Just when you thought selecting the right freight brokerage for your needs couldn’t get more challenging, the plot thickens once again.
After careful research, you’ve come to the realization that there’s actually more than one type of freight brokerage to choose from. . . What a conundrum.
You’re right, the transportation industry is home to many brokerage companies that approach their duties in different ways.
And honestly, there isn’t a one-size-fits-all method for successfully administering freight brokerage services. Which, in turn, leaves shippers with a lot to consider.
Here at ATS Logistics, we’ve been assisting customers as a traditional freight brokerage since 1989. Although we’ve found success with our methodology and processes during this time, that’s not to say other kinds of brokers won’t meet your needs.
In the blog below, we’ll list the most common types of freight brokerages for shippers, like you, to choose from. Additionally, we’ll explain the advantages and disadvantages from one to the next so you get a well-rounded view of each.
At its conclusion, this blog will arm you with the tools you need to select the right type of freight brokerage for your business. Let's get started.
The most common types of freight brokerages are:
- The Agent Model Freight Brokerage
- The Traditional Freight Brokerage
- The Asset-Based Freight Brokerage
- The 3PL
- The Digital Freight Brokerage
What is an Agent Model Freight Brokerage?
Freight brokerages that operate with an agent model are a widely popular option used by shippers around our nation. These companies offer their service at a high level as they prioritize customer service and satisfaction over all else.
Under this structure, 1099’d “employees” — individuals who aren’t paid a salary or given the benefits of traditional employees — broker freight for their customers under the umbrella of a corporate brand.
These freight agents — as they’re called — intimately manage every aspect of the freight movement process as soon as a customer books a load with them. This includes quoting the freight, booking the load, searching for a carrier, working with the shipper, trucker, and consignee to arrange timeframes at each end and monitoring the freight’s journey.
Although this model doesn’t offer freight agents the traditional health, retirement or salary benefits of other brokerages, individuals become highly versed in the freight movement process as they’re charged with overseeing all of its aspects.
What are the Advantages of Agent Model Freight Brokerages?
The agents at these brokerages are compensated with a higher percentage of the overall margin dollars from each transaction. As such, they’re highly motivated to find and maintain quality partnerships with their customers that stand the test of time.
Quality of service truly reigns supreme for these companies and they get to know their customer’s processes, goals and needs deeply.
Additionally, agent model freight brokers can offer their customers a wide breadth of reliable carrier partners that they’ve personally vetted for reliability, track record and safety.
You see, the agents at these brokerages are charged with maintaining both carrier and shipper relationships which gives them greater insight into the core strengths of the carriers in their network.
This added insight allows agents to match the best fit for all parties as they become a true extension of their customer’s, and their carrier partner’s, supply chains.
What are the Disadvantages of Agent Model Freight Brokerages?
Where agent model brokers excel in customer experience and industry expertise, they give up when it comes to the variety of resources available to them.
Often, agent model brokerages have few overhead expenses and even less capital behind them. This can make it difficult for these operations to weather tough times as they simply don’t have the infrastructure in place to survive continual losses.
Beyond this, agent model freight brokers don’t have physical trucking assets of any kind — making it impossible for them to guarantee capacity on any given shipment. This reality may make it hard for these brokers to find a last-minute solution for their customer’s freight.
What is a Traditional Freight Brokerage?
A traditional brokerage is a split-model operation consisting of a sales team — tasked with finding customers and booking loads — and a group of carrier representatives whose job is to develop and maintain relationships with national trucking companies.
Individually, these departments show each of their external partners (customers for sales, truckers for carrier reps) the attentiveness needed to maintain healthy business relationships. Together, traditional brokerage sales and carrier representatives provide shippers the truck capacity needed to move their freight from A to B.
Unlike the agent model, a traditional freight brokerage wholly employs its workers by offering them a salary, commissions and various benefits. As such, traditional freight brokers operate in many of the same ways as other traditional businesses.
What are the Advantages of a Traditional Freight Brokerage?
Traditional freight brokerages are incentivized to provide their service at the highest possible level. If they aren’t delivering loads and coming through for their customers they don’t stay in business, it’s as simple as that.
As such, many traditional freight brokers utilize the skills of their sales and carrier representatives to finely tune a wide network of trusted carriers.
By leaning on these relationships, traditional brokerages are often able to offer a multitude of shipping services and consistent capacity for their customers.
Beyond this, traditional freight brokers are backed by an infrastructure of payrolled employees who — because they’re given a regular salary — are able to endure the ups and downs of transportation pricing.
This helps these brokers — especially those with healthy balance sheets — stick to their accurately quoted rates more easily than less stable brokerage models.
What are the Disadvantages of a Traditional Freight Brokerage?
Traditional brokerages, once again, don’t own any trucks, trailers or employ drivers. As a result, these brokerages may struggle to guarantee capacity for their customer’s freight.
Although relying on their carrier base is made easier by the work carrier representatives do, sometimes trucks still fall through when working with these brokers.
Beyond this, the largest traditional freight brokers have many customers with varying needs. Because of this reality, traditional brokers sometimes aren’t able to give their customers the attentiveness they’d receive from an agent model relationship — especially when they don’t prioritize customer service.
What is an Asset-Based Freight Brokerage?
Asset-based freight brokers are trucking companies that also possess freight brokerage authority (legal permitting to operate as a freight broker). To find truck capacity for their customers these transportation companies utilize both their asset fleet of trucks, trailers and drivers, as well as their external carrier network.
While an asset-based freight brokerage isn’t as common as a traditional broker — due to the investment it takes to own and operate a fleet of trucks — they’re widely used by shippers around the U.S.
What are the Advantages of an Asset-Based Freight Brokerage?
Where traditional and agent model brokerages find a truck solely by turning to their network of partners, an asset-based freight brokerage has an additional option: use their fleet of trucks.
This helps these brokers guarantee a truck for their customers as they control the movement of these assets. In turn, asset-based brokers make great partners for shippers who want the peace of mind in knowing that their partner has a “truck in hand” for their freight.
What are the Disadvantages of an Asset-Based Freight Brokerage?
Purchasing a fleet of trucks and trailers is an expensive investment. Couple in the cost of paying the truckers that drive them and you’re talking about a pretty significant portion of an asset-based broker’s monetary resources.
As such, the companies that make these investments like to make the most of them and, when brokering your freight, typically prioritize their asset fleet where applicable.
In turn, this means that customers at these brokers may not actually be getting the absolute best fit for their freight as these brokerages look to keep their trucks loaded and moving.
This can sometimes lead to increased freight costs as asset-based sales reps give freight to their trucks when a truck outside of their fleet is actually in a better position to service a load.
What is a 3PL?
A third-party logistics (3PL) company is an e-commerce logistics provider that takes over every aspect of a company’s transportation supply chain. These companies offer a variety of services to their customers including freight transportation, warehousing and storage, inventory distribution, rollout and supply chain fulfillment.
In a nutshell, these companies take over and manage 100% of their customer’s operational logistics procedures.
Where other forms of brokerage solely work to provide truck capacity when and where their customers need it, 3PLs take on a more comprehensive role.
By using various transportation management systems (TMS) to automate processes and other technologies to make their lives easier, 3PLs can provide their service at the highest possible level and, more importantly, keep their customer’s supply chains moving.
What are the Advantages of 3PLs?
For shippers, working with third-party logistics providers completely removes the stress of locating truck capacity and moving their freight from their plates.
Since they’ve outsourced this aspect of their business, shippers can focus their energies toward other portions of their company.
The convenience of these partnerships is the main selling point for their services. Don’t worry about getting your freight out the door, or finding a temporary warehousing facility, they’ll handle that for you.
What are the Disadvantages of 3PLs?
One disadvantage of outsourcing logistics operations with a 3PL is that shippers who do so don’t develop the skills needed to move freight and manage their supply chain. Since this third-party provider is wholly responsible for these tasks, shippers can often develop a reliance on their expertise — putting them at a disadvantage in the long run.
Another downside of working with a 3PL is that doing so doesn’t grant these shippers a lot of oversight on their processes. Having to go through a third-party counterpart raises barriers for shippers wanting to make more decisions for their freight and verify the accuracy of their rates.
What is a Digital Freight Brokerage?
Digital freight brokers are one of the newest additions to the transportation landscape. These service providers are, essentially, match-making websites designed to connect shippers who want to get freight moved with the truck capacity they need.
To do this, these websites or mobile applications use algorithms that are specially designed to match a shipment to a truck in the quickest possible manner. Digital freight brokers use their programming to generate what is normally the lowest rate for their customer’s freight in a purely transactional manner.
What are the Advantages of Digital Freight Brokerages?
The main advantage of utilizing a digital freight brokerage is the speed at which they generate freight rates. Technology is an amazing thing and in the business of brokering freight, the speed of these digital freight brokers is unmatched.
Digital freight brokers also rely heavily on their technologies to provide their service, as a result, they have minimal employees which translates to few overhead costs. This helps these brokerages offer the lowest rates and stick to their pricing even if it means losing money on a transaction here and there.
What are the Disadvantages of Digital Freight Brokerages
If you’re a shipper hoping to develop a relationship with your freight brokerage, you won’t find it here. Digital freight brokerages make their hay by providing speedy, easily accessible, quotes that keep each shipper at arm’s length.
Beyond this — due to the nature of their infrastructure — digital freight brokers aren’t able to provide a wide breadth of services which leads most to focus on personal dry van and flatbed shipments.
As such, for shippers who need heavy haul, specialized open-deck, reefer or any other trucking service, digital freight brokers simply have these capabilities.
What Type of Freight Brokerage is Best For You?
Now that you understand the key differences between agent model, traditional, asset-based, 3PL and digital freight brokerages, you’re ready to start making your freight brokerage selection decision.
There are a ton of things to consider when it comes to selecting the right brokerage for your business.
Things like network size, expertise, reliability and track record as well as technology usage and service offering will all factor into this crucial decision. And, the more prepared you are the less likely it’ll be that you’ll select a brokerage that will continually fall through on you.
Take stock of your needs and search accordingly, are you looking strictly for the lowest cost broker to match your freight at the touch of a button? If so, consider a digital brokerage.
Are you hoping to find a partnership to grow and change with your needs? If this sounds like you, a traditional or agent-model broker may be what you’re looking for.
At the end of the day, we want you to have all the information you need to make the right choice, no matter what it ends up being.
To do this, we invite you to browse our learning hub where new educational content created to help shippers make the most of their transportation dollars and meet their timelines is published weekly.
Selecting a freight brokerage isn’t an endeavor, but educating yourself is truly the first step toward conquering it. Subscribe to our blog notifications so that you never miss a thing.
As always, feel free to reach out to us here at ATS Logistics with all of your freight brokerage and trucking industry-related questions. We’re always happy to help you thrive even if ATS Logistics isn’t the provider you end up choosing.