What is it Like to Be a Freight Agent?

What is it Like to Be a Freight Agent?

Freight 360 By Freight 360

If you’ve ever worked as a freight broker or even considered getting into the industry, you may have heard the term “freight agent”.  There’s a bunch of ways to work in the freight broker industry, and being a freight agent, or 1099 agent, is just one of them.  In my opinion, It’s one of the best options.  Stay tuned and I’ll explain why.

What is a Freight Agent?

Unlike a traditional freight broker that has their own authority, bond, and insurance, a freight agent is an independent contractor that operates under the authority of a licensed broker.  They’re not an employee of the brokerage, and they don’t need to have any special license or certification.  They fall somewhere in the middle of these two ends of the spectrum.  They kind of run their own business, but also kind of work for the broker.  Let me explain.

Freight agents operate as 1099 contractors for a licensed freight broker.  This means they set their own hours, control their own workload, and manage themselves.  The trade off?  They don’t keep 100% of the profits they produce like a traditional freight broker does.  Instead, they usually work off of a commission-split where they keep a percentage of their profits, while the broker they work under keeps the rest.  This split tends to range anywhere from 50-70% depending on the situation which means they’re potentially giving up 30-50% of their profits to the broker they operate under. 

Being an independent contractor has some pretty strict limitations thanks to federal law and the IRS.  Contractors pay their own taxes instead of having withholdings out of each check, they don’t get a salary, and they aren’t provided with a phone, computer, or many other necessary tech items.  They legally can’t be furnished with these items since they’re not actually employed by the broker.  Instead, it’s on them to setup office space, purchase office equipment and supplies, and pay tax estimates throughout the year.

Benefits of being a Freight Agent

So what are the benefits to being an agent instead of starting your own brokerage?  There’s actually quite a few.  One of the biggest advantages is that agents don’t have to deal with the finances of the company.  Sure, they have to manage their earnings and even payroll if they hire anyone to work under them, but they don’t have to deal with the big picture finances of the brokerage.  Since freight brokers essentially act as a bank, there’s a lot of money coming in from shippers and money going out to motor carriers.  This creates the need for healthy cash flow, cash reserves, and business credit. 

Agents don’t have to worry about any of that.  They simply work with their customers to find trucking capacity to move their freight.  No billing, collections, or truck payments to deal with.  They just get a commission for getting the job done.

Agents don’t have to deal with most of the back office functions either.  Think about freight claims, credit checks, and reviewing contracts just to name a few.  All of that work stays with the licensed broker, while the agent focuses on sales and operations.  Move freight, make money.  None of the administrative tasks that aren’t directly producing revenue, but are still essential to the company.

Not having to deal with finances and admin tasks means more time to focus on growing the business.  Agents can hire or sub-contract workers to help them with their agency. 

This could be dispatchers, track and trace staff, and even sales reps to focus on building their customer base.  The beauty of being an agent is that you have the autonomy to build your agency in any way that you want, as long as it’s within the limitations of the licensed broker.  An agent that earns 70% commission off of every load they move has a lot of margin to work with to hire help to grow the business. 

Think of it this way: if an agent does $2 million in revenue in a year at a 15% margin, which is pretty common, that’s $300,000 in commission before they’ve even hired anyone to help them grow that revenue even higher.  All of that commission, and they’re not worried about collecting invoices, managing cash flow, or processing freight claims.

Downsides of being a Freight Agent

So what’s the catch?  What are the downsides of being an agent?  Well, depending on a few things, there could be a lot of downsides, or there could be none.  Being an agent is kind of like being on an island.  It’s up to you to manage everything about your agency, which could be great to some people, but a nightmare for others.  Agents don’t have a boss, and they usually don’t get any sort of training or guidance from the licensed broker. 

They’re expected to be proficient in sales and operations before they start their agency.  If you’re new to freight brokering, you probably want to work as an employee for a broker before considering going off on your own as an agent.  Employees usually get extensive training, coaching from their supervisor, and typically get some sort of guaranteed pay either in the form of a salary or commission advance.  That’s not the case for agents.  Agents have to get customers on their own, so if you’ve never sold freight brokerage services, it’s pretty tough to start as an agent with no experience.

The other potential downside comes in the form of decision making.  Although agents have a lot of autonomy to make sales and hiring decisions on their own, there are some things they don’t always get to decide.  Consider customer and carrier approval.  It’s up to the licensed broker to decide how much credit they want to extend to a customer, if any at all.  If a shipper has bad or no history on their credit report, the broker can deny that customer regardless of the agent’s opinion. 

Further, some customers have lengthy contracts that can put a lot of unnecessary risk on the broker, and the broker can simply refuse to sign the contract.  As an agent, you don’t get to make those decisions and sign those contracts since you’re not the licensed broker. 

The same goes for carrier approval.  By law, the freight broker contracts with a motor carrier to haul freight.  It’s not the agent that engages in that contract, so the broker can choose to deny certain carriers based on their safety scores, how long they’ve been in business, or negative reviews against the carrier.  Everyone has a different level of risk tolerance, so partnering with a broker that shares your values and risk tolerance is in your best interest if you decide to go the agent route.

Lastly there’s the earning potential.  Since agents get a commission split from the licensed freight broker, they give up a chunk of their profits.  Sure, they give up a chunk of the admin work and financial responsibility too, but those numbers can really add up when you add some zeroes on the end of someone’s revenue. 

If an agent does $20 million in annual revenue at 20% margin, that’s $4 million in profit. If the agent only gets 70% of the profit as a commission, that means they’re giving up $1.2 million to the broker as part of their commission agreement.  For some, this seems like a lot to miss out on, but for others, it’s well worth it when you consider the amount of risk and financial responsibility the broker takes on.  I’ve seen licensed brokers shut down their authority and contract as an agent for another broker simply because they want to earn money without the headaches and risk that a licensed freight broker takes on.

Freight Agent – Summary

So that’s what it’s like to be a freight agent.  A lot of freedom, a lot of earning potential, and not a whole lot of risk or added administrative tasks.  If you’re experienced in freight brokerage and want the freedom to grow your own business, being a freight agent might be the right option for you.

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