Freight Broker vs. Freight Forwarder: Definition, Benefits, and Differences
There are many options and terms to know when it comes to shipping international and domestic freight. You may come across two standard terms: “freight broker” and “freight forwarder.” Though both facilitate and optimize shipping, there are critical differences between the two services in the freight industry.
A freight broker acts as a middleman between a shipper and a carrier. A freight broker’s job is to find available carriers to transport the shipper’s freight. Once they find a carrier, the broker negotiates rates and manages the shipment from start to finish.
A forwarder specializes in arranging the freight logistics of shipments, including everything from booking cargo space on ships and planes to preparing customs documents. A forwarder does not typically own a fleet of trucks or transport vehicles.
So, which one is right for you? It depends on your domestic and international shipping needs. Here’s a closer look at the definition, benefits, and differences between a freight broker vs. freight forwarder.
What Is a Freight Broker?
A freight broker is a company that connects shippers with carriers. They act as a middleman, working to find available carriers and negotiate rates. The broker is responsible for the entire shipping process from start to finish, including arranging transportation, managing to prepare paperwork, improving delivery accuracy, and tracking the shipment.
Benefits of Using a Freight Broker
There are several benefits of using a freight broker, including:
Cost Savings
Freight brokers have relationships with multiple carriers, allowing them to negotiate the best rates for their clients and save money. In some cases, brokers may even be able to offer discounts and provide more bargaining power.
Convenience
Freight brokers handle all aspects of the shipping process, including finding available carriers, arranging transportation, and preparing customs paperwork. This process can be a time-saving convenience for busy shippers.
Expertise
Freight brokers are experts in the shipping industry. They know the ins and outs of arranging transportation and can provide valuable advice and guidance
What Is a Freight Forwarder?
A freight forwarder specializes in arranging the logistics of shipments, including everything from booking cargo space on ships and planes to preparing customs documents and foreign commerce. A freight forwarder does not typically have its own fleet of trucks or transport vehicles.
Benefits of Using a Freight Forwarder
There are several benefits of using a freight forwarder, including the following:
Global Reach
A freight forwarder has the connections and resources to ship freight worldwide, which can be a valuable resource for companies that need to ship internationally and handle foreign commerce.
Customs Expertise
Freight forwarders are experts in customs regulations. They can help ensure your shipment complies with all applicable laws and regulations.
One-Stop-Shop
Freight forwarders offer a one-stop shop for all your shipping needs, from booking cargo space to preparing customs documents.
Experience
Freight forwarders are experts in the shipping industry. With years of experience, they know how to handle international movements and can offer great tips along the way.
Differences Between Freight Brokers and Freight Forwarders
Now that you know the definition and benefits of freight brokers and freight forwarders, let’s examine the critical differences between the two services:
Services Provided
One of the most significant differences between a freight broker vs. freight forwarder is their scope of services. Freight brokers typically only arrange transportation and manage the shipping process. In contrast, freight forwarders offer a wider range of services, including booking cargo space and preparing customs documents.
Carrier Relationships
Another difference is the relationship freight brokers and freight forwarders arrange with carriers. Freight brokers typically have relationships with multiple carriers, allowing them to shop for the best rates for their clients.
In contrast, freight forwarders typically only work with a few select carriers that provide some advantages regarding shipping reliability but may only sometimes result in the best rates.
Pricing Structure
A freight brokerage typically charges a percentage of the shipment’s total cost. In contrast, a freight forwarder usually charges a flat fee for services.
Billing
Another difference is how freight brokers and forwarders bill for their services. Freight brokers typically bill their clients after delivery. In contrast, freight forwarders usually require payment upfront before beginning work on a shipment.
Shipping Experience
Finally, a freight broker typically has less experience than a freight forwarder because freight forwarding is a more specialized service. As a result, a freight forwarder can offer more expertise and guidance when arranging transportation services and managing the shipping process. This includes export documents, legal liabilities, legal responsibility, arranging storage, ocean freight forwarders, and more.
Now that you understand the differences between freight brokers and freight forwarders, you can decide which service is right for your business. A freight broker may be a good option if you need help arranging transportation and managing the shipping process.
However, freight forwarders may be better if you need a more comprehensive range of services, such as customs expertise or one-stop-shop convenience.
What Is the FMCSA?
The Federal Motor Carrier Safety Administration (FMCSA) is a government agency that regulates trucking companies in the United States.
The FMCSA started in 2000 due to the Motor Carrier Act of 1980. It aims to reduce accidents, injuries, and fatalities involving large trucks and buses in the freight business. To achieve this goal, the agency enforces safety regulations and provides education and training resources for truck drivers and bus operators.
How To Become a Licensed Freight Broker or Freight Shipper
To become a licensed freight broker or freight shipper, your company must first register with the FMCSA online through their website or by mail. Once registered, you will be assigned a unique identification number (an MC number).
After registering and being assigned an MC number, you can apply for a license. There are two types of licenses that you can use: a broker license or a shipper license.
A broker license allows you to arrange transportation and manage hauling freight on behalf of your clients. A shipper license will enable you to handle shipper’s cargo.
To apply for a shipper license, you will need to submit an application form along with a fee of $300. After your application goes through, you will be issued a license that must be renewed every two years, with a renewal fee of $300.
The FMCSA also requires a freight brokerage authority and a freight shipper to maintain specific insurance coverage, so brokers must prepare cargo and liability insurance policies with minimum coverage levels of $5,000 per occurrence. Likewise, shippers must have liability insurance with a minimum coverage level of $5,000 per occurrence.
In addition to these requirements, freight brokers and freight shippers must also comply with the hours-of-service regulations set by the FMCSA. These regulations limit the number of hours drivers can work a day and week.
The FMCSA provides various resources to help freight brokers and shippers comply with their regulations. These resources include educational materials, compliance reviews, and an online complaint filing system.
Surety Bonds and Trust Funds
Brokers and forwarders must post a BMC-84 surety bond as part of their licensing requirements. The bond amount must be at least $75,000, and a company that the FMCSA licenses must issue the bond.
In addition to the surety bond, brokers must maintain a BMC-75 trust fund. This fund can cover expenses related to a freight shipment, such as storage fees and transportation costs.
A company must maintain the trust fund in a segregated account at a financial institution. The broker must have sole control over this account, and the funds in the account can only go toward expenses related to freight shipment.
The FMCSA provides information on surety bonds and trust funds on its website.
Final Thoughts
Freight brokerage is an important and necessary part of the shipping industry. It involves a complex process that requires knowledge of the freight shipper and broker industries and government regulations from the FMCSA.
Licensing is required to become a freight broker or forwarder, and many companies offer these services. If you’re interested in acquiring a license, it’s important to do your research and find the best company for you.