Another aspect of Montgomery: it might make human brokers more valuable

Naperville, Illinois–In a day-long conference devoted to the business of logistics mergers and acquisitions, and the markets those companies serve, a guest that wasn’t on the attendee list or the agenda showed up unexpectedly: Montgomery vs. Caribe Transport II.

That recent Supreme Court decision opening the door to greater broker liability could always be seen as having the potential to spur M&A activity in 3PLs, as smaller companies that might be faced with higher insurance premiums and other costs necessary to protect themselves in an uncertain legal atmosphere look to be folded into a bigger parent with greater resources.

But that is not how it came up in discussions at the Logisyn Advisors M&A Club conference here. Logisyn is a leading M&A advisor in logistics. Instead, its significance was raised in a discussion by Beth Carroll, CEO of the Prosperio Group. She was on a panel focused on developing and keeping talent..

What she said should be good news to brokers who see the possibility of AI taking their jobs, as already has been evidenced by the company earnings released by C. H. Robinson (NASDAQ: CHRW) that for several years and still ongoing have shown a steady decline in the brokerage’s head count even as its volume and profits have risen.

Carroll, whose book “Taming the Compensation Monster” on broker freight compensation was distributed to all the attendees at the Logisyn conference, described the impact of Montgomery as “another whole layer on top of everything.” Montgomery vs.

Caribe Transport II, in a unanimous Supreme Court decision in May, stripped away a key defense brokers have used to protect themselves from liability and negligence claims for many years. Carroll said in studying AI, she had developed concern for the future of the down-in-the-trenches broker.

“I thought, is there really going to be a future for the traditional carrier sales type role?” she said. “Is that something that’s going to be completely automated?” But post-Montgomery, Carroll said her conclusion is “I don’t think so.” Do you want to testify to this?

“You’re not going to stand up in court and say, well, how did this truck get booked that you know ended up killing people?” Carroll said, envisioning testimony in a lawsuit. The answer brokers are not going to want to give, she said, is “well, AI made the choice.”

“No, you’re going to need to have human beings that are behind that decision, and lots of controls and compliance around the rules that are being used to make that decision,” Carroll said. And it can extend to other areas, she added.

For example, “do you want to have that same conversation in front of a jury and tell them that your carrier sales rep is on a 100% commission plan?” Carroll said. While Carroll did not go into detail on that observation, the inference was clear: a compensation package that is fully dependent on volume does not necessarily incentivize safe behavior.

And with Montgomery now a firmly-established legal precedent, that could be a significant problem in a lawsuit. Volume as a pay basis going to create some issues But while Carroll said the combination of AI and Montgomery could be viewed as more of a “pro-human” incentive at a 3PL, it can create all sorts of problems for compensation packages.

Carroll said most brokers think in terms of loads per day. “That’s a common metric that is used,” she said. But with AI at 3PLs raising the prospect of loads per day rising sharply for those who master its capabilities, that could create issues with compensation, Carroll said, calling it “a problem that is coming fast for them.”

“Productivity is going to increase, and on straight commission plans, that means pay is going to increase at the exact same rate, unless something is done to change it,” Carroll said.

What will be needed, she said, is an “adjustment factor,” because a company is going to need to tell its brokers on straight commission that “we’re not going to be able to pay you for your gross margin, because now you’re actually doing 50% more with the same amount of effort.”

Carroll wondered how many brokers have had a discussion with their employees where they needed to say “Look, we’re going to have to cut your commission rate.” “How many of you have had that conversation?” Carroll said. “It doesn’t go well, does it?” AI not impacting CEO searches But that’s in the rank and file.

Mike Knox, senior managing partner of recruiting firm GESG who was on the panel with Carroll, said he has yet to have an executive search where AI knowledge and experience has been part of the process. But Knox followed that up with a comparison of traditional pay packages for 3PL leaders that implicitly acknowledges the importance of technology.

For companies awarding equity, a standard structure might have been a five-year or three-year vesting for that equity, Knox said. But now, he added, “if you’re not performing in 18 months, there’s pressure with what your competitors are doing, all driven by technology.