VOLUME 25 • NUMBER 1 • dEcEMBER 2009

2009

VOLUME 25 • NUMBER 1 • DECEMBER 2009

Freight Brokerage –What The Warehouse Manager Needs To Know

Editor’s Note: The following individuals helped us develop

this topic: Cindy Amos of Transportation Intermediaries Asso-

ciation, attorney Marc Blubaugh of Benesch, Friedlander,

Coplan & Aronoff LLP, James Butts of CH Robinson World-

wide, Richard Hitchcock of BNSF Logistics, Cliff Lynch of C.

F. Lynch & Associates. KBA

A freight broker is a company, or individual, whoserves as a liaison between a buyer of transportation andone or more carriers. The popular vision of this occupa-tion was vividly described by Cliff Lynch: “All too often,the term freight broker conjures up visions of Joe Bobparked in a booth at the Flying Z truckstop with his cellphone, a pad and pencil, and a generous portion ofchicken-fried steak.” Joe Bob is sitting beside the “post-ing board” located in every truck stop looking for loads.

Many shippers have this instantly negative reaction tofreight brokerage. Reality is somewhat different. Trans-portation giants, such as BNSF Logistics, C.H. Robinsonand Schneider National realize a significant portion oftheir revenue from freight brokerage operations. Particu-larly when transportation is in short supply, freight bro-kers fill a pivotal role. Brokers provide an efficient distri-bution of transportation services, by matching the needsof shippers with the capabilities and capacities of carriers.

A broker often can locate transportation when the ship-per cannot, assisting a company experiencing a seasonalsurge. It also helps if the company has transportationequipment that is located in the wrong spot. Changes insupply chain can come about suddenly, and the brokerprovides the agility to handle the unexpected change.

As definitions are considered, it is important to distin-guish brokerage from forwarding. The freight forwardercreates a bill of lading, and frequently gathers and consol-idates freight. In effect, the forwarder becomes a shipper,but the broker typically does not.

Freight brokers are licensed by the Federal Motor Car-rier Safety Administration, a process that requires them topost a $10,000 performance bond. While we usually thinkof brokerage in connection with motor freight, the func-tion also exists with other modes of transportation. Airbrokerage is unregulated. The brokerage of marine trans-portation is known as NVOCC, non-vessel operatingcommon carrier.

The requirements for entry into brokerage remain un-changed since 1980. Some companies believe that therules should be more rigorous since the performance bondmeans less now than it did when established. Clearly, a$10,000 fee does not provide adequate protection for thenormal risks of today’s brokerage relationship, and itseems likely that the size of the bond will be increased.

Jim Butts observed that a broker should protect theshippers interest, while recognizing an equal obligation toprotect the carrier’s interest. Dick Hitchcock pointed outthat a responsible asset light carrier never will “give back”a load. If, a broker has committed to handle a load at afixed price and discovers that a higher price must be paidto secure an available carrier, he absorbs the loss ratherthan refuse the load.

Liability IssuesThe freight broker is responsible for exercising reason-

able care and diligence. Marc Blubaugh explained thatthe broker can be held liable for a careless decision inchoosing a carrier. Last spring, a multi-million dollarjudgment against a large broker was reported in the tradepress, due to a fatal accident involving the motor carrierselected to move a shipment. The broker denied liabilitybecause it did not control the carrier or its driver, or inde-pendent contractors. The driver had a suspended license,and falsified log books. The jury determined that the bro-ker should have conducted a thorough investigation of thesafety records available from FMCSA. In legal terms, thistheory is known as vicarious liability, meaning that the op-erator is liable for the acts of a third party, as if he werestanding in its shoes.

Protective StepsInsurance is available through a “contingent cargo lia-

bility” policy. Similar in concept to the warehousemen’slegal liability policy held by many public warehouses, akey feature of the coverage is the ability to have the insur-ance carrier handle legal defense.

In addition to insurance coverage, a trade group calledTransportation Intermediaries Association (TIA), is dedi-cated to maintaining a quality standard for freight brokersand forwarders.

Also, everyone can gain access to the safety records ofmotor carriers by accessing www.safersy.org, a service

The Art Of Supply Change ManagementBy J.C. Andraski, S.E. Fawcett, A.M. Fawcett, & G.M.Magnan, Supply Chain Management Review, No-vember 2009, pg. 16.

The authors explored the typical language used inresisting change; including these statements:

P We’ve never done it that way.P We are different.P Let me tell you why that won’t work here.

Learning loops are activities that drive learning tofacilitate change. They include these four common el-ements:

P Leaders communicate that continuous learn-ing is expected.

P They provide training in basic learning skills.P They allow people to use the skills success-

fully.P They measure and reward results.

� � � � � � � � �

The Innovator’s DNABy J. Dyer, H. Gregersen, C. Christensen, HarvardBusiness Review, December 2009, pg. 60.

The authors seek answers to these questions: Howdo I find innovative people? How can I become moreinnovative myself? They also identified five skillsnecessary for innovative thinking:

P Associating, or the process ofconnecting things

P QuestioningP ObservingP ExperimentingP Networking

� � � � � � � � �

What Would Peter Say?By Rosabeth Moss Kanter, Harvard Business Review,November 2009, pg. 65.

In her tribute to Peter Drucker, Dr. Kanter de-scribed three themes that are “essential Drucker.”

P Management should be a profession.P A manager’s primary job is to look out for the

long-term health of the organization.P Knowledge workers cannot be controlled.

They must be motivated.

� � � � � � � � �

What Ever Happened to DRP?By Deep Parekh, American Shipper, Aug. 09, pg. 24.

Distribution requirements planning was a highlyregarded logistics strategy a couple of decades ago.The author pointed out that the principles of DRP areas valid today as they were when it was first devel-oped. Like many developments that enjoy great popu-larity, DRP fell into disuse for no good reason. Theauthor makes the case for unearthing the remains andtrying again.

Pick This!By OPSdesign Consulting, published by WERC(Warehousing Education and Research Council),©2009, 89 pages.

The subtitle of this excellent reference work is, “Acompendium of piece-picking process alternatives.”All order selection procedures have the option ofpicking full units, cases or pieces. The piece pick alsois known as broken case or each pick. All of the alter-natives were explored in this article, itemizing the ad-vantages and disadvantages of each.

� � � � � � � � �

Power DownBy Peter Bradley, DC Velocity, Sept. 2009, pg. 36.

Green retrofits are one way of controlling energycosts in the distribution center. Installation of effi-cient lighting often is the quickest way to achieve sig-nificant reductions in energy costs. Any lightingsystem more than five years old probably is obsolete.The newest lighting and ballast systems offer signifi-cantly longer life, as well as a lower consumption ofelectricity. Ceiling fans offer a much lower cost alter-native to air-conditioning, and also reduce heatingcosts by moving warm air from the ceiling down tothe floor.

� � � � � � � � �

Nightmare Before ChristmasBy Andrea Harris, Focus, October 2009 page 38.

The author suggested that sudden increases in vol-ume associated with seasonal sales drives can reduceprofitability. Volume surges create a need for over-time, temporary labor, off-site storage, and premiumdelivery rates. Careful forecasting and planning re-duce the impact of seasonal surges. Distinguish be-tween your best customers and those you might behappy to lose. Then offer expedited service only tothe best. Buffer stocks and a carefully negotiatedoutsourced contract can reduce the impact of seasonalsurges.

� � � � � � � � �

A Smarter Way To Spend Your MoneyBy A. Dixit, CSCMP Supply Chain Quarterly, 3Q 2009,pg. 50.

The author proposed development of a spend man-agement strategy, and the implementation of a systemto review and control expenditures. Included in theprocess are visibility, analysis, study of alternatesources, and negotiation. It starts with determiningwhat is being spent, with whom, and for what. Whilethe article seems to be focused on large companies,some of the ideas are applicable to an enterprise of al-most any size.

While journalists and Wall Street continue to reportthat the country is recovering from the “great recession,”it is important to remember that this recovery has not beenaccompanied by rising employment. One out of 10 Amer-icans are unemployed, and it is safe to assume that the ma-jority of workers are as fearful as ever about the future.

This is both a problem and an opportunity for ware-housing leaders. Traditionally, warehousing has been alagging indicator, which means that 2010 might be a diffi-cult year. Even the best logistics service providers cannotcontrol the actions of their customers in reducing invento-ries and/or eliminating distribution locations.

At the same time, warehousing is a service that cannotbe exported. Although the manufacturer may move theproduction line to China, the distribution centers must beclose to the market. While there is no guarantee that logis-tics service providers will not face financial failure, thesurvival rate of the industry during the Great Depressionof the last century was better than that of the businesscommunity as a whole.

Communication is the best way to control fear. Whendid you last discuss economic conditions with the peopleworking in your warehouse? Do they have an accurate un-derstanding of your company’s condition and its futureprospects? In our March issue, we described how Franklin

Roosevelt functioned as a cheerleader during the darkdays of 1933 by communicating positively. In a series ofradio broadcasts known as fireside chats, Roosevelt main-tained public morale. Never since the 1930s have so manypeople been fearful about the future.

While you may not have Roosevelt’s eloquence, a se-ries of “fireside chats” with the people who work in yourorganization could have tangible value today. What haveyou done, and what will you do, to combat fear?

� � � � � � � � �

Join ALAN!American Logistics Aid Network, known by the acro-

nym ALAN, was formed in the aftermath of HurricaneKatrina. One of the lessons learned was that private com-panies were more effective than government in deliveringrelief. ALAN is a consortium of more than a dozen profes-sional and trade associations representing various logis-tics service and manufacturing companies..

Because ALAN has no budget for advertising or publicrelations, some people are not aware of its existence. Still,we are inspired by those individuals who have donatedsignificant energy and time to the development of the or-ganization. Unfortunately, there have been opportunitiessince Katrina for ALAN to be engaged in providing reliefafter severe weather incidents.

We have been involved in training programs for per-sonnel employed by The Federal Emergency Manage-ment Association. It is gratifying to know that FEMA ad-ministrators recognize the need for their employees to beeducated in the business of supply chain management. Wewere surprised to discover that most of the FEMA staffhad no knowledge of the activities of ALAN. You canlearn more about this important activity by visiting thewebsite at: www.alanaid.org.

MaintainingMorale

A New Way To FindWarehousing Services

Two trade associations, IARW and IWLA, have madeit easy to find warehouse service sources in various geo-graphical areas, by disseminating information about theirmembers. In addition, well-established sales service or-ganizations, such as Associated and Affiliated WarehouseCompanies, provide marketing information and consulta-tion to shippers. These sales groups have member compa-nies in all major cities.

A new approach, “TKO,” is a product of Armstrong &Associates. The acronym stands for Turn Key LogisticsOutsourcing Service. Armstrong has a database of severalhundred logistics service providers located worldwide,that are described in its annual “Who’s Who in Logistics”report. Included in the individual company reports is adepth of detail not published elsewhere. It includes grossand net revenues, the names of key executives, major cus-tomers, and details regarding size and scope of transporta-

tion, information technology and warehousing opera-tions. By delivering this information to a prospectivebuyer of logistics services, Armstrong is able to offer ad-vice unavailable from other sources.

� � � � � � � � �

Options In Piece PickingThe most expensive and the slowest element of most

warehouse operations is the picking of individual pieces.Four technology options exist. The low-tech alternative ispaper picking, or the use of a pick list to guide the selectorin finding the product for each order. The next step up isbar code scanning, which involves the use of a scannergun to verify that the correct product has been selected.While accuracy is improved, the pick rate often is thesame as paper picking. Pick to light is a system that allowsthe selector to read LED screens that verify the item andthe quantity on the appropriate gravity flow rack lane.While such systems are costly, they enable the operator totrain order pickers quickly, and to achieve a high pick ratetogether with high accuracy. Voice picking has a lowerpick rate than pick to light, but the capital investment isless, and the accuracy is comparable.

maintained by FMCSA. A $20 fee is charged for each car-rier inquiry.

It’s All About Financial ResponsibilityLynch observed that brokerage, like any other form of

outsourcing, always carries some risk. Particularly in to-day’s turbulent economy, the prudent buyer should takethese steps to control financial exposure:

■ Insist on inspecting audited financial statements,emphasizing the qualifications of the auditor.

■ Verify that bond coverage, if available, is adequateto cover the actual risk.

■ Determine the net worth of the broker, and con-sider a minimum net worth threshold.

The prudent buyer will keep financial due diligence atthe top of the list when qualifying potential freight bro-kers, or in fact any other logistics service provider. Fur-thermore, because financial stability can change, periodicreviews should be conducted throughout the relationship.

While most logistics service providers are sound,well-managed businesses, the occasional failures withinthe industry demonstrate the importance of thorough dili-gence in selecting a supplier.

Advantages In Using A Brokerage FirmButts emphasized the following features that may be

available through the use of a freight broker:

■ A broker can optimize freight expenditures, result-ing in a reduction of transportation costs.

■ Supplemental services offered such as claims han-dling, may allow the shipper to improve controlover the transportation function without addingnew employees.

■ Some brokers offer information systems to moni-tor transportation performance.

■ Because the broker optimizes loads and modes,those concerned with sustainability will recognizea greener transportation landscape.

■ Because brokerage is scalable, the prudent shippercan be lean in an uncertain economy, with the abil-ity to grow quickly as the market recovers.

■ A responsible freight broker has the expertise tomaintain compliance with local rules and regula-tions in a global environment.

Other Available ServicesSome freight brokers handle claims. A few even will

guarantee proper settlement of a legitimate claim. If thecarrier will not pay the claim, the broker will do so. Thebroker will also protect the carrier from improper claimsfrom a shipper.

Some brokers promise to assume other credit risks.While current federal regulations do not require the bro-ker to pay the carrier, a responsible broker will guaranteepayment, regardless of the actions of the shipper. In otherwords, the best brokers will protect both the shippers andthe carriers.

Freight brokers may offer to manage inbound transpor-tation, including vendor compliance, and the use of con-solidation and truckloads with stopoff features.

Others will analyze load and mode utilization. That in-cludes a comparison of the economics of parcel shipment,

LTL, and truckloads with stopoffs.

Going GlobalThere are special challenges in the handling of import

and export transportation. Larger firms in the brokeragebusiness are able to handle global forwarding, as well asintermodal shipments. Some large brokers have overseasoffices able to handle transportation in the countries inwhich they operate.

If you have located a new manufacturing source basedin a small village in the middle of China, how will youcontrol transportation from factory to destination? A bro-ker can be a key transportation resource in that situation.Furthermore, as a shrinking dollar creates new opportuni-ties to export, how does a company with no foreign tradeexperience find the most economical way to move prod-uct from the USA to destinations overseas?

As our economy continues to expand its global foot-print, the use of brokerage services for imports and ex-ports is likely to grow.

Would You Like To Jump In The Pool?Freight brokerage is known for its ease of entry. Many

logistics service providers have recognized that broker-age can be a profitable extension of their services portfo-lio. Transportation Intermediaries Association (TIA) rec-ognizes the growth of the industry, and publishes a guide-line for newcomers. The four-point bulletin distributed bythis association has been included in this article.

A careful review of the document, as well as the twowebsites listed within it, reminds us that the devil is in thedetails. One might question whether or not the financialrequirements listed are adequate to provide guaranteesthat would make your brokerage service truly competitivewith the offerings of large service providers.

While the true cost of entry may be somewhat higherthan the published numbers, entry into this field could bea profitable decision for many wholesale distributors andlogistics service providers.

Transportation

Interm ediaries HOW TO BECOME A BROKERAssociation

• Broker Authority – obtain through the Federal Motor CarrierSafety Administration (FMCSA) http://www.fmcsa.dot.gov/.Complete Form OP-1. There is a one-time $300 applicationfee. Forms are available in TIA’s New Broker Kit.

• Surety Bond or Trust Fund – obtained from a bank orbonding company. The cost varies depending on yourpersonal credit. You are required to carry a $10,000 bond ortrust. The form filed with this is BMC-84 or BMC-85. TIA Surety, the Broker Trust run by Brokers – to learn morego to http://www.tianet.org/surety.

• Processing Agent – All broker applicants must designate aprocess agent in each State in which offices are located and inwhich contracts will be written. Process agents who willaccept legal filings on applicant’s behalf are designated onFMCSA Form BOC-3. Form BOC-3 must be filed within 90days after the date notice of the application is published in theFMCSA Register. http://www.fmcsa.dot.gov/registration-licensing/licensing/agents.htm Contact Jack Rizer withAmerican Moving and Storage Association at 703-706-4975and let him know you were referred by TIA.

• Cash or credit. As a part of your initial start up costs, a brokermust have cash or available credit to pay carriers. Shippersmay not pay for services from 60 – 90 days.

While journalists and Wall Street continue to reportthat the country is recovering from the “great recession,”it is important to remember that this recovery has not beenaccompanied by rising employment. One out of 10 Amer-icans are unemployed, and it is safe to assume that the ma-jority of workers are as fearful as ever about the future.

This is both a problem and an opportunity for ware-housing leaders. Traditionally, warehousing has been alagging indicator, which means that 2010 might be a diffi-cult year. Even the best logistics service providers cannotcontrol the actions of their customers in reducing invento-ries and/or eliminating distribution locations.

At the same time, warehousing is a service that cannotbe exported. Although the manufacturer may move theproduction line to China, the distribution centers must beclose to the market. While there is no guarantee that logis-tics service providers will not face financial failure, thesurvival rate of the industry during the Great Depressionof the last century was better than that of the businesscommunity as a whole.

Communication is the best way to control fear. Whendid you last discuss economic conditions with the peopleworking in your warehouse? Do they have an accurate un-derstanding of your company’s condition and its futureprospects? In our March issue, we described how Franklin

Roosevelt functioned as a cheerleader during the darkdays of 1933 by communicating positively. In a series ofradio broadcasts known as fireside chats, Roosevelt main-tained public morale. Never since the 1930s have so manypeople been fearful about the future.

While you may not have Roosevelt’s eloquence, a se-ries of “fireside chats” with the people who work in yourorganization could have tangible value today. What haveyou done, and what will you do, to combat fear?

� � � � � � � � �

Join ALAN!American Logistics Aid Network, known by the acro-

nym ALAN, was formed in the aftermath of HurricaneKatrina. One of the lessons learned was that private com-panies were more effective than government in deliveringrelief. ALAN is a consortium of more than a dozen profes-sional and trade associations representing various logis-tics service and manufacturing companies..

Because ALAN has no budget for advertising or publicrelations, some people are not aware of its existence. Still,we are inspired by those individuals who have donatedsignificant energy and time to the development of the or-ganization. Unfortunately, there have been opportunitiessince Katrina for ALAN to be engaged in providing reliefafter severe weather incidents.

We have been involved in training programs for per-sonnel employed by The Federal Emergency Manage-ment Association. It is gratifying to know that FEMA ad-ministrators recognize the need for their employees to beeducated in the business of supply chain management. Wewere surprised to discover that most of the FEMA staffhad no knowledge of the activities of ALAN. You canlearn more about this important activity by visiting thewebsite at: www.alanaid.org.

MaintainingMorale

A New Way To FindWarehousing Services

Two trade associations, IARW and IWLA, have madeit easy to find warehouse service sources in various geo-graphical areas, by disseminating information about theirmembers. In addition, well-established sales service or-ganizations, such as Associated and Affiliated WarehouseCompanies, provide marketing information and consulta-tion to shippers. These sales groups have member compa-nies in all major cities.

A new approach, “TKO,” is a product of Armstrong &Associates. The acronym stands for Turn Key LogisticsOutsourcing Service. Armstrong has a database of severalhundred logistics service providers located worldwide,that are described in its annual “Who’s Who in Logistics”report. Included in the individual company reports is adepth of detail not published elsewhere. It includes grossand net revenues, the names of key executives, major cus-tomers, and details regarding size and scope of transporta-

tion, information technology and warehousing opera-tions. By delivering this information to a prospectivebuyer of logistics services, Armstrong is able to offer ad-vice unavailable from other sources.

� � � � � � � � �

Options In Piece PickingThe most expensive and the slowest element of most

warehouse operations is the picking of individual pieces.Four technology options exist. The low-tech alternative ispaper picking, or the use of a pick list to guide the selectorin finding the product for each order. The next step up isbar code scanning, which involves the use of a scannergun to verify that the correct product has been selected.While accuracy is improved, the pick rate often is thesame as paper picking. Pick to light is a system that allowsthe selector to read LED screens that verify the item andthe quantity on the appropriate gravity flow rack lane.While such systems are costly, they enable the operator totrain order pickers quickly, and to achieve a high pick ratetogether with high accuracy. Voice picking has a lowerpick rate than pick to light, but the capital investment isless, and the accuracy is comparable.

maintained by FMCSA. A $20 fee is charged for each car-rier inquiry.

It’s All About Financial ResponsibilityLynch observed that brokerage, like any other form of

outsourcing, always carries some risk. Particularly in to-day’s turbulent economy, the prudent buyer should takethese steps to control financial exposure:

■ Insist on inspecting audited financial statements,emphasizing the qualifications of the auditor.

■ Verify that bond coverage, if available, is adequateto cover the actual risk.

■ Determine the net worth of the broker, and con-sider a minimum net worth threshold.

The prudent buyer will keep financial due diligence atthe top of the list when qualifying potential freight bro-kers, or in fact any other logistics service provider. Fur-thermore, because financial stability can change, periodicreviews should be conducted throughout the relationship.

While most logistics service providers are sound,well-managed businesses, the occasional failures withinthe industry demonstrate the importance of thorough dili-gence in selecting a supplier.

Advantages In Using A Brokerage FirmButts emphasized the following features that may be

available through the use of a freight broker:

■ A broker can optimize freight expenditures, result-ing in a reduction of transportation costs.

■ Supplemental services offered such as claims han-dling, may allow the shipper to improve controlover the transportation function without addingnew employees.

■ Some brokers offer information systems to moni-tor transportation performance.

■ Because the broker optimizes loads and modes,those concerned with sustainability will recognizea greener transportation landscape.

■ Because brokerage is scalable, the prudent shippercan be lean in an uncertain economy, with the abil-ity to grow quickly as the market recovers.

■ A responsible freight broker has the expertise tomaintain compliance with local rules and regula-tions in a global environment.

Other Available ServicesSome freight brokers handle claims. A few even will

guarantee proper settlement of a legitimate claim. If thecarrier will not pay the claim, the broker will do so. Thebroker will also protect the carrier from improper claimsfrom a shipper.

Some brokers promise to assume other credit risks.While current federal regulations do not require the bro-ker to pay the carrier, a responsible broker will guaranteepayment, regardless of the actions of the shipper. In otherwords, the best brokers will protect both the shippers andthe carriers.

Freight brokers may offer to manage inbound transpor-tation, including vendor compliance, and the use of con-solidation and truckloads with stopoff features.

Others will analyze load and mode utilization. That in-cludes a comparison of the economics of parcel shipment,

LTL, and truckloads with stopoffs.

Going GlobalThere are special challenges in the handling of import

and export transportation. Larger firms in the brokeragebusiness are able to handle global forwarding, as well asintermodal shipments. Some large brokers have overseasoffices able to handle transportation in the countries inwhich they operate.

If you have located a new manufacturing source basedin a small village in the middle of China, how will youcontrol transportation from factory to destination? A bro-ker can be a key transportation resource in that situation.Furthermore, as a shrinking dollar creates new opportuni-ties to export, how does a company with no foreign tradeexperience find the most economical way to move prod-uct from the USA to destinations overseas?

As our economy continues to expand its global foot-print, the use of brokerage services for imports and ex-ports is likely to grow.

Would You Like To Jump In The Pool?Freight brokerage is known for its ease of entry. Many

logistics service providers have recognized that broker-age can be a profitable extension of their services portfo-lio. Transportation Intermediaries Association (TIA) rec-ognizes the growth of the industry, and publishes a guide-line for newcomers. The four-point bulletin distributed bythis association has been included in this article.

A careful review of the document, as well as the twowebsites listed within it, reminds us that the devil is in thedetails. One might question whether or not the financialrequirements listed are adequate to provide guaranteesthat would make your brokerage service truly competitivewith the offerings of large service providers.

While the true cost of entry may be somewhat higherthan the published numbers, entry into this field could bea profitable decision for many wholesale distributors andlogistics service providers.

Transportation

Interm ediaries HOW TO BECOME A BROKERAssociation

• Broker Authority – obtain through the Federal Motor CarrierSafety Administration (FMCSA) http://www.fmcsa.dot.gov/.Complete Form OP-1. There is a one-time $300 applicationfee. Forms are available in TIA’s New Broker Kit.

• Surety Bond or Trust Fund – obtained from a bank orbonding company. The cost varies depending on yourpersonal credit. You are required to carry a $10,000 bond ortrust. The form filed with this is BMC-84 or BMC-85. TIA Surety, the Broker Trust run by Brokers – to learn morego to http://www.tianet.org/surety.

• Processing Agent – All broker applicants must designate aprocess agent in each State in which offices are located and inwhich contracts will be written. Process agents who willaccept legal filings on applicant’s behalf are designated onFMCSA Form BOC-3. Form BOC-3 must be filed within 90days after the date notice of the application is published in theFMCSA Register. http://www.fmcsa.dot.gov/registration-licensing/licensing/agents.htm Contact Jack Rizer withAmerican Moving and Storage Association at 703-706-4975and let him know you were referred by TIA.

• Cash or credit. As a part of your initial start up costs, a brokermust have cash or available credit to pay carriers. Shippersmay not pay for services from 60 – 90 days.

VOLUME 25 • NUMBER 1 • dEcEMBER 2009

2009

VOLUME 25 • NUMBER 1 • DECEMBER 2009

Freight Brokerage –What The Warehouse Manager Needs To Know

Editor’s Note: The following individuals helped us develop

this topic: Cindy Amos of Transportation Intermediaries Asso-

ciation, attorney Marc Blubaugh of Benesch, Friedlander,

Coplan & Aronoff LLP, James Butts of CH Robinson World-

wide, Richard Hitchcock of BNSF Logistics, Cliff Lynch of C.

F. Lynch & Associates. KBA

A freight broker is a company, or individual, whoserves as a liaison between a buyer of transportation andone or more carriers. The popular vision of this occupa-tion was vividly described by Cliff Lynch: “All too often,the term freight broker conjures up visions of Joe Bobparked in a booth at the Flying Z truckstop with his cellphone, a pad and pencil, and a generous portion ofchicken-fried steak.” Joe Bob is sitting beside the “post-ing board” located in every truck stop looking for loads.

Many shippers have this instantly negative reaction tofreight brokerage. Reality is somewhat different. Trans-portation giants, such as BNSF Logistics, C.H. Robinsonand Schneider National realize a significant portion oftheir revenue from freight brokerage operations. Particu-larly when transportation is in short supply, freight bro-kers fill a pivotal role. Brokers provide an efficient distri-bution of transportation services, by matching the needsof shippers with the capabilities and capacities of carriers.

A broker often can locate transportation when the ship-per cannot, assisting a company experiencing a seasonalsurge. It also helps if the company has transportationequipment that is located in the wrong spot. Changes insupply chain can come about suddenly, and the brokerprovides the agility to handle the unexpected change.

As definitions are considered, it is important to distin-guish brokerage from forwarding. The freight forwardercreates a bill of lading, and frequently gathers and consol-idates freight. In effect, the forwarder becomes a shipper,but the broker typically does not.

Freight brokers are licensed by the Federal Motor Car-rier Safety Administration, a process that requires them topost a $10,000 performance bond. While we usually thinkof brokerage in connection with motor freight, the func-tion also exists with other modes of transportation. Airbrokerage is unregulated. The brokerage of marine trans-portation is known as NVOCC, non-vessel operatingcommon carrier.

The requirements for entry into brokerage remain un-changed since 1980. Some companies believe that therules should be more rigorous since the performance bondmeans less now than it did when established. Clearly, a$10,000 fee does not provide adequate protection for thenormal risks of today’s brokerage relationship, and itseems likely that the size of the bond will be increased.

Jim Butts observed that a broker should protect theshippers interest, while recognizing an equal obligation toprotect the carrier’s interest. Dick Hitchcock pointed outthat a responsible asset light carrier never will “give back”a load. If, a broker has committed to handle a load at afixed price and discovers that a higher price must be paidto secure an available carrier, he absorbs the loss ratherthan refuse the load.

Liability IssuesThe freight broker is responsible for exercising reason-

able care and diligence. Marc Blubaugh explained thatthe broker can be held liable for a careless decision inchoosing a carrier. Last spring, a multi-million dollarjudgment against a large broker was reported in the tradepress, due to a fatal accident involving the motor carrierselected to move a shipment. The broker denied liabilitybecause it did not control the carrier or its driver, or inde-pendent contractors. The driver had a suspended license,and falsified log books. The jury determined that the bro-ker should have conducted a thorough investigation of thesafety records available from FMCSA. In legal terms, thistheory is known as vicarious liability, meaning that the op-erator is liable for the acts of a third party, as if he werestanding in its shoes.

Protective StepsInsurance is available through a “contingent cargo lia-

bility” policy. Similar in concept to the warehousemen’slegal liability policy held by many public warehouses, akey feature of the coverage is the ability to have the insur-ance carrier handle legal defense.

In addition to insurance coverage, a trade group calledTransportation Intermediaries Association (TIA), is dedi-cated to maintaining a quality standard for freight brokersand forwarders.

Also, everyone can gain access to the safety records ofmotor carriers by accessing www.safersy.org, a service

The Art Of Supply Change ManagementBy J.C. Andraski, S.E. Fawcett, A.M. Fawcett, & G.M.Magnan, Supply Chain Management Review, No-vember 2009, pg. 16.

The authors explored the typical language used inresisting change; including these statements:

P We’ve never done it that way.P We are different.P Let me tell you why that won’t work here.

Learning loops are activities that drive learning tofacilitate change. They include these four common el-ements:

P Leaders communicate that continuous learn-ing is expected.

P They provide training in basic learning skills.P They allow people to use the skills success-

fully.P They measure and reward results.

� � � � � � � � �

The Innovator’s DNABy J. Dyer, H. Gregersen, C. Christensen, HarvardBusiness Review, December 2009, pg. 60.

The authors seek answers to these questions: Howdo I find innovative people? How can I become moreinnovative myself? They also identified five skillsnecessary for innovative thinking:

P Associating, or the process ofconnecting things

P QuestioningP ObservingP ExperimentingP Networking

� � � � � � � � �

What Would Peter Say?By Rosabeth Moss Kanter, Harvard Business Review,November 2009, pg. 65.

In her tribute to Peter Drucker, Dr. Kanter de-scribed three themes that are “essential Drucker.”

P Management should be a profession.P A manager’s primary job is to look out for the

long-term health of the organization.P Knowledge workers cannot be controlled.

They must be motivated.

� � � � � � � � �

What Ever Happened to DRP?By Deep Parekh, American Shipper, Aug. 09, pg. 24.

Distribution requirements planning was a highlyregarded logistics strategy a couple of decades ago.The author pointed out that the principles of DRP areas valid today as they were when it was first devel-oped. Like many developments that enjoy great popu-larity, DRP fell into disuse for no good reason. Theauthor makes the case for unearthing the remains andtrying again.

Pick This!By OPSdesign Consulting, published by WERC(Warehousing Education and Research Council),©2009, 89 pages.

The subtitle of this excellent reference work is, “Acompendium of piece-picking process alternatives.”All order selection procedures have the option ofpicking full units, cases or pieces. The piece pick alsois known as broken case or each pick. All of the alter-natives were explored in this article, itemizing the ad-vantages and disadvantages of each.

� � � � � � � � �

Power DownBy Peter Bradley, DC Velocity, Sept. 2009, pg. 36.

Green retrofits are one way of controlling energycosts in the distribution center. Installation of effi-cient lighting often is the quickest way to achieve sig-nificant reductions in energy costs. Any lightingsystem more than five years old probably is obsolete.The newest lighting and ballast systems offer signifi-cantly longer life, as well as a lower consumption ofelectricity. Ceiling fans offer a much lower cost alter-native to air-conditioning, and also reduce heatingcosts by moving warm air from the ceiling down tothe floor.

� � � � � � � � �

Nightmare Before ChristmasBy Andrea Harris, Focus, October 2009 page 38.

The author suggested that sudden increases in vol-ume associated with seasonal sales drives can reduceprofitability. Volume surges create a need for over-time, temporary labor, off-site storage, and premiumdelivery rates. Careful forecasting and planning re-duce the impact of seasonal surges. Distinguish be-tween your best customers and those you might behappy to lose. Then offer expedited service only tothe best. Buffer stocks and a carefully negotiatedoutsourced contract can reduce the impact of seasonalsurges.

� � � � � � � � �

A Smarter Way To Spend Your MoneyBy A. Dixit, CSCMP Supply Chain Quarterly, 3Q 2009,pg. 50.

The author proposed development of a spend man-agement strategy, and the implementation of a systemto review and control expenditures. Included in theprocess are visibility, analysis, study of alternatesources, and negotiation. It starts with determiningwhat is being spent, with whom, and for what. Whilethe article seems to be focused on large companies,some of the ideas are applicable to an enterprise of al-most any size.