As a freight broker, you are an intermediary between a shipper and a motor carrier, meaning that freight brokers are essentially middlemen. The shipper is at the top of the transaction, the brokers in the middle, and the carrier is at bottom. This is in terms of how the money moves, not by importance.
Now, how does that help you understand how you'll get paid as a freight broker? Well, first we need to know who's involved before we can explain how and what each party is responsible for. Now that you know the players, we can dig into the money.
Each load or shipment is negotiated by the freight broker and the shipper, and also between the carrier and the freight broker. The first piece we’ll cover is the one that typically happens first: the negotiation with the shipper.
Negotiation with Shipper
What is the goal of a shipper when hiring a freight broker? It's to have a shipment moved during a specified timeframe both safely and securely but, also at the lowest possible cost without giving up those things I just mentioned. So, it's our job as a broker to negotiate the highest rate we can under the circumstances. So for example, if the average rate on a lane is $2,000, a shipper will do what they can to pay at or below that number. It's our job to push that to the highest they're willing to spend so that you can secure a carrier that will fulfill their requirements of time and safety. Just like anything else in life, we get what we pay for. The more money we have to secure a carrier, the more likely we'll be able to find one that is reliable and has properly serviced equipment.
The margin we actually earn as a freight broker is made up of the difference between what we'll be able to charge the shipper and what we'll have to pay the carrier.
Negotiation with Carriers
Now, negotiating with the carrier will determine how much we'll earn on this particular shipment. Carriers have two main priorities: how much they're earning and which direction they're willing to go. These priorities will change based on the day of the week and whether or not the carrier has another follow-on load they committed to after ours. When they begin their week, it typically won't matter where they're headed as long as they are maxing out the money they can charge per mile. As the week progresses and they need to finish their week and get home, where they are headed begins to matter more. This is when their destination is more important than their pay rate.
How Much Does The Broker Make?
The better we are at negotiating those two variables, the more money the freight broker can make. The more trust you build with your customer, the more loads you deliver without issue, and the better you communicate, the less price sensitive your customers will tend to be. This is what increases your top line or gross sales. The better you get at building carrier relationships, negotiating with them, and providing value, the lower you'll be paying for a truck. Furthermore, this leads to bigger gross profits and margin.
That's what it's all about: providing additional value to both your customers and your carriers, and earning a fair margin for doing so. That's it. If you'd like to learn more on this topic and other topics, be sure to check out our YouTube channel and other blogs. We'd love to hear from you on topics you'd like us to cover in upcoming blogs, so fill out a contact form on our website to let us know what you think.