Introduction to freight brokerage
The role of Freight Broker has become an increasingly popular career, as the transportation industry has grown as a whole; which has increased the demand for new brokers. Freight Brokers are essentially the middle man between shippers and truckers (carriers). They make their money by being the connector of cargo and making the logistics process go smoothly. You may be asking yourself… if I am a company that needs freight shipped, why would I not just reach out to carriers directly and avoid paying any brokerage fees? Well, there are several reasons why brokers are often a necessary link in the logistics chain:
Brokers have access to a database of legitimate carriers that have been vetted for approval (shippers often do not invest in these software systems, and it is uncommon for a large majority of companies to have an inside brokerage division).
Brokers or dispatchers will conduct market research on the going rates, as well as negotiate/communicate with carriers on the specific type of shipment, the distance of the route, and the deadline for when it needs to be delivered. Shippers may not be acquitted with this information, because it is the broker’s responsibility to be well-versed and up to date on industry standards.
Aside from the actual logistics aspect of the moving shipments, brokers take on the responsibility of managing AR/AP, maintaining up to date insurance, and handling payroll for any in-office employees assisting with accounting, dispatching, or administrative work.
Establish a foundation for success
When considering starting a brokerage, you may want to consider gaining some experience working for a company, before venturing out on your own. Gaining industry experience will provide you with a greater knowledge of the requirements necessary to become a broker, so if you do make some mistakes, it does not carry the same weight as if you were operating your own business. In order to get experience, you need to acquire knowledge about the position. Freight broker training courses are becoming popular methods of learning the ins and outs of freight brokering. Just be sure that you do your due diligence before investing in training programs. A lot of self-proclaimed experts will try selling you their training, without ever having success in the industry. Conduct research, read reviews and talk to brokers to see which companies they like to hire from. These freight broker training courses will tell you how to work with shippers, and how to conduct negotiations on shipping rates. These courses don’t just handle the sales aspect of brokering, rather they break down every element from top to bottom of running and operating a freight business. By having completed a freight broker training, you’ll able to add to your level of credibility and knowledge, which reflects positively on you in the industry. During the experience building phase, a freight broker education can quite possibly land you a position with a good company, which will help you gather experience to later apply towards opening your own brokerage.
Develop a business plan and marketing strategy
In order for your freight brokerage to be successful, you’re going to need to implement a proper business plan. Think of your business plan as a formal statement of goals, operational procedures, background information, and execution strategies for how you will aim to hit your goals. There are many different segments to the business plan including marketing strategies, competitive analysis, operations management, financial evaluations, etc. Going through and thoroughly addressing all of these sections in your business plan is crucial to address any and all areas of development that are needed to make your brokerage operate as smoothly and efficiently as possible.
There is a saying by Benjamin Franklin that states, “if you fail to plan, you plan to fail.” This can be said for just about anything in life. However, it is of outstanding importance in business practices. If you have put in the work beforehand to prepare yourself to run your freight brokerage, then you will be successful. If not, you will never be able to reach full potential, and will always be working from a disadvantage. As part of your marketing strategy, you need to accomplish the following: determining your target market (shippers), creating a compensation program for agents, acquiring good agents, and making sure you have enough carriers in your database to handle your shipments. Working on these tasks ahead of time will take the stress out of trying to manage everything at one time.
Register your business
Once you have the knowledge and skills to operate your own brokerage, it is time to set up the legal structure of your business. Here is where you decide how you would like to operate, as well as the name for your business. Regarding the operating status, there are several options you can choose to go with: sole proprietorship, a partnership, limited liability corporation (LLC), etc. I would advise seeking out a professional legal consultant to decide which declaration makes the most sense for your business. You may choose to file your company under your own name, or you may go with a fictitious name. If you decide to go with a fictitious name, you can use LegalZoom to see what names are available for purchase.
Obtain a broker authority (Broker MC#)
Brokers looking to get their authority must obtain it through the Federal Motor Carrier Safety Administration (FMCSA) via the Unified Registration System (URS). After receiving an MC number, brokers will go through a few remaining steps to complete the application process:
Pay $300 application fee, which takes about 4-6 weeks to process
Proof of Insurance Coverage: Surety Bond in the amount of $75,000
The purpose of the surety bond is to guarantee that your brokerage will abide by all rules and regulations. If you don’t, then your bond becomes an “insurance policy” that can have actions taken against it. Make sure that you are confident that the financial positioning of your business is solid. The interest rate will vary depending on your credit score. The higher your credit rating means less interest, and lower payment on your bond. Improving your credit score prior to investing in the bond is a good idea in case you want to save some money.
Contingent cargo and general liability
Shippers can come after brokers in the situation that cargo is lost or damaged during transit. To protect yourself as a broker, you will need to get contingent cargo insurance and general liability. It is also wise to insure because carriers may not want to haul for you in case anything happens. Granted, the only time you will need to leverage contingent cargo is to cover the damages when the carrier refuses to honor the claim. For example, if a carrier is hauling meat and the compressor breaks inside the truck, causing the meat to go bad, then contingent cargo would protect the carrier from having to pay for something that he or she wasn’t at fault.
Contingent cargo insurance covers common causes of loss, like damage and theft during transit. The insurance does not discriminate against what type of transit either. It could occur in a truck, intermodal, or in the ocean. There is a law specifically for freight traveling by boat known as “general average,” where the losses taken in the event of a sinking ship are taken across the parties involved in the maritime. It is difficult for the ship's crew to distinguish the value of the cargo being discarded off the ship. This way, one party is not taking all the losses and they are distributed equally.
Create a workspace
Luckily for you, freight brokers on a smaller scale operation don’t need a whole lot of tools to launch their business. You can get away with very basic home office essentials:
Office Supplies (Pens, Notebook, Post-It Notes)
More than likely, you’re going to have a majority of these tools in your home or office already. If that is the case, then the main investment you’re going to be making is in a Transportation Management Software (TMS). This software will help with automating systems and can be integrated with load boards like DAT and Truckstop, which will save you a tremendous amount of time in the long run. The higher quality software you invest in, the easier your job will be. Consider that before you shop strictly based on price tags. Keep in mind, the software may be used by account executives and independent agents one day, and you should want their user experience to be pleasant as well. You will attract retain more agents this way.
Take out a business loan (get startup capital)
Unless you have hundreds of thousands of dollars lying around, your brokerage will more than likely require taking out a business loan to ensure you have enough operating capital. You will be responsible for paying carriers, even before collecting payment from the customers. Sometimes collecting from the customers can be a long process, taking anywhere from 60 – 90 days. Just because a shipper takes that long to pay your brokerage, doesn’t mean you can wait until you collect to pay your carriers. No carriers will want to haul for you if you have a reputation for not paying within the industry average 30 days. This is EXTREMELY important for building and maintaining a positive reputation in the industry. Some brokers even offer a quick pay option for carriers, so they can collect their payment within 24 hours by forgoing a small percentage of their check. This is a common occurrence amongst carriers. Sometimes they will work with factoring companies that provide a similar type of service. Once you have an established reputation in the industry (3-5 years), factoring companies will be more apt to work with you; once they know that you have good credit and a history of paying carriers on time.
Get set up on load boards
Rates: Freight Rates
Develop and implement customer acquisition strategy
This is going to be one of the most difficult and time-consuming processes of being a broker. There are a couple of different ways in which you can acquire customers, depending on what your situation was prior to becoming a broker. A very common way is when an independent freight broker agent has an active customer base and are operating under another broker’s authority. If you are an agent and are not tied to a non-compete contract, then you just need to acquire the bond, software, insurance, and load boards. Customers will more than likely follow you because of the relationships you would have formed with them over the time you have worked with them. Now as a broker, you can continue to service the same customers you were previously, without being obligated to split a portion of your commissions with a broker.
The second circumstance is if you are new to the industry in general and have either graduated from freight broker school or are currently enrolled. They will tell you in the training that a large majority of your time, in the beginning, will be spent on trying to acquire shipments from customers. You will have to hustle consistently to get to the decision maker. Some marketing approaches consist of cold calling, door-to-door sales, email, and digital marketing/advertising. Using a combination of these different approaches strategically in high volume will eventually result in you building up your customer base.
Join a 3PL company as an Independent Broker Agent
As you can see from the steps involved in operating your own authority, it requires a lot time, resources, and industry experience to get yourself situated as a broker. Realistically, you may not begin to see any real profits for several years. Fortunately for you, there is a solution. Eagle Express is a full-service 3PL Broker that is looking for freight broker agents operate under our authority. The best part is we’re offering 100% commission!
We provide a cutting-edge web-based TMS that is already integrated with truckstop, DAT, MacroPoint, and RateView at no cost to you. We also have an “A” credit rating with maximum insurances across the board. Instead of taking out a business loan worth hundreds of thousands of dollars, we will take care of all of the upfront costs and back-end office support (AR/AP, accounting, carrier-vetting) for a 5% administrative fee on your gross receipts. A very small investment compared to getting your own authority. Apply for the Independent Freight Broker Agent Position and our management team will reach out to contact you with more information.