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--- Excerpted from a detailed article in
Entrepreneur Magazine - Link at end ---
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If
you have a freight forwarding/brokerage business, this guide can
help you review your operations from the ground-up to check your
performance.
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If
you are thinking about starting a forwarding/brokerage business,
this guide can provide a road map for the broad issues you face,
and give you the basics. You can then go for detailed
information knowing you have a broad overview of the basics.
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NOTE: This guide is written from a truck freight forwarders
perspective, but most of the information is applicable to air and
ocean forwarding as well. |
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Take a look around your home or office. It's
highly unlikely you have much--if anything at all--that didn't reach
you either entirely or partially by truck, by ocean, or by air. The
size and scope of the freight industry is almost overwhelming. The
good news is, there's still plenty of room for you to start and grow
a profitable business serving the industry as a freight broker.
What exactly is a freight broker? Very simply, it's an
individual or a company that brings together a shipper that needs to
transport goods with an authorized motor carrier that wants to
provide the service. |
A freight broker falls into the category of
transportation intermediary, which is a company that is neither a
shipper nor an asset-owning carrier, but plays a role in the
movement of cargo.
"Transportation intermediaries leverage their knowledge, investment
in technology and people resources to help both the shipper and
carrier succeed," says Robert Voltmann, executive director and CEO
of the Transportation Intermediaries Association. |
EXISTING FORWARDERS
Sometimes when we make our business plans for the next year, it can
be good to start with a “clean sheet of paper” and look at our
operations from a very basic standpoint.
This detailed guide to setting up a Forwarding business can serve
as a blueprint for a complete review of your operations. |
|
Brokers provide an important and valuable service to both motor
carriers and shippers. They help carriers fill the trucks and earn a
commission for their efforts. They help shippers find reliable motor
carriers that they (the shippers) might not have otherwise known
about. In fact, some companies use brokers as their traffic
department, allowing the broker to coordinate all their shipping
needs. |
|
THE
PLAYERS |
|
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An industry so huge and
diverse requires a wide range of participants to thrive. Some of
these participants' titles may be a bit confusing, and some of their
responsibilities may overlap. But to keep things as clear and simple
as possible, let's look at who the key players are and what they do:
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Freight broker. A
freight broker is the middleman who connects shippers and
carriers.
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Shipper. A shipper
is an individual or business that has products or goods to
transport.
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Motor carrier. A
motor carrier is a company that provides truck transportation.
There are two types of motor carriers: private (a company that
provides truck transportation of its own cargo) and for hire (a
company that is paid to provide truck transportation of cargo
belonging to others).
-
Freight forwarder.
Often confused with freight brokers, freight forwarders are
significantly different. Forwarders typically take possession of
the goods, consolidate numerous smaller shipments into one large
shipment, then arrange for transport of that larger shipment
using various shipping methods, including land, air and water
carriers.
-
Import-export broker.
These people are facilitators for importers and exporters.
Import-export brokers interface with U.S. Customs, other
government agencies, international carriers, and other companies
and organizations that are involved in international freight
transportation.
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Agricultural truck broker.
Generally small and operating in one area of the country,
unregulated agricultural truck brokers arrange motor carrier
service for exempt agricultural products.
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Shipper's associations.
Shipper's associations are exempt, nonprofit, cooperative
organizations formed by shippers to reduce transportation costs
by pooling shipments. Shipper's associations operate in a manner
very similar to that of freight forwarders, but their service is
limited to their members and is not available to the general
public.
It's quite common for a successful freight broker to expand his or
her business by creating subsidiaries or additional companies that
offer other freight services such as warehousing or consulting. |
| EDUCATION & EXPERIENCE |
|
The brokers we spoke with recommended working in the
industry--either for a shipper, a carrier or both--before starting
your own brokerage. You'll not only gain technical expertise, but
you'll make contacts that are critical to success in this business.
Some brokers may opt to use agents to develop a wider scope of
operations. In this context, agents are independent contractors who
represent a freight broker in a given area. This would enable you to
offer a local presence when you might not have the volume to justify
opening your own office.
After you have some experience, as a step to going on your own,
consider starting out as an agent rather than a broker. Chuck A.'s
company is based in Indianapolis, but he has agents in Florida,
Georgia, Indiana, Texas and West Virginia. Because his agents aren't
brokers and because they're home-based, their start-up materials are
minimal and typically consist of a computer, telephone and fax
machine. An agent's work is very similar to what a broker does, but
the agent functions under the auspices of the broker and the broker
is the one responsible for such issues as paying carriers and
maintaining the required surety bond. |
| YOUR BUSINESS PLAN |
|
Your Business Plan is your
road map to success. If you don’t know where you’re going, your
chances of reaching your goals are not very good.
Allcovered has offered many tips and ideas on how to create a
successful Business Plan in past issues of our weekly newsletter
Allcovered News.
For more on creating and using an effective Business Plan, see
these past issues of Allcovered News:
|
| TARGET MARKET - CHOOSE A NICHE |
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There are many valid reasons for choosing a well-defined market
niche. By targeting a specific market segment, you can tailor your
service package and marketing efforts to meet that segment's needs.
You'll also develop a reputation for expertise that attracts new
customers. |
|
You can design your niche based on geography
(either the location of the shippers or the destination of the
freight), types of cargo (agricultural, perishable, oversized, bulk
commodities, etc.), size of loads, specific industries or some other
special shipping need. |
The contents of this
Startup Kit are excerpted from How to Start a Freight Brokerage
Business, an Entrepreneur Startup Guide.
Visit:
http://www.SmallBizBooks.com
for
more information. |
To choose a niche, first consider what types of shipments and/or
shippers you'd enjoy working with. You may opt to simply handle
general commodity freight-materials that are typically easy to
handle and don't require any special attention. Or you may want to
develop some expertise in areas such as heavy equipment, oversized
loads, perishable commodities or even hazardous materials.
Don't limit your specialization plan to the commonly accepted
areas; instead, find your own niche. Bill T., for example, does some
interesting work for retailers. |
|
ALLCOVERED MARKETING HELP
Allcovered has tools to help you grow
you business. We are more than just an insurance provider… but a
partner in your growth.
GO TO:
http://www.allcovered.net
CLICK: “Training & Help” – then –
CLICK: “Sales Help”
You will find tools to help you plan, target your marketing,
create powerful sales materials and more.
YOU
DESERVE IT – WE DELIVER IT
http://www.allcovered.net |
One major national chain hires his company to
handle the distribution of point-of-sale promotion displays that
have to be delivered to hundreds of stores on the same day. Other
big businesses use Bill's company to manage shipments related to
store openings and closings.
Your next step is to conduct market research to determine if
there's a sufficient demand for the services you want to provide. If
there is, move ahead with your marketing plan. If there isn't,
consider how you might adjust your niche to one that generates
adequate revenue. |
| FINDING CARRIERS |
|
There are tens of thousands of motor carriers operating in the
United States. Your job as a broker is to identify the ones that
provide the services your customers need and to confirm their
reliability before using them.
You'll find carriers listed in a number of directories and
trade magazines. Word-of-mouth is also a good way to find carriers;
as you're out there networking, pay attention to what others are
saying about particular trucking companies, and follow up on good
reports.
You can also look for trucks at truck stops and on the road.
When you see trucks that are clean and well-maintained, try to speak
to the driver to find out something about the company. If it isn't
practical to speak to the driver, make a note of the company name
and headquarters location (it will be posted on the truck or the
cab), and give the company a call. |
| START-UP COSTS |
|
brokerage.
Where your operation falls within the ranges depends on whether
you start as a home-based business or in a commercial location; and
whether you hire employees right away or do everything yourself in
the beginning.
The suggested operating capital should be enough to cover the
first three months of operation and must be sufficient to cover what
it will cost to pay the carriers before the shippers pay you. |
|
TYPICAL
START-UP COSTS |
|
Rent |
$0 - $1,000 |
|
Equipment |
$6,000 - $22,000 |
|
Licenses/Tax Deposits |
$200 - $400 |
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Advertising / Marketing |
$500 - $1,500 |
|
Utilities / Phone |
$100 - $300 |
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Professional Services |
$200 - $750 |
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Payroll |
$0 - $5,000 |
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Supplies |
$300 - $500 |
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Insurance (first quarter) |
$700 - $1,400 |
|
Operating Capital |
$5,000 - $250,000 (cash or
line of credit) |
|
BASIC OFFICE EQUIPMENT
* Typewriter: For filling
out pre-printed and multi-part forms
* Computer and Printer
* Software – including accounting, customer information management,
and programs designed specifically for freight forwarders
* Modem
* Copy Machine
* Fax Machine
* Postage Scale
* Postage Meter
* Paper Shredder
*
Telecommunications Equipment – telephone, voice mail, cell phone,
pager, toll-free number and email |
| BANKING ON YOUR BANKER |
|
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Solid banking relationships are critical for brokers. Chuck A. says
it's not unusual for a new broker to need a line of credit in the
range of $250,000 to $300,000 to be able to pay carriers before
being paid by the shippers. "If you don't pay the trucks in a timely
fashion, they won't haul your freight. If you have nobody to haul
your freight, you have no business," Chuck says. "Other than getting
your licensing and insurance, setting up [a relationship] with a
good banker is probably at the top of the list." |
|
Of course, you don't want to walk empty-handed
into a bank you've never done business with and ask for a major line
of credit. |
BUSINESS PLAN HELP & USEFUL FORMS
From Office Depot: >
CLICK <
From BPlans: >
CLICK < |
|
"You have to know your
banker really well. Go in with a business plan. It also helps if you
have been doing business with that bank and they know you," Chuck
says. "You have to have an excellent credit record, because [as a
broker,] you have no assets for them to come after."
Put together a package that clearly demonstrates to the bank
that you're not a credit risk and that they'll benefit by
establishing a line of credit for you.
For more, see “Banker Hot Buttons For Loans” in the 17 July
2006 edition of Allcovered News here:
http://www.allcovered.net/Newsletter/2006/2006-07-17-NEWS.pdf |
| OPERATIONS |
|
The basic concept of freight brokering is pretty simple: A shipper
(or consignor, as they're sometimes referred to) calls you with a
load. You complete your own internal paperwork and check with your
carriers to see who has a vehicle available. If you already have a
relationship with a carrier, you fax it an addendum to your basic
contract that describes this particular load and the rate. If the
carrier agrees, the company's representative signs the document and
faxes it back. (If you don't already have a relationship with the
carrier, you'll need to set up a carrier/broker agreement before you
finalize the deal on the first shipment.)
Next, the carrier dispatches the driver. It's a good idea to
require that the driver call you to confirm that the load has been
picked up and again when it's been delivered.
After the shipment has been delivered, the carrier will send
you an invoice and the original bill of lading. You invoice your
customer (the shipper), pay the trucker and then, ideally, do the
whole thing again with another shipment. |
| RECORD KEEPING REQUIREMENTS |
|
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The Code of Federal
Regulations is very specific about what types of records you must
maintain. While you may keep a master list of shippers and carriers
to avoid repeating the information, you're required to keep a record
of each transaction.
That record must show:
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the name and address of the consignor (shipper);
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the name, address and registration number of the
originating motor carrier;
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the bill of lading or freight bill number;
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the amount of compensation received by the broker
for the brokerage service performed and the name of the payer;
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a description of any nonbrokerage service
performed in connection with each shipment or other activity,
the amount of compensation received for the service, and the
name of the payer; and
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the amount of any freight charges collected by
the broker and the date of payment to the carrier.
You must keep these records for a period of three years, and
each party to a particular transaction has a right to review the
records relating to that transaction. |
| LOCATION |
|
One of the most appealing aspects of a freight brokerage business is
that your physical startup requirements are relatively small. Unlike
a carrier or freight forwarder, you don't need a warehouse or
loading dock. Your customers aren't likely to come to your location,
so you don't need to worry about an impressive reception area or
elegant offices. In fact, while there are some definite advantages
to a commercial location, a freight brokerage is an ideal business
to start and run from home.
Where you operate depends on your resources and goals for your
company. Many brokers start from home with the goal of moving into
commercial space as soon as they're established with a few clients,
an excellent strategy.
The major benefit of starting a home-based business is the fact
that it significantly reduces the amount of startup and initial
operating capital you'll need. But there's more to consider than
simply the upfront cash you'll need. Do you have a separate room for
an office, or will you have to work at the dining room table? Can
you set up a comfortable workstation with all the tools and
equipment you'll need? Can you separate your work area from the rest
of the house so you can have privacy when you're working--and get
away from "the office" when you're not?
By contrast, starting in a commercial location requires more
initial cash than starting from home. If you decide to do this, your
range of options is fairly broad, and your choice should be guided
largely by the goals you've set for your business in terms of market
and growth. Consider office buildings, light industrial parks and
executive suites.
Unless you have an extremely large home, you'll find that a
commercial location allows you to create a setup that's more
efficient and practical than what you might be able to do in a spare
bedroom. |
| INCOME & PRICING |
|
Freight charges are based on a number of variables, but the two main
factors are the weight of the load and the distance it must travel.
Rates are also affected by the type of truck needed, whether the
driver needs to make one or more stops to pick up the freight, and
whether the driver needs to make more than one stop to deliver the
goods. Each shipment is entitled to one pickup and one delivery with
no extra charge; you can usually negotiate the rate for additional
stops with the carrier.
Before you begin shopping for rates for specific shipments, get
an idea of the current "going rates" for the types of shipments
you're likely to be handling. You can do this by requesting copies
of tariffs from several carriers and studying them.
Your income is generated by the commissions you earn on each
load. You'll be paid one of two ways: You can bill the shipper the
amount you're going to pay the carrier plus the amount of your
commission, or the carrier can bill the shipper directly and then
pay you a commission from its revenue. The most common way to handle
billing and commissions is to have the carrier bill you and then you
bill your customers.
Your commission is negotiable, and you can get whatever the
traffic will bear. The average broker's commission is between 5% and
11% of the shipping charges, sometimes higher. Keep in mind that
your commission is your gross revenue, and out of that you must pay
your overhead: rent, taxes, payroll, sales commissions, utilities,
debts and so on. Ron W. estimates that most brokers are lucky to
earn a net profit of 1 to 2 percent after expenses. |
| MARKETING & RESOURCES |
|
|
Just about everything must
move at least part of the way to its final destination by truck.
With that in mind, it's safe to say that almost every company is a
potential customer for you. But if you take that approach, you'll
have a tough time coming up with an effective, not to mention
affordable, marketing plan.
As we said above, Allcovered offers Sales Help
to help you identify your potential customers, and offers ways to
tailor your marketing materials so that your words and presentation
“resonate” with the prospective customers. |
KEEP IN MIND:
* Who are your potential customers?
* How many of them are there?
* Where are they located?
* How do they currently transport freight?
* Can you offer them anything they aren't getting now?
* How can you persuade them to do business with you?
* Exactly what services do you offer?
* How do you compare with competitors?
*
What kind of image do you want to project? |
|
Why does Allcovered want to
help you like this?
As you grow, we grow.
Anyone can offer insurance to you… We offer more… we want to
partner with you to help you grow… with tools like our Sales Help
and this weekly newsletter, Allcovered and the Allen Insurance Group
are more than just another source of protection. |
|
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