How much will it cost you to start as a freight broker? While the minimum cost is fairly low in comparison to other ventures, there‘s a lot of recommended tools and additional expenses that you’ll run into when getting your freight brokerage off the ground.
Let’s dive into barebone minimum requirements that you need to have in order to be licensed as a freight broker. There’s really only a couple items here, and those are getting your authority from the Federal Motor Carrier Safety Administration also known as the FMCSA, and acquiring your freight broker bond or trust with a face value of $75,000.
Every freight broker or freight brokerage company needs to be licensed by the FMCSA with a Broker of Property license. This license allows you to legally broker transactions between shippers and motor carriers with a few exceptions such as household goods. When you apply for your authority, you will use the Unified Registration System and pay a $300 application fee.
Freight Broker Bond or Trust
Freight brokers are required to obtain a surety bond for at least $75,000 which is maintained to ensure your motor carriers get paid if you fail to pay them for any reason. For example, if you go out of business, but you still owe money to some trucking companies, your bond would pay them out. A $75,000 bond won’t actually cost you $75,000. Since it’s technically an insurance product, you’ll pay an insurance company an annual premium at a much lower rate in return for them granting you a bond. The insurance or bond company will analyze how likely you are to pay carriers by looking at data such as your credit history and credit worthiness. The better these are, the cheaper they will sell you a bond for. A typical bond for new brokers will range between $1,500 and $3,000. There is an alternate option to getting a bond, and that is to set up a broker trust fund in the amount of $75,000 that would serve the same purpose as the bond. The difference here is that you have to fund the trust with your own money, rather than paying the bond company to guarantee it for you.
Other Costs to Start
As a freight broker, there are some other costs that you may or may not pay depending on the situation. For example, you’ll need to designate a process agent for legal purposes in all 50 states. You could technically do this yourself, but most brokers hire a process agent company to accomplish this for them. Additionally, depending on the state you’re in, you might need to register with the Unified Carrier Registration system which costs $59 per year as of 2021.
Now that we’ve outlined the costs to start your freight broker company, what about the costs to actually operate your company? Let’s look at some of the basic costs that most brokers will incur. Keep in mind, this list doesn’t cover every cost that every broker will have, but rather it’s a generalized list that applies to the majority of us.
In addition to your bond, you might need to obtain insurance based on your customers’ requirements such as a general liability policy or contingent cargo coverage. The policies range depending on your coverage, limitations, and claim history. A policy can range from a couple thousand to over $100,000 per year in premiums depending on the size of your company and your coverage.
In order to have access to the market of motor carriers, you’ll want to have a subscription to at least one loadboard. These online platforms are a meeting place for brokers and carriers to share their available loads and trucks. You can expect to pay about $300 per month to have access to the industry’s common loadboards. Thanks to our partnership with DAT, you can get a free month of any of their loadboards by using the links below.
A transportation management system, or TMS, is the software that you’ll use to manage your day-to-day business. A good TMS allows you to enter load information, dispatch drivers, and manage the invoicing process. Without a TMS, freight brokers would have to manually track everything that they are doing. Don’t cheap out and skip this one! You can get a really good TMS as a new broker for under $70 a month. Check out AscendTMS if you’re looking for something to get started with. You can even get a free month of their software which is packed full of features if you use the promo code below.
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It’s hard to put a number on how much it costs to cashflow your freight broker business, because it all depends on how much business you are doing, and how much of a gap you have between when you pay a carrier and when you get paid from your customer. The larger the gap and the higher your revenue is, the more money you’ll need to have on hand to float this gap. Alternatively, you can use a factoring company to manage your cash flow. They will charge you a percentage of your revenue in exchange for invoicing your customers and paying your carriers. This alleviates your need to have a chunk of cash on hand, but it comes at a price. Expect to pay upwards of 5% of your revenue to a factoring company if you are a new broker.
As you can see, it can be fairly inexpensive to start a freight broker company, which is why we’ve seen the industry flooded with new entrepreneurs all looking to help solve America’s supply chain troubles. Just remember, if you don’t have the right tools to do your job as a freight broker, you won’t succeed, and those tools come with a price tag.