Any experienced trucker will tell you that maximizing equipment utilization is a key strategy to ensuring the success of your trucking company. Another way to look at it is – the emptier miles you drive, the more losses you incur. For this reason, owners of trucking companies spend a great deal of time and energy to find loads in an attempt to fill capacity. The greatest challenge is filling the backhaul. This is where load boards and freight brokers become invaluable resources to support your bottom line.
What is a freight broker?
A freight broker is a transportation intermediary whose primary role is to connect shippers having freight with qualified trucking companies that is available to haul the load. The broker may be an individual with their own business, or work for a freight broker company. Acting as a middleman, a broker will negotiate deals with shippers and then facilitate the movement of freight to ensure reliable transport to its destination. They are responsible for the haul, arranging terms with the carrier and making sure the freight arrives safely on time. During transport, they are in communication with the trucking company to monitor progress and to provide status reports to the shipper.
How do freight brokers make money?
In economic terms, specialization leads to cost reduction. Leveraging experience and industry connections, a freight broker is a transportation specialist who makes money by moving freight for less cost than the price charged to the shipper for the haul – this cost difference is called “the spread” or more accurately “the gross margin.” It is also commonly known as the broker fee.
Price charged to shipper – price paid to a carrier = gross margin
The difference between the customer price and cost of transportation measures the broker’s profit on the transaction.
Why do shippers use freight brokers?
Shippers are generally separate departments of a larger organization such as a manufacturer – the core business of the organization is undoubtedly anything but the transportation of freight. These departments may be knowledgeable in freight transportation, but they lack the core skills and networking outreach of an industry specialist. An experienced freight broker helps shippers cut costs, move freight faster and remove the task of carrier sourcing from its operations.
In the mind of a shipper, there is no greater nightmare than experiencing a missed delivery of a big shipment and losing a client because of it. In the freight transportation industry, failure is not an option. Freight brokers specialize in solving dependability issues, and work to minimize missed or late deliveries. A freight broker takes responsibility for delivery, ensuring their transportation network works at optimum efficiency to meet shippers’ needs.
Why do freight carriers use freight brokers?
It’s a matter of filling capacity – any means to keep your trucks hauling loads is a worthwhile venture (assuming it’s legal). Unless trucking companies have the good fortune to run lanes with a steady supply of freight to fill both legs of a round trip, searching for freight to haul is a never-ending task.
Load boards are a good source of freight for trucking companies, but it’s like trying to buy the best car for the cheapest price at a nationwide auction attended by all your competitors. If you manage to find a suitable load you need to act quickly and secure the freight before some other carrier does. This need to act quickly comes with some degree of credit risk that carriers should be aware of to avoid bad debt. Freight booked from a load board are generally from customers that are unknown to you – and that is the danger! Margins in the freight transportation industry are slim, very slim, you can’t afford to commit time and resources to a load that won’t pay. Before committing to the load, take a few seconds to search the shipper’s credit history. This sounds like a laborious and time-consuming task, but with the proper tools at hand it’s actually quite fast and simple to perform. eCapital provides an easy-to-use online credit check tool, free of charge for unlimited searches. This sophisticated credit check solution draws on an extensive industry database compiling 25+ years of internal and reported credit information. Searching a shipper’s ability to pay before you accept a load is a highly recommended practice before booking freight from any new or unknown customer.
An alternate solution for booking freight to fill capacity is for carriers to work with a freight broker. By becoming a member of the broker’s network of carriers, trucking companies are in good position to be assigned loads when the broker has customers with freight to be moved in the carriers preferred freight lanes. To be a viable member of the broker’s network, trucking companies have to provide the broker with a low enough freight rate to allow the broker to make his spread. The lower rate has to be assessed against the losses of an empty haul to determine end value.
Working with a broker in this manner allows trucking companies another revenue stream to help grow the business.
Solving the cash flow dilemma
For trucking companies to work with freight brokers, it has to be a partnership of trust. The broker must have confidence that the carrier will deliver the load safely and on time – the carrier must have faith that the broker will pay for the haul in a timely fashion. In fact, the quicker the broker pays the carrier the better for both parties.
Trucking companies are more likely to provide a better freight rate to the broker if payment for the haul is received quickly after delivery is made. The broker is more likely to attract a network of reliable carriers if their reputation for fast payment is widely recognized. The financial barrier that typically prevents brokers from making fast payment is poor cash flow.
To solve this cash flow dilemma, freight brokers are turning to freight factoring as a preferred funding solution to gain immediate access to working capital.
Here’s how freight factoring for brokers works:
- The broker submits invoices and supporting documents.
- The factoring company pays the carriers and broker fees without delay.
- The factoring company manages collections.
Freight brokers are an essential part of the supply chain by acting as a link between a shipper of goods and trucking companies authorized to transport freight. Freight brokers help in finding quality carriers at low prices for shippers and in turn, help trucking companies and make sure that they get paid accordingly.
Freight brokers and freight carriers are both vital to the movement of goods across the nation. Their services ensure the steady supply of raw materials to manufacturing plants and finished goods to retailers and consumers. Providing cash flow solutions to support both these groups is eCapital’s contribution to a more sustainable logistics network.
Visit eCapital.com to learn more about how freight brokers and trucking companies use freight factoring to accelerate cash flow and gain immediate access to working capital.