business

Freight broker businesses play an essential role in the shipping industry, as they work as the intermediary between shippers and customers.

By Eric Weisbrot

The freight brokerage business continues to gain momentum even as shifts take place in the transportation and logistics industry. A recent report highlights this growth, citing an estimated 4.19% market increase through 2021. Part of this year over year improvement can be linked to the more than $500 billion in revenue generated from licensed freight brokers throughout the United States.

Although the available market share continues to be a motivator for entering the freight brokerage business, there is another reason why many in the field are making the move. The cost for establishing a freight brokerage business is relatively low which eliminates traditional barriers to entry for many business-minded individuals. If you’re considering joining the ranks of freight brokers, it is necessary to understand the expenses you incur in doing so.

Licensing and Bonding

Every freight broker is required to hold a license in order to operate legally. The license granted to freight brokers is provided by the Federal Motor Carrier Safety Association and comes at a cost of $300. If you register as both a freight broker and a motor carrier, the fee is assessed twice. In addition to the licensing fee, freight brokers must also carry an appropriate surety bond which works to protect your customers from unlawful business practices. A surety bond does not work the same way insurance for your business does, but it is a requirement in order to establish and maintain your freight brokerage business.

Bonding costs vary from broker to broker, primarily because surety agencies offering bonds evaluate the financial track record of each individual. If you have a poor credit history or significant debts, including tax liens or court judgments, your freight broker bond is likely to cost more. Also, if you have a claim against your bond, securing a new bond will be more costly in the future. It is crucial to understand how freight brokerage bond pricing works, and the steps you can take to reduce these costs over time. This online resource offers invaluable information about the bonding process for new freight brokers.

Business Requirements

As a freight broker, you are operating a business, and as such, you need to acquire a business license in your state. Business licenses and business structures vary in terms of cost from state to state, but you can utilize the Small Business Administration’s website to get an idea of the total out-of-pocket expense. It is also important to purchase liability insurance for your business, which ranges from a few to several thousand dollars per year. Although insurance coverage is not required as part of your business licenses, it is smart to put this in place as soon as you are able to protect yourself, your employees, and your customers.

Management Tools

As a freight broker, you do not need much to get started as far as dedicated office space or elaborate computer equipment. However, a laptop and smartphone are often necessary, as is the right software to help manage operations each day. While the devices may not cost more than $1,000, one time, the software used to monitor shipments, connect shippers and customers, and manage accounting and financial aspects of the business can add up quickly. Freight brokers may not need to spend thousands of dollars right away on these technology tools, but budgeting for an additional $1,000 to $3,000 is an accurate estimate for these expenses.

Ongoing Training

Whether you are new to the freight brokerage business or an experienced pro, all freight brokers should account for ongoing training expenses when starting a brokerage business. Training comes in many different forms and from several different organizations and agencies, and so, the costs are widely varied. There are a handful of free training modules available online, as well as countless paid training programs offered by colleges and universities. Some courses may cost a few hundred dollars while others will be in the $1,000 to $2,000 range. Be selective in the freight brokerage training you complete, ensuring it provides education on the topics you most want to learn about and master over time.

Now is a prime time to become a licensed freight broker, particularly if you have experience in freight or logistics and an understanding of where the industry is headed. However, before you decide freight brokerage is the right move for you, consider the costs to get started. From licensing and bonding, to business requirements and technology tools, be prepared to cover these expenses before launching your brokerage business.

Eric Weisbrot is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry under several different roles within the company, he is also a contributing author to the surety bond blog.

Freight stock photo by William Potter/Shutterstock