A Shipper’s Guide to Selecting a Freight Broker - Part 1

Some shippers have a negative attitude towards freight brokers. Labelling them “freight pimps” or worse, they do not see their value proposition. They see freight brokers as obtaining transportation services that they could obtain on their own, without the brokers’ mark-up. This reflects a lack of understanding of where freight brokers fit in the portfolio of service providers available in the market.

Shippers have a limited amount of time to meet carriers. There are thousands of transportation companies across North America. Even the large transportation companies do not have sales representation in all North American markets and they do not provide short haul and long haul services in all markets. A broker with a large stable of carriers in their data base can often find transportation services that shippers cannot locate on their own and at rates that a shipper cannot procure on their own.

But not all freight brokers are created equal. Just as there are good and not so good trucking companies, some freight brokers are better than others. When should you consider using a freight broker? First, if you have trouble finding carriers that go to or from certain markets, you should contact a freight broker. Second, even on your major lanes, freight brokers may be able to find carriers that you cannot identify on your own. They may be able to offer better service and pricing than the “name brand” carriers serving some corridors. What are the criteria you should look for in selecting a freight broker?

Market Knowledge

You need to identify those markets where your broker has particular expertise and make a determination as to how that market knowledge matches up with your specific transportation needs. The good brokers “have a nose” for finding those carriers that need backhaul traffic in certain lanes. They can negotiate low rates, add their mark-up, make a profit and still be competitive with the asset based carriers with whom they are competing. This is the market knowledge they need to be successful.

Capacity

I look at freight brokers like any other transportation providers. While they may have “Logistics,” “Brokerage” or “Services” after their name, you are looking at them to provide consistent, on time service at competitive rates. You are expecting them to provide, through their trucking company partners, the capacity you need. They can either commit to a certain amount of capacity on certain lanes or they cannot.

Global and Multi Modal Connections

We live in an increasingly global and multi modal world. Your vendors and customers can be in any part of the world. You therefore need freight brokers with expertise in the various domestic (e.g. small parcel, LTL, truckload, intermodal etc.) and international (ocean and air freight) modes. This is increasingly becoming the norm. Since intermodal may be less costly than truck in some lanes and more costly in others, you do not want to be dealing with “one dimensional” companies that may be selling a mode of transport that is not the optimum for your company.

Integrity

You need to know if the broker is just throwing out low rates to secure your business or if he has committed partners that can provide the tractors and trailers or containers that you need. Most of all you need honesty as to what they can do and cannot do. In my dealings with freight brokers, I often tell them that if they fail on certain lanes, they may lose all of their business with my clients. It is better to do a good job on some lanes rather than over-commit and then fail, thereby losing the confidence (and probably the business) of the shipper.

Service

Since the broker makes his money on the spread between the wholesale and retail cost, there is a temptation for some brokers to select carriers at the lowest cost. Some of these low cost carriers may literally be here today and gone tomorrow. You need to do your due diligence on the quality of the carrier partners that are aligned with your freight brokers. You also need to do your due diligence on the intangibles, the brokers’ customer service and tracing capabilities.

Price

This is another test of a good freight broker. A low rate does not necessarily mean poor service. Quality brokers with a deep data base of carriers and deep market knowledge know where to go obtain capacity, service and competitive costs that allow them to offer competitive rates.

The good freight brokers fill an important niche in the transportation marketplace. They offer a valuable service that most shippers cannot perform on their own.