In order to be able to answer that question, I guess we should explain what LTL Freight Brokers do and how they do it. A freight broker, also known as a 3PL (Third Party Logistics Firm), is usually comprised of a few experts in the field of transportation. These professionals usually have a field of expertise i.e. Ground transportation, Air transportation and Intermodal and usually offer services in all of these areas. A subset of the Ground transportation is comprised of full loads and LTL. Most freight brokers handle LTL freight and could also be called an LTL freight broker.
They typically do not have any equipment (non-asset based) but there are those who do (asset-based) and function with the elaborate use of today’s electronic data technology (EDI) and the internet to communicate with thousands of carriers in matching various customers’ freight with transportation equipment that meet the needs of their clients. Those needs are the right equipment for the right price that can load the right amount of freight.
To be more precise, LTL freight brokers use elaborate load boards, some that are internal and some that are available on the Internet. The system works like this: Brokers and carriers enter their respective information. Brokers post loads that are available for pick up across the United States and Canada. Carriers post the equipment they have available in various cities in North America. On these boards the loads are matched, so that once the database is re-downloaded and correlated with its associate carrier or load, the broker can call that transportation firm closest to the area of the load he has available. The carrier in turn can do the same.
At this point the broker and carrier negotiate a mutually agreed upon rate and the load is ‘booked’ to use the proper lingo. But why would LTL freight broker’s exist you ask? There are a few reasons, so let’s look at the most common ones. Clients that have freight to move just do not have the time to source the best carrier for the right price in every situation. If they have their priorities right, they would be more productive concentrating on their business selling X, Y or Z, than trying to find a carrier in order to ship their product. Brokers are much more efficient at booking freight, since they do it all day long, establishing relationships with various carriers, and investing in the electronic tools that speed up the process. Through this process they can usually get better rates in less time, than a manufacturer of a line of products whose specialty is manufacturing.
Another unknown fact is that most carriers are small to medium in size and cannot afford to place and pay for sales teams to find clients across the entire continent. A carrier can really never tell where his next shipment is heading to, nor when. So the use of a broker or hundreds of brokers is like having a huge sales team that you only pay for once you need some freight at that particular time and place. That is something that a lot of carriers lose sight of. So it’s a win/win situation. Now when a carrier uses brokers for all of his revenue streams and has no retail freight (Freight coming directly from clients) he will not be as profitable as carriers who have a large percentage of client based freight.