Freight Brokers: how much they make and how they make it?
Today’s highly globalized world depends on the sort of economy that relies on fast and cost-effective deliveries of goods. It is crucial to arrange reliable and convenient freight channels, therefore. Corresponding specialists capable of meeting such a challenge constitute a special group of professionals with their peculiar duties and properties.
The conventional wisdom about the logistics sector tells that the systemic shippers having their own freight brokers face fewer problems in their routines. Besides, when demand for freight transport exceeds the capacities of available carriers, even random shippers have to look for freight brokers and agents to harmonize the demand and supply in logistics.
How challenging is the task? What is the difference between brokers and agents? What criteria help select appropriate freight specialists? Let’s take it through in stages together.
Freight brokers: what are they?
Chip Smith, CEO of transportation intermediary Twin Modal, says that a skilled freight broker is the most universal component in the interactions between shippers and transport vendors. Isn’t it a bit strong to place such a radical value on brokers? Can’t shippers deal with trucking companies and other sorts of carriers on their own?
Of course, they can. But nobody has canceled the principle of the division of labor yet: everyone should do their own business. Freight brokers help shippers meet appropriate transport vendors and vice versa. In other words, the freight broker business implies various activities aimed at the possible efficient coordination between clients and executors in the freight service sector.
This is about both sufficient time and relevant experience that shippers can lack while selecting carriers upon guess. In contrast, freight brokers have both: they invest the lion’s share of their working time in communication with transportation companies to enhance their expertise in the variety of freight deals. Professional customer support along with efficient assistance in fulfilling freight contracts lies in the essence of the freight broker service.
How brokers earn their money
Any broker is an intermediary as such. What do freight brokers sell to earn a living? They sell an intellectual part of the transportation service to shippers while carriers pay brokers for information about available clients. This is somewhat similar to lead generation in terms of marketing.
Brokers create and use two databases (shippers and carriers) to find who matches who best. Since the activity has to happen in real time to provide any value for both shippers and transport vendors (time is money, right?) brokers can fairly claim for a certain share from each freight deal: brokers save money for both parties after all. The so-called spread (a broker’s profit) comes from the difference between what a shipper can pay for freight and the actual transportation fee a corresponding carrier requires for the service.
An average freight broker salary fluctuates between $41K and $75K annually in the United States. A lot of factors affect the salary of freight brokers. It is explainable when an individual freelance-based broker is willing to work for smaller fees than an official freight broker agency typically requires. Location is one of the main price-defining factors as well: brokers from Dallas, for example, usually earn more than their colleagues from Kansas City do. Besides, the current situation with vacant trucks can determine the difficulty in finding appropriate carriers: the freight urgency can significantly increase the brokers’ spread.
How to select the right freight broker
The above-mentioned Chip Smith proposes some tips to help shippers make no mistake in selecting decent freight brokers. This is not a dogma, of course, since individual requirements and circumstances may vary in each case.
Make sure your broker has a corresponding license. This is about your security to have deals with law-abiding “white” brokers. Avoid either illegal or semi-legal freight deals especially when the service fee seems to be too attractive to be true.
Look for multi-optional freight services. Many brokers operate among truckload motor vendors only. But some brokers offer additional transportation options through railroads, air freight, sea shipping, etc. They can back up freight troubles in one sector with free capacities in other ones.
Find out how your broker selects carriers. Don’t trust your goods to random carriers. Your broker should reveal all the details related to every particular transportation vendor. Before loading, your broker must guarantee commitments to provide safety of the goods along with insurance coverage at least. Checking a written contract between your broker and a carrier wouldn’t go amiss as well.
Do a credit check of your broker. A freight broker must be solvent to owe no money to carriers. Find out how prompt your broker is in paying them. Investigate about legal issues of your broker if available. Make sure your broker has a profitable business.
Try to cooperate with experienced brokers. Companies usually face the greatest challenges over the first two years of doing business when survival is a primary objective. If a broker has a long business history, you can confidently deal with such a broker.
Check the confident insurance of your broker. Look for those brokers who can pay the loss and damage of cargo even if an insurance company refuses to pay. At the same time, reliable insurance coverage is the second layer of protection you may rely on.
Deal with brokers under written contracts only. Make sure your written agreement with a broker contains all the details about the deal. Contracts allow both parties to have realistic expectations. Besides, a written agreement can clearly define the scope of broker responsibilities to avoid misunderstandings.