Freight broker business models
There are two models that are primarily used in freight brokerages: the Cradle to the Grave (C2G) model and the Chicago (aka Buy/Sell) Model. Both have their pros and cons, and
Cradle to the Grave (C2G) Model
The cradle to the grave (C2G) model is the original business model in which the freight brokerage is responsible for the entire transportation process, from customer sales to get business, booking trucks and ensuring their on-time pickup and delibery . In this model, a broker acts as a single point of contact for the shipper, handling all aspects of the shipment, including covering loads, track-and-trace check calls, handling exceptions, prospecting new customers, building their own book of business, and providing customer service. This model typically works well for independent agencies as the broker is often in their own corner and define their own process for servicing shippers.
One point of contact for the shipper: The C2G model provides a single point of contact for the shipper, which can simplify the shipping process and make it easier for shippers to track their shipments. The broker has total ownership of the account/shipper.
Improved customer service: By handling all aspects of the shipment, the brokerage can provide a higher level of customer service and address any issues that may arise during the transportation process. A single point of contact then allows the shipper to recieve consistence service and builds deeper trust between the broker and shipper.
More control over the transportation process: The C2G model gives the brokerage more control over the transportation process, allowing them to manage all aspects of the shipment and ensure that it is delivered on time and in accordance with the contract.
Lower freight brokerage cost: Profit & Loss (P&L) is improved as there isn't overhead of resources like carrier sales or tracking personell.
Unstable Process: The C2G model requires each broker to define out their process for customer service levels, and it can vary from one broker to another. There is effectively no process manangement from the perspective of the brokerage and this can lead to instability of the contact leaves. Training inexperienced new hires on the C2G model may be more challenging, as it involves a greater range of responsibilities and processes, and a process may vary from customer to customer.
Higher Vunerability: As a single point of contact is there for a shipper, this is makes the account more vulnerable if the contact leaves. Not only is there a risk of the contact taking the relationship elsewhere (depending on non-compete agreements), but if new ownership is assigned to an account, the contsistency of service level the account expects will be disrupted; potentially impacting the trust.
Limited capacity: The C2G model may leave less time for prospecting for new shippers, as the brokerage is focused on handling all aspects of the shipment for its existing clients. The C2G model limits the brokerage's capacity to handle more shipments as sales growth is impacted when a broker is spending time on customer service and exception handling. This also prevents a brokerages ability to service larger shippers and this most brokerages will use the "Chicago model" for their sales reps that have more volume.
Popularity: Although this was the original freight broker model, the C2G model is less common in the freight brokerage industry compared to the Chicago model as a brokerage scales. There is also a hybrid model that emerges for brokerages with C2G brokers where brokerages will use the "Chicago model" for their brokers that are brining in more volume. i.e Assign carrier sales to work for specific accounts, freeing up a brokers time to service the customer and prospect more shippers.
Scalability: The C2G model can be less scalable than the Chicago model, as it requires the brokerage to handle all aspects of the shipment and may be limited by the availability of carriers. Hence, a lot of C2G brokerages are embracing the hybrid model as a broker scales.
Challenges of transitioning from C2G to Chicago model: Transitioning from the C2G model to the Chicago model may involve significant changes to the brokerage's operations and business model. The brokerage may need to rework its contracts, establish relationships with new carriers, and invest in new technology to support the Chicago model.
Chicago (Buy/Sell) Model
Popular in Chicago, hence the name. The Chicago model is more process focused where the overarching strategy is to divide and conquer: customer sales and operations. Customer sales includes prospecting new shippers, building trust with existing shippers, and land-and-expanding with existing customers. Operations can then be split into three (potential) roles: Customer service, carrier sales, and dispatch/ops. Customer service handles any customer needs/requests, carrier sales is responsibler for finding and booking carriers, and dispatch/ops is responsible for tracking and exception handling. These three roles will vary from brokerage to brokerage, but this level of separate allows brokerages to define out more specific SOPs and KPIs. The Chicago (buy/sell) model is a business model in which the freight brokerage acts as an intermediary between shippers and carriers. In this model, the brokerage brokers deals between shippers and carriers, negotiating rates and securing capacity on behalf of the shipper. The brokerage is not responsible for the actual transportation of the cargo and does not handle the customs clearance or delivery of the shipment.
Scalability: Allows for faster growth of customer base through dedicated focus on new revenue which results from the splitting of sales and operations. Sales now focus only on prospecting, getting new customers, and growing within existing customers.
New hire onboarding: Since this model is more process based with reduced responsibilities compared to the C2G model, inexperienced new hires are placed into dispatch/load-management ops or carrier sales. This allows new hires to learn the freight business by handling exceptions, negotiating rates, booking carriers and tracking a load. Brokerages can now focus on the process and SOPs, hence also contributing to the first point of Scalability.
Process, Process, Process: With a more process based approach, there is more control on how a brokerage should be modeled, hence allowing leadership to focus on KPIs and process improvement for each of the responsibilities. For any business, this is a more stable, efficient and scalable way of operating.
Difficult: This model is much more difficult to execute, and requires leadership to be very detailed in process and cost management.
Expensive upfront: There is more overhead with operations from non-revenue generating employees i.e. carrier sales and dispatch/load-management. When starting-up or while scaling, this can be very expensive and squeeze the P&L significantly.
Hard to change to from C2G: Smaller freight brokerages sometimes start as C2G, then go with a hybrid approach for larger accounts as they scale, and move to majority Chicago later on. This is easier said then done as customer service process are now being shifted, potential service failures during the transition, and also requires an entire cultural shift from the brokerage down to the employees.
The Chicago model is more scalable and efficient but comes with significant initial ovedhead. C2G is more robust, provides more taylored service, builds deeper trust between the broker and customer, but is more difficult to scale. Since customer demands are so diverse in the truckload freight brokerage model, both models have their place, and often both can also be used in a hybrid scenario.