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

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serving the transportation industry as a freight broker. What exactly is a freight broker? Very simply, it is an individual or a company that brings together a shipper that needs to transport goods with an authorized motor carrier that wants to provide the service. The legal definitions of broker and brokerage service are found in the Code of Federal Regulations, 49CFR371.3:

      A freight broker falls into the category of transportation intermediary, which is a company that is neither a shipper nor an asset-owning carrier, but plays a role in the movement of cargo. “Transportation intermediaries leverage their knowledge, investment in technology, and people resources to help both the shipper and carrier succeed,” explained Voltmann.

      Brokers provide an important and valuable service, which in many cases has become indispensable within recent years, to both motor carriers and shippers. Brokers help carriers fill their trucks and earn a commission for their efforts. They help shippers find reliable motor carriers that the shippers might not have otherwise known about. In fact, some companies use brokers as their traffic department, allowing the broker to coordinate all of their shipping needs.

      Brokers are not new to the trucking industry; they’ve been around since the industry itself began in the early part of the 20th century. Prior to the 1970s, however, regulations governing brokers were so restrictive that few firms were willing to even try to gain entry into the industry. But with dramatic changes in federal transportation policy during the 1970s, regulatory restrictions have been eased, creating new entrepreneurial opportunities in the third-party logistics arena.

      An industry so huge and diverse requires a wide range of participants to thrive. Some of these participants’ titles may be a bit confusing, and some of their responsibilities may overlap. But to keep things clear, and as simple as possible, let’s look at who the key players are and what they typically do.

       • Freight broker. A freight broker is the middleman who connects shippers and carriers. Freight brokers are also known as “truck brokers,” “transportation brokers,” and “property brokers.” Though the term “freight broker” is used throughout this book, you may see or hear these other titles elsewhere.

       • Shipper. A shipper is an entity that has products or goods to transport. Technically, shippers can be individuals or companies, but as a broker, you will deal most often with businesses in fields like manufacturing or agriculture.

       • Motor carrier. A motor carrier is a company that provides truck transportation. There are two types of motor carriers: private (a company that provides truck transportation of its own cargo), and for hire (a company that is paid to provide truck transportation of cargo belonging to others). There are two types of for-hire carriers: common and contract. A common carrier serves the public under two stringent obligations: compulsory service and liability for loss or damage to goods. A contract carrier transports freight under contract with one or a limited number of shippers.

      tip

      Many shippers who have their own fleets (private carriers) occasionally function as contract carriers. Many of their trips are one way, and they often work with brokers to find loads to carry on their return trips. Build relationships with private carriers whenever you can.

       • Freight forwarder. Often confused with freight brokers, freight forwarders are significantly different. Forwarders typically take possession of the goods, consolidate numerous smaller shipments into one large shipment, then arrange for transport of that larger shipment. To transport goods, surface freight forwarders use both motor freight and rail carriage; airfreight forwarders use cargo and passenger airlines; and ocean freight forwarders use water carriers.

      stat fact

      Since trucking deregulation in the 1970s, the number of shippers associations has declined significantly.

       • Import-export broker. These people are facilitators for importers and exporters (import brokers are also referred to as customhouse brokers). Import-export brokers interface with U.S. Customs, other government agencies, international carriers, and other companies and organizations that are involved in international freight transportation.

       • Agricultural truck broker. Generally small and operating in one area of the country, unregulated agricultural truck brokers arrange motor carrier service for exempt agricultural products.

       • Shippers associations. Shippers associations are exempt, nonprofit, cooperative organizations formed by shippers to reduce transportation costs by pooling shipments. Shippers associations operate in a manner very similar to that of freight forwarders, but their services are limited to their members and are not available to the general public.

      In a perfect world, of course, each entity in the industry would handle its traditional role and that’s all. However, the transportation industry is changing so rapidly that once-distinctive lines have blurred. Also, it’s quite common for a successful freight broker to expand his or her business by creating subsidiaries or additional companies that offer other freight services.

      Plus, while it’s not possible to fully automate a freight brokerage business, technology and specialized software (from companies like DAT Solutions, LLC, www.dat.com/products/broker-tms) are currently being used heavily by freight brokers of all sizes, so they can work much more efficiently when it comes to managing operations, accounting, document management, and analytics. Thus, a successful freight broker must understand how to best utilize the specialized technology that’s at their disposal to remain highly competitive.

      A key issue, say industry experts, is that legal definitions have not been challenged recently, so freight forwarders may be acting as brokers, and brokers may assume the role of freight forwarders. In the event of a cargo claim or nonpayment of bills, problems can arise when a company holds multiple authorities. The question becomes: Who was wearing what hat and when?

      • A Truck by Any Other Name

      The term “truck” is an umbrella word covering a wide range of equipment. Among the types of trucks you’ll need to be familiar with are:

       • Dry vans (non-refrigerated semitrailers)

       • Refrigerated semitrailers (or “reefers”)

       • Flats or flatbeds (flat trailers built to handle heavy loads such as metal and machinery)

       • Liquid tankers (trailers designed to carry liquid or fine bulk materials)

       • Ragtops (canvas-covered, boxlike trailers)

       • Containers (shipping containers used for freight carried on ships or trains)

       • Air-ride (trailers built to reduce road shock and designed to carry fragile items)

      tip

      As a freight broker, you’ll build your company on repeat business. If you do a good job, you’ll rarely have a one-time customer. Most shippers have routine, repetitive shipments that move around the country on a predictable schedule. As you become familiar with these shipments, they become easier to handle. To establish loyal customers and generate repeat business, not only must you master the skills related to becoming a skilled freight broker,

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