Why Do Freight Brokers Go Out Of Business


We’ve seen a significant increase in the number of freight brokers who have opened their doors for business over the last several years. Of those brokers, how many though have actually been able to successfully keep their freight brokerage business afloat and generate healthy profits year-after-year? And of those who couldn’t keep their doors open or couldn’t turn a significant enough profit, what were some of the reasons why these freight brokerage owners went out of business?

Unable to Stay Organized

It is very important that freight brokers remain organized so that they give their business the best possible chance to succeed. The inability to remain organized is one of the main reasons for freight brokers going out of business.

For some of us, becoming organized is no big deal. However, for others, it could be a little more challenging since many people tend to procrastinate on cleaning out their workspace and performing regular upkeep once it’s been cleaned and organized.

Whether you’re naturally an organized person or not, it is equally important that you make an effort to keep work spaces neat, especially if you’re operating a freight brokerage business. If you’ve ever lost important documents such as load confirmations or bill of ladings, or if you’re constantly having to stress about covering a load at the last minute, then getting organized needs to be at the top of your list.

Aside from keeping your freight brokerage afloat, here are some other benefits of keeping organized:

  • Increase productivity — By keeping yourself organized, you will save a lot of time and energy searching for documents, paperwork, and other essential things for your operation. Doing so will open up much more time in your schedule to focus on tasks like updating customers on the whereabouts of their shipments and prospecting new forwarders and shippers for more freight to grow your business.

  • Reduce your stress level — Stress levels can easily be elevated when working under the tight deadlines of transporting time-sensitive shipments. This just makes being organized that much more important for making sure the stress doesn’t affect your your judgement when handling key situations on the job. Freight brokerage is always going to be a stressful occupation, however, you can mitigate some of the stress through sound organization practices.

  • Be punctual consistently — Being organized and being punctual are like two peas in a pod. By keeping your organizer neat and updated with all of your obligations, you can ensure that your productivity will not fall by the wayside in the event of distractions. In logistics, situations will arise regularly that will delay transit times so it is best to always be ready.

If you stay ready, you don’t have to get ready.
— Will Smith
  • Meet deadlines regularly — As a freight broker, it is easy for things to pile up. Whether it be staying on top of bidding on a shipper’s freight, dispatching a load, or making sure your driver is set to deliver on time. Other tasks can easily get you sidetracked, but by using your calendar, you can always get right back on track and take back control of your day.

Lack of Freight Broker Automation

Most freight brokers have some form of automation created within their business in order to simplify operations. Without it, they will have no visibility of their business and staying competitive with other third-party logistics providers will be next to impossible.

More often than not, brokers will purchase a transportation management system (TMS) to allow for better systems and technological integration within their freight brokerage business. Using this available technology gives freight brokers the ability to remain organized and operate efficiently to compete with other high-level competitors.

TMS has become increasingly popular over the last ten years, as it has become a leader in management tools for domestic and global logistics. The diverse ability to exchange information makes the software instrumental for growth in both enterprise and foreign trade as a whole. It has the capacity to manage an ultra-intricate logistics operation and coordinate the transportation of goods with ease.

Some of the benefits to having a well-equipped transportation management system are as follows:

  • Integration — TMS integrates well with other tools that are needed for business operations. For logistics: DAT, Truckstop, and even Salesforce are tools that brokers use to manage several different areas of the business and can be interconnected seamlessly. You can manage carrier information, load optimization, establish better route planning, track customer contact and much more.

  • Control Shipment Life-cycle — TMS allows for users to monitor and track the life-cycle of shipments from customers and receive updates on their status. You’ll receive total visibility and control of your business.

  • Reduce Manual Errors — Automating the payment and other financial processes ensures that the number of manual errors will be reduced significantly throughout the brokerage.

  • Insights Display — TMS offers its users a broad look at the reporting and metrics behind the business. As stated previously, you’ll be able to receive complete and total visibility of the performance data of your brokerage.

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Software is Limited or Non-Existent

Having the right software is a key component to streamlining efficiency within a freight brokerage. Without it, intermediaries will be required to outlay more of their time and effort towards completing tasks and organizing documents that could be done using a technological system, which is objectively faster and error-free.

In order for a freight broker to avoid going out of business, they need to be optimizing systems and processes, and not spending the bulk of their time on clerical tasks and administrative duties. The Transportation Management Systems (TMS) that are available on the market today have many different features that can be used to manage multiple departments. Here are some of the more prominent management systems you have to choose from today:

No Strict Carrier Guidelines

If you’re reading this and you are already working as a freight broker, then you’re very aware that selecting the right carriers key to receiving the successful on-time delivery of your customers freight. Reliable carriers do not come easy, however, a strict vetting process will tremendously increase your chances of selecting one that is.

For those who are unfamiliar with what a ‘vetting process’ is: carrier-vetting can be described as a careful and critical examination of a carrier through multiple facets to determine whether they will do a suitable job. Not performing a vetting process and covering loads based on price or presumptive quality of service is a one-way ticket to shutting the doors of your freight brokerage business.

The purpose of the vetting process for freight brokers is to provide them with an inside look or a snap shot of the company that may potentially haul a load. Not every carrier that is evaluated like this will always project a completely accurate forecast of their service quality but the reviews on the company can, at the very least, be assessed for risk potential.

Some carriers may not even have a carrier authority for long enough to establish a viable history to definitively know whether or not they are reliable. Other carriers may have horrible reviews due to extenuating circumstances which were outside of their control. When in reality, they actually have a great track record of delivering loads on-time and their company reviews may not be indicative of their level of service. It is for these reasons that the system of vetting carriers will never yield 100% accuracy, but can mitigate the number of problematic lanes that are ran over the lifespan of your freight brokerage business.

One thing is for sure, you can give your business the best possible chance at survival and using reliable carriers and following a process. By posting the exact specifications of your load and adhering to the same vetting process time and time again, you will yield the most consistent outcome possible.

No Book of Business

This is perhaps one of the biggest threats that freight brokers face because without customers, there is no freight to ‘broker’ out. Acquiring and retaining shippers can often be quite challenging and take lots of work up front before receiving any payoff so it is important that brokers understand who their target customers are and cater their shipping solutions to companies with similar needs. There are many different strategies that can be used to obtain and grow a book of business but here’s a few that are most commonly used: 

  • Cold calling

  • Door-to-door sales

  • Social media marketing


See another 25 sales strategies brokers use to acquire freight shippers. Getting shippers is a difficult task regularly before factoring in the pace of the industry and competition.

Not Enough Starting Capital

Operating a freight brokerage business requires frequent surveillance of how much cash you’re bringing in through accounts receivable and what is leaving the business in the form of payment to carriers. The ‘difference’ at any given time will dictate how much available cash there is to pay yourself for your work as the intermediary. To give you a brief snap shot of what you’re going to be or are currently faced with, we’ve went ahead and listed all of the monthly costs your business will incur.

Here’s about how much you’ll need for assets/expenses to keep your doors open each month:

  • $75,000 Surety bond — $500 - $2,000 per month

  • Insurance — $1,500 - $3,000 per month

  • Software — $500 - $1,500 per month

  • Equipment (office rent, utilities, phone bill) — $1,000 - $3,000 per month

  • Total — $3,500 - $10,000 per month


If shippers aren’t paying within thirty or even forty-five days, you may want to reevaluate whether you can afford to keep them on and still pay carriers on time.

Another solution for eliminating aging receivables would be to work with a factoring company to free up some cash flow. This will allow you to maintain a good reputation with carriers as they can get paid fast. 

If a logistics provider determines that they are in need of a factoring company to help balance the day-to-day, then they’ll want to consider which factoring option best supports their business:

  • Non-recourse factoring — the factoring company assumes the liability for collecting the balance of the invoice (results in a higher percentage of fees)

  • Recourse factoring — the factoring company can recoup the uncollected balance from you if your customer doesn’t pay (lower percentage of fees due to the reduced risk on behalf of the factoring company)

How can I raise enough capital to start a brokerage?

If you don’t have sufficient capital to start, then you’re going to need to raise more of it through investors or strategic partners. Investors are attracted to people with good character, integrity, and a burning desire to be successful in whatever venture they choose.

Strategic partners also work just as well, if not better, since they tend to have more skin in the game. They also put forth more than just money into the freight brokerage business, which is why they are called a strategic partner and not just a partner.

You may think using a business loan could be another way of generating capital, but it’s quite the opposite and should be avoided if possible. Starting a business out in debt can be extremely crippling, especially if your business is slow to generate a profit or never takes off.

Dead Invoices

While this is not a common occurrence, it can happen, and freight brokers should be prepared for the day that it does. Even if shippers don’t go out of business, they can certainly be late to pay and either outcome results in the broker having to cover accounts payable. As mentioned earlier, brokers can use factoring companies to pay carriers while they wait to recover the unpaid invoice or eat the costs to keep their reputation in tact. 

Not Enough Freight to Move

When the market is slow, like it has been for these past few months, there isn’t a whole lot that brokers can do if their shippers aren’t moving the same amount of volume as they once were. Intermediaries that aren’t positioned well for a volume drop in freight may not be able to sustain through the slow times.

How do I get more freight during a slowed market?

  • Approach your existing contacts — Sometimes the easiest way to acquire more freight is to reach out to some of the lower hanging fruit, your existing contact list. From there, you can assess which companies are still maintaining a high rate of volume even in a stagnant market (i.e. barbecues during the summer months). Brokers should reach out to the contacts they feel they have the highest chance of securing freight from and then continue to work down the list. The approach should be honest in your motives with the reassurance of quality service.

  • Spend more time working on customer acquisition — Freight Brokers need to ask themselves: “How can I shift my time away from work that can be automated or delegated to someone else so that I can spend time on lead generation and booking more freight?” Earlier in the article, the topic of automation was mentioned in regards to alleviating some of the administrative tasks to ramp up efficiency.

  • Go bang some calls and knock some doors! — If your freight business is on the line, you may need to get back out from behind the desk and into the field to ensure there is still revenue being brought in until things begin to pick back up. Freight brokerage is a capital-intensive business when first getting it off the ground, so it is in your best interest that all your hard work and invested capital can yield a favorable return.

  • Wait it out — A down market isn’t going to last forever. If you’ve tried approaching more shippers and none of them seem to have any freight, then you just might need to bare down through the tough times. Keep your operation up as best as you can until things begin to pick back up and freight becomes more readily available again. In positive news, we’re beginning to see that light at the end of the tunnel in market and freight is beginning to move a bit more again.

What’s most important to take from this slowed market is that freight brokers need to capitalize on earnings during peak season and high-volume months and stash that cash for a rainy day.