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How to Become a Freight Broker: A Comprehensive Guide

Written by Paul-Bernard Jaroslawski at FreightCaviar.

A 14-Rule Comprehensive Guide That Will Help You Become a Full-Time Freight Broker

Right now, I am going to share with you the steps and tips that are going to help you to become a freight broker. You might have questions about how the process works. Is it difficult to do the paperwork? How much money do you need to invest into becoming one? Maybe you are not clear about how the freight brokering industry works and how much money you are set to make. Read on. In this guide, I will walk you through the process point by point. If you follow these simple rules you will soon be ready to embark on your journey as a newly-minted freight broker.

If you’ve already setup your brokerage, check out our post on winning lanes and gaining new clients as a freight broker.

Sections:

1. Go Back to School

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You are going to need training. Becoming a freight broker requires that you learn the ins and outs of the logistics industry. There are a number of ways that you can achieve this:

  • In-person training. There are schools that will train you as a freight broker. The duration of the course is normally 30 to 45 days. You can also do an online training program.
  • Get a job as an entry-level broker: This route will take longer but you get hands-on experience.

2. Think of a Name and Register Your Brokerage Company

You are on your way. When you figure out the name of your brokerage company, you can see if the name is available at the US Patent and Trademark office. Before registering, you have to decide what type of company you want it to be. There are four choices: sole proprietor, partnership, limited liability company, or corporation. Once you have chosen, it is time to get your company registered at your state’s local business license department.

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3. Get Broker Authority

At this stage, you are going to be dealing with a lot of paperwork. Your application for motor carrier authority goes through the Federal Motor Carrier Safety Administration (FMCSA).

If you choose both types of transportation, each is going to cost $300. The same form can be used for both. However,  you have to pay two separate application fees. If you apply online for a motor carrier number, you will instantly get one.

4. Get a USDOT Number

This is a unique identifier that is given to companies that engage in interstate, and in some cases, intrastate commerce. Getting this number is free. At this time, 38 states require that you have a USDOT number. Find out if your state requires one and apply here.

5. You Need to Know About the Freight Broker BMC-84 Bond

The BMC-84 bond requirement is $75,000 and it serves three main purposes:

  • It prevents fraud by freight brokers
  • Ensures that brokers fulfill their contracts
  • Guarantees that brokers pay carriers on time

This bond determines the annual premium you will pay for your freight brokerage. The monthly premium ranges between 1.25% and 3% of the surety bond ($937- $2250). Alternatively, if you have $75,000 to spare, you can put the money in a trust fund and file Form BMC-85.

6. Purchase Contingent Cargo and General Liability Insurance

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All freight brokers should have this insurance. It is good for the credibility of your brokerage, and the broker is protected in the event of complex claims between shippers and carriers. This will help protect you as your business grows.

Doing business with other companies is unpredictable at times. Having insurance will make sure you’re covered if problems ever arise.

7. Designate Agents for Service of Process for States You Will Operate In

For every state that you conduct business in, you need to designate an agent for the service of the process. This is a person who receives lawsuits and other documents on behalf of your business, and means that in the event that your brokerage is sued, your agent will accept the service.

8. Come Up With a Business Plan

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Now that you have done most of your paperwork, you should start to focus on the business side. A solid business plan should cover a number of key points. If you research the topics below, you are setting yourself up for success. Use these as a guideline to get you started:

  • How will you obtain lines of credit?
  • What niche are you going to be targeting?
  • Study the market.
  • Check your state’s corporate and tax regulations.
  • What type of office equipment do you need for your brokerage?
  • What TMS software are you going to use?
  • Which load boards are you going to use to generate business? We have some load board links below to help you get started.
  • What are the prevailing market rates?

9. Find a Factoring Company to Work With

When a carrier completes a load, he will send an invoice to you, the freight broker, and you have to pay him. After you pay the carrier, you will be paid by your client. This can take up to 30 to 60 days. By using a factoring company, you do not have to worry about paying carriers as the company will pay your invoices. The factoring company will in turn collect payment from the client. Working with such services will relieve the cash-flow pressure of paying your invoices. Factoring fees range from 2.5% to 3% of the total invoice.

10. What Is Your Freight Niche?

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You do not have to stick to the one specific market, but it is important for your brokerage to be focused. The possibilities are endless in the freight industry and you do not want to be overwhelmed. Here are some examples of niches that you can zone in on:

  • Equipment based freight
  • Product-based freight
  • Niches based on Location
  • A combination of multiple niches

11. Set Up Your Office and Get the Right Equipment.

You are not going to need a lot of equipment to set up your brokerage office. There are a few items that are essential for you to have your brokerage office up and running. These include:

  • Computer
  • High-speed internet
  • Landline and mobile number
  • Office Supplies
  • Printer and scanning machine
  • TMS software

12. Get a Good TMS Software

A good Transportation Management System is going to help you run your brokerage efficiently. A good TMS will optimize loads and delivery routes. The software tracks freight and automates things like trade compliance and freight billing. I highly recommend Alvys TMS for all your brokering needs.

13. Find a Load Board

A load board is a marketplace where carriers, shippers, and freight brokers connect. Some of the top load boards are DAT, Truckstop, Trucker Path, and 123Loadboard. The different types of load boards include:

  • Traditional load boards
  • Free Load Board
  • Paid Load Board
  • LTL Load Board (less-than-truckload)

14. Embark On Your Journey as a Freight Broker

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Congratulations! Now that you have followed the simple steps above, you are ready to open shop and begin freight brokering. You can now realize your dream of becoming a full-time freight broker.

You Can Do It!

If you follow this guide, fill out the proper paperwork, come up with a good business plan, and decide one which market to focus on, you will be a successful freight broker. Like any business, it takes hard work and dedication. You had the grit to make it this far. Don’t stop now. Get to work and build your brokerage!

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