For many, it can be difficult to distinguish between a freight broker and freight forwarder as the terms are often used interchangeably.
However, there are important differences from what they do for shippers/carriers and the new business startup and insurance requirements.
What is a Freight Broker?
Simply, a freight broker connects the people who have freight to move (shippers) with the people who will move it (carriers).
Brokers must register with the FMCSA for brokerage authority but do not take possession of the goods being shipped, and they do not own any of the vehicles or equipment used to ship the goods.
Brokers are useful for carriers as they can offer more volume than carriers would usually get if they worked with individual customers and save carriers the time and resources it would take to find large volume clients.
Brokers are useful to shippers because brokers have more bargaining power when negotiating rates with carriers, which can save the customer money by getting them better deals.
However, a freight broker usually does not prepare paperwork for their clients, ship goods under their own bills of lading, or provide additional services such as break bulk, consolidation, or packaging.
In return for their service, brokers take a percentage of the total cost of the transaction as commission.
What is a Freight Forwarder?
While a freight broker usually does not prepare paperwork for their clients, ship goods under their own bills of lading, or provide additional services such as break bulk, consolidation, or packaging, freight forwarders take on these responsibilities.
Whether it is by land, air or sea, freight forwarders:
- collects a shipment from the shipper,
- takes responsibility for its’ transportation from one location to the other,
- handle freight storage,
- assemble/distribute the shipment as required,
- make arrangements for the forwarding of the cargo in accordance to the customer’s wishes,
- negotiate with the shipping company, and
- oversee the delivery of freight to its’ destination
Freight forwarders must have operating authority with the FMCSA in interstate or foreign commerce, and, since they are liable for any losses or damages, must also provide at least the minimum required insurance coverage for shipments under their control.
For carriers, it is important to note that forwarders and brokers are not legally required to pay carriers until the customer has paid them, you should make sure brokers are a registered company and legitimate business, and make sure the freight you are hauling for a forwarder does not have damages or shortages before accepting the shipment.
FMCSA requirements for new freight broker or forwarders
When it comes to the FMCSA, there are additional steps required to become a licensed broker or forwarder:
- file OP-1 Application for Motor Property Carrier and Broker Authority
- provide proof of insurance coverage
- submit BOC-3 (Designation of Process Agent)
- filing fee: $300
For freight forwarders, the FMCSA requires additional insurance, to be submitted on the following forms:
- liability insurance: BMC-91 or BMC-91x (if insurance is provided by multiple companies)
- freight: $750,000-$5,000,000 minimum insurance (depends on cargo)
- vehicles weighing less than 10,001 lbs. transporting non-hazardous freight: $300,000
- passenger vehicles: $5,000,000
- passenger vehicles with capacity of 15 people or fewer: $1,500,000
- proof of cargo insurance (if you are a household goods freight forwarder): BMC-34 or BMC-83
- minimum $5,000 per vehicle
- minimum $10,000 per occurrence
Businesses that operate as brokers or forwarders for marine freight are required to register as Ocean Freight Forwarders (OFFs) or Non-Vessel Operating Common Carriers (NVOCCs) with the Federal Maritime Commission through a separate process.
More information is available on the Federal Maritime Commission’s website.