Why Does a Motor Carrier Open a Freight Brokerage?

Why Does a Motor Carrier Open a Freight Brokerage?

Freight 360 By Freight 360

Why does a motor carrier open a freight brokerage? Many carriers establish a brokerage to earn the margins charged by freight brokers and to minimize or eliminate their reliance on them. However, this is not the primary reason shippers choose to work with brokers. This misconception leads many carriers to open brokerages that struggle to turn a profit or barely break even. We’ll discuss all this and more.

This is a common question among trucking company owners, whether they have just a few trucks or are larger companies with established brokerages but still primarily focused on the motor carrier side. They wonder how to establish their own freight brokerage to avoid paying a portion of each load moved in the spot market to brokers. Larger companies with existing brokerage operating authorities often ask how they can increase their brokerage profits.

Merely establishing a freight brokerage authority won’t necessarily yield an extra 10-15% on your assets. This is because trucking companies and freight brokerages provide distinct services to their customers. You might wonder, if a shipper needs a truck, what’s the difference between a trucking company and a freight brokerage, both of which offer a truck that can pick up and deliver a load? Why can brokers charge more than trucking companies? This is a common but incorrect belief that brokers are responsible for low carrier rates in today’s market. From a motor carrier’s perspective, it seems straightforward: if they’re receiving loads from a broker who makes a profit on their service, why can’t they eliminate the middleman and keep a larger share of the money?

Consider the saying, “If it’s fast and cheap, it won’t be good; if it’s cheap and good, it won’t be fast; and if it’s fast and good, it won’t be cheap.” This implies you can only have two of these qualities at any given time. Applying these criteria to a shipper’s choice of transportation provider, we have “good” referring to the quality of service, such as timely pickup, appropriate equipment, insurance coverage, professional drivers, and on-time delivery. Most motor carriers can achieve this, although delays like traffic or issues at a previous delivery can occur. The second criterion is price; working directly with a motor carrier is generally cheaper than using a freight broker. However, speed – the rapid pickup of loads – is not typically achievable by a motor carrier. A carrier might manage any load tendered to them, provided they have sufficient time to position a truck at the required location on the necessary day.

For a motor carrier, the objective is to keep all assets, whether it’s one or a thousand trucks, loaded and rolling as much as legally and physically possible. The size of the company doesn’t change this goal. Unloaded trucks mean lost opportunities and ongoing expenses, such as truck and insurance payments, regardless of the number of loads run each month. If a customer needs a load picked up next week or later, a carrier can often rearrange schedules to accommodate. However, if a shipper needs a load picked up urgently due to a last-minute change, like a construction site needing a replacement window the next day, it’s nearly impossible for a motor carrier to reroute a driver on such short notice.

This is where freight brokerages and trucking companies differ significantly. Shippers often face last-minute changes in their truckload orders, with some industries more prone to this than others. In emergencies, shippers need a responsive freight broker who can arrange for a truck, possibly with team drivers, to pick up and deliver items on very short notice.

Each type of company provides distinct value to a shipper. Both may offer pickup and delivery services, but they differ in their pricing and response times to urgent needs. For trucking companies owning or considering starting a freight brokerage, it’s crucial to understand and focus on the unique services each entity offers.

A motor carrier excels when the pickup timeline is longer, offering quality service at fair rates without the added margin of a freight brokerage. However, when rapid pickup is essential, a freight brokerage is more suitable, offering swift and quality service at a higher rate due to the urgency.

When selling freight brokerage services, responsiveness is key. Delays in responding to customer requests can result in losing business to other brokerages. Shippers often find brokered loads stressful, so a prompt response can greatly enhance your reputation.

Trucking companies typically find it easier and quicker to acquire loads and new customers compared to freight brokerages. Shippers generally prefer working directly with motor carriers when feasible, due

to lower risk and established professionalism. However, when discussing brokerage services with the same customers, it’s important to clarify the distinct services each of your companies provides. Explain that your asset-based services offer good service and fair rates, and when time is of the essence, your brokerage can provide rapid and quality service, albeit at a different rate.

It’s essential for you or your sales team to help customers understand these differences. Don’t assume shippers are aware of the distinct services offered by freight brokerages and motor carriers. They may expect all three qualities – good, cheap, and fast – regardless of whether they’re dealing with your freight brokerage or motor carrier authority.

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