Here it is January of the New Year and you promised your boss that you were going to sit down and review your list of vendors. Or worse, your longtime freight broker has suddenly gone out of business, a roadkill victim of the new MAP-21 legislation recently mandated by Congress. In this article, we take a look at what you need to know when choosing a freight broker, whether your are evaluating your present one or shopping for a new transportation partner. How hard can it be you ask? Think again.
Not all freight brokers are created equal. The quality and reliability of your freight broker can be integral to your business’s success. Your broker is a true business partner and you are going to be joined at the hip. It doesn’t matter how good your widgets are if you can’t get them delivered to your customers on time, in good condition and at a good price. With that in mind, here are our 10 tips for selecting the right freight broker:
1. Are they licensed & bonded? This is an industry hot button right now. Due to the implementation of a new law raising broker bonding requirements from $10,000 to $75,000 last fall, nearly 10,000 small brokers have been put out of business. Inadvertently run over as an unintended consequence of Congress’s new MAP-21 legislation. Federal law requires anyone arranging transportation for compensation to have a federal property broker license issued by the Federal Motor Carrier Safety Administration (FMCSA). Be wary of motor carriers who broker loads without broker authority. Before you select a new freight broker, make sure they have the proper authority, license and especially the new $75,000 bond.
2. How long have they been in business? So your good friend and next-door neighbor just started a brokerage business out of his house and he is promising to give you the good neighbor discount. Think again. Plenty of studies have shown that the during the first two years of a company’s existence, survival is the only goal. Companies that have survived the great recession and come through it stronger have a history of executing successfully. Their management knows what they are doing. When choosing a broker, you should align yourself with successful, experienced business partners.
3. Are they multi-modal? Consider a broker’s areas of expertise, both geographic and operational. Are they nationwide? International? Most licensed freight brokers provide truckload and LTL motor carrier service. Some also offer additional service options, such as air freight, ocean shipping, warehousing, project cargo and customs brokerage services. Brokers who are able to offer multiple modes of service can back up capacity shortages in one mode with alternative channels. They can also make your life a lot easier, providing a one-stop source for shipping to companies too small to afford their own logistics staff.
4. Pricing – Get it in Writing. Cheaper is always better. Or is it? Make sure that you get a quote in in writing that clearly details any and all accessorial charges on a shipment. In the case of air and ocean freight, those fees can make up as much as 50% of the cost of the shipment, especially on international moves. In particular, make sure that you clearly communicate to your customer and the broker who will be responsible for duties and taxes on all international freight. Duties and taxes can add as much as 30% to the cost of freight and it is not an expense you want to get blindsided with. If all of the potential costs down stream aren’t made clear to you up front, or if you receive a quote that is much less than the others you should review the numbers carefully.
5. How do they select their carriers? Just as you must do your homework when selecting a broker, the broker must also be careful to screen his carriers carefully. What are their safety records, what is their industry reputation, how long have they been in business, what is the average age of their equipment fleet, how many trucks/drivers do they have? You want to ask your broker some pointed questions about their vetting process. Their carriers are about to become your carriers.
6. How are their communication skills? Over time, the broker and their drivers will be out there representing you and your company. Their dispatchers will be contacting your customers to schedule appointments, request directions and coordinate arrival times. You will be speaking with or emailing them daily to get status updates, place new orders and so on. How are their verbal and written communication skills? Will they represent you the way you want to be represented with your best customer? Also, consider the accessibility of senior management. Can you reach them after-hours and on weekends when your best customer is calling you about status on that critical shipment?
7. Run a credit check. You would if it were a new, large account. Why not do so for a key partner in your operation? You don’t want to learn after it is too late that they are grossly under-capitalized , insolvent or that they have numerous tax liens outstanding with the government. How quickly do they pay their vendors? Avoid brokers with financial issues at all costs.
8. How good is their billing department? This is much more important than it may seem. Is their billing to you accurate, detailed and timely? You don’t want to find out that invoices are being hand typed on carbon paper with a Smith-Corona typewriter (a popular brand in it’s day for our younger readers). If you are going to pass through the costs of shipping to your customers, or possibly even make a few dollars on it, you need accurate invoices on time. You do not want to be receiving notices of re-weigh and supplemental accessorial charges weeks after you have already billed your own customer.
9. Do they provide cargo insurance? An often overlooked consideration until it is too late. Especially with truck freight brokers. Shippers often naively assume that all trucks carry $100,000 of cargo insurance and that they are automatically covered up to that amount. Don’t bet on it. LTL is even less certain. Make sure your broker is able to provide both general liability and cargo insurance certificates to your satisfaction and that they are willing to name you as an additional insured. Find out in advance what their claims procedure is, how much coverage costs and what your deductible is, if any.
10. References? This may sound like an obvious one, but many people overlook it. You wouldn’t hire a new employee for a critical role without at least checking a few references would you? Your freight broker is every bit as important. Take the time to talk to a couple of their references, preferably from your own geographic area and industry. What has their recent performance been like? Are they responsive to special requests? Does their size match your own business size and offer the level of personalized service you require to grow your business? Now is the time to find out.
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