In recent years, there has been a substantial spike in the number of freight brokers that have entered the ring of logistics, resulting in a significant increase of competition year-after-year. Now, depending on your prior knowledge of the transportation industry as a whole, the above statement may raise some questions. You may be asking yourself:
What is a freight broker?
Why is the freight brokerage profession growing?
What is the freight broker’s role in transportation?
If you asked yourself any of the above questions, give yourself a pat on the back. Your inquisitive nature has lead you to learn about a profession that is widely shaping the future of transportation as we know it. If you’re already familiar with what a freight broker is or does, that’s great as well. There will be plenty of nuggets in this article that even an experienced transportation executive can pick up on.
What is the role of a freight broker?
For those who are unfamiliar with what a freight broker does, let’s start there. Simply put, a freight broker acts as an intermediary between shippers, manufacturers, and freight forwarders and the vendors required to physically ship their products. Brokers can serve as an intermediary for multiple shipping capacities, including but not limited to ocean, air, and ground transportation.
How does a freight broker make money?
Freight brokers, like any other intermediary, generate a profit by charging customers a markup for their services. Shippers, manufacturers, or freight forwarders will often accept paying a markup for the satisfaction of handing over the shipping process to an entity more equipped to do so. Some more specific advantages for the shipper are as follows:
A freight broker will be contracted by a customer to take on the responsibility of loading a trailer with their goods and coordinating the entirety of the transportation process up until the point of delivery. This is valuable to companies without an internal brokerage division because outsourcing their shipping needs is a more cost-effective solution than investing in assets, such as warehouses and/or a fleet.
Brokers should stay up to date on fuel prices and market rates so that they are able to provide a competitive bid on the customer’s freight and offer the load at a fair rate to the carrier willing to haul it.
On top of the actual transportation services provided, brokers must regulate cash flow to make sure the entity is able to remain in business. Like any other business owner, a freight broker has to manage AR/AP, insurance, payroll (if you have employees), etc. Now, if accounting isn’t your strong suit, consider hiring an someone to handle the accountancy of the business. Their responsibilities will include but are not limited to ensuring carriers and invoices are being paid on time, as well as accurately managing financial reporting.
Build a Foundation for Success
If you are considering starting a brokerage, you may want to think about working as an broker agent under another brokerage authority first. This is actually a common practice, with a vast majority of successful brokers accrediting their success to starting out working for someone to learn the ins and outs of the business first. Working as a broker agent will only help with the immersion process, especially if that someone has never truly been in any form of logistics or brokerage-related role before.
Gaining industry experience will also provide a greater understanding of the day-to-day tasks of what it is like to be in the broker’s shoes, without the actual liability or responsibility. You may like it or you may not. Regardless, a time will come in which mistakes are made and when that time comes, it can be less damaging to you if you’re not held entirely liable for your own failures or successes.
Obtain formal/informal education
In order to be eligible for certain broker agent positions, companies may look for specific experience or skill set for consideration. A traditional method of this is obtaining a college degree in a related field from an accredited school. If you are in school, some notable degrees that may potentially be of value would be:
Logistics & Supply Chain
Small Business & Entrepreneurship
Sales & Marketing
If you’re desire is to become a successful freight broker but don’t want to accrue a bunch of student loan debt just to see if this profession is something that peaks your interest, there are other means of receiving some form of education.
Freight broker training
Informal trade learning outlets have become increasingly accessible and desirable for those looking for the industry expertise without all the costs. These trade learning outlets are commonly referred to as freight broker training courses.
Freight broker training courses are becoming popular methods of learning the ins and outs of freight brokerage. 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. If you would like to assess whether freight broker training courses are right for you, check out our article — Freight Broker Training: Is it a good investment?
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 freight brokerage, rather they break down every element from top to bottom of launching and operating a freight brokerage. By having completed a freight broker course, 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/Strategy
In order for your freight brokerage to scale properly, you may want to begin with a strategic business plan. Think of your business plan as a formal statement of goals, operational procedures, background on the company, and execution strategies for how you will accomplish your business goals.
There are many different segments to the business plan that require serious consideration: 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 freight brokerage operate as smoothly and efficiently as possible.
There is a saying that goes:
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, 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
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 System (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.
Raise Capital/Business Loan
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 among 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.
Sign Up for Load Boards
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.
Become a Freight 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.
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.