Freight Broker Business Startup: Start, Run and Grow Your Own Freight Brokerage Business and Trucking Company

By Jack Nielsen

Are You Looking to Start Your Own Business but Are Still Unsure of What to Do and What Type of Market You Wish to Enter? Let Me Tell You About Freight Brokerage!

With the continual expansion of existing markets, people are finding it difficult to enter, much less manage a successful business.

Are you

• Language: English
• Publisher: Aga Creative
• Release date: Sep 4, 2021
• ISBN: 9788366910898

Book preview

The Freight Broker Age Industry's Brief History

The busy chatter, constantly buzzing fax machine, and the incessant ringing of the phone in a freight broker's office today may give the impression that freight brokering has been around for a long time. However, you'll learn in a freight training school that it's a relatively new addition to the logistics world. However, tracing the past of the freight brokerage industry would be incomplete without a look at the US trucking industry.

For smaller local shipments, before the introduction of trucks and tractor- trailers, freight was moved by train or horse-drawn carriage. Trains could only travel between major cities with railroad lines, so any freight that needed to be shipped outside of the cities had to be transported by horse-drawn vehicles.

Trucks were, for the most part, novelty items in the early 1900s new devices that operated without horses but couldn't go very far. Since their engines were powered by electricity, they could only travel short distances. Furthermore, there were no paved roads in the countryside, so driving was challenging and time-consuming. Trucks were therefore restricted to carrying small loads and making short trips along urban roads.

Around 1910, technical advancements such as the gasoline-powered engine and the invention of the tractor-and-semi-trailer combination designed to carry comparatively larger loads opened up new possibilities for trucks. The use of trucks to transport freight has grown in popularity. Despite this, trucks were nevertheless restricted to cities due to poor road conditions, sturdy tires, and a 15 mph speed limit.

Trucks, on the other hand, began to get a lot of exposure to hauling freight as trains and railways became congested during WWII. Long-distance truck shipments were being investigated by both the government and shippers at this time. With the introduction of pneumatic tires, faster speeds became possible as well.

In the 1930s, a network of paved roads was built, allowing trucks to travel further. Then, in the 1960s, the United States began to create an interstate highway system that connected major cities and towns throughout the continental United States—a feat previously thought impossible.

Because of its versatility and mobility, trucking gained a foothold in the transportation business at this period, slowly wresting supremacy in the freight industry from rail freight. Trucks could deliver any load, at any time and in any place.

Despite this, the Motor Carrier Act, passed by Congress in 1935, hindered the industry. The Interstate Commerce Commission (ICC) introduced stringent rules, making it difficult for small businesses to enter the market. Lobbying and efforts by industry leaders resulted in the legalization of the trucking industry in 1980, allowing new competitors and configurations to enter the market.

For example, warehousing companies began to engage in freight transportation, and trucking companies began to provide warehousing services. The new law resulted in the introduction of small businesses into the logistics sector, creating new competition for larger, more developed firms.

Shipping costs inevitably decreased as a result of the sudden influx of service providers. Shippers may now compare carriers to find the most cost-effective and reliable options.

That wasn't the only thing that was altering the transportation and logistics industry's complexion. Manufacturers can now ship their goods further and wider thanks to increased globalization and lower trade barriers. Freight brokers started to flourish and prosper in this climate.

Without their traffic departments, manufacturers and small shippers turned to freight brokers, who took over the task of getting shipments to their customers on time.

When their traffic department couldn't accommodate spillover loads, large shippers who maintained an in-house logistics and supply department found valuable support from freight brokers. Through liaising between shippers and carriers, freight brokers made the complicated task of ensuring shipments arrived at their destinations easier.

If there's one thing you'll take away from freight broker school, it'll be that the transportation and logistics industries are inextricably linked. Despite the inherent tensions between the players, one cannot exist without the other.

Shippers, big and small, rely on freight brokers' extensive database of dependable carriers to get their shipments delivered on time. Carriers often rely on freight brokers for leads and business on the way back from a delivery and during slow periods. The freight broker is in the center of it all, directing traffic.

THINGS TO KNOW ABOUT TRADITIONAL FREIGHT BROKERS

Shippers and carriers are linked via freight brokers. Brokers can help shippers minimize complexity by locating drivers for their loads. Brokers provide new business leads for carriers, enabling them to keep their trucks on the track.

Individual brokers are hired by traditional freight brokerages to manually match drivers to shipments. For each load, the broker charges a brokerage fee. The disparity between what they charge the shipper and what they pay the carrier is the brokerage fee.

This proved to be a profitable business: the number of licensed freight brokers in the United States rose to over 17,000 by 2017. They've become an important part of how the freight industry functions and they have a range of advantages and disadvantages for shippers to consider.

FREIGHT BROKERS CAN HELP IN 3 WAYS

1. Freight Brokers Can Help with Extra Space

Shippers are sometimes required to transport more inventory than they had

expected. More capacity may be needed at a predictable time of year, such as during the holidays or the produce season. It could also happen during an unpredictably high demand period, such as the COVID-19 crisis in March 2020.

Private fleets and asset-based carriers can be difficult for shippers to find additional capacity. When this is the case, traditional freight brokers may be a source of additional capacity.

2. Brokers Offer You More Options than Asset-Based Carriers

The majority of freight is transported through contracts attached to a particular carrier or price point. During periods when markets change, however, shippers may need to find other options.

Shippers can face tender rejections from their contracted carriers in tight markets when spot rates rise. When this happens, brokers will fill in the gap and transport freight for the shipper at a higher rate. During soft markets, on the other hand, a shipper can turn to brokers to secure loads at a lower price than their agreed cost.

3. Shippers and Brokers Form Personal Relationships

Relationships are the cornerstone of a freight broker's company. Brokers make a living by charging shippers fees, so they need to understand the shipper's company and offer excellent service to sustain that relationship.

A recent article in Global Trade Mag explains why these connections are so essential to a freight broker's success. Because of the working relationship that has been formed, a shipper can continue to work with a broker.

AREAS WHERE TRADITIONAL FREIGHT BROKERS CAN FALL SHORT

1. Operations That Take a Long Time

Every day, brokers make hundreds of phone calls to carriers, inquiring about available vehicles. They often communicate via email and keep track of things on spreadsheets. An individual broker can match a truck to a load once every hour if everything goes well. This time spent manually arranging by brokers leads to more time spent by shippers waiting to learn whether their loads would be secured.

2. High Middleman Fees

Individual brokers are paid on commission, so their incentive is to charge as much as possible to shippers when passing on as little as possible to carriers. The average brokerage fee is between 15 and 20 percent, but it can be much higher. Higher costs are passed on to the shipper as a result of this.

3. A Limited Number of Carriers

The number of trucks in a typical broker's Rolodex limits their ability to deliver the right truck to the right place at the right price. Because of this restricted view of the market, any broker's ability to match the best truck for the job (lowest price, highest quality, fewest empty miles) is inherently limited. As a consequence, the load is often covered by the broker's ideal carrier rather than the shipper's ideal carrier.

4. Contract Freight Is Less Efficient

Brokers prefer to bet on high-volume, attractive lanes when it comes to RFPs, leaving low-volume lanes unserviced. Traditional brokers are enticed to bid low on lanes because it increases their chances of winning more sales. As the market tightens and trucking rates increase, however, brokers often refuse the freight they previously agreed to accept. A shipper will need to consult their routing guide or search for another broker on the spot market if this occurs.

5. Less Immune to Market Fluctuations

Traditional brokerage firms operate on razor-thin margins due to their high costs, despite taking 15-20 percent in middleman fees. This high overhead is due to their manual operating model: if one broker matches one load per hour, a brokerage would hire hundreds of brokers to serve just 1,000 loads a day.

This makes conventional brokerages especially vulnerable during competitive and recessionary market conditions, as we recently saw with a wave of layoffs at TQL and other brokerages. For a shipper, this can mean less robust coverage and support when you need it the most.

6. When Things Go Wrong, You Have a Slow Reaction Time

Occasionally, the unforeseen occurs. A load is canceled by a carrier. A shipper must change to a pickup schedule. Shippers need a partner who can spot a problem and resolve it quickly when plans change. They need technology that will auto-correct 24 hours a day, seven days a week. Traditional freight brokerages, on the other hand, work manually, so if a pickup is skipped at 11 p.m., a broker can only hear about it the next day during business hours. Traditional brokers would manually call their carrier network to find someone to pick up the load to correct the error. Shippers face a higher risk as a result of this.

7. A Lack of Insight into the Supply Chain

Shippers lose visibility of their freight as soon as a load leaves the docks with conventional freight brokers. This indicates that incidentals arise due to a lack of ability to identify the root cause. Due to manual reporting, key performance metrics such as on-time pickup (OTP) and on-time delivery (OTD) may be unreliable. Shippers need access to technology that conventional freight brokers lack to capture the most useful data and insights.

WHY COMPANIES PREFER DIGITAL FREIGHT NETWORKS OVER BROKERS

The digital freight network, a completely connected freight marketplace that uses machine learning, automation, and other software to efficiently link shippers and carriers, has grown in popularity over the last five years. This marketplace business model aligns shippers' and carriers' needs, lowering costs and shortening the time it takes to find the right truck for each load.

Digital freight networks are helping shippers resolve COVID-19 obstacles by providing the efficiency of an asset-based carrier and the versatility of a broker, according to Gartner when it comes to dealing with competitive markets. Within the first months of the COVID-19 crisis, Convoy's automated freight network proved robust, providing shippers with a range of advantages.

Convoy's digital freight network is always on, so if anything unusual

happens, our technology recognizes it right away and corrects it. We also have a dedicated team available 24 hours a day, 7 days a week to deal with the situation.

Digital freight networks gather vast quantities of data and convert it into valuable information for shippers when it comes to supply chain visibility. I see the tech-enabled carrier space as something that offers transformational value, Mark Young, Director of Procurement for Anheuser-Busch, said in an interview with Supply Chain Deep Dive. According to the article, data from digital freight networks has enabled Young to rethink Anheuser-KPIs Busch's and reassess which metrics are essential and which aren't.

MODERN TECHNOLOGY IN THE FREIGHT SHIPPING INDUSTRY

GPS systems, temperature-controlled containers, and lane-assist are only a few of the latest technological developments affecting the freight industry. Self-driving cars and the Internet of Things (IoT) are now being used to increase the reliability of their services. Many of the day-to-day, time- consuming activities associated with freight transportation have started to be replaced by modern technology. The technology is designed to keep shippers linked to their shipments from anywhere in the world, exchange relevant shipping data with both the business and the consumer, and accelerate the overall shipping process. Not only can technology boost performance, but it will also make items like shipping consistency, productivity, and cost easier to manage.

COMPETING AGAINST THE MARKET

We recently published a blog post about the trucking industry's adoption of self-driving vehicles. Even in a highway environment, the technology is years away from being fully functional, and it is unlikely that it will be able to manage all of the manual and unpredictable activities that a driver encounters daily. However, there are several positive possibilities when considering the partial automation features that could be added to the trucking industry. Highway driving miles, for example, could be minimized thanks to features like lane-centering steering and adaptive cruise control. These types of tools are designed to make the driver's route more efficient.

It is more critical than ever for freight shipping companies to stay current on these trends and innovations to remain relevant. Freightquote –

Some features can provide real-time information on shipments to the driver and shipping company, such as temperature, quantity, location, arrival time, and so on, to make maintaining the shipment's quality even easier. Customers will have peace of mind if you can promise that their shipment will arrive in great condition. You're also providing assured, high-quality facilities, which will make you stand out from the crowd.

THE INTERNET OF THINGS

The Internet of Things affects freight shipping productivity and driver hours. The Internet of Things (IoT) is a system that links all devices, from microphones to cellphones to planes. The physical devices are linked by a network that constantly sends and receives data. So, how does the Internet of Things apply to the trucking industry? This is what keeps trucks, drivers, and dispatchers linked and informed about different information about each shipment item. Every piece of cargo in your shipment is automatically monitored and the information is exchanged, much as when you check a box of cereal as it arrives at a grocery store, hits the shelf, and is sold to a particular customer. The data is generated in real-time and is readily available to all parties involved. The Internet of Things can also make driving routes more productive; it can keep drivers up to date on the latest fuel-saving tips or predict when repairs are needed based on data collected from previous trucks and their repairs.

Some IoT devices are more mature, such as commercial telematics, which are now being used in trucking fleets to increase logistics efficiency, according to Gartner.

It's one thing to have an abundance of relevant data; it's quite another to properly interpret the data and put it to work for you. This is possible thanks to new technology. To keep your drivers active, your routes effective, and your customers updated and happy, make sure you're up to date on the latest industry trends and tools. This is important if you want to remain relevant in the freight shipping industry.

THE MOST POWERFUL TRUCKING COMPANIES

Trucking companies are a type of global transportation company that specializes in moving goods along roads and highways. Many of the largest trucking firms, however, provide other modes of transportation, such as rail, air, and sea. Some also provide logistics and supply-chain management services, which can allow quicker and more cost-effective delivery to a wider range of destinations. Even though American companies dominate the top ten list, two Japanese companies rank in the top two.

These are the top ten trucking firms in terms of 12-month trailing sales (TTM). Since some businesses outside the United States report earnings semi-annually rather than quarterly, the 12-month trailing data might be older than for companies reporting quarterly. This list is restricted to businesses that are publicly traded in the United States or Canada, either directly or via American Depository Receipts (ADRs). YCharts.com provided the data.1 All figures are as of September 10.

Some of the stocks mentioned below are only available for purchase over- the-counter (OTC) in the United States, rather than on exchanges. OTC stock trading has higher trading costs than stock trading on exchanges. This can reduce or even remove future profits.

1 Yamato Holdings Co. Ltd. (YATRY)

Net Income (TTM): $328.0

million Revenue (TTM): $15.2 billion

Market Cap: $9.7 billion

Exchange: OTC 1-Year Trailing

Total Return: 53.7%

Yamato Holdings is a Japanese holding company that primarily provides distribution services through its subsidiaries and group of companies. It offers package delivery, logistics management, moving and distribution, and appliance installation, among other services. Also, the company provides information services, truck and car servicing for transportation firms, and a variety of financial services.

2 Seino Holdings Co. Ltd. (SEOTF)

Net Income (TTM): $218.5 million

Revenue (TTM): $5.7 billion

1-Year Trailing Total Return: 0.8%

Market Cap: $2.6 billion

Exchange: OTC

Seino Holdings is a diversified transportation business headquartered in Japan that specializes in truck, freight, and air transportation, as well as warehousing, customs brokerage, and insurance agency services. Trucks, passenger vehicles, and auto parts are also sold and repaired there. Marketing of fuel and paper goods, leasing of property, houses, and truck terminals, and providing information and staffing services are all examples of other companies.

3 Knight-Swift Transportation Holdings Inc. (KNX)

Net Income (TTM): $309.2 million

Revenue (TTM): $4.8 billion

1-Year Trailing Total Return: 26.0%

Market Cap: $7.9 billion

Exchange: New York Stock Exchange

Truckload transportation and logistics services are provided by Knight-Swift Transportation. Its services include reserved, refrigerated, expedited, flatbed, and cross-border roads, as well as dedicated, refrigerated, expedited, flatbed, and cross-border services. The company also specializes in the transportation of rail freight in containers and other training equipment, as well as providing brokerage and other freight management services.

4 BEST Inc. (BEST)

Net Income (TTM): -$103.0 million

Revenue (TTM): $4.7 billion

Market Cap: $1.5 billion

Exchange: New York Stock Exchange

1-Year Trailing Total Return: -28.7%

Best is a holding company headquartered in China that specializes in logistics and supply chain management. Express and freight distribution, inventory management, warehousing, financing, cross-border supply chain, and merchandising are all services provided by the company.

5 YRC Worldwide Inc. (YRCW)

Net Income (TTM): -$64.1 million

Revenue (TTM): $4.6 billion

Market Cap: $228.6 million

Exchange: NASDAQ

1-Year Trailing Total Return: 66.3%

YRC Worldwide is a holding firm that owns YRC Freight, Holland, New Penn, Reddaway, and HNRY Logistics, among other freight shipping companies. The firm provides supply-chain solutions as well as a wide range of transportation services, including long-haul national, regional, and international transportation.

6 Schneider National Inc. (SNDR)

Net Income (TTM): $165.9 million

Revenue (TTM): $4.5 billion

Market Cap: $4.9 billion

Exchange: New York Stock Exchange

1-Year Trailing Total Return: 23.1%

Schneider specializes in shipping and logistics. Van truckload, dedicated, international, bulk, intermodal, brokerage, supply chain management, port logistics services, and engineering and freight payment services are among the company's transportation solutions.

7 OLD DOMINION Freight Line Inc. (ODFL)

Net Income (TTM): $589.1 million

Revenue (TTM): $3.9 billion

Market Cap: $23.4 billion

Exchange: NASDAQ

1-Year Trailing Total Return: 79.4%

Old Dominion Freight Line is a multi-regional and inter-regional trucking company. Less-than-truckload shipping of general commodities, such as consumer products, textiles, and capital goods, is offered by the company. Truckload brokerage, supply chain consulting, and warehousing are also available.

8 TFI International Inc. (TFII.TO)

Net Income (TTM): $243.4 million (CAD$320.9 million)

Revenue (TTM): $3.9 billion (CAD$5.2 billion)

1-Year Trailing Total Return: 48.5%

Market Cap: $4.1 billion (CAD$5.3 billion)

Exchange: Toronto Stock Exchange

TFI International is a service-oriented freight transportation and logistics company headquartered in Canada that picks up, transports, tracks, and delivers goods throughout North America. The company's less-than-truckload division transports and delivers smaller loads, while its truckload division offers expedited storage, flatbed, container, and dedicated services.

9 ArcBest Corp. (ARCB)

Net Income (TTM): $28.5 million

Revenue (TTM): $2.8 billion

Market Cap: $846.0 million

Exchange: NASDAQ

1-Year Trailing Total Return: 10.0%

ArcBest is a holding company that operates in the motor carrier and intermodal transportation sectors. Standard, expedited, and guaranteed less- than-truckload services are available for national, inter-regional, and regional transportation of general commodities. It also provides air, ocean, and land transportation for international freight. Via a network of third-party service providers, the organization also offers