Four Things to Know About Starting a Freight Brokerage

When it comes to starting your own business, many prospective business owners go the restaurant or coffee shop route. Others expand a current hobby into a retail business, from game stores to ax-throwing event centers. But while these businesses may offer their owners the opportunity to do what they love, they aren't always guaranteed profit-makers. 

On the other hand, with internet sales showing no sign of slowing, there's still an incredible demand for freight brokers—individuals and companies that work to connect merchants who need to ship their goods to the trucking and freight companies that transport them. Read on for four things you'll need to know if you're considering starting your own transportation brokerage, or freight brokerage, business. 

Your Corporate Structure Is Important

Freight brokers can deal with millions of dollars of inventory that must be shipped according to tight timelines. Some products—like food, medicine, and live animals—must be transported at certain temperatures and under other conditions. All these factors can combine to make freight brokerage a high-liability profession.

Because of this, it's crucial to choose your corporate structure wisely. This isn't generally the type of business in which you can start small, then expand (and rebrand yourself from a sole proprietor to an LLC) later; instead, you'll want to have all your ducks in a row before you take on your first client or contract. Talk to an attorney and, if necessary, an insurance agent to get a better idea of how the available corporate structures and insurance packages can protect your new business. 

Your First Step Starts with the FMCSA

The U.S. Federal Motor Carrier Safety Administration (FMCSA) is an arm of the U.S. Department of Transportation, responsible for regulating interstate commerce and ensuring that all shippers, freight brokers, and others involved in the process adhere to applicable safety regulations.

After you've decided on your corporate structure and have filed all relevant documents with your state's Secretary of State, you'll need to apply for operating authority from the FMCSA. Many freight brokers seek outside assistance in preparing this application and transmitting it to the FMCSA; because it can be a time-consuming process and approval may take months, having help from someone who has completed this process in the past can save you the frustration of having to redo and resubmit a rejected application in another few months. 

Next, Get Your Bonds in Order

All freight brokers who operate under the FMCSA's authority are required to carry at least $75,000 in surety bonds. These bonds can protect customers and the public against the risk of loss inherent in these types of contracts. These surety bonds can be obtained from a variety of companies, and it's a good idea to do a bit of shopping around so that you can find the best coverage for your business at the lowest possible price. (At this point, you'll also want to register your business with the Unified Carrier Registration, another requirement for all carriers and freight brokers operating under U.S. authority.) 

Take Advantage of Model Contracts 

Even if you have some background in the freight industry, it's a good idea to make one of your first business purchases a set of model contracts. Having an ironclad contract to offer to both shippers and merchants will diminish the likelihood of miscommunications that can cost you business, ensure all parties are aware of their rights and obligations, and provide you with an unimpeachable paper trail if you ever need to establish what was agreed to at the outset of the contract. Drafting your own contracts based on information you find online, especially without any legal assistance, could leave gaping loopholes that may cost you money in the long run.

If you are interested in learning more, contact a professional transporation brokerage service.