What It Really Costs To Run A Small Freight Brokerage | Final Mile 125

Welcome back for another final mile segment here. We've got all of your standard listener questions. These come from a mix of our website, our YouTube comments, Facebook group, all the good places online. So make sure if you guys have a question, send it our way. And we try to pick the best ones that uh we can share on the show each week. Uh if you're brand new, check out all the other content at freight360.net or subscribe to the YouTube channel, check out Freight Broker Basics course, share us all the good things. All right, Ben, let's get right into it. Our first question today. We haven't done this one in a while. Um, I'm really considering being a freight broker. How much on average does it cost a month? So we've talked about the cost to get started, um, but the monthlies, there's a lot of variability, a lot of variance, I would say, in that. So, like obviously, your your initial startup, um, very low barrier to entry, right? There's a$300 application fee, um bond or trust. Usually the bond is gonna depend on your credit. Um, you've got uh you know load boards, things like that. Um, but it's fairly cheap. And then when you look at your monthlies, now we're looking at typically what kind of software am I gonna be paying for, right? Um, and thankfully, and luckily, um, we've got a lot of um partnerships with some good uh software companies. So, for example, um you're gonna need a load board, which will help you get access to the market and and trucking capacity. So DAT is a great one. Check out the link in our description or show notes, and you can get 10% off your first year. They got a lot of good plans there. And then a TMS, right? A good TMS that that's your transportation management system, that's your operational software. And ideally, you're gonna want to have one that you can use easily. It's gonna be user-friendly for someone that's new to brokerage and uh cost effective. So um we've recommended a send TMS as one of the top TMS platforms for newer brokers for many, many years now. There's a link again in the show notes description for that. You can get a free free month. Just make sure you you gotta use that. Um there's a special code. If you don't put the code in, you don't get the deal. Um, so make sure you check that out. Um, but really beyond that, and then you're looking at, you know, so let's give some estimated costs, right? Load, I would say with load boards, a TMS, um, you're a couple hundred bucks in between those two, depending on what you're going with. And then you're looking at some ancillary tools, maybe some prospecting, uh CRM. Sometimes those two are combined. Um yeah, and then vetting tool. I think um actually I think Ascend has highway available now.

Yeah. Yeah, and it's integrated with DAT. So you can go with Ascend and just push a button to get a like entry-level vetting tool connected to Ascend through Highway, and it's got integrations with DAT and Convoy apps. So you can get most of everything you need just with that choice. And then you don't need insurance, right? Like the government or you know, the FMCSA or DOT doesn't require a freight broker to have insurance, but your customers likely will. So like when you talk about average cost to run, I'm gonna assume you have a customer or two and you're running the business, not starting it, you're probably looking at I don't know, five hundred bucks a month insurance for like a new brokerage that's not doing a ton of business, maybe a little less, maybe a little more.

I'd be willing to bet all in you're probably a thousand bucks a month or less between software insurance. I mean, your insurance is probably cheaper than$500 a month. Because if you're just if you just need to get a general liability policy or maybe a contingent cargo, they pretty much never pay out for anything. So you might be looking at a premium that's that's maybe like you know, 200 a month or less. Again, it depends on what your customers' requirements are and what your your risk profile is to an insurance um agent or insurance underwriting carrier. Um but yeah, it it just depends. And as you grow, that's when you might decide, hey, I want to upgrade to the next level of the TMS, or I want to upgrade to the next package of the load board, or I want to get a second load board, um, or I want to add extra insurance policies, or I want to get this new vetting tool that's out there. I mean, there's a there's all kinds of stuff you could spend money on. Um, but you can really bootstrap at fairly low cost um right out the gate. Because you got to think, even like you can factor your loads um where you're not having to cash flow every single invoice. Um, there's like a cost that comes to that off off of the actual invoice, but take, you know, just search factoring on our website if you're curious to learn more about that or on our YouTube channel. Um, but I would say all in, you're you're probably able to do it for under a thousand bucks a month. And what's funny is like I, you know, I've I run a division for a mid-sized brokerage that does, you know, we're in the 50 to 100 million dollar a year range. And I look at like a an income statement every month, and I'm like, yeah, there's a lot more expenses that go into it. When you look at all the users and the IT costs and the insurance costs and um all the software, and it's like, yeah, when you scale it, um those expenses are going to snowball, and you know, hopefully the headcount is going to more than um give you a multiple of that. So but good question. Good question. And if you just go to our website too and in the search and just hit like cost to start a brokerage or just cost, um, you'll find we've got a blog. It's it's a handful of years old, so there might be some outdated numbers on there as far as like the URS cost for that year, but you know, the$300 application fee hasn't changed since I got into this industry. So um cool. Next question Um What would you recommend for a small brokerage to somewhat do what Gen Logs does when we can't afford it? This is actually a great segue question. So, you know, obviously, uh if you're newer and you're trying to figure out what's the best way to protect myself and make sure I've got the right identity of a carrier. Um I well, first of all, I would I would talk to Gen Logs because I don't know how they price. I think they probably do they price based off of like load count or what do you know how they do it or revenue?

Yeah, it's not it well, at the very least, I would say it's more customized to each brokerage or client as opposed to like a set number for any size company. Because obviously, like like you said, larger companies, different usage, different users. So I would for sure reach out because you may be able to get a free trial, and you could definitely talk with some of the sales reps over there to see what options are available. Like for sure I would do that.

And then um, I mean, outside of just for general um making sure you've got the right truck. I mean, you can you can make it.

Garrett's got a free one. Garrett, if you've I don't know if you look at search carries, Garrett search carriers, which you can get free. There's some paid options on it now, but it's it's really pretty effective and very useful for like the price point, and he's constantly iterating, which I think is a really good low-cost alternative when you're starting out.

Yeah, and then it was funny. We were we were talking from Tim with Highway about this last month. Is that like one of the one of the problems that Highway had is that they they're priced way above a lot of the new smaller brokers. Um, and that's why he was able to work out a deal where they can get the full kit and caboodle if they're an ascend user for a very, very low price compared to um what I can guarantee you my company is paying, which is a lot more. So um, but yeah, there's there's options out there at the end of the day. You want to make sure that the truck that you're hiring um is qualified, right? They've got the right insurance, they've got the authority, they're a quality truck that's you know has good safety records and all of that. And then you want to also make sure that they're actually gonna be the one that's going to show up at the right place at the right time with the right equipment and do the job for you. Quick screen. There's a lot of different ways to do that.

Yeah, Quickscope is a really cost-effective way to secure the right truck at pickup, and you pay per load, I think, still, which is a great alternative when you're starting out. Especially if you're moving a lot of like building materials where there's not high theft in some of it, but occasionally you get a higher value load and you really want to secure it. Quickscope's a really good alternative.

Yep. Good stuff. All right, next question. This is a good one. How do lease drivers, owner operators, and insurance actually work? So that's a great question. I'll I'll tell you the truth of how they actually work and how they're supposed to work, and then I'll also tell you what actually happens. All right. So here's what the question's really asking is like, I'll set the stage here. If I'm, let's say Ben has a trucking company.

My trucking company, you're a leased on driver.

And let's say I'm an owner operator, right? So I have my own authority for just me and my one truck. Ben has a authority as well for his truck and company. And let's say I've got a customer that I haul for regularly, and they get me from Buffalo down to South Florida every week. And um, I don't have any load to get me back to Buffalo as a backhaul, but Ben does. Ben has a customer that does for his truck and company. So he says, hey, you can lease on to my company, operate under my authority and my name, and we've got loads that will get you back to Buffalo. So when you're operating as um, you know, when you're operating as you, all good. When you're operating under my company, you need to, you know, represent yourself as such. And how it should work is um I should have my own insurance for my trucking company that you know that insures my equipment and and my company, and I should have my name and MC number on the side of the truck when I'm hauling a load for my company. When I'm operating for Ben, I should have his company's name and MC number on the side of my truck, and I should be on his insurance. Um there's a caveat to that. And what I could do is I could add Ben as additional insured to my insurance policy. Now let's think realistically here what happens. When we've got when we're asking two different companies to either insure the same truck or for one company to insure their truck and then add an additional insured other company to their policy, cost goes up, right? So what do people do? They say they're leased on, but the reality is they they just roll uninsured, is basically what it comes down to.

So here's the other important piece is if you are hauling from Florida back to Buffalo for me, you're gonna put my name and MC on the side of your truck. And we also have literally a legal lease agreement that says because here's the other thing. If I'm gonna insure your truck when you operate for me, there's a special section under my insurance that covers leased on drivers. Okay. I think it's a non-owned auto. I can't remember exactly what it is. I have to pull one up to look at it.

Your insurance agent will know all of this, though. I know how correct.

So I have to pay for when Nate hauls a load for me. So like there's a special area on my insurance, but I need that lease agreement because if we don't actually have a lease agreement in place, even though I pay for insurance, and even though you have my company's name on the side of your truck, that insurance policy is not going to pay for any claim when you are hauling for me unless they can see the lease agreement that outlines the terms between you working for me. So the one thing that you taught me years ago is that when you do have a leased on driver, like Pierce always says, Okay, that's fine, send us a lease agreement.

Because just because I mean we'll usually see like if if their VIN number is not listed on the insurance certificate, we're this is when we're like, so this is going back years before things are now, but they used to be like, Oh, yeah, yeah, yeah. Like I'm you know, I'm leased on, and we're like, okay, send me your lease agreement because it sure doesn't appear to be that you're leased on with them. And um yeah, so you'll get some that bluff and some that you know they'll send it to you. And a lot of times their lease agreement is really trash, but uh that's that's the big thing. Because here's the issue you can run into is if let's say this scenario we get laid out before, I'm an owner operator, and let's say I'm um I'm hauling one of your loads as my as a quote leased on driver, and let's say there's a um a crash and the product gets damaged, or there's a you know, we there's an injury or whatever, right? If a uh insurance claim is filed on Ben's insurance and my equipment is not covered by that insurance policy, the claim gets denied. Or if I also haven't the other option is if I haven't listed his company as additional insured for my equipment, and I'm operating under his company, they're gonna deny it. Right now you've got a uh truck that's not gonna get fixed, you've got injury and someone's gotta pay it out, and you've got uh a customer whose freight is damaged and won't get paid a claim on. Um, this is how people go out of business and go bankrupt, is is things like this. So really messy place to be. Um Usually, like the the common practice if you're doing it the right way, is to just have that leased on driver um oper or listed on the insurance and have them insured through the company that they're representing. Because a lot of these leased on drivers, um they're running the they're running through that lease the majority of the time, and they'll just opt to do a load here and there under their own authority for maybe a customer that does one or two a month or something like that. So but you know, make sure that you talk to your insurance company. If if you're hiring a leased on driver, make sure your insurance agent verifies that however the policy is set, that that truck is insured. And if you are the leased on driver, do the same thing. Make sure that you can physically see the certificate of insurance that is insuring your truck, whether it's the company you're leased on to or if it's yours with the additional insured information listed the correct way. So it's a messy one, man. I feel like it took you and I I look a couple years ago, we we went through for like weeks trying to figure out the like the way to actually get it done. Because at first, you know, the first thing that you know got scrutinized was double brokering. And then we're like, all right, well, these people tell me that they weren't double brokering because they're actually leased on. And then we're like, well, are they leased on? Do they have an agreement? Was the truck even insured? Yep. And then we find out that like there's a whole there's a whole bunch of like messy issues and potential bad things out there that for years no one like really scrutinized or thought about. We just thought, like, is the truck gonna get there? Is it gonna deliver? Like the fraud and and all these these cost-cutting corners um weren't as prevalent as they have gotten. So yeah. Anything else on that?

Just that it's it's super important. We need to do another whole episode on like insurance because like one, it's one of those things that it doesn't matter at all until it does, then it's the most important thing you should have done all year. Cause like I've seen brokerages that'll move 500 loads in a year, like, we haven't had any problems, we don't even look at these. And then one claim for$85,000, and they realize, oh, the leased on driver didn't have a lease agreement, like for this example. And oh, who they were leased on didn't even have the insurance for the truck. So, like, there is no insurance, and nobody's gonna pay this. And the customer goes, Okay, well, we're just not gonna pay you the other 80 grand. And I go, Well, that's not in your agreement with us. And they go, Yeah, that's just what we're gonna do. You can sue us or not. And now the brokerage owes all of this money to all the other carriers that ran loads for them. They're not getting the money from the customer. This is what bankrupts brokerages, even like small to medium-sized brokerages that are doing like millions of dollars a year, like this is one of the most important things I think to understand because it's like what's the catastrophic risk, right? It's like, yeah, you lose a couple hundred bucks or a couple thousand dollars, that doesn't bankrupt you. But if you lose an eighty thousand dollar shipment or there's a eighty or hundred thousand dollar claim, and you find out there is no insurance and you didn't verify the value, now all of a sudden, like your entire business and everything you've worked for is in jeopardy, right? Which is a pretty big risk that you want to try to mitigate. They think they call like it's the long tail risks, right? It's the ones that happen very infrequently, but if they do, they just destroy everything. These are one of those things that I think if you're operating a company, you really need to understand.

Yep. 100%. Good stuff, good questions, keep sending them our way. Final thoughts.

You believe you can or believe you can't. You're right.

And until next time, go bills.