10 Tips How to Select Best Freight Broker for Your Company
“A freight broker is a company or individual that serves as a liaison between a buyer of freight transportation services and a freight asset provider.”
The freight broker market started from humble beginnings where many shops were just a person with trucking relationships, but as with many industries technology and capital moves to market opportunities and the freight brokerage is no different. Fast forward many years and the top 5 brokers are all over $2.0 billion in annual revenue each.
Both the small and large brokerage operations exist today, but they are clearly not created equal. Before we get into the points shippers should use in their vetting process of selecting a freight broker the shipper should evaluate the capacity in which they will utilize a broker because
Three Reasons Why Shippers Utilize a Freight Broker in Today’s Market Are:
- To provide daily capacity, without having to add multiple asset carriers to a shipper’s routing guide. In other words, the shipper may have said 8 to 10 asset carriers in their routing guide and then they add in a freight broker to handle all their other capacity requirements. Many times, a smaller company will opt to operate all their freight needs through a broker for simplicity purposes.
- To provide a quick shot of capacity for a shipper that finds that their demand is more than their current routing guide can handle.
- To provide managed transportation services where the freight broker is really operating as an extension of the shipper and is a logistics services provider (LSP). In this capacity, the shipper sends all its orders and required delivery times to the LSP where they then optimize the freight for least cost and best service. The LSP will then manage the shipment from pickup to delivery and provide reporting to the shipper on the progress of the shipment. After delivery, the LSP will audit and pay the carrier’s invoice. All the shipper’s transactions are held in the LSP’s cloud TMS platform, which allows for incredible analysis that takes a shipper’s supply chain to the next level because the sophistication the data can bring.
Top 10 Areas to Review When Selecting a Freight Broker
- Properly Licensed
- Financial Stability
- Carrier Compliance
- Years in Service
- Multiple Modes & Services Offered
- Operational Model
- TMS Used in the Operation
- Basic Business Footprint
How to Select the Best Freight Broker for Your Company
The freight brokerage industry is a licensed industry. Beware of companies presenting themselves as freight brokers, but not holding the required licensing. The federal law requires anyone arranging transportation for compensation, to have a federal property broker license issued by the Federal Motor Carrier Safety Administration or FMCSA.
The following link is the site to use to evaluate whether the broker is properly licensed:
The 3rd line down after the address will provide the current status of the brokerage authority and indicate active or inactive. The web page also provides details on: insurance, surety bond, history of changes, etc. The history of changes will point out challenges the brokerage may have had since opening its doors, which provides additional insight into their business.
The financial strength of the brokerage is a critical, critical issue. Brokers can come and go and it does not matter their size or how long they have been in business. There have been freight brokers of all sizes that have fallen out of the market. While the smaller freight brokerage houses have a higher failure rate, there are examples of larger ones going bankrupt also. An example of a larger broker filing for bankruptcy is Network FOB, which was in business for 20 years with roughly 150 employees.
The reason financial stability is a key issue shipper need to be aware of is if their broker closes its doors the asset carrier the broker contracted has the legal ability to claw back to the shipper for full payment, whether the shipper paid or did not pay the broker for the load. The end result is the shipper could pay for loads twice, plus attorney fees.
So, on the financial stability front our recommendation is to run a full credit check.
The points to watch for within the topic of insurance are:
- Contingent Cargo or Shipper’s Interest Policy
- Contingent Cargo – This policy backs up the asset carrier policy used on a particular lane
- Shipper’s Interest – These policies are superior to Contingent Cargo Policies because the coverage is more comprehensive with fewer exclusions. Unlike a contingent cargo policy, a shipper’s interest policy covers the actual cargo rather than the carrier’s liability.
- Valid Insurance Check to ensure the broker has kept up with its insurance requirements. As mentioned earlier, this can be found on the same website used to validate the freight brokerage authority.
- Deductible Some deductibles run as high as $25,000 or more, which could be an issue when working with a small broker.
Ask your broker how they qualify their carriers. Remember those carriers will soon be your carriers.
You can find our qualification requirements here.
High quality brokers have 1,000’s of asset carriers already under contract that they are monitoring every day.
A few questions to ask to help vet out this topic include:
- How many approved and active (the key is active and what is considered active) is under contract?
- How are carriers approved?
- How are changes in a carrier’s profile evaluated every day, week and quarter?
- Financial Strength
- Operating Authority
- What is the policy for delisting carriers to be used because of performance or failing legal requirements?
Our recommendation is stay away from brokers double brokering or posting loads to every load board the market has to offer for their capacity needs.
Years in Service
While not the end all be all question to address, there is value in knowing the freight broker has been in business for an extended number of years. If the freight broker was able to make it through the tough financial times that work through this cyclical industry this probably means they know how to execute for their customers and operate a business. Shippers would be surprised how many are good at one or the other, but not both.
Multiple Modes and Services Offered
A freight broker that offers multiple modes of freight give shippers more options at the best price from a single source. Also, the more modes and services a freight broker / LSP offers the more opportunity there is to grow with them. You just never know when your company may want to go to a managed transportation services model like so many other shippers have and the opportunity to build the trust before moving that direction is priceless.
For example, if the brokerage is only a truckload brokerage, shippers miss out on the opportunity for their freight broker to present modal intermodal conversion opportunities for additional savings or provide capacity on one mode when it is tight on another.
There is more to the top freight brokerage houses that can bring additional value to shippers. Examples include:
- A network of DC’s that shippers can utilize for pooling, consolidations and forward positioning their products for their customers.
- Consulting services that allow shippers to tap into industry experts and analysis necessary to build a better freight network for improved KPI’s and savings.
- The broker will sell outsourced services for shippers to tap into its technology and team of experts to operate and optimize their business. These programs give shippers direct access into a vast carrier base and tier one technology that would take years and 100’s of thousands of dollars to develop implement. We are talking HUGE savings with a quick ROI.
There are a couple of ways freight brokers go about servicing a shipper:
- Work is distributed through the operations based on task and shift.
- Accounts are assigned to a Customer Manager that handles a load from tender to final delivery throughout the day and evening
We tend to call the first model 1-800-good-luck model when it comes to after-hours support, while the second builds a relationship that blossoms over time because the customer manager develops a strong connection between the operation crews on both the pick-up and delivery docks. The customer manager approach puts the broker’s front-line talent in direct contact with all aspects of the shipper’s operation, which lends itself for the opportunity to bring in additional help and services to improve overall operations and cost.
Ask the freight broker what transportation managements system they operate (TMS) and have them walk you through their system capabilities.
Believe it or not, there are some brokers that are still working their business through an Access or Excel system they developed. Having worked in such an environment can honestly say there is no way the brokerage can service their shippers and interact with carriers in an optimal manner for optimal performance and cost.
The top freight brokerages sell their cloud based TMS to the shipper community.
Ask for references. When choosing a freight broker to partner with think of it as adding another “employee” and then ask yourself if your company does a reference check. Before making the phone calls on the reference check, we would recommend looking into whether the broker you are associated with is a member of the various trade associations. The reason being is the top freight brokerage do belong the trade associations and it should throw up a red flag if they did not. The trade associations do a background check and evaluate the broker before allowing them to participate and post their logo on the broker’s site. The trade references to look for are:
Our recommendation is to look up the broker under the various association websites, as I recently ran across a broker that had the logo on its site but was not a member.
Basic Business Footprint
Last but not least, shippers should check the website, email address, LinkedIn profiles of the membership team and their team members and social media sites. This could be a quick look and run, as there are several brokers that do not have a website and / or do not run off a company named email address. One should be skeptical of a broker that does not have the resources to put up a website and provide company emails. Nowadays the total investment is less than a $500 for company emails and less than $5,000 for a good website.
Now if the shipper finds a website, social media and LinkedIn pages of its professionals, then this is a good opportunity to review blogs, comments and likes to see if the brokerage believes and operates in the manner the shipper finds in congruent with its beliefs of the logistics environment and ethics it expects its business partners to operate.