A carrier is a trucking company or rail carrier that is paid to provide transportation services. Carriers own their vehicles and equipment, in other words, carriers are asset-based. There are more than 564,000 authorized motor carriers in the United States.
A freight brokerage is an entity that works as an intermediary between shippers and authorized motor carriers. Brokers help keep carriers loaded and they help shippers find reliable carriers, capable of matching available loads to available trucks on short notice. Also referred to as a Truck Broker and different than a Freight Forwarder, a Freight Broker must obtain legal authority to operate before they may conduct any business with shippers or carriers.
The customer of freight brokerages and carriers, a shipper is any business with cargo that needs to be transported. Every company has their own title for the person responsible for shipping. That “decision maker” is typically the Traffic Manager, Shipping Clerk, or Transportation Manager.
Brokers and their Agents contact shippers who have available freight that needs to be transported from one city to another, they provide the shipper with a quote, and then the broker finds a carrier who is willing to pick up and deliver the shipment for less than the broker quoted the shipper. The difference is their profit margin.
For example, a grocery store with a produce distribution center in Iowa buys 40,000 lbs. of watermelons from a farm in Florida. The grocery store’s Transportation Manager calls their favorite Broker because they need a semi-truck with a refrigerated trailer to haul the watermelons. The Broker tells the Transportation Manager that he/she can provide a truck for $4,000, to the Broker’s delight the Transportation Manager agrees to the rate and sends the broker a rate confirmation (contract between the shipper & brokerage). The broker then finds a carrier with an empty truck in FL (ideally one with a driver from IA) who is willing to take the load for $3,700 and sends the driver’s dispatcher a new rate confirmation (contract between the broker and carrier). Once the watermelons have been delivered; the carrier has been paid by the broker, and the broker has been paid by the shipper, the broker’s profit margin would be $300. In some cases, the broker’s customer may actually be the watermelon farmer, it just depends on who is scheduling trucks and paying for the transportation costs.
A Freight Brokerage is a rather easy-to-start home based business that can turn a profit in a short time and scale to any size due to the abundance of freight and capacity available to be matched. In fact, Entrepreneur magazine rated Freight Brokerages as the #1 home business to start. Many brokers and agents work out of home offices but some are fortune 500 companies with huge headquarters. Most successful companies today rely on the expertise of a supply chain management professional to keep their goods and services flowing to the marketplace quickly and efficiently. Some companies use brokers to coordinate all their shipping needs, while others rely solely on asset based companies. The majority of small carriers routinely rely on brokerages to stay loaded, utilizing a broker gives carriers the freedom to not know where they will be headed a week in advance. There is no salary cap for Freight Brokers and Freight Agents, their income potential is limitless. Individuals who obtain the necessary skills, tools, knowledge, and mentality DO make six figures annually. Because the shipping industry is so large and essential for our modern lifestyles it aids in stabilizing the U.S. economy, an independent Freight Brokerage is, in principle, recession proof.
With changes made to legislation in recent years (MAP-21, 2013) it became more expensive more expensive to be an authorized freight broker, the required surety bond amount was raised to $75,000 from $10,000. When the legislation passed, 8,000 of the 21,000 brokerages de-activated their authority. Today (July 2016) +14,000 licensed brokers are in business. Learn how you can Get a $75,000 Freight Broker Surety Bond without spending $75,000.