Introduction
As the middleman between the shipper and carrier, the freight broker must combine great communication skills with the ability to plan out and coordinate all of the complexities of getting the shipment from Point A to Point B. There is more than one way to go about being that middleman, and in this blog we will explain and compare some effective freight broker business models. We’ll go over the pros and cons of each model and offer features that brokers can use to raise their games.
The Types of Freight Broker Business Models to Know
Choosing a freight broker business model can have as much to do with your personality as with what type of brokerage you are attempting to run. It is extremely important that the model you choose is the one that suits you and will make you adeptly utilize the market. The two most popular models are the cradle to the grave model and the buy/sell model. There are also several other models to suit specific needs. The following section will explain those models and take a look at the positives and negatives of each model.
Cradle to the Grave Model
Cradle to the grave model (C2G) is considered the original freight broker business model and still probably remains the most popular model. In this model, each broker is in charge of maintaining and expanding their individual book of business. From the beginning to the end in the cradle to the grave model, the broker is in control of every step on the way. The individual broker manages sales, customer relationships, capacity locating, and recordkeeping. Supervising carriers and their vehicles, handling all of the negotiations with the carriers, and coming up with rates and prices for each customer are also all part of what the individual broker does. It also includes closing new business. The C2G model is often favored by independent agents and brokerages that accentuate the entrepreneurial culture of control over the complete process. The C2G approach, which is internally focused and tailors services to meet the customer’s needs, concentrates on the entire network rather than each individual area.
- Pros: Cradle to the grave, like its title implies, is about total ownership for the entire journey of the shipment. By having one point of contact for the client for the entire process, the interactions throughout all the steps help build up a solid rapport. Customers enjoy the ease of working with one single individual on every facet. For instance, there is no transferring them to another area where there is always a chance of a breakdown or missed connection and the customer isn’t forced to have to explain their story and concerns all over again to another individual.
- Cons: The most significant drawback of the C2G model is that there can end up being possible disruptions if the individual broker becomes unavailable — i.e., they leave the company or have an issue that incapacitates them. That means another person must take up the account and will have to get up to speed with all the particulars in each area to get an overall understanding. Then, they will have to build up a new relationship with the customer. This can cause a change in relationships, pricing strategies, and customer orders.
Buy/Sell Model
Often called the Chicago model because it gained its early popularity in the Windy City, the buy/sell model is a freight broker business model that is divided into two sections. In this model, sales and operations are split into two separate roles. The sales side, also occasionally referred to as the brokerage side, handles all facets of customer service along with negotiations. It is responsible for signing new shippers and increasing business with current customers. Among their roles are acquiring quotes from different carriers, verifying documentation such as delivery receipts, ensuring proper payment occurs between both parties, and filing claims on time. The operations side, or sometimes called the trucking side, focuses on the actual transporting of shipments for customers. The operations side is in charge of all aspects of logistics management — acquiring freight space and supervising fuel use and driver performance are among the many tasks this side handles. With specialized software, they can track freight in real-time.
- Pros: With the sales side separate from the operations side, it’s easier to manage accounts. Without a conflict of interest between the sides, each group can do their job without being influenced by the other one. The buy/sell model can also be more easily adaptable if the business has a growing customer base and is contemplating expansion. With a group dedicated to focusing only on accruing new customers or new business with current customers, there is a greater potential for growth than with the C2G model, in which brokers have much less time to dedicate to prospecting for new shippers. Another positive to the buy/sell model involves the training of new employees. There is no need to thrust an inexperienced new hire into getting on the phone right away to start selling freight to shippers. Instead, a new worker can be inserted into the role of carrier sales and have the time to learn the business by covering loads and negotiating rates.
- Cons: The splitting of the sales and operations sides creates some benefits, but it also creates a drawback — implementing and executing the dual system brings with it increased expenses and requires more resources than other business models. If you are just getting into the broker business, this model means you have to build, hire, house and teach two sets of employees. If you are looking to expand and shift to the buy/sell model, there are transitioning pains and costs that come with creating the new team and getting everyone on board with the changes. There is also the fear that making these changes will displease the customer and cost the company some business.
Digital Model
This relatively new freight broker business model is distinct because it is all done online. In the digital model, a broker connects shippers with truck drivers through an online presence that allows customers to get quotes and book shipments. It commonly uses an online or mobile app with programmed algorithms to connect companies and truckers. For this model, a broker can manage all accounts with simply a laptop and a phone.
- Pros: Because this model is completely digital, it means costs are kept at a minimum. There are no expenses spent on staff nor are there costs that need to be incurred with having to own or use a facility.
- Cons: While the benefits of not having to pay for a facility or staff are cost effective, they do create a different concern. Some customers can feel uneasy with not being able to meet with an actual person. Also, the lack of a brick and mortar location can create concern about the broker’s stability among some customers.
Combination Models
If the above models don’t suit you, there is another option — combining those models. This model, also known as a hybrid model, includes dedicated sales teams that work with transportation teams to provide the service. This model also uses technology to supplement those services.
- Pros: If a broker is wanting to grow quickly, this could be the best way to expand. This model can bring profits yet still keep things manageable internally. A combination model can take the benefits of each of the other models while cutting down on some of the logistical challenges.
- Cons: One weighty disadvantage is that using both sales and logistics teams can be costly. For brokers who are just starting, depending more on a digital model could be a good idea. But it may not be enough to maintain customer loyalty as the company grows because of the lack of actual client interaction.
Load Boards and Payments Are Driving Freight Business
Online load boards have become an essential part of the freight business. These online marketplaces, where loads can be posted, give freight brokers the ability to connect with shippers and carriers in a much more rapid and efficient way. Load boards allow all parties to have a greater degree of control over the process and a bigger audience of potential customers. The load boards and automated freight payments have taken freight brokering to a new level. For instance, ComFreight’s HaulPay, offers quick pay to carriers and optional broker margin advances. It can also help you establish or improve your credit and it offers extended terms with less risk. There is also a way to automate carrier payments.
Let ComFreight Become a Model Partner for Your Business
With assorted freight broker business models available, freight brokers have plenty of options on how to go about either entering the business or expanding their companies. With new technology like load boards and digital platforms, the freight broker business is moving at a much faster pace. To help you keep up to speed no matter what model you use, turn to ComFreight’s HaulPay. HaulPay replaces manual payments and old-school factoring with new technology, letting you automate terms and eliminate risk. Check us out today for a free demonstration.
