3PL v. Freight Broker: What’s the Difference?
In facilitating efficient management of your supply chain, choosing a transportation and logistics partner with right combination of services that fit your company needs is essential. Unfortunately, industry jargon breeds confusion. For example, 3PL (third-party logistics) and freight brokering are often spoken of as if interchangeable. They aren’t.
As our Cleveland 3PL experts can explain, there are some similarities, but also a few key differences. When you’re in the market for a logistics partner, those differences matter.
At On Time Delivery & Warehouse, we want clients to have the information and tools necessary to determine the best solutions for their operations.
What primarily sets 3PL services and freight brokers apart (as well as freight forwarders and motor carriers) is the range of services they provide (including whether they are asset or non-asset services) and the type of primary insurance coverage they carry. Much of this is spelled out by the Federal Motor Carrier Safety Administration (FMCSA), the regulator responsible for ensuring safety and legal compliance of over the road transportation.
What is a Freight Broker?
Freight brokers are individuals or entities that arrange for motor carrier transport of goods or property for a fee. The broker isn’t the one who actually transports the goods. They aren’t responsible for the property, nor do they own the equipment necessary to move it.
Being that freight brokers don’t own the assets themselves, their profit is gleaned from being a transactional agent. Through their connections, they buy and facilitate transport from mode-specific carriers, including truckload or less-than-truckload service providers, on behalf of their clients.
Another key point about freight brokers is the insurance coverage they offer in transport. Unlike motor carriers (those who own the trucks), brokers don’t provide cargo liability coverage. They may offer contingent coverage, but that will only kick in if the motor carrier’s coverage isn’t adequate to cover the losses. Wise freight brokers carry some form of insurance, but it’s not mandated by law so not all do. They can in some cases (depending on your contract) be held liable if a shipment is lost, stolen or damaged, but the contract could require the manufacturer or shipper to carry cargo insurance. These are points you’ll want clarified if you’re thinking of partnering with a freight broker.
By contrast, motor carriers own the assets required to move the goods, as well as carry the liability insurance coverage mandated by law.
If a freight broker fails to pay a carrier for a shipment moved on behalf of your business, your company may be stuck holding the bill. That’s why it’s important if you are contracting with a freight broker to work with one that has a solid reputation.
What is a 3PL (Third-Party Logistics Provider)?
A 3PL has the same operating authority of a freight broker under FMCSA terms. However, they do move freight for companies.
The primary difference is that a Cleveland 3PL like ours utilizes a much broader range of tools, services and technology compared to a freight broker. They can be asset services (like ours, as we own our own truck fleet) or non-asset providers, but instead of just moving materials, they also provide logistics services – for freight, warehousing or both.
Logistics providers also tend to have the most up-to-date track-and-trace technology necessary for supply chain transparency.
On Time Delivery and Warehouse offers these services, plus the value of a Container Freight Station and Customs exam site for consolidation and de-consolidation of both import and export freight.
What is a Freight Forwarder?
A freight forwarder is an individual or entity that offers transportation of goods for a fee, and also assembles and consolidates distribution operations of shipments.
A freight forwarder is responsible to transport products from the place it is received to the point of destination and can utilize transportation of rail, motor carriers and water carriers overseen by either the FMCSA or the Surface Transportation Board.
They may be responsible for holding the primary liability insurance coverage to move your goods if they are moving international freight in-house.
The Value of 3PL and Freight Broker Services
So why would anyone need to contract with a freight broker or logistics provider? Why not just go direct to the motor carrier?
The answer comes down to service and capacity. Most businesses don’t have relationships with hundreds of motor carriers necessary to ensure their supply chain is cost-effective and streamlined.
Having a trusted Cleveland 3PL, freight broker or freight forwarder available to help you navigate can be invaluable.
What are the definitions of motor carrier, broker and freight forwarder authorities? Nov. 11, 2017, FMCSA
More Blog Entries:
Cleveland 3PL Can Lower Client Liability Risk, July 30, 2019, Cleveland 3PL Provider Blog