6 Steps to Get a Freight Broker License
If you want to act as a freight broker, matching goods that need to be shipped with trucking companies that do the shipping, you will need a freight broker license, or a load broker license. Freight brokers are regulated by the Federal Motor Carrier Safety Administration (FMCSA), and the requirements can be confusing. We’ve put together this step-by-step process to help guide you. So how do you get your freight broker license? Here is what you should know.
What is a freight broker?
A freight broker acts as a transportation intermediary in the freight industry. Freight brokers do not ship cargo themselves or have cargo to ship, but they negotiate transactions between shippers and carriers.
It’s important to understand the differences between freight brokers and freight forwarders. A freight broker does not actually handle shipments. A freight forwarder takes physical possession of goods that need to be shipped, consolidates several small shipments into a larger shipment, and then coordinates that shipment’s transportation. The same company can provide both brokerage and forwarding, but for this article, we will focus only on freight broker certification.
How much do freight brokers make?
A freight broker’s rate of pay is heavily dependent on their location. Online estimates of income range from $42,926 per year to $93,618 per year. There are three types of freight brokers, each with different salaries:
- Licensed freight broker: Has their own authority, owns a company, and may employ other brokers.
- W-2 freight brokers: Work for a licensed broker as a freight broker agent and receive a salary plus commission.
- 1099 freight broker: Works under a licensed broker as an independent contractor.
What are the advantages of being a licensed freight broker?
If you value freedom, independence, and a strong earning potential, running a freight broker business can be a great choice. There are many advantages to obtaining a freight brokerage license, including:
No cap on earnings
As a freight broker, you have an earning potential limited only by your ability to work hard and be persistent. You are paid on commission for each load you successfully book and move, and top brokers can easily exceed $150,000 per year. You can also decide to start your own brokerage company, managing a team of freight brokers. Because this takes a lot of startup capital, many people begin as independent freight agents and then build a team slowly over time.
No commute or time on the road
Maybe you’re a driver tired of missing birthdays and holidays. Or perhaps you’re in a different industry looking for less travel or commuting time. Whatever your background, if you like the transportation industry but want to work from or close to home, becoming a freight broker may be right for you. It takes hard work to succeed, but you can also take time off as needed rather than being stuck with a limited amount of vacation or PTO.
Low startup costs
You can get started for just a few thousand dollars, maybe less, if you start by working for an established freight broker. The point is to start small as an independent agent and then gradually build up your business over time.
Low overhead expenses
For many independent freight brokers, the overhead required to run the business is low compared to other small business types. As a freight broker, you are responsible for a few expenses, including a reliable internet connection, transportation management system (TMS), and cell phone. Many of your equipment expenses are the same for anyone who works from home or rents a small office. You may want a desktop computer with a large monitor, a headset for hands-free calling, and a laptop so you can work on the go.
What are the challenges of being a licensed freight broker?
No job or career is perfect. Before we get into the weeds of how to get your freight broker license, these are some of the challenges you might face:
Onboarding quality carriers
One of the biggest challenges you’ll face as a new freight broker working in the current economy is a shortage of carriers. Onboarding carriers is time-consuming, and it’s more difficult than ever to find quality carriers that have the most up-to-date credentials. Truckstop has a best-in-class carrier onboarding and monitoring program, that helps you source and vet new carriers while keeping you in the loop about your carriers’ statuses as you grow your team.
An automated onboarding and monitoring system can help you build relationships with shippers and differentiate you from the competition. This type of software enables you to receive timely crucial information about your carriers, including their safety ratings, insurance, bonding, and compliance status.
Managing financial risk
Managing risk is one of the most stressful parts of any business, and freight brokers are not immune. You may find yourself in situations where you have to pay the carrier before the shipper pays you. You might hit slow patches when there’s less work coming in. It can take a while to get established, so be prepared for income ups and downs.
Monitoring carrier safety and compliance
Confirming that your carriers are in compliance with the Federal Motor Carrier Safety Administration (FMCSA) and their Compliance Safety and Accountability (CSA) program is an integral part of your job as a freight broker. Your shippers count on you, they want you to avoid carriers who have freight-related carrier violations that could potentially put their cargo at risk if the carrier is a habitual offender.
However, staying on top of carrier compliance can take time and resources away from tasks that directly impact your bottom line. There are tools available to ensure carrier safety and compliance faster, easier, and more reliable.
Carrier monitoring allows you to get updates about carrier status changes and change notifications. With access to a database of carrier insurance certificates and the ability to evaluate inspection and violation information, you can spend more time getting high-quality loads for your carriers and less time on compliance paperwork.
Automate your compliance.
Explore your options for automating carrier onboarding and monitoring
Building trust with clients is hard in any industry. As a freight broker, you need to prove to both shippers and carriers that you’re reliable and won’t disappear when they need you most. You also have to consistently win over new clients to build a successful business, which can be challenging if networking isn’t your strongest suit.
Navigating contract clauses
To do business with major carriers or shippers, you may need to sign contracts filled with legal jargon. Some clauses, such as non-compete agreements, can limit your ability to do certain things. For example, if a customer gets a quote directly from the carrier and then asks you to beat it, you may not be allowed to. Always have an attorney who knows the trucking business review any contract before you sign it, and make sure you understand what it says.
6 steps to getting your freight broker license
What are the freight broker license requirements, and what is the process for obtaining a broker license for freight? Here’s what you need to do.
1. Consider some training.
It’s not required by law, but you can set yourself up for success through a freight broker training program. Find an online training course or work through one of the many training books out there. If possible, you may also want to get some hands-on practice at an existing freight brokerage company. Plan to spend about a month developing your skills and knowledge.
2. Choose a business structure.
Freight brokers can organize as one of three types of business: sole proprietorship, partnership, or corporation, and each has specific tax implications and documentation requirements. Because your business structure can have wide-ranging, long-term impacts on your company, it is highly recommended to get guidance from a business attorney and tax professional before choosing.
3. Apply for broker authority.
The next step is to apply for broker authority by submitting Form OP-1 to the FMCSA. The form is relatively straightforward, except you’ll need to decide whether to apply for “Broker of Household Goods,” “Broker of Property (except Household Goods),” or both. As of 2020, the filing fee is $300 per type or $600 for both. If you apply online, you’ll get your motor carrier number right away, which you need for the rest of the process.
4. Get a surety bond.
The FMCSA requires a surety bond to ensure that you follow all guidelines and regulations. For freight brokers, the required amount of the bond is $75,000. But you don’t have to raise all that money yourself. You can work with a surety company that will put up the bond for you in exchange for a small premium. Assuming you don’t break the rules, nobody pays anything else. If you violate the terms of the bond, you can be sued up to the limits of the bond. In that case, the surety company would pay the claim, but you will have to reimburse them for however much they pay out on your behalf.
5. Choose a process agent.
You will need a process agent in every state where you write broker contracts. If any legal proceedings are brought against your business, a process agent is simply someone who agrees to accept any court papers being served on your behalf. Some freight brokers use individual agents in each state, while others select a national company that offers process agent services in all 50 states. You will need to file Form BOC-3 with the FMCSA to declare your choice of process agents.
6. Register through the Unified Registration System.
The last step is to register with the FMCSA through the Unified Registration System (URS). This system combines all the forms needed to complete your registration into a single, easy-to-use online application form.
After completing your URS application, you’ll need to learn all the relevant state regulations on interstate commerce in the states where you plan to do business. Contact each state’s regulatory agency for more information.
Freight broker license costs
Part of understanding how to get a freight broker license is knowing the costs involved. There are four basic types of expenses:
The cost of training varies dramatically, depending on whether you work your way through training books or sign up for a class. Shop around to find the best deal.
Freight broker license cost
The actual cost of your license is $300 for one category or $600 for two. You need to pay this amount to the FMCSA in step three of the process above. Note: You have to update your information every two years, but it’s free.
Again, the surety bond for a freight broker is $75,000. You can get this bond from a surety company for a small premium. Your exact payment depends primarily on your credit score, but it’s usually 2% to 4% of the bond amount, or $1,500 to $3,000 each year. You’ll need to renew your bond each year by paying the designated premium.
Depending on how you set up your company, you might need to get a business license and insurance and pay other startup and organizational costs. Talk to your attorney and tax professional about any expenses you should expect.
Use a load board to find qualified carriers and shippers.
Truckstop connects tens of thousands of carriers, shippers and brokers through a complete technological solution that includes freight matching, planning and tracking tools, TMS, real-time rate analysis, and convenient payment solutions.
Freight brokers who choose Truckstop enjoy advanced features such as:
- Uncover hidden capacity
- Monitor carrier compliance
- Post unlimited loads
- Monitor truck-to-load ratios
- Get real-time rate updates
- View carrier performance ratings
Truckstop is also fully integrated with most of the major software solutions in the industry. As one of the internet’s first load boards, it’s also among the most trusted.
Having reliable access to advanced broker software that allows you to get started quickly as a new freight broker means you’ll spend less time working through the trial-and-error phase that so many new brokers struggle with during their first few years in business.
Building relationships with shippers and carriers is one of the most important things you can spend time on as a broker. Let Truckstop help you increase the efficiency of your business while making the connections you need to build a successful new freight brokerage company.