Big Rips, Fat Lips: Biggest broker margins, fails reported in March

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DAT Chief of Analytics Ken Adamo on Thursday shared a look at what he called the "Big Rip Quadrant" for March, or the load transactions last month with the highest recorded broker margins, in the interest of broker transparency.  

"It's a bit of a misnomer as shipments >40% gross margin only totaled about 2.5% of the total sample for March, but I'm sticking with the name," Adamo wrote on Twitter

It's a good name, too, as it pairs nicely with the inverse "Fat Lip Quadrant," also representing just 2.5% of load transactions in March, but representing losses by brokers, some as high as 50% on individual loads. 

In the Big Rip list, Adamo sorts it into percentage bands, starting at 40% and climbing up to 70%. These, and the Fat Lips too, represent the real "outliers" in a system that tracks thousand and thousands of loads, said Adamo. 

Broker margins big rips ken adamo datKen Adamo

The chart shows that in March, 18 accounts on DAT reported a 70% average margin on 50 loads that averaged 480 miles (length of haul -- "LOH" in the chart). Revenue per load is what the broker charged the shipper. Cost per load is what the broker paid the truck. So those 18 broker accounts got paid an average of $2,031 to move each of those 50 loads, then only paid the owner-operator/carrier an average of $568. These represent the most extreme cases of broker miserliness recorded in March. 

On the flipside, the Fat Lip list shows the most extreme cases were 76 broker accounts reporting 311 loads where the margin went negative 50%. The average length of haul on these money losers for brokers was 698 miles, and shippers on average paid just $1,391 while carriers got paid $2,054 to haul them. 

broker margins fat lips ken adamoKen Adamo

Since the data becomes anonymous after reporting, Adamo isn't in a position to say who these brokers or carriers were. 

In a white paper back in January, Adamo shared DAT data indicating average broker margins sat around 15%, with some difference based on equipment type. That paper found that, mostly, broker margins go down as length of haul gets longer.

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[Related: How much money are brokers really making from owner-operators' hauls?]

No such pattern appears here on the extreme ends of the spectrum. 

"The point is that these fringes are interesting, but I don’t know a ton about them," said Adamo. These Big Rips and Fat Lips "represent such a minority that I can't tell you a lot about that."

A look at a contract between mega shipper Ikea and Convoy from back in October (from when Convoy was under original management, not Flexport ownership), showed Convoy contracted rates on lanes with Ikea almost always exceeded spot rates around that time, all but for one lane. Was that lane a high-volume loss leader Convoy lowered the price on to seal up the contract? Or was it just a small concession on an otherwise favorable contract?

[Related: Ikea v. Convoy: Lawsuit reveals glimpse at contract rates, broker margins]

In any case, there's plenty of real-world evidence now on how a broker might lose money on some loads and make money on others -- even within the same contract. 

But for carriers, the Big Rips section "is the area of the curve that is going to garner the most social media attention as opposed" to the Fat Lips, the "side where brokers are losing money," Adamo wrote. "I find both extremes equally fascinating and will continue to explore what drives behavior at the edges."

In that way, Adamo has become something of a transparency advocate himself. 

"I believe in the right kind of transparency, so I'm pushing back against this selective transparency," he said, referencing the tendency to only focus on Big Rip type-transactions, which FMCSA helped this owner-operator expose from TQL

"Transparency can’t be selective, can’t mean certain things to certain people," he said, stressing that overall, the real average reported margin still sits around a modest 15%. 

For negotiation tips to give brokers fat lips instead of big rips, check out the "Going Independent" Chapter 18 of the 2024 Partners in Business manual. Learn about negotiation timing for better rates, too, in Chapter 4, "Managing Time." Also access this 2022 feature on speaking your broker's language for better rates, and the four-part 2023 series on customer management, including effective brokered-freight relationship building.  

[Related: Broker margins, rates data, transparency: What owner-operators really think]

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