Freight Broker vs. Freight Agent: What is the Difference?

In the article entitled 10 Tips How to Select Best Freight Broker for Your Company we addressed the questions shippers should ask and explore before aligning with a freight broker.

The questions we addressed in the article were around the go or no go answers shippers needed to determine whether they should partner with a freight broker.  The questions were around whether the freight broker was operating legally, financially stable and will best align with their business requirements and values.

A question we do get from time-to-time that is not a yes / no answer on whether a shipper should partner or not partner with a freight broker is “what is the difference between a freight broker and freight agent”.  We also get this question from individuals looking to start up their own freight broker business when gathering as much as possible on the topic in the InTek Learning Center.

Whatever brings you to the topic of freight agent versus freight broker, you’ll find the details you are looking for in this article.

So, with the background behind us let’s dig into the details a bit more, so you and your company can decide.

Difference between a Freight Broker and Freight Agent

At the top level the difference between a freight broker and a freight agent is a freight agent is an individual or group of individuals that functions as an independent contractor under a freight broker’s operating license to move freight for its customers, while the freight broker moves freight under its own FMCSA operating authority.  

A freight agent is sometimes called a sales agent because they often sell for the freight broker they represent versus sell and operate the business, although they could choose to sell and operate the customers they acquire.

There are additional nuances that come from a freight agent / freight brokerage relationship that we’ll describe in greater detail next.

Listing of the Differences in a Freight Broker and Freight Agent

• Freight brokers earn money through the margin spread between what the sale price to the shipper and the freight cost of the underlying motor carrier.
  • The freight agent earns its money on a commission of the spread it negotiates with its customer and the underlying asset motor carrier.
    • The commission ranges anywhere from a 60 / 40 split to an 80 / 20 split.
      • Example of commission calculation:
        • Intermodal price to the shipper: $2,500
        • Intermodal price from railroad & dray carriers: $2,400
          • Margin: $100
          • $60 commission paid to the freight agent.
          • $40 is the take for the freight broker.
      • Quite often there is a limit to what a freight agent can be paid on its commission based on a minimum accepted gross margin percentage and / or a fixed dollar gross margin amount.
• A freight broker has a more consistent look and feel across its offices versus freight agents under a broker.
  • So, while there will be some similarity in the services offered by a freight agent there are cultural differences because the freight agent is an independent contractor and has their own culture.
• While the freight agent has its own culture it does bring with it the reputation of the freight broker it is representing.
• Freight agents are typically small businesses that operate out of their homes, while a freight broker is most often a much larger entity.
• A freight agent cannot pursue any and all shippers.  
  • There is a clearance process where the freight agent has to check with the freight brokerage it represents that the potential customer they are working with is not already a customer of the freight broker or another agent of the freight broker.

Detailed Listing of Similarities in a Freight Broker and Freight Agent

• Both are non-asset freight providers.
• Both can provide a high level of freight capacity and service.
• Both are problem solvers for their client base.
• Both work to match cargo with carriers and shippers to optimize service and price.
• Both negotiate with their customers and with freight motor carriers.

Why One May Choose to be a Freight Agent Versus a Freight Broker

So now that you have heard the difference between the freight broker and freight agent, you may be asking why one would choose to be a freight agent so we’ve put together the following list of reasons:

• Low cost of entry to be a freight agent.
  • Entire back office support
  • Invoicing, payables, receivables / collections and marketing materials
  • Transportation management system to operate it clients
  • Contingent cargo insurance and sometime E&O insurance
  • Provides the required surety bond
  • Contract management
• The freight broker will manage and provide:
• The individual or group cannot obtain financing through a bank to support the cash flow demands required in a freight brokerage operation.
• The commission paid to the agent on a weekly basis funds the daily operations of the freight agent’s business.
• Larger freight brokers can also provide a business loans for their agent to help grow the agent’s business.
• The agent's customer base may not work with a small broker, but would work with a freight agent knowing it is protected at a higher level by the freight broker the freight agent is representing.
• The freight broker provides the freight agent with a long standing asset motor carrier relationship and contracts that are available for leveraging to provide shipper solutions on day one.
• Simplifies the business for the freight agent by covering so many items they would otherwise have to operate, pay and worry about if they were a stand alone entity.
• The freight agent rides the pricing power leverage the larger freight broker can obtain for the agent, thus driving greater profit.

Conclusion on the Difference between a Freight Broker and a Freight Agent

So, unlike the go or no go questions brought to light in our 10 Tips How to Select Best Freight Broker for Your Company article on developing a business partnership with a particular freight broker, the answer to the freight broker or freight agent is not a yes or no decision.

Instead, the freight broker versus freight agent topic is more about the entity type and a shipper’s perspective on which they are more comfortable working with and operating their freight requirements for best service and price.

For more on freight brokers and how to leverage them for a competitive advantage: 

• When to Use a Freight Broker
• Tips on Selecting a Freight Broker
• Freight Brokers vs Managed TMS

• Freight Brokers vs Logistics Service Providers

• Top 20 Freight Brokerage Companies

If you're ready to take the next step, at InTek Freight & Logistics, we can help. Just tell us what you need and we'll discuss how our expertise can help with the unique shipping challenges your business faces. Rather do a bit more research first? View our Freight Guides for comprehensive articles and eBooks on all things freight and logistics.