The Final Mile #13 How to Add Freight Agents to a Freight Brokerage

Freight 360

October 17, 2023

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

  • Onboarding agents
  • Expanding a business to include brokering
  • Brokering in Canada
  • Annual fees for freight brokers
  • Which state should you register in

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Show Transcript

See full episode transcriptTranscript is autogenerated by AI

All right. Welcome back, everyone, for another edition of The Final Mile, where we answer your questions and we appreciate your continued listenership and sending us your questions. Without you guys, we would not have a show. So we appreciate it. Make sure to continue to share us with your friends in the industry. Leave that review. Check out our entire library on our website for all of our content at four free 36. net.

And make sure to check out the Free Broker Basics course. If you want to learn more about our training. Full course on how to start a brokerage, get customers, grow that carrier network and hire the right employees and please to support this channel. Please support the sponsors listed in the description box. And without further ado, we'll get into it.

Ben, our first question comes from Amir. He says, How do you onboard a 1099 agent, what documents are needed? What are signs to look for, for good or bad agents? And should they use your company name when posting on load boards? So this is a lots a good one. There's a lot to unpack here. I'll I'll, I'll take point on and then I'll let you kind of hop in because you've I mean, you've done everything from W-2 to 1099 and kind of a variety of stuff in between.

So. All right. What documents are needed? I'm going to give you my recommendation is that I don't I don't know the the legal answer here, but you should have an independent contractor agreement. So an agent agreement that outlines the 1099 relationship between broker and agent. What can the agent do? What can broker do? What can they not do?

For example, some some agreements will have an exclusivity clause in there that states, if you're an agent for us, you can't be an agent for a direct competitor of ours as well. Some will tell you that we can provide you with X, Y and Z for software, but we cannot provide you with marketing material, business cards, stuff like that.

Definitely. I recommend getting with both an attorney and a tax pro when it comes to 1099 relationship, because the IRS does draw a pretty firm line with those relationships. If you listen to our episode from last third or last Friday, Beth Carell was on and she called it Was it the arm Arms length? Yeah, arms transaction. Yeah. It's supposed to be an arm's length transaction.

That's pretty common phrase. So signs to look for for good and bad agents. Well, I've been in the agents space for quite a while. And I'll tell you something. I look for a perfect agent, someone who's got experience. They've got a customer base of loyal customers, great communicator. They share the same values and work ethic that you do.

Someone that you could trust. Right. Those are your basic good signs. Bad signs. They don't know what they're talking about when they talk about freight. Right. So it's hard to vet out an agent if you don't see them in person and spend time. But other times, I'll just ask somebody like, well, you know, tell me about your tell me what your book of business.

And they're like, you know, do some stuff with trucks and, you know, and the like. Basically, they can explain what their job is, which tells me they don't really truly have the experience or too limited. Right. I talked to somebody earlier this year that, you know, did a lot of work in customer and carrier sales and then moved over to to a customer facing role.

And he spent five years at like a big I'm assuming it's a top ten company. I won't name them, but then we're talking them and he's like, Yeah, you know, I was just you know, I was assigned those accounts. I've never actually had to go out and prospect my own. And I'm like, boy. So, okay, like if you have a book to bring over, that's great.

And then we talk about we come to realize that, well, you really can't bring those accounts with them because of a non solicited agreement. So he's really relying on prospecting new business, but he's never actually done it before. Not a good fit. Right. I run backgrounds on people. You want to look for. Typically, like the white collar crimes.

There's an ongoing joke in our industry that the best brokers have a DWI. So I usually I usually not judge someone's background check if they have a a DWI. I've seen some crazy stuff on backgrounds, though. I had a a guy that had a murderer, had people that had like like basically money laundering rings going on. I had a guy that was charged with child pornography.

Like, like just basically if there's something on this report that you wouldn't want them around, your family probably don't want them to be part of your work family. So to your earlier point, I would say I worked in two offices where the top three brokers all had DWI. Yeah. Do different entities? Yeah, absolutely. And under the end of his.

So they use your company name when posting on those boards? I would say absolutely right. You want it to be very clear that this person is a a member of your organization is when if someone's an agent or a W2, when they're representing your company to a driver or a trucking company or a customer, it shouldn't make a difference if they're W-2 or 1099, they're representing whatever logistics company you are.

That's what it comes down to. So that's that's my opinion on it is tough. It's really tough to find really solid, good agents that have a compelling reason to come join your team. So it's a slow build if you're going to do the agent model and bring folks on the majority of people that I have talked to and kind of given guidance on when they're thinking about bringing on their first agent, it usually doesn't work because they just have never done it before and they don't know what to look for.

They just think, shiny object, quick, free or not free with quick, easy revenue and profit for my company. And then you find out you're you become a glorified babysitter for grown adults and they're not responsive to you. And they promised X amount of business and it never actually comes over. And now you've got these expenses and yada, yada, yada.

But it's a good question. Yeah, I need to see your background check. Make sure they have make sure that all the jet basically the thing that I would add is like, what are you really interviews for? And what I mean by that is think about what are the risks to your business of bringing on an agent because those are the things you're trying to prevent with the conversation to understand.

00:06:55:07 - 00:07:17:05
Right. And the risks are to what you just pointed out need is they're going to be operating under your business. So they are representing your organization to the market. Right. So the risk there is that they don't operate ethically, that they commit fraud, that they do things that literally create wire fraud and instances where they're creating worlds that don't exist.

They're creating fraudulent videos, they're getting invoices for things that didn't happen. Right. Those are egregious examples that can happen under an agent model, Right. I've seen just about all that have. Exactly. And I was going to say, but the primary risk, again, if you get the ethics and the legal side out of it, which you point out, background check will help with some of them and your questions about their character are going to help to some degree.

But the number one reason why people don't succeed in the agent model is they are now their own business. And yeah, that sounds great, but nobody ever thinks through the other side of that is are you going to do what you said you were going to do? And there's nobody looking over your shoulder or making sure you don't have a boss anymore and you have no boss.

And that sounds great in principle, but in practice that means, Hey, how are you at managing your own time? How are you at managing your own tasks and your own effort level? Can you be regimented to do this consistently? Because the number one reason I think they don't succeed is two things. They don't make enough calls. They don't say the right things or follow up enough in those calls.

Those are the two fundamental reasons why I think most people don't succeed building their own freight brokerage or as an agent, because they're pretty similar. Right. And as an agent, you've got less things to do if you're building your own brokerage. You've got a lot more on your plate than that. And if you can't hold yourself accountable to making the same calls consistently every day, emails, outreach, follow ups over a long period of time, that's where you're going to fail.

And to your point, you really want to ask questions that are open ended. Closed ended questions can be answered with a yes or no. Can you prospect new business? Yes. Okay. Chuck, I didn't tell you anything. Right. Hey, can you bring in new customers? Yes, I can do that. Okay, great. Now ask it in a way like you did.

That makes them explain, right? Think essay question in college or in high school. Right. Hey, how have you acquired some customers in the past? Tell me how you have done this. Can you give me an example of where you have prospect it in any industry, whether it's freight or anything else for a long period of time and how that went for you?

Can you give me an example of where you have made this volume of outreach? Right, because it takes a different skill set, I would say, for lack of a better definition for somebody that can do this day in and day out because you're getting rejected over and over and over and over again. Right. And somebody that has never done this has a very high failure rate because 95 I was teaching fellows numbers were out because velocity last week, like 95% of their people that they hire don't even make it into sales.

Right. So again, a company that hires thousands of people and has been around 20 years that paid people just to interview for this position get it right less than 5% of the time. Yep. So if you're going to try this your first time expect, you're probably not going to do better than a company that has been doing it for 20 years can do it because it's very hard to interview for this.

If to your point, they aren't coming with this already. Right. I've got a book I don't want to work here anymore. There's these issues. I would like a better home to be able to bring my customers to pretty clear cut example. Yep. The other example I've been an account rep doesn't tell me whether or not you actually can find a lead and can you hunt it and can you bring it and drag it back into the company?

Different jobs. Agreed. I like to ask people like to tell me the story of how they got into the business and then also what they did. What made them decide to consider a different company. Right. You can kind of they're not yes or no questions. They're like, Hey, explain to me X, Y, and Z, and don't feel don't feel like you have to just take it on face value.

Ask them why. Ask them to tell you more. Ask them if it doesn't pass the sniff test or if it smells like BS, ask another question. Right? Don't just take what somebody's saying that you just met for face value, right? Our next question comes from Benjamin. Good name. My brother and I own a pallet business. We're considering adding freight brokering at some point, interested in exploring options, whether getting our own authority, working as an agent first to learn the industry or using our S Corp as a front business connected to a brokering company and giving them a percentage for use of their back office and support.

Is that something that's possible? I'm not sure I even understand what that third option was. I would say keep it simple, but you have to learn the industry somehow. So I would say either get your own authority or the agent model are both viable options. I wouldn't try to do some sneaky backdoor ask corp connected thing that they said, but so whether it's a pallet business or anything else, I'll give you examples of what I've seen work.

Okay. Trucking company right. Small trucking company wants to open up brokerage. They have two routes, the same as Benjamin does here. They can go get their own authority and start a brokerage that way, and they're going to do everything and retain all the profits and pay all the bills. Or they can do the agency route and establish an agency with a established freight brokerage.

And now they can do both for under their roof. It's a preference thing. It doesn't really make a difference how you do it. Do you want to be the accountant or do you want to take less profit and basically have the if you're an agent, have the brokerage company, do the accounting stuff for you. Also, I mean, on the agent talk in general, if you're going to be an agent for a company, what do you have the ability to decide for yourself versus what is the company telling you?

Hey, you can only use carriers that meet X, Y, and Z criteria, or we only give credit to customers who have X credit rating through a credit website. You'll have more autonomy if you get your own authority, but you also have really nobody to lean on who's got experience and expertise like you are as an agent. You might want to just go shadow a brokerage or get some kind of training, take the freight broker basis course, right.

We'll try to do all that stuff. But yeah, I mean, what's your take on it? I don't know what what it means to be a pallet business. They build pallets and ship them, but what are your thoughts? Yeah, I mean, that's the piece. I mean, and I'm assuming that's what the power business is. I think again, to go and the agent model, if you don't know the industry, like you pointed it out right, the agent model isn't meant to really educate you.

It's meant to provide back office support for somebody that knows how to do the business. Right. Yeah. You've got to know how to find carriers, know how to find shippers, how to do the job of being a broker. I don't think an agent model is going to solve that. So, I mean, I think, you know, I'm sure a company is not restricted to not being able cause I've seen companies that will like don't take newbies and train them and then place them as an agent.

Yeah, and I think we have high turnover there. But it's not that you're limited to that, it's just not as common. Yeah. Yeah. Or to be honest, I mean, the people I've seen succeed doing this, I mean, they're clients of ours actually. And I mean, I didn't intend to do a plug for us, but like, I've had clients that have come through our course to learn it and at least understand it and then work with us to do this as they work their other business until they learn it.

And then one of them goes full speed at it and the other one stays with the other business. So I mean, we could do that with somebody like this between our course and coaching or I think even if it isn't our system, if you went with somebody else that could help mentor you through it, because there's a lot of risk to doing this, especially if you are going to attach it to an existing business, whether they're in the same entity or not.

Right? Like the prevalence of fraud, understanding how to avoid this. I mean, there are real risks in our business that really weren't around three or four years ago that I would not do this without someone's guidance because you might think you're moving in a direction that sounds great and all of a sudden you got a claim you don't have the right insurance and you might end up in a worse position than you started with.

And to me, that's a bigger risk than taking your time to doing it with somebody that can help you do this the right way. Like Tammy, I've always in every business I've ever started, like I've gone through and spent more time understanding it before I've jumped in and not everybody has to do it that way. That's just my personal preference because I think there's just a lot to lose now.

And you know, five or six years ago, I don't think it was necessarily the case, but you could get a lot of issues with double brokering and fraud by not understanding how to vet carriers, what you're doing, not having the right coverage for things. And we're just seeing it more and more this year than we saw it last year.

And I just don't think it's going away any time soon. And to me, that risk, you only mitigate it through experience. You're working with somebody that has enough experience to help you with it. So if you are going to start your own authority, I would find somebody that can help guide you through it for sure. Next question from Satinder.

I live in Canada. Can I use a broker license to move freight within the U.S. or am I restricted to moving freight only within Canada, Canada to U.S. and U.S. to Canada? So basically they're saying, can I move domestic U.S. freight or does it have to involve Canada at some point? So here's what we don't know is what kind of license they have.

So here's something that I didn't I didn't know until recently. The Canadian freight brokers are so freight brokerage in Canada is completely unregulated, except for in Ontario and Quebec. And those two provinces specifically issue licenses for Canadian brokerage authorities from their province. So, like if I live in Toronto, Ontario, and I want to be a Canadian freight broker, I have to go to the province of Ontario's Transportation Department that issues licenses for brokering and get through them.

Same with Quebec. If you live anywhere else in Canada and you're moving Canadian freight within Canada on Canadian trucks totally unregulated, do whatever you want. It's like the Wild West. So which is key to Ontario and what's the other one? Quebec. Okay. Yep. Yeah. I mean, that's wild. So like Montreal and Ottawa, Quebec City, those are all. I thought there was something related to their drainage industry or something where it was like very regulated, like even to the rates in some portions of Canada.

But I am absolutely not in Canada's Wild West. It's insane. So anyway, if you live in the you can get a U.S. brokerage license whether you live in Canada or not. And you can be a freight broker that moves stuff in the U.S.. Absolutely. Yes. I've worked with people in the past that lived outside of Toronto and their company became a freight brokerage.

Right. And you could do it as an agent. We've been talking about agents where you can just contract with a U.S. based brokerage or you just start a a U.S. based LLC and apply for your authority. So, yeah, absolutely. Do they need somebody in the U.S.? I'm sorry. Like what? They also need somebody in the United States to get the license since they're in Canada, is that there's a ton of companies that you can use that will set up a U.S. based LLC for you with a U.S. bank, a P.O. Box.

Think about the amount of companies that are or, you know, industries that have people living in foreign countries that are they do work with with American you know, in the United States. There's a different tax form. Instead of a W-9, you have a W8 bean, which is American owned dollars that are non like foreign for a non-American, basically.

So if you're an agent you would fill out aw8 instead of a W-9, but your company can register as a foreign entity or you can you can create a U.S. based company and and broker in the U.S.. Next question. This measurement 127 asks What annual fees do brokers have to pay? Well, once you get your authority, that application fee is one time.

There is the the UCR of the unified carry registration, which is for all brokers and carriers to pay annually. As of 2023, it's only 41 bucks a year for brokers. Trucking companies pay it based off their fleet size. So you're going to have the UCR year, you're going to have your if you have a bond instead of a freight broker trust, you're going to pay your your annual bond premium, which will range it might be 5000 bucks, three grand depends on your credit and what your history is with the bond company.

That would be I'm thinking like bare bones minimum. I think that's your only offer. If you use a process agent company, they might have an ongoing annual fee. And then there's like the non required things like subscriptions for A and your load boards and your email and your phone, your internet and all of that stuff. But bare bone minimum, there really is not a hefty cost outside of your your bond.

So yeah man the Ukraine and that one blows my mind. We did a video on it earlier this year I think just go to our website and search UCR in the in the search bar you'll find a blog video all on that and it breaks it down It's it's essentially I got it pulled up here. Let me read it off how this is how I described it in simple terms.

The U.S. is a revenue generating program for the 41 states that participate as of 2023, comma, sort of like a tax on brokers and carriers. It's they just create like this whole registration thing and said, hey, you got to pay every year to do this. And yes, the money is essentially used to help fund state enforcement of safety regulations.

So just a tax. But yeah, good question. Our last question comes from Lucid guy 1930 who asks, does it matter what state I get my authority in? I mean, outside of quick answers? No, but the complicated answer could be there's different tax laws in different states. Right. So if you if you create a company in a tax friendly state, it can be more beneficial, right?

I mean, you probably know more about tax friendly states in Idaho and how that works. Maybe. Maybe. Yeah. But I don't even know that you need your authority in the same state your company is based, to be honest. Well, first of all, let's make it clear the authority is not granted by the state. It's granted by the federal government.

But if I'm putting my address in, it's really doesn't matter if it says you're in New York or Illinois correctly, depending on the tax, like if you create a company or a business entity in a certain state, there are matters that are different. Delaware is the famous one. Delaware is the famous one because they have the most lenient laws related to like corporate tax.

So like most major companies are incorporated in the state of Delaware for that reason. But from a practical standpoint, most people just pick the state they live in. But if you want to go deeper, talk to your accountant or talk to an attorney. I mean, the two obvious ones are state taxes in Florida don't exist on the income side or in Texas are the two big ones, and most businesses will move to either state for that reason, because your authority again is granted by the federal government, which is all of the states.

It doesn't care what state you're in, what state you form, your legal entity that owns it is the one that matters from a tax standpoint. And again, speak to your accountant. But those are the three big ones and fair enough. And I actually I just did a little research on the U.S. citizen thing, and I'm getting conflicting information now.

So I can guarantee you that you can. This back to our earlier question. I can guarantee you that you can contract with a brokerage as a as a agency, as a foreigner. But now I'm looking and it says because I wanted to double check myself on it. It says, well, that says getting a U.S. citizenship or obtaining a green card will tremendously lower your bond cost.

And then it says you need only to be a valid U.S. resident. I don't know that to our question. I don't I don't know. Do you know? I'm trying to think, do you have any knowledge of anyone that's not a U.S. citizen that is set up a freight brokerage? I know everyone I know. That's why I asked you, because everyone I know has somebody in the United States.

That's what it is I've had. Well, so you can be an agent for sure and not an agent, but I have seen people that will you. They'll registered under like a family member that's in the States. So, yes, we got in the silent business partners that are in the United States that are registered through that, and then they still operate offshore.

With everything that you already discussed. I don't know of any just anecdotally like that I've run into that are don't have the person in the U.S. that's at least formed the entity. Gotcha. Well, I'm going to have to let's see if I'm going to we're going to have to do some research and you get a better answer. But it says, U.S. citizenship is not a requirement.

This is according to a Bond website. Well, I guess I'd have to go through the registration portal, which I have not done in a very long time, and see if there's a a requirement on there. But who knows? Anyway, the fun the fun out there is that the Well, he said he lived in Canada. We don't know if he's a Canadian citizen, U.S. citizens or who knows.

But more to follow on that question, go away. Good questions. Keep sending them in. And again, please support the sponsors to help out this channel. And then you got any final thoughts whether you believe you can or believe you can't. Right. And until next time, go Bill's.

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