5 Reasons You Should Become a Freight Broker

Why You Should Become a Freight Broker

It’s a fantastic time to become a freight broker, as several industry trends from 2013-2014 are coming together to make 2015 look great for the industry. Here’s why:

Reason 1: Increasing Standards

The entire industry is still adjusting to the huge 750% increase in bond requirements instituted in October 2013 under the Moving Ahead for Progress in the 21st Century Act (MAP-21).

This new law has had wide ranging effects, but on the most basic level, MAP-21 increased standards by ensuring that fly-by-night brokers are pushed out of the industry. It’s also helped brokers understand their liabilities in case they fail to fulfill a contract. This means new brokers won’t have to deal with competitors who operate under lower standards.

Reason 2: Decreasing Competition

MAP-21 effectively pushed 35% of all US freight brokers out of the industry. These were largely brokers who were unable to comply with the greater bonding amounts, or the fly-by-nighters we just mentioned.

So, alongside increasing industry standards, we’re seeing decreased competition. But while this has been the trend for 2014, the advantage won’t continue forever, as brokers adjust to the new industry reality. Thus, it’s clearly better to enter the freight broker industry sooner rather than later.

Reason 3: Improving Economic Conditions

Current forecasts predict solid 3% GDP growth for 2015. The high level of integration which shipping enjoys within the larger US economy means that this trend is sure to benefit trucking brokers as well. If you can couple this with starting your business in a high growth area of the country, then you’ll be positioning yourself well!

Reason 4: New Technology

New software promises to make the process of finding the right carrier for your client’s freight easier and easier. With hundreds of options out there and new ones entering the market regularly, you’re sure to have ample opportunities to keep your business running efficiently.

Combine this with the declining costs of the most basic tools of the trade, like computers, and it’s clear that technology is another reason to enter the freight brokerage industry.

Reason 5: Low Cost of Entry

The cost of becoming a freight broker

Becoming a Freight Broker is more affordable than you think.
photosteve101 / Foter / CC BY

Becoming a freight broker is surprisingly affordable, here’s a breakdown of all the costs.

Freight Broker License: $300

This is a one time fee for obtaining a license from the FMCSA.

State Registration and Fees: Varies by State

The process and cost of registering a business is different in each state. But fortunately, the federal process is standard and described in our article on getting your MC Authority & other legal requirements. [LINK}

Equipment: Varies

For a basic freight broker just getting started, a computer, phone, and an internet connection should suffice. As you expand, you can consider renting office space, but there’s no need to factor that into your initial budget, as most freight brokers initially work from home.

Annual Freight Broker Surety Bond: $900-$2000

It’s important to note here that this is going to vary depending on your credit score, business financials, and the agency with which you obtain your bond. With JW Surety Bonds, 90% of bonded freight brokers pay less than $2000 a year.

Software: $600-$1,200

There’s a huge variety of software available (100+ just in 2015) and new market products are constantly arriving. Some of the most popular options include:

  • Brokerware: This software from 3PL Systems includes all of the major features you would expect (customer and sales portals, accounting integration, truckload management systems, etc.) in addition to innovational XML software, which streamlines the process of determining the least expensive and most reliable carrier for a particular piece of freight.
  • Tailwind Express: Tailwind offers several software packages designed for freight brokerages of varying sizes. Their basic Express package is specifically created for brokers just getting started and combines affordability with a good set of basic features and solid functionality.
  • Load Pilot: One of the most affordable and powerful options out there, Load Pilot has many high-end features like advanced encryption, universal access, international shipping functionality, and access to their database of shippers and carriers.

Insurance: $3,000+

Like any business, you need insurance to control legal liability. Freight brokers can be sued for fatalities or injuries from a third party carrier, for not following legal contracts or for employment disputes.

Marketing: Varies

There are a lot of potential marketing strategies out there from simple cold calling to complex online content marketing campaigns. These have widely varying costs. If you’re starting off with personal contacts to get your business off on the right foot, you might save a bit of money here. But if you’re really starting from scratch, it would be best to budget for some serious marketing.

Extra for Unexpected Costs: Varies

This is really up to you. Ideally, you’ll want to keep a reserve, so you’ll be prepared for unexpected costs like having to replace equipment, which might suddenly break, or handling payment issues from a shipper. Keep in mind that early cash flow problems are a classic small business killer.

Starting Your Freight Brokering Journey

Ultimately, making the decision to become a freight broker (or not) is all about taking a hard look at the big picture and seeing where your opportunities lie. The combination of factors affecting the freight broker industry today aren’t repeated often, but only you can decide if they’ll make for the perfect opportunity for you.

For a complete guide to every aspect of becoming a freight broker, download our free e-book, The Freight Broker Starter Kit:
Get the free Freight Broker Starter Kit by JW Surety Bonds!