The Supply Chain industry provides vast employment opportunities, from procurement to warehouse inventory, management, and shipping. The terms freight broker and freight agent are often confused in the cargo and shipping sector. And it’s easy to see why.
Freight brokers and agents contribute significantly to optimizing the shipping process. They do this by correctly matching client requirements and carrier capacities. And while a freight broker is different from a freight agent, their concerns and responsibilities may overlap in some instances.
So, what are the differences and similarities between a freight broker and freight agent? Is one better than the other? You’ll discover the answers by understanding what a freight broker and freight agent are.
What Does A Freight Agent Do?
A freight agent can refer to a person or a group that works under a freight broker or independently. For instance, when you become an independent freight agent, it means you’re responsible for facilitating the movement of goods and cargo in the most efficient way. But, you need a company or freight broker’s license before being authorized to do so.
Understanding What A Freight Broker Is
Freight brokers are often companies licensed by the Federal Motor Carrier Safety Administration (FMCSA) to arrange the transport and shipping of goods depending on their client’s needs. They match shippers’ demands and carriers’ capacities to find the best services.
Although rare, brokers can also sometimes refer to FMCSA-licensed individuals who manage to raise a minimum of USD$ 75,000 in surety bonds and spend on appropriate insurance coverage. All freight brokers are subject to FMCSA compliance and other industry regulations.
Differences Between A Freight Broker And Freight Agent
Freight brokers have significant responsibilities and thus need to monitor their activities and finances closely. And as freight agents are using their authorization, brokers need to ensure that the former know what they’re doing.
Below, you’ll find a comparison between one of the most prominent players and the most lucrative careers in the logistics sector.
License And Authority
As mentioned above, only freight brokers have the license and authority to facilitate the movement of goods and cargo. They must comply with regulatory laws and keep their records for about three years. Requirements vary from state to state but almost always cover the safety and commercial aspects of shipping and transport.
And, as brokers are often large companies, they need freight agents to get their business going. Conversely, freight agents don’t have an operating license, so they must work with a broker and represent the firm when dealing with clients.
Freight brokers have more significant responsibilities and liabilities as compared to agents. Because their operating license is on the line, brokers must stay on top of their operations and financial affairs. Freight brokers must ensure their licenses and insurance coverage are active.
The freight agents they hire must have the experience, knowledge, and values aligned with their business objectives. Additionally, freight brokers are responsible for providing all the support and services their agents and clients need. Issuing invoices, conducting credit checks, paying carriers, working with other companies, and paying freight agents are a few of the core activities of a broker.
Meanwhile, agents’ core activities include sales, customer service, and logistical tasks. For instance, agents must establish, maintain, and expand their customer base and shippers or carriers. From these lists, they can identify prospects and learn to negotiate freight rates with carriers.
Monitoring other supply chain activities such as cargo pick-ups and deliveries and updating customers regarding the status of a shipment form part of an agent’s tasks. So are troubleshooting minor challenges that carriers may face during the deliveries.
Because of the costs involved in getting recognized to operate as a brokerage firm, individuals with experience in the cargo sector would instead choose to become freight agents first.
As independent contractors, agents don’t have to purchase costly transportation management system software, pay for office rentals, purchase cargo and liability insurance, or deposit thousands of cash as surety bonds. Being a freight broker requires costly investments, while an agent does not.
How They Earn
So, how much do an agent and a freight broker earn for every transaction? The short answer is that it depends on the agreement between these two parties. Generally, brokers make from the margin they get from the amount they charge to the client less the price they pay to carriers. It’s estimated that brokers can get up to eight percent of the total transaction cost on each load.
Meanwhile, agents are paid on a commission basis that ranges from 60% to 80% of the gross margins. Sometimes, there are limits to how much an agent can receive expressed in margin percentage or amount.
Size and Structure
Freight agents refer to individuals who don’t have an operating license and lack the resources needed to run a full-time brokerage firm. As such, agents are individual contractors who are typically mobile or home-based.
On the other hand, brokers are often large businesses with fixed offices. They often employ several agents to represent their company and act as intermediaries between the customers and the carriers. In some cases, clients would rather trust their cargo with established brokers, who most often can tap agents.
In Which Ways Are Freight Brokers And Agents Similar?
Both freight brokers and agents provide services to those who need goods and products transported quickly and efficiently. Because of their familiarity with the supply chain systems, players, and challenges, they’re often able to identify potential issues and attempt to fix minor problems to avoid delivery delays.
At the same time, these entities also negotiate with clients and transporters to get the best deal or reasonable shipping prices that allow them to earn.
As a stand-alone entity, brokers are authorized to perform several tasks to provide reliable logistics solutions. In most cases, they need agents who can focus on client relationships as they continue to build their industry reputation and capacities. Brokers also provide all the customs support agents need to achieve these objectives.
On the other hand, agents need brokers’ license, authority, and resources to perform their tasks. In exchange for these services, they get paid commissions and provide seamless customer service that helps improve revenues for both parties. That said, freight brokers and agents have a mutually beneficial relationship that must be maintained to ensure healthy supply chain workflows.