Co-authored by Ryan Schreiber and Anthony Sutardja. Ryan is the Director of Engagement at CarrierDirect, a transportation strategy consulting firm. Anthony is CEO at Parade, a freight technology company providing the industry-leading capacity management platform.
The COVID-19 crisis has been a devastating public health crisis, and repercussions have expanded into the economy -- tipping the world into recession. This has been especially challenging for freight brokers and their carriers as freight volumes have declined. While there are certainly reasons to be careful, the time is ripe to invest in improving your business. Historically in times of recession, shippers shift to using a larger mix of freight brokers over assets due to the uncertainty of rates. What steps can you take to not just ride out this crisis, but also position yourself for success? Invest in sales
Certainly, many intermediaries are struggling right now. The biggest factor in how your business is holding up is likely your customer segmentation. Regardless of size, many intermediaries rely heavily on one or two customers to drive their business, and those customers tend to be in the same industry. It has recently become apparent which brokerages have not diversified their customer segmentation and for those businesses it has been just a matter of luck whether their customers are “essential” or are shut down. Think of your book of business as a stock portfolio. You want to be diversified to help mitigate risk. Apply that same logic to your brokerage. You do not want a few customers or industries to represent too much of your business. Equally, you should seek a mix of spot and contract freight, as they also have some similarities to investing. Spot freight is like equities - volatile and more of a bet, while contract freight is like mutual funds - longer-term growth opportunities. A mix of spot and contract business will ensure you strike a balance between risk and growth. No use crying over spilled milk, but there is good news - contrary to popular belief, you CAN be getting new business right now. The number one piece of advice here is to focus on the “middle of the funnel” - accounts you have spoken to before, but have not closed. To increase your success today, and set yourself up for even greater success coming out of this period, target contract opportunities. While you are likely used to hearing “we’re all set” when capacity is loose, during cost-conscious times, contract shippers look increasingly to intermediaries to lower costs. CarrierDirect continues to hear from our shipper and transportation provider clients that business is moving and companies are getting new customers. Many shippers are also using this as a time to negotiate RFP rates, even for contracts slated for several months out. Again looking at the middle of the funnel, with contract accounts who are in the throes of the surges, reintroduce spot capacity as a foot in the door. Additionally, this is an excellent time to reach out on new accounts to start a conversation and fill the top of your funnel. It’s not ‘business as usual” for the smile-and-dial approach may not be back in full swing, but decision-makers are more available now to discuss - just make sure you lead with empathy. Calling a retailer right now without at least recognizing that things are currently vastly different may close the door forever. With any extra time, task your BDRs with filling the top of their funnels. Again, decision-makers are available, but acknowledging the current realities of their businesses is crucial.
Know your carriers
Outside of prospecting for new shipper volume, focusing on your current customers' freight is essential for survival. Of the variety of factors that will keep them happy, there is one common thread in serving your existing customers: your carrier base. Whether you run a dedicated carrier sales process or cover your freight with load boards, now is the best time to reassess the reliability of how you procure capacity. If your coverage team is working solely off of the load boards, there's never been a better time to start building committed carrier relationships with quality carriers. Working to build dedicated capacity now will not only help fulfill your short-term capacity needs but also build reliable and cheaper capacity as a long-term benefit. The opportunity to do so has never been better. Parade is hearing from its customers that quality carriers are all scrambling to rebalance their freight movements as non-essential freight has slowed to a crawl. Many of these carriers would not have taken on working with new brokers previously, but are now looking to start new commitments. If you're already deeply ingrained into a dedicated carrier sales process, take a moment to check in on your core carriers, as this crisis has impacted them too. Are the dedicated carriers on key customer lanes doing okay? Is there room with your CFO to temporarily extend some quick pay options for these carriers? Proactive actions aren't feasible for most of your carriers, and it is a real possibility that some of your core carriers will go out of business over the next twelve months. Your team should work to identify current customer lanes with low carrier diversity to add additional carrier relationships to help strengthen the resilience of your capacity. Cash is king
COVID-19 is showing initial signs of slowing down in America, but the economic impact has been dealt and the recovery time remains uncertain. While we hope for the best, you should assume and plan for the worst. How long can you afford to serve your shippers if volume declines last for three more months? Six months? Above all your plans to mitigate the worst impacts on your business, you cannot run out of cash. As you look to cut payroll costs and discretionary spending, the government has also put forward two primary funding programs that can afford more liquidity for your freight brokerage. First, you may qualify for loan assistance via the SBA’s Payroll Protection Program (PPP), which offers generous deferred payment and loan forgiveness terms.
Amount: 2.5X monthly payroll expense (Maximum loan $10M)
Interest: 1%
This program has faced some friction in its initial launch with banks and running out of funds. Congress has recently replenished the program with a second tranche of funds, but you should expect that this will run out. If you haven't applied and believe you qualify, do it ASAP with your bank or a qualified lender. Second, a lesser-known program is the Fed's Main Street New Loan Facility, which facilitates low-interest loans to small and medium-sized businesses. Most freight brokerages qualify for this as long as your brokerage generated over $250K in EBITDA in 2019.
Amount: 4X EBITDA (Minimum loan: $1M, Maximum loan: $25M)
Interest: 2-4%
Similar to PPP, the Main Street New Loan Facility defers year one repayments to give your company flexibility throughout this crisis. This program is available with your bank or a qualified lender. As you find ways to preserve cash through potential cuts in discretionary spending or using technology to automate tedious people-based processes, do leverage these federal programs to ensure the long-term viability of your freight brokerage. The road ahead
Everyone is adjusting to a new normal and there is a light at the end of the tunnel. Although times are tough, this is an opportunity to look at your brokerage business and lay the foundation for a stronger business and future growth.
We hope that these steps help you be proactive on your road ahead.