INTRODUCTION TO FREIGHT BROKERING
It was recently ranked the second best business to start by Entrepreneur Magazine. That’s because it’s a business with little start-up costs, little overhead/operational expenses and the potential for big returns. It’s a freight brokerage and with fuel prices having reached a painful peak in recent months, in part due to Hurricane Katrina and friends, it’s becoming more and more the alternative to driving a truck and becoming a motor carrier. What’s more, it can be operated right out of the spare bedroom in your home (assuming your municipality has no zoning restrictions to the contrary).
According to Federal Motor Carrier Safety Administration (FMCSA) statistics, more than 125-150 businesses apply for some kind of transportation business license each business day. That includes trucking companies, moving companies, bus companies, freight brokers and freight forwarders. Many go out of business because they’re not adequately trained or they unintentionally fall out of compliance with financial security obligations and their business licenses are revoked. Of these 125-150, approximately 5%-10% are freight broker applicants and those percentages appear to be rising. That’s probably because the average commission on a brokered load can vary between 10% and 20% of the bill of lading, with 15% as a current industry average. Depending on their knowledge, skills and abilities, freight brokers can and do earn in the range of $50,000 to $300,000 per year.
Freight brokering is, for all intents and purposes, much like real estate brokering. A freight broker is a third party intermediary who arranges for the purchase of transportation services. Brokers serve as matchmakers or travel agents for full truck loads of freight, dealing with buyers of transportation services (shippers), on the one hand, and, on the other, sellers of transportation services (motor carriers, aka trucking companies).
Shippers tend to rely on brokers for their expertise and their skills at monitoring the marketplace, watching supply and demand trends, and their ability to advise shippers the going rates for line transportation, surcharges, and accessorial services such as tarping. Carriers, in turn, especially independent owner-operators who have their own authority, often rely on brokers as their dispatchers. A carrier can take loads offered by brokers from such load boards as “Truckers Edge”, a co-branded service offered by DOTAuthority.com, the Industry’s leading application filing and representation service, and powered by TransCore, the Industry’s leading load matching solutions provider.
Although there are financial security obligations, in the form of a bond, to ensure the broker pays his carrier, brokers have no mandatory insurance obligations as they do not operate trucks, do not take possession of freight and are therefore not normally liable for shipments. This enables brokers to keep much more of their profit than their motor carrier counterparts who have high insurance premiums and vehicle maintenance issues to deal with, not to mention, Federal Motor Carrier Safety Regulations hanging over their head.
Becoming a freight broker can be accomplished rather easily by using an application filing service, such as DOTAuthority.com to file the complicated OP-1, BOC-3 and BMC 84/85 forms. DOTAuthority.com submits clients’ applications to the government electronically, which enables the broker applicants’ MC Number to be issued within just one hour. While brokers cannot start to operate until they receive their actual license, electronic filings speed up the process by enabling the applicant to quickly secure and file their $10,000 surety bond or trust fund agreement and their process agents (broker applicants’ legal points of contact for service of legal papers; they need one in each state). Applications and related filings processed through DOTAuthority.com and their partners Pacific Financial & Process Agent Service Company are usually finalized within 3 weeks and cost on average a total of $1250 (including bond compliance, if cash collateral is furnished). The optional $50 “License Watch” service is worth considering because it enables brokers to receive their license instantly by fax (once the bonding requirement is met and the 10 business day waiting period has elapsed) rather than wait the additional week to receive it from the government directly.
Freight Brokering can be mastered by individuals with experience in the trucking industry as well as newcomers thanks to available training programs. DOTAuthority.com’s Introduction to Freight Brokering seminar is one of the mentioned programs and is offered in 25 cities nationwide. This one day program covers the basics like setting up a business entity, securing a federal license, federal regulations, finding freight and trucks, sales & marketing, contract negotiations and freight rate development. Seminars are priced at $500, which includes lunch. Attendees walk away with two books, much insight, and a basic understanding of how to launch a freight brokerage business. This intense, low-cost, one-day program serves as an abridged version of the more thorough and expensive five day programs offered within the Industry that can cost upwards of $3,000. For more information on becoming a licensed freight broker or freight broker training opportunities, call toll free (888) 414-1874.
The writer, James P. Lamb, is a former motor carrier regulator, now a USDOT Licensed Practitioner who offers seminars nationwide entitled: “Introduction to Freight Brokering”
