Freight Brokerage Business - The Staff of Entrepreneur Media, Inc. Startup Guide

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your obligations and pay any potential claims. You can either use your own resources or contract with a bonding company. Evidence of a surety bond must be filed using Form BMC 84; evidence of a trust fund with a financial institution must be filed using Form BMC 85.

      Designation of process agents means that for each state in which you have offices or in which you write contracts, you must file a designation of person on whom court process may be served.

      When your application is approved, you’ll receive a permit with a Motor Carrier (MC) number from the FMCSA that is your authority to operate as a freight broker within the United States. Beyond the regulations that govern your particular operation, when you act on behalf of a person bound by law or FMCSA regulations as to the transmittal of bills or payments, you must also abide by the laws or regulations that apply to that person.

      In addition to federal requirements, you’ll need whatever business licenses and/or operational permits that are required by your local and state governments.

      Check with your local planning and zoning department or city/county business license department to find out what you need and what is involved in obtaining these licenses and/or permits. For example, you may need an occupational license or permit issued by your city or county, a fire department permit if you are in a commercial location and/or open to the public, and/or a sign permit.

      Prior to opening your own freight brokerage business, it’s an excellent strategy to first work for another company within the industry—either for a shipper, a carrier, or both. The more real-world industry experience you have, in addition to industry-specific training, the better off you’ll be. Through real-world experience, you’ll not only gain technical expertise, you’ll also make contacts that are critical to success in this business.

      Cathy Davis entered the industry as an inventory control clerk for a river terminal, and then spent time working in sales for motor and air freight carriers. “I was fortunate to have been mentored by the owner of the carrier I worked for,” she recalled.

      warning

      Don’t try to get around the law. Penalties for evasion of regulation by motor carriers and brokers include a civil penalty of $200 for the first violation and at least $250 for a subsequent violation.

      Her consulting business gave her the opportunity to learn even more about being a broker. She was an agent for brokers before becoming one herself, and that gave her both hands-on experience and an opportunity to build her reputation within the industry.

      “I highly recommend this startup method with total disclosure of intent and a legal agreement,” she said. Later, she earned the Certified Transportation Broker designation through the Transportation Intermediaries Association (TIA), as did her daughters before they took over the Smyrna, Tennessee-based company.

      Similarly, Chuck Andrews, who is based in Indianapolis, held senior positions with a major LTL carrier, was president of a truckload (TL) carrier, and has worked in railroad operations. “My whole background leading up to forming my freight brokerage company has all been in transportation,” he says.

      Davis believed new brokers need “a strong sales background, good business advisors, and a desire for continuing education.”

      How can you build strong, positive relationships with carriers? “Pay on time, and pay reasonable rates,” said Davis. Of course, she added, having “driver-friendly” freight is a positive aspect, and communication is critical.

      “We use a load-matching service to help find carriers, but also network with members in various organizations. We consider the carrier to be a customer and extend the same degree of professionalism to a transaction with them as we do with shippers.”

      Establishing and building relationships with carriers and shippers will likely be your biggest startup challenge. “Because of brokers who have gone out of business (owing carriers money), truckers are very careful about who they do business with,” says Andrews. “If you do not have a history with that trucking company, he’s not going to be very aggressive in wanting to haul your load because he doesn’t know if he’s going to get paid or not. Even though you have signed all the papers and you’ve got your surety bond, he’s going to be leery until he gets that first check from you.”

      tip

      Know your rights: By law, common carriers are required to serve, deliver, charge reasonable rates, and not discriminate.

      While there are services for brokers that are designed to help you easily find carriers, it’s almost entirely up to you to seek out, negotiate with, and develop relationships with shippers. After all, without shippers willing to pay you for your services, you have no business.

      It’s a problem that only time can solve. “It took us quite a few years to build up our business,” Andrews says. “We currently have close to 7,000 truckers under contract to move our freight.” When he adds a new trucker, he presents himself as a reliable, professional broker by sending an information package that includes information on the company, as well as a listing of key personnel, bank information, and carrier references. “The hard part is getting that first load moved and then being able to build on that for your credit references.”

      • Bond . . . Surety Bond

      Many people do not have a clear understanding of what a bond actually does. Basically, it is an amount of money that you post to guarantee that you will do something you’ve promised to do. Probably the most common way you hear the term “bond” used is in criminal cases. When someone is arrested and charged with a crime, he or she can put up an amount of money (or something else of value) to guarantee an appearance in court. If the person shows up as promised, the money is returned; if he or she is a no show, the money is forfeited.

      Because many people do not have the cash on hand to post the full amount of a required bond, they turn to a bonding company. The bonding company charges a percentage of the total bond to put up whatever amount of money is required. The money the bonding company collects is a fee and is not refundable. In addition to charging the fee, the bonding company may also ask you to post collateral, such as real estate or equipment.

      Here’s where the confusion on bonds often occurs: A bond is not insurance you purchase; it is the collateral for a promise. And if you use a bonding company, you are still ultimately responsible for the total amount of the bond, not just the fee you paid to the company.

      In the case of a freight broker, the surety bond guarantees that you will meet all your contractual obligations to your customers, and that you can pay any claims immediately. If you use a bonding company and that company pays any claims on your behalf you must repay the company, usually within 90 days. If you fail to repay, and have posted collateral, you will likely lose that collateral.

      warning

      Be sure to fully check the references and credentials of all the carriers you use, before you ever give them the first load. If you fail to do so and a problem occurs, you could find yourself responsible for the damages.

      It’s important to understand the economics of the trucking business

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