Have you ever pondered how freight brokers make their money? Many do, and often. Brokers have essential responsibilities in the modern management of freight transport, including the creation of loads, monitoring the performance of service providers using carrier scoreboards, and much more. Unfortunately, these value-added services are often overshadowed by the misconception that brokers only offer simple trading and are based solely on connections. But let's take a look at the data surrounding freight brokers.
Someone will always ask, “How do freight brokers make money?” There is a genuine concern behind that question. If the transport sector is already operating with very low margins, how can a corridor survive? Well, cargo management segments must analyze the facts: brokers are much more than an intermediary in logistics. They provide a number of services that may even include the transfer of cargo when operating as asset-based intermediaries. And the best way to maximize ROI in all of these processes is to use near-real-time data-based information in all operations.
Schedule an online SONAR demo now to learn more about how to maximize your brokerage agency's profitability now. In addition, in an industry with more than 17,000 freight forwarders to choose from, some brokers may take advantage of you in this way. Because they have visibility into the general market, brokers can find the right truck for their customers' cargo at the right time and at the right price. At the end of the day, any freight brokerage agency that doesn't serve customers and maintains relationships with shippers before their bottom line will not prosper.
At the same time, it can be difficult for shippers to trust that carriers will provide the best and correct freight rates. As shown above, brokers measure their financial success and keep the lights on, using the same key performance indicators as you. Other factors include your level of experience, the gross revenues of your business portfolio, the profitability of those customers, your business structure, and the support and technology offered by your transport agent. There is a misconception in the transportation industry that transportation agencies will increase the price you pay in order to make more money from your cargo.
To really understand how a freight brokerage agency makes money, we'll have to take a sudden step into the world of financial accounting. The good ones, however, the brokers that become an extension of their customers' supply chain, never will. Since these carriers are in their area and have a history of working with their broker, they trust this association and know that, if a problem arises at the destination of their cargo, their agent will be able to secure another load for them to transport home. Keep in mind that if a shipper were to manage all your cargo in-house, the cost of these tools would fall solely on your shoulders.
The net margin provides freight forwarders with a way to measure their overall financial performance and adjust accordingly. While it varies from transaction to transaction, reputable freight brokers typically claim a net margin of 3 to 8 percent on each load.