TIA Q2: Broker Margins Up Over First Quarter, Down From 2019

Broker margins in the second quarter of 2020 improved from the first quarter of the year but were down significantly from the second quarter of last year.

That's the key takeaway from the quarterly report of the Transportation Intermediates Association, the trade group that represents the 3PL industry.

While the report covers multiple modes of truck transportation, 72% of the data comes from the truckload segment.

The aggregate performance of the industry shows that total shipments in all modes declined just 1.2% from the first quarter but revenue was down 8.1%. The invoice per shipment dropped 7%, to $1,822 from $1,960, but the gross 3PL margin improved 170 basis points, to 17.4% from 15.7%.

The comparison to the second quarter of 2019 is markedly different from the comparison between the first two quarters of this year. Gross margin declined 10 basis points, down from 17.5%, while shipments were down year-on-year by 7.1%. Revenue was down 16.2% from Q2 2019, and the average invoice per shipment declined 9.8%, to $1,822 from $2,020.

With the second quarter of 2020 being a period comparable to almost nothing in recent history, it led to a cautionary observation by TIA's chief economist, Noel Perry. "Be very careful in evaluating the Q2 2020 numbers, for two reasons," he writes in the report. "First, in late Q2, the economy underwent a dramatic inflection, from record shrinkage to rapid growth. Since the inflection occurred late in the quarter, the numbers are weak for the whole quarter, even though the economy emerged from the quarter growing."

Perry also noted that the changes between the first and second quarter of this year, and the respective second quarters of 2019 and 2020, are "very different." Spot markets were dropping through 2019, Perry says, so the comparisons year-over-year will "show weakness regardless of what happened in Q2."

"In fact, for both volumes and margins, the Q2 numbers were surprisingly strong, showing gains despite the rotten economy," Perry writes. "That is in part because the goods economy fell much less than the service economy. Also, brokers aimed for margin more, after aiming for market share during the previous three quarters."

The TIA report breaks down performance by mode of transportation, 72% of which is truckload. Truckload loads were up 0.2% from the first quarter of the year, compared to the total activity drop of 1.2%. Truckload invoice per load was down to $1,568 from $1,624, a drop of 3.5%, half the decline in the total invoice-per-shipment comparison between the second quarter and the first quarter. Truckload gross margin in the second quarter was up 140 basis points from the first quarter compared to a 170-bps increase for all activity.

That truckload could lag the total number for gross margin, even though it is almost three-fourths of the input, shows how strong margins in other sectors were. For example, intermodal gross margins came in at 11.6%, up 170 basis points from the 9.9% from last year.

Gross margins in the LTL sector were up 30 bps overall between the first and second quarter of this year, but what was striking about that number is that the small portion of loads that went to 3PLs under $16 million in size saw gross margins rise 210 bps to 25% from 22.9% while LTL loads at companies in excess of $100 million in size saw their margins rise just 10 bps, to 22%. However, the number of loads handled by the bigger firms is more than 23 times those handled by the smaller 3PLs.

The report also looks at what it calls a "rolling quarter comparison" over eight quarters. Among the trends the TIA is seeing over that period: The intermodal invoice amount of $2,055 was the lowest level in eight quarters, as was the truckload invoice amount of $1,568.

Based on the numbers, it appears that the market share of 3PLs rose in the second quarter of this year compared to last year, based on tonnage going through 3PLs versus shipments that did not. The drop in 3PL volumes this year was 6% but the decline in all volumes was 9.9%. According to the TIA, volumes going through 3PL hands generally outpace growth rates for all truckload volumes about two-thirds of the time.