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Monday, November 15, 2021

How to Start a Freight Brokerage

In a world with more demand for logistics and freight than ever, freight brokerages serve a key role. These businesses work with both shippers and carriers to get freight to their destination, and they wear many different hats along the way. Starting a freight brokerage is a way to provide a service that’s in high demand while enjoying a fast-paced job and potentially enjoying lucrative returns. Any aspiring freight broker needs to know the facts about how to get a freight broker’s license and a freight broker bond so that they’re prepared to navigate these processes when the time comes. This article will discuss the most important basics for anyone thinking about starting a freight brokerage.

What Is a Freight Brokerage?

Freight Brokerage
Source: wavebreakmedia/Shutterstock.com

Start by understanding exactly what a freight brokerage does. A freight broker’s fundamental responsibility is finding cargo carriers to transport a shipper’s goods. The broker arranges the connection between the shipper and the carrier and keeps the difference (or “spread”) between what the shipper is willing to pay and how much the carrier is willing to ship for. 

A freight brokerage doesn’t own the assets like trucks and vans that it uses to move cargo. Instead, brokerages use tools like load boards and freight broker software, as well as their personal networks of logistics connections, to match shippers with carriers and arrange transportation contracts.

Freight brokers also act as problem solvers and expeditors in the shipping process. Expert freight brokers use their knowledge of transportation systems, their organizational and analytical skills, and their wide network of connections within the industry to deliver their clients a shipping process that’s as hassle-free as possible.

Should I Start a Freight Brokerage?

Operating a freight brokerage is an extremely fast-paced and demanding career. Before you commit to starting a freight brokerage, ask yourself if you’re ready for long days, intense competition, complex paperwork, and a learning curve that can, at times, be steep.

Many freight brokers choose to start as freight agents at another brokerage before opening their own. A freight agent has many of the same responsibilities as a freight broker, such as arranging truck transportation for clients, but they operate under another freight broker’s authority. Starting a freight agent can help you get experience navigating the ins and outs of the freight brokerage industry. If you have experience as a freight agent, or you went to a freight broker school, you might be ready to start your own brokerage. For those who are ready to take the plunge by themselves, the next sections will tell you how to do it step by step.

How to Start a Freight Brokerage

Source: tsyhun/Shutterstock.com

Note: This guide focuses on the steps specific to starting a freight brokerage and doesn’t include some important steps applicable to all businesses, such as getting an EIN or a local business license.

  • Create a business plan for your brokerage. 

Begin creating your freight brokerage’s business plan with market research into the business sectors and freight lanes in which your brokerage will operate. Learn about the major players in your area, including shippers and carriers you’ll work with and other brokers you’ll compete with.

Your business plan should also include basic considerations about the legal and financial structure of your business. For example, you’ll need to decide whether you want to operate as a sole proprietorship, LLC, or corporation. If you plan to employ freight agents or other employees, you’ll also need to create an organizational structure and familiarize yourself with federal and state employment laws. 

  • Apply for FMCSA operating authority. 

Any freight broker operating in the U.S. must apply for operating authority from the Federal Motor Carrier Safety Administration (FMCSA). You’ll use the Unified Registration System (URS) on the FMCSA’s website to apply. The FMCSA processes most applications for new authority within four to six weeks, and the agency charges a $300 fee for each new FMCSA authority applied for. 

  • Select and designate process agents. 

Federal law requires freight brokers to file a Form BOC-3 to designate a process agent in every state in which the broker will operate. A process agent is simply a person with a street address in the state who will be available to receive legal communications about your business during standard business hours. In most cases, you can designate anyone over 18 as a process agent, but many businesses choose to use lawyers or other professional agents who provide their services for a fee. 

  • Get your freight broker surety bond or trust fund. 

As part of your application to the FMCSA, you’ll need to obtain either a BMC-84 freight broker bond or a BMC-85 trust fund. The purpose of both is to protect a brokerage’s clients from potential misconduct by the broker. 

Both a BMC-84 and a BMC-85 have a coverage amount of $75,000. However, a BMC-84 only requires the broker to pay a small percentage of the full coverage amount upfront in the form of an insurance premium. A BMC-85 on the other hand typically requires a broker to post the full amount with a financial institution. For this reason, many brokers prefer BMC-84 bonds to BMC-85 trust funds.

  • Complete your Unified Carrier Registration (UCR). 

In most U.S. states, brokers will also need to register through an interstate system called the Unified Carrier Registration (UCR) and pay the registration fee. Instead, in a handful of states that don’t participate in the UCR, brokers need to register in the nearest participating state. 

  • Purchase your tools of the trade.

Freight brokerages can cost less to start than some other business types, but there are still plenty of key expenses you should be aware of. First, nearly all freight brokers use enterprise logistics software to track and manage freight contracts. Try out some of the free logistics software demos available online and find one with workflow and features that suit your needs.

You’ll also need access to load boards, where shippers post cargo that they need to have moved. Access to some may be available for free while others may charge a premium. Finally, don’t forget that you’ll need basics like a phone, an internet connection, a desk, and a computer to perform the basic functions of a freight brokerage.

  • Begin operation as a freight broker. 

Freight Brokerage
Source: cunaplus/Shutterstock.com

Once you’ve received your official operating authority from the FMCSA, plus any state and/or local business licenses you require, you’re ready to begin operating your freight brokerage! Focus on delivering excellent customer service to both shippers and carriers, and always continue to expand your network. Make sure to keep thorough records and keep your FMCSA profile updated, as necessary.

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Daniyel Carlson
Daniyel Carlson is a Young Researcher in the field of Data Science & Analytics having research experience of more than 8 years. He has a Masters in Computer Engineering and currently serves as an Editorial Assistant in IGI Global, United States of America. Daniyel also holds honorary positions in the Associate Member of Institute of Research Engineers and Doctors, International Association of Computer Science and Information Technology, International Association of Engineers, Society of Digital Information and Wireless Communications.

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