Should I Become A Freight Broker?
Life As A Freight Broker…
What is a freight broker?
A Freight broker is a person or company that arranges for the transportation of a party’s goods, typically. Pretty much every item you see around you was moved by truck, train, air, or sea at some point. A broker can generally act as an intermediary for any type of shipment of commercial goods moving anywhere in the world. Importantly, moving household goods, such as when a person moves personal property from one home to another, requires a broker to have a special household goods designation. A broker must be licensed through the Federal Motor Carrier Safety Administration (FMCSA) and must, as raised recently, carrier a $75,000 surety bond. This bond exists to protect motor carriers from brokers that go out of business or do not pay their debts to these carriers.
What does a freight broker do?
In an ever expanding global economy, the options for a freight broker are rather expansive. Quite simply, a broker builds relationships with freight shippers and carriers and brings the two together in transactions to satisfy the requirements of each. The difference between what the broker charges the client and what is charged by the carrier becomes the broker’s profit after operating expenses. Most brokers focus on smaller niches or segments such as volume shipping, specific lanes or regions, or maybe rail or air freight shipments. However, there are many a la carte brokers as well, such as Easy Shippers, that can handle pretty much anything. One of the rewarding characteristics of being a freight broker is having absolute flexibility in what you or your company does, along with an asset-light model of doing business. If something doesn’t work or a mini-market changes, you can switch into a different market that is doing better. A broker, unlike a carrier, has absolute flexibility.
Is freight brokering a lucrative business?
It seems becoming a freight broker is on every other “Top 5 Best Companies To Start” list these days or in every entrepreneurial magazine and article you read. What they don’t tell you is, the majority of transportation brokers do not succeed. The monetary barriers to entry have recently risen in the form of a bond requirement increase from $10,000 to $75,000. But more importantly, brokering is a tough business that requires diligence, experience, and intelligence. The climate is riddled with rules, laws, and complications. Historically and currently, many carriers do not like working with brokers and often make a broker’s life miserable. Over the last several years, there have been a consolidation of remaining large national LTL trucking companies and most are reluctant to provide brokers competitive pricing. Imagine a climate where you’re out there fighting for opportunities in the market, and it seems like everyone is getting better pricing than you are. Even small shippers that ship a few times a month often get better pricing than larger freight brokers that are trying to build solid relationships with different carriers. That being said, with the right mix of inputs, a brokerage can be very successful even in the current market. There are always opportunities and ways to make money in transportation. The better your business acumen and negotiating skills, the better your chance of success.
How do you get started?
The first step to becoming a freight broker would be to file your paperwork with the FMCSA and figure out your surety bond. If you can get your bond, that’s pretty much the biggest difficulty in getting started. Once you’re licensed and bonded, now the real journey begins. I would argue training, especially in the current market, is 100% imperative. If you try to go out there and just get started based on basic logic and sound business principles, you will almost certainly fail. Carriers don’t work on logic and sound principles. You need to learn about freight class, packaging, shipping and receiving rules, carrier tariffs, cargo liability and claims handling, risk mitigation, and the way the industry determines pricing. Transportation is just complex and ambiguous enough that most people will never want or try to get to understand it, which means they’ll end up paying more than they should most of the time. This is, of course, by design. Spending a few years working for another broker before diving in can pay dividends here!
Once you’re trained and understand the market a bit, then you’re ready to start building relationships with carriers and shippers, which is another difficulty; carriers don’t want to give you the time of day if you don’t have any business. You can’t get business until you have pricing good enough to give shippers. Most shippers don’t want to waste their time and usually only allow one chance, if any, for you to show them you can compete. Down the road, you can learn to compete, not just on price, but on service and other more valuable offerings, but in the beginning, it will be price. This is one of the hardest parts to finding success as a broker – building a customer base when you can’t compete price wise with anyone else. This is where diligence and commitment come in. Eventually, you’ll find the right carriers and shippers and begin to create value in the marketplace, allowing you to start growing.
Feel free to contact me with any pertinent questions you may have. I also offer training and consulting services over the web, phone, or in person.