Insider Secrets for Starting a Successful Business

Starting a Freight Brokerage Business

Dennis Brown, creator of Freight Broker Bootcamp, reveals insider tips about becoming a freight broker. He covers what it takes to get started, the difference between a freight broker and freight agent, FMCSA licensing, finding new customers, negotiating with motor carriers, insurance, bonds, and much more. [20 min.]

Tell us about your background. How did you get involved in the freight brokerage business?

Well, I’ve been an entrepreneur for almost 20 years. I’ve owned and operated several businesses including a small publishing company, a financial services company, even a software development company during the dot-com era where I learned a lot and had a lot of fun. I’ve done a variety of different things over my career and when I studied in college I was a pre-law major so I really never thought I was going to own my own business. Started my first venture and got the bug and it’s 20 years later and here I am.

You know, I admit, I really don’t have any idea what a freight broker does. Kind of run us through what a freight broker does on a day to day basis.

Well, a freight broker in its basic form is an intermediary or a middleman who brings together shippers needing transportation services and asset-based motor carriers or trucking companies that actually perform the services. Freight brokers are also known as property brokers or truck brokers or load brokers or even logistics brokers. They don’t act as either the shipper or the motor carrier but they play an active role in the movement of cargo throughout the world.

What are some bigger names of freight brokerages out there, large national companies that someone might recognize the name of?

A couple of the larger brokerages out there that are very well established and have been around for 50, 100 years that do billions of dollars in revenue. One company’s called C.H. Robinson. They’re a very large freight brokerage. And another large one I would say that would be very easily found or visible would be a company called Landstar.

But there’s definitely room for the little guy to break into this business?

There’s a ton of room and the reason why is because transportation is a huge industry, it’s everywhere. The phones that we’re talking on right now, the computers that we’ve been working on this morning, the desk that you’re sitting next to, the chair that you’re sitting on, everything went on a truck at some point during that delivery cycle. So it touches everything it’s so wide so vast. It’s domestic, it’s international, it’s import, it’s export. It’s a huge industry, there’s a lot of opportunity.

Walk us through the process of a piece of freight moving from point A to point B, how does that all work?

I’m going to just break it down to an actual transaction. Let’s say A, B, C Widgets needs a shipment picked up in Buffalo, NY, that’s my home town, then delivered to one of their customers in Atlanta, GA. They call us or another freight broker, and based upon the size and the weight and when it needs to pick up and deliver, they quote the customer a price. Let’s say the price is $1,300. The broker then contacts a motor carrier that regularly has trucks in the Buffalo area that’s willing to go to Atlanta, and negotiates a rate below the cost they quoted the customer. Let’s say he negotiates a rate of $1,100. The truck goes in, picks up the freight in Buffalo and delivers it into Atlanta, probably take two or three days to get it down there. And without ever seeing, touching the product the broker was able to make $200 in gross profit just by helping both the shipper and the carrier to achieve their goals. So that’s a basic example of how a transaction works. Does that make sense?

Absolutely. I mean it sounds pretty simple. It is really a lot more complicated then that?

It’s like anything else. Once you do you first transaction and you get a little bit of confidence then that builds upon the next and builds upon the next. And the next thing you know you realize it’s that old adage, wash, rinse, repeat, wash, rinse, repeat, right? And it’s really the same thing over and over again. And once you get that methodology down of how to quote the freight to your customers and how to source the carriers, the job gets a lot easier.

I’ve heard of the term freight agent. Is that essentially the same thing as a freight broker or a truck broker?

Well, let me explain the difference between a freight broker and a freight agent. A freight broker, also known as a property broker, is the entity that is licensed by the FMCSA, which is the Federal Motor Carrier Safety Administration, to legally broker freight. So he has a license, okay? He’s licensed and bonded through the FMCSA. So he’s the party that has that property broker license.

A freight agent is typically someone that works for or under a freight broker. So they could be a W-2 employee, they could be an independent contractor. So there’s a little bit of difference between the two. The freight agent typically handles the day to day transactions with the customers where as the freight brokerage is the licensed entity.

You talked a little bit about the license or the permit you need to be a freight broker. Talk about the process of obtaining that and how much it costs.

It’s a fairly simple process. You either have to be a licensed broker through the FMCSA or you have to work under a licensed broker as a freight agent. So the licensing process is there’s a one or two page license and a licensing fee which I think is a few hundred dollars that you submit to the FMCSA. There’s basic requirements that you have to have like a bond or a trust that’s established. You have to have some very basic requirements. So the process of getting set up is fairly simple. I was actually shocked how simple it is.

Do individual states have licensing or permitting requirements or is it all federally based?

No, good question. It’s all federally based. So when you get one license you have the ability to broker in any state.

So, realistically, how much can you expect to make in this business if you live in a typical small town or medium sized market?

Well, that’s a good question. And the great part about being a broker is you’re not limited by geography. Because most of the business is done over the phone or the Internet. Now it’s great when you can meet your customers face to face, so having a local component is awesome. But it’s really not a major requirement. Let me give you an example. We’re located in Buffalo. My brokerage has been here for 9 years. And less than 5 percent of our business comes out of this area. We have loads picking up in Florida, Texas, California, Oregon, depends upon what our customers needs are. And a lot of times even if you have a customer based in your market, his freight may be picking up or delivering in a totally different market because of how the supply chain works.

So with a website and a toll free number you could, you know even if you’re in East Podunk, you can broker freight shipments all over the country.

That’s right. As a matter of fact it’s really funny because some of our most successful agents are located in very rural areas where there’s not a lot of freight. But they’ve developed very good relationships and they’ve got the experience and skill to be able to service their client almost everywhere they have a freight need in the country.

You mentioned bonds a little while back. What about insurance and that sort of thing. How do you minimize your legal and financial exposure and I guess maybe you can talk a little bit about what that exposure is in this type of business.

You’re going to need to have a bond or a trust. And that bond or trust is designed to protect the trucking companies in the event that you were to go out of business. And that cost can vary depending upon the size of the bond or trust as well as obviously credit or financial information that each broker would have to submit.

Another piece of insurance that some brokers have, that while it’s not required, is called contingent cargo. Contingent cargo insurance is designed to protect the broker in the event of a potential damage claim. So let’s say for example a shipment gets damaged somewhere in transit and the carrier obviously has cargo insurance because that’s part of the responsibility of a broker is to make sure that carriers have the proper cargo insurance to cover it in the event of some sort of damage. But let’s say for some reason there’s an exclusion or it’s not paid by the insurance company and the shipper comes after the broker. Well that contingent cargo insurance is designed to try to help offset some of that risk.

So those are the two things you that you typically run into as a broker. Costs can vary significantly based upon what the specifics of that policy is, so it’s really hard to kind of quote a price. I’ll give you an example. We have $100,000 bond, and that probably cost us, rough estimate, a few thousand dollars a year for that bond. So that just gives you an example.

How much does it cost to get a freight broker business up and running? Do you need a lot of money to get started?

There’s really two ways to get started. You can work for a broker as a freight agent, which costs little or nothing to get started. And at worst case you’d be required to have a home office with a phone and Internet. So very low barrier to entry there. And that’s how a lot of people start. They become a freight agent for a freight broker. It’s a great opportunity to earn a great living doing that. I know agents for example that make 10,000, 20,000 even 50,000 a month as an agent. The second way would be to become a licensed broker. A licensed broker would have to have a filing fee that’s probably a few hundred dollars to file the license with the FMCSA. They’d also have to get a bond or a trust, and those costs can vary. I just shared with you a little bit of the cost of what we pay, of what my brokerage pays, but that cost can vary. It can be several thousand dollars for a bond, or more, depending upon your personal financial situation.

All in all compared to a franchise like a McDonald’s or a Subway or any other large franchising type organizations where you can need hundreds of thousands or even millions of dollars in net worth or cash assets to get started, becoming a freight broker is a relatively, a pretty low barrier to entry.

How do you find companies that are looking to ship a product from one place to another and need the services of a freight broker?

That’s a great question, Matt. And my answer is the same as it is in almost any business. Getting customers as a freight broker isn’t much different then any other service based business. You contact your target and the target in this case is typically manufacturers, distributors, producers, people that make or distribute products, right? And you find a need. Smart brokers network and build their business through referrals.

Let me give you an example of how that works in the freight brokerage. So every time a customer gives you a load to move there’s always a delivery location, he always wants it to go somewhere. The great part about that delivery location is that it’s usually one of their customers, it’s a distributor, it’s a warehouse or potentially it could even be another one of their company locations.

And the easiest way that I found to get customers as a freight broker is to talk to that location you just delivered to and say, “Hi Joe I just delivered a load of widgets from ABC Widgets and I wanted to make sure everything went okay with the delivery.” And then mention the fact you’ve been working with ABC Widgets and the reason why they use you is they were having a lot of problems in the past with getting freight to pick up and deliver on time.

And then you’d ask a simple question, have you ever had that problem before? And if they say yes, you have a need. And if they say no, or worse case scenario, you’ve networked with a new person, you have a new relationship and maybe you can call on them in the future. So if they say yes simply ask them would you mind if I quoted on some of those lanes that you’re having difficulty with? And if all goes well I’d get set up as an approved carrier.

And that’s how it starts. The great thing about, like I said, the nature of freight is that it’s picking up and delivering so there’s a lot of parties involved in it. There’s pickup to locations, delivery locations, and sometimes on a shipment you’ll have multiple delivery locations so you’ll have multiple opportunities to network and to build new relationships and that’s the foundation of any new client.

So let’s say I’m a manufacturer and I need to ship something, why would I call a freight broker when I could just call the trucking company directly and maybe save 10 or 20 percent or more of the shipment cost. Why do they look for these middlemen to offer this service.

Well, Matt, if I had a nickel for every time I’ve got that question I’d have a lot of nickels, I can tell you. Because I get that question all the time I like to set the foundation to help everybody to understand one of the major dynamics in the trucking industry. Statistically speaking 85 percent of all trucking companies own less then six trucks. Now that may not mean a lot to you but it means a lot to the industry because what that means is that the trucking industry is predominantly made up of small businesses. If you own six trucks you have very limited ability to fully service a customer because you only have six pieces of equipment at any given point, right? So if that equipment is out and your customer calls and you don’t have an available truck well then you’ve got to pass and you’ve got to give it to someone else.

In order to find a truck a shipper might have to make 10 or 20 or 50 or more calls to carriers just to find an available truck. But by doing business with a broker they’re able to take all that legwork off their plate by letting the broker worry about those relationships and finding the trucks. So in essence it comes down to one word, time. Brokers save shippers time and they make their shippers job easier.

There’s a phrase in the industry that smart brokers use, it’s called one call does it all. And that refers to that concept of you can make 10 or 20 or 50 calls and try to call carriers direct, or you can call me and let me do that work for you and let you focus on what you do best which is making widgets. So it’s a true outsource model.

Talk about a freight broker’s relationship with the trucking companies. Do you negotiate each shipment as it comes in, or can you prearrange terms with them so you have some idea ahead of time what kind of deal you’ll be able to offer the shipper to start with?

There are times when you will have pre-negotiated rates based upon a specific lane or a specific type of freight or a specific area or a specific need, right? That example that I gave you earlier moving a shipment of widgets from Buffalo to Atlanta. I may have some carriers where I have a contracted rate where we’ve negotiated that my rate on that is 1,100 dollars. Because I went out to my carriers and I’ve asked them to bid on that lane and they’ve committed to a rate for me.

Other times you’ll negotiate in the spot market. And the spot market is where you’re negotiating based upon the supply in demand in any given market. That’s really what drives any market is supply in demand, and trucking is no different. So the supply of available trucks versus the supply of freight and that dynamic and ratio is what really determines the cost of freight.

So to answer your question, sometimes you do have pre-negotiated rates with carriers, and those are great assets to have. And sometimes you ultimately have to go into the spot market and see what’s available based upon a season or the different market conditions that are out there. And that’s one of the things that good freight brokers become very good at which is understanding the markets they work in and the dynamics that drives the supply and demand.

It’s probably different depending on whether you’re operating as a freight agent or a freight broker, but once you’ve brokered a shipment are you done with the process or are you still completely responsible for that shipment until it arrives at its destination safely?

Brokers are responsible, what we like to say is from cradle to grave, right. So from pickup all the way through to delivery the broker has some responsibility to his customer number one, to make sure that that product is picked up on time, delivered on time in good condition. So just because you find a truck and that truck goes in and picks up the shipment it would be negligent and obviously not very good service to walk away from that and move onto the next shipment until that product had been delivered on time and that you’re sure you’ve met the obligation that your customer’s paying for. So you’re responsible for the freight all the way through to delivery.

You’ve created one of the most popular freight broker training courses around. What are some of the other online resources like web forums, industry associations or trade magazines or websites that might be helpful for someone wanting to become a freight broker?

Oddly enough I have a couple of them sitting right here on front of me that I had been reading. One of the industry trade magazines that I read a lot is called Transport Topics. I really like Transport Topics. It’s a weekly and has a lot of information not only about being a broker, or brokerage related dynamics, but also trucking and international and a variety of different pieces. So, I really like Transport Topics.

Another magazine that I read is called The Journal of Commerce. The Journal of Commerce has a lot of great information in it.

And then as far as an association we’ve been a member of what’s called the TIA or the Transportation Intermediaries Association for the last 9 years. I’m a big believer in the TIA. They’re an association that helps represent brokers and intermediaries. They do a lot of different things offering different benefit programs, discounts, training. They also lobby in Congress to try to protect the industry and protect the livelihood of all of its members. So, I believe those three things would be really good resources for anybody existing in the industry or new to the industry.

Dennis what are the biggest mistakes that you see people make when becoming a freight broker?

You know that’s a tough question but having started a lot of businesses and made mistakes of my own. And having seen a lot of people start businesses that some survived and thrived and others failed, it kind of comes down to the basics which is doing the proper due diligence and research and planning up front. And even when you do that then staying very focused on that plan and not letting yourself get distracted by other opportunities or other things that may come into your field of view.

We live in a pretty dynamic world. You know the Internet and cell phones and there’s a lot of interruptions and a lot of distractions. The key to my success that I see and where I think a lot of people fail is they don’t plan properly, they don’t do the proper due diligence and they lose focus. So those would be probably some of the bigger mistakes that I see.

Dennis Brown is CEO of Logistic Dynamics and creator of Freight Broker Bootcamp.