What Freight Brokers Need: Insurance & Certifications Explained

 

The exciting opportunity of becoming an entrepreneur who works for themself is what draws most people to the job of becoming a freight broker. You may have considered becoming a freight broker to avoid the long drives and time away from family as a truck driver. Or, you may be interested in a job within the shipping industry. To pursue this exciting world, prospective freight brokers need to understand Insurance and Certification requirements.

 

What do freight brokers need? Some of the essential things that freight brokers need are insurance and certifications; a business plan, to form a company, register for a USDOT number, a surety bond, and a legal process agent. 

 

Regardless of your background, you can use this guide to help you to become a freight broker and work for yourself, make your hours, and even make a substantial amount of money. 

What Is A Freight Broker? 

Companies that make shipments regularly will usually use a freight broker to move and insure their shipment. The job of the freight broker is to source a carrier for the shipment. You should always try to find a delivery company at a lower cost than the shipper could get. As a link between shippers and carriers, the freight broker is the middle-man who makes the deal of the shipping. 

Any amount less than what the company could have got for the shipment is known as the “spread”. Take away the shipping cost from the spread, and you have the salary of the freight broker!

What Are The Duties Of A Freight Broker? 

Daily, a freight broker will deal with companies wanting to ship goods and carriers who can transport those goods. The freight broker will work as a matchmaker or middle-man between the two. During the process of matching up potential companies with carriers, a freight broker will process and organize shipping logistics. 

A freight broker will also negotiate the rates that the deliverers charge for shipping, make itineraries and track the goods being shipped. Finally, 

busy warehouse

a freight broker will log the shipments and deliveries for the companies in an organized way. There are many laws and regulations which the freight broker must pay attention to make sure that the load goes well for everybody. 

How Do You Become A Freight Broker? 

You need to do several things to become a freight broker. The legal stuff that you need to complete to become a freight broker include things like getting an agent, a bond, DOT authority and insurance. However, to start your business as a freight broker, you also need funding and a company, so you will need to create a company name and register it and also create a funding plan for a potential bond. 

 

The following list of things you need to do to become a freight broker is in order from first to last. The stuff at the beginning can be done at any time. Still, by the time you get to the steps of getting a bond and finding agents for the states that you will be operating in, you should be ready to start finding companies and carriers to work with to streamline the start of your business. 

#1: Company Registration

There are many benefits to creating a company officially as a limited liability company(LLC). You may want to consider this as a first step to accomplish on your way to becoming a professional freight broker and running your own business. 

Benefit #1: Increased Credibility

Since you will be working with companies that may not know who you are, having your company filed as an LLC gives increased credibility to your brand as a freight broker. This credibility can help put your partners at ease and trust that you can get the job done just by having those three little letters after the name of your company. 

Benefit #2: Protected Assets

When your company is a registered LLC, you are provided limited liability protection as an owner. This makes it so that you, as an individual, are not personally liable for business debts and liabilities of your LLC. 

Benefit #3: Taxation Not At The Business Level

Any tax that is due is paid at the individual level and not at the business level for LLCs. This function of an LLC is called “Pass-Through Taxation.” The income of your business passes through the company to the members of the LLC. LLC members report profits and losses on their own individual income tax returns individually. Instead of the LLC filing taxes, members must file Form 1065 with the IRS each year. 

Benefit #4: Fewer State Requirements

LLCs usually face fewer restrictions and annual state-made requirements that can stall business. 

Benefit #5: Easy To Manage Organization

An LLC is run and organized by the company owners and can fit any structure as an organization that the company owners decide on. 

Benefit #6: Not Many restrictions

Virtually any entity can run LLCs. The limits on who or what makes up an LLC are numerous and beneficial for smaller organizations. 

#2: Make A Business Plan

Your new business has a name and possibly even an LLC, what’s next?! Well, if you want any kind of financing to come through for the following steps, you will need to have a detailed business plan written up. A business plan is also your roadmap for the upcoming stages of the beginning steps of your business. 

What Should I Have In My Freight Broker Business Plan? 

A complete business plan for your freight broker business will not only help you to secure funding for your business, but it will also give you the guidance that you need in the early stages of your business. A complete freight broker business plan should have seven sections; Executive Summary, Company/Start-Up Summary, Services Provided, Market Analysis Summary, Strategy and Implementation Summary, Management Summary, and a Financial Plan. A great resource with a sample business plan for a freight broker business can be found at BPlans.com. 

Section #1: Executive Summary

The executive summary explains where the business is situated and who they will be dealing with. Also, goals for growth and service should be added here. The business model, the management style, and the executive mission statement are all essential to have in your executive summary. Basically, why did you start this business and how will it be organized structurally and philosophically. 

Section #2: Company/Start-Up Summary

The Company Summary is a summary of what this business will be and who you will be working with or shipping. The Start-up summary will be all about the costs associated with starting the company. Where will the initial money go? The most common categories for start-up are expenses, assets, investments, and loans. You will want to have an accurate breakdown of the items and services that you will need to purchase with your first seed money or loans with a total calculated at the bottom, like in a Spreadsheet. 

Section #3: Services Offered

The Services Offered section is a short section in which you can go into more detail about the niche that your company will be servicing and the companies that you will be working with. You want to name their products because this will tell investors or loan officers the likelihood of this being a successful business model or not. 

Section #4: Market Analysis Summary

The Market Analysis should be a summary of multiple years of the market for the products and company types that you will be working with. This information gives an outlook for the future of the business. It also is essential for gauging how your business will get a portion of the market share in a competitive market holding. Basically, how is your business going to stand out, and what is the outlook for the market that you will be targeting.

Section #5: Strategy and Implementation Summary

In the strategy section, you want to detail what can give your business a competitive edge. Experience in the hauling industry, personal connections, and knowledge of industry insiders are all pluses in this section. The implementation should detail the sales strategy and forecast the sales done in your company. This forecast should be by month for the first six months of your fledgling company. Finally, set some dates for milestones in the company, like when employees should be hired, etc. and by whom and which department. 

Section #6: Management Summary

In the management plan, you want to detail what type of stock options and ownership will take place in the LLC. Also, which positions will make up the management of the company, and what will be their salaries and benefits? The company structure will help to narrow down the scope of the payroll and your hiring activities so that you don’t overspend on personnel before starting to turn a profit. 

Section #7: Financial Plan

In the Financial Plan, you want to take into consideration all tax and profit or loss possibilities and chart them out. For example, what is the commission each month needed to break even? Also, based on the margin of gross monthly, what is the projected loss or gain of the company. Project the profit margins if all goes well and project the balance sheet if all items are run to the specifications of starting the business that you have detailed in this business plan. WIth industry profiles, you can also determine the debt to profit ratio and the tax rates that you will be charged. 

#3 Get A USDOT Number 

Procuring a USDOT number for your freight brokerage business is a requirement to operate. You have to file for a USDOT number through the Federal Motor Carrier Safety Administration(FMCSA). The form you need to fill out is called the OP-1, and it costs a fee of around $300. You can do this by accessing their website or calling the FMCSA at (800) 832-5660.

Why Does A Freight Broker Need A USDOT Number?

USDOT numbers are federal regulations and registration for companies dealing with shipping across state lines, or shipping-certain specialty products, such as hazardous materials. If you are doing interstate transportation (like between two states or through one state to get to another), you need a USDOT number. Several other considerations would make it required for a freight broker to have a USDOT number. Some of these considerations are listed below:

Intrastate Hazardous Materials Shipping

If the cargo that your company is dealing with is hazardous enough to need a safety permit, you are required to register a USDOT number for your business. This is true even if the shipping is being done interstate. 

Any InterState Shipping Of Passengers Or Goods

If you are working with commercial vehicles that are shipping passengers or goods across state lines, you need to register with the FMCSA and get a USDOT number. 

Gross Vehicle Weight Or Combine Weight

If your commercial vehicles in your fleet or that you are working with as a freight broker have a gross weight of over 10,000 pounds, then the company is required to have a USDOT number. 

Passengers For Compensation; Not For Compensation

If the vehicle is being used to transport eight or more passengers for compensation or 15 or more passengers, not for payment, the company is required to register a USDOT number. 

Filling Out The FMCSA OP-1 Form

The chances are that you will need to file for and register a USDOT number as a freight broker. The link to get the registration form can be found here on the FMCSA website. There are six steps to obtaining the USDOT number, as seen listed below. 

Step #1: Submit the OP-1 Application Either By Mail Or Online

Fill out the OP-1 Form on the FMCSA website and either mail it to the address on the form or send it as a pdf to the email provided at the top of the form. 

Step #2: Receive The Grant Letter and MC/FF Number

After the FMCSA receives and processes the Operating Authority application, you should receive the Motor Carrier(MC) and Freight Forwarder(FF) number. IF you applied online, you would get the number immediately, and the grant letter will be sent in the mail. If you asked by mail, the MC/FF and grant letter would be sent in the mail about four weeks later. Your insurance company and processing agent will use the MC/FF number to make the correct filings on your behalf. Even though you have your MC/FF number, you cannot begin to operate until the certificate is received in the mail.

Step #3: 10-Day Protest Period

The FMCSA will post the registration of all companies in its registry. There is a ten-day window at which time any individual can submit a protest as to why the company listed on the ten-day registry should not receive an Operating Authority. 

Step #4: Insurance Company FIles With FMCSA

Your insurance company has 90 days to file the appropriate paperwork or forms with the FMCSA. This can be done anytime after you are issued the MC/FF number. If the insurance company does not file this paperwork within the 90 days, your request is dismissed, and you are not reimbursed for your registration fee. The FMCSA should send out a letter of the upcoming 90-day limit when only twenty days are remaining. 

 

There are several different types of forms the insurance company will need to file with the FMCSA that depend on the type of cargo being shipped and the structure of your business. These forms include proof of bodily injury and property damage, proof of cargo liability, and broker trust fund agreement. 

Step #5: Processing Agent Files Form BOC-3 With THe FMCSA

The Processing Agent filings can be started at any time after the MC/FF number is received. You are required to have a processing agent in each state that you operate or have an office. Your processing agent is your legal representative for if there are legal proceedings brought against your freight brokerage LLC. 

 

Again, you have a 90-day time limit to file the appropriate paperwork with the FMCSA for all processing agents that your company will need in the various states that you will be working in. 

 

Step #6: The Final Operating Authority Certificate From The FMCSA

You cannot begin your work as a freight broker until you receive the Operating Authority Certificate in the mail from the FMCSA. This will only happen once the FMCSA has approved your filings from your processing agent(s), the insurance company, and your application. ALL of this must be done before the registration period of 90 days expire. 

#4 Secure A Surety Bond

A surety bond protects you from getting stuck paying a carrier if a company refuses to pay them. There are instances when this type of insurance will come in handy, and you always want to have it since incurring the cost of a carrier on your own can sink your business. 

 

If a company refuses to pay a carrier for their shipping services, you, as the freight broker, are responsible for covering the shipping costs. IF you cannot pay this amount, your surety bond will cover it. 

 

To get a surety bond, the bond company will need to run a credit check and do a background check on you and your partners(if you have any). Ultimately, you would pay a percentage like a loan, and this percentage of interest depends on the level of your credit score on the date of your surety bond application. 

#5 Get A Legal Process Agent

The legal process agent will deal with any legal proceedings that come against your company or LLC. The FMCSA will require you like a freight broker to obtain a processing agent in each state that you are doing business in or in each state that you may have an official office in. The fee for these processing agents to obtain is usually around $50 for each agent with additional charges should they be needed by your company to handle any legal proceedings. 

#6 Get Insurance For Your Company

Insurance is also required for your FMCSA filing to go through and to receive your certificate and USDOT number. You will need general liability insurance and cargo insurance. Some of the best insurance tips for freight brokers can be found from the blog written by Mark Yunker, who is the VP of the Business Insurance Agency RJ Ahmann Company on the website DAT Super Database. Some of the best tips are summarized below. 

Tip #1: Package Property And General LIability

If you are leasing or own a property, it is an excellent option to bundle the liability insurance with your property and general liability. 

Tip #2: Vicarious Auto Liability & Umbrella

If you become a part of a lawsuit from your business dealings, your insurer needs to be able to defend you. If found guilty, your vicarious auto liability will cover your company. There are wide variations of coverage for vicarious auto liability, so make sure to read the terms very carefully before deciding on the package. The umbrella package is usually made in increments of $1 million. 

Tip #3: Contingent Cargo

Contingent cargo coverage is a gap coverage for the coverage that your carrier may or may not have. You want to focus based on the coverage and whether it is legal liability. IN other words, as a broker you are not liable for lost or damaged cargo claims.

Tip #4: Do Freight Brokers Need Cargo Insurance? 

Since a broker does not transport freight, it is of no use to you like a freight broker. You do not need cargo insurance as a broker. Only carriers need cargo insurance. 

Insurance Conclusion

The bottom line for insurance coverage of your freight brokerage business is to trust the FMCSA. Their website has verification of the carrier’s who you are dealing with and the effective policy date or possible cancelation date. This is important to consider when you are keeping yourself covered for all possible scenarios and accidents or losses. 

How Much Money Can You Make As A Freight Broker? 

Being a freight broker has its benefits: you can work from home, make your hours, and earn a better living salary if you work hard. Indeed.com lists the average freight broker’s salary at $51,032 in 2019 with a wide distribution from $14,000 at the lowest to over $100k as the most successful freight brokers. However, this is the kind of business where the more you hustle, the more you can make!

How Do You Find Carriers And Companies As A Freight Broker? 

Freight broker’s find the carrier of goods and the companies in need of shipments. Many online boards offer postings by both of these types of companies that freight brokers can organize as the middle-man. Some of the best online freight broker posting boards are Cargomatic, Trulos, and FreeFreightSearch.com

 

All of these sites allow you to browse potential carrier and company partners as well as post jobs in need of carriers to find truck drivers or trucking companies that can ship the goods from your company partner. 

 

Word of mouth from a reputation is also an asset that cannot be overstated. When you are starting, always make the customer(company) happy, and the carrier feels safe and appreciated. 

What is a Freight Broker’s Salary?

A freight broker’s salary can vary greatly.  Indeed.com puts the average at $51,032, Linkedin puts it in the range of $30,000-83,000, and Careeronestop.org has it at $25,000-65,000.  Payscale.com has it at the highest with a range of $41,940-143,000. 

 

Still, all of these ranges are dependent on several factors, including experience, skills, and knowledge of the industry.  The salary of a freight broker is hard to pin down because it depends on the amount of time and effort put into the operation. 

 

But more than anything, it depends on the depth of the connections that the freight broker has. Using online forums to pick up carriers and company contracts is great. But the reputation and word of mouth about your business are what will gain you the most dividends and repeat customers in the long run. 

Conclusion

Becoming a freight broker can be a great idea if you have the time and energy to set up the business plan and find carriers and companies in need of shipping goods. Sure, being a truck driver gives you a bit of security without much organization. 

 

But, if you are willing to work hard up front and stay organized, you can turn your trucking knowledge into an enterprise where the benefits are much better! A job where you work from home, make your schedule, and can ultimately make more money is waiting for you if you follow these steps and tips for becoming a freight broker. 

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About The Author

Mike Eberl
Mike is Founder and CEO of Customodal. Having a nearly 30 year history owning companies which provided asset-based ground freight, parcel shipping, air freight and charter flight services, Mike harnessed that knowledge into a Top-Tier logistics company when he started Customodal.

To read more about Mike, check out his full bio here.