If you’ve wondered what happens after placing your precious cargo in the hands of a freight broker, then this blog post is for you! Keep reading to learn more about the internal operations of a freight brokerage firm.
Let’s start off with a basic definition. In layman’s terms, a freight broker is the facilitator between a company that buys or sells goods and a carrier. A carrier is the trucking company that delivers those goods.
If you work for a company that produces goods or raw materials, then your company can either hire a third-party freight broker or fulfill the broker’s responsibilities in-house. Freight brokers provide a higher level of knowledge and years of experience in logistics. Because of the specialization required for understanding the nuances and complexities of the freight industry, many companies work with a freight broker to handle their logistics operations.
The main activities of a freight broker are as follows:
- Acquire a load from a customer with quoted amount
- Match a truck to the acquired load (i.e. a driver near the pick up location who is willing to haul the load to the drop off location)
- Negotiate optimal rates and schedule the pick-up, delivery, and handle any other details
- Track the truck from pick-up to delivery
- Update the customer throughout the process and resolve any issues that might surface during the trip
- Finalize Billing – communicate any additional charges incurred in the duration of the load, such as lumper fees or detention, and submit all paperwork to the customer for billing.
However, these are only some of the most basic responsibilities of a freight broker. To be an effective freight broker, they must also be proficient in the following 5 skills/tasks:
1. Keeping up with industry news
There are numerous factors that can cause truck rates to fluctuate, e.g., produce seasonality, weather, natural disasters, or a global wide pandemic –YIKES! Skilled freight brokers understand that the freight market is constantly changing and therefore they know how important it is to stay on top of industry news.
It’s not just good practice to be ‘in the know’ of the industry you’re operating in; it’s critical for negotiating favorable freight rates.
Market rates can sometimes shift within hours and a broker who is unaware can get taken advantage of by carriers. By strengthening their market knowledge, brokers are able to carry a higher negotiating power.
A couple of reputable sources for industry news are FreightWaves and Transport Topics.
2. Killer negotiating skills
This one is a no brainer. A freight broker’s main role is to negotiate freight rates in the interest of their customer. Therefore, they must have outstanding negotiating skills.
How does a broker gain such skills? Years of practice! Seasoned brokers have a natural sense of confidence when negotiating with carriers. Their experience through the years allows them to confidently take the lead and drive negotiations in their favor.
To gain some foundational negotiation skills, we recommend reading the book Never Split the Difference: Negotiating As If Your Life Depended On It by Chris Voss.
3. Relationship building
The transportation industry is volatile. If you’ve ever been involved in the transportation of goods, then you know that a normal day is filled with trials and tribulations. Building a solid foundation with a carrier allows a broker to work through issues with ease and deliver quicker resolutions to the customer.
Imagine the following scenarios. The truck driver on an important load just called to tell you he is going to miss his appointment because his trailer broke down 300 miles away from the receiver. Another driver is at the receiver with the wrong customer’s freight. A third driver is asking for 4 hours of detention – a fee paid for every additional hour the driver waits to unload.
Where there is mayhem, there is opportunity for conflict and miscommunication to occur.
It’s easier to handle inevitable problems that arise when you have good relationships in place. An effective freight broker builds strong relationships with both carriers and customers to make sure everyone is heard, informed, and working towards mutually beneficial goals.
Being able to effectively navigate the tumultuous logistics terrain is what separates excellent freight brokers from average ones.
4. Understanding spot market and seasonal trends
Like we’ve already mentioned, freight rates will fluctuate according to a myriad of factors. Many of these factors will be out of your control, but understanding them is crucial for negotiating well.
Two of the most influential factors in determining the range in which a broker can successfully negotiate within are the spot market and seasonal trends.
When the market is tight, the demand for trucks is high because there are more shipments available than there are trucks to move them. This gives carriers more negotiating leverage and vice versa when the market is loose (i.e. when there are more trucks available than there are shipments, shippers and freight brokers have more leverage).
Knowing the spot and seasonal market trends are extremely important when it comes to choosing your negotiation strategy.
For example, during the spring and into the summer months, one can expect there to be a surge in the demand for transportation of produce out of areas like Florida and California. As a result, it’ll be harder to find a truck and the rates will be inflated more than they are out of other areas at the time..
In the end, it all comes down to supply and demand and knowing the levers that drive the market is critical to being an effective freight broker.
5. Obtaining and leveraging economies of scale
A major advantage of outsourcing freight brokerage to a third-party logistics provider is the opportunity to leverage their volume.
Ponder this, if a supplier is selling 5 units to one company and 30 units to another company, which company has the power to negotiate a discounted price per unit?
Yep, the company wanting to buy 30 units.
The same concept applies to logistics. When you work with a third party logistics company, they are able to pool your loads with other customer’s loads. Because volume and consistency are attractive to carriers, this gives the broker leverage to obtain volume discounts.
