In today’s business world there are numerous factors affecting the trucking industry. We have touched on several of these in the past.
We are all well aware of the obvious concerns and things such as rising maintenance costs, unpredictable fuel costs, uncontrollable weather patterns, ever changing laws and regulations, and even industry competition.
Some of these we understand, might not like them, but we can understand them. They are the necessary factors that one must deal with, and every industry, regardless what field they conduct business in, have to deal with similar factors.
Larger companies find it easier to absorb some of these costs. It is not as easy for the smaller companies. But one thing is true, regardless of size, the cost are passed onto the customer.
But, there is an issue in the trucking world which has been debated, the freight brokers. What they actually do to the overall industry and how their actions affect not just your company but everyone.
Before we go into why many consider them to be bad, perhaps even evil, let’s explain what they are, what they do, or more likely what they are supposed to do. And why they have grown into an entity all their own. They are actually part of the reason that these other costs have increased.
Ok. So what is a freight broker? Why do companies use them?
Freight brokers are either an individual or company that operates mainly as a liaison between authorized transportation companies and service providers.
Basically they negotiate the deal between someone who needs products shipped, and the company who will provide the service –in this case the truckers. They usually handle every aspect from times, locations, and pricing, or at list they should be handling it, anyway!
Freight brokers (regardless if they are a business or an individual) must be licensed by the Federal Motor Carrier Safety Administration (FMCSA). They are also expected to secure and maintain appropriate insurance, to cover cost in case of a loss. In many cases they are required to maintain surety bonds, in addition to the insurance.
Their services can be looked at as a way to aid in doing and getting business. They can help shipping companies find carriers and assist the carriers in finding good loads to haul, something that can be difficult for companies on either end. They charge a commission, based off the distance, the overall value, and other related factors.
Many companies, especially the smaller ones, use freight brokers because they specialize in the shipping industry. They also have a large amount of technical resources to better assist both the shippers and the carriers.
Many companies rely heavily on brokers, but some of them, especially the one that are newly operating in this business, choose to use Free and Paid Online Load Boards instead, but as soon as they can afford they switch to an actual paid Broker Services.
One other point, people have made the mistake of confusing freight brokers with freight forwarders. Though they perform similar duties, even in the same area, but they are not the same.
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A forwarder will take actual control or possession of the cargo to be shipped, they make the arrangements (even consolidate smaller loads). A freight broker on the other hand never takes physical possession of the items that are to be shipped.
Now I am sure you are asking, “How can this be a bad thing”?
Well, it depends on several factors. Some of the key complaints are listed and explained below:
1. They Are Lowering The Load Price
Low prices seem like a good thing. We all love lower gas prices. Who can pass up a 2 for 1 offer? Even in the age of the internet coupon clipping still remains popular. So what can be bad about lower prices?
When the freight broker negotiates a deal there many factors they consider; the cargo, the pick-up and destinations, etc. But the other factor is price. A shipper is looking for the best rate.
The carriers want to offer their services at a fair price. But the broker is the one who’s trying to make the sale. They don’t care about a carrier’s overhead cost.
Recently, it was estimated that brokers have caused the average load per mile rate to drop by a national average of $1.72! Don’t you wish the price of a value meal would drop that much?
2. They, as middlemen, cut trucking profits
So you see, not only are their deals dropping the price, because they are trying to make a sale, but they are directly affecting your profit margin.
If you take that figure, multiply it by 500 or 1000 miles, it really makes one wonder why anyone would use a freight broker.
Then consider how many trips your company makes in a year (when adding up all the vehicles in your fleet), wow!
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So in order to compete, prices must be lowered. They will go that far that in order to get the deal will offer the customer enormously low price and wait to find a desperate carrier that will take the load no matter what. How evil is that!!
Well then why not cut out the middleman? Instead of paying someone a large commission, who doesn’t have a vested interest in your company anyway. Why not just handle this in house?
There are marketing companies that specialize in lead generation that are much more economical, or you can even invest in a training program for freight broker / agent for one of your trusted people to attend, perhaps wife / husband, girlfriend/ boyfriend, good baddy of yours who is looking into changing their career field.
There are numerous options, if you want to cut the middleman. “Where is Will, there’s a Way”.
3. They can cancel loads, even though you received confirmation documents
The freight broker is a third party, they work for themselves. So they line up shipments make the arrangements and such.