Financially speaking, a freight brokerage can be a very rewarding business. When first started, however, it can be very challenging to keep your cash flow positive. The situation is compounded if you are forced to pay a carrier or two for loads that you have yet to be paid for. Your customers may not have paid you yet, but in order to keep your carriers happy, you need to cough up the dough now.
So you have a situation. Unless you are independently wealthy with a nicely padded bank account, you will need to come up with a source of financing that you can use in a pinch. Banks are unlikely to offer much assistance to a start up business without substantial assets.
Enter the factoring company. Factoring companies provide immediate money for your freight bills, at a price.
The relationship between you and your factor typically works as follows:
Some factoring companies will only advance you 60% to 90% of the freight bill amount upon delivery, and the balance upon customer payment. Some will allow you to pick and choose the invoices you factor, others require you to factor all of your invoices. Some may offer other perks to get your business, such as quicker payment, payroll services, etc.
Due to these differences, as well as a variance between the fees charged by different factoring companies, it’s a good idea to shop around prior to choosing a factoring company.
As you can see, factoring could be a good alternative way for a start up brokerage to get fast cash until profit margins have created a buffer in the bank account. It’s much quicker and easier than talking to a bank about a line of credit, and has the added advantage of growing automatically as your receivables grow.
The trade off is that the fee you pay to the factor can cut deeply into your profits, and it can be hard to wean yourself off this without much discipline.
TruckMaster has a few factoring companies on our industry links page, if you’re looking for a place to start searching from.
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TruckMaster Your Freight Brokerage
In May, this blog talked about what needed to be done to set up a freight brokerage company, you walked through the steps, and you are a legal freight brokerage company. Now what? How does a budding freight brokerage company make money? Answer: the same way a long time existing brokerage does – they work hard at it.
The two high focus areas that need to be considered when starting are (1) a broad carrier base, and (2) a broad customer base. Sometimes these two areas fall in the "catch 22" drawer – customers will work with you if you have a broad and accessible carrier base, and carriers will only work with you if they know you can choose from a broad customer base.
Here is one way to build a carrier base. Early each morning, before the delivery day gets started, stop at all the local truck stops. Wander through the truck parking; write down the names and addresses of the various carriers stopped there and the number of trucks from each carrier; talk to the drivers if they are up and moving, find out where they are from, where they haul to, and what they haul. See if you can get a phone number and a name of the dispatcher that handles their truck. It’s always nice to have a name when you call the company.
Now that you have some carrier names, go to yellowpages.com and get the phone numbers for those you are missing. Call the dispatchers and ask them the important questions. How many times do they come to your area per week or month? Are there other areas of the country they service? Are there areas they go to where freight is hard to find? Who do they deliver for, and to, in your area? Who do they pick up for, and from, in your area? What kinds of freight do they prefer to haul? Would they be interested in giving you a chance to provide freight for them? And the question that many brokers forget, do they have freight they can’t move? And, would it be possible for you to move that freight for them?
Another way to build your carrier base is to search through your local yellow pages in the various listings for trucking, freight, and any other label the phone company might use to identify a trucking company. Don’t call these companies, go and visit them. Find out what they haul, where they go, and how you can help them be successful.
Now, how to build a customer base. Remember we asked the carriers where they were going and who they delivered to or picked up from? Armed with that information, you must locate phone numbers and start making calls asking for freight to move. You will want to talk to buyers, logistics managers, warehouse managers and anyone else in the company that looks for trucks. Don’t confine yourself to just the freight in your local area. Be sure to ask them about the trouble spots. If you want a quick "in" with shippers and receivers, find them a truck for areas they struggles with. Depending on your freight focus, look in the yellow pages of your local phone book for warehouses that fit the focus. Just like the local carriers, go and visit them. Show them you are interested in helping them move their freight.
Now you have carriers, and you have customers who are willing to work with you, this means you have freight to broker. Be sure you have TruckMaster Freight Brokerage Software to help you manage your business. The software is so intuitive it reminds you when carrier insurance certificates are about to expire. It warns you when a customer is a bit slow on paying. And it will help you keep track of where the trucks are, where the freight is and how you can get them together. Bottom line, this is how you make the money. Understand that carriers and customers will be cautious, but if you are persistent, they will give you a chance at one time or another to help them out.
Good luck on your new adventure!
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TruckMaster Your Freight Brokerage™
A “Freight Broker” is a person who sells transportation, without actually providing it. They typically act as an intermediary between those who have freight to be transported, and freight transportation providers, whether by air, sea, or land. Freight Brokers earn their money by effectively utilizing contact networks they have established, normally charging a percentage of the gross transportation cost.
The Federal Motor Carrier Safety Administration (FMSCA) calls them “Property Brokers”, which they define as transportation intermediaries who procure the services of motor carriers to transport property.
From the standpoint of an entity that has freight to be transported, a freight broker can serve as a single point of contact to a multitude of transporters, usually at no extra cost to them. From a freight transportation provider’s standpoint, a freight broker can be a consistent source of (discounted) freight, useful in a pinch.
Regardless of the state of the economy, people need to eat, and sellers need to deliver their wares to buyers. To varying degrees, goods are therefore constantly being transported across the country. This situation results in continual business opportunities for a well connected freight broker.
The limited requirements for becoming a freight broker make it quite appealing to many, from displaced workers, to stay-at-home mothers, to truck drivers that want to remain in the industry but stay closer to home.
Entrepreneur Magazine rated a freight brokerage as one of the top 5 businesses to start in America. The Wall Street Journal recently recognized freight brokering and logistics as the largest growing sector of the transportation industry. It’s an ideal home based business for a self-starter who enjoys fast paced work.
The number of active property brokers registered with the FMCSA had increased from 16,930 in April of 2006, to 20,268 in April of 2008, a 15% increase in two years. It’s likely that a similar growth rate has been sustained in the year since these figures were published.
The FMCSA requires freight brokers to file Form OP-1 (“Application For Motor Property Carrier and Broker Authority”) along with a $300 fee.
You must also obtain a Surety Bond or Trust Fund from a bank or bonding company for a minimum of $10,000. The cost for this will vary depending on your credit rating. Form BMC-84 (“Property Broker’s Surety Bond”) or Form BMC-85 (“Property Broker’s Trust Fund Agreement”) must be filed with the FMCSA.
The final FMCSA filing requirement prior to receiving authority to operate as a freight broker is Form BOC-3 (“Designation of Process Agents”).
A fax machine and a multi-line phone with inexpensive unlimited long distance are arguably the next most important items on the list.
Although you may be able to initially get by without it, a computer will become essential for a freight broker. An investment in a good freight brokerage software system will greatly enhance your efficiency, and should be pursued as soon as revenues allow. TruckMaster would be happy to provide this to you when you’re ready.
Alternatively, you could become an “Agent” for a freight broker that provides these items for your use, typically for a share of your commissions.
Although definitely not required, there are a myriad of trade schools and local college programs that could give you training and credentials. Google for “freight broker training” to get started searching, should you decide that this would be advantageous for you.
As with most businesses, there will be a build-up period where you will initially have to “hit it hard” and establish contacts. If you’re lucky enough to come into it with some good contacts, it may take you much less time to get established, but you should otherwise plan on 6-10 months to get off the ground.
Individual earnings for a full-time determined freight broker with good contacts and some luck could range anywhere from $40,000 to $200,000 per year or more.
Should you not be in a position to risk the time and money that it may take to get the business off the ground, starting off as an agent for an established brokerage may allow you to learn more about the business while saving up money to branch out on your own.
More information can be found all over the web with regard to the challenges in starting a freight brokerage, or feel free to contact TruckMaster with your questions, we have experienced ex-brokers on staff that would be happy to answer your questions.
TruckMaster Logistics Systems, Inc.
TruckMaster Your Freight Brokerage™
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