish caller motives..no doubt about it..some are just fishing..but so what. Today's fisherman may just be tomorrow's catch of the day. Back a few years ago I had someone call to ask for a quote for a flatbed from San Antonio, TX to Mojave, CA.. (caller sounded like a fisherman) ...an unlikely move for a Canadian broker and at first blush probably not worth quoting. Well.. I quoted it and got the load...along with 350 more. sometimes you just never know..
 
To quote or not to quote.

Pablo and Freight Broker, I think your both right! ...... Huh ???

What I mean is that by developing a pricing/quoting strategy that works for your business model seems like a logical approach. There have been times when it seems all your doing is keeping someone else honest, and decline to continue. This is especially true if you happen to be quoting for engineered moves that can cost up to $500. to prepare. That, coupled with your prospect's ability or willingness to pay on a timely basis can cause one to be reticent.

I'm sure all of us have missed opportunities here and there, however, I don't think any particular strategy would be a universal fit.
 
I hear ya..

Freightbroker, I hear ya, that's what all my reps keep telling me.. "you never know". That's exactly why we stopped doing it. You never know. You never know what business your going to get.. if any, your reps keep promising "it's just around the corner...", and it never is. Yeah you might miss some pie in the sky chance of winning the lottery, but if you're strict about quoting, I've found your close ratio goes up, you win more of what you quote... and at higher prices. If we give every customer what they want, we'll be doing it for free!

I know it's hard, but believe me. Less, more profitable business is better than lots of low margin stuff. The bonus is it takes away all the sales "BS" of "lots of irons in the fire" and gets them focused on real business.
 
I agree about the less more profitable business. But how do you really know if your incoming call is bogus or legit..often you really don't . So I quote..the alternative is to NOT quote i.e. to simply ignore the caller or to state "we're not interested in quoting you a rate". I am very selective about who I work with..however not at all selective about who I quote...I screen people after they express an interest in acually moving a load.
 
the NTBA should promote having an MC and a surety bond or trust fund to be a broker in their association, makes sense, if you not, seems pointless...
 
Trust account

I do not know if I am the only that watched the special about Earl Jones and his Ponzi scheme yesterday.
It does not relate directly to Trucking but I think it brings up an important issue , that of the trust account.
The jist of the program was the discussion of Earl's missuse of the trust account that his company used in delaing with his customers.
Mr Jones was using the trust account that his firm had set up as a personal bank account, drawing over $20 million over the last 15 years. The trust account was operated by the Royal Bank Of Canada , our largest and wealthiest domestic bank. The improper use of the account was discovered early on by the bank's staff, whereupon a memo was issued to that effect.
Many of the maligned, are now suing the Royal bank.

In this much publicized case, there are lots of high powered specialists, such as forensic accountants and high powered lawyers working for the poor swindled folks who have lost everything.
The trust account system clearly failed.

We in trucking, need to get together and come up with a system that will guarantee payment to the carrier that has carried out the work.
From what I am reading in this forum , there are a lot of smart people out there.
May I suggest we start another stream, in which contributors add their two cents, as to how to go about this.
In my opinion we clearly need more than the setting up of a trust account that is not monitored or policed by any governement body.

Let's come up with an outline or some form of flow chart and go from there. We must again make sure that we cover the whole country so that all provinces can benefit.

Once we agree on a plan, we can then lobby the government to enact laws to implement the changes we suggested.

I beleive this site is a good place to get this started. I am a small carrier and do not have the resources be it; monetary or time to pursue this alone.

I think we should focus on this instead of arguing about the merits of carriers or freight brokers. Both groups have hurt carriers when they have gone out of business be it for whatever reason.

What is primordial is that Carriers/ Freight brokers not be allowed to dip into the funds that have been contracted to a carrier to move freight.
This again for any reason. Carriers and freight brokers cannot be allowed to touch these funds for day to day operations.
 
How?

Here is the biggest glich:

How do you work the trust account when the carrier IS paid before the customer pays for the move?

This begs the question:

Will all carriers aggree to wait for their funds until AFTER the customer has paid the company brokering the move (be it broker or carrier) so the funds can flow through said trust account?
 
Pack rat

There are two answers to this:

These apply to both carriers and freight brokers equally.

First: It is as much your responsibility to pay the carrier for the freight in a timely manner ( as per your contracted terms) as it is for the carrier to pay his fuel and labor.
The carrier will usually contract for 30 days, if your client pays you in 45 , then you must bankroll the carrier, such as the carrier is bankrolling his fuel ( weekly and his labor which again is also weekly).

Secondly: The importatnt issue is that neither be allowed to touch the contracted amount in order to use these funds as operating expenses. In essence you cannot use the funds from Peter to Pay Paul, which I am sure is what is presently the norm!!
 
Carriers must pay for fuel,drivers,insurance,equipment... on the spot. This is why we carry fuel cards, mortgages on equipment and monthly insurance p[payments we cannot wait that a loadbroker's customer pays his freight. (unless you are a large company).

Brokers should also get credit margins. If they can't afford it than they should not operate as load brokers. It is like running trucks with no money to pay for all direct and immediate expenses. They should also price their customers with a risk factor and put this risk money in their bank accounts. I charge more to a load broker with that has a lower credit report than one with a great paydex. This cover the bankruptcies we get from time to time. And load brokers should not take in salaries they do not cover with profits. Therefore everyone would be paid.
 
Alx

alx said:
There are two answers to this:

These apply to both carriers and freight brokers equally.

First: It is as much your responsibility to pay the carrier for the freight in a timely manner ( as per your contracted terms) as it is for the carrier to pay his fuel and labor.
The carrier will usually contract for 30 days, if your client pays you in 45 , then you must bankroll the carrier, such as the carrier is bankrolling his fuel ( weekly and his labor which again is also weekly).

Secondly: The importatnt issue is that neither be allowed to touch the contracted amount in order to use these funds as operating expenses. In essence you cannot use the funds from Peter to Pay Paul, which I am sure is what is presently the norm!!
Click to expand...

I think you missed the point ALX. The responsibily issue is taken care of by paying the invoice within 30 days, long before the cusyomer pays the invoice. If the carrier is paid before the customer pays the funds the total amount can be removed from the trust account because the carrier has already been paid. Or...does it even need to be deposited into the trust account because the carrier has been paid and no party has legal claim to those specific funds through the existence of the trust fund. The issue never arises about "touching the funds for operating costs" the company has entilement to the entire funds because they have paid (bankrolled) the invoice.

The question was about Trust Funds...not about companies expenses and the prepayment of such.
 
Packrat we are in agreement

So we are in agreement:

The carrier/ freight borker is to assume the risk of paying the carrier even in the instance of the bankrupcy of his client irrespective if he has been paid or not.

This, thus leaves us with the following:

How do we set up a system to regulate the use of the trust, to assure OTHER carriers , that funds due to them for shipments that are not related to the bankrupt shipper, are not used by the Carrier/ load broker to pay for freight due to carriers that were involved with shipments associated to the bankrupt client.

This is what needs to be worked on!!

Evidently, the way trust accounts are now set up , this does not occur.
 
This whole trust accout system makes sense on the surface but in reality I bet very few brokers or carriers adhere to the practice.
The reason is that it is an accounting nightmare and almost impossible to enforce.
Here is an easy way to tell if you are dealing with someone who pays from a Trust Acct.
If you are a carrier, take a look at the cheques you recieve. How many of them actually say "Trust Account" on them? I bet not many. When you open a true trust account, the cheques will be printed as such.
Most of us are so glad to see a cheque we just look at the amount and nothing else. Until you get stiffed the thought doesnt even cross your mind.
 
Managing broker trust accounts

I think that just about everybody here have some very good ideas and putting them into practice is where the difficulty lies. Can a government enact legislation or provide policing for compliance with whatever system can be constructed? I don't think there would be enough political mileage (no pun intended) in any of this to interest a politician. The only two things that interest the self interested politician (most are) - votes or money, neither of which seem available from this endeavor.

ALX's last post summed up most of the issue as I see it.

Quote< "How do we set up a system to regulate the use of the trust, to assure OTHER carriers , that funds due to them for shipments that are not related to the bankrupt shipper, are not used by the Carrier/ load broker to pay for freight due to carriers that were involved with shipments associated to the bankrupt client.">End quote

This is exactly what I beleive happened with Longbow - management's
failure to recognize insolvency. They seemingly also lacked the business acumen, intelligence, or experience to handle the most difficult part of business management - being dispassionately objective. If you have any sentimentality or emotional attachment to your business, your setting yourself up for failure. It should never be considered as "your baby"! They tried to rob Peter to pay Paul, and catch up with future profits, instead of isolating all of the issues and transactions involving their bankrupt customers, and dealing with them separately. In short - they either lost objectivity or never developed it to begin with.

Most of the problems I believe, are initiated by the relative ease that one can enter the industry, either as a carrier or a broker. And anything that would restrict free enterprise in today's tough economic would be a tough sell to any politico. One way that might eliminate the need to trust a carrier or broker, would be to enact legislation that would compel customers (shippers or consignees) that originate the freight move, to deposit a letter of credit with a bank to be paid out to the holder of the POD upon the bank's receipt of same. If the customer can't afford to do this, then they would be too great a risk anyway, and should be avoided. This could be much the same way that payment for international transactions are presently secured. Nobody would have to trust anybody, if the funds are already allocated to pay the freight invoices, and are held by an independent, impartial third party (bank).

If any business doesn't have the funds to do this, they are under capitalized for the volume they do, and at sever risk of bankruptcy.
 
I agree that there is a need for some type of requlation as many new carriers/brokers are started up frequently.

There is also a question of carriers that broker freight that do not have 3rd party liability insurance when brokering or a proper brokers authority. I am sure there are many freight brokers out there that have had a carrier unknowingly broker there freight. When a claim issue happens the carrier's insurance will not cover them.

You can also argue as to why a broker is required a trust account to pay the carriers which is in theory their version of drivers/owner operators but carriers do not require trust accounts to pay drivers/owner operators as well as maintenance and suppliers. In my opinion it isn't any different. Many carriers have gone bankrupt and owe alot of money to drivers and suppliers. I think that if a broker requires a trust account then a carrier should be under the same obligation. We have been reading far to frequently that a carrier goes under owing alot of money at times in the millions (eg: LE Walker). Do we hear of brokers going under owing that same amount?

Is the question here really about slow payers or is it about trust accounts to guarantee paying suppliers even in the case of bankruptcy which I believe was the initial purpose.
 
Appreciate what you have

I keep reading all these posts about trust accounts and guaranteeing payment. I gotta say no-one outside the trucking industry has such recourse for payment as the trucking industry does!.... except maybe for contractors and mechanics!

In other business, if you grant credit to someone and they don't pay, you're out of luck. There's no seeking payment from shippers, consignees, or holding principals personally liable. Most companies set aside 2% of revenue for bad debts and write it off.

I get it sucks when you have a debtor go bad. We had a lot of hits last year too (BTW we paid all the carriers). It's not personal, it's business, things go wrong. Business is inherently risky.

Help me understand what is the scope of this problem. On a million dollars in revenue, how much in a given year would be bad debt from brokers? How much would be bad debt from direct customers, and how much would be bad debt from other carriers?

We personally had about $40,000 in bad debt last year over $7.5 million = 0.5%. That's pretty damn good given the economy. This was probably our worst year ever. What are you guys experiencing so I can put it in perspective?
 
Bad Debt

I have a low volume - high margin business, so I may tend to operate a little more differently than most. I haven't had any bad debts since 2003. Up until then I was running at around .025%. My selling terms are net 30. Any account receivable gets a phone call at 35 days. I either get a check number and date mailed, or a definite commitment to pay by a certain date. If payment is not received by that date, then their account is placed on credit hold until brought back to the original terms. If not paid by 90 days, then litigation is immediately commenced without notice. I had some very large customers who were incredulous that I would impose such discipline on them considering how much work they had given us. I'm too old and too experienced to chase a carrot on a stick. More bad business is just a guarantee of a quicker road to insolvency.

Also, I will refuse business more business from any customer, if that customer's account becomes too large for my business to survive non payment by them. If the reward is commensurate with the risk, I will put most of my eggs in a few small baskets, which I watch very carefully, but their my eggs, and not my carrier's.
 
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