If you were turning down loads in the busy season because you didn’t have enough trucks available, your first impulse might be to start looking to add to your fleet for when loads start picking back up. The more loads you can cover, the more money you can make. Adding a truck is costly, though. Starting your own brokerage might be a less expensive way to grow your trucking business.
If you already have the relationships with shippers needed to make it work, brokering freight adds another profit center to your transportation business that carries lower costs and less risk than your carrier operation, but it has its own set of obstacles. Below are six things to consider when becoming a broker.
1. Operating authority
The FMCSA doesn’t allow a carrier to forward interstate freight, so your brokerage has to be a separate company. You’ll need to decide how this separate business will be organized, too (sole proprietorship, partnership, LLC, S Corporation, etc.).
Freight brokers involved in interstate commerce are also required to get an MC number and authority from the FMCSA. You can apply and pay the $300 fee online. When establishing your brokerage, you’re required to declare any links you have to other transportation companies, like your carrier business.
And just like with your carrier operation, you have to complete the Unified Carrier Registration for your brokerage and pay the $76 annual fee. For help navigating all the paperwork, get in touch with our GLAuthority team (866-265-3172), and we'll make sure all your bases are covered.
2. Broker bond
All brokers are required to have a surety bond or trust fund of $75,000. It’s similar to the liability insurance you’re required to have on your trucks, but instead of paying a premium for each piece of equipment, the bond covers the entire brokering side of your business. If a broker doesn’t fulfill a contract with a carrier, the bond is there to assure payment.
This doesn’t mean you have to pay the full $75,000, though. Getloaded members can apply for broker bonds with Integro Insurance Brokers, with an annual rate as low as $3,000.
3. Cash flow
Brokerages have a lot of money flowing in and out. You’re already familiar with days-to-pay – the number of days a broker has to pay the carrier. As a broker, you won’t always receive money from the shipper before you need to pay the carrier. Managing this flow of cash will be key to your success.
4. Invest in a TMS
The best way to manage that cash flow is with a transportation management system (TMS). DAT's Broker TMS is the broker package used by carriers who want the best in class software. Another option is GetloadedOps, which integrates easily with the Getloaded load board while simplifying accounting and streamlining your operations. Brokers are also required to keep records of each transaction, including contracts, bills of lading, payables, receivables, carrier qualifications, and more, all of which is made easier with a TMS that will store that information for you.
Who’s going to be working the phones? If you’re looking to hire someone, look for an agent who already has working relationships with shippers and other carriers.
6. Hidden startup costs
The first step is to starting your brokerage is hiring a business attorney. Unlike in a carrier operation, where much of the startup cost is tied to equipment, the expenses related to getting your brokerage up and running are a little less obvious. When brokering freight to a carrier other than your own, you’ll want to have a contingent cargo insurance policy. You’re also required to have a process agent in each state where you do business. This person acts as a representative to whom court papers can be served should there be any legal proceedings
Seeking out an attorney who’s experienced in working with brokers will save you some headaches and avoid the risks of overlooking some piece of the legal puzzle.