What is a freight broker? This might seem like a straightforward question, but you'd be surprised at how many people aren't aware of exactly what a freight broker is and does. In this blog, we will help you better understand the role of a freight broker in the movement of cargo.
In the simplest terms, a freight broker is the middleman between companies that ship goods and the trucking companies that haul them. They “broker” the transaction, which is why they are legally called “freight brokers.” To better understand the role of a freight broker, first we need to identify the key players in a standard brokered load.
Defining a Broker
We can easily explain the role of a freight broker by relating it to some other common types of brokers. In real estate and insurance sales, the use of brokers is pretty common. In real estate, the buyer and seller of a property typically use a real estate broker or agent to facilitate the transaction. The broker or agent connects the two parties, just like a freight broker does with shippers and motor carriers. The same concept can apply with insurance brokers; the insurance broker or agent connects the individual that needs insurance with multiple insurance providers (carriers) that can underwrite the policy. In the freight industry, the broker earns their profit by charging their shipping customer a higher rate than they pay the motor carrier. This profit pays the broker for their work in facilitating the transaction. Next, let's clarify and define the players in the industry.
First at the top of the transaction is the shipper. They are often referred to by brokers as their “customer.” The shipper is a company or individual that has a product that needs to be transported. The shipper can be the origin of the freight (consignor), the destination of the freight (receiver or consignee), or even a third-party that controls the shipping process. Think of a steel or lumber company as an example of a shipper. They have steel or wood that needs to be transported, but they don’t have any of their own trucks to actually move the product. They also don’t usually have a large network of trucking companies in their back pocket that can easily be hired on demand, which is where the broker comes into play.
The freight broker is the intermediary between the customer and the motor carrier. They are licensed by the Federal Motor Carrier Safety Administration (FMCSA) as a Broker of Property. This legal authority from the FMCSA is what allows them to legally broker the transaction between a shipper and the trucking company. The broker doesn’t own any physical trucks, but instead they source trucks from the open market for the shipper. The shipper hires the broker, and the broker finds and hires a trucking company to actually move the shipment. Brokers use a variety of tools such as load boards to help them locate the available trucks in the market.
Finally, we have the motor carrier. Usually simplified as just the “carrier”, a motor carrier is a truck driver or trucking company that transports the freight on their equipment, typically a truck. They can range in size from one truck to thousands of trucks with many employees. Like brokers, they also have a legal authority from the FMCSA. They are licensed as a Motor Carrier of Property. This authority allows them to legally transport the goods.
Another industry player worth mentioning are freight forwarders. Like a freight broker, a freight forwarder connects their shipping customers with carriers, but goes a step further. Forwarders take on a more specialized role which can include storage of their customers' freight and arranging international shipments. Freight forwarders can sometimes be customers of freight brokers, and freight brokers can sometimes be customers of freight forwarders.
Knowing who you are in the industry and understanding how the different parties and industry players function is absolutely essential to your success as a freight broker.