Conquering Insurance Hurdles and Spot Market Strategies for Freight Brokers | Final Mile #25

Freight 360

January 9, 2024

Nate Cross & Ben Kowalski answer your freight brokering questions and discuss:

  • What insurance do freight brokers need?
  • How do freight brokers quote lanes?
  • Should I quit being a freight broker?
  • How much does a freight broker bond cost?
  • How much can a freight broker agent make in the first month?

Support Our Sponsors:
Bluebook Services: Click Here
DAT Freight & Analytics – Get 10% off your first year!
DAT Power – Brokers & Carriers: Click Here
DAT Express – Brokers: Click Here
Truckers Edge – Carriers: Click Here

Recommended Products: Click Here
Freight Broker Basics Course: Click Here
Join Our Facebook Group: Click Here
Check out all of our content online: Click Here

Show Transcript

See full episode transcriptTranscript is autogenerated by AI

Nate Cross: 0:19

All right, welcome back for another edition of the final mile, where we answer your questions that you guys send in. Please continue to do that. You can set them in right through our website or we've been getting a lot of them right from our YouTube Comments. That works as well. We got a lot of them today from there. You can go email us info at freight

Nate Cross: 0:39

I got a apologize for my nasally sound today. I'm battling a cold, but that's uh, that's all good. So, ben, ready to get into it that? I am all right, jump right into it, sweet.

Nate Cross: 0:51

Our first question is what kind of insurance do you carry as a broker for things like claims? So we only have a couple minutes to answer this. So I I definitely want to refer if you guys have ever questions about insurance, go right to our website, freight 360 net, and we have a lot of full-length content, podcast episodes on insurance, as well as some special guests that we've interviewed to talk through policies, and we've done some short form videos as well. But the, the only required insurance that you've got to have is your surety bond. So it's it's a bond and it is an insurance product, but that is the, the required Policy that you need to have to get your license as a freight brokerage. Now most Brokers will carry a general liability policy which will cover things like slips, trips and falls on sites like at your office and a lot of times that customers will require that general liability policy as well as part of their contract, and you'll also see other things like a contingent cargo policy.

Nate Cross: 1:55

Now, this question specifically asks about claims. Keep in mind, if there's a cargo claim or an accident, the motor carrier that hauled that load, that's who's primarily going to be the party that needs to be insured, since they've got possession of the freight. They're the one controlling the truck that you know either had damage to the product or gotten an accent, whatever the case might be. But refer to a good insurance Broker or agent when you're looking at insurance products and again, your customer is going to kind of dictate Primarily what you'll need to get you know what you're gonna have to have yourself. Anything you want to add in there. I know we've talked about load share policies as well and other content, but any other policies you could think of that stick out to you.

Benjamin Kowalski: 2:36

No, the thing I want to point out is because this is the thing that comes up the most often and is worth us repeating brokers, insurances, insurance policies Do not get stacked on top of, do not work in replace of. They are something completely different than the carriers cargo insurance. So when it relates to cargo claims, right, your brokerage insurance really should rarely, if ever, come to play. So everybody out there that is listening to this and we've had clients that we've worked with that came back to us months later and weren't clear on this. Our job as a freight broker is to ask the shipper what are their insurance requirements. It is our job to make sure, primarily, that the trucking company we hire has the insurance requirements to meet the shipper's documents, whatever they're asking for, because we aren't physically moving it, we are driving it. We don't have the trucks. It's our job full stop to hire a company on behalf of a shipper doing the exact same things they would do.

Benjamin Kowalski: 3:42

So I don't want anybody to be confused and go well, we have $100,000 in contingent and the carrier has 100 in cargo, so that means we have 200 together. That's not the way any of it works, right. Whatever your carrier has in cargo insurance. Make sure that number is bigger than whatever the value of the load is. Yep, pretty simple If you keep it at that. And then to your point, talk to an insurance agent or insurance broker about contingent in general. If your shipper is asking you for it, they're good things to have, but I wouldn't jump to getting them unless the shipper is requiring them for the same reason. Right, that's why the federal government doesn't require a freight brokerage to have insurance. It is for this very reason.

Nate Cross: 4:25

We're the middleman, we're the intermediaries. Right, it's not our goods. We don't ever take physical possession. The last thing I'll add in as a caveat is you do have the ability in some rare cases you'll see this happen where the freight brokerage will do something like an all risk policy through a company like Loadshare or through their local insurance broker, which puts them in the first position of coverage. Again, it's not stacking on top, like you said, Ben, but you can purchase that policy on a one load basis to be the primary policy. Sometimes we'll see that if a motor carrier doesn't have sufficient dollar amount of coverage or has an exclusion to a certain commodity, we as brokers can purchase that policy. But still it's not our policy. It's ensuring the customer's goods. We're just the ones actually setting the policy up for them as the beneficiary.

Benjamin Kowalski: 5:18

One last point, and it's just because I was literally doing this right before recording today. But if you are working to prospect these very large companies and you see dollar signs, you're like wow, they're really big, they move so much load, there's so much money if we can get onboarded. I want to point this out because it's also very common for very large companies to require, in my opinion, ridiculous amounts of insurance that don't actually cover anything, just to keep the number of brokers and carriers down. To be honest, I think this is one of the main reasons they do it. I'll give you a few examples. This is the one we were reviewing today.

Benjamin Kowalski: 5:55

There is a requirement for a brokerage right for us to have $1 million in Workman's Comp. We have 500 grand and that makes little to no sense since nobody in our entire company will ever be at any of their facilities. Workman's Comp would cover a slip and fall there. We don't have drivers. This is an example where you would see that for a trucking company. But it makes no sense to require it as a freight broker because we're not going to be there right. A couple other ones were an excess policy of $5 million as an umbrella, an E&O for $1 million and auto liability for $5 million, and again we have like $2 million in auto, mostly as just-.

Nate Cross: 6:38

Well, you probably have contingent auto is probably what it is right. It's exactly.

Benjamin Kowalski: 6:42

It's just phrase different. It's phrases auto liability contingent.

Nate Cross: 6:45

We saw one recently of $10 million in an umbrella liability policy. So yeah, there's some wild requests out there and what's funny is the majority of the time those policies they can't tell you why they need them. But you're right, it does weed out a lot of the players that can't afford to pay for those policies.

Benjamin Kowalski: 7:03

And I'll bet again in a long shot, knowing who this company is and it's a name that everyone would kind of recognize is they've seen lawsuits from trucking companies and things get rolled in because of an accident and things. We've talked about. One of the four or five mega cases going on in the country right now these are related to those things. So the larger companies come up with crazy requests or requirements for their vendors without really thinking through how this affects even the transportation department.

Benjamin Kowalski: 7:29

So anyway, we're not gonna do a whole episode on it, but it was worth pointing out just because we just no, it's good discussion.

Nate Cross: 7:34

We get that question a lot, so I'm glad we broke it down. All right. Next up, how would you explain effectively quoting lanes to a new broker using things such as mileage and rate per mile? Well, I wanna distinguish one thing real quick, right. When you're in the spot market, which is where we typically operate as freight brokers, a going rate is whatever a truck is willing to take a load for. Right now. That is a going rate.

Nate Cross: 8:04

Now to answer the question, if you're trying to price out a lane based off of you wanna look at how the mileage on it and the rate per mile.

Nate Cross: 8:13

It's a simple equation of rate per mile times miles driven. So like to give you a super broad example 500 miles times $2 per mile would be a $1,000 total on price. Now what you have to consider, though, is if you're using a product like DAT's RateView, and you're gonna see what that median average is historically, or maybe even rate cast that projected out, and then you get that upper and lower threshold, which give you your 25th and 75th percentiles of those rates in their dataset. You have to remember, 50% of the data does not get, it does not seen on that screen. So you have things like the time of day backhaul for a carrier, holidays, how far they have to dead head from wherever they're currently gonna be unloaded empty those all planned as well. So you can get a rough idea by doing a rate per mile times the mileage. But keep in mind there's a lot of other variables that will factor into whatever that rate is and whatever a driver tells you and agrees to on the phone, that's gonna supersede any dataset that's out there.

Benjamin Kowalski: 9:22

So and again, another way to just think about this is if you're trying to book a truck out of like on a lane that has high volume, like LA to Chicago, there are gonna be so many trucks there and so many options, typically on a normal load, that you'll pay real close to the average.

Benjamin Kowalski: 9:40

If you are trying to quote a lane that is Henderson, Nevada, to the middle of nowhere, Alabama, just to pick up two random places right, there might only be six trucks that meet your requirement, that are empty all day in that city. That can even make your pickup right. So even if the average rate is 225 a mile, if four of those trucks have no desire to go to the Southeast because of the day of the week and only one can and is willing to, you're paying whatever that person is gonna run it for. You can say, hey, this is where the average is, this is where I would like to be. But if your load has to pick up that day and they're literally the only available carrier in that market that can meet those, you pay what they're willing to move it for. That's it.

Nate Cross: 10:27

I mean, that's what it comes out, or even like it's pretty much the same thing. But or you gotta pay somebody to deadhead from 250 miles away, in which case? It's gonna wash out the same way.

Nate Cross: 10:38

Exactly All right next up. I kinda laugh when I saw this one. This is from our Facebook group. It says I kind of paraphrased it I'm a new broker and I feel uneasy about beginning this journey. I see a lot from carriers and brokers about the true horrors in this industry. Should I save myself the headache? So she was basically like double guessing. She just got into the industry. What would you give me your take on and then I'll give mine? What would you tell someone that's brand new and just seeing all this animosity between brokers and carriers, all the horror stories about double brokering, loads held hostage brokers screwing carriers on rates, what would you tell somebody to either ease their mind or just give them a reality check?

Benjamin Kowalski: 11:20

Yeah, I mean. I just think it has more to do with your expectations, because I think in any market where you want to go and establish yourself, I mean you're going to go build a business. That's what this is. You're going to be a new broker. What you're saying is I'm going to open a business in this industry. What do you think?

Benjamin Kowalski: 11:36

I think for anybody starting a new business, you've got a 98% failure rate of any business, I think across every business that has ever opened the United States, from software as a service to an ice cream company, so like, the odds are always stacked against you. And if you want to build something that's going to bring you above average income, no matter what industry it is, and you want to own that business and you're going to build it yourself, expect that to be a steep hill to climb. Do you not expect to be able to go create your own business in an industry that you're just learning about and then to make twice the national average income in your first eight months or a year doing it? I think, no matter what industry you are considering, that is unrealistic. Now, if you come into a go, hey, I think I really enjoy this industry. I've done my research. I think it's a good fit.

Benjamin Kowalski: 12:25

I like doing these things. I'm a people person. I've done worked a little bit, or here or there, and you're like, hey, I know it'll take me a year or two, but I'm willing to put the time in and grind it out and build something of value. I encourage you to do it right. But that's where people differ. I think it's more at the starting line than once they're into it. The people that think it's going to be easy. They were never going to do this anyway, whether it was this or anything else. To be honest, right, If you're jumping into a new business because your current job is too hard and you just want something easier, then do not do that, no matter what business it is.

Nate Cross: 13:02

Yeah, I want to add into, like consider the context of this question. So she's asking it in a Facebook group of freight brokers and carriers that oftentimes will just complain about each other, correct? You're going to a place full of oftentimes more negativity than other places, and that's just the reality of social media. You're going to get a lot of keyboard warriors, right? You had a great point about expectations, right? I would say understand that things can go wrong and you can put measures in place to prevent yourself from being the victim of a fraudulent double brokerage situation or a load-held hostage. Consume a lot of our content.

Benjamin Kowalski: 13:49

We try to lay it all out for you, but that's what I would say about it is consider this one and I'm like the last question is really what made me kind of chuckle, because I was like, should I save myself the headache? And I'm thinking I don't think you can build any business without daily headaches.

Nate Cross: 14:05

I'm like it's mostly headaches.

Benjamin Kowalski: 14:07

Yeah, and I was like there was two quotes that remind me of one was this one guy says he's like I think building any business is like being in a 24-7 knife fight. Just all day problems are hitting you in the face and you got to solve them and be creative. The other one is like business owners are the types of people that would rather work 80 hours for themselves than 40 hours for a boss. Right, and that's the personality trait of the people that do these things Like they are hard, but that's why they're worth it and that's why so few people do succeed. But when you do, it's really really worth it, right?

Nate Cross: 14:39

Yep, 100% Good stuff. Our next question is about surety bonds. How much do you pay monthly for a surety bond? Well, we can't necessarily give you an answer to the monthly cost, because you might not pay monthly, you might pay bi-annually, you might pay a certain amount upfront and then monthly. That all depends what you can expect. We can kind of run you through averages and a range on an annual basis, because that's the majority of the data we can get from either people that have responded to this question or just reported data.

Nate Cross: 15:11

A surety bond is a product that you're required to have, like we mentioned earlier, that is, you have to have at least $75,000 in the bond, or the alternative is to have a $75,000 freight broker trust fund, which would serve the same purpose. The reason you have to have it is to ensure payment to motor carriers in the event that you default on payment to them If you were to just not pay a carrier because you don't want to or like a disputed charge or great decrease or something, but also if you got behind on your payments to your carriers and your cash flow or you went out of business. That bond is there to ensure that your carriers are made whole. So your personal credit rating and your company's credit rating is often what is tied to the premium on it. Just like any other insurance product, if you're prone to getting in car accidents more often, your car insurance premium is going to be higher than someone like myself who works from home and doesn't drive very much.

Nate Cross: 16:13

So I will tell you, we've seen a range from and there's probably going to be outliers still, but like 1500 a year to like 5000 a year. That's a pretty wide range, but it just really all depends on a whole lot of factors. If you have very poor credit or very little established credit, you're likely going to pay on the higher end, whereas if you have a well-established history of making payments to people, you're going to likely be on the lower end of that, and different underwriters are going to be looking for different things. So I would recommend shop around when you get any kind of product like that. Have you gotten any data that conflicts with what I just rattled off there?

Benjamin Kowalski: 16:52

No, I mean anecdotally. I hear anywhere from 2500 to like 7500 in the past year from random people and again different parts of the country, different credit, everything that you kind of pointed out.

Nate Cross: 17:03

You're coming out like a few hundred bucks a month basically is kind of what that would average out to, depending on your worthiness. All right, last up and this kind of ties into the question earlier, I'm interested in becoming a freight broker agent. How much am I able to make in the first month? So this is like kind of like the expectations and the headaches and all that stuff. If you are brand new, with no experience, you could likely expect to learn. Yeah, same thing if you're starting up railroads from scratch. Yeah, it takes time to build up a pipeline of shippers and prospective customers and then convert them and then be able to actually Receive payments from them to realize profits from from a load. We're that now.

Nate Cross: 17:50

The exception to this question would be Like I work for Pierce, for Wild Logistics. We have freight agents that work for our company or their contractors technically 1099. If they come to us From a previous brokerage role, they can make money like week one, right, because they a lot of agents will get paid upon invoice from a load versus upon collection of Customer payment. So if you've got a book of business and you just to say, hey, I want to leave running my own brokerage or leave being a w2 and I want to go become an agent for a company. Yes, if you've got that portable book of business, you could potentially make whatever your book of business is worth in that first month.

Nate Cross: 18:32

But if you're starting from scratch like I assume this question or this this listener is asking Zero is what I would say is your expectation. I won't even like go down the rabbit hole of what you can possibly make down the road. That's just. It just depends. It's so variable. There's limitless income in this industry. I've seen agents that do millions of dollars a year and then I see agents that do 30,000 a year. Depends on how much business they're putting through. There's not like a restriction on it.

Benjamin Kowalski: 18:58

So I think one of the hardest things to go in our country from somebody that works in a job and a w2 setting To being able to work and solely commissioned right, that's what we're talking about. If you're a freight agent right, you are working a hundred percent commission. To make that transition from going to a job and getting a paycheck To being able to kill what you eat right. I think really only a few things need to happen. Like you either made enough money and saved enough that you've got at least a year's worth of Expenses that you can go and make that jump and do that reasonably. I think is one way I've seen people do it successfully. The second way is work multiple jobs and work 12, 14 hours a day, part time in some job, with enough savings that they can go and prospect until they get enough customers that then they can make it. Yeah, the third way, which I think is the most prudent or makes the most sense, is go and work for another Agent covering loads. Go and work in the industry, get at least some income while you're learning it, prospect whenever you can and do as much of that as possible, because now, if you get one or two customers while you're making Two or three grand or four grand a month working for another agent, that one customer might be enough to allow you to start working a little bit more on your own and then, if you can get two or three over the course of six months or eight months, you might be able to transition from an employee Into having some of your own customers in a way that you're not like literally gambling with your entire life of not being able to pay the bills. And to me that's the thing that every again.

Benjamin Kowalski: 20:36

Go back to the earlier question. When I used to work at a bank as a small business lender, we used to meet with everybody from like I want to open a restaurant to a landscaping company, to whatever right. It's the same premise for every business all the time how much cash do you have? And in every scenario when we'd sit down with somebody, they're like well, I'm gonna quit my job and then I'm gonna go open this restaurant. We're like, well, you only qualify for the loan because of your job. If you quit your job and nobody comes into the restaurant, the bank doesn't get paid back. So, like everybody kind of runs into this problem, you've got to have at least enough runway. So I don't think you should jump into a commission only thing without at least some savings or the ability to work within the industry to get some income.

Nate Cross: 21:18

Yep, very true, set those expectations, man. That's what it comes down to here. So well, great questions, great final mile, little bit here we appreciate you guys. Keep this, keeps that in a min and We'll see you guys on the next addition of the final mile, ben.

Benjamin Kowalski: 21:38

Whether you believe you can or believe you can't, you're right and until next time go bills.

About the Author

Freight 360
Freight 360

Freight 360 was born from a vision to share knowledge about transportation with everyone.

To read more about Freight 360, check out full bio here.