The Role of the Freight Broker in the Shipping Industry

yellow truck with kalmar(2)

So what is a freight broker exactly? Simply put, it’s an individual or a company that brings together a shipper that needs to transport goods with an authorized carrier that wants to provide said service.

The freight broker falls into the category of transportation intermediary, which is a company that is not a shipper, nor is it an asset-owning carrier, but plays a pivotal role in the movement of freight.  Transportation intermediaries leverage their knowledge, technology and people to help both shipper and carrier succeed.

Brokers provide an important and valuable service to both carriers and shippers. They facilitate carriers filling the trucks and earn a commission for their efforts. They assist shippers in finding reliable motor carriers that they might not have otherwise known about. As a matter fact, some companies use brokers as their traffic department, allowing the broker to completely coordinate all their shipping needs.

Brokers aren’t new to the transportation industry; they’ve been around since the industry itself began in the early 1900’s. Prior to the seventies, however, regulations governing brokers were so restrictive that few firms were willing to even try to gain entry into the industry. But with considerable changes in the federal transportation policy during that time, regulatory restrictions eased, creating new entrepreneurial opportunities in third-party logistics.

Identifying “The Players” in the Industry

An industry of this enormity and diversity needs a wide range of participants to thrive. Some of the titles can be slightly confusing, and some of their roles may overlap. But to keep things as simple as possible, let’s look at who the players are and what they do.

  • Freight broker. The middleman who connects shippers and carriers.
  • Shipper.  An individual or business that has freight to move.
  • Carrier. A carrier is a company that provides transportation for goods. There are two types of carriers: private (a company that provides transportation of its own cargo) and for hire (a company that is paid to provide transportation of freight belonging to others).
  • Freight forwarder. Often confused with freight brokers, freight forwarders are actually completely different. Forwarders take possession of the goods, consolidate numerous smaller shipments into one larger shipment, then arrange for transportation of that shipment using various shipping methods (air, water, land).
  • Import-export broker. Are facilitators for importers and exporters. Import-export brokers work with U.S. Customs, other government agencies, international carriers, and other companies and organizations that are in international freight transportation.
  • Agricultural truck broker. Generally fairly small and operate in one geographic area of the country.  Unregulated agricultural truck brokers arrange transport services for exempt agricultural products.
  • Shipper’s associations. Are exempt, nonprofit, co-op organizations formed by shippers to reduce transportation costs by pooling shipments. Shipper’s associations operate in a very similar manner to that of a freight forwarder, but service is limited to their members and is unavailable to the general public.

In a perfect world each player in the industry would handle its traditional role and that’s all. However, the transportation industry is evolving so quickly that the once distinct lines are blurring. Also, it’s very common for a freight broker to expand his or her business by creating subsidiaries or additional companies that offer other freight services.


Education and Experience Needed to be a Freight Broker

Brokers can come from any industry–we have found that mortgage brokers and auto brokers generally have the greatest degree of success in the shortest time period.  Regardless of background, the brokers that are most successful are those who are skilled in relationship sales.  In this case, industry skills can be taught and adopted much more quickly than proper sales skills. Being able to make contacts while gaining crucial experience, is necessary to succeed in the business.

Many brokers opt to use agents to develop a broader scope of operations. To clarify, an agent is an independent contractor who represents a freight broker in a specified area. This enables you to offer a local presence when you might not have the volume to justify the opening of your own office.

An aspiring broker will have the opportunity to focus on customers and building relationships by connecting with a brokerage company that provides good tools, is financially stable, and flexible in fitting into their own process, just to name a few.  For example, Trangistics is based in Oregon, but they have agents in many other states such as California, Nevada, Colorado, Alaska, Texas, Illinois, North Carolina, Alabama, Florida, Georgia, etc…. Because their agents aren’t brokers and because they’re homebased, their start-up materials are minimal and typically consist of a computer, telephone and fax. An agent’s work is very similar to what a broker does, but the agent functions under the auspices of the broker and the broker is the one responsible for such issues as paying carriers and maintaining the required surety bond.  Seasoned brokerages will also carry contingent cargo and liability insurance that provides coverage when the carrier’s insurance fails.  This is a sign of good brokerage with solid a financial foundation and provides additional assurance to an agents customers that their freight will be protected.

Part 2 of this article will cover the benefits of finding your niche, finding reputable carriers, earning potential, and operations.  Have questions about anything in the article?  Drop Joey an e-mail at [email protected] to have your questions answered.