How to Open a Freight Broker Company?

1. Figure out the costs.

   Becoming a freight broker doesn’t have the cheapest startup costs when you compare it to other online businesses. So, before you go down the rabbit hole, I want you to think long and hard about the costs.
   
   Spoiler alert: the cost to start a freight brokerage business is less than $2,000. However, you’ll probably spend at least $1,500 to get started. That doesn’t include the costs of a phone or laptop.

2. Choose your freight broker business structure.

   It’s important that choose your business structure wisely. For example, you can choose a limited liability company (LLC), sole proprietorship, limited partnership, etc.
    
   I understand you aren’t physically transporting any goods or products. But if you’re sued, then you’re screwed. Hey, that rhymes….
    
   But I digress.  Certain business structures, such as LLC can protect your personal assets, e.g., car, house, etc. [if you’re sued].
    
   So, you’ll need to register your freight broker business with your state if you decide to create an LLC.
    
   However, you won’t need to register your business if your freight broker business will be a sole proprietorship.
    
   Keep in mind, you’ll also need an Employer Identification Number (EIN) if your freight broker business has employees or you create your business as a partnership or corporation.
    
   You can get an EIN for free, and you can apply online.
    

3. Get a USDOT number.

   As a freight broker, you won’t need to buy any trucks to carry loads. Because the carriers you use will have their own trucks.
    
   However, if your carriers are picking up loads from another state, then you’ll need a U.S. Department of Transportation (USDOT) number.
    
   The FMCSA (Federal Motor Carrier Safety Administration) is the agency that monitors the safety of commercial carriers. So, you’ll go through them to receive your USDOT number.
    
   But wait, there’s more. You’ll also need a USDOT number if your carriers or their vehicles meet the following requirements:
   👉🏽The carrier moves loads between different states AND
   👉🏽The carrier transports hazardous materials OR the carrier’s vehicle weighs at least 10,001 pounds OR transports more than 9 passengers for a fee OR transports more than 15 passengers regardless if the service is free
   
   Also, even if your carriers never leave the state, you’ll also need a USDOT number if your freight broker business is located in the following states:
    
   Alabama
   Alaska
   Arizona
   California
   Colorado
   Connecticut
   Delaware
   Florida
   Georgia
   Hawaii
   Idaho
   Indiana
   Iowa
   Kansas
   Kentucky
   Maine
   Maryland
   Massachusetts
   Michigan
   Minnesota
   Missouri
   Montana
   New Jersey
   New York
   Nebraska
   Nevada
   North Carolina
   Ohio
   Oklahoma
   Oregon
   Pennsylvania
   Puerto Rico
   South Carolina
   Texas
   Utah
   Washington
   West Virginia
   Wisconsin
   Wyoming
   
   If you’re still unsure about whether you need a USDOT number after reading this awesome blog post, you can take a short FMCA quiz.
   
   Also, a USDOT number is completely free and you can apply online.

4. Get a MC Number.

   An Operating Authority (MC number) is separate from your USDOT number. So, you’ll need a MC number if your carriers transport federally-regulated goods across state lines for a fee (or other compensation).
    
   Keep in mind that you will need to get a MC number for each type of authority.
    
   So, if your freight broker company transports property that’s not household goods, you’ll need a MC number specifically for that. However, if your company brokers household goods, you’ll need an additional MC number for that. Household goods are any property that will be used in a home.
    
   To sum it up, you’ll only need one USDOT number. However, you may need multiple MC numbers depending on the type of cargo or goods your company arranges for transport.
    
   A MC number will cost $300. You can apply for a MC number online.
    

5. Get a surety bond.

   Once you have your USDOT and MC number, you’ll still need a surety bond for your MC number to become active.
    
   The purpose of a surety bond is to make sure your freight broker business follows the FMCA’s rules and regulations. If you don’t follow the rules, a claim can be made against your bond.
    
   So, you’ll be responsible for repaying that amount. For example, if you decide to not pay carriers, a claim can be made against your bond.
    
   There are two types of surety bonds: BMC-84 and BMC-85. But both types require at least $75,000 coverage.
    
   Most people will choose the BMC-84 option, because it allows you to pay a percentage of the $75,000 coverage either as a yearly or monthly payment.
    
   If you choose the BMC-85 option, you’ll have to pay the $75,000 upfront, which will go into a trust fund [that you can’t access]. If there are any claims made against your bond, the money will be taken out of this trust fund.
    
   A surety bond can cost as low as $750 or as high as $9,000. The costs will vary based on your credit, the type of authority, and the company you use.
    
   One resource for finding a surety bond is Suretybonds.com. To keep your MC number active, you’ll need to pay to renew your surety bond every year.
    

6. Get a process agent.

   You’re required to file a BOC-3 form if you’re a freight broker.
    
   If your freight brokerage is sued, then this process agent will accept the paperwork on your behalf. Using a process agent service can cost as low as $35.
    
   Visit the FMCSA website to find a list of approved process agents.

7. Get a unified carrier registration.

   All freight brokers will need a UCR (Unified Carrier Registration). So, you’ll need a UCR if your company arranges for the transport of goods in more than one state.
    
   You can apply online. The fee is currently $41. You’ll have to renew every year.

8. Get the necessary equipment.

   At minimum, you’ll need three things: 1) a computer, 2) a phone, and 3) a reliable internet connection.

9. Use a Transportation Management System (TMS).

   A TMS helps you keep track of all the loads your company transports. So, some TMS platforms allow you plan loads, digitize your paperwork, track freight using a GPS, etc.
   
   There are free plans and paid plans offered on some TMS platforms, e.g., AscendTMS offers a free plan.
   
   There are several TMS. But here are some TMS platforms: Descartes Aljex, Tailwind TMS, DAT TMS.
   
   So, if any of these don’t fit your needs, you have other options.

10. Subscribe to load boards.

    As a freight broker, you’ll need to find loads for your carriers.
    
    Ideally, you’ll want to build relationships with shippers directly. A lot of good loads don’t get posted on load boards, because freight brokers get these loads directly from the shipper.
    
    However, if you’re just starting, you haven’t built these relationships with shippers yet. That’s when you turn to load boards, which is a website that allows you to search for loads. Typically, these load boards will list the price, destination, and other shipment requirements.
    
    Loads are posted daily. Once you find a load, you can reach out to the shipper [listed on the load] and negotiate a price [if you think you can get a higher price]. However, some loads will let you know if that’s the final price (or if there’s no wiggle room).
    
    Some popular load boards include DAT, Truckstop, Convoy, 123loadboard, and Trucker Path. Most load boards require a subscription fee.
    
    Keep in mind, you’ll also need very reliable carriers since you’re not transporting the goods yourself. Facebook has several trucking groups online. You can use these groups to find carriers.
    
    These carriers should also be onboarded with the essentials, e.g., health card (aka medical card), copy of their CDL, and copy of their insurance policy.

11. Use an accounting system.

    You will need a solid accounting system to manage payroll, expenses, etc. Some popular accounting systems include Quickbooks and Xero.

12. Build a website (optional).

    A website isn’t required, but it helps you look professional. Building a website doesn’t cost a lot of money if you build it yourself.
     
    Some platforms to create a website include Wix, Webflow, Squarespace, WordPress, etc.

13. Get contingent cargo insurance (optional).

    The FMCSA doesn’t require contingent cargo insurance. However, a lot of shippers will require freight brokers to have it.
     
    Even though freight brokers never take physical possession of the goods, shippers want to be confident that their shipments will be insured. So, if a shipment is damaged due to loss or theft, then the contingent cargo insurance will cover it.

14. Use a factoring company (optional).

    As a freight broker, you need money to keep coming in to pay your carriers and other expenses. If you don’t pay your carriers, then quality carriers won’t want to pick up any of your loads.
     
    The biggest open secret in the freight broker industry is that most shippers don’t pay invoices when the load is delivered. Instead, it may take more than 30 days [from the date of the delivery] to get paid.
     
    However, if you use a factoring company, you can usually get paid the same day as the completed delivery. So, as long as your factoring company approves of the shipper, the factoring company will buy your invoice for a commission or a fee.
     
    Essentially, the factoring company is paying you directly [instead of the shipper]. For the factoring company to get paid, it would submit your invoices directly to the shippers.