What Is A Freight Broker? Understanding Trucking’s Dealmakers
There’s more to trucking than shippers and carriers. Learn everything you need to know about freight brokers, plus tips to work with them effectively.
On one side of the trucking industry, you have shippers. These are the companies with freight to move: original equipment manufacturers, raw material dealers, retail wholesalers, and more. On the other side, there are carriers—trucking companies that get paid to haul freight. That may look like a simple case of supply and demand, but connecting shippers and carriers isn’t easy.
Shippers need freight moved now. They have delivery deadlines, and sales contracts might stipulate hefty fees for late shipments. These companies don’t have time to hunt for trucking companies that service their lanes and own the right equipment. Carriers, for their part, have no way of knowing most shippers even exist. So how do shippers and carriers make a deal? Often, that task is handled by a freight broker (or, from the shipper’s perspective, a “truck broker”—see sidebar below for details.)
Brokers are the third-party operators who bridge the gap between shippers and carriers. They’re dealmakers who forge supply chain connections, and they’ve become an essential part of the trucking ecosystem. Here’s what every trucking company owner needs to know about brokers.
What is a freight broker?
From the truck driver’s perspective, the answer is simple: The broker is your customer. They’re the ones who hire you, provide job details, and pay your invoices—eventually. (Yep, it can take months for brokers to pay. More on that, along with a simple solution, later.)
Of course, brokers aren’t the only customers out there. You can also work directly with shippers, or even get a contract to move one company’s freight on an ongoing basis. But often the only place to find work is through a broker, especially when you’re just starting out as an owner-operator. Brokers post a lot of the jobs you’ll find on load boards, which is a common place to find work before you establish relationships directly with shippers—and lots of shippers only find carriers through their brokers.
More generally, a broker is a supply chain professional who has two valuable things:
- Relationships with a network of carriers with varying capabilities and areas of operation.
- Access to shippers with freight that needs to move.
The broker’s job is to take the shipper’s freight and find a carrier to move it on time.
To operate, brokers need authorization from the Federal Motor Carrier Safety Administration (FMCSA). That just requires them to fill out FMCSA Form BOC-3 and pay a $300 fee. To get that FMCSA authorization, however, brokers also need insurance in the form of a $75,000 surety bond. If freight gets lost, the bond covers the damage. And if a broker doesn’t pay what they owe, you (or your factoring company—see below) might be able to collect from the bond.
Brokers may be independent operators. They may band together into a larger freight brokerage firm. Or—and here’s where things get interesting—they might be carriers, too. It often makes sense for growing trucking companies to establish a brokerage wing. That way, they don’t have to turn away work when their fleet is occupied. They can take the job and farm it out to other trucking companies. Big-name logistics companies like Schneider and J.B. Hunt operate as both carriers and brokers, for example.
Freight Brokers: Benefits and Drawbacks For Carriers
Time for the big question: Should you work with brokers or focus on direct contracts with shippers? The truth is, you may not have a choice. You probably will work with brokers, because brokers control much of the industry’s access to freight. Established, reliable brokers are in a better position to secure freight than a small or up-and-coming carrier; these brokers are the ones shippers reach out to first. When you spot a good job on a load board, there’s a decent chance it was posted by a broker. And speaking of load boards, if you’re looking for a broker, start there. Load boards are full of brokers.
Returning to the point, here’s the major benefit of relying on brokers: They have the freight. You need freight to get paid. Ergo, you’ll deal with a broker.
The drawback is that you don’t get to keep 100% of the shipper’s payment. Brokers will take their 10% (or more). Interestingly, however, the broker’s fee doesn’t always come out of the carrier’s pocket. Brokers usually charge shippers more than carriers would. In fact, you may end up getting more from a brokered load of freight than you would if you worked directly with the shipper. The experiences of individual carriers may vary—but there are approaches that can help you make the most of your work with brokers. We’ll get into those next.
5 Trucking Company Tips For Working With Brokers
Here’s a bit of wisdom from fleet owners who’ve worked with dozens of brokers. Follow these tips to successfully grow your business, with or without direct contracts with shippers.
- When you’re first starting out, say “yes” to brokers. Your first step as a business owner is to find work. You might not be able to afford to be choosy—yet. So start by saying “yes.” You can pare down your book of business later.
- After you’ve worked with a broker on a few jobs, assess the relationship. Ask yourself a few questions. Did the broker communicate with you? Were they available when you needed them? Did they pay on time? If the answer is no, move on. There are lots of brokers out there, and you don’t have to stick with one that makes your job harder.
- Don’t hesitate to ask a trusted broker for more work. Brokers may have freight that doesn’t make it to a load board; it never hurts to ask. Brokers benefit from keeping carriers in business, so a good broker will go the extra mile to find you work.
- Ask your broker if rates are negotiable. The worst you can get is a “no.” Brokers may have some wiggle room with payments, and if a job doesn’t quite meet your billing goals, you can always see if the broker will pay a bit more.
- To get paid faster, factor your broker invoices. Brokers get paid by shippers. If they don’t have a lot of capital, that can lead to long payment terms for the carriers the brokers hire. In fact, 30-, 60- and even 90-day terms are common in dealings with brokers. Invoice factoring removes the cash-flow challenge.
Factoring is a financial tool in which a third-party provider buys your open invoices at the cost of a percentage of the invoice value. At Bobtail, for instance, carriers with one to three trucks typically pay 2.99% (though this is the maximum rate)—and get their invoices paid the same day. Then, when the broker’s payment comes due, we collect it for you, saving you lots of time and effort on billing and collections.
Unlike traditional factoring companies, Bobtail only charges the factoring fee. There are no hidden costs for set-up, bank transfers, or anything else. It’s also easy to factor with Bobtail. Just enter your load details into an online portal or mobile app, and get that cash flowing—whether your customer is a freight broker or a shipper.