The freight brokerage industry continues to grow with the global market size predicted to reach $41.47 billion by 2024 according to a report by technavio. This presents lots of opportunities for those who want to break into the freight industry. You can work with a freight broker company or start your own freight brokerage. It takes a few extra steps to set up a legitimate and sustainable freight brokerage business.
To help, we’ve put together an in-depth guide so you can learn how to become a freight broker. We go over how to establish and maintain your freight broker business, licensing requirements, business requirements, and success strategies for the long haul.
Before diving into our guide, we’ll first break down what a freight broker is and how they work with others in the transportation industry.
What is a Freight Broker?
A freight broker is a person who helps shippers connect with qualified carriers when they have freight that is ready to be moved. A few examples of their everyday tasks include:
- Coordinate deals and rates between shippers or transportation companies and carriers
- Oversee each step of the delivery process
- Communicate status updates on the shipper’s load to necessary parties
Freight brokers play an important role in the transportation industry because they coordinate each step of the shipment process.
Now that you understand what a freight broker is, learn how to become a freight broker.
Table of contents:
- Step 1: Get Industry Experience
- Step 2: Develop a Solid Business Plan
- Step 3: Apply for a USDOT Number and Get Broker Authority
- Step 4: Satisfy the $75K Requirement
- Step 5: Get Your Unified Carrier Registration
- Step 6: Create a Strong Freight Brokerage Marketing Strategy
- How Long Does it Take to Become a Freight Broker?
- How Much Does it Cost to Be a Freight Broker?
- Why Should You Become a Freight Broker?
- How Much Do Freight Brokers Make?
Step 1: Get Industry Experience
The first step on your list should be to get experience in the freight industry. You can do this through formal training, classes, and independent study. Although training is not legally required, a combination of hands-on experience and formal education can get you up to speed with the industry.
Get On-The-Job Freight Broker Training
You can get freight broker training through other roles in the industry. For example, working as a truck drive gives you a solid glimpse at the trucking world. Here are a few examples:
- Truck driver: Working as a truck driver gives you first-hand experience of what a trucker experiences everyday when delivering cargo.
- Dispatcher with a trucking company: Dispatchers coordinates driver routes, schedules, and communicates status updates with shippers.
- Shipping logistics firm: Similar to a dispatcher, a logistics firm plans and executes movement of cargo within the supply chain.
Take a Freight Broker Class
If going through an apprenticeship or working for another freight business isn’t on your agenda, formal freight broker training is always a possibility. There are several freight broker schools offering online or in-person courses. Attending freight broker school helps you build the skills and knowledge needed to become a freight broker. You’ll also have the support of your peers and instructors.
Gain Industry Insights
You can also boost your knowledge through an in-depth study of the industry. The transportation, logistics, and shipping industries are constantly shifting each year. Staying on top of these changes helps you best serve your customers and clients while also avoiding legal trouble with any new rules.
Leading publications on trucking, shipping, or logistics, as well as online forums are good places to start. You can also chat with fellow freight brokers and other peers to hear what trends they’re seeing in the freight industry.
Step 2: Develop a Solid Business Plan
A solid business plan is helpful in laying the groundwork of your freight brokerage business for both the short and the long term.
A strong business plan includes the following information:
- Legal framework
- Business goals
- Strengths and weaknesses of your business
- Startup costs
- Analysis of your current and projected financials
- Revenue sources
- Potential shippers and carriers
- Customer acquisition strategies
All of this information drives your business operations in the first several years of your freight brokerage. It also uncovers potential opportunities you may not have otherwise seen.
Choose the Right Legal Framework
Developing a business plan requires you to select a business structure that’s legally recognized by the state or the federal government. Liability and taxes are the main differences between each framework. The Small Business Administration provides guidance on these different frameworks.
Below, you will also find a brief overview of the types of business structures you may use for your new freight broker company.
Limited Liability Corporation
A limited liability corporation, or LLC, is a popular business framework that passes on legal liability to the business instead of the business owner. Profits and losses are passed through the LLC structure to personal income without having to pay corporate taxes. However, owners pay self-employment taxes.
Under a partnership, two or more people come together to establish a legal business structure. Profits earned from the business are passed through to personal income, like an LLC, all documented in the partnership agreement. You can create either a limited partnership or a limited liability partnership, both with advantages and disadvantages to the partners involved
In a sole proprietorship, there is one owner of the business and no separate business entity. Business assets and liabilities are not separate from personal assets and liabilities, so the business owner is liable for all debts incurred. This is a simple business structure that comes with tax and legal complications.
Corporation (S or C)
Both C corporations and S corporations are also options for new freight brokers.
- A C corp is a legal business structure separate from its owners. It offers the strongest protection against personal liability.
- An S corp is similar, but it is designed to avoid the double taxation that C corps face. Profits and some losses from S corporations are passed through to the owners of the business without being subjected to corporate taxes.
Decide on a Location
You need an address to register for most business structures.The majority of the transportation and logistics work is done remotely, but there are benefits to having in-person meetings and business contacts.
Think about who you know in the industry who can be a valuable resource for best practices or potential customers. You should also consider where there is economic growth or stability. Positioning your business strategically is an important part of driving success as a new freight broker.
Find Your Carriers
You need to think about your market when you’re putting together your business plan. Picking a location with up-and-coming commercial retail businesses can be vital to a new freight broker’s success.
You can find carriers and shippers through word of mouth, online directories, networking events, and by strategically picking locations near businesses who are professional, reliable, and ready to form partnerships.
The transportation industry has started to slowly embrace technology over the last several years. Modern approaches to doing business, including freight broker software, communication tools, marketing methods, and bookkeeping systems help streamline tasks as a new freight broker. However, these new technologies come at a cost. Weigh the pros and cons to determine what will most benefit your freight company.
Calculate Your Start-Up Costs
The barriers to entry as a new freight broker are relatively low from a cost perspective, but there are still expenses you will need to calculate and plan for in advance. There are licensing fees, business structure expenses, software purchases, and other tools of the trade that come at a cost.
Here are a few financing options to consider if you don’t have cash readily available:
- Small business loans
- Line of credit
- Personal assets
- Loans from friend and families
In addition to funding initial costs, you’ll also need working capital to run your business. Take that into account when you’re looking into financing options.
Step 3: Apply for a USDOT Number and Get Broker Authority
After getting familiar with the industry and preparing your business plan, you’re ready to get a freight broker license from the Federal Motor Carrier Safety Administration (FMCSA) to legally establish your freight brokerage. This process includes applying for a USDOT number and obtaining your broker authority.
Apply for USDOT Number
Get Your Broker Authority
Anyone who transports goods in exchange for compensation or helps is required to have a broker, or operating, authority through the FMCSA.
Your broker authority allows you to operate legally in the business. Once you have your USDOT number, you can apply for your broker authority online using the FMCSA’s registration system. There is a one-time fee of $300 for obtaining the broker authority.
Determine Your Process Agents at Each Stage
You will need to determine your process agents at each stage of your business to apply for. A process agent is an individual who provides legal representation within the state that the broker operates.They are registered with the FMCSA via form BOC-3. Freight brokers need a process agent as part of the licensing and registration process.
Step 4: Satisfy the $75K Requirement
You will also need to get either a freight broker bond (BMC-84) or establish a trust fund (BMC-85) to get your freight broker license in the amount of $75,000. This sum is used to protect shippers and carriers against unlawful practices by licensed brokers. This is required for all freight brokers operating in the United States.
Getting Your BMC-84 Bond or BMC-85 Trust Fund
The major difference between the BMC-84 surety and BMC-85 trust fund is how the $75,000 is covered.
For the BMC-84 Bond, but freight brokers are not required to pay this entire amount. Instead, freight broker bonds are priced as a percentage of the total bond amount, typically ranging from $500 to $2,000, depending on credit history and financial information of the broker.
You can learn more about how surety bonds work to see if it’s the best choice for your business.
Instead of a freight broker bond, you may opt for a BMC-85 Trust Fund. A trust fund means you must pay the amount out-of-pocket to satisfy this requirement. You’re unable to touch this money until a claim is filed and you’re required to cover damages.
This can be a financial burden for new freight brokers, but it is an alternative option if a freight broker bond is not readily available.
Step 5: Get Your Unified Carrier Registration
In addition to the requirements listed above, new freight brokers also need to register with the Unified Carrier Registration. This is not a program through FMCSA, but instead is an agreement among the states that helps govern and regulate fees paid by motor carriers, brokers, and other transportation professionals.
Step 6: Create a Strong Freight Brokerage Marketing Strategy
Once you have completed all the steps in the licensing process, you are now ready to begin your business legally. However, getting started is not a simple task without creating a solid marketing plan.
Successful marketing as a freight broker is crucial to long-term success. You’ll need a strong list of business and industry contacts to keep your business afloat.
The combination of a continuous lead flow through lead boards, online marketing strategies, and healthy business relationships creates a perfect storm for success as a freight broker. Here are a few steps to take to market your new freight brokerage business.
Calculate Your Return On Investment (ROI)
A common misstep when developing a marketing strategy is ignoring the potential return on investment. Online marketing is more affordable than other methods, but it still comes at a cost.
Pay close attention to how your marketing plans are generating revenue with the help of tools like Google Webmaster or social media analytics. If you see that a marketing strategy is not paying off as you anticipated, think about a course correction before it ends up costing you.
Use Business Directories and Load Boards
There are several ways you can market a new business as a freight broker. One of the keys to success is ongoing marketing that generates quality leads.
You should first list yourself in business directories online, including sites like GoogleMyBusiness, Yelp, or Yahoo! Local Listings. Each of these business directories helps in putting your business out there for potential shippers and carriers looking for a broker. Using free load boards can also help you create a passive pipeline of leads for your new business.
Target Your Buyer Personas Online
You may also want to tap into the power of online marketing as a freight broker, above and beyond business directories. Targeting buyer personas online can be challenging without the right guidance and understanding of the market. Think about what niche you are best fit to serve. Then, develop your marketing strategies and messaging around this niche.
Establish Your Reputation
Finally, having a good reputation in the freight brokerage industry is key to your success. This means delivering on promises you make to shippers and carriers, being transparent with your pricing, and having all the required legal structures, including bonds and registrations, kept up to date.
How Long Does it Take to Become a Freight Broker?
You can get your freight brokerage up and running within six to 12 months if you follow these general recommendations. However, the exact time will vary depending on the amount of time and resources you can place into starting your brokerage.
How Much Does it Cost to Be a Freight Broker?
The cost to be a freight broker varies based on costs for things like business equipment, insurance expenses, software, and marketing. The costs of starting and operating a brokerage business are relatively low.
Why Should You Become a Freight Broker?
Freight brokers work as intermediaries between shippers and carriers, and so, the need for qualified, licensed brokers is crucial to ongoing success. The same technavio report mentioned earlier found that 33 percent of growth in the freight brokerage market will originate in North America. During 2020 to 2024, the freight brokerage market is projected to have a compound annual growth rate (CAGR) of more than 4 percent.
In addition to a strong economic environment and pressing need for freight brokers in the shipping industry, new technologies are driving growth as well. Freight brokers are utilizing software and systems that make it far easier to connect with shippers and carriers.
This takes some of the grunt work out of the process while setting up newer freight brokers for ongoing success. Also, lower barriers to entry into the industry, including reduced costs for many of the tools needed to get started, make it a good time to get started in the business.
How Much Do Freight Brokers Make?
According to PayScale, freight brokers can make an annual income ranging from $31,000 up to $65,000. This depends on the broker’s level of experience in the industry, the location of the broker’s business, and commissions charged for work performed.
However, there are some freight brokers that make substantially more than this each year, between $100,000 and $200,000. The higher levels of income for freight brokers are mostly available to those who hire additional freight agents to work under them or those who have built up a significant reputation in the industry.
The top freight brokerage businesses in the United States rake in millions to billions in revenue each year. There are expenses to account for which eat into the profit margin, but the income opportunities for freight brokers in today’s economy are high.