While the most outward-facing aspects of the freight industry are the trucking companies and major carriers, the freight business is a massive, interconnected, industry that relies on a variety of different entities to make the system run smoothly. In many ways, middlemen who act as the go-betweens for major freight companies are the lifeblood of the industry. For years now, freight brokers and freight forwarders have played a vital role within this massive cog, and with the rise of the e-commerce boom, they have become even more critical to a freight company’s success. Although they may have some overlapping abilities or roles, there are legal and technical differences that distinguish freight brokers and freight forwarders. We will dive into those similarities and differences, but first, you should know precisely what freight brokers and freight forwarders are, as well as, what they do.
What is a Freight Broker?
At the most basic level, a freight broker acts as a liaison, an intermediary, whose goal is to connect two parties, buyers and sellers, and help them come to a long-lasting, mutually beneficial arrangement. Freight brokers connect businesses who have shipping needs, also known as shippers, with transportation carriers. As you might imagine, both parties have different wants, needs, and requests; a shipper has certain things it desires or requires, and the same goes for carriers. While their desires may align on many of these things, there are times where there are conflicts of interest, and those conflicts, even small ones, can prevent two parties from coming to an amicable agreement. In many cases, this is because neither side wants to compromise and thus be seen as the loser of the deal. Because of this type of aggressive mentality when it comes to business or, at least, the bargaining table, a freight broker’s goal is to be the oil that helps the motor run smoothly.
A freight broker generally has an extensive amount of industry knowledge and contacts, knows freight laws, and can handle much of the paperwork. Their goal is to prevent squabbling, to smooth any hiccups, to fix any hitches, and help both parties come to a compromise. Further, a good freight broker will benefit both the shipper and carrier see that the compromise helps them more in the long run and that making money is more important than one’s ego. After a freight broker has helped arrange the deal and both parties begin to do business, a freight broker’s task then shifts to maintaining an open line of communication between the carrier and shipper in order to make sure the freight hand-offs run smoothly and that both parties are honoring their side of the bargain.
If you already have prior knowledge of the shipping industry, you might be asking yourself whether or not there is a difference between a 3PL and a freight broker? The answer to that question is both yes and no. The vast majority of 3PL’s will utilize a broker as the point of contact for accounts who are responsible for the original transaction, carrier negotiations, ensuring truck arrivals and departures, and pickups and drop-offs. Shipping companies often hire them on as advisers, whose goal is to analyze the company and look for ways to help shippers optimize routes, shipping practices, and other such cost-saving aspects of the freight industry. That said, 3PLs offer a wide array of logistical supply chain services, of which, freight brokers are just one aspect.
What are the benefits of a freight broker?
Thanks to changes in technology and within the freight industry, supply changes are shifting. As a result, many companies have a finite amount of money and manpower to spend on fostering relationships, overseeing loads, and handling claims. A freight broker, however, can be utilized to help you with the following:
- Handle the continually shifting industry – As the freight industry continues to evolve and adapt, a broker keeps up with industry trends, money-saving technological innovations, and new laws or regulations that must be adhered to.
- Get you better rates or lower fees – Due to their industry knowledge and pre-existing relationships created over the years spent working with carriers and shippers, brokers can often capture lower rates, or help negotiate away accessorial fees or the like.
- Optimize shipping – A broker can look at your whole freight business and find ways to reduce transportation costs, improve delivery accuracy and package safety, and reduce waste or misspent time. Their goal is to improve your line by creating more efficient routes, and ensuring that each truck is handling more business for less cost, thus improving the bottom line.
- Deal with claims – Handling claims for damaged or lost goods, or other such issues can be a long, drawn out, and frustrating process. A broker can help facilitate this and ensure that all of the legal steps that have to be taken are taken, to ensure your claim is upheld and your dispute settled to your satisfaction.
Freight Broker Legal Requirements
A freight brokerage is required by law to be registered as a business with the U.S. FHA (Federal Highway Administration). In order to do so, a brokerage must prove the existence of a fund containing at least $10,000 in a trust, or a performance bond for the same amount. Further, for every state that brokerage operates in, there must be a designated representative for receiving legal documents.
What is a freight forwarder?
Although a freight forwarder will also act in the form of an intercessor between the carrier and the shipper, a forwarder also does a variety of other things. One of the most critical services a forwarder provides is the consolidation of freight services; in other words, gathering and merging smaller shipments or taking larger shipments and breaking them into smaller, more transportable shipments. They also specialize in arranging storage as well as shipping of freight on their client’s behalf. Such services are often encompassed as a segment of freight logistics. Such services, as you might imagine, necessitates more capital and manpower than a freight brokerage since they need a location to store goods, and trucks to move them. A forwarder will take charge of freight and then ship with their own BOL (Bill of Lading) as well as keep shipping preparation and export documents. They are responsible for consolidation, transportation, and insurance of the freight.
What are the benefits of a Freight Forwarder?
There are a variety of benefits from utilizing a freight forwarders services, they include:
- Forwarding goods – as their name implies, after a forwarder consolidates or breaks up goods in storage, they will then prepare distribution, the “forwarding” of that freight as their client would like, this could include a variety of routing or regular routing.
- An intermediary between carrier and shipper – Like a freight broker, a freight forwarder will act as a go-between for clients and transportation services, and help ensure that the product gets to the customer. If that product is shipping overseas, a broker will also handle customs and handlers. Freight forwarders often deal with international import and export issues that regularly crop up when transporting freight internationally. They are also more than capable of booking cargo space or negotiating transportation rates.
- Proper Packaging – a freight forwarder can help customers either learn how to package their products for delivery or can do that on their behalf. Further, packaging that might work for domestic shipping may not meet standards for extended international transport, especially since such journeys require a ton of handling, loading, and unloading, and thus increasing the likelihood of damage occurring.
- Labeling – while it may seem like a small thing, an incorrectly labeled package can cost you customers and money. Freight necessitates proper labeling to ensure that all packages are delivered when and where they need to be. Freight forwarders will often aid their customers to use correct labeling for their freight. Such labeling for international shipping includes:
- The exact items within the shipping container
- Any hazardous items
- Country of origin
- Actual weight in pounds as well as kilograms
- Port of entry details
- Any additional details that are needed in the language of the destination country
- Documentation – A freight forwarder will often times prepare documents that necessitate professional experience. Such materials include the Bill of Lading and Commercial Invoice, for domestic freight. For international, a Certificate of Origin and an Inspection Certificate must be on file. This paperwork helps ensure that all freight shipments are accounted for and carried out by the carriers.
Distinguishing between a broker and a forwarder
As you can no doubt tell, there are a variety of services that both a broker and forwarder provide that are congruent; however, there are some critical differences between the two:
- Possession of freight – one of the most significant differences between the two is brokers do not deal with the actual handling or storage of freight. As a result, they do not issue bills of lading with them listed as the carrier. Freight forwarders, on the other hand, ship freight with their own Bill of Lading, as well as handle freight prep and export docs, on top of storing freight in their facilities.
- Legal Obligations and Liability – Because of their roles, when it comes to possession of freight, a broker cannot be held liable for any claims of damage or missing freight since they do not ever handle it. So, as long as it does not provide the services of a forwarder, it will have no legal obligation for the freight shipment. Forwarders, however, can be held responsible for problema screwed-up shipments. Therefore, they must have cargo and liability insurance policies that are equal to the minimum coverage amounts required for carriers, on top of registering with both the Federal Highway Administration and the FMCSA (Federal Electric Motor Carrier Basic Safety Administration). So, freight brokers are often times unable to do anything that might make them be viewed as a freight forwarder. The legal definition of freight forwarding (according to 49 US Code 13102 Section 8) is: ”a person holding itself out to the general public to provide transportation of property for compensation and in the ordinary course of its business, (A) assembles and consolidates, or provides for assembling and consolidating, shipments and performs or provides for break-bulk and distribution operations of the shipments; (B) assumes responsibility for the transportation from the place of receipt to the place of destination and (C) uses for any part of the transportation a carrier subject to jurisdiction under this subtitle. The term does not include a person using transportation of an air carrier subject to part A of subtitle VII.” As a result, a freight broker would make themselves legally considered a freight forwarder by merely picking up and taking possession of freight. Therefore, if you have a broker and ask them to take on even just a single piece of freight, that could make them liable, so in all likelihood, any such requests would be summarily rejected.
Freight Forwarders do the following:
- Store client’s freight at the forwarder’s warehouse.
- Consolidate or break down freight
- Forward freight as their client wishes
- Negotiate freight rates and handle other client desires
- Schedule cargo with shipping lanes and routes, fill up cargo space
- Prepare documents such as Bill of Lading
- Package and label cargo
- Provide alternate shipping line to major carriers
Freight Brokers do the following:
- Connects freight owners to shipping lines and manufacturers with carriers
- Negotiate freight rates
- Optimize routes and shipping logistics
- Arrange transportation on either road, rail, air or sea, but does so by outsourcing transportation
- Handle claims on your behalf, but cannot be held responsible for claims
As you can see, Freight Brokers and Forwarders both provide vital services in order to help make the lives of shippers and carriers easier. While on the surface they may seem different, there are key differences that distinguish the two occupations. Both can provide excellent services that optimize your shipping, help you save money, and grow your client base.