It’s becoming something of a thing in trucking for an existing motor carrier of any size to launch a side business to broker freight. Such a brokerage is typically set up as an independent entity that operates alongside but separately from its carrier sibling. Of course, an individual owner-operator or even someone who doesn’t own even a single truck can set up a brokerage.
Indeed, the barrier to entry for establishing a brokerage is much lower than fielding even a single truck let alone a fleet of them. Mostly, it involves completing regulatory paperwork and securing a surety bond.
Whether called a broker, logistics provider, or a transportation intermediary, these service providers traditionally have been primarily non-asset-based companies with the expertise to provide “mode- and carrier-neutral transportation arrangements for shippers with the underlying asset-owning and operating carriers,” according to the Transportation Intermediaries Association (TIA), a leading organization for 3PL professionals in North America and abroad.
All broker/3PL operations involved with truck freight must be licensed by the Federal Motor Carrier Safety Administration as either brokers or freight forwarders. To ease the way into brokering, TIA sells a “new broker kit” and DAT, operator since 1978 of a leading load board, sells a paperwork package for obtaining authority.
Whether or not you opt for outside help, it’s about a ten-step process to set up a brokerage, from filing paperwork to brokering the first load. That’s per straightforward pointers posted online by DAT and TIA, from which HDT has compiled this handy digest on how to start a brokerage:
- Decide how your brokerage will operate as a legal entity. Will it be a sole proprietorship, a partnership, a limited liability corporation, or another type of entity? Discuss the pros and cons of each option with an attorney or accountant.
- Obtain broker authority through FMCSA by using the agency’s Unified Registration System. This step entails completing Form OP-1 and paying a one-time $300 application fee. Processing can take four to six weeks. Once established, a brokerage must also submit an annual filing of information, as required under the UCR agreement.
- Secure a surety bond or trust fund. If a broker does not carry out the terms of contracts with a shipper or carrier, this instrument assures that the broker has the cash or assets to cover the amount. Within 60 days of receiving interstate operating authority (MC number) from FMCSA, a broker must obtain a $75,000 surety bond or trust fund from a bank or bonding company. The cost for this will vary based on one’s personal credit. These bonds/funds can be obtained with cash or by paying an annual premium based on risk. TIA offers its TIABond program, at $75,000, $100,000, and $250,000 levels. DAT partners with an insurance company that offers a broker bond with a special rate for DAT customers.
- Broker applicants must designate a process agent in each state in which its offices are located and in which contracts will be written. These accept legal filings on an applicant’s behalf and are designated on FMCSA Form BOC-3. Form BOC-3 must be filed within 90 days after the date notice of the application is published by FMCSA Register.
- All brokers/freight forwarders, just like motor carriers, must complete Unified Carrier Registration (which is currently delayed for 2020 until FMCSA completes a rulemaking on UCR fees) and pay an annual fee. The fee varies a little each year, but generally runs around $60-$80 per year.
- State rules also may apply. Check with all states in which the brokerage will do business regarding requirements to establish and operate a business in those states.
- Beyond the paperwork and financial bonding, there’s not a whole lot more that’s needed to hang out your broker shingle. A home office can be set up or commercial office space rented. At bare minimum, you’ll need a phone, fax, and computer. Make sure to budget for such recurring costs as: utilities, phone/internet charges, insurance and taxes, subscription fees for load-matching, rate-benchmarking, and transportation-management software, and of course if you have employees, for payroll and benefits.
- Keep in mind all ongoing required paperwork. Brokers must keep records of each transaction, including contracts, bills of lading, payables, receivables, carrier qualifications, etc.
- Start contacting shippers to offer them the brokerage services you provide. There’s many ways to skin this cat and a blog post at TruckerPath lays out several promising tactics in detail.
- Identify carriers ready to haul freight. A load board can be used to post your loads or search for trucks. To get an idea of what this process is like, you can search for available trucks in the free load-board demo version of DAT Express.
- Set an appropriate rate for each load. Rate-benchmarking software can be used to help see current rates for both the contract and spot-freight markets.
Last but certanly not least, start making money by being “the missing link between clients who want to get their cargo moved and carriers that provide transportation services,” as Vic Lance, founder and president of Lance Surety Bond Associates, puts it.