How to Become a Freight Broker
Even if you are not currently in the transportation industry it is possible for you to become a freight broker agent.
Yes, it makes it much easier if you have a background as either an operations, sales or truck driver but there are ways that you can start your own business as a freight broker or expand your existing business.
What is a freight broker and what does a freight broker do?
A freight broker is someone who matches the logistics needs of their customer (the shipper) up with a willing carrier base that is looking to find loads for their trucks. You make your money based on the difference between the rate you give your shipper and what you pay the carrier.
Being a freight broker is a vital service, especially for small and medium sized carriers. It is almost impossible for those size carriers to develop and service a customer base in all locations. Without quality freight brokers they would have a very difficult time getting back to their home area.
Freight brokers are an important and integral part of the freight cycle.
A freight broker is part sales person, part operations and all entrepreneur.
Becoming a freight broker is one of the least expensive ways to start your own business. It is a great business model with limited up front expenses.
You just need a computer, internet and a phone to become a freight broker.
…and training of course.
What is the easiest way to become a freight broker?
There are a number of different ways you can become a freight broker, depending primarily on what your previous background is, but we recommend you get training. You can do this by going to work with a large freight brokerage company, but be careful because you might have to sign a non-compete agreement that will limit your ability to go out on your own later.
You could also go to work for an agent of a transportation company that does brokerage. This is another good way to learn but it has the same drawback as above. If you have to sign a non-compete then you might be limited in what you can do in the future.
The last way is to go through a training course provided by a third party. There are some out there but not many. We have looked at a number and will recommend a freight broker course at the end of this article that we liked based on content and price. There are some much more expensive, so be careful.
What are the advantages of using a freight broker school?
Probably one of the biggest advantages of a freight broker school over going to work for another company and getting on the job training is there is no non-compete you have to worry about. In addition, many freight brokerage schools offer ongoing support to help you grow your new freight brokerage business.
Why would you want to become a freight broker?
That is easy. Freedom and money.
You have a great deal of freedom owning your own business and being a freight broker is no different. That does not mean there is not a great deal of responsibly. The success or failure of your new business rests squarely on your shoulders. Success or failure is up to you.
How much you can make depends on which model you chose, which we will discuss below. Overall you decide your income by how hard you work, what rates you give your customers and what you can ultimately move the freight for.
How much can you make as a freight broker?
How much you can make is determined by a number of factors.
One is if you decide to start your freight brokerage business under your own authority or as a freight broker agent.
We would not recommend starting out under your own authority even if one day you decide to migrate to it.
If you decide to start a freight brokerage business under your own authority it is going to be much more expensive. You will need to file for an authority with the Federal Motor Carrier Services Administration which involves some fees and takes time.
You will also need to put up a $75,000.00 brokerage bond. There are some ways to do this if you have good credit that do not require $75,000.00 out of your pocket day one but there will be yearly fees and up keep charges.
Depending on how much revenue you do you will need a certain amount of cash in the bank to pay your carriers. You will need to pay your carriers as quickly as possible, especially at first while you build your business credit rating.
If we assume you plan on doing $50,000.00 revenue per month which is very doable fairly quickly and your customer pays you in 45 days and you want to pay your carriers in 28 days then you will need about $75,000.00 in the bank when you start your freight brokerage business just to cover payables.
You can use a factoring company which will charge you a percentage, usually between 2.5% to 5% of each invoice and then you might only need about $7,500.00 out of pocket cash for the first 45 days. But using a factoring company significantly reduces your profit margin so be sure you are aware of that.
You will also need to get contingency cargo and liability insurance for your own authority. It is not required but you need to get it. It is not overly expensive but it will still cost you some money out of pocket and against your bottom line so you need to keep it in mind.
The other issue you will have in starting your own authority is many customers and trucking companies will not do business with you until you have been in business for at least six months to a year.
The advantage of going under your own authority is you get to keep all the profit per load. So, if you have $1,000.00 load and you move it for $800.00 then you make $200.00; this is before you pay the factoring company their cut if you are factoring and any other expenses such as insurance, bad debt, load boards, etc…
The option we would recommend is signing on with a trucking company that also has brokerage authority as a broker agent. You will give up a percentage off the top but you don’t have to worry about insurance, factoring, cash flow, a bond or customers and carriers not doing business with you because you are too new.
Notice we did say a trucking company that has brokerage company not a 100% brokerage company. Why?
Two reasons, one is that you can get more customers if you have access to trucks. If you are a brokerage agent with a 100% brokerage company you will find some customers won’t talk to you. Having access to trucks, even if you don’t use them helps you close customers.
The other reason is sometimes you might be able to load the trucking company’s trucks. You might not make as much as you would if you brokered the load to an outside carrier but this is easy money.
What is the disadvantage of being a freight broker agent as opposed to your own authority? You will have to give up part of the profit on each load. As a freight broker agent you will probably have to give up between 30% to 40% of the profit on a per load basis. You might get a better split with a 100% brokerage company but as we said above there are advantages to being with a company that has trucks.
Using the example above where the load paid $1,000.00, you moved it $800.00 and you made $200.00 using your own authority under a freight broker agent model you would make:
With a 60/40 split your profit would be $120.00.
With a 70/30 split your profit would be $140.00.
You might say that you are giving up a lot to the trucking company but we can tell you from experience it is much easier (and cheaper) to start your brokerage operation as an agent as opposed to getting your own authority.
In time, if your business grows and you have the cash you can always convert your freight brokerage agency into your own authority if you want.
What are the steps I should take to become a freight broker?
There are a couple of ways you can move forward.
- You can reach out to various freight brokerage companies to see if they have a freight broker agent training program. Just be careful, they might want you to sign a contract or a non-compete if they train you.
- You could get a job with a freight brokerage company as an employee to learn the business. But, they will almost certainly make you sign a non-compete which will limit your future options.
- You could get a job with a freight brokerage agent as either an employee or independent contractor. Depending on the freight brokerage agent they may or may not ask for a non-complete. If you do have to sign one then your future opportunities might be limited.
- You can find an online freight broker training program to teach you about freight brokerage. After you have the basic skills you can either start your own authority (we do not recommend) or become a freight broker agent (we can give you some suggestions for a company or you can find your own).
Looking for a freight brokerage school? CLICK HERE
Are you ready to be a brokerage freight agent (already trained)? CLICK HERE.
I like how you included that you should get training if you want to become a freight broker. My brother has been wanting to become a freight broker and he doesn’t know how or where to start. I’ll make sure to pass this information along to him if he decided to become one.