An outline of the structure of freight brokerages and the cash flow within a brokerage. Learn the difference between Freight Brokers and Freight Agents. Begin to understand why brokers are so necessary to our shipping industry. For freight broker training visit logisticsacademy.org, become an excellent logistics coordinator.
Cash Flow and Structure in Freight Brokerages
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In this presentation we are going to talk about freight brokerages. The structure, the cash flow & how that whole ordeal works as well as the importance of brokerages and why we they’re used so frequently in the transportation industry.
Now the structure of a freight brokerage looks something like this, I’ll walk you through the diagram if it doesn’t make sense right off the bat. So the brokerage is an entity of its own (the black line) and the brokerage is made up of the broker who holds the operating authority, basically the broker is the individual who legally owns the brokerage and they have the bond. Now within the brokerage there are also freight agents and these freight agents come on and they get to work under the brokerages authority so they represent the brokerage as a whole. Agents in one company all work under the same authority/bond together, and ideally they work together as team to connect shippers with carriers. Now it is important to note that shippers and carriers can have a direct line of communication (the dotted line) but if a shipper goes to a brokerage, a broker has a ton of carriers that they work with so for the shipper it is like going to one person and having a thousand carriers at your fingertips.
So obviously brokers make a little bit of money, and the cash just goes from the shipper to the carrier if they are working together. But if a broker is doing a load he or she would call the shipper & give them a quote for a lane that is for instance worth $4000, and he would say “yea I can do that for $4200” and then they would go off and find a carrier who can do it for $3800 and they make the $400 in between. Now the brokers are extending a line of credit to the shippers and they by law have to pay carriers.
So I guess if shippers can go directly to carriers why do brokerages even exist? Well it is an interesting little paradox, considering brokers have a hand in almost 40% of the freight moved in the US. And as a shipper, a good broker really does provide you with a lot of peace of mind, they have a lot of the resources that are needed to make things run smoothly.
They are professionals in what they do, they literally just specialize in finding available people & equipment to meet your carrying capacity needs and they know how much lanes are worth and they have experience working all across the country consistently.
As a shipper you may only be working out of one area in the country and so you might be a little bit more blind-sided with price fluctuations because you are not aware of what is happening in the market as a whole while a broker should be. A really cool aspect of freight brokerages is that every truck is available to a broker, if you are an asset based carrier only your trucks are available to you – if you are a broker all of those asset based carriers are available to you.
We teach you how to determine what lanes are worth in our Freight Broker and Freight Agent Training Courses that you can find at