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How Do Brokers and Truckers Figure Their Costs?
Brokers get paid by shippers to move loads. The broker, of course, has to find a truck to move the loads. In the final analysis, the broker pays out most of their income they receive to carriers – as much as 80% to 90% typically.
Yes, I know many truckers think the broker is paying out only 40% or 50%, keeping 50% to 60% for themselves. This is not the norm no matter what you hear.
Now, when it comes to carriers, they get their income from brokers and – somewhat similar to brokers making payouts to carriers – these carriers need to pay for equipment, personnel, repairs, insurance, fuel, etc., etc., etc.
The question is: should brokers be concerned about the motor carrier’s expenses when negotiating rates? The short answer is, No. Why? Brokering and trucking are two related but completely separate businesses.
Brokers work on “margins”, carriers work on “costs”.
More importantly, the carrier’s business smarts is the carrier’s responsibility, not the broker’s. That means there is no way for the broker to know if the carrier is exercising smart business procedures or not.
When I go into a store and buy a donut, I don’t ask myself, “Is 79 cents enough for the baker to pay for his electricity, dough, equipment, etc.?” No, that would be weird.
If a carrier is NOT working smart, that’s the carrier’s problem, not the brokers. If the carrier IS working smart that’s good for everyone, especially for the carrier. His bottom line increases because he can competitively bid on work, knowing what he needs to cover expenses plus make a bit of profit.
Keep this in mind – smart carriers who know their costs know how to bid competitively on loads. Not-so-smart carriers, without knowing their costs, may bid too high and lose loads.
The broker should tend to his margins while the carrier should tend to his costs.