A freight broker, like any type of broker, serves as an intermediary between the buyer and seller. In this case, the seller is a carrier, transporting goods by road, rail, or sea. A freight forwarder provides actual services or “freight logistics,” which may include providing transportation of goods as well as providing the assembly and consolidation of shipments.
According to the Federal Motor Carrier Safety Administration (FMCSA) through the U.S. Department of Transportation, both Freight Brokers and Freight Forwarders are required to file a BMC- 84 or BMC-85, Surety Bonds or Trust Fund Agreements totaling 75,000 USD.[1. Federal Motor Carrier Safety Administration. (2015). Insurance Requirements. Retrieved from https://www.fmcsa.dot.gov/registration/insurance-requirements]
Both brokers and forwarders must be registered with the U.S. Federal Highway Administration but the legal requirements for registration vary. It is necessary for both brokers and forwarders to prove a performance bond or trust fund of 10,000 USD and to designate an agent to receive legal documents in each state where business is conducted while forwarders have the additional requirement of carrying cargo and liability insurance policies equal to at least the minimum coverage amounts as required for carriers. [2. Zias, Kerry. Demand Media. Freight Broker vs. Freight Forwarder. Retrieved from http://work.chron.com/freight-broker-vs-freight-forwarder-6435.html]
Freight Brokers have no legal responsibility for shipments. In fact, Freight Brokers are not listed on the Bill of Lading, the legal document between the shipper and carrier detailing the shipment. The Bill of Lading gives title of the particular shipment to a specified party and serves as a receipt of shipment when a good is delivered. [3. The Economic Times. Definition of ‘Bill of Lading.’ Retrieved from http://economictimes.indiatimes.com/definition/bill-of-lading] Freight Forwarders arrange the Bill of Lading which, is signed by their agent at the destination when the cargo is received.
Despite this, the intermediary role brokers play in connecting the shipper with a carrier and assisting in the price negotiation of the shipment is often viewed as invaluable. Freight Brokers are well-connected in the shipping industry and can help the buyer get the best price.
Breaking Down the Differences:
- Freight forwarders are responsible for the transportation of goods from the place of receipt to the final destination. Freight brokers outsource all transportation activities and are never actually in possession of the goods.
- Freight forwarders typically have a warehouse where cargo can be stored, assembled, and consolidated. Freight brokers can work out of of a small office or even operate remotely.
- Freight forwarders are on the Bill of Lading, which, serves as a receipt of shipment, and therefore require carrier insurance as they are liable for all goods described in the Bill of Lading. Freight brokers are not listed in this legal document.
- Freight forwarders have additional legal requirements for registration with the U.S. Federal Highway Administration including carrying cargo and liability insurance policies equal to at least the minimum coverage amounts as required for carriers.[4. TBS Factoring Service. (2015). Freight Forwarder vs Broker? Retrieved from http://www.tbsfactoring.com/news/freight-forwarder-vs-broker#sthash.0ht7T0Jk.dpuf]