Six Reasons Why Freight Brokers Fail

Try attracting customers of all sizes and financial capacity—you need every dollar you can get

Vic Lance
Vic Lance

Sometimes a dream and an idea are not enough. Enthusiasm and vision are necessary for the future of your freight broker business, but those traits alone aren’t nearly enough to keep your business growing.

A freight brokerage can be a very profitable business, and many are lured by the possibility of rapid growth and steady cash flow. And while some succeed, many fail. Why? Your business can go under for all kinds of reasons, usually a combination of internal factors and external forces. Sometimes these forces are beyond your control, but there’s a lot you can do from the inside to bolster your freight brokerage.

Let's take a look at those forces and what can you possibly do to avoid them, or cushion the fall, if it happens.

External Forces: Administrative Regulations

Remember that 2013 freight broker bond increase? It jumped from $10, 000 to $75,000 and forced some 35 percent of the nation's freight brokers to go bankrupt because they couldn't meet the new requirements.

What to do? Unfortunately, there isn't much you can do if you don't have the money. Going more into debt to cover such expenses is not a plausible solution. Even though the Federal Motor Carrier Safety Administration (FMCSA) gave brokers almost a year's notice, often small brokerages have tightly budgeted yearly expenditures. What you could do is try to increase your brokerage’s cash at hand. That way, worst-case scenarios like the one in 2013 would not throw you overboard.

External Forces: Carriers with Chronic Performance Problems

Your business depends on your customers' satisfaction and working with a trucking company that doesn't meet your standards will directly affect your reputation. The carrier may be struggling because of financial problems, a driver shortage or whatnot. Watch for the signs, bankruptcy may be nearer than it seems.

What to do? Get rid of it. If you are just starting out as a freight broker, do some research in advance. Ask around which trucking companies could become a ticking bomb for your business.

Internal Factors: Lack of Experience and Poor Planning

You may come from the industry, having worked as a truck driver, a freight agent, a shipper or something else. You may have a basic idea of how the freight brokerage works, but that doesn't mean you are great at it from the get-go.

What to do? Focus and develop a business plan that outlines your potential gains and shortcomings. Invest in training that shows you the ropes, plus, there you can find a support network of individuals who can be of use to you down the road. Review and revise your plan annually, in sync with the market and industry dynamics.

Internal Factors: Attempting to Reinvent the Wheel

By default, striving to be unique and original is a good thing. Yet, others already implemented some good practices that work—why not use them? Look around for interesting ideas and products that can help your operation stabilize and grow. You can even copy fellow freight brokers, shippers, carriers and any other business that proves to be successful.

What to do? Go with the best management practices that will improve your accuracy and reduce costs by more effective performance and productivity. How about the old-fashioned ways to show customers you value their business, like honesty and good communication?

Internal Factors: Poor Management and a Limited Customer Base

Again, your lack of experience may play a major role here. Important areas such as financing, selling, production, purchasing and hiring employees at some point, require management expertise and industry competence. The old adage never to put all of your eggs in one basket can’t be emphasized enough in this business. Try attracting customers of all sizes and financial capacity—you need every dollar you can get.

What to do? Don't hire other people in the beginning, learn to manage yourself first. Refer to your business plan, stay within budget and be reliable. In addition, keep a diverse customer base, do not count only on one or two businesses to bring in the bigger chunk of your revenue. If one, or both, of them suddenly pulled away, it'd be hard to replace them immediately and you'd drive your business in the gutter.

Internal Factors: Insufficient Funds

Of course, money matters can go at the top of this list, but it's here because it could be a direct result from the first three internal reasons. You need some capital to start, but most importantly, you need capital to survive. A strategy how you envision your gradual growth must be laid out in your business plan.

What to do? Set reasonable goals for you business to make sure you have a constant cash flow, instead of falling for quick money schemes. Most people don't become millionaires overnight. Moreover, being balanced will help boost your reputation within the industry, so you always have customers willing to pay a fair price and carriers that wish to use your services.

Share Your Thoughts

Tell us if you found a magic formula that works, and can bring good fortune and success to new and experienced freight brokers. Let us know if we failed to mention some important external or internal forces that are crucial for this business. Do you agree with the ones listed above?

Vic Lance is the founder and president of Lance Surety Bond Associates. He is a surety bond expert who helps freight brokers get licensed and bonded. Lance graduated from Villanova University with a degree in business administration and holds a masters in business administration (MBA) from the University of Michigan’s Ross School of Business.

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