Freight Broker vs. Dispatcher
A broker agent works as a mediator between shipping companies and carriers. A broker may negotiate a unique rate with owner-operators while negotiating a lower rate with shippers to make money. Because brokers keep truckers afloat as well, they work hard to keep them in business. As a result, freight brokers are motivated to persuade shippers to pay higher rates while negotiating a lower price for the carriers. If you lack negotiating skills, knowledge of pay rates for certain lanes, and the operating costs of your business, you may accept loads that will sink your company. It is critical to be selective when selecting a broker (some are driven by profit more than others). If the broker provides immediate payment, they will take another percentage from the agreed-on rate.
An open load is available and Shipper requests the Broker to locate a carrier for them. The shipper and Broker agree on a rate of $2,000. Then the broker requests ABC Trucking to haul the load. The Broker does not have to reveal the original agreement amount to ABC Trucking. ABC Trucking agrees to haul the load for $1,600 and keeps the $400 difference as commission. The Broker keeps the difference as commission.
ABC Trucking uses the Broker’s Quick Pay option, which takes 2% from the $1,600. ABC Trucking earns $1,568 for a load originally valued at $2,000, resulting in a net payment of $1,600. The Broker makes $432.
When negotiating freight, a dispatcher or a truck dispatch service represents the carrier. The dispatchers are motivated to find higher-paying freight by taking a percentage off the carrier’s negotiated rates. They keep portfolios with their carrier’s lane preferences, desired freight rates, and equipment specifications, so they can charge the carrier more by finding higher-paying freight. They can make more money if they can find higher-paying freight. Dispatchers who are good will contact shippers or freight brokers on the carrier’s behalf to negotiate loads that match the carrier’s needs after they know the shipper or freight broker’s demands. When a load is agreed upon, the dispatcher charges the carrier for his or her services. There are some dispatchers, including factoring companies, who will send invoices to the factor on the carrier’s behalf. However, dispatchers are not all the same as some will charge additional fees or require a monthly minimum. Ask those questions before hiring a dispatcher or signing a contract.
In the prior example, X Shipper contracted with Y Broker for a rate of $2,000. However, this time ABC Trucking is working with Z Dispatcher to find freight. Z Dispatcher knows ABC Trucking must make at least $1,600 on each load to survive, and Y Broker has the same knowledge. Z Dispatcher contacts Y Broker about an open load. Y Broker agrees to provide the load at $1,600, but Z Dispatcher declines the offer. The two negotiate until Y Broker agrees to provide the load for $1,800. Z Dispatcher talks to ABC Trucking about the load, and ABC Trucking agrees to haul it. Z Dispatcher collects a 5% fee from ABC Trucking. Once everything is done, ABC Trucking receives $1,710, Z freight Dispatcher receives $90, and Y Broker receives $200.
Both options have pros and cons.
Freight brokers are advantageous because they have a close bond with shippers. However, they make less money by offering carriers lower rates. The fine balance between offering carriers lower rates while also attracting carriers to keep taking loads directly from them is what they strive for. Working with certain freight brokers may be preferable than others. Learn how to locate a freight broker.
Carriers rely on dispatchers to find the best freight rates for them. However, most dispatchers use freight brokers or load boards to locate freight; if you locate one that works directly with a supplier, that would be excellent! Because dispatchers do not earn money unless you do, they endeavour to negotiate the highest paying freight possible for you.
Developing good relationships with shippers is the perfect outcome, but it is unlikely that your company will ever be big enough to do so. You will almost always require load boards, freight brokers, or dispatchers of some kind. Using rate information, improving your bargaining skills, understanding your expenses, and being selective are all things you can do to help yourself. If you would like weekly tips via text, send a text that says “info” to 407-698-3972.