Freight forwarders are often confused with freight brokers. However, there is a key difference, according to Entrepreneur.com: While both are in the business of arranging transportation for freight and cargo shipments and scheduling pickups and deliveries, freight forwarders usually take physical possession of the freight for a time, receiving and storing it in a warehouse until it can be forwarded to its final destination.
Licensing and Insurance
Because freight forwarding businesses often deal with a wide range of geographical locales and shipping methods, the first step in establishing the business is to obtain proper licensing in each country in which you’ll be operating. You will need licenses for each mode of shipping and transportation you plan to offer. In the U.S., you will also need to be licensed with various government agencies for shipping by land, air and sea. In addition to licensing, you will also need to purchase liability insurance to protect your business in the event that a shipment is damaged or lost in transport. If you forward freight overseas, you should also consider marine insurance, which is geared specifically toward international shipments, regardless of whether it is shipped by sea, land or air.
A freight forwarding business will have significant overhead costs that will need to be taken into account when crafting your business plan and applying for a business loan. In addition to the licensing fees and insurance costs, you will need to either purchase or rent a shipping warehouse for receiving, storing and shipping freight. You might also need to hire personnel to help with loading and unloading, as well as purchasing workers compensation insurance and, depending on where your business is located, disability insurance in case one of your employees is injured on the job. You’ll also need to invest in freight loading equipment such as forklifts, in addition to the more standard equipment needed to run an office.
Another thing your business will need is a system for keeping records required by the Code of Federal Regulations. You might choose to keep all of your records electronically, or keep a set of physical files on site. If choosing the former, you’ll need database software and enough server space to store records on every customer, every carrier and every shipment transaction for a period of three years. If you decide to keep physical files, you’ll need to plan for enough office space and file cabinets to accommodate a large number of files.
As an alternative to starting a freight forwarding business from the ground up, you might consider purchasing one that’s already established in order to save time and a significant amount of work. A business broker can help you track down such a business and guide you throughout the purchasing process. Another alternative is to purchase a freight forwarding franchise. Some large freight forwarding companies, such as Aramex and Pakmail, offer franchising opportunities that include training, equipment and resources to help you get up and running, often at a fraction of the cost of a start-up.