Shippers, Carriers, and Consignees...you might be wondering who is who and who does what. Let's talk about the different market players in the trucking industry!
Who is considered a shipper?
A common misconception is that a shipper is the party that transports the freight. This is not true in the transportation industry. A shipper is the party where the freight originates, and the carrier is the party that transports the freight. It is important to note that the shipper is not always the customer (although it is the most common). A shipper who has their own trucks to haul their own freight could also be considered a private carrier. The most important thing to note is that a shipper is where the freight picks up from!
Who is considered a receiver/consignee?
The receiver (also known as the consignee) is the party that receives the freight. A consignee can also be the customer.
The shipper and receiver typically relate to the physical origin and destination of freight. When you hear the term ‘Origin and Destination Pairs’ (often referred to as OD Pairs) it is referring to the Origin (the shipper) and the Destination (the consignee/receiver).
Who is considered a customer in the transportation industry?
In the world of logistics, a customer can be a shipper or a consignee and a supplier or vendor can also be a shipper or a consignee. Some customers own their own equipment and can also be considered an ‘asset-based carrier’. And in this same confusing world, a transportation brokerage can hire a customer’s private fleet to ship freight from a supplier to another supplier that is not related to that customer's business if that customer has the appropriate operating authority. In layman's terms, a customer is typically the party who is paying the carrier or freight broker for the goods to be transported and sometimes this customer is the shipper, consignee, or neither.
Who is considered a carrier in the transportation industry?
A carrier is the party that transports freight on their own assets. A carrier can transport goods via land, sea, or air. While this is certainly a term you are familiar with it is an important term to clarify as it relates to the relationship that exists in the brokerage process. Brokers purchase the transportation services with carriers that they contract with. The carriers own the trucks, tractors, manage the drivers, and physically pick up and deliver the freight. A carrier can also sell their services to a direct customer (shipper/receiver).
What is a Freight Broker?
By definition, a freight broker is someone who coordinates transactions between a buyer and a seller for a commission or fee.
A freight broker is a person who maintains a license or operating authority that authorizes them to serve as an intermediary or middleman between shippers and carriers. Brokers are licensed, bonded, and insured.
Brokers use their resources to build relationships with shippers and carriers that provide value for all parties. Brokering is very much about connections. Brokers onboard carriers that they can work with on various routes and lanes for hauling a variety of freight. Vetting carriers for equipment, insurance, and qualifications can take a tremendous amount of effort and resources. Brokers negotiate prices and rates with shippers and motor carriers, respectfully. A freight broker develops the truck and trailer capacity that shippers need to get their freight from point A to point B, that is, from origin to destination. Brokers earn a commission for their services in the shipping process. It’s worth noting that freight brokers do not take possession of the freight. They coordinate with the shipper and carrier to make sure everything goes as smoothly as possible from pick up to delivery. Non-asset-based freight brokers do not own assets, such as trucks and trailers. They develop relationships with carriers and independent owners and operators to build freight capacity. This saves shippers time and money. Brokers are there to arrange the transportation of freight and oversee things from start to finish.
What is a Freight Agent? What is the difference between a Freight Broker and a Freight Agent?
A freight agent works as an independent contractor under a freight broker’s operating license to facilitate sales of logistics services for clients (shippers). For example, someone who does not want to get their own operating authority, surety bond, insurance, technology, etc., can work for an existing freight brokerage as an independent agent under the existing brokerage’s operating authority.
A freight agent model may appeal to an individual who aims to avoid risk and significant investment in an operating authority, bond, insurance, technology, etc.
Who is considered a dispatcher?
A dispatcher is typically hired by the carrier to help manage the administrative/communication role that a driver would be responsible for. A dispatcher may sign broker-carrier agreements and shipper-carrier agreements on behalf of the carrier. They may receive and sign rate confirmations, negotiate and agree to rates, and communicate with the broker or customer on behalf of the carrier. The primary role of a dispatcher is to find, book, and schedule loads for the truck(s)/driver(s) they are assigned to. Dispatchers will also monitor driver logs to maintain hours within HOS limits, plan routes, obtain necessary documentation/permits, and address any problems that can occur during the booking, planning, loading, unloading, and transporting of a shipment.
Many carriers hire in-house dispatchers, but there are dispatching firms that sell their services to many carriers. Some independent dispatchers work as independent contractors for small trucking companies or owner-operators. A dispatcher is not authorized to broker freight from a customer to another carrier they are not representing.
What is a factoring company in the transportation industry?
A factoring company is an entity that purchases another business’ unpaid invoices for a fee. The factoring company then becomes responsible for collecting payment from the customer. A factoring company can help a business improve cash flows (get paid much quicker). A factoring company may charge a flat fee for each invoice, or they may use a percentage-based system.
Why should a carrier work with a factoring company?
Considering that carriers have significant daily/weekly expenses (e.g., fuel), it is extremely important for them to have available funds as soon as possible. Direct customers typically have longer payment terms and freight brokers may also have payment terms that do not align with a carrier’s driver pay or expense structure. It is very common for carriers of all sizes to work with a factoring company for quicker pay terms to improve cash flow. Most factoring companies will pay immediately upon receiving the invoice from the carrier. It is important to note that factoring companies will not accept all invoices. This can depend on the amount of the invoice, the number of existing unpaid invoices, and the customer’s credit history or lack of credit history. The carrier will still have the option to work directly with the customer and take responsibility for collecting payment of an invoice not approved by the factoring company.
What is a freight forwarder?
A freight forwarder is like a freight broker, but the most significant difference is the freight forwarder takes possession of the goods. Freight forwarders have the operating authority to handle international shipments moving from country to country and offer customs clearance services. Freight forwarders will ship freight under their own bill of lading and may offer storage, assembly, and consolidation of goods. Freight forwarders typically do not transport the goods themselves, but hire carriers to move the goods either land, air, or sea.
Common industries that utilize freight forwarders due to their international shipping requirements include:
Pharmaceuticals
Manufacturing
E-commerce
Construction
Medical
What is a customs broker?
Customs brokers help importing and exporting businesses meet customs clearance requirements. They manage the transactions for “customs entry and admissibility of merchandise, product classification, customs valuation, payment of duties, taxes, or other charges such as refunds, rebates, and duty drawbacks.” A customs broker must be licensed by U.S. Customs and Border Protection.
What is a port authority?
A port authority is a state or local government entity that operates and manages ports and transportation infrastructure. Most port authorities are financially self-supporting through fees and taxes.
You can view an example of a port authority here.
What role does the government play in the transportation industry?
Federal, state, and local governments have a major impact on the operations of the transportation industry. Regulation changes can dramatically shift the financial and operational health of the industry. For example, the implementation of the ELD regulation in 2016 drastically impacted the trucking industry by requiring drivers to use an electronic logging device inside all commercial trucks operating more than 100 miles from their home base. Some drivers believed this regulation created less pressured driving and more leisure time, while others believed it led to more accidents, placed too many restrictions, and reduced their pay. All party members in the industry will quickly discover how intertwined the government is with everyday operations.
What role do Businesses/Consumers play in the transportation industry?
Businesses and consumers play the largest role in the demand for goods and the demand for goods controls the demand for transportation. The public is also capable of advocating for changes in the transportation industry, creating industry standards and expectations, and influencing the industry's reputation.
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Soshaul Logistics LLC and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. It is meant to serve as a guide and information only and Soshaul Logistics, LLC - Copyright 2023 - does not assume responsibility for any omissions, errors, or ambiguity contained herein. You should consult your own tax, legal and accounting advisors before engaging in any transaction or operation.
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