Josh Christie is the VP of Marketing & Recruiting at D&L Transport
Are you working as a freight broker now and looking to start your own business? You may be an experienced sub-agent or currently working as an in-house broker with a larger company looking to go out on your own. Being your own boss is certainly an attractive option.
Not only are the increased commissions attractive, but running your own show has its own appeal. Of course, along with that comes quite a few challenges and responsibilities.
There are a few considerations when contemplating your next steps – start your own brokerage company from scratch or partner with a broker in the industry whose agent model is designed to provide the tools and support to accelerate your growth right out of the gate.
This article covers the high-level steps for starting a freight brokerage company. It also covers the alternative benefits of partnering with a freight broker as an agent, which can accelerate your start-up efforts by providing the support you need to succeed.
Setting Up Your Freight Brokerage Company
Here are the key steps you’ll need to follow to set up your freight brokerage business. There are quite a few details to navigate, and each one is critical.
- Choose Your Business Legal Structure and Register Your Business. An attorney or accountant can help you select from a sole proprietorship, partnership, limited liability corporation (LLC), or corporation. Registering your business involves completing the Unified Carrier Registration and paying an annual fee.
- Apply for Broker Authority and Arrange for a Freight Broker Bond. With interstate commerce, you’ll be required to apply for Motor Carrier (MC) Operating Authority from the Federal Motor Carrier Safety Administration (FMCSA) using form OP-1. There’s an application fee and four to six weeks of processing time. The Motor Carrier Operating Authority requires a $75,000 freight broker bond.
- Obtain Insurance. You’ll need at least contingent cargo liability coverage, and most shippers now require some sort of auto liability coverage. As a good business practice, you’ll also need to evaluate obtaining general liability coverage and workers comp coverage.
- Designate a Process Agent in Each State. You’ll need to complete the BOC-3 form to designate process agents for each state where you’re doing business.
- Complete Your State Requirements. State requirements typically include registering your business, recordkeeping requirements, and taxes that will need to be paid. Add them to the list of things to complete each month, quarter, and year.
- Secure Capital. Whether through a line of credit or a traditional bank loan, you will need a supply of capital to start and maintain your brokerage business. Most experts recommend that new brokerage companies have access to cash equaling 2-3x your weekly disbursements to motor carriers. For example, if you run 20 loads in a week at $2,000 per load, you should have access to at least $80,000-$120,000 when getting started.
Those are the essential requirements for our industry. For any business, you’ll also need to develop a business plan, establish your financing, and put the equipment you’ll need in place to open your office. Even operating from home, you’ll need to set up the tools to conduct business. That starts with the required computer(s), furniture, phone lines, and a high-speed Internet connection. You’ll also need subscriptions, access to load boards, and a TMS to streamline your work.
Challenges of Starting a Freight Brokerage Company
In addition to the standard challenges which all new business owners face, starting a freight brokerage company presents a few challenges unique to the transportation industry. Here are a few:
- As previously addressed, most new freight brokerage companies mis-fire on capital needs. To successfully start and maintain a freight brokerage company, you should have access to at least 2-3x your planned weekly disbursements to carriers. To compete for limited carrier capacity, you will need to pay carriers and factoring companies within 28-30 days following delivery of the load. Most shippers pay brokers in an average of 38-42 days. The difference is called your “float.” The float is why you need access to capital to maintain your business.
- Credit Issues from Carriers and Factoring Companies. Carrier capacity is tight. You need access to as many good carrier relationships as possible. Many carriers and factoring companies (the financing arm of some carriers) refuse to issue credit to new brokers, or do so on a very limited credit basis.
- Technology Investment. Now more than ever, technology is vital for the transportation industry. From tracking and tracing to customer EDI requirements to TMS systems, technology is essential for running a successful freight brokerage company. Technology and development can be time-consuming and expensive.
There’s a Better Way – Become an Agent for a Freight Broker
That is one heck of a long list just to get started. Wouldn’t it be great if there was a way to work directly with experienced experts who could provide the full support you need to launch your own agency successfully? Wouldn’t it be great if you could still be your own boss and launch your own company without the headaches mentioned above?
The good news is, there’s a better way — partnering with a freight broker who provides the tools and supports you need and lets you run your business your way. You can even bring your own brand and leverage the existing equity of your broker through co-branding. A brand is a powerful tool. It gives you instant credibility and opens doors with customers and carriers.
We’ve gone in-depth on this approach in our article What to Look for in a Freight Agency Program. There are six key factors to look for, and every single one can directly help you start your own freight agency.
We’ve added context around each key factor to illustrate further how each plays a role in agent support as you evaluate the right path for you.
When starting your own agency, the biggest challenge is figuring out everything on your own. All too often, learning is accomplished by trial and error. And unfortunately, those errors can literally break the bank.
Working with an existing freight broker, you have substantial experience and expertise available when needed. Many brokers provide quick response time and even 24/7 phone support.
They’ve also developed substantial problem-solving abilities. When you encounter a problem for the first time, they’ve already been there, done that several times. That expertise can be enormously helpful in avoiding business-breaking pitfalls.
Existing freight brokers also provide back-office services that are incredibly helpful in moving these tasks off your busy desk.
Starting your own agency requires purchasing the right software. That includes a transport management system (TMS), access to load boards, lead generation systems, and customer relationship management (CRM) systems. That means considerable expense and a learning curve to get up to speed.
Freight brokers provide these systems often with no fees. Not only that, but the better brokers offer training and ongoing help desk support. Doing all this on your own can bog down your business, preventing you from spending time generating sales and significantly limiting your business’s growth.
The best freight brokers continuously invest in their technology offerings and pass along the platforms and enhancements throughout their Agency Offices. This involves developer costs and often weeks of troubleshooting that are absorbed by the freight broker, allowing the agency offices to benefit from the technology while not negatively impacting profits and operations. These efficiencies lead to a better bottom line for the agent.
There’s no commission when you’re running your own agency. Instead, there’s the profit margin that’s left after everyone else has taken their cut with all the various expenses. Teaming up with a freight broker gives you a commission, often as high as 70% or greater. Not only that, but they pay that commission regularly: monthly, twice monthly, or even weekly.
The commission model allows you to focus on being an agent instead of the day-to-day back-office operations.
When most people start their own agency, strength isn’t a word that typically comes to mind. Instead, it’s energy, drive, and lots of hard work. On the other hand, partnering with a freight broker brings their reputation, brand recognition, financial capital, and credit rating to your agency. That’s an incredible number of significant assets to provide a new business.
A freight broker’s financial strength and longevity build credibility with customers when prospecting and carriers when trying to cover the loads. It also provides the essential capital needed to onboard customers quickly and scales your operations.
Work culture in today’s environment is no longer just about potlucks and team outings. In the ‘remote world,’ culture is more about collaboration and response. In relation to the freight broker’s responsibility of culture, a culture of ‘Yes’ should exist.
Working from home as a one-person agency, the organizational culture is you and maybe your dog or cat. Celebrations consist of a fist pump and perhaps a beer at the end of the day. With the right freight broker, the communication should be so immediate that it feels like you’re working in the same office as your support team. This interaction will make a big difference in your working life.
When you step out of an in-house (employee) model to start your own business, you leave the health and dental insurance, paid holidays, vacations, and 401K programs behind. You’ll need to find your own insurance for your family and any employees you hire. If you’re already an independent agent, partnering with a freight broker who offers participation in group health benefits can help alleviate the cost of monthly premiums.
One other consideration that all small business owners face, especially freight agents, is the challenge of providing coverage to your customers when you decide to step away for much-needed R&R. The daily responsibilities of managing customers and covering loads can bring about a lot of stress. Partnering with a freight broker with an established vacation coverage program can provide the support you need when you need it.
Starting Your Own Brokerage Company or Finding a Partner
Starting your own freight brokerage company is no simple matter. We’ve touched on just a few steps you’ll need to take to make that happen. We’ve also pointed out the considerable benefits that becoming an agent for a freight broker can bring when starting and maintaining your business. Going out on your own doesn’t mean you have to be alone. You can leverage the best in the industry to help ensure your success.
We’re biased. We feel that our freight agency program is the best in the business. To see for yourself, look at our Agent Opportunities page. You can also hear directly from our successful agents. Then, get in touch, and we can get started.
D & L Transport. Your Family in Freight.