Strengths
Freight brokerages are able to generate substantial revenues in any economic climate. One of the primary strengths of these businesses is that they can be started at a relatively low cost. Any individual that has an extensive amount of experience in the field of freight load placement can easily work with shippers in order to arrange a proper freight carrier to transport the merchandise. Generally, these businesses have startup costs that range anywhere from $15,000 to $100,000 depending on the number of agents that will be hired at the onset of operations. These businesses are able to generate substantial contribution margins from each engagement that they arrange between a shipper and a carrier. Typically, these businesses receive a fee equal to 10% to 15% of the total face value of the transaction. These substantial contribution margins allow freight brokerages to remain profitable even during times of economic recession.
One of the other positives about this industry is that they have become far more efficient through the use of state-of-the-art technology. Years ago, this business was far more complicated given that freight brokerages needed to coordinate with numerous carriers in order to understand their capacity for taking on additional loads. Today, technology allows carriers to indicate that they are available four engagements and loads can be very quickly placed. Additionally, GPS tracking has also allowed the industry to operate with a far greater degree of stability as there are fewer issues related to load loss. All trucks can now be tracked in real time.
As will be indicated in the opportunity section, freight brokerages are highly scalable businesses. There are numerous ways to drastically expand the revenues of these entities, especially through increased marketing, acquisition of existing books of business, hiring of additional agents, and engaging in niche freight brokerage activities.
Weaknesses
As it relates to weaknesses, these businesses are highly competitive period as they essentially act as a middleman between shippers and carriers. There is an intense amount of competition related to developing ongoing relationships with companies that have frequent freight transportation needs. As indicated above, one of the primary strengths is that these businesses can be started at a very low cost. This is also a weakness for the business as there are low barriers to entry. Additionally, profitability can vary based on the prevailing per mile cost for both long distance and short distance free arrangements.
Opportunities
There are numerous opportunities available for freight brokerages to expand their operations. First, these businesses can substantially increase their book of business through ongoing expansions of their marketing campaigns. Most importantly, these entities need to develop ongoing relationships with wholesalers, distributors, and retailers that have ongoing freight transportation needs. While this can be an expensive endeavor up front, once ongoing relationships are developed – these relationships can produce a highly predictable stream of revenue for a freight brokerage business. Second, there is also the possibility that an entrepreneur within this field can acquire existing businesses that are already in operation. There are numerous platforms that showcase businesses for sale and freight brokerages are one of the types of companies that frequently are bought and sold by businesspeople within this industry.
Additionally, free brokerages can develop internal units that specialize in specific types of freight such as hazardous materials, refrigerated freight, perishable goods, as well as chemicals and industrial parts. Additional specialties include providing service on a very rapid basis, especially for time sensitive products that need to be delivered quickly.
Threats
As it relates to threats, these are generally few and far between for most freight brokerages. Although economic recessions can cause downward revenue pressure given that there is less demand for the transportation of consumer goods, the substantial contribution margins that are generated through freight engagements are able to allow these businesses to operate at a profit and with a positive cash flow at all times. The primary threat that is faced by these types of businesses is usually competitive in nature. It is imperative that the owner of a freight brokerage maintain streamlined operations so that engagements can be fulfilled quickly using state-of-the-art technology.