When to Use a Freight Broker in Your Logistics Strategy
A common question for both large and small shippers is whether they should engage a freight broker to help them fulfill their freight and logistics requirements.
The short answer to the above question is it depends.
Definition of a Freight Broker
A freight broker is an individual or company that works directly with shippers and motor freight carriers to facilitate the movement of freight for a shipper.
Often,a freight broker is thought of as nothing more than an intermediary in a freight transaction to increase the cost to make money for themselves by taking advantage of motor carriers. While that may be true for some freight brokers, it is not for the vast majority.
Yes, a freight broker makes money on the buy-sell spread it negotiates between the shipper’s billing rate and carrier’s invoice rate, but as part of the transaction, a freight broker brings quite a bit of value to the freight market landscape.
Reasons for Shippers to Use a Freight Broker
Save Time by Quickly Accessing Freight Capacity When Required
- Freight brokers have internal technology that ties into multiple freight load boards and other industry touchpoints that allow them to quickly access capacity at the best rate at the time of shipment tender.
Deep and Wide Carrier Pool to Draw on for Contract Rates
- Freight brokers or logistics service providers (LSP’s) are in the market every day and as previously said also have tools that help them tap into the 700,000 carriers that are operating in the United States. Granted, LSP’s cannot hit every one of the 700,000 registered carriers, as they are not all for-hire, but they have the connections that allow them to get further out into the capacity market more quickly and efficiently than a shipper.
Saves Shippers from Adding Resources by Leveraging Broker’s Technology & Resources
- Ability to be One-Stop-Shop for Small to Medium Shippers
- Ability to be Back-up Capacity for a Medium to Large Shippers when their Primary Carriers Fail
Save Shipper’s Money
- More times than not, an LSP’s does have the ability to help shippers save money on their freight spend.
- Deeper Carrier Bench
- Because an LSP is in the freight carrier market every day, they will have more feet on the ground and a better ear to the ground on various carriers’ strengths and weakness in a multitude of markets.
- This comes from motor carriers constantly calling them sharing where they need freight to balance out their networks, while constantly selling their strengths.
- LSP’s are also in a continuous mode of finding a better mouse-trap for their freight, their other customers, and through special consulting optimization projects they are assigned to perform for shippers.
- LSP’s can leverage their freight capacity buy with its other customers.
- The largest LSP’s often taught because they are larger, they can have more leverage over the carriers than a smaller LSP. Our experience is that was probably the case in history than in actual practice today.
- An LSP has significantly more motor carrier options to work through because of its connections to the outside world through its technology platform.
- Saving Money through Technology
- An LSP is all about finding the best capacity at the lowest cost. Because of this, they operate and invest heavily in technology. The cost of technology is not any cheaper than a shipper, but since it can leverage the cost of technology across a larger piece of freight business, it is less costly and can therefore implement and execute more bells and whistles in the system. As such, LSP’s can easily find consolidation, pooling and modal conversion opportunities, and tap into lower cost capacity when market conditions present themselves.
Provides Scalable Capacity on a Variable Cost Basis
Knowledge and Expertise on Market Trends
- Freight brokers and LSP’s are in the logistics business every day buying and selling freight capacity. This hands on knowledge keeps them abreast of the overall factors driving capacity and price, both now and into the future.
Vett Carriers to Ensure Operating Legally
- One area LSP’s excel at that carrier do not take into as much consideration in their freight buy is vetting the carriers they use within their freight and logistics departments. There are far too many legal examples against freight brokers / LSP’s that are discussed at every industry conference and within every industry magazine they read, which keeps the topic of employing legal and safe carriers within its network front of mind.
- At a minimum, the best freight brokers check to see the carriers they are running with are legal and safe every day by checking their operating authority, insurance policies and are safe. With today’s technology, many freight brokers are tapped into providers that tap into the records every hour.
Reasons for Motor Carriers to Work with Freight Brokers
Act as the Marketing and Sales Team
- As the data indicated earlier, many motor carriers are a few drivers and trucks. Their interest is to move freight and do it well, so they pick up customers through word of mouth.
- At times this is not enough, so the motor carriers will post their load preferences on freight load boards for freight brokers to contact them when freight is moving in their preferred freight lanes.
Be the Liaison for Communication and Reporting
- Again, the motor carrier market has several smaller operations and do not have the time, resources, or capital to be able to invest in the types of technology today’s shippers demand.
- This is where the logistics service provider steps in to fill the void with its technology and communications.
Misconceptions of a Freight Broker
Increase Costs for the Shipper
- As we like to say price gets a freight provider in the door, while service keeps them there.
- There would not be a multi-billion dollar industry made of over 17,000 non-asset freight providers if they could not improve the cost of logistics for shippers.
Decreases Revenue for Motor Carriers
- Often motor carriers do not have the resources to support a sales team, so on the contrary freight brokers help build and sustain asset freight carriers. The good freight brokers will ensure this to be the case because without asset motor carriers, there can be no non-asset freight providers.
- To add to it, if a carrier feels that the price is not fair market, then they can choose to decline the load. There is not a broker-carrier agreement that would force a carrier to accept a freight tender.
- Unreliable freight brokers do exist, but not for long, which is why one of the recommendations of how to choose a freight broker is to validate how many years they are in business.
Freight Brokers Do Not Provide a Value Add
- When the freight brokerage industry began, they were nothing more than an outlet to help shippers find capacity. Now this was a value-add in and of itself, but with the advent of technology, the freight broker has become a valuable asset, as was outlined previously in this article.
Better for the Shipper to Go Direct to the Motor Carrier Market
- The answer is yes and no. It depends on the situation, so we’ll acknowledge this could be the case for some shippers.
Not Selective on Quality of Carrier
- The quality of a freight broker’s carrier base is the quality of the service they provide, so if the freight broker is to stay in business, they will need to be very selective in the motor carriers they choose for their customers.
- To add to this topic, a freight broker is legally liable to the shipper if they choose a freight carrier that is not operating legally, so it is of the utmost importance to a freight broker to vet their motor carriers for the highest quality.
Technology has Transformed Freight Broker into Logistics Service Provider
The days of freight brokers operating with three phones and their hair on fire desperately looking for a carrier backhaul is in the history books.
Technology and capital is the reason for the transformation of the freight broker into an LSP.
Today’s more sophisticated freight brokerage model gives shippers:
- A higher quality of service.
- Full transparency of the financial transaction and their shipment.
- A multitude of logistics options.
- Highly competitive pricing.
- Data mining and network analysis.
- More access to market data.
- Significantly higher level of professionalism.
Today's cloud based transportation management systems tie the freight dispatcher into:
- Real-time connections into their carrier base.
- Multiple load boards when their core carriers or their managed transportation service solution shippers’ core carrier cannot cover a particular freight load.
- Multiple carrier safety ratings.
- Database of carrier operating authorities and insurance coverage policies.
- Shippers' orders and origin and destination dock requirements and hours.
- Various motor carrier rate structures and opportunities for LTL consolidations.
- Train schedules for intermodal freight shipments.
- Etc, etc, etc.
The above information provides tools for the freight dispatcher to make better logistics decisions and gives all stakeholders freight network transparency, which then gives the best freight brokerages the ability to truly manage supply chains versus chasing trucks and providing tracking & tracing details.
With the technology and connections, historical data comes to life in supply chain models and RFP analytical tools that bring clarity through real data to drive streamlined supply chain networks for incredible improvement in KPI's and cost structure for today's shippers.
The infusion of capital into the logistics has changed the brokerage industry forever.
The addition of capital has jumped started technology companies with more innovations that were not even in the thoughts and minds of logistics professionals. It has also created a flurry of M&A activity that is driving exponential growth for the largest players.
These changes in the non-asset brokerage community are also restructuring the smaller LSP’s that have the foresight to leverage their technology is they can service the small to medium sized shipper that otherwise get lost in the mega logistics companies. The other outcome for those under capitalized LSP’s is they fall to the wayside.
How To Choose the Best Freight Broker for Your Company
Properly Licensed to Operate Legally
- To validate a carrier, whether asset or non-asset, is operating legally and under what type of operating authority a shipper can check through the Federal Motor Carrier Safety Administration (FMCSA) site and input the providers USDOT and MC numbers.
Multiple Modes & Service Offered
- The more freight modes and services a freight broker has to offer the greater opportunity it will have to be a one-stop-shop for a shipper.
- Also, this is one of the key differentiators between a freight broker and a logistics service provider.
- A freight broker is essentially a person or group that can be an outlet for a shipper to find freight capacity at the best price, while a logistics service provider is a full-service logistics provider that leverages technology, and offers a multitude of freight modes, managed transportation service solutions and network optimization programs.
- As part of this thinking, consider the freight broker to be more than just a rate and some of the things that can be added in service for better pricing would include:
- Pooling and consolidation for LTL.
- Managed transportation service solutions for a holistic approach to optimizing service and price.
- Distribution services to forward position product to the ultimate customer for quicker transit at lower prices.
- TMS technology services to move the logistics operation from spreadsheets to the cloud.
- Supply chain service and coaching to help in one-time reviews of your total supply chain network.
- Is the cargo liability policy a shipper’s interest or contingent cargo policy?
- What is the deductible?
- Request to be listed on the policy.
- Request a certificate of insurance (COI) to ensure the policy is valid.
- While it may seem superfluous to some, the membership and involvement is an important aspect of the quality of the provider you are working with since there is a review of the business before being allowed to be a part of the organizations listed below.
- Ask how the freight broker qualifies, onboards and reviews its motor carriers to ensure there are no gaps where the carriers put on your loads could fall out of legal compliance.
Subject Matter Experts
- Is the leadership actively engaged in educational or other support content publishings?
- Are they engaged in the logistics and supply chain industry at various levels?
- Do they sit on the boards of higher education entities or of leading industry associations?
- Again, this may seem a bit much, but it does show a level of commitment to the industry.
- Will you be a big fish in a small pond or a small fish in an ocean?
- The mergers and acquisitions within the freight and logistics industry have created some mega logistics service providers, which are great for some companies but they are not a one size fits all solution.
- What is the service provider’s operating model and after hour support?
- The system will also give shippers great insight into whether they are working with a freight broker or a logistics service provider.
- The higher the level of technology the more likely the freight provider is an LSP.
Quality of Service
- Does the freight broker have the systems and internal processes to provide exceptional service, even when there is a failure to meet your service level requirements?
- Reference requests of current and past customers help in reviewing this facet of the broker.
Reputation & Years in Service
- While not a final deciding factor, reputation and years in service does say a lot for the quality of the company that you are considering to move your freight.
- Last but not least, shippers should check the website, email address, LinkedIn profiles of the membership team and their team members and social media sites. This could be a quick look and run, as there are several brokers that do not have a website and / or do not run off a company named email address. One should be skeptical of a broker that does not have the resources to put up a website and provide company email addresses.
- Now if the shipper does find a website, social media and LinkedIn pages of its professionals, then this is a good opportunity to review blogs, comments and likes to see if the brokerage believes and operates in the manner the shipper finds in congruent with its beliefs of the logistics environment and ethics it expects its business partners to operate.