Being a freight broker can be a lucrative business venture. Knowing how to start a freight broker business, however, can be somewhat complicated in today’s world. This is especially true in the United States, where the Interstate Commerce Commission has been dissolved. There are a number of transportation regulations that have been dissolved as well, so it can be rather difficult to know what it takes to get started.
There are some regulatory requirements and some practical requirements that you’re going to need to have in order to get this type of business off the ground. If you can satisfy these requirements, then this could be the perfect business opportunity for you.
1. You must become a registered business.
In the United States, this means all freight brokers must be registered with the Federal Motor Carrier Safety Administration. There are similar agencies around the world that also require this type of registration, so check with your local jurisdiction to see what applications are required. In the US, to qualify for a freight broker registration, you’ll need to prove that you have a $75k surety bond, pay the filing fee, and have designated agents that that can service the legal process.
Although the costs can be somewhat high to get started, they are required because it proves that a start-up business can be financially responsible. The registration with the FMCSA stays on file as long as all payments and the surety bond are current an active. For entrepreneurs that have the $75k in capital, a trust fund can be established in lieu of a surety bond.
Once approved, the FMCSA will issue you a permit number. This will be your authority to run a business within this industry.
2. You many need to register locally and regionally in addition to nationally.
Different jurisdictions have different requirements involving a freight broker business. Most jurisdictions will require you to obtain a local business license. You may also be required to offer a second surety bond that applies for local or regional customers. Check with your local zoning departments, labor and industry professionals, or your local Secretary of State or equivalent to see what else may be required to get your business up and running.
3. Get some experience within the industry.
Most freight brokers recommend that entrepreneurs who wish to enter this field get at least 2 years of experience before trying to start their own business. This will give you the chance to learn the ins and outs of this industry, get some much needed technical expertise, and allow you to network throughout the industry to get the contacts you’ll need when you start your own business.
The best experience will always be hands-on experience. Even if you just start working as a consultant within the industry, any knowledge gained will be to your advantage if you’re wanting to know how to start a freight broker business.
4. Cash flow is critical in the freight broker industry.
Everyone likes to get paid. That’s the reality of any business venture, but the freight broker industry puts a particular emphasis on this fact. In the past, freight bills would be required to be paid in 7 days or less. The modern industry has made this time frame negotiable, but there’s no getting around the tight margins of the carrier industry.
The vast majority of carriers today are paying the expenses of a load in advance, before they even pick it up. Although freight brokers generally want to wait to pay a carrier until they get paid, the average carrier isn’t going to do business with a broker who has that attitude. Carriers like freight brokers because they make their lives easier. If it becomes easier for a carrier to do credit checks on customers and deal with AP/AR on their own, then you no longer have a business opportunity.
5. You’re going to need some extensive credit.
It isn’t uncommon for new brokers to need a credit line of at least $250k in order to get started. This line of credit can help to cover payments to carriers while working toward receiving money from shippers. Truckers who don’t get paid on time are truckers who aren’t going to haul freight for you. No freight haulers means you have no freight brokering business.
To get this type of credit, you’re generally going to need to present a lending institution with a solid business plan. You’ll be putting on a sales pitch to the lending institution to show them what their benefits would be in supporting your new business venture. You can also secure some credit from private institutions or capital providers, but you may be required to put up a portion of equity in the business to secure alternative funding.
6. Make sure that you’re keeping track of all the records.
Codes are in place in most jurisdictions that are very clear about the records that must be maintained by a freight broker. This includes the name and address of the shipper, the registration number of the original motor carrier, freight bills or a bill of lading, compensation amounts, and a complete description of the service provided. Records on every transaction must be held for a minimum of 3 years.
It is important to remember that anyone party that is involved with a transaction has the right to review your specific records that are related to that transaction.
Running a freight broker business can be difficult at times, but it can also be rewarding. Shippers, carriers, and freight brokers are the very backbone of the world economy. Commerce in the United States wouldn’t be the same without the consistent flow of carriers on the nation’s highway system. Knowing how to start a freight broker business will put you right into this profitable mix. Use these tips to get your business started and you will find that this industry is waiting to provide your entrepreneurial spirit with an amazing experience.
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