Maximizing Freight Transportation Services through Freight Brokers
June 20, 2023 •Rick LaGore
Freight transportation services are an essential part of the domestic and global economy, providing a critical service for consumers and businesses.
While many of the more successful companies listed on the S&P 500 acknowledged the importance of freight transportation services to their success, there were many laggards that caught onto its importance since the pandemic.
With that said, we need to recognize logistics professionals have a number of options at their disposal to drive the best results for capacity, price and service. This brings us to the topic of freight brokers.
In this blog post, we will examine the role of freight brokers covering a wide range of topics that includes:
- Services provided.
- How freight brokers bring freight capacity efficiently to the market.
- Difference between freight brokers and managed freight services / freight 3PLs.
- Recommended selection process for your freight transportation service requirements.
- A look into what shippers can get from their technology.
- And finally, the market intelligence they can bring shippers.
With all the mechanics behind us, let's get started.
Introduction to Freight Brokers
So, what exactly is a freight broker? The simple definition of a freight broker is that they are a freight intermediary that efficiently connects shippers (their customers) with freight carriers to move goods from origin to destination. The responsibilities of the freight broker are to receive the order from the shipper, tender the load to the carrier, track and trace the load to final delivery, if there are issues at any point in the journey it's the broker's responsibility to recover the load to ensure on-time delivery. After the shipment is delivered the freight broker collects the proof of delivery (POD) and receives the freight carrier's invoice, which is then processed for payment while at the same time creates an invoice to the shipper.
The freight broker landscape has changed from its origins as technology entered the freight transportation services market. The result is the freight brokerage market can be broken into three distinct groups:
- Freight brokers that provide all or a subset of the following freight modes: truckload, intermodal, expedited, LTL, air or ocean.
- Non-Asset Freight 3PL brokers, most often known as managed transportation solutions providers, whose technology advances position their services and team to be an outsourced freight transportation services provider where shippers rely on to execute 100% of their business on their behalf. In addition to daily execution, these managed transportation service providers optimize and rate shop freight service options for least cost, manage the freight rate negotiations, perform the freight audit and pay functions and assemble monthly reporting and analysis to optimize shippers' supply chains on a more strategic level.
- The last option is a non-asset logistics service provider (LSP) that is assembled to leverage up both models to offer a one-stop shop for a shipper's freight transportation services requirements. These are great options for shippers that are looking to start small and have an option to move further up the solution ladder.
The Role of Freight Brokers in Transportation Services
Freight brokers bring value by leveraging their knowledge of the industry, carrier networks, regulations, technology and market trends to negotiate competitive rates for their customers.
If all is done well, the end result saves time for the shipper, brings additional freight capacity into the business efficiently, while also providing shippers a resource to more effectively manage their freight routing guides at the best price.
Connecting Shippers with Carriers
A freight broker, with their expertise in connecting shippers and carriers, facilitates the process of finding suitable matches for shipments based on size, destination, transit and delivery requirements, etc. The expertise offered by a reputable freight brokerage firm streamlines this process significantly, while ensuring that all necessary documentation is completed accurately and timely.
One major advantage of partnering with a skilled freight broker is their ability to secure favorable shipping rates for your business. With access to vast carrier networks and real-time data on current market conditions, these professionals can identify cost-saving opportunities without compromising service quality.
Examples where freight brokers bring more competitive rates for freight transportation services:
- Truckload: Freight brokers have the technology to tap into the highly fragmented truckload market where 97% of the total 53' market is with asset carriers with less than 20 trucks.
- Intermodal: While a smaller subset of the freight brokerages are an IMC, intermodal marketing company, these freight transportation services providers bring an expertise to optimize a shipper's 53' capacity lanes to balance and diversify supply chains to take advantage of the benefits intermodal capacity offers: average price savings of 15% over truckload, additional capacity, sustainable eco-friendly shipping option and a higher level of security for the portion intermodal is moving via a railroad.
- LTL: Many freight brokers operate under volume-based contracts with asset LTL carriers, which allows them to offer more competitive rates than a shipper can get themselves.
Access to Freight Capacity
Freight brokers originally were successful in building their business in the following ways:
- A source for spot freight rates to fill in shippers' capacity shortages during high-demand peaks when finding available freight capacity proved difficult and expensive for shippers.
- Provided freight capacity for small to medium sized shippers that did not have enough volume to garner contractual rates.
Technology advancements have moved the freight broker from its humble origins to one of the fastest growing segments within the logistics industry firmly entrenching them into shippers' routing guides across the globe by providing just freight capacity or outsourced freight management services.
Advanced Transportation Management Technologies
Technology is changing so rapidly in the supply chain space that it makes sense to add to the topic under the role of the freight broker, along with touching on it in additional sections in this article.
The point to be made here is to make shippers aware they can leverage what many freight brokers have built in their best-in-class transportation management TMS platform. By doing so they can take advantage of the economies of scale to bring their supply chain technology budget down to a variable cost model.
Benefits of Working with Freight Brokers
Partnering with a reputable freight broker offers several benefits that can positively impact a shipper’s logistics operations. These advantages include access to capacity during peak shipping seasons, increased shipment visibility through advanced tracking technologies and the expertise of industry professionals who understand the complexities of freight transportation services and consult businesses on how to improve the overall operations and cost.
- Save Time by Quickly Accessing Freight Capacity When Required
- Deep and Wide Carrier Pool to Draw on for Contract Rates
- Saves Shippers from Adding Resources by Leveraging Broker’s Technology & Resources
- Save Shippers Money
- Provides Scalable Capacity on a Variable Cost Basis
- Knowledge and Expertise on Market Trends
- Vet Carriers to Ensure Operating Legally During Onboarding & Ongoing
- Customized Solutions to Meet a Shipper's Specific Requirements
No two businesses have identical logistics requirements; therefore, it's essential to partner with a freight broker capable of providing customized solutions tailored specifically to your company's unique needs. Whether you require truckload or intermodal freight services or need assistance navigating international shipping complexities - a reliable broker will offer personalized support designed around your specific goals and objectives.
In summary, working with an experienced freight broker offers numerous benefits such as access to capacity during peak seasons, increased shipment visibility through advanced tracking technologies, expert negotiation skills resulting in cost savings and customized solutions suited perfectly for your business needs. By partnering with a reputable provider in this space ensures that your products reach their intended destinations safely while optimizing efficiency throughout the entire supply chain process.
Factors to Consider When Selecting a Freight Broker
When choosing a suitable freight transportation services provider to handle your company's logistics needs, consider factors such as experience, reputation, compliance with relevant regulations and licenses, insurance coverage protection against potential losses during transit, level of surety bond, technology, how they manage and audit carrier base, size and thought leadership.
By selecting wisely based on these criteria outlined above ensures that your products will reach their intended destinations safely and cost-effectively. The points to consider in a qualification are so important and often overlooked in the pursuit of a rate that we want to slow things down a bit and walk through key areas shippers should be using in their evaluation and qualification of their freight broker.
An experienced freight broker can offer valuable insights into asset carrier networks, market trends and pricing strategies. They can also provide guidance on optimizing shipping routes, selecting appropriate modes of transportation based on specific shipment requirements and consolidating shipments into least cost options.
Certainly, a lot of industry experience can be found on a company's website, but one should not stop there. The reason being is not all operations are set up the same, so if the decision is based on the latest email or phone call you may only be getting the experience of the person you connected with on that first interaction and someone much newer to the industry when the business is integrated with the freight capacity broker.
Research online reviews and ask for references from similar companies to ensure that the broker has successfully managed shipments in various situations and across different industries. As many know, stuff happens with freight moves and it is better to know how the broker will react when things do not go as planned. How do they recover a shipment? How do they communicate to their customers? What is the escalation process? Who handles the after-hours support? To add to this question, will they know anything about your business, will the call be sent overseas, are they more just an answering service? All important questions to understand at the front end versus after the fact.
And don’t take the salesperson’s response as gospel. Ask for back-up information like the below to hear the perception of others that have used the freight broker you are considering for the business.
- Online Reviews: Check out customer testimonials on Google Reviews or Trustpilot.
- Social Media: See what people are saying on LinkedIn or Twitter.
- Ask for customer reviews and testimonials to gauge satisfaction levels among past clients to gather additional feedback on their performance from those who have firsthand experience collaborating with them.
Confirm Freight Provider is Who They Say They Are
In today's electronic world there are a great deal of "bad actors" trying to obtain something for free. In the transportation market there are two scams that are increasing at a rapid rate that shippers need to be aware of when conducting business.
The first is people representing themselves as a freight transportation services provider that are out to steal products. They'll connect by email or phone calls soliciting to move products and do so at very enticing freight rates, but they can because they are stealing the product and therefore have no intention of honoring the rate.
What happens next is devastating. The “bad actor” sends in the trucking equipment to pick-up a company’s freight and they'll never be seen again. The freight is often moved to one of the port cities where the "bad actors" will transload the product to then be exported to an overseas buyer. This scam is costing the US economy hundreds of millions of dollars a year.
There is another scam where the "bad actor" is not willing to steal the actual from a company because the level of the crime is significant, so instead they impersonate a legitimate freight broker. The scam is called double brokering and is also costing the US economy millions and picking up steam.
Under this scam, the "bad actors" solicit freight business from shippers. The shipper accepts the "bad actor’s" quote and tenders the shipment to them thinking they are working with a legitimate freight broker. The "bad actor" picks up and delivers the freight, as the shipper requested. At the conclusion of the transaction the "bad actor" invoices the shipper.
At this point is where the situation becomes interesting. The underlying carrier that moved the freight bills the legitimate freight broker the "bad actor" impersonated for payment of the load. The shipper pays the "bad actor" instead of the actual broker. Initially, the party in this transaction left in the cold is the underlying asset carrier because the legitimate broker never moved the load and therefore has no record for payment.
The problem for the shipper is the underlying asset carrier will eventually figure out they had been had and will contact the shipper to collect payment. To the shipper’s surprise they have paid the fraudulent broker and because of how transportation laws are written will be required to also pay the underlying asset carrier. Since the carrier has the ability under the law to collect from the shipper, the end result is the shipper double pays for the shipment.
As a side note, this law also comes into play if the freight broker goes out of business and the underlying carriers are not paid. (More on this under Surety Bond).
Another consideration shippers need to be aware of is if the carrier has an accident, the fraudulent broker in a double brokered load will not have insurance to cover the loss.
There are a few ways to check for validity, but not foolproof:
- Validate the email address being used is the same as the company they are representing. Quite often the email address being used in either of these scams is slightly different than the actual web address of a company, so copy the url portion of the email and enter it into the web browser you use and see if it pulls up the correct company. What many will find is it will not pull up any website.
- The other is to check the person's identity on LinkedIn.
Neither will 100% call out the "bad actor," but they are places to start asking questions.
Compliance with Relevant Regulations and Licenses
All freight brokers operating within the United States must hold valid licenses issued by the Federal Motor Carrier Safety Administration (FMCSA) and therefore are required to comply with all its regulations.
With that said, verify the freight broker’s credentials on the FMCSA website.
Unfortunately, not all insurance coverage in the freight transportation services market is created equal, so do your homework before moving forward because the money saved on freight rate will quickly evaporate with a single claim.
Choose a freight broker who carries sufficient insurance coverage to protect against potential losses during transit. This includes general liability insurance covering property damage or bodily injury resulting from accidents involving carrier vehicles while transporting goods on behalf of clients.
Be upfront on the commodity that is being shipped and the coverage required because if this is not correct, the assumption the broker makes on being able to cover a shipper’s load may be incorrect and zero coverage will be applied in a loss.
This topic becomes trickier to maneuver when it comes to LTL with brokers or asset LTL providers because under the LTL tariff schedules are also liability maximums applied. So, when a shipper hears from a potential freight provider they can get them under a lower FAK classification note that also means lower liability coverage and therefore the product may not be covered in full.
Offers Multiple Freight Modes & Logistics Services
The importance of a freight broker offering more than one service cannot be underestimated.
The ability for a broker to the multitude of freight modes: truckload, intermodal, LTL, expedited, air and ocean can make the transition easier when additional services are required.
Also, because of where freight brokers sit in the supply chain services market puts them in position to have a multitude of relationships that allow them to offer other logistics services such as consolidation, warehousing, cross-docking, etc. This makes it extremely easy for a shipper to make a quick call versus scour the web when those one-off services or short-term projects are needed.
To add to the latter point, many found the value of the additional services coming from their freight brokers during the pandemic as various projects came into being to execute the needs of the business. So, instead of going through a search and qualify process the freight broker took over and opened up the bandwidth for the shipper to focus on the next issue.
Surety Broker Bond
The FMCSA requires all non-asset freight transportation services providers to carry a $75,000 surety bond.
The surety bond does two things:
- It covers carriers and shippers against loss of payment brought about by fraudulent behavior of a freight broker. If for whatever reason a freight broker fails to pay the underlying carrier used on a freight move, the surety company will investigate the claim and pay the legitimate filings. This provides a level of coverage beyond simply a handshake and trusting a freight broker's word to the shipper which is of utmost importance.
- The surety bond also plays a very close proximity to the financial health of the freight broker and its longevity in the market if the broker goes above the $75,000 minimum requirement.
On the financial health side, which is harder for those not in the industry to validate, is different surety bond companies take on different risks and for the higher risks they do charge for it. So, if the freight broker is using a lesser surety bond company it is a sign, they are either newer to the industry or their financials are strong then there is a risk.
The other point of the financial strength of a freight broker is more easily seen, in that, the broker can up its surety bond to a higher level. Since the freight broker has to provide financials to obtain the bond, the surety company would not allow for an increase if the brokers financials could not support it.
An often-used example of these two points comes from the TIA, Transportation Intermediaries of North America, where less than 1% of its membership has a $250,000 bond issued through their alliance with Avalon Risk Management. Every freight broker that has the TIA $250,000 bond has it posted on their website. Call it the Better Business Bureau for the non-asset freight community.
Certifications and Affiliations - TIA, IANA, SmartWay
Certifications a freight broker has provides credence to its longevity, ethics and reputation. Three that come quickly to mind include: Transportation Intermediaries Association (TIA), Intermodal Association of North America (IANA) and EPA SmartWay. Each holds its own standards for a freight broker to be accepted as a member.
The TIA is the premier organization that represents non-asset third party logistics providers. With that said, one should really question the freight broker they use if they are not a part of this organization.
IANA is the organization that represents intermodal service providers, better known as intermodal marketing companies or IMC's. Every intermodal freight company that does business directly with the railroads for their intermodal service is a part of this organization. If your non-asset freight transportation services provider is not, then they most likely are buying the service through an IMC and are a freight broker in the transaction and not an IMC.
The SmartWay program operates under the Environmental Protection Agency, EPA, with the focus on helping companies improve their company's supply chain carbon footprint. So, those companies that have it within their mission to operate a sustainable supply chain should look for asset and non-asset freight transportation services companies that are certified SmartWay participants.
Freight Broker Technology
We touched on technology earlier in the article, but more needs to be said because the advancements truly make a difference on price and service.
In today's fast-paced and ever-changing supply chain world, technology plays a vital role. Freight brokers that leverage technology can provide better service and more efficient operations to their customers. By selecting a 3PL provider with advanced technological capabilities, shippers can reduce costs, improve service levels and gain better visibility into their supply chain operations.
Transportation Management Systems (TMS)
A TMS is software designed to manage all aspects of transportation operations. It helps streamline processes such as load planning, carrier selection, rate & route optimization, shipment tracking and reporting. With a TMS in place, shippers can gain visibility into their supply chain and make data-driven decisions from one central location.
Data analytics tools help identify trends and patterns within large datasets that are difficult or impossible for humans to detect manually. By analyzing this data, freight brokers can optimize shipping routes and reduce costs by measuring against actual market rates captured through various freight consortiums the higher service level freight brokers use for their business.
Digital Document Management System (DDM)
A side of the freight transportation services market that is often overlooked is the amount of paperwork associated with every shipment. The use of paper documents has long been a source of inefficiency in logistics operations due to errors during the manual data entry process. DDM systems eliminate this issue by digitizing all documents, making them accessible from anywhere at any time. To validate your broker's use of the latest DDM systems employed check out the number of filing cabinets when you walk into their office.
Carrier Compliance Selection and Ongoing Audits
How a freight broker manages its carrier base is another important question to address and something to discover during the evaluation process to ensure they meet your company's risk management guidelines and all the FMCSA's requirements.
Not every freight broker operates in the same manner. Some have their team members execute the business they pull in through their own sales efforts, some operate by shift and task, and some operate more as a customer manager moving all the loads their sales team brought into the organization. Each has its benefits and drawbacks, so understanding how they operate when a shipment goes sideways is an important aspect to understand from the transportation freight provider.
There are pluses and minuses with the freight brokerage operation that provides freight transportation services.
Typically, the larger freight brokers will be very efficient on running high volume lanes, while the smaller ones will be more hands on from start to finish.
As you step through this question, don't assume the smaller operations won't be cost competitive. Oftentimes, they have behind the scenes relationships and / or extremely efficient and lean on back-office functions that allow them to operate at much reduced gross margins.
Last but not least, we'd recommend checking out the posts of the people you will interface with on a daily and monthly basis. We say daily and monthly interaction because these are the people that will push your agenda more than people sitting at a quarterly business review.
Choosing the right freight broker is essential for safe and cost-effective transportation of products. Consider factors such as experience, reputation, compliance and insurance coverage when selecting a partner to manage your logistics needs effectively within the US market. This will lead to cost savings while maintaining high service quality standards across truckload or intermodal freight services.
Technology Advancements in Freight Brokerage Services
Again, technology hits the topic of freight brokers.
In today's fast-paced business world, staying ahead of the competition requires leveraging the latest technology advancements in freight brokerage services. Some of the advanced software tools used by brokers enhance logistics management, so let’s discuss a few of them in detail:
Advanced Software Tools Used by Brokers
- Transportation Management Systems (TMS): A TMS is a comprehensive software solution that streamlines various aspects of freight transportation services platform brokers execute their business, including carrier selection, rate & route optimization, load planning, document management and final settlement of carrier payment and customer collection. By using a TMS platform, brokers can efficiently manage shipments from end-to-end while reducing costs and improving customer service levels.
- Electronic Data Interchange (EDI): EDI enables seamless communication between shippers, carriers and brokers through standardized electronic formats. It automates processes such as order tender and acceptance, invoicing and tracking updates, leading to reduced manual errors and increased efficiency. Many modern TMS platforms incorporate EDI capabilities for streamlined data exchange with trading partners.
- Risk Management Solutions: These tools help assess potential risks associated with specific carriers or routes based on historical performance data or current market conditions.
- Bid Optimization Platforms: These platforms help brokers analyze market trends and benchmark rates to ensure they are offering competitive pricing to their clients. By leveraging data-driven insights, freight brokers can optimize their bids and secure more business opportunities.
Real-Time Shipment Monitoring Capabilities
Accurate real-time tracking of shipments enables freight brokers to make more informed decisions, allowing them to optimize bids and services shippers demand in today's competitive freight market.
Advanced tracking technologies like GPS or mobile phone tracking provide accurate information about cargo location at any given moment, allowing companies to make better decisions regarding inventory management, delivery KPIs and overall customer service.
Advanced TMS Platform Easily Integrates with Other Best-in-Class Freight Technology
As a company shipping product throughout the United States, it's important to have access to the best freight transportation services available.
The Benefits of Using an Advanced TMS Platform
A single TMS platform does not do everything required for top-notch service and analysis, which makes sense. TMS software providers want to focus on specific areas they want to be the best at for their clients, while allowing API connections into other best-in-class freight software. The key is to find those providers that have that capability, so they can stay on the front end of technology for the shippers that use them. An example of this would be the system we use here at InTek Freight & Logistics, which is MercuryGate, which has over one hundred such touchpoints with leading supply chain partners.
By partnering with a forward-thinking broker that leverages advanced software tools, businesses can optimize costs, improve service levels and stay ahead of the competition in today's dynamic market landscape.
Freight brokers can leverage advanced TMS software platforms to a shipper's specific goals on a variable cost basis through today's cloud-based SaaS systems, which can quickly build a competitive advantage to meet today's supply chain challenges on-time and within budget.
Conclusion on Freight Brokers
Freight brokers play a crucial role in connecting shippers with carriers, negotiating competitive rates, bringing additional capacity, offering all modes, reducing shipper internal resources and offering scalable technology. Freight brokers also possess extensive knowledge of the transportation industry and market trends that allow them to navigate complex logistics processes on behalf of their clients while providing customized solutions tailored specifically to unique business needs. Overall, working with an experienced freight broker optimizes efficiency throughout the entire supply chain process.
And if nothing else was taken from this article, please take the advice of not selecting a freight transportation services provider on price alone. Go through a qualification process to ensure the freight broker is operating under the law, has the required insurance for your product and is who they say they are.
If you're looking for a freight broker to help with your shipping strategy, let us know by filling out our brief Request a Quote form. We'll be happy to get back to you to discuss your unique needs. If you need more information about this or other freight topics, browse our Freight Guides for free eBooks and comprehensive articles, or check out more of our blog.
- Freight & Shipping Costs
- Freight Broker
- Freight Forwarder
- Intermodal Transportation
- International & Cross Border Logistics
- Logistics & Supply Chain
- Logistics Service Provider
- Managed TMS
- Supply Chain Sustainability
- Transportation Management System
- Warehousing & Distribution