Do you have shipper customers who need to move more freight than you can service with the current size of your fleet? You could buy more trucks to move that extra freight, but adding a brokerage is another option. If you already have relationships with shippers, know their lanes, and know the capacity that they need, then brokering their freight could add another source of revenue for your transportation business.
There are 6 steps you’ll need to take before you can start brokering freight.
1. Apply for operating authority
You'll have to apply for broker authority through the United Registration System. This will be separate from your carrier authority. You’ll also need to decide how to organize this separate company: sole proprietorship, partnership, LLC, S corp., etc.
Getting your broker authority means you have to designate process agents in every state you’re doing business, just like you did to get your carrier authority. Our fleet services team can help with all the paperwork.
2. Get a broker bond
Every freight broker has to have a $75,000 surety bond or trust fund. It's similar to the liability insurance required for your trucks, and it's there to ensure that a carrier can get paid if a broker doesn’t fulfill a contract. The bond covers the entire brokering side of your business. DAT customers can get a broker bond at a special price.
3. File state permits
Some states require extra permits to set up your business, so be sure to check the requirements in your state. DAT Fleet Services can help with that too.
4. Invest in a TMS
Managing your cash flow is key to your brokerage’s success. You’re already familiar with days-to-pay – the number of days a broker has to pay the carrier – but as a broker, you won’t always get money from the shipper before you have to pay the carrier. TMS software like DAT Keypoint is the easiest way to manage your transactions, keep records, and manage the company’s cash flow.
TMS software also lets you manage all your new brokerage's operations in one place, so you can move more freight with a smaller back-office staff. A streamlined, entry-level TMS like DAT Keypoint Ops requires minimal training and lets you control all your operations on one screen. You can also upgrade it seamlessly to fit your business needs as your company grows.
5. Make personnel decisions
Are you going to be the one working the phones, or will you need new employees? Would you be better off working with independent agents? Will your brokerage share the same office space as your carrier business?
6. Anticipate hidden startup costs
When you started your carrier business, most of the startup costs were tied to equipment. For a brokerage, some of those costs are a lot less obvious – contingent cargo insurance policies, for example. Meet with a business attorney who has experience with brokers. That will save you some headaches.
Categories: Best Practices and Benchmarks