How To Start Freight Brokerage Business – So, how does one start a freight brokerage business? What does a freight broker do? Get answers to those questions (and many more) by reading this guide to starting your own freight brokerage company.
The trucking industry is huge. As the American Trucking Associations put it, it’s the lifeblood of the American economy. More than 70% of freight in the United States is transported by trucks. Overall, the industry employs more than 3.36 million drivers and rakes in $732.3 billion in revenue. There must be a lot of money in the trucking industry.
How To Start Freight Brokerage Business
The profit potential is not lost on many people, and every day, there are entrepreneurs trying to get a foothold in the trucking industry. From driver to smartphone app designer, there are many different trades and niches in the trucking world. The trucking industry operates within a complex network of supply chains and organizations. Savvy business people are often attracted to the logistics side of the industry and try their hand at starting their own freight brokerage.
What Is Freight Brokerage?
A freight broker acts as an intermediary between a shipper and a truck driver/trucking company that is looking for freight to transport.
Consider match.com a freight broker for the trucking industry. They are matchmakers for trucks that need to run and companies/individuals that have freight that needs to be transported.
Freight brokers play an important role in the shipping process. Brokers negotiate suitable shipping rates between the two parties concerned and also find work for truckers/carriers. In addition, freight brokers are expected to be prudent bookkeepers, as they track pickup, delivery and other stages of the transportation process. It is also common for freight brokers to pay carriers for the loads they carry (so that trucking companies can be paid quickly) and then collect payment directly from the shipping party involved later.
Finding a niche role in your industry is a good practice, regardless of what your business does. The same is true of freight brokerage—most small brokerage firms choose to design their business model in such a way that their company focuses on specific regions, types of freight, types of carriers, and so on. Fix what you know best. Say you are familiar with the supply chain in Minnesota, for example, focus your efforts on brokering deals between carriers/shippers in Minnesota. If you prefer to work in local-logistics, focus on inter-city shipments. If you like working with a certain type of freight or a certain type of industry, look for them.
Freight Broker From Scratch: How To Start A Freight Brokerage Business
After you’ve got an idea of what type of shipping you want to get into, it’s time to hit the books and do some market research. Take a look at the facts and figures surrounding the economy and your potential industry. If you understand that there is sufficient demand for your services, start looking at the next step. If you don’t know if you can squeeze a profit from your incoming freight brokerage, reconsider your position and try again.
The second part of market research for entering the freight broking industry is understanding how to price shipments. Freight costs are determined by two aspects of the load—the weight and the distance traveled. Familiarize yourself with the going rates of hire and also keep in mind that you should keep 5-10% of that total as a broker’s commission for yourself.
You’ve now carved out a role for yourself in the transportation industry and you’ve done the research that gives you the confidence to move forward. It’s time to start looking for shippers and carriers to connect with. But where are they found?
Finding carriers isn’t as difficult as you might think. There are specialized trade magazines and trucking directories that can help you get started. You can also hang around truck stops – Amin Khawaja, a guest writer for
How To Start A Trucking Business
One can try to find carriers through word of mouth recruitment. Typically, freight brokers enter the brokerage business after a few years in the transportation industry, either as a shipper themselves or as a carrier. Call on your past business contacts and use the (hopefully) strong reputation you’ve built up in the trucking world.
Khawaja suggests a startup fund of $5,000 to $250,000, depending on the size of the outfit you’re trying to establish. Obviously, there is a huge disparity between $5,000 and $250,000. Some expenses, you will find, you may not need. If you have limited startup capital, you can forego leasing office space and set up shop in your basement instead, for example.
So what can you expect to spend money on? According to the advice of Khawaja and others, you can estimate the following costs:
Again, starting a small brokerage is not an expensive task. This is especially true if you have already established connections in the trucking industry.
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However, you will need some significant sums (tens of thousands of dollars) to set aside for operating capital. The best way for carriers to establish a loyal clientele is to pay them promptly for the freight they carry. If you wait to pay the carriers until the shippers have deposited the cash. Then you won’t retain carriers for long – they’ll go elsewhere and work with brokers who can provide them with steady cash flow. Advance payments to carriers keep trucking company owners happy. It also attracts new clients and will ultimately ensure that your brokerage does not falter in the beginning.
Keep in mind that having a solid credit score is very helpful when you start your real estate brokerage. Chances are you’ll need to borrow some money for operating funds (unless you have $50,000 or more sitting around). To request a good case to a bank or lender, you will need a comprehensive business plan to show financial agents and you will need a reliable credit history.
After doing market research, finding a niche in the transportation industry, establishing a list of client carriers and projecting your startup costs, you’re ready to pull the trigger and register your freight broking company.
If you follow these guidelines, you should have a healthy freight brokerage. However, even healthy freight brokers struggle to maintain a steady cash flow. If your freight brokerage runs low on working capital to continue paying its carriers, contact Factor Finders. We have connections that can help you secure debt-free financing that will help you match other shippers with other carriers. Never let your brokerage fall behind because you run out of liquid cash. Before you decide to work with a third-party logistics (3PL) provider, it helps to understand how the relationship will look and work for broking freight.
Freight Solutions & Brokerage
What will a freight broker actually do to your plate, and what obligations will you still have in court?
Here’s a breakdown of how a logistics broker works, the key points around their value-added services and how you can help them, along with tips to help you.
Order Tender: To begin, a business (shipper) calls or emails an order to a freight broker (3PL) for pickup. It is imperative that a 3PL gathers all necessary information when tendering freight, whether it is a regularly scheduled shipment, or a special order or event. In addition to basic location and contact information, they need to know special packing or handling instructions, compliance standards, equipment and consignees’ preferences.
If set up with electronic data integration (EDI) or an application programming interface (APIs), a shipper can provide all the necessary information to their 3PL without email or phone, and instead the data automatically. are processed and sent to their transport partner.
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If you are interested in learning what is involved in becoming a logistics broker, you can take a look at this in-depth freight broker startup guide.
Freight Scheduling: A 3PL then takes all of the above information, enters the order into their freight management system, and works to schedule and confirm the correct order pick-up and delivery times.
They take the time to secure qualified transportation by selling and then booking a skilled carrier on order. A freight broker builds their network full of carriers they have vetted and can depend on. Instead of vetting drivers yourself, you can rely on a truck broker’s experience and strong database to find the best option.
This is also the case when important management information is shared. Before booking, it should be confirmed that the carrier (truck driver) has:
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Dispatch: When it’s time to pick up a scheduled order, the 3PL personally connects with the driver, providing all important information (name, trailer type, truck #, trailer #, cell phone, and current availability ), and retransmits handling requirements. This is also when the pick-up information is given to the drivers.
Loading: Your 3PL stays in touch with the carrier throughout the loading process. It is not considered complete until all cargo is loaded onto the trailer, the trailer is closed, in some cases sealed, and the carrier signs the shipper.
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