Selecting a Freight Broker
The truck capacity shortages shippers experienced last fall are sure to continue as the year goes on. But armed with a good freight broker, you can weather the storm. Many shippers turn to brokers when freight demand far outstrips carrier capacity. Shippers using a broker can access increased capacity without the hassle of managing new carrier relationships.
A quality broker may be the most versatile component in your arsenal of freight service vendors, says Chip Smith, president and CEO of Twin Modal, a transportation intermediary. He offers these 10 tips for selecting the right freight broker for your needs.
1. Make sure the broker is licensed. Federal law requires anyone arranging transportation for compensation to have a federal property broker license issued by the Federal Motor Carrier Safety Administration (FMCSA). Be wary of motor carriers who broker loads without broker authority. For-hire motor carrier authority is not the same as broker authority. Before you choose a broker, make sure they have the proper authority and license.
2. Look for multiple modes. Most brokers provide truckload motor carrier service. Some also offer additional service options, such as rail intermodal, air freight, warehousing, LTL, flatbeds, vans, reefers, padded van, and/or logistics management services. Brokers with multiple modal options can back up shortages in one mode with capacity in another. They also provide more options from a single source.
3. Investigate the broker’s carrier selection process. You wouldn’t trust your freight to just any carrier, and neither should your broker. Before tendering loads to carriers, brokers should—at bare minimum—verify carriers’ operating authority, safety rating, and insurance coverage. In addition, a written contract between broker and carrier is essential.
4. Examine the broker’s trucking selection process. Find out if the broker simply uses electronic posting services—where brokers post available loads and carriers post available trucks—or if it draws from other fleets as well. Large motor carriers and private/dedicated fleets are great resources for trucks, but typically are very selective about which brokers they will work with. They also don’t post available capacity. Brokers using other resources will cover your loads more effectively than those only using electronic posting services.
5. Evaluate the carrier management process. To avoid unwanted surprises and problems, brokers must communicate constantly with carriers. Giving instructions over the phone is not enough; look for brokers who communicate in writing when instructing carriers. Ask brokers how they match carriers to available loads. How do they confirm loads were picked up and delivered as promised? Ask to see copies of their correspondence with carriers to see how comprehensive it is.
6. Run a credit check. Freight brokers should be financially solvent and able to pay their carriers. Find out how prompt they are in paying vendors. Are they profitable? Are there any liens or legal judgments against them? Stay away from brokers with financial issues.
7. Find out how long the broker has been in business. A company in any industry faces its greatest challenges during the first year or two of operation, when survival is the primary objective. Companies that survive and prosper in service industries have a history of executing successfully. Align yourself with a successful, experienced broker.
8. Be sure the broker carries adequate insurance. Most brokers carry contingent cargo insurance to pay shipper loss or damage claims if the carrier and its insurance company refuse to pay. Contingent cargo coverage provides shippers a second level of protection, as long as a claim is valid. Look for brokers who also carry liability insurance as well as ‘errors and omissions’ insurance.
9. Look for enrollment in integrity programs. Licensed property brokers who belong to the industry trade group Transportation Intermediaries Association (TIA) are required to abide by a strict code of ethics when dealing with shippers and carriers. Choosing a broker who is publicly committed to integrity is always a good way to avoid problems.
10. Get it in writing. Make sure you have a written contract with your broker that explains the terms and conditions of your agreement. This helps avoid costly misunderstandings and allows each party to have realistic expectations. Make sure your contract properly addresses the unique role of the broker. Don’t use a motor carrier contract, for instance. TIA and the National Industrial Transportation League have developed a model shipper-carrier contract that also makes a good broker contract. It is available on their respective web pages at www.tianet.org and www.nitl.org.