What does a freight broker do?

A freight broker is an individual that connects shippers who have cargo to move with qualified carriers. Brokers do not own the vehicles responsible for delivering cargo or the cargo itself. Instead, they use their knowledge of logistics to help coordinate the moving pieces of the supply chain to ensure that all cargo safely arrives at its intended destination.

Freight brokers earn income by keeping the difference between the negotiated shipping rate and the amount the shipper is willing to pay. This amount is called the spread.

Some of the day to day responsibilities of freight brokers include:

  • Networking with logistics contents to connect shippers with carriers
  • Negotiating shipping rates for clients
  • Overseeing the delivery process of cargo
  • Communicating status updates to all involved parties

Now that we’ve established what a freight broker does, it is time to learn how to become one. In our step-by-step guide, we’ll explain everything you need to become a freight broker, even if you have no experience.

Learn about the freight broker industry and gain experience

The first step to becoming a freight broker is to gain relevant experience in the freight industry. There are a variety of ways to gain this industry experience including self-study, formal training, or on-the-job training.

Some of the positions you can work in to gain on-the-job freight broker training include:

  • Truck driver
  • Dispatcher
  • An employee at shipping logistics firm

If you don’t want to work in one of these positions, you can take classes at a freight broker school. There are plenty of freight broker schools that offer both online and in-person classes. By taking one of these courses, you’ll learn from professionals with years of experience in trucking, freight brokering, freight forwarding, and other areas of the transportation industry.

Freight brokers require strong communication skills as much of their work involves engaging with others to negotiate and close deals.

Create a business plan and form your business

A well-made business plan will help your freight brokerage business start in the right direction and find long-term success.

With your business plan, you’ll have a better understanding of the market and be prepared for anything that arises over the course of your business. A business plan is also necessary if you want to apply for a line of credit or any other form of financing.

A detailed freight brokerage business plan includes the following information:

  • Executive summary
  • Company overview
  • Industry overview
  • Competitive analysis
  • Customer analysis
  • Sales and marketing plan
  • Operations plan
  • Financial plan

One of the most important areas to consider when creating your plan is the legal structure of your business. Your business structure determines your personal liability for anything that may happen during the course of your business. It also influences how your business taxes are calculated and paid.

Here are the types of business structures you can choose for your freight brokerage business:

  • Sole proprietorship
  • Partnership
  • Limited liability corporation
  • Corporation (S or S Corp)

You’ll also need to determine your process agents as they are required as part of the licensing and registration process. They will be responsible for providing legal representation within the states that you operate as a freight broker.

Your process agent can register by filing form BOC-3.

Find your carriers

After you’ve finalized your business plan, you should find shipping carriers in your focus area. Without a solid pipeline of reliable carriers in place, it can be difficult for a new broker to get their freight company off the ground.

There are plenty of ways you can find high-quality carriers including online directories, direct references from other freight brokers, and networking events.

You can also connect with other freight brokers by joining an organization such as the Transportation Intermediaries Association (TIA). The membership community gives you access to a directory of qualified drivers as well as other resources.

If you are unable to cover a load with your chosen carriers, you can post your opening to load boards to find drivers with open truck capacity.

Obtain a USDOT number and broker authority

Prior to operating as a freight broker, you must receive a freight broker license from the Federal Motor Carrier Safety Administration (FMCSA). The licensing process is also referred to as receiving your Motor Carrier Operating Authority (MC Authority).

The first step of the process is to obtain a United States Department of Transportation (USDOT) number via the Unified Registration System.

You then need to complete the freight broker application (form OP-1). When submitting the form, you are required to pay a $300 application fee. After receiving your application, it will take between four and six weeks for the FMCSA to approve your application.

Once your application is approved, the FMCSA will mail you your MC number. After the number is issued, it is posted on the FMCSA website. For a 10-day period, anybody who has a problem with your registration as a freight broker can raise a protest. After this period has passed, you are officially granted your MC Authority.

Get a freight broker surety bond

All freight brokers must provide a form of financial assurance as part of the licensing process. Doing so helps protect shippers and carriers from any unlawful or unethical practices on the part of the freight broker.

There are two ways a freight broker can satisfy the financial assurance requirement. The first option is to post a freight broker surety bond, also known as a BMC-84 bond. The total amount of the required bond is $75,000. The second option is to establish a trust fund (known as BMC-85) worth the same amount.

For many freight brokers, the surety bond is the more attractive option. With the BMC-85 fund, you must provide the entire $75,000 upfront. With the bond, however, you only need to pay the bond’s premium. This amount is much lower, typically around 2-5% of the required $75,000. When you apply for the freight broker bond through a surety company, they review your credit score and other factors to determine your exact premium.

As a freight broker, you’ll also want to obtain general liability insurance. Most shipping companies will require you to present liability coverage before agreeing to do business with you.

Develop a marketing strategy for your freight broker business

After you’ve completed all the requirements set forth in the licensing process, you are ready to officially start your freight broker business. If you want to be a successful freight broker, you will need to create a solid marketing plan. The transportation industry is competitive so you must actively find new prospects and build lasting relationships. Here are some ways you can market your freight brokerage company:

  • Engaging with potential clients through social media
  • Networking with shippers and carriers at local events
  • Posting useful content on your website or blog
  • Building an email list and sending regular campaigns
  • Paying for advertising through digital and traditional channels

Apply for a freight broker bond online with EZ Surety

By following the steps in this guide, you can launch your freight broker business with success.When you’re ready to start, EZ Surety can offer you a free quote for a freight broker surety bond. We provide competitive premiums for individuals of all financial standings. Get in touch today to learn more.