I am providing this free guide for those that have an interest in becoming a Freight Broker or Transportation Sales Professional. Please reference my websites for further information.
SalesIndustry.net – Freight Sales Industry Website
FreightBrokerJob.com – Freight Broker Job Listings
Chapter 1: The Transportation Industry and its Inner Workings
I will start this chapter by breaking down the industry. First you have freight that needs to be hauled somewhere by someone. Whether it is a load of onions or a pallet of magazines, it all needs to go somewhere. Freight is not just defined as goods that are delivered on a semi. It also entails air freight, container freight, rail, and more. Freight is manufactured either in the USA or overseas. It is then shipped in to the USA (or is already here) and needs to be delivered. At the ports or loading dock of a factory, it is loaded on to a piece of equipment. This again could be a semi, rail car, or boat. All of this freight is handled through 2 or more parties. When this load of freight is manufactured it is destined for a certain customer. This could be a line of clothes heading to a retailer or a load of refrigerated food headed for a cold storage warehouse. Either way, there is always a shipper and a receiver or consignee. Now, sometimes, the freight will go through a third party being a freight forwarder or freight broker.
A freight broker will act as a middle man that will handle the booking of the trucking company or other mode of transport for the shipper. The broker will approach a shipper asking to help handle their freight. This takes some of the workload off of a manufacturers shipping department. The shipper and broker will negotiate a rate for each load, and the broker in turn hires a trucking company at a lower rate to deliver the shipment.
A freight forwarder is a similar agent but handles more international shipments. They will handle freight such as, container ship freight, boats going overseas, and the likes. An example of this would be a yacht broker selling a boat to someone overseas. The yacht broker will contact a freight forwarder to quote a rate to ship the boat overseas.
There are also 3PL companies. They handle all aspects of transportation. They will handle everything a broker and freight forwarder will, and more. Warehousing, intermodal, rail, container, cold storage, and air freight are all aspects a 3PL will handle. They are usually very large companies with many divisions.
In some circumstances a broker and freight forwarder will work together. A broker can handle a load that needs to go overseas and will seek the service of a freight forwarder. Now, the same cannot be said for a broker working with a broker. That is called double brokering. It is frowned upon in the industry, but it still happens. Double brokering can cause serious liability issues that are not needed with the liability already on the shoulders of a broker.
Trucking companies are not likely to befriend a broker for the simple reason they feel a broker takes money out of their pocket. In a sense, they do. Though most trucking companies dislike brokers, they need them. Brokers manage such a large portion of the freight that it is necessary for a broker to be used on occasion. Trucking companies have dispatchers and load planners that are responsible for booking freight for the trucks. They will usually call on their own customers first, and use brokered freight as a last resort. From my experience, trucking companies that haul too much brokered freight are already in or going to be in financial trouble. A trucking company needs to have a strong book of business of their own. I find that smaller trucking companies tend to ignore the sales side and rely on brokers. This can quickly spell trouble. If I could recommend one thing to any trucking company it would be to employ a good sales agent!
As for brokers, you have your large corporations that own such a large portion of freight that they can bid low on rates to gain more freight. And since they own such a large portion of the market, they can accept lower rates from customers and in turn be confident that they can sell it to a trucking company. The trucking companies have to take this cheap freight on occasion because that brokerage handles so much freight. These brokerages are usually disliked in the industry. They are considered to rip off trucking companies because of their stance in the market and their market share. When I brokered, I decided to make less on a load and make a trucking company happy. This would lead to better broker-carrier relationships. You would be surprised how often you need them to help you out of a tight spot as a broker.
There are also large trucking companies that operate the same way as the large brokers. These large trucking companies can underbid the smaller brokers and smaller trucking companies. They can do this because of the amount of the market they can corner. They usually get great rates from a customer close to their home terminal and can afford to take lesser rates on their backhaul. This creates low rates out in the market that smaller companies cannot afford to accept. The other factors are that these large companies have paid for equipment and less of an operating cost.
Chapter 2: The Life Cycle of a Load
A load is defined as product that a shipper needs to move to a consignee. The shipper is also referred to as a customer (your customer). The consignee is the person receiving the freight. Once you have obtained the business of a customer, they will start to offer you certain loads. If you are to accept these loads, you will in turn sell the load to a carrier at a lower rate than you quoted the customer. Sound confusing? Just wait. Once you agree to cover the load for this customer, you start your search for a truck that wants the load. You then negotiate a rate with that truck. Once you have agreed on terms, you will set that carrier up. They will send you their set up packet. It usually contains their MC # (authority), their insurance, W9, and references. In turn you will send them your set up packet (usually containing the same information). After, and ONLY after, they have faxed back the signed broker/carrier contract (this is a contract stating that they will not back solicit your customer for freight), do you go any further. You never give out any detailed information on who your customer is until they have signed the contract. Once they have done that, you then fax them a rate confirmation (explained later). They sign it and fax it back. You now have that load covered.
A load starts as a product that is manufactured at a factory or plant. It is then designated for delivery to a buyer of those goods. The load is then either coordinated for shipment by the shipping department or is handled by a third party. The load is sold to a carrier of the product by the shipping department or third party/broker. The carrier is then responsible for delivering the load to a consignee. The consignee can be a buyer, retail store, another factory for further processing, or warehouse.
The load can also be handled on other terms such as a load of cars being transferred to another dealer or a load that was delivered prior to a warehouse. There are many origins and destination combinations that can be had in this business. Products we use every day are put through this cycle for us to obtain them. Think of all of the important items in your home. They are there because of this industry and this cycle.
3. The Role of a Freight Broker
A freight broker is a third party individual responsible for matching a load with a carrier from the shipper to the consignee. The reason brokers are in business is the fact that manufacturers can take a huge workload off of their shipping department by allowing a broker to manage the shipments. The broker is responsible for quoting a rate to the shipper for the load, finding a carrier, negotiating a rate with the carrier, and ensuring the load is successfully delivered. While doing all of this, they are striving to make a decent profit between the rate they are getting from their customer and the rate they are paying the carrier.
As an agent you are responsible for setting up new customers, carriers, handling rate confirmations, and faxing all of this to your brokerage. You must stay in constant contact with your brokerage, customers, and a driver that is under one of your loads. You want to stay on the driver to make sure they are on time, in route, and following all necessary load information. You will also be on call at all times in case there is a problem with the load. You are responsible for that load. The customer trusts you as a business partner to handle a large amount of money in that load.
The broker, as an independent agent, answers to their brokerage. They must operate in a manner reflecting the ethics of the company they work for. Brokers are usually 1099 contractors and are responsible for their own taxes. The brokerage will usually pay you your commissions weekly and also provide detailed commission reports.
Now there are employee type broker positions. These brokers are usually handed a book of business to deal with on a daily basis and are paid salary. These positions are usually rare, and do not come easy. The real entrepreneurs decide to become independent agents. And I have seen employee brokers that realize the income potential they could make as an independent agent only to go out on their own.
If you are an agent, your brokerage also has responsibilities. They should handle all of the back office work. This would include billing, collections, payroll, and other normal office duties. They should provide software for the agents, a commission split, and often provide load board subscriptions. They are also responsible for credit approvals for the customers and carriers. They handle paying the carriers also.
4. The Role of a Dispatcher
A dispatcher is usually an employee of a trucking company. They are responsible for managing the drivers of the company. They plan and coordinate loads for the drivers, they manage the drivers’ schedule, ensure they are following DOT guidelines, and many other essential duties. The dispatcher is usually the person that will contact you when you have a load available. They will be looking for loads that match the needs of a drivers’ route, and contact the broker about the load. They will usually be very abrupt and straight to the point. They usually are not rude people, they are very busy and have a hectic job. Being a dispatcher, in my opinion, is the stress equivalent of an air traffic controller. Most dispatchers use a software program that that will coordinate their trucks, loads, and customers’ information. Most companies also now use tracking software that will check driver’s location, speed, arrivals and departures. This software has significantly decreased a dispatchers’ workload.
5. The 3PL Industry and Warehousing
A 3PL company is a jack of all trades, They usually have divisions in brokering, warehousing, and freight forwarding. They will handle air, ocean, and land freight. A 3PL will also offer services of storage, tracking, labeling, and inventory management. They are an all around logistics provider.
A company would benefit from a 3PL in a situation where they wanted someone to store their product, manage the inventory of it, and handle the orders when a buyer wanted some of that product. A 3PL can offer a great service to reduce the workload and manpower needed at a company that produces goods.
It is not out of the question for a 3PL and a broker to work together to handle shipments in and out of their warehousing facilities. This, in most cases, would not be considered double brokering.
6. Types of Freight
The different types of freight you can broker are almost endless. The most common are Flatbed freight, refrigerated freight (reefer), van freight, and auto hauling. Other types are; oversized (wide load, extended, maxi, step deck, double drop, Less than truck load or LTL, and more), boats, household goods, government, logs/timber, and the list goes on.
Your reefer freight usually consists of food products, produce, or temperature sensitive material. Dry Van loads can range from food products to most any material. Flatbeds usually haul metals, large equipment, and other goods that will not fit in an enclosed trailer.
When it comes to specialized, this can be boat hauling, car hauling, extended flatbeds, and more. The specialized market is a good one to get in to. It pays well and is not as flooded as the other freight types.
You also have your freight forwarding freight types. They are freight that is shipped on container boats, rail, or air. It can be any of the goods you would see in the above lists, just destined for another country.
Whichever field you decide to get into, I recommend you do research and ask questions on that topic. I would say that the easiest, but most competitive is van freight. Your van freight can consist of auto parts, dry foods, papers, plastics and more. It is the least likely to give you any problems during the transport process. When dealing with reefer freight, you have to worry about temperature control. Flatbed freight, you have to worry about straps, chains, tarps, and more. Once you get into specialized such as oversized, boats, maxi, etc; you have to worry about permits, escorts, and more.
7. Rating Freight
There is no real place to go to find all rates, or no book to read that can teach you rates. They are learned through trial and error. The best method on rating (pricing) a load is to post a generic load on a load board. Trucking companies will call to inquire about that load. When they do, ask them how much they would need to haul it. Tell them the load they called about is gone but you have those all the time. Do that process with a couple of companies, and you will soon see what freight is moving for in that lane. Websites do have tools to research recent rates in certain lanes. I will get into that later. There are a couple different ways that people want rates. The most common is per mile. They want to know what you (or your contracted carrier) will haul it for per mile.
Ie: A dry load going 1200 miles in a lane where the average pay is $1.15 per mile. If it is going to cost you $1.15 ($ total of $1380.00) to get that load moved with a carrier, you would quote the customer a little higher (maybe tell them it is going to cost $1650 to move it) to make a profit. So now you are making $1650 from your customer minus the $1380 you pay a carrier for a profit of $270 or 16% for one load).
In the industry, the common rule is that you want to make at least a 15% profit on each load. That is 15% of the total rate. You can set that percentage wherever you want, but you need to stay competitive. Some large brokerages I have dealt with have a minimum of 20% that their brokers must keep on a load. That, in my opinion, is a bad way of doing business. Yes, they make more on each load, but they also make a bad name for themselves with carriers and other industry professionals. Every situation is different and the rate should reflect that.
The other common way is by weight. Take a load of potatoes for instance. Your customer might pay you by the hundredweight. They have a load of potatoes going 1200 miles. The miles only come into play when you are calculating, for your own good, the rate per mile.
ie: It is 48000 lbs of potatoes going 1200 miles paying $6.50 per hundredweight; The way you figure the rate is you take the weight (48000) divided by 100 (hence the “hundredweight term), and you get 480. So you have 480 “one hundred weights”. Then you multiply however many hundred weights by what it pays per hundred weight. So: 480 hundred weights X $6.50 per = $3120 is the total pay. Then when you go to find a carrier you put it back into a per mile rate. If it is 1200 miles you divide the total rate of $3120 by 1200 miles, leaving you with it paying $2.60 per mile. You try to find a carrier for less than that to make a profit.
A lane is simply a route between two cities. Say for instance; Chicago to Atlanta, that is a lane. Whatever the Pickup location is and the destination is, that is your lane.
There are lanes that are better than others for a broker or trucking company. Lanes I have tried to avoid are the Northeast, South Florida, South Texas, and most of the Upper Midwest. The reason for this is described below.
South Florida (below I-10) – There is not a lot of freight coming out of this area. This causes freight rates to be lower because of the amount of trucking companies needing a load out of here. They will underbid each other to get the loads that are available. Now the flip side to this is that if you have freight coming out of this area, it will be easy to sell. Also, if you try to book a truck on a load going to South Florida, they will request that you pay them deadhead miles back to Atlanta or close to there.
Northeast – This area, in my opinion, is trouble because there are so many trucks there and not enough freight. The same thing happens with the underbidding of each other. Also, even if you have freight there, the customers will not pay enough to broker it out. They know the situation and cut rates accordingly.
South Texas – The same situation applies as the above areas.
Upper Midwest (Utah, Montana, Idaho, Wyoming, and similar States) – These areas have a lack of industry besides cropland goods. Unless you have established contacts in this area, I suggest staying away. It is hard to find a truck going to these areas.
9. Building a Customer Base
Where to start finding the freight is the most important part of being a broker. The best thing I can tell you to do is to start surfing! The internet will be your most powerful tool. There are websites that list manufacturers in the United States. Thomesnet.com is a great tool for contacting shippers. It allows you to email 30 companies a day per account. It is free to set up an account with thomasnet.com. You can email or call these companies. It lists any type of manufacturer from food to metals.
Another great way is to look through the products at your home or work. See who they are made by, then find them on the internet. You will always want to contact the shipping or transportation department. When you do find these companies, you need a game plan. Below is a script for an email or phone call to a shipper;
“Hi, this is Johnny with ABC Logistics. I would like to get set up with your company to help move your freight. We are a logistics company that has been in business for (x) amount of years. I would appreciate the opportunity to rate your lanes, and see if we could lower your shipping costs.”
You WILL get shot down. In my years, I have never had anyone be rude. So don’t be scared of cold calling. They do need help moving their freight. You just have to strike a chord with them at the right time. Never throw away a number. Call them back in a month. They might have just had a load dropped by a carrier, and need help.
The industry has evolved from what it used to be. Customers were gained by visiting the business in person and landing an account. This still happens but in a lower number of instances. It is wise to still do this especially to keep the customer and build a relationship. Most shipping departments are now ran by a generation that was raised using the internet. With this happening, more accounts are landed through the internet and email. I have landed most of my accounts by utilizing my computer skills and email. I will identify a company’s general email (such as @abcfoodcompany.com), then find the shipping managers email. You can do this by finding out their name. Try combinations like their first name followed by a dot then their last name and then the email address. Try different variations of the example above. Eventually you will get their email address. I find it easier to land an account with an email. They are usually pretty busy and will answer an email before answering a voicemail.
Another trick is handling the gatekeepers. The gatekeeper is a receptionist. They can spot a sales call a mile away and will automatically forward you to voicemail. Here is the trick I use:
I will call the company and immediately ask for the shipping managers’ voicemail. Once I get their name from the voicemail, I hang up. I will then call back later and ask for them by name. This makes it sound like you know them and they might want your call. You can also just ask for their first name. If they have a common first name that is even better. The receptionist will ask which “John” you are wanting. You reply with “Oh, I am sorry, John Smith”. It then sounds like you know him personally and he is expecting your call.
10. Building a Carrier Base
There are many ways for you to find a carrier to cover your load. The first would be to use load boards after you have posted a load. Some may call you off of your load or you can search and call them. Another would be to establish relationships with carriers that will haul for you on a regular basis.
I suggest establishing a good relationship with every carrier you use. They will follow you as a broker if you ever change companies. And, as you get familiar with your lanes, you can call on your list of carriers that meet the criteria. They will also help you in a desperate situation. If you take care of them, and are one day stuck with a load, you will find that most carriers will help you and take a lower rate than normal.
Keep all of your carrier contact information in a software program or an excel file. You will find it useful when you sign up with a brokerage. Instead of waiting to set them up when you use them, you can have your brokerage go ahead and set them up ahead of time.
11. Selling Freight to a Carrier
Once you hit the jackpot, and a customer is giving you freight, you have to find a carrier to haul it. This is the easy part. First, make sure you can cover the load. If you bid it too low and cannot find a carrier to haul it that cheap, you will have to give it back to your customer. If that happens, they will usually drop you unless you have been with them a while. Once you take the load, you want to post it on load boards. Once posted with the important information (weight, where it picks up, where it drops, miles, your contact info, and type of trailer needed, etc;). I suggest not posting the rate that you are paying. That might eliminate the chance for negotiation. You can also search for the trucks and call them.
Once you have a truck interested, you always want to ask them what they will do the load for. You don’t want to have to make a price. Do not be scared if you have to though. I promise you will not shock them. Quote them a lowball figure, and they will say no. Then is your chance to ask them what they need in a rate to do it. If you can’t meet them at a reasonable rate, go to the next carrier. Once you do meet at a rate, then you will start the paperwork mentioned above. The set up packets, contracts, and rate confirmations will all be exchanged.
12. Freight Forwarding
Freight Forwarding is a broker in a sense. They handle freight that is international. You will need a freight forwarder if you are handling container loads that ship overseas or air freight. This is a very lucrative position, but also requires a lot more experience with customs and such. If this is a career path you are interested in, I suggest finding an entry level position within a freight forwarding company. If you can gain experience in vessel requirements, customs procedures, or are fluent in a foreign language I would say go for it.
13. Authorities, Bonds, and Insurance
A) Authorities: An authority or MC number allows you to broker freight. Carriers and freight brokers both have MC numbers. Your MC number is used for the government and transportation industry as a number to represent your company as being legal to perform trucking or brokering duties. MC numbers are a six digit number that start with a 0-6 depending on the age of the company. You can tell a company’s age by their MC number. As I am writing this, a company starting out now would receive a number starting with a 65xxxx.