| On the Highways of Commerce: starting a Freight Brokerage firm |
Millions of trucks cross the highways each year transporting goods around the country. How will shippers know which company to choose?
Freight Brokers are the middlemen/women for the logistics industry. They bring together the companies that want to ship their products with the companies that provide the transportation services. By filling the trucks, they make the trip worthwhile for the driver and earn a commission for themselves.
Experience in the logistics industry and the ability to network inside these circles is a requirement of the trade. While freight brokering is not an exclusive boys club, it helps to know the participants.
Friends of the Road
Varied specialists offer their expertise to shippers and retailers who are trying to reach their buyers. Your transport companies or carriers provide the vehicles and drivers to move shipments. They may include independent drivers or a trucking company with an entire fleet. Freight Brokers make alliances with reputable transport companies and commission their services to a shipper.
Other participants are both competitor and ally at the same time. Among these are freight forwarders and shippers' associations. Freight Forwarders actually house and consolidate the shipments, whereas the broker simply coordinates the deal. A shippers' association is a cooperative organization that uses the combined resources of many shippers to consolidate their transportation costs. Similar to a freight forwarder, they will temporarily house and combine shipments to reduce transportation costs.
There are also specialized Freight Brokers who work in the import/export business or with other regulated freight such as agricultural products. They interact with government agencies such as U.S. Customs and other transport companies.
Lastly, there are agents. An agent is similar to broker, only with less of the administrative responsibility. Although, he/she does link shippers with transportation services, the work is typically contracted by a freight broker who insures the freight and ensures the trucking company receives payment. Many brokers actually begin as agents who only require a telephone, fax machine and computer to start.
The job of an agent may sound easy enough, but, to get started in this business, it is recommended that you have worked in the industry – either shipping, logistics or both. A prior position as a dispatcher or Operations Manager for a distribution company will be helpful in marketing yourself as a knowledgeable intermediary.
Your Clients
Finding your specific segment of the market will be important. You may choose to limit your target to shippers who want to move a certain type of commodity or shippers moving freight to or from a certain geographic location. You may want to specialize in highly regulated materials such as imports, hazardous chemicals or over-sized loads. Another target market consists of shippers with short notice and time-sensitive deliveries. Investigate the market to ensure there is enough demand for your service to keep you in business.
Defining this market will help you advertise effectively. It would be impossible to maintain your business while trying to market yourself to everyone who ever needed to ship something. Therefore, narrowing your target audience will help you find them and help them find you. Establish an image. Consider what you can offer that your competitors cannot. Also, identify the other benefits that might convince customers to do business with you.
The Supply Side
Freight movers are all over the place. Your job is to find the ones who specialize in moving your type of commodity and do it well. As a broker, you are looking for a dependable carrier that will care for your clients' goods. Sometimes these trucking companies will be listed in trade magazines or advertise on the side of their trucks. You might even run into a truck stop and engage the drivers themselves for information. Keep your ears to the asphalt and pay attention to what people are saying about various transport companies and follow up on good leads.
Loading up for the Long Haul
To open a freight brokerage firm takes quite a bit of start-up capital. Among other costs, you must be able to cover the expense of paying the transport companies before receiving the actual payment from the shipping company. On top of the $8,000 to $33,000 you will need for supplies, you will also need a line of credit or ranging from $5,000 to $250,000 depending on your scale.
For this good faith gesture on behalf of the bank, you will have to show you are worthy. It is advisable to use a bank with which you have already established a relationship. Be prepared with a business proposal and a pitch about how your firm could benefit their bank. It is a big risk for a bank to step out and give such a sizeable loan to person with no assets to repossess if they cannot pay, so you want to give them assurance that their investment is in good hands.
For your supplies, you will need a computer and special software, a fax machine and a communications system including voicemail, mobile service, a toll free number and internet service. You will need to cover your rent and utilities, as well as advertising, taxes, insurance and licensing. A typewriter for filling out pre-printed forms and a postage meter should also be considered in your costs. If you begin with employees or subcontract to agents, various payroll expenses will apply.
Ironclad
As a new Freight Broker, you will need to establish agreements with your carrier. This basic contract will cover things like operating procedures and liabilities. Then when you get a call from a shipper, you can check which one of your transporters is available. Once you have found one, you fax this company an add-on clause to that contract that specifies the terms of that particular shipment, including the rates and a description of the load itself. If the company accepts the contract, they will sign it and fax it back. The company will then dispatch a driver to transport the shipment. You should arrange for the driver to confirm pick-up and drop-off with you so you can assure your clients of their shipments.
Once the work is completed, you will get a bill from the transport company, along with a bill of lading. You, then bill the shipper and pay the transport company. That is how this all works.
Ducks in a Row: Required Paperwork
The records you keep must be meticulous. There are federal guidelines regulating what information you must keep on file. A record for every transaction must be kept on hand for three years. It will include the name and address of both the shipper and the transport company, the registration number of the carrier, the bill of lading or freight bill number, the services rendered, the amount you received and from whom you received it. This will also include information about any arrangements made for services outside of the primary commission.
Where you decide to locate will depend on the ultimate plans you have for your business. Fortunately, a spare bedroom may be sufficient for start-up and if you plan to stay small, it could suffice indefinitely. However, if you already have clients lined up or plan to expand in the near future, choosing office space near an industrial park could be beneficial.
Your Cut
Before you determine a pricing scheme, you need to do some research. Find out what the existing rates are by asking several transport companies for copies of their tariffs. As you are developing an understanding of the general market rates, you will need to consider variables such as the number of stops, distance, weight, and the type of vehicle required to do the job.
Brokers have the potential to make 5 to 10 percent total revenue from their deals; however, some make just 1 to 2 percent. They collect their fees in one of two ways. Either they pay the carrier, bill the shipper and the shipper pays them. Or they arrange for the transport company to bill the shipper. The shipper then pays the carrier directly and they collect their commission from the transport company.
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