Insurance, Sourcing Freight, and Objections | Final Mile 97

Speaker 1: 0:19

Hey, welcome to this week's Final Mile episode, where we answer all the questions that you guys send us, either on YouTube you guys email us directly or on our Facebook group. So let's jump right in. First question we have is hi, I would like to start a freight brokerage company in Florida. Do you know what insurance I need to have and how much are a surety bond? You want to give that one a stab first.

Speaker 2: 0:49

Yeah, so your insurance is really kind of dependent on you know shippers, customers, what the requirements are. You're going to need contingent cargo and then your surety bond. It's 75,000. But how you go about getting that? I think I think there was some fmcsa instruction on, like uh, bond versus something else. I can't remember. I know it changed, yeah, the trust fund thing, but um, yeah, that's. That's kind of what I've got in terms of insurance and bonds.

Speaker 1: 1:20

I'll start with where they started this, saying I would like to start a freight brokerage. So there's two steps, basically, what do you need to operate a freight brokerage? Just legally, the FMCSA is going to require a surety bond. Like you said, it's either a $75,000 bond or 75 grand sitting in a trust. What is a bond Bond is basically an insurance product where an insurance company is going to say hey, we'll set aside 75 grand for you and we're going to charge you a small amount in case it gets used. And it's way less than 75 grand. So, like, you might pay a thousand, you might pay three grand, based on how likely it is your company needs to use this bucket of 75 grand, and how they determine what you're going to pay is usually based on your personal credit rating. Like, hey, either your business maybe your business and you, you've got a track record, you've got good credit, you've paid your bills You're going to pay usually a lower price for that bond. If you don't, you're going to pay a little bit of a higher price. So they are priced according to the person actually applying. There's not one flat number. I mean, that's pretty much it. That's what you need to legally operate a freight brokerage. And what is the point of the bond? That is hey, if you do business with a shipper and you don't pay your carrier, the carrier goes to that insurance company who has your bond and says, hey, Benjamin's Freight Brokerage did not pay me five grand. The bond company reviews the situation, decides, hey, if you owe that trucking company money and you didn't pay them, they cut them the five grand and then your bond amount goes down and then your premium goes up. Right, it works just like insurance, but it is a bond.

Speaker 1: 3:02

Now what you alluded to is there are lots of other insurances you will need to work with specific shippers. Those are outlined and determined by the shipper, not the freight brokerage. The most common insurances they're going to require you to have are what you said contingent cargo insurance. And the second is usually like an umbrella policy or a general liability policy. The third you'll sometimes see like workers comp, which never comes into play but can be required, and contingent cargo. This is the most often understood one by shippers and brokers.

Speaker 1: 3:40

Contingent cargo is not the same as cargo insurance. So, just basically speaking, if I hire Steven's trucking company, he has a hundred grand in cargo insurance. My shipper is going to require that I have contingent cargo insurance, usually for a hundred grand. Okay, well, the shipper requires to vet me the broker for that contingent cargo. Most shippers don't understand that contingent cargo does not pay a claim. If there's a claim on the load I ran with Stephen's company for 80 grand that claim is filed on the carrier, because the carrier is the only type of entity. You need to own a truck to have cargo insurance.

Speaker 1: 4:19

Contingent cargo is required by shippers but rarely comes into play and only pays out in very obscure situations where something should have happened that didn't happen and we can bring somebody on insurance to really go into it. But they rarely ever come into play. But almost all of the brokerages have contingent cargo, mostly because shippers require it. But it rarely comes in and actually pays out. Rarely comes in and actually pays out. The same with workers' comp.

Speaker 1: 4:46

I'm never sending an employee to my shipper's facility where they could get hurt, fall be near a forklift, fall off a truck or a dock. That's why they want it. That's why a carrier has it. But they often require brokers to have the same requirements as their motor carriers for simplicity and liability. But our insurance is nowhere near the same, does the same thing or covers the same thing as a motor carrier. That's why the main function in our job, and why it's so important to do this correctly, is vetting your carrier's insurance, because the reality is is what it really looks like for a freight broker is my shipper gives me their insurance requirements I got to meet whatever it is to just get a load, but my job every day is that every time I send a truck in, I've got to make sure those requirements are met by the companies I hire, because their insurance is the one that is really protecting my shipper and their cargo Right and just to add a little extra to that is you know, what a lot of brokers miss is exclusions on cargo insurance.

Speaker 2: 5:47

Yeah, Go through a couple, yeah. So the Prime example is seafood. A lot of people do not understand that seafood is typically not covered on insurance and if you're not looking for that exclusion list or getting a breakdown of the whole insurance policy and you haul seafood with this carrier, it is 100% not going to get covered.

Speaker 1: 6:08

Reefer breakdown insurance.

Speaker 2: 6:10

Yeah, reefer breakdown, errors and emissions, things like that. Yeah, reefer breakdown, errors and emissions, you know things like that Like, for example, like a reefer breakdown if if they have cargo insurance and they have reefer coverage, but if a reefer breaks down because of a driver's error, reefer breakdown coverage will not apply.

Speaker 1: 6:42

Yeah, If it runs out of fuel because the driver didn't put fuel in. You know different things like that. So, like looking into the policy is also as important as making sure they have that number that covers the cargo value. You really should, If you own a company, train all of your carrier team and your brokers to understand the basics of insurance. So, like scheduled auto versus all auto versus like leased on trucks versus rented trucks that are rented or leased by the carrier that has a staff driver in it. There's all very different specifics on which ones apply and which ones don't. And if you don't know this, you could be hiring a truck that you think is insured and it doesn't. And if you don't know this, you could be hiring a truck that you think is insured and it doesn't. The other is just a simple making sure when you book a carrier you ask the driver on their checkout is your reefer in good working order and everyone goes well, why does that matter? Like that seems like a silly thing to ask and I'll give you an example of like.

Speaker 1: 7:30

I had an instance one time years ago where somebody booked a reefer. They forgot to ask the driver. The driver had an instance one time years ago where somebody booked a reefer, they forgot to ask the driver. The driver had an alert on his truck. It wasn't related to the reefer, it was related to, like an oil filter, right. But since that alert went into the computer of that carrier before they picked up the load, the reefer wasn't working right. There was a claim and their insurance said no like we're not paying this claim because there was an alert for maintenance and this driver should have had this truck checked by an authorized maintenance person, you know a facility, before they loaded. Since they didn't, even though it wasn't a reefer alert, we're not paying the claim. So it's very important that you're checking and making sure that the drivers are booking know whether or not their equipment is in good working order because that is a determining fact and whether or not that insurance will actually pay if something goes wrong yep, yeah, and I've got um, I require it now and everything.

Speaker 2: 8:25

But one of my customers I started doing it ahead of time was, uh, making sure that whatever reefer they're using is new enough that the information can be downloaded, whether it's at a shop or they can do it remotely, like if I can't download the logs from your reefer, that you're not going to halt my freight it's just, and nine times out of ten you don't need it. Everything goes great, but it's that one edge case that could really put, ruin your your week, your, your month or your year, you know they're huge.

Speaker 1: 8:55

I mean you're talking about trying to make a hundred or 200 bucks on a load here and there you end up in a scenario like this. You could lose a hundred thousand dollars like that. So these are not small things, all right. Next question I appreciate the valuable information you share with the community. I've got three questions.

Speaker 1: 9:11

The spot market for loads isn't necessarily available on load boards. Can brokers find loads directly on those boards or is the only way to secure shipments to find a customer or shipper independently and then to post those loads to move their freight? Thanks for your time. Yes, kind of answered your own question. The only way for you to secure loads as a freight broker is directly from a shipper. Then you use the load boards to negotiate or to find a carrier. Carriers can find loads on a load board because brokers put them there, but a carrier doesn't have a license to give that load to another party. That's why it primarily works that way. Brokers, as intermediaries, we are licensed to take a load from a shipper and then negotiate it with a carrier. Carrier can only take it and then haul it. So that's why you see carriers on the load board and brokers Shippers technically could use it but don't, and for one primary reason they're not built, staffed or usually have the software and tools to vet carriers very quickly, get them onboarded very fast and book a load in a short amount of time.

Speaker 1: 10:19

That's the value brokers provide to shippers. That shippers can't typically do, which is also another reason why when all these carriers say we don't need brokers, we'll just work with shippers directly, I don't think they necessarily understand shippers wouldn't do that, because shippers don't have the staff, the software or the understanding to do this quickly or the operating protocols from their legal and risk teams. Just because a shipper hired more people theoretically other brokers and they go oh, I could do this. Most of the time their legal and risk team won't allow them to onboard a carrier in 30 seconds to two minutes the way a freight broker does, because that's not the business they're in, that's not what they do, right?

Speaker 2: 11:01

yeah, it's, definitely it's. It's a uh, you know it's a cost of doing business for them rather than the actual nature of the business. And, uh, and one of the things I kind of want to point out to the whole, you know anyone out, especially if they're not knowledgeable of the business, like, well, is there like a load board I can go to? No, you can't. But on top of that, I was in a conversation with Ken Adamo and Craig Fuller Ken Adamo with DAT and Craig Fuller with Freightways and Sonar and they both agreed that you know at any given time whether the market's good or bad. The spot freight that you see on load boards makes up anywhere from 2% to 6% of all domestic freight Yep. So why would you go to the smallest basket to get business? You got to go elsewhere and you can't even get business there anyways as a broker. But why would you go there in the first place?

Speaker 1: 11:58

Very, very true. All right, Next up, we only work with asset-based companies. If I give you a load, I'm taking all the risk and you've got no skin in the game If things go wrong. How would you handle this very common objection? It is a very common objection and it's not untrue. If you don't have a contract with a shipper, right Like you, really don't have liability, you're just the intermediary, which means if you hire right Like you really don't have liability, you're just the intermediary. Which means if you hire a trucking company that doesn't have the insurance, doesn't have the right equipment, has, like you said, a reefer that is broken down and isn't maintained and there's a claim if there's an accident or if the load gets stolen, as a broker you really don't have any skin in the game and the only thing a shipper can do is not pay you for one load. So, unless the shipper owes you a whole lot of money from other loads they've ran, that is the only skin you have in the game, which is why shippers will often hold 50 or 100 grand in unrelated invoices if a claim happens, because we don't as brokers, we're intermediaries, we don't own trucks. If they sue us, there's not much they can go after in assets.

Speaker 1: 13:07

That's a very real risk that shippers take when using brokers. Why do they do that? Because most of them still need brokers to get them trucks last minute to be able to hire and vet them, like we said earlier, very quickly. They're not built to do that. So a shipper that only works with motor carriers probably doesn't have a lot of freight every day, meaning they probably ship less than 20 loads a week, which means if that truck can't make it that they booked they can wait until the next day when another carrier can come in.

Speaker 1: 13:39

Not every shipper has that ability. So the first thing I would say is like if a shipper is loading such a small volume, like five to 10 loads a week, sometimes they don't need a broker because again their freight can sit there an extra day or two and it doesn't have a negative effect on their business. So it makes sense for them to only work with carriers 20 to 25 loads a week, five to 10 a day. Like they almost have to use a broker because too much of their freight would get backed up because of trucks just getting stuck in traffic and held up at receivers. So that's the thing to understand from the shipper's point of view, from a broker handling the objection, how do you handle this one Well?

Speaker 2: 14:14

the first thing is yeah, so the person is comes off a standoffish right Because you know you have no, you have no risk. And so you comes off a standoffish right Because you know you have no, you have no risk. And, uh, so you want to, you want to step that down a little bit. Well, you know, what I would say is I'm sorry you feel that way about brokers. Obviously you've been burned in the past. But let me ask you are you just not using brokers at all, um, in your business? And then they'll give you some more information.

Speaker 2: 14:39

And so you're alluding to the fact that there are bad brokers. You've obviously had a bad situation. But then you end it with so you just don't use any brokers at all, right, and maybe they'll tell you, no, we don't. And you can try to dig in a little bit more with well, what are you using assets for? Do you have a lot of volume? Just kind of trying to get the information you were talking about out of them, and you know they may just be irritated and not want to talk to you that day, and that's something like, hey, this is the information I got, and then two or three weeks, a month, later, you've called them back.

Speaker 1: 15:14

Yeah, yeah, and it's a good first step. You've got to be able to get more information to be able to progress it. I think that's the first thing in an objection. I think the way that I approach them is like I don't ever approach them combatively, right, because it's like saying it's like you might win the battle but you're going to lose the war. I'm not trying to prove them wrong, right. I'm trying to get them to trust me and to provide more information to see if there's an opportunity. So the only thing different is like I'm going to just address a head on and be like yeah, absolutely.

Speaker 1: 15:41

I mean there's very different liability for a broker than directly with a motor carrier, right For sure. There's different things in case law. There's different things in liability. Out of curiosity, like do you guys have a shipper broker agreement in place? Would be the first question I ask, and they might say, no, why would I need that? And I can say, well, you know, I have other customers that they put things in their agreements that do move the risk onto brokers differently than if we don't have one, whether it's subrogation, whether it's increased liability, whether it's the ability to withhold payments of unrelated loads if something goes wrong. There are things we can put in writing that can make you feel a little more comfortable with that risk.

Speaker 1: 16:21

But even putting that aside, steven, the thing I would also ask is like, hey, you know, like what is your kind of load volume look like on a daily, weekly business? Like it might not make sense for you guys to use brokers If you don't need trucks last minute and you don't have orders coming in that need to go out in a short amount of time. Like it might make sense for you just to work with carriers. Can you tell me a little bit about, like, your load volume and your need to get product either picked up or delivered? Because if they come back and say, yeah, you know what, like we ship whatever building materials and none of it really needs to go out same day, we've usually got three or four days to get a load picked up and delivered and we got plenty of space at the warehouse and my customer doesn't need it that fast. Hey, that makes perfect sense. If you ever do need anything, a last minute load, shoot me an email. I'd be happy to help. We can get some things in writing to help you with the liability, but it sounds like you really don't have a need for a broker, because now I'm building trust by going directly at their concern, explaining there are things we could do. If that makes sense.

Speaker 1: 17:17

Maybe it doesn't trying to understand a little bit more, like you said, about their operations to see if, hey, if there are instances where you might need that or a project maybe or things like hey, we can take a look at it with you and take the steps to make you feel a little safer and more secure and I can use maybe, possibly, if that does come up like a third party story right Of like hey, I've got other customers that have expressed this concern. We've gotten agreements in writing that put more of that risk on us. As brokers We'll take more of the responsibility, as we should, to make you feel better and also maybe we'll negotiate the right for you to withhold money should anything go wrong. So you know we do have skin in the game because the reality is is on the first load or two there's not much skin. But if you're moving 10 loads a week with me as a broker, I do have skin in the game because you probably owe me four weeks, 10 loads a week. You might have accounts receivable to me at any given time of 100 or 150 grand. So, like, there are skin in the game in the scenario as things progress in a relationship. Being able to walk through and explain how you could mitigate those individually could create an opportunity. Or you might find out at the end of this conversation or, to your point, two or three conversations.

Speaker 1: 18:28

There really isn't an opportunity. But this is the job of a salesperson it's to understand their concerns, walk through them, find out whether or not you can address them and if you can address them in a way that makes them comfortable enough to work with you. Sometimes the answer is no, but sometimes it's yes. And it's an odds game, right? Like, do this 20 times a day, you'll get one or two that work out and probably 18 no's right. Your job isn't to get everybody to say yes to you. Your job is to find the right fit and it is weeding through a lot of no's to get to the yes. That's why we get paid as sales people. It's not because everyone you call is getting giving you a yes. You wouldn't get paid a lot of commission if that was the case.

Speaker 2: 19:08

You can hire anybody to do that job right.

Speaker 1: 19:10

The job of a salesperson is really to address more no's than you're ever to get yes. It is a job that shouldn't be called sales. I always say like it should be called rejection, because that's what you do all day. You get rejected all day and maybe get a yes. That's really what sales is.

Speaker 2: 19:25

Right, and and one of the like.

Speaker 2: 19:27

So the thing most people hate and you know I'm generalizing, but it's probably pretty accurate the most thing most people hate is getting stuck on sales calls.

Speaker 2: 19:36

You answer the phone, they say something that kind of hooks you in the first like 20 seconds and then you realize, oh, this is a sales call, um, but what people do like to talk about is themselves or their job or what they're interested in. So one of the things, um, that I tried to tailor all my communication to, whether it's email or on the phone, is, you know, I tried to get across this isn't a sales call, without saying the words this is not a sales call, um, and showing general interest in their operations, like I want to learn more about what you're doing so that I know if I want to work with you or not. And also conveying that I don't know if I want you to be my customer, but I do want to know more about your business, is also something that is going to make them step back and think, because most of the phone calls are getting 15, 20, 30 a day. Are people like, hey, we've got the cheapest freights with the most?

Speaker 1: 20:39

trucks we can clearly want. We can do all this. Don't know anything about you. Yeah, and it's. It's like self-interested.

Speaker 2: 20:45

Yeah, yeah, it's every sales call you get, like right now I'm getting a bunch of like estate calls, like hey, we've got this silver that we got off this estate sale, and then within like the first 45 seconds I'm like, dude, I can't talk to you right now. You're, you're driving me nuts. It's definitely feeling out that just conveying that right away, that like it's not a sales call. I just want to talk to you about your thing and see if I want to work with you.

Speaker 1: 21:13

My favorite can line. For that is hey, look, I genuinely don't know if we'd be a fit to work together at all, but hey, for this reason, this reason and this reason, I thought it was worth a conversation to chat to see if it might be a fit. But again, like I don't even know if we could work with you, but I thought it was worth a short conversation to see if, hey, this lane I think you guys run works really well for this other customer I run. It seems like the lanes match up If the days of the week seem to match, no-transcript giving you a ring right, just trying to connect with them, telling them very quickly why you think it might be a fit.

Speaker 2: 21:52

But I always take all the pressure out of the room, you can understand a little bit more of whether that is a fit and then see where it goes from there.

Speaker 1: 22:09

Yep, A hundred percent agree. Great man. Any final thoughts?

Speaker 2: 22:12

No, yeah, keep leaving us questions comments. Let us know what you're working on, what areas you're seeing problems in, and ask us the questions so we can keep answering them every week.

Speaker 1: 22:24

Sweet and remember whether you believe you can or believe you can't, you're right.