Freight 360
The Risks of Starting a Freight Brokerage | Episode 257
Ever wondered what it really takes to start your own freight brokerage? Join us as we uncover the essential considerations and provide a comprehensive guide to navigating this competitive industry. If you are considering starting a brokerage versus becoming a freight agent, we break down the pros and cons to both options.
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Ever wondered what it really takes to start your own freight brokerage? Join us as we uncover the essential considerations and provide a comprehensive guide to navigating this competitive industry. If you are considering starting a brokerage versus becoming a freight agent, we break down the pros and cons to both options.
Support Our Sponsors:
QuikSkope - Get a Free Trial: Click Here
Levity: Click Here
Bluebook Services: Click Here
DAT Freight & Analytics - Get 10% off your first year!
DAT Power - Brokers & Carriers: Click Here
DAT Express - Brokers: Click Here
Truckers Edge - Carriers: Click Here
Recommended Products: Click Here
Freight Broker Basics Course: Click Here
Join Our Facebook Group: Click Here
Check out all of our content online: Click Here
Welcome back for another episode of the Freight 360 podcast. If you're thinking about starting a freight brokerage, you're going to want to listen to this episode. Make sure to check out all of our other content as well. We've got over 250 full-length podcasts over the last almost five years. Now, and hit the subscribe button, hit the like button if you're on YouTube. Leave us a comment. We answer those questions every week on our Final mile series that comes out on Tuesdays and continue to share us with your colleagues and your friends in the industry. We know you guys are doing that, which is great because we see our numbers continue to rise. And make sure to check out our website, freight360.net, for all of our other content, including the Freight Broker Basics course. All right, ben, it's going to be a good episode today, man, we're going to dig into some really good stuff about. You know the considerations you should have if you're looking at starting a brokerage, but you know, first off, how's everything going down south.
Speaker 2:Going pretty well, anxious for fall to be around the corner.
Speaker 1:Nice, anxious for fall, to be around the corner. Nice, yeah, we're. Uh, I always, I always like this. This time of year we have our local like county fair, and so it's the erie county fair. It's like one of the biggest ones in the country, but it's always like the telltale sign that summer's coming to an end, so it's a little bit bittersweet, um, but it's been pretty hot lately and the AC in my car died recently and I took it to the shop yesterday and assuming they'd be able to like, you know, either just recharge it or give it a same day fix, and they're like, yeah, pretty much your whole system is shot.
Speaker 1:We got to order stuff in and, like, my brother-in-law works there, so I know they're not like dicking me around, but yeah, it's going to be a big price tag and I I'll have to endure another week or so without AC. So what, uh? What was your vehicle? Uh, 2017. I used to drive a lot, though, and I I used to commute like 30 miles each way to work. The first like three or four years that I had it, and then, now that I I work from home I pretty much never drive, but I don't know I got like 80 or so thousand miles on it, but still I mean I feel like the AC shouldn't have gone that quick, but it is what it is.
Speaker 2:I don't think I've ever had that happen, at least not in recent. Maybe some of my vehicles that were you know 80s models where that happened, I'm like, yeah, I definitely had a few back in the day.
Speaker 1:I was talking to my wife about it yesterday. I was like the last time I had a car without ac. Was my first car, my first car ever. I think I bought it for like 1200 bucks, but it was like 10 years old, didn't have ac, but I didn't care, I had a car, you know yeah it's in high school, it's great.
Speaker 2:That was what I paid for. My first car was uh 87 or 88 uh blackrolet EuroSport station wagon. It was the first vehicle I had. And then the second one was similar to what you said. It was a $1,000 87 Camaro I built and I took auto body my senior year in high school because it kind of had a bunch of space and I ripped it apart, put a new body on it, painted it and sold it and moved on. I barely even drove the vehicle A little project car for you.
Speaker 1:Yeah, love it. Good stuff, man Sports. The Olympics wrapped up. Usa did a pretty good job on the medal count all around. Basketball men and women's both got the gold. Usa women's soccer won the gold. Um yeah.
Speaker 2:So basketball, I caught the end of the basketball thing too.
Speaker 1:Yeah, the what was crazy is, like the men's who were heavily favorite, they only won by like one point in the gold medal match.
Speaker 2:It's crazy it was one of the few things I was actually able to watch. I watched the whole second half.
Speaker 1:It was it was good we're back in preseason football. Actually, this weekend Bills are going to be playing at. The Steelers Went to the game in the Bills game in Orchard Park last weekend. It was pretty bad. The Bills just got absolutely destroyed. I think it was like 33 bad, like the bills just got absolutely destroyed. I think it was like 33 to 6 or something like that. Um caleb williams though for all you chicago bears fans out there, he looked really good for uh being a rookie. So props to um the bears they might, they might bears might have. The answer is what I heard them say on espPN yeah, bill's got some work to do, though. Yeah.
Speaker 2:The Steelers didn't look great, played the Texans 20-12, but that's preseason.
Speaker 1:Yeah, preseason, man, it's a crap shoot, but anyway, outside of that, any Industry news.
Speaker 2:Yeah, what have we got in the news? This is from Freight Caviar. Pride Group collapsed. Pride Group, major Canadian trucking firm, ceased operations due to $637 million in debt. Stakeholders rejected a rescue plan of like $56 million. There were some buzz about them being large enough to actually drive rates up because of the loss in capacity. And Jason Miller if you haven't followed him on LinkedIn, you should, I think he's at University of Michigan but puts out a lot of great statistics on our industry, a lot of great metrics, a lot of great posts, if you want to dive into those. He said there's basically been no instance of this ever happening, where capacity exit by one player has actually sustained price increases to the market.
Speaker 1:How big are they?
Speaker 2:Well, they had $637 million in debt. So I mean they got to be a pretty big trucking company. My guess is a few thousand trucks. Yeah, that's huge.
Speaker 1:That's huge. You know what I noticed? This is a little off topic, but news related, so I think it's every Tuesday dat posts their like weekly market update and blog from dean croak and we include a lot of the stats on our social media and we we release it in our thursday newsletter as well. But he always has really interesting like blog bits too that get put out there, like he did one this week on the I think it was the history of the the cat scale, like the, like the, basically the trucking, how you get you know if you when you go to a scale to get weighed on your axles and all that stuff. But he's had some pretty cool stuff.
Speaker 1:So if you ever want some like I don't want to call them them random, but sort of like entertaining and really insightful educational bits that are not necessarily current events, check out DAT's blog. I think it's DATcom slash blog. Or if you just Google DAT blog, I know it's like the first result. But yeah, dean's always got some cool stuff together. We're definitely due to get him back on the show.
Speaker 2:Yes, In fact they emailed us and I was going to remind you that yesterday. Then I forgot we need to schedule him for another market update to bring him on the show. The other two things going on in the market that are creating, I think, prospecting opportunities for anyone out there looking is there are trade talks right now with the labor unions at the ports and they're supposed to come to a head in September just short of the presidential election ahead in September, just short of the presidential election. So I mean, if they do go on strike one, it will create a lot of issues and poor congestion, which creates opportunities for brokers like us to help.
Speaker 2:The other thing is, even in preparation of this may be happening. A lot of international transport has been moved ahead schedule-wise to hopefully avoid it. So lots of every company and shipper that needs to bring in product overseas for the fourth quarter is scheduling it early because they don't want it caught in what could be a big issue. So you should start seeing more container volumes, more congestion through the ports. That could create some opportunities to talk with your customers about what they're seeing, if maybe they need some other options to assist if they can't get their containers out by LFD, like that's a big one and the other is, you know, mexico trade just keeps, you know, surging again. This was in Frey Caviar too, but like it.
Speaker 2:Mexico is yeah, now the top trading partner with the US right, reaching $415 billion in the first half of 2024. This is the sixth consecutive month Mexico has outpaced Canada and China in trade volume. So again, more and more freight, more and more business being sent up through Mexico into the US. That creates congestion, that creates change, that creates opportunities for conversations with prospects, opportunities to help, opportunities to get onboarded and, honestly, as freight brokers, you should always have an eye on where the problems are. That's where we provide the help, that's where, honestly, we make the most money because that's where we're most needed. Right Again, you, you look at it however you want, but go where the need is. Don't just sit and wait for the companies you work with to need. You do that and this. They're not mutually exclusive, they're not two, they are separate things. You should be doing both. I guess is the point I want to drive across to anybody to anybody.
Speaker 1:yeah, and to your point about imports, I've, I think in the last two weeks we've included an article in our newsletter about um, the peak season, like basically your holiday retail season. Everyone's they're ahead of it this year. Like they, they do not want to have to deal with any kind of congestion or backlog or anything like that. So they're like we're like literally I think it's a peak season shifted. I had like two to three weeks this year like the start of it, versus in recent years. So this is the time of year when business is on its way up, like we had at Pierce. We had a record month in July on billables or really on gross profit from the most I've ever seen.
Speaker 1:So we're seeing Even in a down market, we're seeing numbers higher than we've ever seen before. So the opportunity is there. I know a lot of folks have you get frustrated and you struggle to get business going and we'll talk a little bit about, you know, starting a brokerage in the episode, the main content today. But the reality is there is a ton of freight out there and all you need to do is differentiate yourself enough to be on the and I hate to call it this, but like the better half of freight brokers. Right, just be above the median and the opportunity is there for you.
Speaker 2:So there was a quote that I saw yesterday and it was a Michael Phelps quote. I want to find it real quick, because it really does say exactly that If you want to be the best, you have to do things that other people aren't willing to do. That really sums it up If you want to exceed in a competitive market and we are certainly in a competitive market in our industry you need to be doing things that other people aren't willing to. You need to be faster. You need to be picking up the phone to talk to your customer Even when you think an email will suffice. You need to be responsive.
Speaker 2:You need to make a couple extra dozen phone calls, sometimes to cover a load. You need to make a couple extra dozen phone calls, sometimes to cover a load, to meet your customer's rate on some things. Like, honestly, most of the answer of why the people do well in this industry and don't is defined really by that, saying those top 10% or 5% of folks that are always doing well and always have business to move. They're also working harder in a lot of ways. They're working faster, they're working smarter. It's not just one of the three right, and I'm not saying that anyone out there that isn't struggling isn't already working hard, but you need to be working harder sometimes and longer and smarter to be able to get that advantage right.
Speaker 1:And you don't have to be perfect. So I'll give you like a little little like spinoff example here. I was talking with a guy a couple of weeks ago that like he's struggling with prospecting and like I went through a few different sessions with him on, you know his tactics and his outrage and his follow up and like really nitty gritty specifics on it and honestly, like he wasn't, he's really struggling at it, like his. He has got poor grammar in his emails, he's way too long winded on the phone and he's too wordy in his emails but he's still getting business Like right Because he's putting in the repetitions right. You don't have to be perfect, you want to be the best.
Speaker 1:So, just continue to continue to improve yourself.
Speaker 2:Right. And again, like freight brokerage and this is we can just kind of segue into the episode, because it's like the other thing I think about a lot recently is our industry Like it really is. I think I was trying to think of like what is the best analogy? And like I do really think it's closer to football, like it's a game of inches, like you're not trying to throw a Hail Marys to win a game or a championship, like you're literally trying to move the ball yard by yard until you get another first down, yard by yard, until you march your way up the field. Right. So again, like another way to think about this is like you're just trying to improve on yourself from yesterday or your team. If you're managing a team right, like look for the opportunities to prevent the thing that maybe caught you yesterday. Right, maybe you got detention on a load because, like the team didn't build the load right, said it is an appointment, it was really first come, first serve, but now you have the truck detention right, because you told them and secured it for appointment and you didn't communicate it correctly or you didn't do those details right.
Speaker 2:Okay, everyone gets frustrated when these things go wrong and sometimes tensions flare, people want to yell, but at the end of the day, like, that problem is for sure an opportunity that you need to realize for improvement the next day. Okay, what is the procedure we're going to use tomorrow to make sure we don't do that one again? Right, game of inches, like a scenario where, like, maybe you had a claim on a reefer because the guy drove with the wrong temperature the whole way. Okay, what did we do on the check calls? Did we ask the driver to confirm the temperature when we spoke to him every day? He was driving the entire way. We probably should have caught this right Again. Maybe you got the claim, maybe everyone's upset.
Speaker 2:But look at these things. Once you kind of settle down and go, what can we put in place to make sure this doesn't happen? Or do our best to try to, because you're never going to solve all of the problems in freight Like that's the nature of our industry. But every single day when something doesn't go as planned, think for a moment at the end of the day, when you clear your head and you're out of the chaos and go okay, what didn't we do well today that we could do better tomorrow, and what are the things I need my team to be doing to try to button up these holes or to try to make this tighter in operations, because, like that's really the progress of a freight broker or an organization, it's the same whether you're by yourself or you're running a company.
Speaker 2:All these little things that go wrong are all opportunities to come up with a better procedure the next day, to look at them as such and to realize your team doesn't need to be criticized. They need to be supported and guided into this way of improving day in and day out. We just need to be better than we were yesterday. We don't need to get where we need to go a year from now. Tomorrow. We need to focus on where we are and just doing better at what we did yesterday, today and tomorrow better than today.
Speaker 1:Yeah, and you make a good point there. And it makes me think about because our episode we're talking about today is a lot of the considerations if you're going to start and build a freight brokerage, versus some of the alternatives like being an agent or being an employee. But I think about how there's a lot of resistance to change right. So improvement is in itself, it's change, but you don't, you shouldn't have a mindset where you're trying to change everything all at once to try and be the best right, slow, incremental change heading in the right direction to make your company, you know, better, more efficient, more successful. And I think about some of the stuff that's evolved in the space around us over the last couple of years and how we've all changed our SOPs to react to it Things like fraud, things like advances in technology, things like AI and new tech and tools that are out there. And I think if you do one step at a time, little baby steps, that's how you'll get yourself on the right track, like I'm. I'm working on putting together for for Pierce, the brokerage I work for, I'm putting together a more standardized request system for credit approvals and getting certificates of insurance and carrier overrides and claims filings and things like that. And the way that we could do it but we're not going to is to say all at once boom, here's our new system, here's the way we're going to do it. On top of hey, over the last 12 months we've implemented all these other new things right and everyone's like why is everything changing right? So I think you know, as just kind of a rule of thumb in my mind, is the way and I think I was showing this to you earlier this week the part of the website I'm building out for our company is we're going to, you know, play around with it, test it, have somebody go through as kind of a guinea pig and then start to put more and more folks through this new process and then, when it's fully ready, we can slowly implement the rest of the company to this new process or procedure, rather than just the whole fire hose blast at everybody like, boom, here's a new way of doing it, when you know there's going to be hiccups and bumps along the road when you change something. But the takeaway is you should always be moving in that direction to improve your organization, improve your processes, improve your efficiency. Improve your organization, improve your processes, improve your efficiency, because if you're not, like we talked about earlier, right, your competitors, the better half, right. Somebody else is heading in that direction and doing it probably a little bit better than you if you're not. So keep that in mind.
Speaker 1:So, considerations when starting a brokerage this is kind of an ironic episode because we literally have put together educational content the Freight Broker Basics course, in conjunction with DAT, on how to start a brokerage from scratch, right? So we're not trying to discourage anybody from doing this, because we believe it's a great aspiration to achieve, but you need to be realistic with yourself and have an honest set the bar of your expectations. Realistically, to put it that way, and that is that we can tell you exactly the steps you need to take. But if you don't actually follow through with these steps and if you don't put the work in, it's not a guaranteed success. And the reality is it's the opposite. If you don't do this stuff, you're almost guaranteed to fail because you're not putting in the work.
Speaker 1:A lot of people think, oh, I can just get a course, go through it and I'm good to go. Well, no, you have to actually implement all of the. You know, all of the tactics that we teach you and you know the things we talk about week in and week out in the show. If you don't actually apply them, you will not see the results. Like you've made a comment before about self-help books, I think Right, like, out of the everyone that reads a self-help or a self-improvement book, very, very few actually do anything with it, so it's kind of a waste of their time other than just an entertainment piece. But yeah, there's a lot of work and you've done over the years you've helped, directly and indirectly, a large amount of companies that are scaling their brokerage, starting a brokerage from scratch, trying to revamp their brokerage to get it back on track, and there's a lot of work that goes into it. So I want to just kind of preface with that right there.
Speaker 2:And, it's for sure, right I was talking about this with somebody today a lot recently and success is typically not determined by knowledge, it's determined by implementation, right Willingness to do the thing that is hard right and the thing that're not as practiced at. And I was working with this company to help them train their dispatchers into the freight brokerage side. Is that like, okay, the speed is far different, the number of calls you've got to make and the competitive nature is very different. And I had said to the owner when we were outlining the training I'm like, listen, we can give them the information, we can show them what to do, we can absolutely do this. However, whether or not your team actually gets where you want them to go in the next few months is not going to be determined by how effective I am at explaining it.
Speaker 2:I can use analogies, metaphors, help them write notes, give them reminders, but what really determines if they will make it as brokers and not just dispatchers is are they going to practice this enough and are they going to work and care enough to improve every day? Because I was thinking even in my own ability and why I was able to do these things better over time, and I'm like, yeah, I had good mentors and people that told me and showed me, but what really made me better is because for years I did this, sometimes 30 times a day, right Like just negotiating over and over again with stressful situations, under stressful conditions, where you have to get better or you don't move forward, like you don't have a job. And when you're in those scenarios, if you make it through and you practice this, that's what determines whether or not you get better, not just knowing it. Right, like making or breaking is more about doing the thing you're scared to, not just knowing what to do right For sure.
Speaker 1:And to kind of bounce off of the situation you're talking about with coming from dispatching trucks to brokering. It is a lot different work. It's a lot more work. But here's what's great about the brokerage situation if you put the work in, is you really have a limitless amount of income, right? There is really no ceiling, and I mean there's limitations and we'll dig into that.
Speaker 1:But with a trucking company you can only make as much money as the capacity of trucks that you have, right? So if you have 12 trucks, you can only make as much money as those 12 trucks can produce for you, whereas with brokerage you can just go out. I mean it's not this simple, but you just you get more customers, right, and there's a lot of work that goes into that, but you're not. You know, to get a new truck you've got to go spend a lot of money, um, and there's lead time with all that, right, and there's maintenance and all that stuff. With brokerage you can scale it at a speed that's much more rapid if you do all of the right things. So, just a lot different. It's a lot more. Not to say that trucking is not relationship driven, but I think brokerage is way more sales and relationship driven than managing a trucking company.
Speaker 2:So it is yeah and I want to. We can segue cause I think that's a good one.
Speaker 1:The other thing I wanted to say to you that has been in the back of my mind recently right, and this is another quote I'd heard a long time ago.
Speaker 2:But it's like your success in life will be determined by the whether it's an employee, whether it's a customer, whether it's a trucking company. Right, like those conversations the average person tends to avoid because they make you uncomfortable, they're not enjoyable, like they are emotionally exhausting and they're hard, and that's why people avoid them. Right, but the thing is, when you actually do have them, that's what separates you. So back to what you were saying about freight brokerages one of the biggest fears that shippers have working with a freight broker is that that broker is going to take the load, commit to it and then not be able to cover it and here's the important piece and then not tell that shipper. And when the shipper finds out about it, their loading dock is calling and yelling at the logistics person going where's our truck? And now that person looks incompetent because they believe the broker that was going to send the truck and the broker didn't tell them ahead of time. So not only did they not able, they were not able to let their loading dock to plan for it, because they wasted time maybe staging a load or getting things ready that aren't now going to be delivered and that are now in the way of the next load, that they have to do extra work. For no reason it wasn't communicated. And it wasn't communicated because that broker wasn't willing to have that hard conversation. They don't want to.
Speaker 2:You know, pardon the old cliche but like man up, pick up the phone, stand up behind the work you committed to doing and tell them when you can't. And tell them with enough time that they can save face and maybe find another option. But don't create more problems for them because you didn't follow through and get what you told them you could. Right, and I know that's hard because we quote things on the fly. We're trying to be competitive and sometimes we think a rate's good and we go to cover and we're way off and maybe we can't move it for that amount. But that's the risk, right, like that's the risk of operating in the spot market as a freight broker. If I'm going to help you with your problem you need today and I give you that number, then I've got to stand behind it and take the good with the bad. If I'm going to eat a $200 or $300 loss because I quoted it wrong, that's not my customer's problem. That lost because I quoted it wrong. That's not my customer's problem, that's my problem, that's my integrity. That is either me standing behind my word to build a stronger relationship or me bailing when things didn't go the way I wanted them to. That is the thing that scares shippers. That's why it's harder to build trust. That's why you need to make more phone calls. You got to talk with them longer because that is the fear they've had with other brokers in the past.
Speaker 2:Right Now let's look at this in the other bucket, right To compare freight brokers versus trucking companies. The value to a shipper with a trucking company is very different. One, if I am paying a certain rate, call it contract right now in a lane that is above spot rate, like I'm paying a premium. Why am I willing to pay a premium? One? Because you're telling me you're going to use your equipment. Why is that any different from a freight broker getting a truck? Because we all think it's all the same. Here's why it isn't Because if I'm working with you and the trucking company, I'm going to ask you questions how new is your equipment?
Speaker 2:How well serviced is it? Are your reefers in good working order? Do the chutes have issues? Are the insulation, good. All these things factor into the likelihood of a claim. So I'm willing to pay you more as a trucking company because you're telling me you got mostly newer equipment. The trailers are all in great working order, your drivers have been with you for a while, they're reliable.
Speaker 2:I at the very least know I'm not at risk of a claim because a reefer wasn't set right or a chute broke or the insulation wasn't well or the driver got lost, whatever could happen right. That's why they're willing to pay that. And then, on top of that layer this, there's a liability issue, because if you have a trucking company and something goes wrong, you have assets and if I sue you, you can't just shut down and start up tomorrow. You literally are on the hook to pay the bills for these assets. There are things that help me as a shipper come after you if you don't perform the work. There are assets behind that. That doesn't exist with a freight broker.
Speaker 2:So in these larger companies, when risk departments or legal look at which vendors they're going to bring on, that's why the preference is to a trucking company. It's just, it's the liability, it's the ability to have recourse when things go wrong, and you should have more ideas around the equipment. You know how. What word am I looking for? Reliable, it is right. The driver and the equipment. So, again, like there are reasons why that preference is there. However, what aren't trucking companies very good at? They're never going to be very good at getting you a truck last minute. Why? Because if you need a truck picked up in two hours, I don't care how many trucks you have. They all should be moving freight. They should just be sitting idle waiting next to your customers.
Speaker 1:Yeah, that's not their business model.
Speaker 2:Location. They can't. They'd be paying a driver to sit there and maybe he doesn't get a load. So, no matter the size, trucking companies do much better with predictable loads that they know and they can plan for. The shipper has that preference for those reasons. But stuff still goes wrong every day, even with those companies.
Speaker 2:Now enter freight brokers. This is where we come in to help access the market and hopefully get them the same quality of equipment and driver and hopefully at a little bit better of a rate, because we got to do it in a lower, in a lower time crunch, a shorter window of time. There's a premium for that work. Now, that is the very unique difference between freight brokerages and trucking companies from a shipper's point of view. Now they'll treat us the same, mostly to negotiate better rates, but the reality is they are very different and it's our job to help our customer understand where we are well-suited to help them and where we aren't as well-suited to help them. And if you're honest, you end up building more trust and getting more opportunities to actually run loads.
Speaker 1:Yep, exactly. So I want to shift gears a little bit here. We've talked about it in previous content. There's different ways to work in this industry. You could start your own brokerage. You could be employed as a W-2 at a freight brokerage. You could be a freight agent, which is an independent contractor for a brokerage, and they all there's. There's certain tasks and roles that you take on. That's the same across all of them, right? Getting customers booking trucks track and trace. Tasks and roles that you take on that's the same across all of them, right? Getting customers booking trucks track and trace right. That stuff all exists across all three business models.
Speaker 1:Now some considerations, and you kind of like you hinted at a few of them there. But if you're a freight agent or an employee for a brokerage, there are things that you are not having to consider or think about or put your focus to that you otherwise would have to. If you're starting and running your own brokerage and one of the things you just mentioned was you kind of hinted at like vetting carriers, like the driver themselves, the equipment, the overall trucking company and its quality and its reliability so typically you might have like a carrier compliance team or some sort of a rule set If you're using a tool like highway or carrier sure or RMS my carrier packets right All these different vetting and onboarding platforms If you're an agent or a W2, there's likely already some kind of system in place, whereas as a as a broker, if you're if you're an agent or a W-2, there's likely already some kind of system in place, whereas as a brokerage, if you're starting your own company from scratch, you're wearing all the hats right. So you're going to be in charge of not just deciding how you're going to. You know what tools are going to use and processes to vet carriers.
Speaker 1:But what is your rule set going to be?
Speaker 1:What is your level of risk tolerance going to be? Are you okay with a carrier that has six days of active authority versus 12 months or more? What is your level of risk tolerance on CSA scores and certain categories being over the federal threshold or acute safety violations or crash history, things of that nature, right, reports of any red flag that could lead you to believe that there's potential for fraud or double brokering or anything like that? You've got to make that decision and you've got to create and then refine that process to find that happy medium. And I'm curious in your history. I've personally found it to be one of the most challenging things is to figure out what is the the best happy medium for for carrier vetting and onboarding, what is, what's your experience about or what are your thoughts on? Um? You know, have having that responsibility as a brokerage because, again, like when you're when you own a trucking company, you know what your assets are and you know and your cost quality of them and all that and as a brokerage, we're having to use data and information and gut feeling to say, yes, I want to use this carrier or no, I don't want to.
Speaker 2:So here's some things you know that I think are worth thinking about. If you are starting your own brokerage and you just started this right you also have limited or no credit history. For probably a few months, even if you're running loads, it takes a few months for them to start reporting for probably a few months. Even if you're running loads, it takes a few months for them to start reporting. In fact, I'm verifying this right now, but what I heard today from a few factoring companies is that it takes three billing cycles for the credit history to be established. So, even if you are running loads and paying and doing everything you're supposed to, it very well might take two or three months for them to start showing up on debt. Why does that matter? Well, if you've got a load posted for two grand and five of the brokerages are posting it for two grand and you've got no credit history, that carrier is likely to work with the company that has more credit history. They're more likely to not have an issue, right. So you're at that disadvantage, right. And why that's important is because I've seen brokers that have worked at large companies want to apply the same carrier standards as a new brokerage, and the reality is is you can't, because you're not the same company. You are often going to have to work with companies that are maybe even similar to you Trucking companies that have only been in business a few months but if you talk to them you realize maybe their drivers are experienced, maybe they're just going off on their own and you guys can both help each other out. You have to look for creative ways to survive until you can get to where you need to. So, like just using the blanket rules that we all learn at these large companies, like they're not going to work if you're starting your own company, at the very least for the first few months, so you've got to be very effective at coming up with when your exceptions might go through. You still need to have standards. Like you still want to try to use carriers that have at least a year authority, but oftentimes you won't have that ability right, and the other side of that, too, is making sure, like your team or people doing this, learn how and what is important in determining a carrier can work with you right. Is it you speaking to the owner? Is it you maybe having to work with their factoring company to prepay a load? Is it, maybe talking with them about paying half the load up front once it's loaded and the other half when it's delivered. Right, like? There are a lot of creative ways and we've talked about this in other episodes to work through this, but it really does go hand in hand with carrier vetting.
Speaker 2:You can't just make a bunch of rules and then not be able to cover your customer's freight. That doesn't help you either. You need to be able to judge these on a case-by-case basis. When you're new, that's a big advantage. If you're an agent, though, because now you're working under an established MC with credit history. With these rules in place, you can just follow those policies. You'll be likely to get carriers faster for your loads.
Speaker 2:And then here's the last piece that I think very much goes hand in hand with this is what are you actually going to be able to pay for that load in relation to which of these options you have? If you're a new freight broker and you don't have any credit yet, you're probably not going to be able to negotiate the same rate you could as you worked for an established brokerage. They'll probably pay an extra 100 or 150 less. Why Not? Because, necessarily, they might even be better at negotiating, it's because you don't have any leverage. If you're already asking the carrier for a favor to work with you because they can't see your credit, you can't also say hey, well, thanks for jumping through all these hoops and sending me your factoring info.
Speaker 2:And also, by the way, I need an extra 150 off this load, like you've got to pay that premium. It's a cost of doing business. You can't get everything and you've got to work through these things step by step.
Speaker 1:Yeah, the money side itself, Like that's a great. Next point to dig into is we talked about. You oftentimes have to come in a little bit thinner on your rates with customers. You're going to have to pay a little bit more to trucks, which gets your margin out. And then think about all of the like, just the cash flow part of it. So if you factor, that's one thing, but think about all the other expenses that your company has that you don't take on if you're a freight agent or an employee, right, things like you're paying for software, you're paying for insurance, you're paying, you know, to get your authority up and running, you're paying for load boards. You're paying for all these things that, whether or not you move freight and make a profit those bills are still due.
Speaker 1:Yeah, like in that and payroll, like so if you, let's say, you start a company and you're starting off with a few team members, right, so it's not just you. But maybe you've got, um, let's say, you've you your experience and you want to build out a small brokerage, so you're going to start off with like three or four people, right, maybe, um, maybe someone is focused on sales, someone's covering loads, um, someone is doing administrative stuff, like maybe billing or claims, you know, credit checks, all that stuff. Whether or not you move freight, those people all have to get paid. Yep, assuming that you've, you're getting quality talent. That's going to cost you money.
Speaker 1:And that is, you know, I think, where a lot of companies think oh well, we'll just we'll spend a lot of money and hire somebody and pay them a huge draw and this and that, and it's like well, you have to scale like slow and steady, because you can get yourself really really far upside down in um, you know money that's gone out to pay salaries and you're just trying to catch up profits and if you dig in a hole you never get out of, never dig yourself out, so it's a huge like you have to have a, have a finance and accounting mindset that a lot of salespeople don't necessarily have. They're just relationship builders, not necessarily the think. You know that type A brain thinker like that.
Speaker 2:So a few things too, and they're related to I'm going to talk about pricing and then I also want to talk about hiring and strategies for what you just said. Because the thing, the question I hear I get a lot and I've heard a lot of people say over the years is oh, these other companies pay 25% and 45 grand a year. I'm just going to pay 55 or 60 grand a year, give them 50% commission and I'll just get really good salespeople right, like I'll just overpay, right, and then everyone will come to me right. Well, here's overpay, right, and then everyone will come to me right. Well, here's where that gets tricky and why that is still difficult.
Speaker 2:One interviewing anybody, no matter how many times you've done it, whether you just work in HR and do nothing but interview people for 20, some years, it's still one of the hardest things to do because human beings present really well in an interview. They're going to give you references that clearly are going to give them good feedback. And even when you do your due diligence and are very practiced in it, skilled at asking questions, it is very difficult to determine what will be the outcome Because, again, it's still sales. So let's say you have a candidate to hire for your brokerage. And this person's come to you and said hey, I worked at W2 for the past four years. My gross profit on my book of business of, say, five customers is a million dollars a year. And they're like hey, I can bring all five of these customers over. I need 10 grand a month, okay.
Speaker 1:So again, and you have nothing, you have no concrete evidence to base this off of.
Speaker 2:None. However, everyone's been in this position at the very least. If you've been hiring I've had this conversation many times so have you Now. I think it's important to think about it, though, as a business owner and not as a freight broker, because the freight broker in you is going to go wow, customers, more GP, more loads. This gets us there quicker. Trust is the longest thing to get, and if this guy can bring his trust in his relationships, we can get there faster. Right, that is what we want to happen, that is our goal, and I'm not saying you shouldn't do this, but here are the things to think through.
Speaker 2:Okay, if you're that guy, nate, and you want to interview to work for me, I need to think about it, though, as a business owner, not as a broker. And as a business owner, what you're asking me and the first question I'm asking you is hey, how long do you think it'll take to bring these customers over? Let's say you give me a pretty common answer Somewhere in three to six months, I can get them all shift over. Okay, do you think you could do it sooner? Maybe one or two in like a month or two, but most of them probably within three months to like four or five and then I think I can get it. The other thing I always push back on is like almost I've never seen it where somebody brings all of it and it all comes over seamlessly. Almost always one or two can't make it or take a lot longer. Some come over sooner, some come over later, the only exception I'll give you to.
Speaker 1:That is like I've seen agents that have dedicated business, like that. But if you're going from W-2, a lot of times if you're switching, but if you're going from W-2, a lot of times if you're switching, if you're a W-2 and you're switching companies, here's what I normally see happen and, like you said, I've had that conversation too many times where they're like oh yeah, I can bring everything over and then it doesn't happen. And in my experience, here's what I've seen as the reasons and this is precaution to anyone out there who's looking to hire someone that has a book of business is did they really own that relationship or did the brokerage on the relationship? Is that business contracted or like to that old company or can just freely move over with them? Also, were they the single point of contact or were they just on a team that helped manage all that stuff, right? Were they cradled a contact or were they just on a team that helped manage all that stuff, right? Were they cradled a grave or were they just an account manager? Or even sometimes the.
Speaker 1:The worst one is when someone's just a carrier rep and they think, because they were booking trucks for a customer, that the customer is going to follow them and it's like, no, you don't have the relationship.
Speaker 1:So some of the things you can do if you you know, I don't think there's anything wrong with this is validate their previous numbers right, and if somebody is doing a million like I'll use your example if someone was doing a million dollars in profit per year, they should have some sort of reporting on that, whether it's commission statements, pay stubs, a W-2 that's at a minimum W-2 that shows their earnings, but, more importantly, something in their email from their customers that shows the volume of loads that they're moving right.
Speaker 1:Just about every TMS out there has some sort of reporting capability that you should be able to pull this kind of stuff. And I'm going to stay away from non-competes and non-solicits in this discussion. We're just going to assume that everything is all well and fair to move the business with this discussion. We're just going to assume that everything is all well and fair to move the business with this candidate. But if they can't validate their previous business to you some way, shape or form, I don't think it holds a lot of weight when they're claiming that they have that kind of business. Yes, just now.
Speaker 2:Agreed. And now here's the next step. Right, I think from a business owner, the way, at the very least, I look at it is I'm like okay, what is the gamble I'm making and what am I basing it on? Everything is with risk, whether it's quoting a load or hiring an employee that can bring a book of business or an employee that doesn't. There's all risk involved in anything. You're not going to get a return if you don't take risk, right, okay? So what are the risks? I think you outlined them very well and I think you outlined how you can mitigate those.
Speaker 2:But again, what did you have? Two conversations, even if they were an hour long each, maybe three. Okay, Anybody you've ever met in your life for that amount of time would you be willing to make this bet? Because again, they're saying three to six months. Throw a month on there. Just to be conservative. Call it four to seven, just to be conservative, call it four to seven. They're asking you to make somewhere between a $40,000 bet and an $80,000 bet that what they say is going to happen exactly the way they say it's going to happen. Now, if you think about that in any other area of your life, if somebody came to you and went this is what I used to do put 40 grand on this information that it comes true, um. Put 40 grand on this information that it comes true, like if you were at a casino would you take?
Speaker 1:40 grand.
Speaker 2:And the guy you met at the casino told you he could do all of this. Would you put 40 or 50 grand of your own money on that bet that that comes true? Now, I'm not saying you don't and in some cases you should, in some cases you probably shouldn't but what I'm trying to point out is you want to be able to think also like the business owner, even if you're the manager and maybe don't own it. If you're responsible for hiring like this is the downside of this risk you're about to take. You need to be comfortable with it, because if you are three months in and your owner's going, dude, we're 30 grand into this new hire. What's his activity look like? What has he brought in? And your answers are I got a bunch of maybes and willbes.
Speaker 2:Now, all of a sudden, that owner is going to start putting some pressure on you and going like well, if they can't produce soon, like we can't keep funding $10,000 a month on maybes, ifs and wishes. And that's really, I think, what it comes down to. And then you got the whole other layer of the agent side to your point right, because even these brokerages that are W-2, that want to just pay somebody more if a broker really is this good and has been in the industry, they're probably aware that if they actually could take their book of business and they actually could move it quickly enough, they would go to an agent model and just keep 70% of the profit. The reason they're probably asking you for a salary is deep in their mind. They know it's probably not as likely as they think it is and they want you to pay for their risk.
Speaker 2:Pay me the 10 grand to live on while I try to do the thing I think I'm going to do is what they're thinking. What they're telling you is oh, it's guaranteed It'll definitely come Well. Yeah, it's guaranteed It'll definitely come Well. Yeah, it's because they're gambling with your money, right, like? That's the gap we need to close with the understanding and the conversation.
Speaker 1:Even like I'll give you perspective from the agent model, right? So Pierce Realwide, you know every agent we bring on doesn't always succeed and there's, you know there's costs that go into that. But we have we do a pretty good job at. When we see the return is not there, we cut it. You know, sooner than later, right? So we have expenses for um, software and email and load boards and you know all this stuff there's. There's expenses, right, the time it takes to you have to pay someone that's going to train these people on how, how our company operates and how to use rtm. You know all that stuff, right? So there's, there's definitely a cost that goes into it. And, um, the goal is that the ones that succeed, obviously, you know, absorb the loss of the ones that didn't. But you can't just let somebody hang around when they're costing you thousands of dollars and just yeah, yeah, we'll see if it works out. No, you can't just let somebody hang around when they're costing you thousands of dollars and just yeah, yeah, we'll see if it works out. No, you can't. You have to keep your eye on that.
Speaker 1:So one of the things that we do is financials are a huge part of how we operate.
Speaker 1:Every branch manager, every person that runs a division has an income statement and can see every single month here's all the earnings from this division, here's all the expenses from this division and at the bottom line, after everyone's been paid, here is the bottom line gross profit or net profit, I'm sorry.
Speaker 1:And if that number is not impressive and you've put a lot of time into that month of whatever you've been doing with these folks, you're not running a good organization. So I think it's really important and that's like we talked back to the money part of it and having the accounting and finance mindset. You don't need to think that way when you're a W-2 broker or necessarily as an agent and, like you said, when you're hiring that guy or girl who says they have a million dollars in GP that'll come over, they're not thinking about the net profit of their book of business, they're thinking about what's in it for them, right? Yes, am I going to get paid? Do I have a safety net so I can pay my bills and live my life? So these are the things you have to consider if you're the one running the company is you become not just a freight broker, you become a business owner, become a boss, a mentor, a trainer, a risk analyst, all of this stuff. These are all the other hats that you wear when you're running your own business.
Speaker 2:And here's some of the other things, too, to think about. Right, is that like this is human nature. Right, and I am for sure as much a victim as I am a culprit of this same thing. Right, which is complacency related to risk. Right, the higher the salary, to be honest, usually the less that salesperson is going to perform. Right, like I'd say it's a pretty good rule of thumb. Meaning like if they've got enough, where they've got more money than they need, like usually they're not as concerned, they don't have the anxiety. Anxiety directs output. Right, like general anxiety just makes you worried and freaked out and you don't get anything done. But if you have specific anxiety related to performance, meaning like you know, lots of these large freight brokerages pay you just enough to, basically you can almost live, but not enough to have anything you want.
Speaker 2:Why that is really effective is like yes, that company is definitely trying to save as much money as they can. That is for sure. True, but there is an unintended consequence that I think is often overlooked, because I was on that side of it and it used to frustrate me too. But the reality is is like I know this about myself because I've at least been honest with myself that when I've had a proverbial gun to my head of losing my job or succeeding, I have more output, I will produce more, I will work more. Because that fear is present all of the time. It's a motivator.
Speaker 2:Yeah, negotiate a salary to give somebody more than they need, like it breeds complacency, right, and that is why it's also harder sometimes to hire, you know, experienced freight brokers with books, because most have been used to to to what we talked about earlier. They've been used to managing their accounts. They've worked very hard years ago to establish they're more account operators, right, and managers. They're managing the account. They're negotiating, maybe day to day, but like they haven't been in the habit of cold calling again, that is a very difficult thing to reestablish. That's why you and I talk about. It's the one thing we see with everybody that has a long career in our industry. Even as their books of business grow, they maintain that habit. Maybe it's a few calls a week, maybe it's only 10 prospecting calls a week, but everybody I've ever met that has had a book of business that is generating millions of dollars a year for many years, they all have one thing in common they never stop prospecting and looking for new business. Yeah, they're not making 80 calls a day.
Speaker 2:They're probably not even making that many calls a month, but they never let go of that habit because they know it's one person getting fired at your customer your customer getting acquired a number of things that could literally drop your book of business in half sometimes or by three quarters. If you lose that big customer and that healthy fear, right is what keeps them motivated to prospect every week.
Speaker 1:Yep, exactly. So the last thing and I think we could probably wrap the conversation up after this, but the last thing, and it's kind of a catch-all consideration if you're looking at certain brokerages, think about all the different and we kind of hinted at them, but different risks that you take on, right? So we already talked about the risk of the financial risk. Right, you hire somebody and overpay them, or your expenses are too high, you're not producing, but think about the risks of getting sued, right. Or you execute a contract and you didn't have it thoroughly vetted and now you're being treated by your customer like you're a motor carrier instead of a freight broker and you're on the hook for X, y and Z. Think about the risk of the reputation of your company because you have a bad hire, right, and somebody goes out there and does something that tarnishes your brand name.
Speaker 1:Think about another financial risk, because that's a lot of them with if you get double brokered on and you end up paying a carrier twice, or if you choose not to pay the carrier twice because you can't afford it, you lose the customer and either way it's loss in money. So there is a lot of risk that goes into running a brokerage. Now, the flip side of that is more risk tends to come with more reward. So the reason that a brokerage owner doesn't have a commission split right. You know, a W-2, like we said before, we'll give some rough numbers might make 25% and have a salary. An agent might make 70% of profit and not deal with any of the other stuff, whereas the brokerage owner keeps 100% of the company's profits.
Speaker 2:But the trade-off is 100% and they can lose money Not only that, but they can lose money right. They could be spending a bunch of money making all of the bets on all the people they've hired and all these things. If there's no profit it's a pie of zero. And if there's no profit, they still have to cover the bills that we talked about earlier. Right, far higher risk. There's a higher return if you succeed, but you got to be willing to put that money and that time and effort on the line.
Speaker 1:Yeah. So I guess takeaway advice and I've had this conversation with a lot of folks over the years is I use kind of like a military phrase that well, the phrase is slow is smooth and smooth is fast.
Speaker 2:Right, I use that with my daughter all the time since I learned it from you, like literally, like, probably a few times a week.
Speaker 1:And it's so true, though, and what that means is that you know slow is smooth, smooth is fast, meaning that if we, if you, do things slowly, like we talked about, in baby steps, right, one chunk at a time, um, that is the proper speed, and that will get you places faster than you might believe or you might think. If you try to do too much at once, or you try to spend too much to try and get everything done at once, you're likely going to fail because of it, because you're getting way too ahead of yourself. So practical advice here is when you run your own business, you have blinders on and you don't know what you don't know Right. So, if you can be in you know, have some sort of interaction with other people that are like yourself. It could be through coaching, it could be through just you know group, some sort of industry group or what's the one that you're in, that, like, everyone gets together. I was going to say Ballast B-A-L-L-A-S-T.
Speaker 2:Take a look at it.
Speaker 2:It's for logistics any form of logistics, whether you're in, you know, the tech side or the brokerage or the carrier side. Great networking group you can look at Nate. Nate shoots up on LinkedIn. He does the podcast bootstrapers. Bootstrapers guide I think entrepreneurship. But take a look. Reach LinkedIn. He does the podcast Bootstrapper's Guide to, I think Entrepreneurship. But take a look, reach out to him. It's a great group where you can talk to others that are doing the things you are and hear what they're running into. It's a great place to network and get some outside perspective on decisions.
Speaker 1:Other common ones too TIA, if you're not, it's the Transportation Intermediaries Association Great group of brokerageage professionals. They've got in-person conferences. One of the things I really like is, um, they have like a basically an online discussion forum where people can ask questions and get excuse me, get feedback from other people that are doing the same job as them, and in tia we're. What's ironic is we're all competitors but we we're all there to help each other and ask for advice and give advice and all that stuff. And then even like, we have a Facebook group. It's in, it's in the YouTube description, it's in the podcast episode notes or whatnot. Got like 80 or 90,000 people in that group. That all network and these are everyone from like brand new day one freight broker to I've been in the business for 20 years and everyone. You know there's a lot of banter and some funny stuff that you'll see in there and you get people complaining about rates and you can get people trying to cover loads. But there's a lot of really valuable discussion in there and a lot of the questions that we often read on our final mile series ever segment every Tuesday, on our Final Mile series segment every Tuesday. It comes from, oftentimes, our Facebook group of young freight brokers that are asking questions and we'll give our valuable feedback to them. A lot of times it comes from the YouTube questions and comments too.
Speaker 1:But yeah, so to put a bow on it, there's a lot of considerations to keep in mind if you're going to start your own freight brokerage company or your own company in general. But obviously we're here to talk about freight and that's what we're doing. So we're not saying that one way is better than the other. But depending on the kind of person you are and your expectations and what you're willing to do, there likely is one way that is better for you than the other.
Speaker 1:So you might be better off to start your own brokerage because you don't want to be an agent who has to answer to somebody else. You may want to be an agent or a W-2 because you don't want to take on the risk or have to worry about the finances and all that other stuff. You just want to go do your job and sell and produce profits, and there's nothing wrong with switching from one business model to the other. Like I've seen agents that became their own licensed broker and I've seen licensed brokers that have said it's not for me, I would rather be a 1099 agent and just focus on what I'm good at and leave the other stuff to those that are good at that part of the job. So take out, you know. Hope you can take something away from this episode and it helps out.
Speaker 2:Couldn't agree with you more. Right, like, it also depends on the season of your life you're in, right, like if you just had a baby, maybe trying to build a company at the same time you're learning. The business is probably a lot to take on. If your kids are a little older and they're in school and you've got more of the flexibility and time, like, okay, maybe that makes a lot of sense and that's coming from somebody that learned the hard way for those things. Right, like, I quit a W-2, started my own business and started this company with you the year we had our daughter and in hindsight that was really poor decision timing. Like, I ended up doing things that were incredibly overwhelming, that stressed me out. They probably took years away from the end of my life to get it from where it was to where it is now. But, looking back, like, I would have timed that differently.
Speaker 2:Like, be considerate of the other things you've committed to in your life. Right, yes, we talk about work. But yeah, like, your personal life for sure also affects the amount of energy and time you can throw at this. This is not a banker's hour profession. Right, if you're going to succeed, you've got to be available when your customers need you, you're not going to be able to be like sorry man, I know you needed help with that load, but had to go to my daughter's gymnastics class. Like they're not going to yell at you, they just won't use you anymore and all that time and effort all of a sudden just went down the drain. These are all things to kind of consider as you're making these decisions, yep.
Speaker 1:So let us know what you guys think in the comments or shoot us a an email info at freight three 60.net. We'd love to hear what you guys think and answer any of your questions.
Speaker 2:Final thoughts Ben whether you believe you can or believe you can't, you're right.
Speaker 1:And until next time go bills.