Things to Consider When Starting a Freight Business

Things to Consider When Starting a Freight Business

Freight is a big business, serving as the keystone of modern society. Almost everything we use and consume relies on the freight network for transportation. Even the world’s biggest corporations depend on specialized freight services for air, rail, and sea transport.

In the U.K. alone, freight forwarding is set to contribute an estimated £21.69bn to the economy this year. This trend is mirrored across the world, making establishing a freight business an attractive prospect.

There are two major types of freight business—a freight brokerage business and a freight forwarding business. Both have benefits and downsides.

Starting a freight brokerage business

Freight brokerage businesses act as coordinators, matching suppliers with carriers. They don’t handle shipments themselves. For example, a small business might want to send a shipment across the world to a customer. The freight brokerage business will research shipping options and commission a carrier to transport the goods to the destination.

The role involves significant communication—soliciting clients, negotiating rates with carriers, tracking shipments, and arranging alternative transport if a problem arises in the supply chain.

Startup costs

At first glance, the required startup capital for brokers is fairly low. They only need a phone and a computer to operate. However, good logistical software—an essential tool in the modern freight market—can be expensive.

Cash flow can also be problematic initially. Brokers usually take around 20 percent of the fee, but customers typically don’t pay until the shipment has been delivered. Additionally, carriers often demand upfront payment when working with a new broker.

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Pros and cons

Starting a freight brokerage business may be easy in some countries with few barriers. However, other countries have strict regulations. For example, U.S.-based brokers must purchase an expensive bond and comply with numerous legal requirements.

Even if your country doesn’t regulate freight brokers, joining an accredited industry organization is advisable. This lends credibility to your new company and helps persuade potential customers to use your services.

Finding companies to take your shipments can be initially risky and time-consuming. You will need to post your loads on an online board for companies to bid on and negotiate a contract with the highest bidder.

Choosing a reputable carrier is essential, as some companies have been known to hold loads hostage or cancel shipments for better offers. However, once you’ve found a reliable carrier and built a working relationship, this stage becomes much easier.

Starting a freight forwarding business

Unlike brokers, freight forwarding businesses often directly handle customer shipments. They can collect goods from a customer, store them at a warehouse, group smaller shipments into larger consignments, and even deliver them.

Like brokers, forwarders also commission other carrier companies for transportation, especially for international shipments.

Startup costs

The required startup capital for a freight forwarding business will vary depending on the products and services offered. However, it is generally more expensive than starting a brokerage.

You will need at least one vehicle for transportation, a secure storage facility for shipments, and potentially packing materials. If you plan to commission other carrier companies, you will also need to purchase logistical software.

Pros and cons

One of the main difficulties for freight brokerage businesses is handling supply chain disruptions. Transport delays and shipment issues are common, especially when working across international borders.

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Although brokers are rarely at fault, late or missing deliveries can seriously harm a company’s reputation and income. By taking some of the transporting duties in-house, freight forwarding businesses have greater control over their service and are more likely to attract and satisfy customers.

However, increased responsibility also leads to increased liability. Freight forwarders handle shipments directly and are subjected to many insurance and licensing regulations. These regulations increase dramatically when operating overseas, emphasizing the importance of staying up-to-date with international customs and transportation laws.

The specialist touch

Both freight brokering and forwarding are highly competitive niches, with a saturated market filled with generalist companies, many of them large and powerful. To stand out against the competition, becoming a specialist company with a focus on a certain type of shipment or transport method is recommended.

Specializing in a particular type of shipment, such as abnormally heavy loads, student moves, or fragile products, will reduce your customer base. However, this is not necessarily a disadvantage. Reputation and relationship-building are essential in freight, and a smaller customer pool allows for more focused attention on developing relationships with clients.

By focusing on an excellent, personalized service within a small field, a new forwarder or broker can rapidly establish themselves as a reputable company with a loyal customer base.

In conclusion

Running a freight brokerage business can be the most cost-effective way to enter the industry, depending on your location. However, freight forwarding businesses offer more control, and those offering specialist services have a real opportunity to grow a valuable company.

Regardless of your chosen path, having a great deal of knowledge is crucial for success. Thoroughly researching international customs legislation, transportation rules, and insurance laws is the best place to start. Additionally, documenting how you will run your trucking business by writing a business plan is essential.

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