Small Businesses, Big Opportunities

If there’s a distinguishing factor about the freight brokers and logistics companies of the Transportation Intermediaries Association, it’s their size. They average $7 million to $10 million in annual sales. “These are small family owned companies,” said Robert Voltmann, the TIA’s president and CEO. “In many cases, the CEO is also the janitor.”

That colors their perception of the economy and sets them apart in some ways from many of the larger shippers and freight carriers that are the more familiar faces of the national shipping economy.

“Most of the companies in the industry are actually probably between $1 million and $3 million in annual revenue,” Voltmann said. As small business owners, their executives are often much more directly involved in issues such as health care and taxation than a logistics manager at a major manufacturer or operations manager at a motor carrier.

But the smaller players also have many of the same concerns as larger TIA members such as C.H. Robinson Worldwide, Landstar System and Hub Group, Voltmann said.

“They worry about the economy, they worry about new government regulations coming their way and they want to know about opportunities,” he said. “That’s what we’re focused on helping them with. Finding new opportunities to expand their business.”

There are plenty of opportunities out there, he said, as the economy begins to pull out of the worst recession in decades. “The logistics market is huge. My guys have taken over the past 30 years what was a cost center for shippers and turned it into profitable businesses, they continue to invest in technology people and knowledge, and they’ll continue to grow. I think shippers are going to outsource more freight to 3PLs.”

The intermodal market is another rich field, he said. “The railroads have made huge improvements in the way they approach brokerage-based logistics companies, so they can move intermodal freight door-to-door. They’ve learned to act more like trucks.”

The recession hit non-asset transportation intermediaries long before the general public, he said. “They’ve been in this recession for two years,” Voltmann said.

In that time, brokers and 3PLs “have cut their costs, their process costs, their people,” he said. “They’ve stepped up their sales efforts. They’ve done whatever they can to cut their internal costs and boost their outreach.” In many cases, they’ve done better than their asset-based counterparts and customers. While demand has turned sharply lower this year in much of the shipping world, domestic freight brokers expanded billings 7 percent in the second quarter from the first quarter, according to the TIA’s most recent quarterly 3PL Market Report. Average profit margins remained steady at about 18 percent.

“My members have done very well at weathering this storm,” Voltmann said. “The majority of them recognize that first and foremost they are banks. Their business is based on cash flow, and they’re paying the carrier long before the shipper pays them. They’ve been able to deal with that. Like every industry, we’ve had some members fail, and it’s because of cash-flow problems.”

Well-run smaller companies are using technology to expand their range of services, following the example of companies such as Landstar and C.H. Robinson, Voltmann said. “Now’s the time to make those changes, to add the new software, move to document imaging. Better to do it while things are slow than when you’re running 900 miles an hour to find capacity.”

If Voltmann’s right about the economy, brokers have more time to test new processes and ideas — he doesn’t see a quick recovery on the horizon.

“Until what I call the attacks on the job-creating class in this country come to an end, small business is not going to rebound,” he said. “Until people feel good about their businesses and hiring employees . . . there’s too much uncertainty in Washington, too much talk about big government and big changes, and that’s got people jittery. Until that changes, we’re not going to see a real recovery, in my opinion. If you really want to turn the economy around, you have to help the small business entrepreneurs.”

But one area where he would like the government to be more assertive is investigating and prosecuting cargo fraud, specifically putting fraudulent brokers and carriers out of business, he said. This crime “is definitely growing, becoming more sophisticated,” he said, pointing to a recent case in California where two con artists were convicted of scamming nearly $3 million from carriers and brokers by double-brokering loads.

“We’re seeing rings of carriers grabbing loads and rebrokering them. If a broker or shipper pays the performing carrier rather than the fake broker, another carrier in this ring will get a load from that customer and hold it hostage. We’re working right now to get the FBI to look into that.” He also wants the Department of Transportation to step up investigations and prevent scammers from registering as brokers or carriers.

“I’m going to give the Obama team a chance,” he said. “But to this point, DOT has never met a rule it couldn’t ignore.”

Contact William B. Cassidy at wcassidy@joc.com.