The renewal letter, and the three numbers to run before you answer it
Cargo and bond renewals are coming in 25 to 50 percent higher for independents. Here is the math to run before you sign with an agent program.
Every fall the renewal quotes show up, and this year they are landing hard. Independents with clean books are seeing cargo and contingent cargo renewals come in 25 to 50 percent higher than last year, and a few are getting non-renewed outright after a single claim. The BMC-84 bond market is not much friendlier. If you are a one or two person shop, that letter can be the difference between a good year and a break-even one.
So a lot of small brokers are doing what the recruiters are counting on. They call an agent program. Some of them should. Some of them are about to give away half their margin to solve a problem a phone call could have fixed. This issue is about knowing which one you are.
Why the number jumped
It is not you. Cargo theft and double brokering claims have been running at record levels, and insurers price the whole class, not your book. A small brokerage with one claim in the file looks, to an underwriter, exactly like the shop that lost the $300,000 load from last week's issue. They cannot tell the difference from the outside, so they price everybody like the worst case.
That is also why the fix starts with your file. Before you accept the renewal or walk away from it, get two more quotes through a broker who specializes in transportation, and send them your carrier vetting process in writing. The rate con no-brokering clause, the FMCSA number check, the driver call. Underwriters do give credit for a documented process. Not always a lot, but 10 percent on a $9,000 premium is a real number.
The three numbers
Run these before you talk to a single recruiter. Put them on one page.
Number one: what you actually cleared. Take the last 12 months of gross margin, the difference between what shippers paid you and what you paid carriers. Subtract everything you paid to stay independent: bond, cargo and contingent, general liability, TMS, load boards, factoring or the cost of carrying receivables, compliance and vetting tools, accounting, and your own time on paperwork. What is left is your real independent number.
Number two: what the split would leave you. Most agent programs pay 60 to 75 percent of gross margin, and the number they quote first is usually not the number they will do. Take your same 12 months of gross margin, apply the split they are offering, and that is your agent number before expenses.
Number three: what you would stop paying. This is the one almost everybody skips. Under a good agent program, the house carries the bond, the cargo coverage, the TMS, the factoring, the claims handling, and the back office. Add up every line from number one that disappears. Then add it back to number two.
Now compare number one to number two plus number three. For a lot of shops the gap is smaller than they expected, and sometimes it runs the other way. For others, especially anyone with a few steady shippers and low claims, staying independent is clearly worth the headache. Either way, you decide with a number instead of a feeling.
What the recruiter will not bring up
Ask these four questions, in this order, and write the answers down.
Who owns the customer. If you leave, does the shipper come with you? Most agreements say the house keeps the relationship for 12 to 24 months. Some say forever.
When do I get paid, on invoiced or on collected. Paid on collected means you are still carrying the shipper's payment terms, just with a smaller check at the end.
What happens on a claim. Who eats the deductible, and does a claim change your split.
What is the exit. Notice period, non-solicit, and whether you can run your own authority in the meantime. If the answer to any of these is vague, that is the answer.
When it makes sense
Going agent makes sense when your renewal math shows independence costing you more than a third of your margin, when you are spending more hours on paperwork than on the phone with shippers, or when one claim would end you. It makes sense when you have decided your job is sales and you want somebody else to be operations.
Staying independent makes sense when your book is steady, your claims history is clean, and the renewal is annoying but survivable. It makes sense when the customer relationships are the asset you are building and you are not willing to hand the title to somebody else.
Neither one is failure and neither one is pride. It is a math problem with a personality tax on both sides.
This week
Pull your renewal quotes and get two more, with your vetting process attached. Run the three numbers on one page. Then, only if the numbers say so, call two agent programs and ask the four questions. Do not sign anything this week.
Next Tuesday, Ch. 8: how to quote a lane you have never run. A shipper gives you ten minutes and no history. The five minute method that gets you a number you can defend.
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