What Is Freight Brokerage  – Why, And When Does Your Business Need It?

If you’re wondering what to look for in a freight brokerage for your business’ supply chain needs, here’s some great information to help you make a better informed decision.

What is a Freight Broker?

In simple terms, a freight broker is a company or individual that connects a shipper or manufacturer who has goods to transport and a qualified motor carrier that wants to provide that service. Each of which have their own individual needs.

In other words, a freight broker is the “middle man” between the manufacturer and the transporter that delivers a product to its destination.

What exactly does a freight broker do?

The freight broker’s job is to ensure the freight hand-off is cost-effective and managed efficiently through communication and execution. Freight brokerage is the art of arranging the best deal between the two.

Key Elements in the Freight Brokerage Industry:

  • Freight Broker. As mentioned, the freight broker connects shippers with motor carriers to move their goods.
  • Shipper. The shipper is the individual or business that produces goods to transport.
  • Motor Carrier. The motor carrier is a company that provides truck transportation.
  • Freight Forwarder. Often confused with freight brokers, freight forwarders differ significantly. Forwarders typically take possession of the goods, consolidate a number of smaller shipments into one large shipment, then arrange for transport of that larger shipment using various shipping methods, including roadway, rail, air and water carriers.
  • Import-Export Broker. Import-Export Brokers interface with Customs, government agencies, international carriers, companies and other organizations involved in international freight transportation.
  • Agricultural Truck Broker. Generally operating is small regional areas, agricultural truck brokers arrange motor carrier service for exempt agricultural products.
  • Shipper’s Associations. Shipper’s associations are typically nonprofit, cooperative organizations formed by shippers designed to reduce transportation costs by pooling shipments within their membership.

Is a Freight Broker the Same as a 3PL?

You can think of freight brokerage as one of the many tools found under the umbrella of 3PL services.

While freight brokers serve one aspect of transportation, a 3PL is an all-in-one logistics provider offering a wide array of supply chain services. Freight brokerage is just one of the many tools in the “3PL belt.”

Using a freight broker as a specific service is not necessarily restrictive if it suits your company’s needs, but working with a 3PL provider will know your unique business supply chain needs intimately.

A 3PL can also offer other value-added services that a freight broker might lack.

When Should You Look for a Freight Broker?

Since every company is different, you have individual needs when it comes to freight shipping and handling.

Many small companies start out of a spare room or garage and manage their own shipping manually – ie: trips to the post office. Then, if they’re lucky, grow into organizations that take their product volumes to the next level which requires outsourcing.

Typically, there are three situations you might find yourself in if you ask, “Do we need to research and meet with freight brokers to get our products out?”

The answer is yes if:

  1. You’re doing well with your current process but need more capacity
  2. You want to reduce operating costs and lost time
  3. You have an issue with your current provider or service

How to Reduce Brokerage Costs

Freight brokers and 3PL providers are experts when it comes to shipping. Relying on their knowledge and experience could be exactly what you need to optimize your supply chain.

A good 3PL company will invest heavily in the supply chain to ensure cost reduction which passes the savings on to you.

Using a freight broker’s services can be the cost-saving priority that ensures maximum optimization, cost savings, and help you understand your delivery network better.

Is Your Current Situation Frustrating or Unreliable?

A good freight broker specializes in dependability, and they work for you to minimize missed or late deliveries.

They ensure your transportation network works better for both you and your customers according to your specific needs.

Freight Broker vs Freight Agent, Is There a Difference?

The difference between a freight broker and freight agent is that a freight agent is an individual who works with and for a freight broker as an independent contractor.

This helps the brokerage develop a wider scope of operations.

The agent works under the auspices of the broker and has access to the broker’s services. The broker is responsible for issues such as paying carriers and maintaining the required bonds.

This gives the broker a local presence while giving the agent access to the broker’s services for their own customers.

Picking a Good Freight Broker

Just because a freight broker has brand recognition and works in your region doesn’t mean they’re the best solution.

Good brokers will provide the quality and analysis you deserve at a high standard. Still, you need to carefully consider the brokerage team you choose to work with. They will be essential to your future success.

The top three questions that are most important in your initial conversations are:

  1. Are they financially stable?
  2. Are they licensed with FMCSA, or bonded for liability?
  3. Do they monitor, vet, and select their partner carriers properly?

Financial stability translates to reliability, and that the company will be a good partner in the long-term.

If there’s default on a contract, surety bonds protect your company – an essential protection. A respectable broker can also act as a legal safety net for a shipper.

In the end, you may realize initial price is not the most important factor in choosing your broker.

Remember, price is not necessarily the most important factor when reliability and consistency are at stake. You choose to pay a premium to work with a brokerage that guarantees better value and higher overall savings that grow your business.