Date: Friday, February 24, 2023
In a time of record-low unemployment, a crucial segment of the supply chain has seen massive job cuts: the freight brokerage industry.
Freight brokerage companies have cut nearly 1,000 jobs in mass layoffs in 2023. Brokers slashed more than 700 payrolls the previous year.
A freight broker is the intermediary between a carrier (or transportation provider, like a truck driver) and a shipper (whoever is trying to move goods, like a retailer or manufacturer). There are also freight forwarders, who handle international shipments and the customs involved.
Such layoffs aren’t surprising to those who have followed supply-chain news the last few years. Through the middle of 2020 to the end of ’21, all modes of freight transportation were unusually hot.
The ratio of inventories to sales dropped to a record low by June 2020, indicating retailers had unusually low levels of merchandise to meet consumer demand. That ratio dipped even lower through 2020 and much of ’21 before beginning to slowly climb up again by November 2021.
‘Crisis hiring’ in freight brokerage
Such demand for merchandise translated to more freight demand. The amount of shippers calling for more transportation capacity shot up quickly in spring and summer 2020 as consumers began to spend their stimulus bucks and paychecks on durable goods, like exercise bikes and outdoor furniture. However, that freight capacity didn’t reenter the market at the same time.
That meant shippers that normally handled their freight transportation needs in-house had to go to some sort of intermediary, said Benchmark transportation analyst Chris Kuhn.
This made freight brokers unusually rich. C.H. Robinson, the Eden Prairie, Minnesota-based freight brokerage giant, saw its net income jump by 66.7% in 2021 compared to the year before.
“There was just this lack of capacity in the market,” Kuhn said. “That drove prices up to unprecedented levels.”
As a result, third-party freight companies needed to scale up their hiring, too, according to Wells Fargo senior analyst Allison Poliniak-Cusic. C.H. Robinson, for example, grew its overall head count by 43% by the end of 2021 compared to the previous year.
“I would almost call it crisis hiring,” Poliniak-Cusic told FreightWaves. “[They were] building that head count up to manage some of the unusual volatility in the market that they were dealing with at the time to make sure the customers’ issues were met.”
This bull run crashed in spring and summer 2022. Consumer demand began to moderate in early ’22, as some started spending cash on travel or other in-person services while others braced for inflation. In the months following, some of the largest freight brokers and forwarding companies have reduced head counts.
“Now that we’re hopefully past this crisis, your profit at a brokerage is likely lower, [and] your cash flow is a little bit more limited than maybe it had been during the pandemic,” Poliniak-Cusic said. “You have to probably be a little bit more disciplined on investments going forward.”
International looking especially rough
It’s a classic boom-and-bust cycle, but it’s particularly bad for a few types of intermediaries. Freight forwarders, who deal with international shipments, are especially challenged at this time. Expeditors International (NASDAQ: EXPD), one of the largest freight forwarding companies, reported particularly brutal fourth-quarter earnings Tuesday with an operating income down 47% from the year prior.
COVID-19 lockdowns in China and the war in Ukraine have slammed U.S. freight companies that operate overseas.
“We were especially impacted in North Asia, our second-largest geography, as the lingering effects of the lockdowns contributed to the largest declines in our air tonnage and ocean volumes in at least a decade,” Expeditors CEO Jeffrey Musser said on the call with investors.
The spot-vs.-contract tension
There are two markets in trucking. One is the contract market, where truckloads are moved on a prearranged agreement. The second is the spot market, where truck capacity is bid on demand.
The sneaky side of trucking is that you don’t actually have to honor your contracted freight as a truck driver — if you can move more expensive freight on the spot market. And shippers who have contracts with trucking companies, where rates are way above the spot price, can usually break their contracts for as long as they wish to move their loads on the spot market.
(Of course, this is not the best way to build a happy client base, so it’s best to not engage in this too often.)
When the trucking market is hot, spot rates are usually just a few cents below or even slightly above contract rates. That indicates trucking services are in demand, though shippers may also be spending more than they previously planned for freight services. And that cost will likely trickle to the consumer.
However, since the beginning of 2022, the spread between spot and contract rates have rapidly turned negative.
Here’s the weird thing: Low spot rates are sometimes a win for freight brokers. The spot rate resembles what brokers pay a trucking company. So, if they can still claim the same or a slightly lower rate from the shipper, that means they can earn a larger margin.
However, the market has gotten so rough for trucking that such wins are no longer feasible. Even though margins are sweeter for brokers than they were in 2021, freight volumes are also lower than they were at that time. Brokers might be able to win a larger piece of the proverbial pie, but that pie is getting smaller.
What’s more, there are just way too many brokers for the amount of freight that needs to move right now. There’s a “crisis level” of brokers but a volume of freight that resembles pre-COVID buying patterns.
And that means layoffs.
Here is a comprehensive list of freight brokerage layoffs from 2022-23.
June 10, 2022: Convoy, approximately 7% of workforce
Following a GeekWire article, FreighWaves reported that Seattle-based digital freight brokerage Convoy planned to cut 7% of its workforce.
A Convoy source told FreightWaves’ Clarissa Hawes at the time that surging inflation and energy prices had raised red flags for the general macroeconomic environment. That meant the company would need to “rightsize its employee count to account for the current challenges in the freight environment,” Hawes wrote.
Founded in 2015, Convoy has attracted investments from Amazon founder Jeff Bezos, Salesforce founder and CEO Marc Benioff and Microsoft co-founder Bill Gates. The company was valued at $3.8 billion last year, when it raised $260 million in a Series E funding round.
The company laid off an additional unknown number of employees on Oct. 24, 2022. A Convoy spokesperson declined to comment further on either layoff move.
Nov. 11, 2022: C.H. Robinson, approximately 650 employees
FreightWaves first reported on Nov. 9, 2022, that C.H. Robinson would lay off up to 1,200 employees. Two days later, the freight brokerage ultimately laid off approximately 650 employees.
“We got ahead of ourselves in terms of head count,” said Bob Biesterfeld, C.H. Robinson’s then-president and CEO said during its third-quarter earnings call last year. Biesterfeld abruptly resigned in January.
C.H. Robinson’s global forwarding division has been especially affected by the market downturn. Its income from operations fell by 80.8% in the fourth quarter of 2022 compared to the same period last year.
“While the correction in the freight forwarding market was expected, the speed and magnitude of the correction in only two quarters was unprecedented, with ocean rates on some trade lanes already reaching pre-pandemic level,” CFO Mike Zechmeister wrote in an email to FreightWaves. “As a result, we acted quickly to align our operating costs.”
However, Zechmeister believes retailers will soon work through their bloated inventories and need to restock them again. That will boost freight activity — especially on the ocean side.
Zechmeister also noted that nearshoring is generating new activity for C.H. Robinson: “New freight origins and volumes [are] starting to appear in Mexico for cross-border shipping into the U.S. and Canada.”
Jan. 11, 2023: Flexport, approximately 20% of workforce
The co-CEOs of Flexport, a San Francisco-based freight forwarder, published a memo on Jan. 11 saying the company was reducing its workforce by around 20%.
Increasingly automated systems along with lower freight volumes meant the company would need fewer employees than in previous years. As executives Dave Clark and Ryan Petersen wrote in the memo:
“We are overall in a good position but are not immune to the macroeconomic downturn that has impacted businesses around the world. Our customers have been impacted by these challenging conditions, resulting in a reduction to our volume forecasts through 2023. Lower volumes, combined with improved efficiencies as a result of new organizational and operational structures, means we are overstaffed in a variety of roles across the company.”
Flexport has raised some $2.4 billion in funding since its founding in 2013. A company spokesperson declined to comment further on the layoffs.
Jan. 23, 2023: Uber Freight, approximately 3% of workforce
FreightWaves’ John Kingston first reported on Jan. 23 that Uber Freight, the Chicago-based freight brokerage arm of ride-sharing giant Uber, would cut about 150 jobs from its digital brokerage division. That’s 3% of Uber Freight’s total workforce.
“As you know, the logistics market is currently facing a number of headwinds, which has impacted our customer base as well as the overall industry,” Uber Freight CEO Lior Ron said in a memo to the staff obtained by FreightWaves. “We accelerated hiring last year within certain areas of our brokerage business, planning for a different economic reality, but the volumes did not materialize as expected.”
In 2021, Uber Freight acquired Transplace, a leading freight brokerage and fourth-party logistics provider, for a reported $2.25 billion. These layoffs did not affect the legacy Transplace business, which Ron wrote was experiencing “record momentum.”
An Uber Freight spokesperson also noted the issue of over-supply of transportation capacity in an emailed statement to FreightWaves.
“Volatility is a given in our industry,” the spokesperson wrote. “In stark contrast to last year when demand was surging, today the market is oversupplied and shippers are looking to rationalize their logistics spend. These dramatic changes in the market capture why it’s so critical to have the right partners and technology in place.”
Uber Freight was established in 2017.
Feb. 16, 2023: Convoy, undisclosed number affected
Convoy co-founder and CEO Dan Lewis wrote in a Feb. 16 LinkedIn post that the company was restructuring and would eliminate an undisclosed number of roles. It would also shutter its Atlanta office.
Lewis wrote that the company’s increasingly automated freight brokerage process changed its staffing needs. A company spokesperson declined to comment further on this layoff.
Feb. 17, 2023: Coyote, approximately 200 employees
FreightWaves’ John Paul Hampstead first reported Feb. 17 that Coyote Logistics, which is UPS’ Chicago-based freight brokerage arm, would lay off about 200 workers.
“Coyote has made recent organizational shifts that include the difficult decision to eliminate some positions,” a Coyote spokesperson said in an email statement to FreightWaves. “We don’t take these decisions lightly and took steps to minimize the number of team members affected.”
Sources told Hampstead that Coyote began seeing markedly lower volumes in 2022 from the previous year, rendering some of its operation team redundant.
UPS acquired Coyote, founded in 2006, for $1.8 billion in 2015.