What is a Freight Broker? Exploring the Important Role in Logistics

More than 55 million tons of freight move through the United States each day, contributing billions of dollars to the American economy. If your company ships raw materials or finished products, transportation is likely one of your largest expenses. Working with a freight broker helps increase efficiency and reduce transportation costs, making your business more profitable.

So, what is a freight broker? Learn more about how small and medium companies can benefit from partnering with a broker to expand distribution.

What is a Freight Broker?

A freight broker is an intermediary (aka “middleman”) between shippers and carriers. Brokers don’t own or transport freight; they oversee the transfer of goods, facilitate communication between parties, and ensure the merchandise arrives on time and intact.

Carriers and shippers have different needs, so they're sometimes at odds during the negotiation process. For example, carriers are concerned with minimizing transportation costs, whereas shippers want to get paid as much as possible for each shipment. A freight broker helps the parties negotiate a mutually beneficial agreement.

A freight broker is essential for improving your logistics, offering these benefits:

• Many freight brokers use transportation management systems, letting them track every shipment from hand-off to delivery.
• A freight broker has strong relationships with multiple transportation companies, which often translates into lower costs for shippers.
• A freight broker may also have access to a third-party logistics (3PL) company, assisting in resource optimization and identifying reputable trucking companies.

If your broker works for a freight brokerage, they get a commission for each load booked. Independent contractors get paid the difference between the amount you pay for shipping and how much the carrier charges. This is known as “working in the margins.”

What Does a Freight Broker do?

Freight broker companies play a crucial role in the shipping industry. Although they have many responsibilities, these are some of the most vital:

• Negotiating: Freight brokers negotiate terms that are acceptable to both parties, guaranteeing reasonable rates.
• Identifying the right shipping partner: Some types of freight require special handling. For example, many perishable items must be refrigerated in transport. A freight broker identifies the ideal carrier for each load of cargo.
• Tracking shipments: Freight brokers track each shipment from the moment it leaves the shipper’s hands to the moment it arrives at its destination. If a problem occurs, the broker steps in to make things right.
• Organizing freight transportation: A logistics broker uses their expertise to schedule pickups, optimize cargo loads, and provide shipment updates.
• Complying with relevant regulations: The U.S. Department of Transportation (USDOT) has strict regulations for companies operating in the transportation industry. Truck drivers must also follow the rules issued by the Federal Motor Carrier Safety Administration (FMCSA). A freight broker helps shippers and carriers comply with these requirements.
• Facilitating payments from shippers to carriers: A primary benefit of using freight broker services is that a broker ensures carriers get paid on time.

Why do Companies use Freight Brokers? 4 Reasons

Whether you’re just getting started or simply looking for a better way to do business, there are many good reasons to hire a freight broker. Here are the four most important:

1. Freight brokers have extensive experience in the shipping industry, granting them relationships with some of the best carriers in the country. Instead of trying to find a carrier or negotiate favorable terms on your own, you can use a broker’s expertise and professional connections to improve your logistics.
2. Freight brokers facilitate communication between shippers and freight carriers, which means you’re never in the dark about the status of a shipment.
3. When you work with a freight shipping broker, you gain access to supply chain experts who know how to optimize each cargo load for maximum efficiency. Increased efficiency leads to lower shipping costs, saving you money.
4. A licensed freight broker is an expert resource for shippers who want to scale their businesses. If your company is expanding quickly, your distribution needs will likely change. To save time building a network of carriers, hire a transportation broker who can help optimize your shipping process.

How to Choose the Right Freight Broker for your Business

Working with a broker has many potential benefits, but only if you find the right one for your business. Before partnering with a freight brokerage, consider the following.

Technological Capabilities

Manual processes waste time, making it difficult to run an efficient business. The less efficient you are, the more resources you use. Therefore, it’s crucial to find a freight broker with advanced technological capabilities. For example, if a broker uses Electronic Data Interchange to send business documents, there’s a good chance they’ll be more efficient than a broker who’s still using paper.

Costs

Every business owner wants to spend as little as possible on shipping and other services, but you shouldn’t focus exclusively on cost when choosing a broker to suit your needs. It’s not worth saving a few dollars if you can’t reach the broker when you need them or if they don’t provide regular updates on your shipments. Look for a broker who offers a good balance of cost-effectiveness and quality.

Network Size

A successful freight broker has an extensive network of carriers, giving you plenty of options when negotiating prices or finding a company to carry fragile cargo without damaging it. During the vetting process, ask the broker how many carriers are on their roster.

Carrier Credentials

Every freight broker must register with the Federal Motor Carrier Administration before offering their services to shippers and carriers. Before you hire a broker, make sure they have FMCSA authority. Working with an unregistered broker may save you a few dollars, but it’s not worth the risk.

Track Record

Your broker should be honest, transparent, and knowledgeable. When you’re vetting potential brokers, ask these questions:

• How long have you been in business?
• Can you provide references from clients?
• If there’s a problem with a shipment, how can we expect you to handle it?
• How many employees do you have?
• Do you have any relevant certifications?
• Are you registered with the FMCSA?

It’s also helpful to check public records to determine if a carrier has ever been sued. In many jurisdictions, suing someone is as simple as filling out some forms and paying the filing fee, so a lawsuit doesn’t necessarily mean the broker did something wrong. Just be on the lookout for concerning patterns, such as multiple lawsuits in a short period.

Licensing and Insurance

The freight industry is known for its complexity, so a freight broker should have appropriate licenses and insurance. Under the FMCSA, each broker must provide proof of insurance before working as an intermediary between shippers and carriers. Brokers can satisfy this requirement by posting a $75,000 bond or depositing $75,000 into a freight broker trust fund. Your state may also have licensing and/or insurance requirements for this industry.

Save Time and Money with EDI and Orderful

Once you have a freight broker, you can maximize efficiency by using EDI to transmit electronic documents. That’s where Orderful comes in handy.

When EXO Freight landed Walmart as a client, it had just 10 days to build an EDI connection. EXO used Orderful’s modern API to meet the deadline, resulting in a massive increase in revenue. Orderful also reduced the time it takes EXO Freight to onboard new trading partners, increasing efficiency.

If you want an EDI platform that interfaces with your freight broker’s and transportation provider’s systems, talk to one of our EDI experts today.