What is Freight Brokering?

A freight broker is an individual or company that serves as a liaison between another individual or company that needs shipping services and an authorized motor carrier. Though a freight broker plays an important role in the movement of cargo, the broker doesn't function as a shipper or a carrier. Instead, a freight broker works to determine the needs of a shipper and connects that shipper with a carrier willing to transport the items at an acceptable price.



To operate as a freight broker, a business or individual must obtain a license from the Federal Motor Carrier Safety Administration (FMCSA). Freight brokers are also expected to carry insurance to protect both their business clients and their customers from loss. In many areas, freight brokers are required to carry surety bonds as well.

Freight broker services are valuable to both shippers and motor carriers. Freight brokers help shippers find reliable carriers that might otherwise be difficult to locate. They assist motor carriers in filling their trucks and earning money for transporting a wide variety of items. For their efforts, freight brokers earn commissions.

Freight brokers use their knowledge of the shipping industry and technological resources to help shippers and carriers accomplish their goals. Many companies find the services provided by freight brokers indispensable. In fact, some companies hire brokers to coordinate all of their shipping needs.

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Before you make any decisions about insuring your business or changing your current coverage, I urge you to speak with your own insurance agent -and possibly your accountant and attorney, as well. 



DO consider these coverage options:



Property and general liability: If you own or lease property, you can buy property insurance. It's usually best to package it with general liability insurance for your premises and operations. Ask your insurance agent for coverage recommendations and quotes.



Vicarious auto liability and umbrella: Brokers need vicarious auto liability insurance. If you are named in a law suit, as in recent negligent hiring cases, your insurer will be in a position to defend you. If you are found liable, a vicarious auto liability will cover you. Be very careful to review the terms and conditions because the policies offered vary widely.  Some provide very little coverage and some are very broad.  They are not all the same.  You can also buy an umbrella policy, which will allow you to increase your liability limits.  Umbrellas are available in $1 million dollar increments.



Workers' compensation: If you have employees, particularly if you have two or more, every state requires you have workers' compensation insurance. You should also check to be sure the carrier has workers' compensation insurance. We have a case pending right now where a broker is being pursued by a driver for workers' comp benefits, because the trucking company was not covered. If the carrier is not required by the state to have workers' comp, then the broker needs to get a written statement from the carrier to that effect, and keep it on file.



Contingent cargo: You don't know what the carrier's policy covers and doesn't cover, so your contingent cargo can fill some of the gaps that a carrier's policy might have. Be aware that contingent cargo insurance policies are not all the same. Pay special attention to the basis of coverage. Is it legal liability? As a broker you are not legally liable for cargo loss and damage claims. Check all the policy details with your insurance agent and your attorney, as needed, before you sign.



Errors and omissions: Some claims are not covered under any other policy. For example, if a broker gives the wrong information to a carrier by mistake, the broker could be considered negligent. That type of claim can be covered by errors and omissions (E&O) insurance. Note that E&O coverage will not pay for (1) bodily injury or (2) property damage. If the E&O is a part of your contingent cargo policy, however, cargo damage may be covered.