The definition of a freight broker is simply someone that arranges for the movement and transportation of goods and cargo between a customer, shipper and a trucking company or motor carrier. The freight brokerage business itself is massive. Most everything we come in contact with on any given day has been touched by a motor carrier and a huge percentage was arranged by a freight broker.
Generally most cargo can be transported in a dry van, on a flatbed or in a refer (refrigerated trailer). And there are inherent risks involved with each different type of cargo and trailer. Goods are transported across town and across the nation and into other countries as well.
The purpose of the freight broker is to find, sift through and identify the needs of shippers and customers. Then they must get “set up” or “approved” to haul with that particular distributor, store, shipper, grower or manufacturer.
A motor carrier or trucking company can consist of 1000 trucks or a “mom and pop” two truck operation. The motor carrier can actually hire all of their drivers or their drivers may be independent drivers known as Owner Operators.
The freight broker will earn a commission for their matchmaking skills and is responsible for all the billing and collections that go into that as well. International transactions involves rail, air and ocean liners to transport the cargo and are much more involved.
The governing agency of the freight broker is the Federal Motor Carrier Safety Administration (FMCSA) which is part of the Department of Transportation (DOT). There are no tests or qualifying exams for the freight brokerage industry but of course the government is always considering making these part of the process as they have in other industries, especially since fraud has become a huge problem in freight brokering.
When starting out in freight brokerage, the main problem people overlook is the countless hours cold calling on the telephone. Many fail because of this and frankly many motor carriers looking to add freight brokers as agents simply don’t share this information either. Many just throw them up against the wall to see what sticks.
When a broker finally gets that initial order, they must do a comprehensive credit check to insure they will be paid by the shipper, an expensive endeavor if the broker doesn’t insure the business is forthcoming. Also, the broker must re-qualify the carriers they will use to transport their customers’ freight.
Once again running credit checks and safety checks can become labor intensive and expensive. The broker must insure the motor carrier has insurance, authority from the DOT and the legal status to transport goods in this country.
To obtain the freight broker “authority” each applicant must show evidence of their MC# (motor carrier number), a surety bond in the amount of $10,000, a BOC-3 (Legal Agent permit) gives the broker representation in the contiguous 48 states in the event a claim is filed against the broker, and a UCR, which is a Unified Carrier Registration.
Cargo insurance is the responsibility of the motor carrier but a good contingent insurance policy is a good idea in the event of a claim being filed. This would insure your assets would not be affected, but is an additional cost for you.
The industry has changed dramatically over the last couple of years and continues to do so today. The economy has forced many customers and shippers, even some of the smaller ones to seek “outside” or “all in one”help with transportation and trucking needs. This has them turning to “Third Party Logistics” companies, sometimes referred to as 3PL’s.
These companies serve as a one stop shop for the shippers and typically take over all of their supply chain management functions, including integrated software’s and operations, warehousing and trucking services that can be scaled and customized to the customer’s needs based on market conditions and the demands and delivery service requirements for their products and materials.
Unfortunately, this is making it increasingly difficult for the smaller freight brokers or the ones that have a one-man office out of their home. It’s just too difficult for “the little guy”to compete directly with such large operations and resources.
The days of a single freight broker working out of his home office and making $60,000 to $90,000 annually are just about over.
Because of the shrinking profit margins, ever volatile diesel prices and the shift for shippers to utilize larger “third party logistics” companies, the ability to make sustainable profits would rely on the hiring of a sales staff, operations people and a dispatch department.
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