Starting a Third Party Logistics Company: Developing a Carrier Network

When you are starting a third party logistics company, there are a lot of variables to consider. From freight broker software to drafting the operating agreement and more. But perhaps the most important is identifying the right people and companies to partner with to ensure your business is successful. It’s obvious that every broker or shipper ideally wants a carrier that delivers cargo on-time, at a reasonable price, and with very minimal damage. But as with most things in supply chain management, this is easier said than done. Developing a carrier network that meets all of your expectations can seem daunting, but with a little time and consistency, you’ll have the strong network you need to grow your business.

The following list will help you establish a valuable carrier network we all hope for.

1.Define Your Needs

Start by specifically defining what you need in a carrier. Create a document that outlines your current and forecasted needs.  Do you need an LTL carrier? Dry vans or refrigerated trailers? How much space is necessary? What are your expectations for updates from their staff and from their drivers? It’s important to get as specific and granular as possible from the start, because as your business grows and your customer’s demands evolve, so too will the complexities of your carrier network.

2. Conduct Thorough Research

Once you’ve mapped out your specific needs you can begin the in-depth research process. Start with a few simple Google searches and compile a list of vendors with specific notes for each.  You may also find referrals, listservs, and tradeshows useful research tools as well. You should also leverage referrals from industry contacts. If you know any carrier sales managers with 10+ years of experience they should know of reliable carriers in certain regions that over certain lanes, have certain inventory of trailers, or have certain reputations. Hiring an experienced carrier sales manager can be as good as vetting several carriers from a 3rd party source. If the carrier sales manager has good relationships, he will bring those into your business and can help you decide who’s most reliable for servicing your precious early customers.

3. Build & Maintain Good Relationships

Cultivating relationships is an essential part of owning and maintaining any successful business, but this is especially true for a logistics company. The very nature of a supply chain depends on strategic relationships and connections. Bad relationship management affects all areas of the supply chain and can easily impact performance. Which is why when you are developing a carrier network, it’s imperative that you establish good relationships from the get-go. Where do good relationships start? Honesty. When do good relationships turn ugly? Dishonesty. Whether it be human error on your part, the customer’s part or something is wrong due to weather related problems, the best way to keep good relationships with carriers is to be honest about them. Don’t assign blame or act like you’re Bobby Knight and the carrier is a redshirt freshman. Own up to mistakes and your carriers will appreciate the transparency with which you operate. Relationships are grown and destroyed with open and honest communication.

4. Listen & Establish Open Communication

This leads us to number 4 – The more available you are to discuss possible hiccups and listen to carriers’ feedback, the more opportunity you will have to improve.  With an open line of communication, it not only ensures the carriers are happy but it also allows you to make minor adjustments to routes and weights, ultimately improving efficiency. Try adding an automatic feedback email that goes out after a load has been delivered. You might be surprised with what the feedback is that comes through. It might be hard to hear at times, but what’s important is that you take this feedback and use it as an opportunity to improve things. Otherwise, who knows how long the problem may go on for!

5. Pay Invoices On-Time

Maintaining good standing with your carriers should be obvious, it’s a simple and easy way to show that you value their services. Paying invoices promptly strengthens your relationship with carriers and helps to instill loyalty among both parties. Dilligence with cash-flow management is essential in order to make on-time payment an all-the-time reality. Don’t take this for granted, as delay in payment or non payment at all can land you in hot water, and blacklisted by the carrier at the very least. Defaulting on invoices is one of the quickest ways to end up completely out of business.

6. Network with Carriers & Drivers

Networking with carriers and drivers is a great way to ensure you continue to build your carrier network. You can do this both in person and online. Utilize social platforms like LinkedIn and Facebook to reach out to new people, share ideas and inform them about your business. If you remain dedicated to doing this on a regular basis, you will undoubtedly create a web of good relationships. Spend a little time one line making LinkedIn connections or contributing to certain message boards. It’s not just a phones-to-ears business like it used to be.

7. Use Technology to Your Advantage

As you already know, data is relied on heavily in the supply chain industry. Shippers depend on carriers to provide accurate, real-time data on their shipments. Without them, it would make their job a lot more difficult. In the same light, shippers should be willing to use technology that is available to increase transparency and ensure smooth data transfers.

Building a solid network of carriers takes time, consistency and dedication.  Don’t expect miracles overnight. However, if you continue to stay invested in building good relationships and following the above recommendations, your network of carriers will expand.

How to Start a Logistics Brokerage: Setting Up Your Legal Entity

Learning how to start a logistics brokerage? If you think you can do it, you’re right. You just need some guidance on how to do it correctly. This is the first in a series of articles which will explain how to start a logistics company. We will try to leave no detail uncovered. From officially forming a business, to scaling your enterprise and building the business of your dreams.

First, are you looking to leave an existing logistics company, and did you have a non-compete?

How to start aSetting up your business as a legal entity.

There are many benefits to officially incorporating your business as a limited liability company (LLC). Those benefits include:

  • Protected assets. LLCs provide limited liability protection to their owners who are typically not personally liable for the business debts and liabilities of the LLC.
  • Pass-through taxation. LLCs generally don’t pay taxes at the business level. Any tax due is paid at the individual level.
  • Increased credibility. Showing you’re official will give you credibility with shippers, carriers and the entire industry. And credibility in freight brokerage is really important.
  • Limited compliance requirements. LLCs face fewer state-imposed annual requirements and ongoing formalities.
  • Flexible management structure. In an LLC, owners can establish any organizational structure agreed upon by the company owners.
  • Few restrictions. There are few restrictions on who can be an LLC owner or how many owners an LLC may have.

Source: http://www.bizfilings.com/learn/creating-llc.aspx

How to start a logistics brokerage: Selecting a business partner(s).

It’s not impossible for you to sell to customers and also broker the freight, but you might want to consider starting the business with a partner. This way, one can focus on getting customers, and the other can focus on finding carriers. But this way you both can work on getting customers when there are no loads to be covered in the earliest of days. If you want to figure this out later, you can form an LLC and then add in your partner(s) in the operating agreement.

More importantly, you may want to spend time with someone before deciding you could go into business with them. This is a big, big decision and not one that should be taken lightly. Be particularly careful of getting into business with a friend, or someone whom you like to hang out with. When things get tough, are they going to have the grit to grind through long days and “get shit done”, with you?

Before selecting a partner, spend some time being honest with yourself about your own strengths and weaknesses. What are you good at? What are you not good at? Do you have relationships that you can leverage to benefit the business? What do you have a lot of experience doing, and what do you want to get away from doing? Once you’ve determined your strengths and weaknesses, you will then be in better position to figure out what you need most in a business partner as you figure out how to start a logistics brokerage.

 

Create an operating agreement.

What is an operating agreement?

“an agreement among a limited liability company members governing the LLC’s business and members’ financial and managerial rights and duties. Many states in the United States require an LLC to have an operating agreement. LLCs operating without an operating agreement are governed by the state’s default rules contained in the relevant statue and developed through state court decisions.”

Source: https://en.wikipedia.org/wiki/Operating_agreement

You’re going to want an operating agreement that spells out the details of how things will work if you’re going to partner with someone to build your new business. The operating agreement will be used to define your organization’s operating terms and help protect your legal rights and responsibilities. Protecting yourself is imperative when learning how to start a logistics brokerage. Having a written record that outlines your company’s management policies and procedures will allow you to get down to business. Maybe most importantly, the operating agreement should spell out how you and your partner(s) will divide the profit.

There are many templates available if you Google “how to create an operating agreement”. Work with a good attorney to get things squared away. You want to know you haven’t left any stone unturned. Operating agreements can be tricky and may be written in “Legalese”. Again, you want to make sure a trained professional has walked you through every piece of language in the contract. If you’re strapped for cash, try LegalZoom. It’s about $160 for a 6-month subscription, which includes unlimited calls with an attorney.

 

Next: How to Start a Logistics Business: Structuring Your Operating Agreement

 

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