The Challenges and Benefits of Working with Brokers
You’ve heard the horror stories… about brokers who all of a sudden stopped answering the phone, disappeared – after the loads were delivered but before the carriers got paid… leaving thousands (and thousands) of dollars of freight bills unpaid.
But you likely also know drivers who, if not for a broker finding a load for them, would have driven empty (or not at all) to get home in time for an important event. Or just gotten home – to be home – for no reason at all but to be home (which is reason enough).
So, are brokers good or bad?
What are Brokers?
A broker is a go-between, a link, between a shipper and a carrier. They do not own the freight or the equipment that moves that freight. They do not load, move, or unload the freight. A broker coordinates. This includes necessary communication and helping to resolve any problems with the shipments.
It is an important role, and one shippers and carriers often use… sometimes with satisfaction and other times with regret… per the Advantages and Disadvantages below.
A broker is paid by shippers to find carriers for shipments. The difference between what the shipper pays the broker and what the broker pays the carrier is retained by the broker. That margin – the amount retained – varies. A gross margin of twenty-five to thirty-five percent is common but it could be lower or higher.
For instance, the shipper agrees to pay the broker $2,800 to move a load. The shipper’s price is set. The broker’s margin is increased as the rate paid to the carrier is decreased. Unless the broker cannot move the load – then the broker makes nothing. At a 25% margin, the carrier would be paid $2,100 and the broker would retain $700 for the $2,800 shipment.
Some brokers operate as a one-man (or, increasingly, one-woman) business. Other broker companies are staffed with what seems to be a legion of people. And many brokers fit somewhere in-between. Often brokerage operations are a subset of a larger business, such as a 3PL.
Regardless of size, the basic functions are the same. Brokers link shippers and carriers to move loads. That’s it. How they do it … how they use technology, etc. … varies, but the essential function does not change.
As in every profession, there are good and bad brokers. Below we talk more about how to distinguish between them. But first, why consider using a broker?
The Advantages of Working with Brokers
The primary advantage, from a carrier’s perspective, is the broker has loads to offer. And that is a really big reason – or advantage – for agreeing to move a brokered load. We list other things below … but this is basically it. They have loads going where you want to go.
How brokers get the loads is important to understand. They are basically an extension of the shipper. Some shippers send all their loads to a broker (or set of brokers). In these cases, the only way to move a load with that shipper is through a broker. Other shippers only send a portion of the loads to a broker … either the loads they have difficulty covering or if they get really busy or are short personnel. These are spot type loads. (They can pay very well.)
From the shipper’s perspective, the broker is doing work for the shipper – and which the shipper would have to do if the broker were not there. The shipper is either willing to pay more to move those broker shipments or the broker has convinced the shipper the loads can be moved at the same (or lower) price as the shipper could move without the broker. And, in some cases, the shipper agrees to pay the market rate paid the carrier plus a commission for the broker.
With the different types of ways brokers are used by shippers, you can see why some brokered freight pays well and other loads pay poorly.
Some other valuable services a broker can provide besides the loads themselves:
Save Time. Even with the benefits of modern technology, it takes time to find and book loads. The more time spent looking for loads, the less time spent moving them.
Less Paperwork. One contract with a broker can cover shipments from many shippers and eliminate the need for multiple contracts or rate agreements with those shippers.
Recurring Shipments. Some brokers have a set book of business they handle.
Intermediary. Sometimes when there are problems or challenges, such as getting an appointment time, it helps to have some else (the broker) take the time to work on them so you can focus on other things. Besides, this is part of what the broker is being paid for.
Individual Needs. A good broker learns what carriers – even the individual drivers – desire. Where a driver likes to go, where home is, the type of freight the driver prefers, etc.
The Disadvantages of Working with Brokers
No one works for free – nor should they. Brokers will take a percentage of the revenue. That is the main disadvantage of working with a broker. They are like a toll booth. You don’t have to travel on the highway they control, but if you do there is a cost.
If you could get an equivalent load without going through a broker, you should make more money moving it.
Some other reasons brokers are avoided by carriers:
Payment time. As difficult as it can be to get paid on time by shippers, it is worse for brokers since they will not usually pay the carrier until they get paid by the shipper. (See our post on factoring for thoughts on getting paid quickly.)
Rate Negotiations. This is not unique to brokered loads but to make sure you get paid well it often requires more negotiation due to the broker’s margin.
Phantom loads. Some brokers work on loads without having a firm commitment from the shipper. (This may happen with load board postings.) They find a carrier and then try to lock it in with the shipper. Sometimes this works and sometimes the load is gone by the time the broker talks with the shipper. The carrier thinks it has a load – and then nothing. This is unethical unless disclosed upfront with the carrier.
Double brokering. This is unethical and often also illegal. There are some exceptions where this can legitimately be done but those are rare.
Choosing Which Brokers to Work With
Unfortunately, not everyone that claims to be a broker is one. Charlatans abound (especially in the area of double brokering).
Every broker must be licensed, obtain a USDOT number, and have freight broker authority from the Federal Motor Carrier Safety Administration (FMCSA) along with a BMC-84 Surety Bond (minimum amount of $75,000). A good starting place to check on these is the FMCSA website. Also, the broker should be registered with the Unified Carrier Registration.
Experience and relationships are key criteria to consider. They are closely linked. A broker with loads but no carrier base – or with carriers looking for loads but no loads to offer – is going nowhere (except out of business).
Reputation and recommendations from others are good starting points for choosing a broker to work with. Get references.
The old saying, an ouch of prevention is worth a pound of cure, applies in checking out brokers.
