Should I Become a Freight Agent?
Even for experienced individuals working in the transportation and logistics industry, there may be some confusion about what a freight agent is. Various companies and programs promote opening your own freight agency, but what does that mean?
Armstrong Transport Group has been working with an agent-based business model for the last 15 years. At the most basic level, everyone working in sales and operations is a 1099 contractor who owns their own business under the Armstrong brand. With 130 offices around the country, we work with agent offices that consist of one person, up to large offices with more than 100 people.
This article will cover the more traditional route of working as an employee at a freight brokerage or even opening your own brokerage. We will then take a deep dive into what a freight agent is, what it takes to be successful, how agents are paid, and considerations before becoming a freight agent.
Freight Brokerages: The Employee Model
Large logistics companies offer several perks to their employees: competitive salary, benefits, commission, and an extensive network of resources. An entry-level job at one of these organizations is typically a great way to learn the industry and develop the skills to become successful as a transportation broker.
Some of the most well-known logistics companies that offer comprehensive training programs are:
Brokerages will typically hire individuals with little to no experience, put them through a comprehensive training program, and teach them about the industry. Sales positions within freight brokerages are entrepreneurial by design. Employees are trained and given time to grow a book of business.
Many organizations offer training programs to ensure uniformity across their agent teams. Learning may take place through weeks in a classroom or hands-on work on the brokerage floor. There is no better way to get familiar with the industry than jumping on the phone to book trucks and dispatch drivers.
Without training and infrastructure, it would be challenging to get started in this field. Training programs bring new hires up to speed on everything from federal regulations to best practices and potential pitfalls.
While many employees are content collecting a salary and commission, this can change when they become successful. If the margin on a load is $500, they may ask: "Why am I only making 12% ($60) after the customer pays the shipping? Even with all the other business-related expenses, should most of the profit go to my employer? Are my customers loyal to the organization I represent, or me?"
In an entrepreneurial industry, successful brokers inevitably want to become business owners and decision-makers.
Why Not Open A Brokerage?
The biggest issue with opening a brokerage is the barrier to entry. A typical brokerage will require the owner to have:
- Business plan
- Banking partner
- Between $125,000 and $175,000 in capital
- $75,000 bond
- Commercial cargo insurance
The cash flow requirements to run a brokerage for the first six months can be daunting. Logistics companies work on tight margins, and, in the beginning, most of the cash coming in is going out.
It's going to take some perks to convince a skittish carrier to haul for a brand-new brokerage. Strategies include paying a carrier in 20 days, paying high rates, and offering inexpensive QuickPay options. All of that hurts cash flow. As a business owner, you are responsible for logistics and all of the accounting and back-office tasks required to run a company.
Freight Agent Programs
Do you want to run your own business but aren't quite ready to create all the infrastructure required? In logistics, this role is known as a freight agent.
Freight agents work for a freight brokerage that supports agent offices. For clarity, we will refer to them as the "Parent Company." Agents "sell" to customers/shippers and are invoiced by the Parent Company. For example, ABC Logistics is an agent for Armstrong Transport Group. The customer will receive all invoices and corporate communication as Armstrong, not ABC Logistics.
The Parent Company provides all back-office support to its agent offices. These tasks typically consist of accounting, collections, claims, legal, marketing, and technology -- anything not related to sales or operations. The agent partner's most important service is issuing credit, invoicing customers, and paying the carriers.
The agent's office will operate under the Parent Company's authority and utilize their cargo insurance. The Parent Company will provide transportation management software to create and book loads. The Parent Company also manages collections, insulates the agent owner from bad debt, and facilitates claims between the customer and carrier.
What Does An Agent Get Paid?
There is a cost associated with an agency partnership, and typically the agent owner gets a percentage of the margin, and so does their corporate partner. There are almost as many different programs as there are companies that offer them. Some will provide a small draw and 40% commission, all the way up to an 80% commission split. Currently, the standard commission split in the industry is 60% to the agency owner.
The Parent Company pays the agency based on a parameter they establish, like load delivery or invoicing the customer.
The Fine Print
Do your research and ask questions to understand the program. There may be charges for services that the corporate office provides like:
- Email address
- Transportation Management System (TMS)
- Load posting sites like DAT and Truckstop.com
- Tracking or load matching
- EDI set up
- Legal and claims support
Agents are paid as 1099 contractors, which typically means:
- No taxes are collected
- No benefits provided (although this is starting to change; Armstrong, as an example, offers health benefit options to independent contractors)
- Agents are typically NOT required to sign a non-compete or non-solicit
Considerations Prior To Becoming An Agent
If you are motivated, organized, and ready to take a chance on yourself, opening a freight agency may be a perfect choice. It's possible to own your own business without having to spend a lot of money to get up-and-running.
Recognized as a 2020 top 25 freight brokerage by Transport Topics, Armstrong has the credibility, established reputation, and financial stability your customers and carriers require. If you would like to find out more about Armstrong or our freight agent program, check out our agent video and connect with our recruiting team.
Are You Ready To Become A Freight Agent?
If you are motivated, organized, and ready to take a chance on yourself, opening a freight agency may be the perfect choice for you. It's possible to own your own business without having to spend a lot of money to get up and running.
Recognized as a 2020 top 25 freight brokerage by Transport Topics, Armstrong has the credibility, established reputation and financial stability your customers and carriers require. If you would like to find out more about the Armstrong, or our freight agent program, check out our agent video and connect with our recruiting team.