What Is A Freight Broker/What Does A Freight Broker Do?
According to the FMCSA, a freight broker is a person or an entity which arranges for the transportation of property by a motor carrier for compensation. A broker does not transport the property and does not assume responsibility for the property (1). In simpler terms, freight brokers are the middle-man between shippers and carriers. The need for freight brokers can be discretional in large companies and shipping operations, for they sometimes have access to a fleet of their own. In the case of these types of operations, the need for extraneous freight brokers is mitigated. Alternatively, companies without internal access to trucks often rely on a third-party freight broker to facilitate communications between them and potential carriers that can haul their shipments. Companies will also pass their shipping operation off to brokers if they feel they have a better handle on carrier-compliance, market rates, DOT regulations, and more.
Freight Broker Start-Up Essentials
The beginning of your freight brokerage journey can often seem like the toughest part. This is because there is a laundry list of tasks that need to be completed and systems that need to be set up before you can even begin moving freight. For the sake of keeping your attention, I’ll simplify this process to the best of my ability to not over-complicate things. Here are a few things you’ll need to acquire or get done before booking your first load:
- Broker Registration – Go to the FMCSA website and fill out an application and wait to be assigned a number. According to their website, there is a processing time of roughly 4-6 weeks and a $300 surcharge in the form of a processing fee.
- Surety Bond – A $75,000 Trust Fund Agreement as a form of insurance coverage for your business. If you are unable to compensate your carriers, they can come after your bond.
- Cargo & Liability Insurance – This will come in handy in case there are any issues regarding damaged goods during the time of transit. In the case that something does get damaged, lost, or stolen, you will avoid claiming liability of the goods, which is why you become a broker in the first place, to reduce risk and avoid liability.
- Factoring Company – Investopedia defines a factoring company as an intermediary agent that finances receivables; they are essentially a funding source that agrees to pay the company the value of an invoice less a discount for commission and fees (2). As a new freight broker, it is imperative to partner with a factoring company to handle the payment of your carriers during the development phase of your business. Even more important, is selecting a good factoring company, that is not going to nickel and dime you or slap you with hidden fees. Freight Factoring Specialists, LLC. shares these same beliefs (3). They offer services no other factoring company does and is completely dedicated towards going above and beyond for their brokers.
Transportation Management System (TMS)
TMS or logistics automation is defined as the decrease in manual entry of processing freight shipments and the automatic retrieval of options in the procurement of transportation for your freight (4). It is quite commonly used among active freight brokers, considering data entry is not a task that requires human engagement if a computer can produce equal or greater results. Automating the process through computers also cuts down on the number of user error occurrences when entering data into the system. More accurate entries will help prevent having inflated books and P&L statements. In addition to automating data entry, a TMS can help improve customer service, provide access to valuable freight information, and seamlessly integrate itself into the other elements of your day-to-day operations (4). A good TMS may be costly but they are essential to the proper management of your brokerage.
Up until now, starting your freight brokerage has been straightforward. Follow the steps and you’ll position yourself to begin moving shipments as they become available to you. You have not yet experienced the grand task of having to get customers. This is going to be one of the more difficult tasks of being a broker. The process is simple but far from easy. It requires a lot of cold calling, something in the realm of logging 100 calls per day. I personally know of a freight broker that worked in what was the epitome of a boiler room, cold calling businesses for about 10 hours per day. Not many people can sit down at desk for that long and hit the phones day in and day out. Fortunately, we live in a day and age where there is more than one way to get in touch with potential shippers (5). It is not always an exciting process and you will most likely not see any real consistent earnings within your first 90 – 180 days. Make note of that before moving forward with your decision to start your brokerage. However, once you eventually do obtain a customer base, they will be loyal to you so long as you take good care of them.
Become a Freight Broker Agent
Want all the glory of being a freight broker without all the responsibility? Get with an existing brokerage as a freight broker agent and leverage their insurance, broker authority, surety bond, systems, and technology. The primary difference between a freight broker and an agent is that the agent is contracted by the brokerage and typically works on commission (6). If you’re completely new to the industry, being an agent first is recommended as it allows you to get a taste of what it is like to operate a brokerage without having to put forth the upfront capital. Just know that it is common industry practice for the brokerage to take a percentage of the agent’s commission to cover the cost of providing them with all the services they need to manage the day-to-day operations. Although, in some cases, certain brokerages will elect to offer the same services without taking a percentage of your profits. Eagle Express Service is a known proprietor of this, offering their freight broker agents 100% commission (7). Their broker does this by administering a 5% brokerage fee on the total freight costs, providing a solid platform for anyone looking get the feel of operating their own brokerage, without taking on the actual responsibilities.
Now is the Time
There literally has never been a better time to get into the transportation industry. Companies are continuously looking for ways to save time, resources, and money. You will save them the headache of having to create their own shipping department, if they even have the capital to do so. Let them focus on their business, while you focus on yours. The results of this growth spurt in the number of freight brokers in the industry have yielded some interesting results. According to DAT’s reports from January of this year, freight brokers achieved record numbers – lead by a 41% increase in the volume of loads moved and a 26% increase in the revenue per load, compared to the numbers from the same time in the previous year (8). In addition, the Global Freight Brokerage Market 2017 – 2021 has projected the market to grow approximately 4% (9). The global need for transportation has lit the fuse for freight brokerage to begin scaling all around the world.