Many shifts are taking place in the freight broker industry, from the introduction of autonomous vehicles to cost compression driving down intermediary services. But with these obstacles come great opportunities for freight brokers who understand how to operate a successful business in line with current law and regulations. Becoming a freight broker also requires capital investment up front, but most overestimate these costs initially. The true cost of being a freight broker boils down to a few key expenses, some which can be reduced by following some simple get powerful steps.
Legal and Regulatory Costs
Most of the upfront expenses associated with becoming a freight broker lie in the realm of legal and regulatory costs. Most importantly, freight brokers are required to hold a license in order to operate under the law which is done through the Federal Motor Carrier Safety Association. A freight brokerage license application must be submitted, along with a $300 non-refundable fee paid to the FMCSA. In addition to this cost, freight brokers must also pay the following:
- Bonding Requirements: a freight broker bond is an agreement between a surety agency and the broker that a certain amount is paid to a customer should something go awry. A bond does not cover the freight broker, but it does offer valuable protection and as such is a requirement in all states. A freight broker bond is priced based on a percentage of the total bond amount, which ranges from $500 up to $2,000. Typically, a bond of no less than $75,000 is required to be in compliance with regulations.
- Insurance Requirements: as with other businesses, freight brokers are also required to carry some level of insurance to protect the owner and his or her customers. Insurance, unlike a surety bond, safeguards the broker from legal liability, up to the policy limits, and it can protect against a large financial burden in the case of an injured worker. Insurance costs can range wildly, depending on the amount of insurance purchased and the coverage it provides. For most freight brokers, the annual insurance cost starts around $3,000.
Business Operation Costs
Freight brokers are business owners, no matter how big or small their operations. Because of this reality, there are costs associated with being a freight broker than relate back to the business. Some costs include:
- Laptop or desktop computer
- Internet connection
- Cell phone for business use
- Office space rental
- Accounting and bookkeeping services
- Business registration and licensing
The combination of these expenses can be as little as a few hundred dollars or as much as several thousand.
One Tip for Reducing Expenses
While it may seem as though the costs of being a freight broker are high, there is one proven way to reduce ongoing expenses. The requirement of a surety bond for freight brokers cannot be avoided; however, lowering the cost is as simple as taking a close look at personal credit history. Bond prices are based on the risk an individual poses to the bond agency, and the lower a credit score, the higher the risk – and price. Working to improve credit by eliminating errors, paying off debts, and resolving collections accounts or tax liens all help in this arena. Additionally, having strong business financial records shows a dedication to the freight brokerage business that helps reduce bond costs.
Overall, being a freight broker can be a profitable endeavor. But it takes an understanding of what money is needed up front and ongoing management of expenses to ensure success down the road.
Eric Weisbrot is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry under several different roles within the company, he is also a contributing author to the surety bond blog.