Many business owners rely on freight orders to expand their businesses. The freight helps them maintain business operations and provide products to customers. These small businesses use freight brokers to connect them with truck carriers.
Additionally, truck carriers also benefit from freight brokers. These brokers introduce new customers that can become long-term shippers.
What Is a Freight Broker?
A freight broker acts as an intermediary between shippers and carriers. Not every company can reach out to a network of carriers. It’s also challenging to stay updated on industry trends and pricing. Carriers can pitch themselves to new clients. However, they save time if someone brings clients to them. Instead of pitching themselves to many businesses, they pitch themselves to a few freight brokers.
What Is the Function of a Freight Broker?
Freight brokers bring shippers and carriers together. A shipper informs the broker of the intended destination, and the broker matches the shipper with the most cost-effective route.
Freight brokers also establish prices on deliveries. Shippers pay to store their freight, and carriers receive payment for transporting the cargo.
How Freight Brokers Make Money
Freight brokers serve as a critical link between shippers who have goods to transport and carriers who have the capacity to move these goods. They make their money through a process of negotiating costs with both parties. They find carriers willing to transport the goods for a certain price, and then they charge the shipper a higher rate for the same service.
The difference between the amount they charge the shipper and the amount they pay the carrier is their profit margin, often called the “spread”. This commission-based business model allows freight brokers to make money by facilitating and simplifying transactions in the complex logistics industry.
Pros & Cons of Using a Freight Broker
Using a freight broker comes with pros and cons. Like anything in business, freight brokers are not a one size fits all model. Some companies greatly benefit from freight brokers while they hinder the progress of other companies.
Advantages of a Freight Broker
Freight brokers simplify transportation. They connect shippers in need of cargo with carriers needing additional work. Shippers and carriers both save significant time with the help of freight brokers.
Disadvantages of Using a Freight Broker
Freight brokers cost more than building relationships yourself. Brokers will charge higher prices to shippers. They will also give less money back to the carrier. This middleman gap allows freight brokers to stay in business. Some parties can handle this difference. They see it as the cost of leveraging a freight broker’s connections. Some companies establish enough connections and decide to become freight brokers.
Freight brokers will hurt margins. High-margin businesses don’t have to worry too much about this inconvenience. Margins become a more significant issue for companies with little room to spare. An extra 5% fee can slice some companies’ profits in half.
Shippers and carriers can also connect using a load board. Load boards reveal carriers and average rates.
They help shippers choose the best carriers for their orders. While this process takes extra work and negotiating, some groups see load boards as viable alternatives.
5 Steps to Find a Freight Broker
Shippers and carriers can select from several freight brokers. Some brokers have more attractive fees and bring more clients to carriers.
Other brokers can offer more favorable prices for shippers. These steps will help you find a freight broker that matches your criteria.
Step 1: Verify Insurance and FMCSA Data
Verifying insurance and FMCSA data lowers your risk as a shipper. Insurance provides an extra layer of protection if the cargo gets misplaced or damaged en route to its location. FMCSA licensing acts as a stamp of approval. This licensing indicates the broker or carrier takes safety seriously.
Step 2: Run a Credit Check
Carriers will benefit from running a credit check on freight brokers. Credit checks reveal a broker’s ability to manage money. A low credit score and glaring debt problems can lead to late payments. If you drive freight, you want to ensure timely payments. Freight brokers with solid credit can readily fulfill payments for your services.
Step 3: Look at Experience and Reviews
As freight brokers conduct more business, they receive more reviews. Reviews provide perspective on customer experiences. Read reviews to get a general sense of customer sentiment. If a company gets 10 five-star reviews and a single one-star review, you shouldn’t heavily weigh the one-star review.
Shippers and carriers should also look at a freight broker’s experience. Freight brokers with experience have overcome more obstacles. Experience brokers have had more years to grow their networks. They can introduce more shippers and carriers to each other. Building strong relationships with freight brokers can help carriers land more business.
Step 4: Compare
Comparing freight brokers helps you spot attractive and undesirable deals. Knowing when to walk away will help you settle with the best freight broker for your needs. Decide which metrics you care about the most. Everyone wants to reduce costs and get higher quality service. However, some companies will pay higher for better freight brokers.
Shippers should also look at each freight broker’s routes. Make sure you plan to use a chosen broker’s routes often. Some freight brokers offer different rates for each route. A broker may offer a more desirable price point for your busiest route. However, another broker may offer a better rate for your second busiest route. You can partner up with multiple freight brokers to get ideal results while cutting costs.
Step 5: Self Evaluation
Data helps you compare freight brokers. The final step turns the data into action. A self-evaluation will provide a better perspective and boost confidence. Ask yourself if you want to work with the freight broker or if you feel uneasy about it. Identify the determining factors that make you choose one freight broker and reject another option.
Get the Right Freight Broker for Your Business
Freight brokers provide an essential service. They cut out negotiations so both parties can do what they do best. Shippers get to focus on growing their businesses. They will receive necessary freight to maintain operations and provide products.
Carriers can focus on transporting cargo throughout the world. They distribute vital resources to businesses and consumers. Make sure you review the broad choices to ensure you pick the best freight broker for your business goals.
FAQ
Freight brokers build relationships with carriers and shippers. These relationships help freight brokers find loads. They will also consult websites and other resources to expedite their research.
Freight brokers charge a percentage of each purchase instead of a flat rate. Higher purchases lead to higher fees.
Independent truck owners can turn to freight brokers to get loads.
