¶ Impact of Tariffs on Freight Industry
Welcome back for another edition of the Final Mile , where we answer your listener Q&A and react to your comments periodically . We've got four questions today , but first make sure to check out all of our other content at Freight360.net , including the Freight Broker Basics course , and please check out the sponsors in the description to help support this channel .
All right , first question we got here With loadouts . We did a recent . We got here With loadouts . We did a recent episode about trailer pulls and loadouts . With loadouts , what are the MC age requirements ? And if you have 10 days to deliver , do you have to go in the direction of the drop off ? Very easy answer and we can elaborate on it .
There's no required MC age to do a loadout . The broker might have their own preference or requirement , but there's not like a federal standard on it . And then also , if you have 10 days to deliver , do you have to go in the direction of the drop off ? No , that's one of the one of the value adds of a loadout .
So the loadout is when , let's say , for example , loadout is when , let's say , for example , the customer or the shipper makes dry vans right , brand new dry vans that have to get delivered to whoever's buying them or to a dealer or whatever .
The loadout would be a power only driver picking up this brand new trailer and delivering it to wherever it's going , and part of the benefit or the value of this load is that they get to use someone else's equipment and for 10 days . In this situation they can use it however they want as long as it gets to the purchaser on that 10th day .
So for a week and a half before then they can run a bunch of loads all around the country as long as they get it to where it has to go . So that's a pretty easy one .
The age requirement for the MC that's going to be up to the broker who hires you and make sure , if you're hauling a loadout trailer like that , you understand what you can and cannot do .
When does it have to ?
get delivered ? Where does it have to get delivered and can you use it however you want for those number of days ? Pretty simple answer there .
The first thing that came to my mind , the only thing I wanted to mention on the topic , because we have a lot of drivers that kind of get caught up in this issue and it may not be related , but personal conveyance is one of the things that they'll use when they're out of hours to get home or whatever .
But if , if the point of this question is in regards to personal conveyance and in the direction of the delivery , personal conveyance can only be used to not gain an advantage .
So if you say you run out of hours but you do pc to go home and you're 60 miles towards delivery , to be legal you have to go 60 miles back before you start your clock , so no closer in that case , yeah , there's your caveat . And if you get hemmed up by the dot , they will shut you down for , I think , 10 hour or whatever it is .
So that's going to be a caveat I want to point out on that , the whole PC stuff .
All right . Next question what are your thoughts on the fact that tariffs are going to have the opposite effect that everyone in freight seems to think ? In other words , they will raise the price for the consumer ? Ben , do you want to take a stab at this one ? I'll give my opinion afterward .
I've been saying this for like I don't know since anybody started talking about tariffs and then three people argued with me in YouTube comments and they were like you're not an economist , you should stick to freight . I'm like , well , I did go to college for economics .
But besides the point , when you add a tax to anything it does not get cheaper and when things get more expensive , we buy less of them . What do we need in freight ? More freight to move and we need more of it than there are trucks . Making things more expensive with a government involving itself , does not increase the volume of freight .
It might have other geopolitical ramifications and things that are relevant . But again , politics aside , if you add any tax to anything , we buy good or service we will buy less of it , right ? That's why the government uses taxes to disincentivize smoking and things , because people smoke less when they're more expensive .
Like it's not really in debate that people buy more things when they're more expensive versus less . So , like I genuinely don't understand who is arguing the other side of this , the only thing that I've heard somebody put out- I think Greg Fuller did , didn't he ?
But I haven't heard anything that made any sense , because the only thing I've heard is that , like , somehow the additional revenue to the government would offset the inflation . Do you know how much more revenue the government would need to be able to offset inflation ? It's in the trillions of dollars .
Like those two numbers are so far apart that they have absolutely no correlation with each other . I have no clue .
I think the intent of the tariff in general , because there's a lot of proposed tariffs , even US .
Mexico and Canada now right .
But the intent is to discourage , like you said , to discourage buying goods from outside the country and to encourage the production and consumption of American-made products , which would create jobs . Again . If you impose a tariff , though , its immediate effect is going to be higher prices .
It could be a long-term play .
And less goods to move Right .
But for a tariff to be and I'm not an economist If a tariff goes in place and stays and your goal is long term , we want to have more American manufacturing and American jobs it takes a lot of time and a lot of cycling of the market for that to actually play out to where your pricing would would would regulate back to a more sustainable level .
So that's the , I guess , the answer . The person's the commenters question here we agree , we're not .
We're not arguing that it's going to lower . What is the other side ?
of this .
I'll get . I'll give one anecdote to this , and it's it's in my wheelhouse of beef imports . So Brazil and Ireland are on the same quota for tariffs . You can only import so many pounds of beef before , uh , it is taxed .
I think it's like 20% Um , and in this case I think it was this year , October of this year um , they hit their quota in October and , uh , the people in my space predict that they already have next year's quota of imported beef in bonded warehouses , um , ready to be released January one .
The reason for that is because Brazil is their product is so cheap , they're willing to take on those tariffs for the customers on those tariffs for the customers , and that tariff is now being taken by the companies of Brazil and the consumers aren't paying for it because they must have enough profit on that beef .
So that is one instance , one anecdote , where the tariff isn't really being applied to the consumer and a lot of that is because I still made it more expensive because , I can assure you , if that tariff didn't exist , the cost of Brazilian beef would not be the same thing to the consumer .
Well , the reason they're going to Brazilian beef is because the product domestically and where they normally get it in Australia and New Zealand , is too expensive . It's cheaper to get that product from Brazil , even with those companies taking on the tariffs . So the consumer is still because they're getting it from . Brazil they're not paying .
Just because they're not paying a premium over comparable products does not mean they're not paying more because of it , because if there was a cheaper product available , people would buy less of the more expensive one and more of the cheaper one , and prices would fall , just like in trucking Right .
Right , which would be an argument for imposing tariffs if the idea is to get away from the issues that we had during COVID , where we had to source product from China and then we couldn't get it because things were shut down , and you want to move manufacturing to North America .
You would then force people to find suppliers and products , and that is a long-term play , and will it increase costs ? Yes , but what is ? The objective of the tariff .
One other argument , too , I think I read was like we use China , for example . If there's a tariff on Chinese manufacturers , there's a whole lot of other cheap manufacturers over there too that aren't in China that you can then go to Right .
I saw like in the other thing too right , and I had like five comments on Freight Caviar all from people we probably interact with in the industry that were like one , I think the guy who developed Silver I can't remember which one of it did Cargato .
He just thinks it's a bluff and it's not going to happen Because if they do that to your point into Canada and Mexico , you're making the entire supply chain more expensive . The two closest countries with the cheapest cost and the least global impact like carbon footprint to get it from where it's made to where it's used , would be the closest countries .
So if you did it to all the rest of North America , things are for sure still going to get more expensive .
All right . Next question why does a backhaul pay less ? And there was more context to it he asked about , I think it was like something to California and then California , back to the original origin , was a different price . So there's two things I want to hit on here .
When we use the term backhaul , we're usually referring to a driver that's driving back to their origin . It could be where their , their fleet is domiciled , it could be their house , whatever .
If I'm getting , if I'm a driver and I'm getting a load that takes me right back home , where I'm trying to get to , I'm usually willing to take less money for it because I want that load instead of somebody else . That's the concept of the backhaul . Is that it's it's , it's what's in it for me the location . The location is what matters for me .
Therefore , the price I will accept a cheaper rate . That is a basic economic principle , whereas a headhaul , if I'm there's a little valuable at my house and I don't care where it's going , I just want the highest paying load . Well , I don't get to decide where I'm going . I have to look for the highest paying load .
It's going to send me somewhere that who knows what you know I can find coming out of there they're going than the rate , because they could probably get a better paying load per mile going somewhere else , but they want to be home at the end of the week , for instance , right .
So it's more important right to be back home than it is to get the best paying rate .
¶ Logistics Market Conditions and Broker Authority
The second is the backhaul markets . So Florida is an easy way to look at this . It's a peninsula . You can't come in from the east , the west or the south . You can only come in through Georgia and Bama right , from the east , the west or the south . You can only come in through Georgia and Bama , right .
So when produce used to pop right , when we didn't have this down market , right , say everything , watermelons coming out for like those few months , all right . Outbound market in Florida goes up to like three or 350 a mile to ship out of Florida because there's not enough trucks for the amount of watermelons , for instance , to go out .
So what happens to the rate to come into Florida ? All of the carriers race to the bottom to get down here with something . So if you want to get into Florida to get $3.50 a mile delivering back to Tennessee or whatever the carriers are like , dude , I'll take $1.25 a mile to get into Florida because I know I'll make $3.50 a mile coming out .
So the whole market starts to fall for loads delivering into Florida , because every carrier knows they're going to make really good money shipping back out .
Yeah , exactly , so that's the second part of it is market conditions . You have to look at the ratio of loads to available trucks . That's that load to truck ratio that we've referenced in the past .
So that's a bigger macro scale , whereas the individual lane for a driver backhaul is going to be dependent on , usually , where they're trying to get to , not just what the market's paying . But good question . Finally , oh , one of you guys added this one in . So you guys ? So can you guys do an episode about being a broker with asset ?
I don't know who put this in here .
I did . This was a question that just came up on YouTube from last week's Final Mile , so I threw it in here .
What you got . Read it off here . It says yeah .
So can you do an episode about being a broker with assets ? I think he meant to say how that works . I'm a broker and I'm also trying to start a small courier transportation business , but I don't want to be labeled as a double broker and this is confusing . So let's clarify how to present your company and what that looks like from an authority standpoint .
Oh for sure . So I mean Stephen and myself and you , ben , we've all , either now or at one point , have been on both the asset or the trucking side . I just think it's important to be very clear with your customers that if you have assets but you don't intend to run it on one of your assets , you should be very straightforward about that .
We're going to put it through our brokerage and broker it out . If you try to sell to a customer as an asset-based company and then you end up brokering it out through your brokerage , that is not the way that it should be working . So I'm just about the transparency on it .
I think if you go to a shipper and you've got both authorities , I think it's great because it's like , hey , if you go to a shipper and you've got both authorities , I think it's great because it's like , hey , I own these assets , I can control these assets , and if I don't have an asset available or if my available asset is not the most efficient , I can
find you a cheaper option through the open market . So I think if you sell it that way , that's a very good way to go about doing that . And if you're let's say , you're a broker and you're giving a load to a trucking company that also has a brokerage , make sure you're very transparent with them .
Hey , it is my understanding that this is going to be picked up on one of your company trucks not brokered out through your brokerage authority . So just transparency , I think , is the answer on that one . What do you think ?
I agree and I think what I try to do and I've worked for companies that both did last year is like hey , I explain to the customer listen , we have an asset company . We also have a brokerage . We've got much better service and additional capacity .
If I can set you up through our brokerage , we can prioritize your loads with our assets and if you have a preference to only use our assets , we can only use our assets .
But if we run into a pinch where you need a load picked up and I set you up through my asset MC , I've got no ability to use my partner relationships and I might have a carrier that's a better fit for that load because it should be positioned as more service . Then I can both broker to my own trucking company and another one .
If a load comes up somewhere I don't have a truck or , you know , there's a last minute thing somebody needs help with somewhere else .
Good deal . One of the things I would point out , just as I'm currently dealing with this , is your presentation matters and the one thing I would Correct and so I would be very persistent on making sure that you know it's not a dual authority . You'll have separate authorities .
I would even go as far as trying to make sure that the names of your companies , while they may be close , aren't the same and you keep everything separate different domain names just so that when a broker is looking to use your assets , they're not going to be .
Well , you're a brokerage , because not only is the new authority going to cause you problems and trying to get established and set up , but if they can see that you're tied to a brokerage there without even talking to you there , a lot of these people are going to disqualify you just because of the vetting tools and stuff .
Um , I would still be transparent about it and let them know like , hey , we do have a brokerage , but in trying to keep those entities separate will benefit you in the long run .
I have one last question that segues from that and is also related to the podcast that we just recorded on the regulation right . So I was looking at an agreement with a large shipper recently that and this is pretty common , I think practically that they are requiring their brokers to sign their agreement that is written to a carrier , right , okay .
And the company says if you don't sign this , you can't work with us . Our other brokers have signed it . This is what is required to do business with us . So I was curious because I looked back at the MAP 21 regulation , back to regulations , right , this is like in like 2012 or whatever .
The regulation right and I'm going to read this right are designed to ensure that brokers and carriers operate transparently within their legally defined roles , which is what we were just talking about .
And it says , by signing the agreement , as a motor carrier , you are representing to the FMCSA , your partners and the industry that your brokerage is a motor carrier for this transaction . And it said , regulatory agencies like the FMCSA would hold your brokerage accountable for this misrepresentation .
So we have a regulation that is supposed to make sure that it is clear that the agreements between a broker or a carrier are written to what they are , not what they aren't . Now , that's the intention of the regulation , but in practice , if a shipper says you can't work with us unless you sign this as a carrier , what ends up happening ?
Brokers just end up signing it , right . And then what happens beyond that ? Because the regulation had almost no effect , in some of these situations they're still holding the responsibility of the brokerage , right .
So then the brokerage can be held liable in court , even though the shipper literally made you sign the agreement or you can't do business with them , right . And it's just like another example where free markets actually will win out , even when there's a regulation in place . Because what do you see in practice ?
Brokers are like dude , I need to move the freight , we'll deal with this later . Sign it , however , they ask right . And then for the side that it was supposed to help and then doesn't hold the company , that is actually making people sign the incorrect agreement in the first place , right ?
Exactly Well . Good questions , keep sending them our way and , stephen , thanks for joining us today . Ben , any final thoughts here ?
Whether you believe you can or believe you can't , you're right .
And until next time go Bills .