Do you want to start a freight brokerage firm? If YES, here is a complete guide to starting a freight brokerage business with NO money and no experience plus a sample freight brokerage business plan template.
Prior to the 1950s, the railroads were considered as the route for commerce in the united states till the interstate highways were created which saw trucks being used as a means by which trade could be effectively carried out.
According to statistics, close to 43 million tons of goods that are worth $29 billion are being transported via the highways averagely on a daily basis.
This is what led to the creation of freight brokers who saw an opportunity to ensure that manufacturers, businesses and shippers all find trucks and drivers that will help move their goods to the desired destination on time for a cut.
Freight brokers are a part of the trucking industry and have been around since the industry started in the 20th century. Before 1970, the brokers that were in existence had to face stiffening regulations from the government, which led to there being only a few brokers in the industry.
However, in the 1970s, the restrictive regulations eased up, allowing more people to enter the industry and make some money for themselves.
While the freight broker business might look easy enough to start up, it isn’t as you will require an insurance policy and a federal license from the Federal Motor carrier Safety Administration (FMCSA). For you to be able to do business with shippers, you will need a broker authority and a surety bond.
The surety bond not only gives you financial credibility but also professional integrity as well, as shippers have to be sure that their logistics are being handled by a business that will not crumble in a short time. The industry has recently had its surety bond increased in order to have companies engage in fair and ethical best practices.
While it is important that you undertake a thorough survey of the industry before starting your freight brokerage business so as to have an idea of what to do and expect, the fastest way for you will be to first start off as an agent to a larger company as this would give you all the experience you would need to run your own business.
Also, even though there are several schools online claiming to offer courses that may help you become a freight broker in no time, they are simply a money wasting venture as they cannot help get clients for you and so your best option is to learn the ropes first as a freight broker’s representative.
There are several things that you would therefore need to take into consideration should you be looking towards starting your own freight brokerage business in the United States and become successful.
Some of the steps that you have to take are; ensuring that you select a legal structure for your business, get the necessary broker authority from the FMCSA, designate a process agent in each state where you will be running your business from.
You must ensure that you have the required surety bond of at least $75,000 and also ensure that your business is duly registered. Asides from deciding on a location for your business, you will also need to craft a comprehensive business plan.
Steps to Starting a Freight Brokerage Company
1. Understand the Industry
The freight brokerage business industry is one that has no companies dominating the industry and having a large market share.
The industry according to IBISWorld generates $123 billion and between the periods of 2011 and 2016, saw a 5.3 percent growth. It is estimated that there are more than 46,500 freight brokerage businesses employing more than 288,000 people.
The industry is one with a fragmented nature and due to this has seen an increase in competition especially in areas such as prices and efficiency of services. The industry is expected to grow based on the prominent role that the domestic economy is bound to take.
Between the periods of five years (2011 to 2016), the freight brokerage industry has had demand for its services grow tremendously.
This is because domestically, demand volume increased which led to more freight services. Also, emerging markets that were regarded as strong, encouraged trade and caused an increase in the demand for trade-related services in the industry.
Despite the tremendous growth achievements of this industry however, it is expected that the next five year period (2016 to 2022) will see demand for services slow down especially as there will be fewer emerging markets, leading to limited trade volumes.
The barriers to entry into the freight brokerage industry are very low and have caused an increase in competition which will lead to several companies consolidating. While the low barrier to entry might be advantageous to new entrants but it doesn’t favor them once they have established themselves, thereby making growth become very difficult.
Also, while it is easier for companies to concentrate on one or two niches, those that determine industry trends usually settle for niches that deal in national and international operations. The major players in the industry have extensive systems in place that will allow them compete and have an edge over other players.
Globally, freight brokerage businesses generate revenue of $270 billion annually. Countries like China, South Korea and Singapore are known to have not only the busiest container shipping ports, but also the busiest airports as well based entirely on the volume of cargoes moved.
Other countries like France, Dubai, Germany, the uk, the Netherlands and Japan also are regarded as major international hubs for cargoes. In the United States, there are close to 20,000 freight brokerage firms generating about $60 billion annually and this consists of companies that have a single location and those that have multiple locations.
Between January 2014 and September 2016, licensed freight brokerage firms in the United States increased from 13,565 to 16,932. However, according to the register of the Freight Motor Carrier Safety Administration (FMCSA), more than 7,000 freight brokers got licensed during the same time period.
The differing numbers in the data provided shows that while the FMCSA register is for all freight brokers, the other data is for existing freight brokers, and this shows that there are a number of freight brokers who during this period went out of business even as more people were registering. This therefore shows the volatility of the industry.
The industry saw certain regulation changes from 2013 that affected a lot of brokers. One of the regulations was from the bond increase by the FMCSA in 2013, which threw up a lot of controversy especially as the bonding costs were seen to be higher.
This led to a lot of freight brokers going out of business and yet it also caused the reputation of the industry to improve as customers had more confidence in the industry as businesses had to be fair and ethical in their practices.
Also, this led to an increasing amount of competition in the industry as players started using technology to try and have an advantage over their competitors.
Technology has come to play a huge role for freight brokerage businesses as many are focusing on implementing electronic logging devices (ELD) that will allow for efficient services from freight brokers to their clients. Also, in order to keep up with changing trends, freight brokerage businesses are looking to improve on their hours of service especially in regards to the truck drivers that they will partner with.
It is expected that the rates for freights will continue to increase because even though there will be a reduced capacity, it is expected that demand for services in this industry will increase.
2. Conduct Market Research and Feasibility Studies
- Demographics and Psychographics
The demographic and psychographic composition of those who require the services of a freight brokerage firm are not restricted to only shippers and truck owners but to other organizations needing freight services as well.
Therefore if you are looking to define the demographics of your freight brokerage business, you should ensure that you conduct a thorough survey into this market as the internet has opened up a whole lot of opportunities.
3. Decide Which Niche to Concentrate On
In the freight brokerage industry, companies help arrange freight transportation between shippers and truckers. A freight broker is therefore seen as an agent. The environment is one that is deemed very competitive as freight brokers have to compete amongst themselves by offering services that will allow them to stand out; this is where niche ideas come in.
Before deciding on which niche is best for your business, it is important that you study the available ones in order to determine which will best suit your capabilities and also generate the needed revenue for your business. Below therefore are some of the niche areas that you should focus on in order to stand out from your competitors;
- Domestic freight brokering services
- International freight brokering services
- Non-vessel operating common brokering services
- Customs brokering services
The Level of Competition in the Industry
The level of competition in this industry is totally dependent on the location of the freight broker, which is why most freight brokers prefer to locate their businesses close to shipping ports or airports.
The demand for services in this industry is usually driven by manufacturing output domestically as well as the level of international trade.
Companies that are regarded as profitable are usually those that have efficient operations, industry expertise as well as extensive relationships with the shippers and carriers. Large companies are usually able to compete based on their existing relationships as well as access to better technologies, while smaller companies compete by specializing in a niche.
Even though the freight brokerage industry is fragmented with the top 50 companies generating about only a third of the whole revenue, competition is still intense. Therefore, if you are looking to start your freight brokerage business in the United States, you should be prepared to face competition.
4. Know Your Major Competitors in the Industry
In every industry, there are brands that stand out due to some activities they engage in and the freight brokerage business is no different.
Even though there are no dominant companies in this industry, certain brands have done well for themselves and are well known for their publicity and marketing strategies, excellent customer relationship, quality services and so many others.
Below are some of the well-known freight brokerage brands in the United States of America and even globally;
- CH Robinson Worldwide
- UPS Supply Chain Solutions
- Expeditors International of Washington
- DHL Supply Chain
- CEVA Logistics
- Nippon Express
Starting a freight brokerage business has become cheaper and this has allowed for an increase of freight brokers especially as the price for obtaining bonds have been going down.
However, with the increasing regulations experienced in the industry, freight brokerage businesses have had to keep to a standard which has allowed for a fair and ethical means of doing business, thereby increasing trust by clients in the business.
Freights that are moved by trucks still have a high demand both within and outside the United States especially within NAFTA partner countries.
According to statistics, 70 percent of all the freight in the United States is moved by trucks and it shows no signs of slowing demand. The only challenge this has thrown up is that there are few truck drivers available to drive the trucks.
Carriers who have warmed up to the idea of outsourcing their logistics have provided a boom for the freight brokerage business. This has also affected shippers who in a bid to make their clients happy will not mind having to use the services of freight brokerage firms.
More people are entering into the freight brokerage business and yet despite this fact, the economic growth has remained strong, thereby allowing freight brokers to earn very well.
The growth in the economy tightens freight capacity which also then leads to higher rates. Freight brokerage businesses charge a certain percentage for every freight that is moves and so higher rates is definitely good news.
5. Decide Whether to Buy a Franchise or Start from Scratch
When starting a business as an entrepreneur, you are either faced with the option of starting your business from scratch or buying a franchise.
While each option has its pros and cons, and you might probably lean to the one that has more pros, it is best that you consider your overall goals and objectives and ensure that whichever one you pick aligns with these goals and objectives.
If you intend buying a franchise, you will need to study the franchise opportunities available to know their capabilities and how much it will cost you so that you do not end up spending money on a franchise that would not be the perfect fit for your company.
If however, you want to be in control of your business from the start, and feel you can handle whatever challenges that are likely to crop up, then starting your business from scratch is what you should consider.
This is why it is strongly advised that you create a comprehensive business plan when you are looking to start your business as this document will be very helpful in enabling you handle certain parts of your business effectively.
Also, you might need to hire others who are experts in certain areas to help you handle certain aspects of your business so that you can concentrate on creating policies and driving your organization forward.
6. Know the Possible Threats and Challenges You Will Face
In starting any business in whatever part of the world, you should expect that challenges and threats will crop up and so should be prepared for it.
Entrepreneurs who are serious as regards their business usually have proactive strategies in place so that they will be able to handle some of these threats and challenges immediately they crop up. You should as an entrepreneur note that not all threats and challenges can be effectively handled.
Therefore some of the threats and challenges that you are likely to face during the course of starting your freight brokerage firm include:
Having to deal with changing industry trends, having to deal with intense competition from already existing and successful freight brokerage firms in your location, being an unknown brand in a competitive environment, and having to deal with new competitors setting up business in the same location as yourself.
7. Choose the Most Suitable Legal Entity (LLC, C Corp, S Corp)
Even though there are five kinds of legal entity that an entrepreneur has to consider when starting their business, each of them has its own pros and cons and this is why it is necessary that you consider getting the services of an attorney or accountant to help you with a legal entity that will best suit your business according to your intended goals and objectives.
The legal entities that are available for you when starting your freight brokerage business are sole proprietorship, partnership, S Corporation, C Corporation and Limited Liability Company (LLC). Even though these legal entities have their basic components, the practice may differ depending on the state where you are operating your business from.
While a sole proprietorship and partnership form of legal entity might be the easiest to set up, it might limit the growth of your freight brokerage business especially as you will need to have a surety bond of at least $75,000 before you can be a freight broker.
Now most entrepreneurs might not have this amount and because of the kind of legal entity they have chosen, they are not able to source for loans with which to start and run the business.
The S Corporation, C Corporation and LLC are more formalized than the sole proprietorship and partnership kind of legal entity as they require documentations and the presence of an attorney or accountant. The S Corporation and the LLC are a bit more flexible than the C Corporation and so entrepreneurs starting out this business usually prefer either one of these two.
8. Choose a Catchy Business Name
When starting your freight brokerage business, it is important that you come up with a unique name for the business as your business name creates an impression about your brand to others within and outside the industry.
This is why choosing a business name is not something that should be handled trivially because not only must your business name be unique and catchy, it must be memorable, easily pronounced and also be indicative of the industry which you are in.
Below are some of the catchy business names you might need to consider when looking to start your freight brokerage business in the United States of America;
- TTT Logistics
- Messers Freight Brokers, Inc
- Push Logistics Services
- Tara Freight Brokers
- Carma Freights
9. Discuss with an Agent to Know the Best Insurance Policies for You
In running any business in the United States of America, it is mandatory that you have basic insurance policies, as having insurance protects you from any sort of liabilities that will crop up during the process of starting or running your freight brokerage business.
It is imperative that you set aside money to buy the insurance policies that you will need for your business, however you should know what insurance policies you are getting beforehand and so you might need to consult an insurance agent or broker who understands your industry well enough to list for you the insurance policies you will need for your freight brokerage business.
Some of the basic insurance policies that you will need to consider purchasing when starting your own freight brokerage business in the United States of America include;
- General Insurance
- Liability Insurance
- Workers’ Compensation Insurance
- Business Owners’ Policy Group Insurance
- Auto Insurance
- Health Insurance
- Errors and Omission Insurance
- Property Insurance
- Payment Protection Insurance
10. Protect your Intellectual Property With Trademark, Copyrights, Patents
A freight broker is regarded as an agent that links shippers and truckers and therefore is under the service oriented industry. Applying for an intellectual property protection as a business that provides services is not usually considered as a priority amongst most entrepreneurs in this industry.
However, there are certain entrepreneurs that consider protecting any aspect of their business as necessary, and so file for an intellectual property protection for their company names, logo, slogan or any production material that has been deemed important.
11. Get the Necessary Professional Certification
In deciding to start a freight brokerage business, you should realize that what your clients expect to see are results and your previous experience. Therefore, while it is necessary to have certain legal documentations in place before starting the business, having professional certifications of whatever sort is not regarded as a necessity.
If you however intend to go for professional certification in order to boost the profile of your company and have an edge over your competitors, then you should check for organizations and associations that are reputable and offer accredited courses.
12. Get the Necessary Legal Documents You Need to Operate
In starting any business in the United States, having legal documentation is a must if you want your business to have no hitches whatsoever during the course of its operation. You cannot therefore start and run your freight brokerage business without having any legal documents, because if you attempt it and are caught, you will be penalized by the law and regulatory authorities.
If you are however not sure of what legal documents you might need for your freight brokerage firm, you may engage the services of a lawyer or conduct your own research to find out what you will need. Some of the legal documents that you will require in order to legally run your freight brokerage business include;
- Certificate of Incorporation
- Operating Agreement
- Insurance Policies
- Lease Agreement
- Contract Documents
- Non-Disclosure Agreement
- Bill of Lading
- Carrier Qualifications
- Employer Identification Number (EIN)
- Business License and Permit
- Freight Broker License
- Business Plan
- Broker Authority
- Surety Bond
- USDOT Number
- BOC-3 Form
13. Raise the Needed Startup Capital
Even though you might have a fantastic business idea, if you do not have the right start-up capital for your business, your business idea is likely to remain just an idea, which means that having start-up capital is very important. Not all entrepreneurs have all the start-up capital they need and so they usually have to source for the funds with which to kick start the business from private investors and commercial banks.
This is why it is usually important to have a comprehensive business plan in place as the document convinces those you intend approaching of your commitment to the business, the growth potential of the business, how and when you will repay the loan back.
Below are some of the options that you will need to look into when sourcing for start-up capital for your freight brokerage firm;
- Generating part of your start-up capital from personal savings and from sale of stock and properties
- Sourcing for soft loans from your friends and family members
- Applying for loan from a commercial bank
- Getting loan from private investors and venture capitalists
14. Choose a Suitable Location for your Business
When starting any kind of business, one of the core factors that you will need to consider is appropriate location. Depending on the kind of business you will be going into, the right location can boost and grow your business to the intended level you desire. One advantage with this kind of business is that it is one that can be run either from home or a commercial facility.
Regardless of the location where you will be running your freight brokerage business from, the basics that you will need are a computer, phone and fax machine. Other amenities that are essential are utilities and subscription fees.
If however you intend to grow a business that can suitably compete in the fright brokerage intensely competitive environment, then running your business from home shouldn’t be considered at all. Running your business from a commercial facility allows you to employ people to help out and also show your clients how official you regard your business.
Your facility must not be located in an area that is not easily accessible or not conspicuous enough, because this would mean that you would have to spend more in getting clients to be aware of where you are located, which might not be too good for your business.
The best thing to do when you are looking to for a suitable location for your business is to engage the services of a real estate agent who has experience as regards your kind of business and will therefore help choose an appropriate location that is within your budget for you.
15. Hire Employees for your Technical and Manpower Needs
The freight brokerage industry had its structure changed in 2013 when the surety bond was increased, thereby forcing some brokers to go out of business and the industry to maintain best practices. Therefore as someone looking to start a freight brokerage business, you must be aware of the volatility of the industry and be prepared for it.
There are two things that you would need to make your business a success and they are finance and location. If you do not have the necessary finance to start the business, you might find your business crumbling before it even starts.
Another important detail that must not be overlooked is where you intend to locate your business as nearness and accessibility plays a vital role in the growth of your business.
The freight brokerage business is one that now has to depend on technology in order to meet up with the trends and so you will need to get the right software that will allow you keep track of several activities at once. Other equipment and tools you will need are; computer, phones, printer, and fax machine.
In order for your business to become successful, you will need to build the right business structure by employing proficient people to help achieve your intended goals and objectives.
Some of those you will need to hire are; Chief Executive Officer (CEO), Admin and Human Resource Manager, Accountant, Marketing and Business Development Executive, Customer Care Executive, Security Guard and Cleaner.
From the above analysis, you will need at least 7 key people in order to be able to run your freight brokerage business successfully.
The Service Delivery Process of the Business
A freight brokerage company has a vital role that it plays in the economy in ensuring that manufacturing plants receive their materials and also distribute products once they are finished. This therefore means that freight brokerage companies act as the connecting party between shippers and freight companies.
When looking to start a freight brokerage business, it is essential that you apply for a USDOT number as this will be used when applying to become a broker with the Federal Motor Carrier Safety Administration (FMCSA). Once you have been able to successfully fill the form, you will be given a broker authority which is a license that authorizes you to become a freight broker.
One core requirement that you will need is a surety bond, as this is a requirement for brokers that want to start their business in this industry. A surety bond is an insurance that is used as a guarantee for shipping companies to be paid their cargo space.
This allows for a background and credit check to be carried out before the surety bond which must not be less than $75,000 can be issued. Also, in order to be able to do business in any state, you will need to work with a process agent in each state.
16. Write a Marketing Plan Packed with ideas & Strategies
When making plans about starting a business, an entrepreneur has to be very particular about how to generate the intended funds for the business and the major way by which this can be done is via marketing.
Marketing involves many processes as you will have to know what it is your intended customers want and then ensure that you meet with this need. Marketing is usually seen as a double edged sword as it not only allows you to generate the revenue you will need for your business, you will also through that measure increase the necessary publicity for your business.
However, before you can create effective marketing strategies for your business, it is necessary that you conduct a thorough market survey regarding the business you intend going into. A market survey will enable you have all the necessary information regarding the business.
It will also enable you know who your target market is, what their identifiable characteristics are, what they expect from you and who your competitors are.
The freight brokerage business is one that is hinged on providing service, and because you are going to be competing against brands that have been in the business for a very long period of time and have all their networks and customers in place
You might need to engage the services of an experienced marketing consultant who understands the industry you are going into and how your business can compete and stand out from that of your competitors. Through this method, you can compete fairly against your competitors.
Hiring marketing executives is also another good idea, as they are more likely to understand the overall corporate goals and strategies and create marketing strategies that will not only be effective but align with your overall goals and objectives.
Your marketing executives can also modify or remove strategies that have not made the desired impact that they intend. Therefore some of the marketing ideas and strategies that you will need for your freight brokerage firm include;
- Introducing your freight brokerage business to potential corporate clients by sending a brochure that has your services, rates, and contact information listed
- Empowering your marketing and business development executives to directly market your freight brokerage business to your intended target market
- Ensure that your freight brokerage business is listed in yellow pages as well as in online directories
- Ensure that you place adverts in local and national newspapers and magazines as well as on radio and television stations
- Use your social media platforms such as Facebook, Twitter, Google Plus and Linkedin to market the services of your freight brokerage business
- Distribute handbills and fliers in various strategic locations
17. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity
Whatever business you are looking to start, without the right amount of publicity for the business, your business might not generate the revenue it needs to make it successful.
You shouldn’t forget that the freight brokerage business can be quite competitive, and if you do not take the proper steps to boost awareness for your brand and create a corporate identity for it, your business might not survive for very long.
Publicizing your business allows you to not only create awareness for your business but to also generate revenue that will grow and sustain your business.
If your intention in starting your freight brokerage business is to be known beyond the boundaries of your location and region, then boosting the awareness of your brand is very necessary.
The benefits that publicity brings is why large scale companies do not mind spending a certain amount of money yearly to boost awareness for their brand and create a positive corporate identity for their businesses.
Your publicity strategies should be very well crafted if you want it to be effective and for this to be so, it is necessary that you first study your target market to know what publicity strategies will get their attention and convert this attention into sales that will generate revenue for your business.
Because you will be promoting your business in order to gain awareness in a market that is very competitive and has large brands, you might need to engage the services of an experienced publicity consultant who has knowledge of the industry you are going into and will help craft publicity strategies that are not only in line with your corporate goals and objectives but will also be very effective.
Below are some of the platforms that can be used in order to boost awareness for your brand and create a corporate identity for your freight brokerage business as well;
- Ensure that you place adverts in local and national newspapers and related magazines as well as on radio and television stations
- Install billboards that are very attractive and unique in strategic and conspicuous locations all around the area where you are operating your business from
- Attend related seminars, events and conferences so as to spread the word about your freight brokerage business and network with others as well
- Use social media platforms such as Facebook, Twitter, Linkedin, and Google Plus to create the right awareness for your freight brokerage business
- Create a distinctive and unique website and promote your activities, services and your overall brand to your intended target market
- Ask your loyal and satisfied customers to help spread the word about your services to others in order to help create more awareness about your freight brokerage business