How to Become a Freight Broker: Your Ultimate Infographic Guide

Published: Dec 11, 2015

How-to-become-a-freight-broker

It’s a great time to be in the freight brokering business, and there are plenty of reasons to consider starting your own brokerage now.

With an improving economy across the U.S., an increasingly stable and growing industry, and increasing demand for new brokers, you have all the external conditions to become a successful freight broker.

We’ve compiled this comprehensive guide and an infographic that will take you through the main steps of launching your business. You can read our step-by-step guide below or jump straight to the infographic.

What you need to know before you become a freight broker

Before you take the first steps to launching your freight brokerage, it’s a good idea to review the role of the broker in the industry.

Besides earning well – freight brokers can make up to $90,000 per year – they’re also indispensable for the transportation of goods and cargo. Essentially, freight brokers keep the economy running.

What does a freight broker do?

Freight brokers are filling in a crucial role in the movement of freight, as the missing link between shippers and carriers. They negotiate good shipping rates and fast deliveries from transportation companies, and connect them with the businesses that need to transport goods or cargo, so carriers can maximize their loads.

 

Besides acting as an intermediary, brokers have an important function in the tracking of freight, as they keep thorough records of pickups and deliveries, and other information. They also oversee the legal part of the transportation, as they need to be experts in shipping regulations and procedures.

 

Brokers are the ones who make sure that each step of the transportation process occurs, so that the freight arrives safely to its final destination. To become a freight broker for trucking and transportation means to take responsibility for a vital part of the shipping process.

How to start a freight brokerage

Starting your freight brokering journey does not need to be complicated – but you do need to prepare thoroughly for launching a freight brokerage business.

So what does it take to become the much-needed middleman in the transportation industry?

 

What do you need to become a freight broker?

1. Gain Industry Experience and Study

1.1. Refresh or Develop Some General Skills

While brokering freight does require knowledge and experience in the field, there is nothing you cannot gain with practice and diligence. In other words, a strong will is among the most important qualities you need to have in order to make it.

In terms of skills, it’s a good idea to refresh your math skills because you’ll need to make use of them on a daily basis. Turning on your business know-how is important too, because you need careful analysis and critical thinking to make the best of existing opportunities.

Your communication and people skills, naturally, are of critical importance, as a large part of your work will be done over the phone or email – both negotiating and closing deals. If you have – or can build up – some experience in the transportation industry in another role, this can be very beneficial for your brokering, as you’ll be better connected with the main players in the field.

Freight broker training1.2. Take Freight Broker Training

Besides the general skills you need to refresh or develop, you might want to attend a freight broker school in order to get fully prepared for actual requirements of the brokering job. Getting the top freight broker training books is also important, so you can always refer to them when you’re unsure how to go ahead.

The best option for freight broker agent training is to attend freight broker classes. There are numerous solid freight broker training experts – Dennis Brown from Freight Broker Bootcamp school, and Scott Woods from the Transportation Training Group, just to mention a few.

Investing in transportation broker training with an expert can give you deep insight into the workings of the industry and its main players. You’ll also pick up practical knowledge about the work of a freight broker, and learn how to work with shippers, and how to handle shipping rates negotiations. Let’s not forget that training can lead you to open freight broker jobs too, and potentially open many doors for your business.

We asked David from LoadTraning how much time one would have to set aside to pass a freight broker course as well as some hands-on training. David told us that in order to go through the “Broker Operations Manual”, which includes all the relevant theoretical info and data, one should plan on setting aside about three weeks. And then you should also plan on at least one more week of hands-on training at a brokerage where you will develop some initial skills.

2. Choose a Company Name and Register Your Business

In order to legally operate a brokerage, you will also have to choose a company name and register your business. You can check whether the name you’ve chosen is taken at the US Patent and Trademark Office. Part of registering is also carefully selecting the kind of entity you’d like to register as – sole proprietor, partnership, limited liability company or corporation – and then registering your business in your state at your local business license department.

3. Develop a Business Plan

On a more practical note, preparing a solid business plan is very important. With it, you will be able to apply for a line of credit with your bank but even more than that, your business plan is also an exercise in specifying which niche you will be targeting and who your customers are.

Your business plan includes a go-to-strategy and the more you invest in figuring out the specifics and researching the market, the better you will be prepared to meet its challenges.

4. Find the Right Carriers

A freight broker without carriers is like a ship without sails. Part of your go-to-market strategy should also include finding the carriers which work in the field of operations you’ve chosen for yourself. What’s more, the right carriers are also the ones that are trusted, reliable and professional. This makes the task hard but not impossible!

From online directories and direct references by other brokers to networking events, there is a multitude of ways to find the right carriers for yourself, so don’t hesitate to try out a number of them and don’t just go with what feels easiest!

5. Apply For a USDOT Number and Get Your Broker Authority

Freight Broker Authority
After you’ve gotten acquainted with the important role of the freight broker, and what you need to get started in terms of education and a business plan, it’s time to delve into the legal side of how to become a freight broker.

 

Before you start operating in the field, you need to get a freight broker license from the Federal Motor Carrier Safety Administration (FMCSA). The licensing is also referred to as obtaining your Motor Carrier Operating Authority (MC authority).

Your first step in getting licensed is to get a USDOT number, which is required on the application form. Then you can start the registration process on FMCSA’s website. Along with filling in the freight broker application form, OP-1, you have to also pay the one-time application fee of $300. You can find further instructions for filling in OP-1. The processing time is between four and six weeks.

Once your application has been approved, the FMCSA will send you your MC number by mail.

The MC number, however, does not mean you can start business yet. When it’s issued, it gets posted on the Register page of the FMCSA. Within 10 days, anybody who finds a problem with your registration can protest against it. After this period, you are granted the MC authority.

6. Get a Freight Broker Bond

As just mentioned in the previous section, to get your MC authority from the FMCSA, you need to obtain a freight broker bond, or a BMC-84 bond. If you’ve been following the freight news, you’re probably aware that back in 2013, the bond requirement was raised to $75,000 to ensure high industry standards and accountability.

If you’ve never worked with surety bonds before, it’s important to understand what they are: in essence, a three-party contract. Your freight brokerage is the principal, the FMCSA is the obligee, and the surety is the one providing the bond.

The purpose of the freight broker bond is to guarantee that you will follow all applicable rules and regulations in your brokering. In this sense, the bond is an additional line of credit for your business. Because of the risk involved in providing you with this, when you apply for a bond, the surety needs to take a close and hard look at your personal and business finances, as well as your credit score and the overall stability of your business.

On the basis of this evaluation, the surety decides your bond premium, or your actual your freight broker bond cost. That’s right: you don’t need to pay the whole bonding amount, but only a percentage of it.

If your credit score is above 700, you’re likely to pay between 1.25% to 3% premium, or between $937 and $2250. For applicants with credit score between 650 and 699, the percentages are between 3.5% and 5%, or $2,625 and $3,750. Even if your credit is far from perfect, you can still get bonded with a bad credit program, though you’ll have to pay slightly a higher premium to mitigate the risk involved.

In general, the best tip to reduce the price you have to pay for your freight broker bond is to work on improving your credit score. You can find more smart tips on reducing your costs when renewing your bond yearly in this useful freight broker bond renewal guide.

7. Obtain Contingent Cargo Insurance and General Liability

With your MC number you can go ahead with getting insurance (Form BMC-34 for loss and damage and in some cases, Form BMC-91 or BMC-91X for bodily injury, property damage and environmental restoration) and your surety bond, which we detailed in the previous section.

You need these insurances because many, if not most, shipping companies will request that you present these before you begin work together.

8. Designate Agents for Service of Process

At this stage, once you’ve obtained your bond and insurance, you’re ready to choose your process agents for each state you do business in. This can be done through Form BOC-3 (Designation of Agents for Service of Process) which you need to fill in and submit to the FMCSA.

9. Get Your Equipment

When it comes to the material assets you need to start a brokerage, there are a few things to consider – even if you don’t plan to open a physical office in the beginning.

The essential technical gear that you need at first includes a computer, a printer, a copy and fax machine, a landline phone and a mobile one, some office supplies – and a solid internet connection. You might also want to look into freight brokering software, as it can automate a part of your work and boost your productivity. With time, you’ll see what other items or services are necessary and get them as the need arises, but these are the basics.

10. Get Enough Initial Operational Capital

Unless you have enough cash already at your disposal, you will probably have to consider the line of credit you can secure before you start brokering. Since you will be the intermediary between shippers and carriers, you’ll often have to pay truckers for the shipment before you’ve received the payment from the shipper.

Once you’ve settled your business plan and gotten a line of credit, you’re on the safe side financially, and you’ll be able to start brokering for success.

11. Market Your Business


The final bit you need to cover is how you will market your brokerage to potential clients. Here you can think about what will make you stand out and how you can get your message across best.

From a marketing strategy and social media profiles with regular posts to a great website with a blog and printed marketing materials – the scope depends on what you think will impress future clients most.

Get Started!

Getting well acquainted with what freight brokers do, how to become a freight broker, and how to start your brokering business is the first step in starting your successful business. Check out our infographic below for a visual representation of the various requirements for freight brokers and what else you need to do or know when becoming a broker!

How To Become a Freight Broker - Infographic

If you’re ready to start, make sure to get a free quote online for your freight broker bond to save on your startup costs!

Embed This Infographic

The following two tabs change content below.
Victor Lance is the founder and president of Lance Surety Bond Associates, Inc. He began his career as an officer in the U.S. Marine Corps, serving two combat tours. As president of Lance Surety, he now focuses on educating and assisting small businesses throughout the country with various license and bond requirements. Victor graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan's Ross School of Business.