TIA report: Broker gross margin way down in Q1 from a year earlier

While brokers are under attack from some quarters of the network of drivers who are dealing with low truck rates, a quarterly report spells out how the 3PLs took a hit in the first quarter.

The recently released report from the Transportation Intermediaries Association shows a decline in most margins in the first three months of this year compared to both the fourth quarter of 2019 and the first quarter of last year.

The comparisons to Q12019 are particularly stark. Focusing on truckload, the largest and most volatile of the three modes and the one that has been the focus of driver protests, the TIA report said the gross margins for truckload activity managed by 3PLs declined 210 basis points in 1Q2020 compared to a year ago. Intermodal margins were down 140 basis points while LTL margins dropped 10.

The total truckload business in the TIA report — all 3PLs aggregated — showed the gross 1Q2020 margin declining to 15.1% from 17.2%, though total shipments dropped just 2.7%. The average invoice amount/load declined 8.4% to $1,628 from $1,778, the lowest point in over two years. Overall total truckload revenue declined 10% in the quarter.

The drop in the gross margin percentage for all truckload business at 210 bps was bigger on an absolute basis than the individual bps declines in the various size categories that TIA reported.  For example, 3PLs  with less than $16 million in revenue saw their gross margin percentage drop to 16.7% from a year ago, down 80 bps, though the drop dollar-wise was more than $80 off a smaller invoice amount per load than the aggregate.

For the wide $16 million to $100 million category, gross margin percentage declined 160 bps, to 14.8% from 16.4%, with an 18.3% drop in the gross margin. For companies in excess of $100 million, the gross margin percentage dropped to 15.2% from 16.4%.

Although markets started to deteriorate in the first quarter, it wasn’t all that bad compared to the fourth quarter. The total gross margin in that comparison was down just 20 bps, to 15.1% from 15.3%. 

In the smallest category of 3PLs, less than $16 million in size, the gross margin percentage declined to 16.7% from 17.9%. The $16 million to $100 million category rose 70 bps, to 14.8% from 14.1%. The category with the largest revenues , more than $100 million, saw a decline of 60 basis points, to 15.2% from 15.8%,

Noël Perry, the TIA’s chief economist, said in his introduction to the report that the decline in margin percentage across all modes was surprising. “One disappointment is the drop in margin percent, something that has not happened on the approach to recession before,” he wrote. “I suspect it results from the flood of new brokerage and truckload capacity that entered the market in response to the very good times of 2017-2018. Such a precedent is disturbing given the deterioration in market prospects attendant to the COVID-19 pandemic.”

The total activity summary for all modes — truckload, intermodal, LTL and some other small categories — showed a gross margin percentage of 15.8%, down from 15.9% in the fourth quarter of last year. But compared to the first quarter of last year, the drop in gross margin percentage was far bigger, to 15.8% from 17.5%.

Although the full report is for the first quarter, TIA just completed a special survey for April 2020 comparing total revenue to April 2019. The impact of COVID started hitting all modes of transportation by mid-March. Total revenue in April declined over 18.3%, a sharp decline from Q12020 performance and down 16.7% compared to March 2020.