#25 Shannon Breen on Why FreightVana is a No-Commission Brokerage and Won 150 of the Largest Shippers

Auto-transcribed via Deepgram nova-3. Speaker labels are approximate; light cleanup applied.

Jesse (00:01): Right, welcome to another episode of the Freight Show. Shannon, great to have you on. How are you?

Shannon Breen (00:05): I'm good, Jesse. Thanks for having me, man.

Jesse (00:08): So we were just saying a second ago before we hit record, but I wanted to jump straight in. The market is crazy right now and I'm sure a lot crazier for you there on the front lines. Give me the update. What are you seeing at the moment?

Shannon Breen (00:22): Yeah, I mean, I put some out this morning. Since Road Check Week I think the spot market's just continued to rise sequentially, and that's put a ton of pressure on folks like us that built networks, and a lot of brokers, or providers that have committed freight networks. I think people see this spot market and it's funny, I get messages from folks like, you must be killing it. I'm like, no, we're not killing it. We have networks we're trying to keep in touch with. We run hundreds and hundreds of trailers in large committed freight networks. So when the spot market does what it's done the last four weeks, which is just historic honestly, increase over a four-week run, it puts a ton of pressure on the system. There's not anybody right now that's not rethinking their partner strategy, their committed freight network strategy, their pricing strategies, and a lot of discussions on how to land the plane, because right now it's just been pretty chaotic for a lot of parties involved.

Jesse (01:29): Yeah, and when you say committed freight, this is sort of like contract freight where you have an agreed rate for a certain amount of volume over a period of time, and that's a tough spot to be in because it's going to require a bit of shimming with your customers to be able to serve that sustainably, I would imagine.

Shannon Breen (01:50): Yeah, and it's an interesting point with the shimming. People talk about the disruption that was COVID. Everyone goes back to the last known major disruption and says COVID, COVID, COVID. But Jesse, the thing I think is really interesting about this one that's different is, in COVID the commercial engines and commercial output of those customers was diametrically different than the conditions we live in today. If we go back, we couldn't keep enough stuff on the stores. Whatever came in was getting sold, purchasing of everything from furniture on was just on fire as far as the commercial engine. So from a transportation or budget perspective for those shippers, it didn't have that same level of focus. It was more like, let's just get the products out the door. This market is much different. We service 150 plus of the largest shippers in the country, so I get a really interesting purview of a lot of different sectors. There are customers doing well, customers that are growing, but the vast majority in this market don't have huge commercial engines. Their budgets are under scrutiny already, they're not seeing the throughput, and then you add this pressure on transportation and it becomes a big problem in their walls. That's really what's different about this compared to COVID. Even though the market rates are jumping at similar rates, the underlying dynamics are vastly different.

Jesse (03:33): Yeah, it's just supply driven as opposed to demand driven. And I imagine they're not having fun either. Whoever you're interfacing with, their budget's blown out of the water, and that's a tough spot. How do you think about navigating a conversation like that? Because I imagine no plan or forecast had this level of spot increases baked into it. So something's probably got to give.

Shannon Breen (04:06): Yeah. I think the no-nonsense business approach that I've always tried to carry is one of the things that made us a successful brand, trying to be authentic. I might not tell you news that we all want to hear. No logistics or transportation company is perfect. Number one is authenticity. The second thing is being data driven. Not showing up with emotions, but here's what we're seeing, here's the data points we have, here's what we're seeing from a market, here's what we're seeing internally. Even then, people don't love to hear, hey, you've got to pay more. Who in our personal lives, you buy a lot of stuff, someone shows up and says, hey, you used to get this, now it costs this much, you're like, I don't love that. But the reality is where we're going in transportation, that is a known reality, and something that's been percolating for a while. For a lot of the pros that know how we got here, we've had this historic deflationary time in freight, the pent-up demand, all the things you read about, and at some point it does quote unquote flip. Now we're living the flip. People don't love that, but everybody who's been doing this a long time understands how we got here. The best way to navigate it is authenticity and data. You step through it, put plans in place to understand the challenges they're going through, and hopefully they understand our challenge too, which is that this isn't opportunism we're leaning on.

Jesse (05:46): Shannon, tell me a little bit about your quite unique pricing structure, and how that makes it similar or different in how you approach the current market relative to somebody who prices more traditionally.

Shannon Breen (06:09): Yeah, the interesting piece for us is on the pricing structure, the operating model. The trailers make it much different than if you're just running live freight or pricing for third-party carrier equipment. We're truly building an interconnected network. On any given week we've got 50 to 60 customers that our trailers are interchanging with in various networks all over the country, coast to coast. So you're pricing for efficiency. You have to price for network connectivity. There have been people in our space that priced a kind of go-anywhere plan with equipment, and there's really not a price you could charge that anybody would pay to make that program work. So one of the things that makes us unique is that disciplined pricing model. We obviously have to build and buy and invest into new nodes, but we're much more disciplined than people probably realize about where we'll go, where we'll put our equipment, the expectations we have in the pricing. That's about 45 percent of our business, and the other 55 percent looks like a traditional broker. So we have a two-part system depending on if we're using our equipment, doing traditional brokerage live freight, or using partner carrier equipment. There are three distinct pricing models within one for us.

Jesse (07:41): Interesting. And so with the trailer pool, it's a non-commission structure. Take me through what that means and how that works.

Shannon Breen (07:50): Yeah. Our entire operating model is very unique compared to a traditional broker. We don't have a commission structure for our operators that work with our carriers, or our account managers that work with our various customers throughout the country. That was intentional. It's nothing right or wrong, it's super capitalistic, and that's how brokerages have been built for decades. But when I sought to build a unique operating system, I really had to think on what is truly unique, and being non-commissioned has puts and takes like any decision you make in life. The choice was clear in that we wanted to show up and be aligned and not be opportunistic on a transactional level. That's suited us well as far as growth, and it certainly changes the way we price the networks. Honestly, it's helped us with a word I use a lot around here, alignment with our customer base. Because now we're not lining up to make margin on every single load. We need to make money to support our business, but we're not setting up all of our teammates to kind of extrapolate that margin and take advantage of either shippers or carriers on any given day. That level of differentiation has really set us apart and helped us grow as fast as we have.

Jesse (09:19): And that applies regardless of which part of the business, the whole model. So it's all non-commissioned. If you've got an account manager quoting freight, you still have margin targets, similar incentives, but their pay doesn't reflect that. How did you come to that? What are the trade-offs you were solving for with that model?

Shannon Breen (09:52): Yeah, huge trade-offs. Somebody said, hey, there are no solutions, there's only trade-offs. Life isn't solutions, it's only trade-offs. I love that word. Part of it was, when you think about models like flipping the triangle, a lot of people talk about being different, but structurally, from your build up, you actually have to be. Otherwise you're just selling on the fringes, and by the time you've drilled down or asked two questions, you're really very similar to what everybody else is doing. So I was very intent early on that if we're going to build it different, I had experience from my corporate career working for a large publicly traded trucking company with the power-only model, but I was thinking, what else could help us show up in a way that's countercultural, against the grain of a traditional broker? Why would someone put us in their network as a new third-party logistics provider against other folks? What unique value could we unlock for them? The trade-off is that everybody's not necessarily fighting for every single one of those dollars like you would in a traditional model. The benefit is you're not paying out these lofty, gaudy commissions that some brokerage houses end up doing, and being stuck on certain folks that grow up in those orgs making really good money but then they can't undo that model ever. I felt like if we built it from the ground up that way we could truly be unique, and maybe a testament to that, a lot of folks have bought in on us when no one really needed a broker over the last five years.

Jesse (11:41): Yeah, that's interesting. And so the trailers, I think, is another very unique piece to it. Why, what was the opportunity that you saw there? Obviously you had an asset-based background prior to starting FreightVana. Were you running trailer pools in your prior role? What was the insight for you there in wanting to carry that into FreightVana?

Shannon Breen (12:11): Yeah. So we did the merger with Knight and Swift back in 2017, I was a part of that. There was a ton of extra equipment on the Swift side. So it was a natural opportunity, and a lot of executive support, to stand up the power-only business model to support the business at that point. I got a chance to build it, a chance to learn. The problem inside a large asset, and this will always be the case when you run large assets, is it's just a totem pole theory. The assets are always going to be the most prioritized piece. Whenever the market would slow down, the loads would slow down, they'd come back and say, hey, we want all that freight, or the trucks are going to do this freight, your partner carriers can't. So your partner carriers and your network were always suboptimized. One of the framing thoughts of FreightVana was, I don't love suboptimization. It doesn't let me build a true network. And it doesn't authentically allow me to partner with the smaller to medium-sized trucking companies, because at the end of the day, push comes to shove, the trucks are always gonna win out.

Jesse (13:22): Right. Your company-owned trucks. If you're running a trailer pool, yeah, I'm following.

Shannon Breen (13:29): Yeah, because it's the first thing to go. If there's freight that's short in a certain market but you've got ten company drivers, it's a quick phone call over the wall, like, hey, don't worry about your guys, we're going to run that. That's not a way to build a network in my opinion. And I had this framing thought: what if we could come into the marketplace, arguably a lot harder because you've got no freight, no customers, no TMS, but if we built this network from the ground up, built the technology around the trailers and the network, built the rigor around the pricing and the network strategy, and then layered in the non-commission structure, we may actually be unique. So then when you meet people and they ask, what makes you unique, you're still just selling a dream when you start. But then you start to get momentum, you start to get some pedigree, in our case you win some awards. And what's interesting over the last few weeks, there's disruption, and quite honestly a lot of people are more interested in new solutions than ever before, because they're trying to figure out what partner strategies unlock unique value for them. That's where I think we're actually really set up for the future. Whereas honestly, we weren't really set up well for a freight recession, if you think about it.

Jesse (14:50): Yeah, interesting. Why not? Tell me why explicitly.

Shannon Breen (14:54): Well, you're investing heavily in capital assets. The trailers are not free, so that becomes really expensive while the prices continue to go downward, so everybody wants it cheaper while you're investing heavily on a light item that most people don't carry. That doesn't suit you well. And quite honestly, the way we show up, we built our team, we're a new smaller team. The recessionary market really favored folks that had huge buying power. And then lastly, the way we want to set it up is our qualifications and our security standards. There's been a lot of discussion in our industry over the last month, I don't want to give everybody PTSD and say Montgomery, but you can't do a logistics conversation without saying the word Montgomery. My point being, I worked for a publicly traded company. When we transitioned to FreightVana, we kept a lot of those publicly traded standards, insurance requirements, carrier histories. So in that freight recession, where there were a lot of options with trucks, we weren't one of those groups willing to scrape the bottom of the barrel for that capacity. Regardless of where you draw the line, I always tell people, is it more expensive or cheaper at the bottom of the barrel? Clearly we both know the answer, it's cheaper, typically, or directionally at the bottom of the barrel. So a brand that invests heavily in equipment, has a world-class team, invests in all this stuff, and is not going to go seek the bottom of the barrel for carriers in regard to pricing, that one's underserved in a freight recession. That's why I'm pretty bullish on where we're going and how we're built today. But the last five years has certainly been a climb.

Jesse (16:54): It's been tough. That makes a lot of sense. And you're in an interesting spot where you have the assets but you're also buying on the spot market to move the freight. So the uniqueness is clear, tell me about the value prop. When you're selling to a shipper about why that uniqueness adds value relative to a straight carrier or a straight brokerage, what are the scenarios, where's the sweet spot for you?

Shannon Breen (17:36): Yeah, definitely on the drop trailer piece, Jesse. When you think about the truck-to-trailer ratio for typical carriers, as you get down to the long tail of carriers, which represents a huge piece of the overall trucks on the road, they don't carry an excess trailer pool. So immediately that excludes them from supporting a lot of customer operations that require three-to-one trailer ratios, four-to-one trailer ratios, let's just call them trailer pools in general, homogeneous trailer pools. The other thing a typical broker would do is, okay, Jesse, I got you signed up, you're going to run this one lane for this one shipper, you're going to drop your trailers, and then I'm going to go to the next carrier. Well, there's not much interchangeability in that. Because if you stumble on one day, I'm relegated just to you, and you're not the biggest outfit, no offense, you don't have all these resources, so I end up getting stuck. As opposed to, what if I had a FreightVana trailer pool? What if we had 15 of them at your DC? And Jesse, you can run any of these 15 on any day. We're still going to contract, you're still going to run these lanes that make sense for you. But I also have other partners running the other lanes. Let's say on a Tuesday your guy gets sick, you can't come in. Well, guess what? How interchangeable, how flexible is it for me to bring someone else in to run your lane on a Tuesday if you can't do it. So you give some protection there, some optionality to the shipping teams, to the teams loading the trailers, to the procurement teams tendering the freight, and then we take the responsibility of coordinating, which is what we do as an intermediary.

Jesse (19:30): So Shannon, before you go to the next, can I make sure I understand it, because it's super interesting. If you go to a shipper, you put 15 trailers there, obviously if they want you to coordinate the move you'd go contract with a power-only carrier. But if they have direct relationships with carriers that have power units, can they also use your assets in that scenario? Or is it mainly that you have the pool of assets that are more fungible and you coordinate?

Shannon Breen (20:02): We're with the second one. The first one exists, if they had someone on any given day we do interchanges both ways where we're able to haul shipper equipment or them ours, it ends up becoming a service save or some specialty scenario. But in the majority, we've got the fungible pool that we're coordinating, we're building it, like you mentioned.

Jesse (20:22): And the value there is flexibility. Is some of it space as well? Because if you've got 15 FreightVanas versus 30 one-off carriers, you actually have a lot more flexibility with 15 trailers in your yard versus 30, I imagine, and land is premium.

Shannon Breen (20:44): And they all have to match up, this load can only go on this one. So you're putting a lot of strain on the operating teams. Sometimes it's just being able to create a pool that takes them away from live load. Because those live appointments tend to stack up. So now you're giving warehousing teams optionality and flexibility. You could load that at 11 PM, you could load that at 12 PM, we don't have to do a live load appointment, you could actually use this trailer pool. So you're giving the optionality of that. There's so much. The second one I'd say key for shippers is optionality against maybe the largest trucking companies. If you think about it, they're relegated to only a certain amount of companies that can create these trailer pools for them. Go through disruptive times. You go to my old employer, the stock market, it's probably gone up 40 percent in three months. People say, that's wild, why do you think the stock price has gone up 40 percent in three months? Because they figured out some widget for reducing cost? No, none of that's true. The reason the stock price has gone up, one reason, pricing power. They are going to be able to charge, due to all this disruption, a ton of money for their services. Well, that leaves the shipper in a spot where, what options do you have that can meet the trailer pool demands, still give me quality service and tracking and vetting, but maybe not necessarily be one of the top 10, 15, 20 premier trucking companies in the country that are going to have massive pricing power. So it's optionality on the procurement teams too.

Jesse (22:36): Yeah. And so when you're doing discovery with a shipper, what are the pain points you're typically trying to uncover to see if there's a resonance, if you guys are a good fit? Anyone could engage you for any freight, but there are certain pinch points where it's a slam dunk for you guys. How do you think about that?

Shannon Breen (22:57): Surprisingly it's folks that want to free up their operations from live load and they're trusting something to drop. It could be on the preload or the drop side, depending on which way the freight and where the problem exists, unloading times, live appointments. That's a big one.

Jesse (23:14): And is that mainly to smooth out their labor in the warehouse primarily?

Shannon Breen (23:21): A hundred percent. And or they're experiencing disruption, so they're chasing all this labor and it's stacking up and their warehouse leaders are screaming, we have to find another solution, because every time someone misses it there's just not really good systems to balance that out at a warehouse. That's a big piece of it. The other one, if I'm being really honest, over five years when we get calls, imagine being a relatively no-name startup when you start, it's just when people fall down. Bad service, bad communication. They just don't get an experience that, even in a freight recession, people aren't living up to their jobs, which is coordinating the freight. So we got a lot of phone calls over the years from a value prop being, hey, you're going to run this type of operation, this is how you're vetted, your vetting standards, you're going to bring me high-class quality equipment. By the way, our equipment is satellite tracked and has cargo sensors, so pretty good security metrics on all of that, plus tracking. You give a heightened experience that a traditional broker would really struggle to do, but they also haven't made the huge capital investment. So you're leaning into that, and all those dollars pay off because they can deliver an experience on the back end that's much different.

Jesse (24:43): Yeah, that's interesting. Now can you make it explicit for me, the advantage for you of owning the trailers but not the tractors? Tell me more about that decision, because you could sort of, what are the advantages there relative to a traditional carrier that has both? Is it this tension you experience in the power-only carrier network, the third-party carrier network?

Shannon Breen (25:13): Yeah, I think you've got to go back to the value you bring the carriers. We talked a lot about shipper value. What's interesting about being an intermediary is, think about the value you bring to the small to medium-sized carriers. The way shippers' contracts work, the way their legal works, the amount of folks they're willing to manage, most small to medium-sized carriers can't walk in and get set up by Fortune 500 shippers. They're just not set up for it, in all regards. So immediately if we can come in as an intermediary, yeah, we don't have the truck, Jesse, but we've got this equipment, we're winning awards in these networks, you can flip it and go to these small to medium-sized carriers and say, look, you don't need the drop capacity, bring me the quality power, the quality of communication, the quality execution, but I'm going to give you access to networks that you will never get on your own. And we talked about efficiency in the warehouse. Jesse, think about this. When you look at ATRI that tracks statistics on trucking, some of the biggest waste in production for a driver is the dwell time at a facility waiting to get loaded, waiting to unload. Now you turn to a small to medium-sized carrier, hey, what if you can do drop and hook? You pull in, you do your stuff much more efficiently, you're able to use more of your clock, you're able to give that efficiency back. And let's add the third one, we're also taking care of the trailer in regard to tracking it. It's owned by us, they do inspections, they're doing checks for us, but at the end of the day that's not their equipment that they're hauling, so we're bearing the burden of the cost of the equipment. So there's this interesting spot in the middle where you're creating these unique value streams on both sides, arguably really hard to do, very expensive to do. That's really why I quit my corporate job to chase this dream, because at scale, as it continues to build out, it becomes one of the most differentiated, you could call it a broker, but it honestly probably looks more like a transportation network at that size and scale. That was the authentic dream we're chasing here.

Jesse (27:36): Yeah, super interesting. And the carriers you work with, they are power only, right? They don't typically own trailers elsewhere. They might, but this is the predominant profile?

Shannon Breen (27:46): Yeah. I'd say our typical profile would be less than 50 trucks. But by the way, less than 50 trucks represents probably 75 percent of trucks on the road. So that's a huge market. They might have trailers, but they have yards or shops or whatever, and they find the efficiency and the access for the network that we can tap them into much different than they can do themselves or in just a pure live network.

Jesse (28:27): Yeah. I interrupted you when we were saying one of the points, we probably covered a lot, but I'm curious if you can remember the number two where we were.

Shannon Breen (28:41): I think we hit it on the carrier stream. The second part I was pivoting to, we talked a lot about shippers, but I think it lost the value stream for the carriers, and that second piece was that carrier value stream on the other side of the coin, which I think we covered. But yeah, that's where I was going. It's like, if people lock because it's just a shipper, where you're getting the loads and who's paying what, it's all shipper, shipper, shipper. But it's honestly been a godsend to have the non-commissioned approach with the trailers. Think about the way our network interacts and works differently with these third-party carriers out there. It's been interesting to watch compared to a traditional brokerage that I'm very used to.

Jesse (29:20): Yeah. And you talked a little bit about the importance of pricing discipline and saying no to freight. I'm curious how you think about what freight you'll accept at what price. It's obviously got some components where you're buying the power unit on the spot market, so there's some amount of what you're going to pay them, but then there's also this other piece of optimizing the asset. So that's a pretty complicated and unique optimization you're trying to do. How does that work at a high level?

Shannon Breen (30:00): Yeah, we track a ton of KPIs here. It's about turn time and efficiency. And maybe that's where I was going on the non-commission folks. When you think about efficiency and choosing the right network and the right carrier for the right load, imagine dropping that infrastructure on top of a commission-based structure where everybody working is trying to make as much money as they can on a load. Who's thinking about the long-term network density strategy and why you take a discount here? That's why traditional brokers, although they've talked about drop trailer pools and some of them have, I think it really struggles, because the desire to build a network with rigor is much different than running a bunch of freight and making margin. When you put those two together and say, no, we can do both, I've not seen anybody do it at a world-class level.

Jesse (31:00): How do traditional carriers think about this? Because they have a similar challenge in some respects. Many of them do have commission sales reps. Does it create challenges for them, or how do they think about who's placing the assets where?

Shannon Breen (31:21): Yeah. Look, for trucking, trailers are an afterthought, if I'm being honest. They're a part of the thought, don't get me wrong. But go back to that totem pole theory, it's all about the drivers. The driver's miles, the driver's productivity, the driver's home time, all your systems inside an asset infrastructure are top to bottom focused around, yes, you've got safety and all the things, but it's really about driver production, driver efficiency, driver home time, driver, driver, driver. The trailer's so far down. It'll impede you from doing certain things and supporting customers, and it happens, but everything's prioritized based on the drivers. When you think about our model, yes, we have to think about the drivers, but we have so many drivers to work with, and they're not employees of ours. So we are maniacally focused on this trailer network, trailer efficiency, trailer utilization, trailer security, and then our partners are that power source, managing those other pieces of the process.

Jesse (32:24): Yeah. And I'm trying to think through this, but how do you think about efficiency for a trailer network? Obviously you want the trailers moving as much as possible, but there's a lot more to it than that. What is a really great setup for you when you think about, this is what we're rowing towards, you might not always get it, but this is a really compelling situation?

Shannon Breen (32:47): Yeah. Everybody's going to say round trip, but from my prior career inside the large institution, very rarely does a shipper have round trip. Then you get utilization on the asset, but it starts to look pretty much like a dedicated installation. This is where I go back, if shippers would ask most brokers, hey, what's your average length of haul for your trailer pool, they'd hear an answer that comes back less than 200 miles. Why less than 200 miles? Because that broker can create a pool, but it's always going to be kind of self-contained. When you go less than 200 miles, you're almost going to bring that trailer right back where it started. It's going to run like a quasi-dedicated operation. So we can do that, but then you're not really competing or building a network. That's more just a bunch of isolated dedicated solutions, which are solutions, but to build a network, one that can compete, one that can connect different nodes, market to markets, major market metros, you've got to have a longer length of haul. So for us, our length of haul is north of 500 miles, and it continues to grow. That's the sweet spot if you want to compete with these regional or national trucking companies and really solve shipper problems. And also, if you watch the way the market's moving, all the large assets are moving heavily into dedicated operations with a low cost to serve, and they're pushing into these shorter length-of-haul modes. One, for drivers, because those are the jobs drivers want, and two, that's how their businesses are set up around those drivers. So if you're only going to compete in a sub-200 length of haul, you're constantly going to be competing with America's largest trucking companies with huge buying power, low cost ratios. I don't know how you create a value stream in that. So we've always been really intent on that network and efficiency to be able to take those longer trips and start building out these nodes to connect markets all over the country.

Jesse (34:58): And you're thinking about that, so you kind of need to understand the freight flows within your network and try to balance them, I suppose.

Shannon Breen (35:10): Yeah. We've got different tiering systems. We've got a proprietary pricing algorithm that's constantly looking at that. It knows what we have, it knows what we need, it knows what type of discount we could make, it's making value decisions as we work through a shipper RFP. It's very complex. In addition to the market intelligence, which every traditional broker would have, we've got this entire layer, especially when we're looking at our assets, running behind the scenes in order to make the best decisions possible.

Jesse (35:37): Yeah. And when it works for you guys, are you competing on high-quality service, safety, high-quality equipment, but are you able to execute at a cheaper rate for the same quality when it works out for you guys? Or is it more about flexibility for the customers?

Shannon Breen (36:01): Yeah, I wouldn't say it's cheaper. I'd say cheaper than comparable. And I think we're heading to a market where we'll be cheaper than the large asset-based companies. So then it'll certainly be cheaper. But I think it'll still be below the large asset-based companies, probably more expensive than your live load, but you create the flexibility, tracking, security, all the things you get from it. So I think that's the sweet spot for us. That's what people are paying for when they've got white glove orders, customer orders, stuff like that. They're not really looking for cheapest either. I'm sure they'd love to have it, but what they really want is that spot in the middle. That value. It's really based on value.

Jesse (36:51): I am curious. I know we're probably overdone discussing the Supreme Court decision, but I'm always curious to hear from folks. What's your perspective? What do you think the impact's going to be on the industry long term, and for you as well? I've been speaking with various folks who are quite worried about their insurance bills and the impact that could have. To me it sort of seems like the operational burden, most good operators already have a pretty robust carrier selection process and it might need to get adjusted or extended but isn't fundamentally different. Maybe that's not true for everyone, but a lot of folks do a decent job there. But then I'm curious about the insurance implications and what you're expecting there.

Shannon Breen (37:43): Yeah. Fortunately or unfortunately, I'm on the front end, we're actually going through our renewal now. So I'll know more in the next few weeks of what it looks like. I think it puts a burden on all parties. You have to pay for that, it's another additional cost. Brokerage has already had a pretty heavy struggle as we've chased the market to the bottom for four years. This market flips, and I think it's just another piece you have to build into your pricing model. You're going to have to pass that on, what it takes to run this business. I do feel like personally it challenges people's operating model in the brokerage space. There are plenty of folks that really, if you've got an MC number, a few months ago we'd probably use you. There are folks that's how they built their model. Now you're in this really intricate, weird spot where you can't afford not to use those carriers anymore, but you can't afford to use those carriers because of the level of liability. Luckily for us, we've not positioned ourselves that way, I mentioned some of our standards. I just think for brokers in general, the standards are going to rise, the costs are going to rise. And the small to medium-sized carriers, going back to that, CH Robinson came out a week ago, hey, here's our new standards, that's a big move. That's a pretty significant move for them. But then who, if CH Robinson moves and everybody dominoes and only uses a certain subsection of carriers, if you're a carrier and you can't get into that, you can't get your data, you can't improve to that level, I don't know who you run freight for. So then you're going to have this subcategory of brokers willing to take risks and carriers willing to take risks. And love it or hate it, a government agency that doesn't have enough resources to root all that out. So it's almost going to divide. It's going to be approved carriers and people that have these standards, and then it's going to be this other kind of network or marketplace, one that we won't be living in, but I think it's naturally going to happen. It's going to be, hey, there's the cheap freight, there's the ones that do this, and I don't think that market goes away.

Jesse (40:15): And the shippers will then have liability, right? So at some level I'm wondering how stable that would actually be. Because I could see that happening, but who are the shippers that are going to, there's got to be, I don't know the law here, but I would assume the liability for negligent hiring is also going to extend to the shippers, which is maybe why folks that are doing a good job and can demonstrate they're doing a good job will probably do better.

Shannon Breen (40:51): Yeah, still yet to be seen. There was a case that got tried in Texas and they proved that shipper liability was not true, where they said you can't hold the shipper liable for a carrier or a driver, and hence they're not making those decisions. The other thing I'd tell you about most of the major, especially Fortune 500 contracts, there are always indemnity clauses in every one of those where you're indemnifying them. So even though they could be held liable, you're effectively saying you're going to defend and hold them harmless outside of their levels of responsibility.

Jesse (41:26): Is that generally true or sometimes true? How widespread is that indemnity from the broker? Is it just default?

Shannon Breen (41:30): That is widespread. If you're dealing with someone in the top 500, 90 percent of the time there's indemnity clauses. So there's a clause that says you're going to hold them harmless, indemnify them, in all of these contracts. So they're signing off. Now, once again, Jesse, there's also small to medium-sized shippers that haul three to five loads that don't have huge robust legal teams. There's going to be a whole section. I still don't think, personally, that as long as those standards are met and the shipper had no idea, I don't know how they're going to go back. I think it's a headline right now. I just don't see how they're going to go back on the shipper side, but it could happen. I just think it's too early to tell, and a lot of case law has to happen in every single state, which is part of the challenge before we know how it works.

Jesse (42:27): Yeah, that's interesting. So your view is that there will likely still be this class of broker and potentially carrier that operates, and there may still be demand for it, it's just going to be a lot higher risk for all parties, probably a lot less safe on the road, and then there will be folks that hold themselves to a higher standard in how they operate and which carriers they work with, and some carriers will be able to make that leap and others won't.

Shannon Breen (42:57): And most of the freight, I heard a stat, that's not proven so I don't want to just throw numbers out, but I've heard that if you look at the top 200 brokers, 90 plus percent of the volume that hauls through brokerage is held by the top 200 brokers. So there's a whole tail of 20,000 brokers on that 10 percent. I don't want to make it like it's 50-50, but if the top 200 brokers assimilate to a higher standard, higher insurance, that's still a ton of freight. But to say that 10 percent just goes away, I don't think there's anything regulatory that's going to push them out. It's going to be harder to operate, but I think there'll be a small sub market that operates that way.

Jesse (43:36): I was speaking with Harman Cheema, who maybe you've met.

Shannon Breen (43:43): I know Harman, always wearing his beautiful green suits. Shout out to Harman in that beautiful green suit I always see him in.

Jesse (43:48): Yeah, he came on The Freight Show last week, we haven't released the episode yet. His view, there's an interesting dynamic that could play out for brokerage, where cost base goes up. You kind of said this as well, that the last ten years there's been a lot of capacity in the market, even after COVID, where they basically had stopped making their trailer lease payments, but the loan providers didn't really want to recover because they would lose more money. So you've just got really cheap capacity on the market, which brokers would use, some safe, some not, but a lot of it was lower cost. His view is that will change a little bit. I'm curious if you think that will structurally change the role brokerage plays in the ecosystem. His view was you've seen a lot of brokerage move more into contractual freight partly because you had such a big pool of liquid capacity that you could execute at pretty low cost in ways comparable to carriers. Do you think that changes with any of this?

Shannon Breen (45:12): I think the standards and the cost rise. We've been so low on both trucking and brokerage. I think the top 200 separates itself dramatically from the others based on investments in onboarding technologies and vetting and all the different pieces. I don't think the role changes though, and here's why, Jesse. I've gotten so ingrained over the last five years, meeting so many different shippers, seeing so many different infrastructures, going through so many onboarding processes. They aren't set up to, nor do they want to. Think about this. We're talking about all this liability of being a broker and choosing a certain motor carrier and managing all that. You'd have to get to a spot where these large institutions, who realize in their walls transportation is an execution, it's a cost, it's not what they do. Then you've got to get to a spot where now they want to own the responsibility of picking and choosing and contracting and managing. If we're saying there's more questions on who you choose and how liable you are, I actually think the role of a broker gets even more important. It's even more valued. You've got higher capital investments, yes, but I think shippers gravitate to the folks that can still produce the job, because that's not one they want to take on. They don't want that inherent liability, their legal teams certainly don't want it, and their cost-center aspects, they don't want to build and manage teams to do that. That advantage to them isn't there. There's just not enough juice in that to make up for that type of capital investment and liability. So I think the broker role is elevated. I think it's more important than ever. That's why I think people are going to continue to lean in. But I also think it's going to separate, and the top 200 will probably separate a lot from the thousands of others that probably struggle to make those capital investments.

Jesse (47:23): Well, and it's interesting. I'm going to do a little research, I don't know a lot about shipper liability, but if it is the case that with some of these shifts the shippers are theoretically exposed to more liability, but then you're relying on the indemnity clause with the broker, that will probably also preference folks that could at least stomach a claim like this. Otherwise you'd have a situation where you've got a small broker, they're just going to go out of business, and then maybe you're still liable and the indemnity clause is worth nothing to you. Which is interesting.

Shannon Breen (47:58): Yeah, it's going to be interesting. I agree with what people have said, there are a lot of opinions. I think it will change the landscape. As the most biased guy in the room, this transition period we talked about, this chaos, it's not any fun. But on the other side of all of this, I think there's a place for folks that do it the right way, invest the right way, innovate the right way. I actually think the best is yet to come for those folks. Obviously we're trying to be in that camp, that's where we positioned the business. Although it's gut-wrenching and painful as you work through all this transition period, and certainly the freight recession.

Jesse (48:40): Totally. It's interesting, I've thought about the arc of, if you think about pre-deregulation where you had highly regulated who was a carrier, it was much more centralized, so you had this ability to enforce standards, but then costs ran out of control. So you deregulate everything and it creates this massive explosion, but then you have a different problem of how do you manage that level of fragmentation and create the right standards. It feels like that pendulum probably went too far in the other direction, and some of these shifts will ultimately get to a more stable equilibrium that is better. There is more money that can be made by the folks participating in the market to cover the costs required to operate a high-quality asset on the road, or a broker.

Shannon Breen (49:46): Or a broker. And I think what it also creates, you think about sports and being competitive, you want to play, but going back to Harman's comments, imagine Harman, all the capital investments he made, all the trucks, all the trip center terminals, and then watching everybody play the game you play but by a rule set that is just unmanaged, unfettered, uncontrolled, way cheaper than the one you've invested in. I feel similarly as the broker. As painful as it is, I'm with Harman in that the future, the value, the quality stands out. Those that have played the game, built their businesses, invested in their infrastructures, that should be the winners in a more equitable marketplace. The one we had was just rot with inefficiencies. We've seen all the things on CDLs and driver hiring. You mentioned an interesting one with not even paying for equipment. What can you run freight for if you don't pay for equipment? That's a crazy number. Harman had to make payments for equipment, all the other truckers out there making that. That's not an equitable marketplace, and that leads to safety problems, it doesn't lead to health. I think that's where we're going. I'm really interested to see how long it takes to churn through this, because it's a big market and it takes a while. But that's where I think we land. Overall it's a better spot for those of us in that group.

Jesse (51:21): Yeah. It is super interesting thinking about the economies of scale. In some respects being a big carrier has diseconomies of scale relative to a small one, because there's just so much variance. Maybe you don't make your lease payments, you don't have a strong safety program, you can sit on the ramen noodle diet sometimes if you don't actually have driver wages to pay.

Shannon Breen (51:43): Think of the regulations just on ELDs. The liability. Even if you're just running your ELDs legitimately, you have to run drivers only a certain amount of hours, and you are at a huge disadvantage to people that are gamifying it on the back end.

Jesse (52:00): Yeah. Wow. To close this out, what are you most excited about for the next year?

Shannon Breen (52:08): Man, I've been so heads down in the slop.

Jesse (52:11): In the firefighting. Let's channel that positive energy for the year ahead.

Shannon Breen (52:18): Yeah. I'm looking for the market to stabilize. I'm looking for some continued advancements. You're on the front edge of some very interesting stuff, yourself and some of the folks you compete with. I think we're in this interesting time of figuring out the value streams there. Enough's been tested now. So similar to what I mentioned on trucking, we also can't have a conversation without saying AI, especially with you on here. I think that's an interesting spot, where is the ROI, who's structurally set up to deliver it, and where does that take a fundamental role in the operations of folks like myself and others. That's an interesting one to play out. Overall economically, I'm a finance guy at heart, I still have major concerns over viability when we start looking at foreclosure rates on automobiles and homes, and the CPI. I still think we've got a lot of it. So not all so positive, but which way does that break? What's the turnaround on getting us back on track there? Because right now I see those markers and it's not too positive. You mentioned the supply chains, that's why early in the year most folks were like, it's going to be maybe a meager run-up, pretty slow, demand's not there, and they were right. Demand isn't there when you look at all the different metrics. So I'm very interested to see how that breaks for overall economics, and obviously what we do in transportation is highly tied to consumer spending, housing markets, all the things. So that's probably got me most interested, in addition to the world you live in, on how to navigate it, not have too much FOMO, not get too far over your skis. It's an interesting world to navigate.

Jesse (54:15): I love it. Shannon, thank you so much for the time. Really enjoyed the conversation. That was great.

Shannon Breen (54:19): Yeah, brother, I appreciate you having me. Thank you.