How to become an independent freight broker
Are you considering the opportunity of starting your own freight brokerage? With the positive prospects of the impro...
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Are you considering the opportunity of starting your own freight brokerage? With the positive prospects of the improving US economy and rail freight and trucking in particular picking up, that’s definitely a good idea.
Some trucking companies are posting nearly 25 percent growth in sales in the last 12 months, thus putting trucking at the forefront of the fastest growing industries for small businesses. While the supply and demand in freight moving is tightening, the industry is definitely on a good track.
In the field of brokerage, the MAP-21 legislation that came into force in October 2013 raised the bar for freight brokers. This led some smaller, less experienced companies out of business. While it was not an easy time for brokers it ultimately had a refreshing effect and means your competitors are not likely to engage in lower standard practices.
There are plenty of good signs that freight brokerage is a great option for a start-up today. Especially if you’re looking for a way to work for yourself, becoming an independent freight broker is an excellent option to claim your place in the freight business. The job offers a high degree of flexibility and independence, and not at the price of lower income, but the opposite.
In essence, freight brokers are the intermediary between shippers that look to move goods and motor carriers that offer transportation. They are a crucial element in the freight industry because they optimise the loads of carriers and find the best transport options for shippers.
Let’s take a detailed look at how to become an independent freight broker and start your journey in the industry.
How to become a freight broker
Launching your freight business is not a complicated process, but it does contain multiple steps of licensing and obtaining a freight broker bond that you need to go through. It also entails an initial investment on your side to cover all the starting costs. It’s a good idea also to prepare a good business plan and get training in brokering.
When it comes to the legal process, you need to obtain your broker authority from the Federal Motor Carrier Safety Administration (FMCSA). But before that, make sure to get a USDOT number. While it’s not required to become a broker, it is included in the application form for your license.
Your next step is to start the registration process and fill in the OP-1 application in order to get your MC authority. The fee for filing your application is $300. You can find instructions on the FMCSA website.
The next steps
If your authority application is approved, you will receive a grant letter with your MC number. It’s necessary for following up with the next steps of your licensing because you need it for your insurance and surety bond forms. However, the issuance of this number is not a permit to start business.
Your MC number is published in the FMCSA Register and your case undergoes a 10-day period, during which any individual can protest against your registration. Afterwards your registration can be processed.
Depending on your specific application, you will be required to obtain various kinds of insurance, which can include loss or damage to property carried on a motor vehicle and loss or damage to property (Form BMC-34). You might also need to get bodily injury, property damage insurance and environmental restoration coverage (Form BMC-91 or BMC-91X).
Once you have your MC number, you also have to designate a Process Agent for each of the states in which you operate. This means completing application form BOC-3.
Getting your freight broker bond
An important requirement to obtain your broker authority is to get your freight broker bond, also known as Form BMC-84, in the amount of $75,000.
The surety bond is a three-party agreement between your freight brokerage, the principal, the FMCSA as the obligee, and the surety that provides the bonding. It functions as a guarantee to the FMCSA that you will operate in compliance with all applicable rules.
Even if $75,000 sounds like a scary number, you need to pay only a percentage of the amount called the premium. It is usually between 2-12 percent and depending on your financials and your credit score.
The coverage of the bonds is one year, thus freight brokers need to renew their bonds before October 1 every year. This is very important for your compliance because without a bond, you are not allowed to operate legally.
If you have experience with starting an independent freight brokerage or you have further questions on the process, we’d be happy to hear about them in the comments below.
Vic Lance is the founder and president of Lance Surety Bond Associates. He is a surety bond expert who helps freight brokers get licensed and bonded. Vic graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan’s Ross School of Business.
Driver shortages: Why the industry needs to be worried
While driver shortages are a global problem, with a recent survey from the International Road Transport Union suggesting that driver shortages are expected to increase by 25% year-on-year across its 23 member countries, the issue has very much made itself felt for UK businesses in recent weeks.
A perfect storm of factors, which many within the industry have been wary of, and warning about, for months, have led to a situation wherein businesses are suddenly facing significant difficulties around transporting goods to shelves on time, as well as inflated operating costs for doing so.
What’s more, the public may also see price rises as a result due to demand outmatching supply for certain product lines, which in turn brings with it the risk of customer dissatisfaction and a hit to brand and stakeholder reputation. Given that this price inflation has been speculated to hit in October, when the extended grace period on Brexit customs checks comes to an end, the worst may be yet to come.
"Steps must be taken to make a career in the industry a more attractive proposition for younger drivers, which will require a joint effort from government, industry bodies, and the sector as a whole"
That said, we have already been hearing reports of service interruption due to lack of driver availability, meaning that volumes aren’t being transported, or delivered, to required schedules and lead times. A real-world example of this occurred on the weekend of 4-6 June with convenience retailer Nisa, with deliveries to Nisa outlets across the UK affected by driver shortages to its logistics provider DHL.
But where has this skills shortage stemmed from?
Supply is the primary issue. Specifically, the number of available EU drivers has decreased by up to 15,000 drivers due to Brexit alone, and this has been further exacerbated by drivers returning to their home country during the COVID-19 pandemic, as well as changes to foreign exchange rates making UK a less desirable place to live and work. This, alongside the recent need to manage IR35 tax changes, has also led to significant inflation in driver and transport costs.
COVID-19 complications have also meant that there have been no HGV driver tests over the past year, meaning the expected 6,000-7,000 new drivers over the past year have not appeared. With the return of the hospitality sector we understand that this is a significant challenge with, for instance, order delivery lead times being extended.
It is little surprise, therefore, that the Road Haulage Association (RHA) earlier this month became the latest in a long line of industry spokespeople to write to the government about the driver shortage for trucks. The letter echoed the view held by much of the industry, that the cause of this issue is both multi-faceted and, at least in some aspects, long-standing.
So, many in the industry are in agreement as to the driving factors behind this crisis. But what can be done?
Simply enough, outside of businesses completely reorganising their supply chain network, external support is needed. In the short-term, the government should consider providing the industry with financial aid, and this can also be supported more widely with legislative change.
Specifically, immigration policy could be updated to place drivers on the shortage occupations list, which would go some way towards easing the burden created by foreign drivers returning to their home countries. Looking elsewhere, government should also look for ways to increase the availability of HGV driver tests after the blockage created by the coronavirus lockdowns.
Looking more long-term, steps must be taken to make a career in the industry a more attractive proposition for younger drivers, which will require a joint effort from government, industry bodies, and the sector as a whole. As it stands, multiple sources suggest that the average age of truck drivers in the UK is 48, with only one in every hundred drivers under the age of 25. We must therefore do more to increase the talent pipeline coming into the industry if we are to offset more significant skills shortages further down the line.
On the back of a turbulent year for the supply chain industry, it has become increasingly clear that the long-foretold shortage of drivers is now having a tangible and, in places, crippling effect on supply chains.
Drivers, and the wider supply chain industry, have rightly been recognised for the seismic role they played in keeping the nation moving and fed over the past year under unprecedented strain. If this level of service is to continue, we must now see Government answer calls to provide the support the sector needs, and work hand-in-hand with the industry to find a solution. If we do not see concrete action to this effect soon, we are likely to be in for a turbulent few months.
Rob Wright is executive director at SCALA, a leading provider of management services for the supply chain and logistics sector