Book
Excerpt
Chapter 1
The transportation industry in general and the
trucking industry specifically are critical to the economic and social
survival of local communities, the country and, indeed, the entire
world. Think about the times major transportation systems have failed,
either because of mechanical problems, natural disasters or labor
conflicts. When cargo can’t move, the repercussions are serious and
widespread. Store shelves are emptied, perishable goods spoil, factories
are shut down, workers are idled—the list goes on.
The United States may be shifting from a
manufacturing to an information-based economy, and technology is
certainly impacting every business, but there will never be a time when
goods do not have to move.
“Logistics professionals in the United
States—shippers, intermediaries and carriers—have transformed the way we
do business,” says Robert A. Voltmann, executive director and CEO of the
Transportation Intermediaries Association (TIA) in Alexandria, Virginia.
“In the process, our national economy has been transformed as well.
Transportation has become a strategic asset. Inventory is now stored in
motion as we have been able to move to just-in-time delivery. More goods
are being moved and with more efficiency and reliability than ever
before.”
Take a look around your home or office. It’s
highly unlikely that you have much—if anything at all—that didn’t reach
you either entirely or partially by truck. The size and scope of the
motor freight industry can be overwhelming. The good news is that
there’s plenty of room for you to start and grow a profitable business
serving the industry as a freight broker.
What exactly is a freight broker? Very simply, it
is an individual or a company that brings together a shipper that needs
to transport goods with an authorized motor carrier that wants to
provide the service. The legal definitions of “broker” and “brokerage
service” are found in the Code of Federal Regulations, 49CFR371.3:
“Broker means a person who, for compensation,
arranges or offers to arrange the transportation of property by an
authorized motor carrier. Motor carriers, or persons who are employees
or bona fide agents of carriers, are not brokers within the meaning of
this section when they arrange or offer to arrange the transportation of
shipments which they are authorized to transport and which they have
accepted and legally bound themselves to transport.
“Brokerage or brokerage service is the arranging
of transportation or the physical movement of a motor vehicle or of
property. It can be performed on behalf of a motor carrier, consignor or
consignee. Non-brokerage service is all other service performed by a
broker on behalf of a motor carrier, consignor or consignee.”
A freight broker falls into the category of
transportation intermediary, which is a company that is not a shipper
nor an asset-owning carrier, but plays a role in the movement of cargo.
“Transportation intermediaries leverage their knowledge, investment in
technology and people resources to help both the shipper and carrier
succeed,” says Voltmann.
Brokers provide an important and valuable service
to both motor carriers and shippers. They help carriers fill their
trucks and earn a commission for their efforts. They help shippers find
reliable motor carriers that they (the shippers) might not have
otherwise known about. In fact, some companies use brokers as their
traffic department, allowing the broker to coordinate all their shipping
needs.
Brokers are not new to the trucking industry;
they’ve been around since the industry itself began in the early part of
the 20th century. Prior to the 1970s, however, regulations governing
brokers were so restrictive that few firms were willing to even try to
gain entry into the industry. But with dramatic changes in federal
transportation policy during the 1970s, regulatory restrictions have
been eased, creating new entrepreneurial opportunities in the
third-party logistics arena.
The Players
An industry so huge and diverse requires a wide
range of participants to thrive. Some of these participants’ titles may
be a bit confusing, and some of their responsibilities may overlap. But
to keep things clear and as simple as possible, let’s look at who the
key players are and what they do.
Freight broker: A freight broker is the middleman
who connects shippers and carriers. Freight brokers are also known as
“truck brokers,” “transportation brokers” and “property brokers.” Though
we will consistently use the term “freight broker” in this book, you may
see or hear these other titles elsewhere.
Shipper: A shipper is an entity that has products
or goods to transport. Technically, shippers can be individuals or
companies, but as a broker, you will deal most often with businesses in
manufacturing or agriculture industries.
Motor carrier: A motor carrier is a company that
provides truck transportation. There are two types of motor carriers:
private (a company that provides truck transportation of its own cargo)
and for hire (a company that is paid to provide truck transportation of
cargo belonging to others). There are two types of for hire carriers:
common and contract. A common carrier serves the public under two
stringent obligations: compulsory service and liability for loss or
damage to goods. A contract carrier transports freight under contract
with one or a limited number of shippers.
Freight forwarder: Often confused with freight
brokers, freight forwarders are significantly different. Forwarders
typically take possession of the goods, consolidate numerous smaller
shipments into one large shipment, then arrange for transport of that
larger shipment. To transport goods, surface freight forwarders use both
motor freight and rail carriage; air freight forwarders use car-go and
passenger airlines; and ocean freight forwarders use water carriers.
Import-export broker: These people are
facilitators for importers and exporters (import brokers are also
referred to as customhouse brokers). Import-export brokers interface
with U.S. Customs, other government agencies, international carriers,
and other companies and organizations that are involved in international
freight transportation.
Agricultural truck broker: Generally small and
operating in one area of the country, unregulated agricultural truck
brokers arrange motor carrier service for exempt agricultural products.
Shipper’s associations: Shipper’s associations are
exempt, nonprofit, cooperative organizations formed by shippers to
re-duce transportation costs by pooling shipments. Shipper’s
associations operate in a manner very similar to that of freight
forwarders, but their service is limited to their members and is not
available to the general public. Since trucking deregulation in the
1970s, the number of shipper’s associations has declined significantly.
In a perfect world, of course, each entity in the
industry would handle its traditional role and that’s all. However, the
transportation industry is changing so rapidly that once-distinctive
lines are blurring. Also, it’s quite common for a successful freight
broker to expand his or her business by creating subsidiaries or
additional companies that offer other freight services.
“Legal definitions have not been recently
challenged, so freight forwarders are acting as brokers, and brokers are
assuming the role of freight forwarders,” says Cathy D., a freight
broker in Smyrna, Tennessee. “If a company holds multiple authority,
this can present problems in the event of a cargo claim or nonpayment of
bills. Who was wearing what hat and when?”
Clearly, pushing the proverbial envelope when it
comes to services and operations has some definite risks, and you’ll
want to carefully consider all your options when setting up your
business.
How They Started
Ask a class of first-graders what they want to be
when they grow up, and you’ll likely hear things like doctor,
firefighter, police officer and lawyer; it’s highly unlikely any one of
them will say “freight broker.” So how did the successful freight
brokers we talked with get into the business?
Bill T.’s brokerage in Cherry Hill, New Jersey,
has employed three generations of his family. His father founded the
firm in 1961 by purchasing one of the few broker’s licenses still
operating at the time. Years later, Bill was working in the computer in-dustry
when his father passed away unexpectedly. At first, he and his mother
decided to sell the business rather than shut it down, so he helped run
it while looking for a buyer. But after several months without a
realistic offer, Bill decided that he wanted the company for himself. He
worked out a deal to buy the company from his mother, and now his own
sons work for him. “I’ve never regretted it because it has been a great
business,” he says.
After holding a variety of jobs in the
transportation industry, Cathy D. started her business as a consulting
and commissioned sales agency in 1986 and obtained brokerage authority
in 1991.
Chuck A. started his business in Indianapolis in
1993. Having spent his entire professional life working for trucking
companies and railroads, he found the brokerage business tremendously
appealing. “Out of all the transportation operations, a brokerage
operation is very clean,” he says. “By that, I mean it’s basically a
7:30 a.m. to 5 p.m. operation. Very seldom do you have problems occur
after that. Your operation runs Monday through Friday. When you’re on
the trucking side of it, you have all the problems. If a guy blows a
tire, he’s calling somebody at one or two o’clock in the morning to get
money to fix it. With brokers, it’s our concern—we want the freight
moving on schedule—but it’s not our problem be-cause the driver is going
to call his dispatcher or his company.”
For 18 years, Ron W. worked as a corporate traffic
manager and director of distribution for several major corporations. He
also had experience with a railroad and a transportation consulting
firm. Finally, he could no longer resist the entrepreneurial urge: He
started his brokerage firm in 1981 in Bloomingdale, Illinois, and has
since founded two trucking companies as well.
Specialist Or Generalist?
As a broker, you have the opportunity to handle
many types of freight. You may opt to simply handle general commodity
freight—materials that are typically easy to handle and don’t require
any special attention.
Or you might want to develop some expertise in
areas such as heavy equipment, oversized loads, perishable commodities
or even hazardous materials.
Don’t limit your specialization plan to the
commonly accepted areas; instead, find your own niche. Bill T., for
example, does some interesting work for retailers. One major national
chain hires his company to handle the distribution of point-of-sale
promotion displays that have to be delivered to hundreds of stores on
the same day. It’s a move that’s important but not frequent enough for
the retailer to maintain the required expertise in-house. Other big
businesses use Bill’s company to manage shipments related to store
openings and closings.
Who’s Minding The Store?
Even following deregulation, the transportation
industry comes under the regulation of a number of different agencies.
The least-regulated cargo is intrastate freight—shipments moving within
the borders of a single state. That freight is regulated under the laws
of the particular state and is also typically regulated by the state’s
Department of Transportation, Department of Business and Professional
Regulation, and/or the Department of Revenue and Taxation.
For interstate shipments—shipments moving between
states—the key regulatory agency prior to 1995 was the Interstate
Commerce Commission (ICC), an independent agency created by Congress in
1887 to regulate commercial activity crossing state lines. The ICC was
created in response to turmoil within the railroad industry and came
about after an 1886 Supreme Court ruling that said states could not
regulate interstate railroads, which effectively shifted the burden of
regulation to the federal government.
The commission initially possessed limited
regulatory powers, but by the early 1950s its jurisdiction extended to
all types of surface transportation vehicles and channels. The agency
was criticized for regulatory excess and setting artificially high
transportation and shipping rates. By the early 1980s, deregulation of
transportation industries had stripped the ICC of most of its authority
to set rates. In 1995, Congress abolished the ICC and created a is the
Surface Transportation Board (STB) within the Department of
Transportation (DOT) to perform the small number of regulatory tasks
that had remained with the ICC. Today, the primary agencies that oversee
motor freight transportation are the STB, the DOT and the Federal
Highway Administration.
Do You Have What It Takes?
This is not a business for the faint of heart or
the shy person who is happiest shuffling papers behind a closed office
door. But courage and an extroverted personality alone won’t guarantee
you a successful freight brokerage, either.
According to Cathy D., “Anyone involved in
operations needs to be able to handle stress, make quick decisions,
handle multiple tasks, have a good phone voice and communication skills,
and possess some general business knowledge.” You not only need to
understand the freight industry, but you must also appreciate the
business demands your customers face.
Chuck A. agrees that communication skills and a
solid foundation in the industry are important for brokers. You need to
be able to speak industry jargon to demonstrate your knowledge. “The
worst thing you could do is call a shipper and start fumbling on the
phone,” he says. “He’s never going to give you any freight because he’s
going to know right away that you have no knowledge of the business, and
he would not trust his goods being moved with you.”
Ron W. says you’ve got to be “a good all-around
person.” That means being comfortable with the financial side, the sales
side and the operations side.
Voltmann, executive director and CEO of the
Transportation Intermediaries Association, says, “The future for
intermediaries is very bright as asset-owning carriers concentrate on
what they do best and shippers concentrate on their core competencies.
Shippers and carriers need the innovation and expertise intermediaries
provide. The result will be continued improvements, which will mean more
choices for consumers and lower costs.”
So where do you start? Chapter 2 will tell you
what you need to know to lay the foundation for your freight brokerage.
