10 Reasons Many Beginning Freight Brokers Fail

By Eric Weisbrot

The freight brokerage industry has been steadily growing for the past several years, and with the influx of new technology and business management tools, the sector is poised for more growth over the next decade. Many individuals with acumen in the transportation and logistics arena are drawn to freight brokering because of the low barriers to entry into the market, the relatively small startup costs, and the increased need for their services among suppliers and carriers. However, not all new freight brokers are successful out of the gate. The reasons startup freight brokers fail are numerous, but the top ten listed below offer some insight into what beginners can avoid in embarking on a new brokerage business.

Misunderstanding Licensing Requirements

Freight brokers must meet a bevy of legal requirements before they can operate legitimately in the business, not the least of which is being licensed through the Federal Motor Carrier Safety Administration. As part of this licensing process, new freight brokers must also secure a surety bond that protects customers from poor business practices throughout the life of the brokerage company. Failing to get the right license or secure the minimum bond can wreak havoc on a broker’s ability to work in any state, as well as create a bad reputation among potential customers.

Lack of Capital

As with most start-up companies, a new freight broker may struggle with access to affordable capital. The expenses of a beginning freight broker are small compared to other industries in transportation and beyond, but over time, growing businesses need financing to cover expansions, marketing, working capital, and equipment. Freight brokers must also pay for their bond each year to stay compliant with regulations. Not preparing for these costs and not having easy access to cash can mean failure for a new freight broker early on.

Mediocre Business Relationships

Many freight brokers get in the business because they have built strong relationships with suppliers and carriers as part of their career in transportation. These business connections are an integral aspect of being successful for the long term as they may lead to referrals to potential customers or long-term contracts with suppliers or carriers. When business relationships in the transportation sector are not in place, it can be a challenge for freight brokers to keep their business profitable over time.

Missing the Technology Boom

Technology has become a significant part of the transportation sector over the last several years, with an increase in the number of digital tools and software programs available to suppliers, carriers, and brokers alike. However, many new freight brokers with a tight budget fail to put in place the right technology tools from the start. Without a viable technology solution for managing business financials, customer support and coordination, or growth, freight brokers are less likely to run a successful business for the long haul.

Strong Competition

Freight brokers of all sizes face strong competition in today’s marketplace, due in part to the low costs of starting and sustaining a business in the industry. With a growing number of brokers offering their services to suppliers and carriers around the country, new freight brokers without a plan have a high potential to shut their doors. Establishing a niche in the market, creating a sustainable business model and marketing strategies, and boosting business relationships all help ease this pressure from competitors.

The Wrong Business Model

Freight brokers may think starting a business is as simple as getting a laptop, some software, and a list of prospects to call on, but this is far from reality. All new freight brokers need a strong business plan and model of operation if they want to be successful well into the future. Some brokers fail to recognize their error in not establishing a plan from the start, and they make no changes as the business runs its course. Successful brokers adapt to changes in their niche or the broad market, ensuring they are still a relevant component of the business to their customers.

Lack of Marketing

The high level of competition in freight brokerage businesses can be mitigated through a sound marketing strategy, but many new brokers do not take the time or put in the effort to create a buzz around their new business. Marketing is made simple these days with the help of technology like social media sites, and new brokers in the business must embrace these trends if they want to create a sustainable profit in the industry. It is also necessary for new freight brokers to have a plan for contacting new leads once they come in, ensuring a similar process is followed with each potential customer.

No Passion for the Business

As with any new business, there must be an underlying passion for the work to be done. Many new freight brokers enter the business because they have a long work history in transportation along with the connections needed to get off to a strong start. However, brokers have a higher likelihood to fail within the first year or two when they lack excitement about the work they do each day. New brokers need to consider why they are getting into the business before making this move.

Poor Business Management

Freight brokers new or old may be incredibly talented in connecting suppliers with carriers and ensuring smooth delivery of goods from one point to another. However, that understanding of the transportation world does not always translate into business management. New freight brokers may be surprised by the number of hats they wear as an owner, including accounting, payroll, IT, and marketing. Failing to manage every aspect of the business can lead to a quick demise of the business, regardless of the degree to which one understands the freight industry.

No Team

Not all freight brokers want to create a large enterprise of a business when they get started, and some may even enjoy the idea of working alone. However, employing the right team of business professionals, administrative assistants, scheduling coordinators, and financial gurus is crucial to success in the business over time. New freight brokers should recognize these team members as value-adds, not just an extra cost, if they want to keep their business profitable over the long run.

Eric Weisbrot is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry under several different roles within the company, he is also a contributing author to the surety bond blog.