Things to Consider When Starting a Freight Business

Freight is big business. The transportation of goods across the world is the keystone of modern society, with almost everything we use and consume passing through some part of the freight network. Unless a company is big enough to own a fleet of vehicles, they will need to rely on third parties to deliver their products. Even the world’s biggest corporations rely on specialist 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 situation is mirrored across the world, and establishing a freight business has never been a more attractive prospect.

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

Starting a freight brokerage business

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

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

Startup costs

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

Cash flow can also prove problematic in the early days of running a freight brokerage business. Brokers usually take around 20 percent of the fee, but customers typically don’t pay until the shipment has been delivered—and carriers often demand payment up front when dealing with a new broker.

Pros and cons

In some countries, there are few barriers to starting a freight brokerage business, making it an easy target for would-be entrepreneurs. However, many others have introduced strict regulations. For example, U.S.-based brokers must purchase an extremely expensive bond, and adhere to numerous other legal requirements.

Even if your country doesn’t monitor freight brokers, it’s advisable to seek membership of an accredited industry organization. This will lend your new company some credibility, and help persuade potential customers to enlist your services.

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

Choosing a reputable carrier is essential—unscrupulous companies have been known to hold loads hostage, or simply cancel a shipment if a better offer comes in. However, once you’ve found a reliable carrier and built a working relationship with them, this stage of the process becomes much easier.

Starting a freight forwarding business

Unlike brokers, freight forwarding businesses often directly handle customer shipments. Depending on the size of the shipment and the destination, a freight forwarding business could collect goods from a customer, store them at a warehouse, group smaller shipments into one larger consignment, and even deliver them.

Like freight brokers, forwarders also commission other carrier companies to handle shipments—particularly when goods need to be transported overseas.

Startup costs

The amount of startup capital needed will vary depending on both the products you will be handling, and the services you will offer. However, it will probably be 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’re planning on commissioning other carrier companies, you will also need to purchase logistical software.

Pros and cons

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

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

However, this increased responsibility also leads to increased liability. Where freight brokers largely act as salespeople, freight forwarders actually handle shipments and are therefore subjected to many insurance and licensing regulations. These regulations increase exponentially when operating overseas, so keeping up-to-date with international customs and transportation laws is of the utmost importance.

The specialist touch

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

Specializing in a particular type of shipment—such as abnormally heavy loads, student moves, or fragile products—will significantly reduce your customer base. However, this is not necessarily a disadvantage. Reputation and relationship-building are important in freight, and a smaller customer pool allows you to spend more time developing relationships with your 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

Depending on your location, running a freight brokerage business could be the most cost-effective way to join the industry. However, freight forwarding businesses have more control, and those offering specialist services have a real opportunity to grow a valuable company.

Regardless of your chosen path, you will need a great deal of knowledge in order to be successful.

The best place to start is by thoroughly researching international customs legislation, transportation rules, and insurance laws. Then document how you will run your trucking business by writing a business plan.

Check out our freight trucking business plan example and free template to get started.