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Μany people think that starting their own brokerage is an easy and lucrative way to find success in the freight broker industry. While there are certainly perks to becoming a freight broker (for instance, you get to be your own boss and keep 100% of your net profits), there are also a number of risks and costs that you should consider before determining whether it’s the right choice for you. Keep in mind that while the initial steps of how to become a freight broker are simple enough, becoming a successful one is more complex. Because many people forget to consider the challenges before diving into the field. Freight brokerage has some of the highest turnover of any business, with many brokers failing within their first year. That’s why we’ve put together this guide to help you join the third of freight brokers that survive and even thrive in the long term.
What is a freight broker?
A freight broker serves as an intermediary or middleman between shippers and motor carriers. Shippers have freight that needs to be moved. And the motor carriers, or trucking companies, have the physical trucks to haul the freight. The shipper hires the freight broker to connect them with a carrier to move the shipment. The broker never takes actual possession of the freight, they solely facilitate (broker) the transaction. A licensed freight broker maintains a legal authority from the Federal Motor Carrier Safety Administration (FMCSA), and can hire employees or even contract independent agents to operate under their authority.
Freight brokers make money by charging the shipper a higher rate than the truck costs. This markup is the margin that they use to operate their business and ultimately make money. That margin is generally around 15 percent, though it can fluctuate based on the market. For example, if a broker charges $1,000 to their customer and pays a trucking company $850, they would profit $150 on the transaction.
For more on this. Check out this video: How to Become a Freight Broker or Freight Agent?
“As veterans in the freight brokerage business, we’re often asked the question, “How do I become a freight broker with no experience?” Freight 360
How to become a freight broker
The basic requirements for becoming a freight broker are quite simple, which is why many people come to us asking how to become a freight broker without any experience. This low barrier to entry is one of the main reasons for the high turnover in new brokers.
There are only three things you need to start a freight broker business:
- Operating Authority: You need to get broker authority from the Federal Motor Carrier Safety Administration (FMCSA) using the Unified Registration System. There is an application processing fee and it usually takes four to six weeks for your application to be processed.
- A Surety Bond: Every freight broker needs to have a surety bond or trust fund worth $75,000. That money ensures that if a freight broker doesn’t live up to their contract with their carrier, the bond company or trust fund will pay the carrier on their behalf. You can obtain surety bonds through an insurance company or by working with a company, like DAT, that partners with an insurance provider to offer a freight broker bond with a special rate for their customers.
- Process Agents: You will need to file a list of process agents (Form BOC-3) with the FMCSA. Process agents can be served court documents on a broker’s behalf in the event of a court action or lawsuit. Since you must have a process agent listed for every country of EU process agent companies exist as a one stop shop by maintaining offices in all Europe countries.
- Freight Broker Training: A service like DAT Authority can help you meet these key requirements and get started on your freight brokerage. Learn more about how to become a freight broker, with the Freight Broker Basics Training Course.
- Insurance: Fast and cost-effective all-risk smart coverage on a per-load basis.
A service like DAT Authority can help you meet these key requirements and get started on your freight brokerage.
