As we have discussed in the previous post, there are three popular choices when people are trying to get into the transportation industry. One is dispatching, another is trucking, and the third one is freight brokering.
Today we will discuss freight brokering and see how hard it is to open a freight brokerage and obtain your license.
For those still confused about the differences between freight brokers and truck dispatchers, let me provide you with a quick definition.
An independent truck dispatcher is someone who assists motor carriers or trucking companies with the load-booking process. Freight brokers, on the other hand, work with clients who need something shipped. Their duty is to find the most suitable transportation company for their clients’ cargo. So, in essence, freight brokers match shippers with transportation companies. They charge a certain percentage as their commission for doing so, and that’s how they make money.
Starting a Freight Brokering Business
There are a few essentials required to start a freight brokering business. First of all, you will have to obtain your freight broker license. To do this, you will have to go through the FMCSA application process, obtain a surety bond, and file a few other forms.
At this stage, your main expenses will be application fees, filing fees, and of course, a surety bond. The surety bond cost will depend on your financial and credit situation.
However, just like with dispatching, you don’t have to spend too much money on the equipment. All you will need is a computer, a phone, and a few pieces of software. But other than that, you should be all set for your initial operations. This puts the startup cost for a freight brokering business between that of truck dispatching and a trucking company. You will spend more money opening a freight brokerage than you would a truck dispatching service, but you will definitely spend less money than starting a trucking company.
The licensing process and the costs associated with starting your freight brokerage have a certain hidden advantage when compared to truck dispatching — a barrier of entry. While just about anyone can start a truck dispatching service, not everyone will be able to go through the application process and obtain the surety bond. So, not everyone will be able to start a freight brokerage. This gives you a certain advantage and a little bit less competition that you would find with the other business.
Freight Brokerages Can Be Remotely Operated
At the same time, just like a dispatching service, freight brokerages can be operated remotely. As a freight broker, you do not take possession of the freight. You can run your operations from your home, office, or even a vacation destination. Wherever you are, wherever you have access to the internet and a telephone connection, you should be fine.
Funds Needed for Operations
On the other hand, unlike dispatching, you will need to have some funds available for your operations. With dispatching, you don’t really need any operating capital because you’re just providing the service and charging your clients for the service you have provided. With freight brokering, you will be collecting payments from your clients, and you will be paying transportation companies for transporting the cargo.
This type of operational transaction can create cash flow gaps. Therefore, you may have to pay the transportation company before you receive money from your clients. You must have enough funds to cover these situations. Alternatively, you can use factoring companies to fund your operations. However, this will require a particular setup and careful financial planning.
Are you thinking about becoming a freight broker? If you’d like to learn more about starting a freight brokerage, we offer a course called the Simple Guide to Freight Brokering. You can learn more at www.LearnFreight.com.
Are you thinking about becoming an independent truck dispatcher? LearnDispatch offers online truck dispatcher training courses which are suitable for people not familiar with transportation industry. Learn more about our training by visiting Training Details page or choose your course by clicking here.
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