How to Start a Freight Brokerage

Connecting the transportation industry: The role of a freight broker

The transportation industry is a cornerstone of the American economy, generating hundreds of billions of dollars of revenue per year. Freight brokers play a crucial role, acting as intermediaries between shippers who need to move goods and carriers who can haul them.

Although many shippers have contracts with trucking companies to transport their goods, a significant amount of truck transport in North America is handled by freight brokers. Brokers connect truckers with steady work and shippers with reliable and cost-effective solutions to ensure their goods reach their destination. If you love problem solving, excel at logistics, and have good interpersonal skills, a career as a freight broker may be the perfect opportunity for you.

As a freight broker, you’ll be responsible for negotiating rates, managing contracts, and ensuring smooth communication between shippers and carriers. Here’s a step-by-step guide for anyone looking to enter this field to help you set up and operate your own freight brokerage.

Setting up and operating your freight broker business

1. Select a legal structure for your business

Choosing your business structure is the first step in starting a freight brokerage. Here are some of your options, as well as their pros and cons:

• Sole proprietorship: This structure is simple and inexpensive to set up but offers no personal liability protection.
• Partnership: An arrangement that involves two or more people sharing ownership, profits, and liabilities.
• Limited Liability Company (LLC): Establishing an LLC can provide personal liability protection while offering flexibility in management and tax benefits.
• Corporation: Incorporating as a C corp or an S corp provides strong personal liability protection and tax benefits but involves more regulatory requirements.

Consult with an attorney or accountant to determine which option best suits your needs.

2. Apply for operating authority

To legally operate as a freight broker, you must obtain broker authority from the Federal Motor Carrier Safety Administration (FMCSA) using the Unified Registration System. THE FMCSA is the division of the US Department of Transportation that oversees the trucking industry and enforces interstate commerce and safety regulations.

Use the Unified Registration System (URS) to apply for your broker authority. There is an application processing fee, and you should expect the approval process to take 4 to 6 weeks. DAT can simplify this process and help you get your operating authority.

3. Designate a process agent

A process agent acts as a representative who can receive legal documents on your behalf. It serves as a way you can be reached if you are involved in court proceedings and is required to obtain the authority to operate.

You must submit form BOC-3 to the FMSC to designate a process agent in each state where you conduct business. Some companies offer “blanket” coverage that can simplify your compliance by designating a process agent in every US state. You’ll need to submit the BOC-3 form within 90 days of your operating authority application or your application will be dismissed and you’ll lose the application fee.

4. Arrange for a surety bond or trust fund

All freight brokers are required to secure a $75,000 surety bond or trust fund. This does not mean you need to have this cash up front. Instead, it’s a legal requirement to guarantee that if a broker does not meet their contractual obligations with a shipper or a carrier, they have the financial backing in cash or assets to cover those bills. You can obtain a surety bond by purchasing one at an annual premium from an insurance company, which will file the necessary paperwork for your brokerage with the FMCSA. DAT’s partnership with EPIC Insurance offers DAT members freight broker bonds at a competitive premium with no collateral or initiation fees.

5. Register your business

All brokers, freight forwarders, and carriers that operate in the United States must complete the Unified Carrier Registration (UCR) and pay a small annual fee.

6. Check your state’s requirements

If you’ve completed the above steps to obtain your operating authority and licenses, you’ve met the federal requirements to operate as a freight brokerage. Make sure you verify and comply with your state’s specific requirements to establish and operate a business as well. DAT Authority can identify and prepare all your paperwork for any state regulations relevant to your brokerage.

7. Set up your office

Establishing your own freight brokerage can give you the flexibility to choose whether to operate from a home or commercial office. At a minimum, you’ll need a phone and connection to the internet. Beyond considering the necessary office equipment to get yourself set up, make sure you budget for recurring costs. These can include:

• Insurance (property, general liability, workers’ compensation, cargo, and others)
• Taxes
• Rent (if you choose to work out of a commercial office)
• Phone and internet charges
• Utilities for the space (electricity, heat, and water)
• Payroll and benefits (if you have employees)
• Subscription fees for load matching, rate benchmarking, and transportation management software

Once you’ve completed these steps, you can turn your attention to running your transportation logistics business.

Conducting business as a freight broker

1. Get training
Freight brokering is not simply one-to-one matching shippers with carriers—it requires a solid grasp of logistics, negotiation, and regulatory compliance. A quality freight broker training course can help you prepare for and find success in your freight broker career. DAT recommends Freight 360’s Freight Broker Basics Course, and we’ve teamed up with them to offer an exclusive 20% discount.

2. Obtain broker contracts and paperwork
Freight brokers are required to maintain records of each transaction. You will need to keep contracts, bills of lading, payables, receivables, and carrier qualifications. Proper record-keeping not only protects your business legally, it also will allow you to operate with confidence and professionalism with all of the documents that are needed for tracking shipments, billing clients, and resolving disputes.

3. Find shippers
Build your client base and grow your business by reaching out to shippers in need of freight brokerage services. Strategies for finding shippers can include cold calling, warm calling, offering free audits, and strategically targeting industries that frequently require freight services, such as manufacturing, agriculture, and retail.

DAT helps freight brokerages easily connect with reliable business partners through the DAT load board directory. While a load board may not be the first place you would think to look for shipping partners, DAT Directory provides not only shippers’ contact information but also reviews from other brokers and carriers who have done business with them in the past.

4. Find carriers
The quality of the carriers you work with directly impacts your reputation and success. When selecting carriers, it’s essential to vet them thoroughly. This includes checking their safety records, insurance coverage, and previous performance. Load boards are a good way to find carriers who have the equipment, capacity, and routes that match your clients’ needs. To get a sense of this process, you can search for available trucks with a free demo from DAT.

Developing a strong network of carriers allows you to offer more options and flexibility to your clients, which can be a significant competitive advantage. Maintaining good relationships with carriers is also crucial, as it can lead to better rates and priority service.

5. Set prices
Setting prices that are both competitive and profitable is crucial to your freight brokerage’s success. It can feel intimidating at first to determine an appropriate rate for each load, but when you have information on current industry rates you’ll be equipped to make that call. Rate benchmarking software, like those available through DAT iQ, can help you determine appropriate rates for both the contract and spot freight markets. With access to this data, you can set rates that are attractive to shippers while ensuring your brokerage remains profitable.

6. Move freight
Start conducting business connecting shippers with carriers and moving freight. As you gain experience, you’ll refine your processes and become more adept at managing complex logistics. If you decide to seek support in handling your freight brokerage’s back-office tasks, DAT’s comprehensive freight broker tools can simplify your operations and let you focus on your customers and carriers.

Additional resources

Here are some additional resources to help you expand your knowledge and ensure your freight brokerage’s success.

Insurance
Protect your business with comprehensive trucking insurance. Loadsure, DAT’s insurance partner, offers insurance solutions tailored for brokers.

Training courses
Training courses can give you a competitive edge, whether you’re new to the business or staying informed about new regulations, technologies, and best practices as the market evolves. Take advantage of exclusive discounts on training programs—DAT partners with Freight360 to offer a 20% discount on their Freight Broker Basics Course.

Educational materials
Take advantage of the resources out there beyond formal training that can deepen your understanding of the freight brokerage industry. DAT recommends these resources to get started setting up and managing your brokerage:

Podcast: Listen to the Freight 360 Podcast for insights on becoming a successful freight broker.

Books:

• Start Your Own Freight Brokerage Business by Jacquelyn Lynn
• Broker Operations Manual by David G. Dwinell

Utilizing DAT for business growth

DAT offers a large range of tools and services designed to help freight brokers succeed, such as:

• Load boards: Use DAT load boards to find and post loads, as well as access a vast network of shippers and carriers.
• Broker authority assistance: DAT’s expert assistance can simplify the often complex and time-consuming process of obtaining broker authority.
• Freight rates: Access current freight rates and up-to-date market data to help you set competitive and profitable rates.
• Carrier onboarding tools: Streamline the process of onboarding and monitoring carriers.
• Load tracking software: Implement load tracking solutions to keep track of your shipments throughout the transportation process.
• Transportation management software: Streamline your operations with the transportation management system built specifically for freight brokers.
• Freight broker training: Get started in the industry or stay informed on industry changes and best practices with comprehensive training programs offered by DAT.

Take the next step with DAT

Starting a successful freight brokerage involves several key steps, from setting up your company and obtaining the necessary licenses to building strong partnerships with shipping clients and carriers. Effective planning, compliance with regulations, and strategic networking are crucial to laying a solid foundation for your business.

As you navigate these processes, remember that leveraging resources like DAT can simplify tasks and support your growth. With the right approach and persistence, you can build a thriving brokerage that capitalizes on industry opportunities and meets the needs of your clients and carriers.