Building Your Freight Broker’s Reputation with Alternative Financing
In the post-pandemic period leading up to the spring of 2022, depleted carrier capacity led shippers to rely heavily on 3PLs to help acquire freight transportation services. It was an opportune time for freight brokers to expand their networks and grow their business. However, shifting market dynamics are forcing brokers to adopt new strategies to remain competitive. As capacity rapidly transformed from excessively tight to extremely loose and the spot market crashed, shippers regained leverage. Brokers’ roles were forced to evolve from load-finders to logistics optimizers.
Today, brokers’ success hinges on maintaining a reputation for efficient job completion and responsible fiscal management. A solid reputation can influence the level of trust shippers place in them and impact their relationships with carriers. Brokers must leverage efficiencies with their network connections and balance this with financial stability to establish and maintain trust, a cornerstone for success in the freight brokerage industry.
This article delves into the competitive advantages that can result from participating in factoring for freight brokers, a tailored alternative financing program for the industry. To provide a complete picture, we draw on industry expertise from a transportation financing specialist with over 35 years of experience. Read on to discover how this alternative financing program can support strategies for building your freight broker’s reputation and converting your positive reputation into new business.
Two decades ago, freight brokers managed only 6% of freight transportation. But, as the industry began to embrace technology, traditional freight brokers evolved into digital freight brokers with expanded resources. In this new role, brokers can now unite the available capacity of multiple carriers while adding their own layer of transparency and accountability. The outcome? Unmatched and comprehensive freight services. Shippers’ access to capacity is improved in the process, yet they are relieved of the administrative burden of managing numerous carriers. As a result, freight brokers today command more than 20% of all trucking freight.
Yet, the recent chaos in the trucking industry threatens freight brokers’ hold on their increased market share. As shippers regain control of freight rates following the crash of the spot market, many are now dealing directly with carriers to negotiate better pricing from hard-pressed operators.
However, the industry is anticipated to transition into a more balanced freight market in the latter half of 2024, fostering a more long-term strategy among shippers. A prevalent strategy among forward-thinking shippers is to secure reliable logistical resources before capacity turns tight again. The challenge for freight brokers is to get in front of these shippers with a compelling value proposition. Brokers must build and strengthen their reputation for quality service and fiscal responsibility to capitalize on this trend and ensure sustainability in the evolving landscape.
Quality service is vital to broker success
At a recent meeting of the Transportation Intermediaries Association held in Orlando, service came up repeatedly as the No. 1 standard used to judge brokers. This view is consistent with the opinions of Oscar Rombolà, a transportation financing specialist with over 35 years of experience. “Technology-driven freight brokers are among the most valued logistics partners for forward-thinking shippers,” claims Oscar. However, he points out that quality service means much more than delivering loads at a low cost. Higher emphasis must also be placed on dependability, efficiency, and risk mitigation.
Oscar continued, “As the industry anticipates the return of a more balanced market by mid-2024, shippers are once again issuing 12-month RFPs to carriers. But, to secure more capacity and optimize performance, they are also building their roster of approved brokers, prioritizing quality service over costs.”
Oscar points out that brokers must provide top-quality service and build their reputation for dependable access to quality carriers while emphasizing risk mitigation. The following list identifies the key attributes of quality service shippers require from their brokers:
Transparency: Visibility into the location and status of shipments with real-time tracking is only one part of transparency. Insights into carrier selection processes, streamlined document sharing, and open communication channels can also keep shippers informed about the progress of their shipments. Transparency helps to build trust -trust helps to build new business.
Asset-based: A primary categorization that distinguishes brokers is whether they operate as asset-based entities. Brokers with management over their own equipment have much more control to deliver loads as promised without fear of double brokering.
Quality control: Brokers that accept a load and then do nothing more than assign it to the first carrier that comes along will have a very short time in business. Brokers must establish a network of dependable carriers with the right equipment and trained drivers to handle the load with expertise. Take the example of a load of fresh fruit out of Bakersfield to Chicago. This shipment requires a clean food-grade reefer and an experienced operator to ensure the fruit remains fresh and undamaged during the 2,000-mile journey. Reputable freight brokers conduct regular quality audits of their carriers to ensure each haul is managed professionally.
Avoiding double billing: Carriers that deliver a load per the terms of their service agreement but are not paid by the broker that assigned the load are legally entitled to bring double liability claims against the shipper. Brokers must be financially stable and pay their carriers responsibly to protect the shipper from double billing.
Anti-fraud protection: The industry witnessed a 400% increase in complaints of double-brokering between Q4 of 2022 and Q1 of 2023. Cargo redirection and multiple other fraudulent activities are also on the rise. Shippers and brokers must optimize their due diligence practices to avoid falling victim to criminal activity. Asset-based brokers providing full transparency and quality control assurance present a higher level of anti-fraud protection for shippers and are best positioned to increase their reputation as a trusted supply chain partner.
Oscar emphasized that when shippers conduct due diligence on brokers, they typically look for signs of longevity and financial stability. “Any broker with less than one year in business is generally disregarded as a dependable supply chain partner. Likewise, any broker without proof of financial stability is equally overlooked.”
For many freight brokers, the solution to ensure financial stability is through the utilization of factoring for freight brokers. Experienced alternative lenders specializing in the trucking industry offer this tailored funding program.
What is factoring for freight brokers?
It is a specialized form of invoice factoring specifically designed for freight brokers to pay carriers, receive earnings, and establish fiscal responsibility.
Here’s how it works:
- The broker assigns a load to a carrier, who then completes the delivery per the service contract’s terms and conditions.
- The carrier sends their freight bill to the broker.
- The freight broker invoices the shipper and includes all required backup documentation. A copy of both invoices and documentation is sent to the factoring company.
- The carrier’s freight bill is quickly verified, and the delivery is confirmed before the factoring company buys the invoice.
- Immediately upon receiving full payment of the broker’s invoice from the shipper, the factoring company disperses funds accordingly. The carrier is paid in full, and the broker is paid his earnings minus a small factoring fee.
- This completes the transaction.
Note: If a Quick Pay option exists between the broker and the carrier, the best factoring companies can accommodate this arrangement. The factor pays the carrier their full invoice amount within two to five days (depending on the terms of the Quick Pay arrangement) minus a Quick Pay fee of around 2.5%. This arrangement also benefits the broker as their factoring fee is reduced by 0.5%. It’s a win-win-win scenario.
Benefits of factoring for freight brokers
In Oscar’s opinion, the decision to take on a factoring for freight brokers program is a “no-brainer.” The benefits are significant, far outweighing the minor fee involved:
- Shipper’s confidence in the broker’s financial status is heightened knowing a reputable lender backs the broker.
- Carriers are assured payment for services – a strong incentive for quality carriers to work with your brokerage.
- Brokers avoid arduous paperwork and the management of multiple carrier payments as the factoring company administers back-office duties. Brokers can grow their carrier network without additional A/P or A/R processing burden.
- Brokers gain complete visibility of all transactions via real-time account monitoring.
- Shippers avoid the possibility of double billing as the factoring company assures that the carriers are paid.
- The factoring company approves carrier selection, helping to optimize the broker’s due diligence process.
- The factoring company participates in any service disputes to help the broker resolve issues.
As shippers regain their strength in the freight market, their dependence on freight brokers has changed from providing capacity to maximizing transportation management efficiencies. To remain viable and grow during the transition to a more balanced market, freight brokers must bolster their reputations as financially stable and dependable providers of quality freight transportation services.
The best alternative lenders specializing in freight transportation provide factoring for freight brokers, a tailored cash flow solution designed to streamline carrier payments and manage back-office efficiencies. Transportation financing veteran Oscar Rombolà expressed that “Quality service and financial stability are the keys to building and maintaining a strong freight broker’s reputation for getting the job done.” Factoring provides the financial stability freight brokers need to support efficiencies, combat risk, and support growth as the freight market rebalances in 2024.
The content of this article is intended to provide a general guide to the subject matter. The views and opinions expressed are those of the authors and do not necessarily reflect the official policy or position of eCapital.
- Freight brokers must leverage efficiencies with financial stability to establish trust with shippers and carriers.
- For many freight brokers, the solution to ensure financial stability is through the utilization of factoring for freight brokers.
- Factoring for freight brokers provides a tailored cash flow solution to streamline carrier payments and manage back-office efficiencies.
- Brokers can grow their carrier network without additional A/P or A/R processing burden.
- Shippers are assured service without the threat of double billing.
- Carriers are assured payment.
- It’s a win-win-win scenario.
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