Hunter S. Thomson wrote, “Anything that gets your blood racing is probably worth doing.” What he did not specify is HOW to get your blood racing. If you know Mr. Thomson and his work (“Fear and Loathing in Las Vegas,” among others) you know he probably meant something illegal! However in business, getting your blood racing can be good and bad. Few industries can get your blood racing like being a Transportation Intermediary – or a freight broker.
What Does a Freight Broker Do?
Freight brokers inhabit a unique space in the overall transportation market. Brokers voluntarily insert themselves between shippers who want their freight delivered 100% on time, every time without a single error or loss, and trucking companies who most of the time do a good job, but who have to deal with the real world of stolen trailers, bad weather, road construction, flaky drivers and Acts of God. This is a recipe for “getting your blood racing”.
Freight Broker Tips
The First Year of Becoming a Freight Broker
During your first year of becoming a freight broker, you will face a lot of challenges, depending on where you come from and your background. It should be much easier if you’ve been in the trucking or brokering world before, since you’ll have an understanding of everything a broker does – either way, freight brokering is challenging and can be rewarding. What’s the old saying: “If it were easy, everyone would be doing it.” I know…it seems like everyone IS doing it, so here are some tips that might make it easier.
- As a first year freight broker, very few carriers are going to want to haul for you because you have no published credit and you’re new. Make sure you have trucking companies already lined up BEFORE you get into the business – you cannot move freight without them – and moving freight is ultimately what it’s all about!
- Shippers are going to be hesitant to work with you because…you guessed it…you’re new. You have no history of either being able to deliver freight on time and reliably. From a liability standpoint, shippers are paranoid about giving loads to someone that is unknown.
- Insurance will be relatively easy to obtain. Paying for it is more challenging. You can certainly write a check for your first year’s premium, but most people cannot afford that. In that case, you’ll have to deal with making a large (20%-30%) down payment and then qualifying to make 10-12 additional payments. If you’re personal credit is bad, this may a problem. There are some programs, like with Triumph Insurance, where you can pay 12 equal payments and forget about that big down payment.
- You need software! Trying to do this all on a spreadsheet is possible for a “baby” broker, but even having 10-15 loads in transit at once will quickly overwhelm even the most organized of people – thus it’s better to have a software program figured out (there are lots…some are even free for the first couple of users!).
- Financing – once you’ve hauled a load and issued the invoice…then what? The carrier is screaming that you need to pay them, and you’ve still not been paid by your customer. What now? You need a factoring company that specializes in factoring freight brokers. Do your homework on this – having a factoring company that knows and specializes in freight brokers can make or break your business – and can make life much easier.
OK – so this last one may seem a little self-serving since I work for Triumph, formerly known as Triumph Business Capital. I’m guilty of that – but even if you don’t use Triumph, there are still 5-10 other factoring companies out there that have special programs for freight brokers. The main feature is this:
Any factor that knows what they are doing in the freight broker market pays the carrier on behalf of the broker. Do not play the float – it will eventually catch up to you and quickly sink the ship.
Past the First Year
Once you’re past the first year of becoming a freight broker, congratulate yourself – most brokers don’t survive this long or they give up in frustration.
The long-term survival of a freight broker is obvious: You need a consistent flow of freight to move or you’re out of business. I’m not being biased because I’m in sales too – dispatching and operations is critically important to being a freight broker. But let’s face it – you can have the most efficient, technologically advanced dispatch and driver management process anywhere in North America, but if you’re not moving loads, it does not matter. Another old saying is, “nothing happens until someone sells something.” That was probably said by a salesman looking to keep his job, but it’s essentially true – the sale of a service or product is the first step in the delivery process. You may be excellent at managing drivers and all the details of dispatching, delivery, financing and office management – but if you’re not good at sales, find someone who is and pay them to make sure you have a consistent flow of new business coming in the door. If you ARE good at sales, then the opposite is true – pay someone to do all the technical stuff and you FOCUS on sales. Do what you do best and pay someone well to do the stuff you do not like to do or are not good at.
Margin preservation is the other monster challenge. If you’ve been moving loads for the same customer for 18 months and a new traffic manager comes along, that person may not know you as well as the outgoing traffic manager and suddenly you’re under the microscope. Also, corporate America is always grinding on all their vendors for lower rates, better terms, etc. Be READY for this, have a plan in place to deal with this WHEN it happens, not IF it happens. The larger your customer is, the more likely it is to happen. Make sure you keep statistics that you can use to make your argument to keep the pricing in place. These are all things you do anyway, but keep good records and written policies for each one that you can show your customer when it comes time for a review:
On time performance statistics;
Claims history (or mainly, lack of claim history!);
Carrier qualification process;
Documentation process and storage;
Financial stability;
This will also help your sales process when talking to new customers – show them how organized and sensitive you are to their concerns: On time, 100% delivery, low liability, organized, stable. Notice I’ve not listed PRICE…show them the value of your organization first and then talk price.
One more area new freight brokers should give some attention. Shippers are more and more concerned with the liability of using a broker to move freight. There have been some high profile cases in which large freight brokers were sued for millions of dollars because one of the carriers they hired to move a load was a bad risk and a fatality crash occurred. Be sure you are operating as a broker and not treating your carriers like company drivers. Lastly, above all, do your due diligence on all carriers you use.
Being a transportation broker in many ways is about curing a shipper’s pain of having to deal with hundreds of carriers or drivers delivering loads all over the place. Address that pain – solve the shipper’s problem. If you do that, your margins may actually increase as well as your longevity!