The world of logistics can be complicated and confusing!
Fortunately, if you are shipping freight or receiving freight, you aren’t required to know how everything works.
Every year, we review our insurance policies, and it’s that time of year again.
This forces us, as a business, to look at our activities and determine in what roles we act, because it can have a major impact on our insurance premiums.
I decided to write this blog so that in a year from now, when insurance review time rolls around, I can refresh my memory on our role in the industry.
Owens World Air, INC is classified as a freight forwarder according to the FMCSA (Federal Motor Carrier Safety Administration), but in reality, we often act as a carrier, sometimes as a broker, and even as a courier every now and then.
- Freight Forwarder: Creates waybills and house bills, books the shipment with the carrier(s), handles and or stores the freight, pays the carriers, bills the shipper or customer.
- Carrier: Transports freight on behalf of the customer, broker, freight forwarder. The carrier may take the freight from shipper to receiver, other carriers (ex: a trucking company drops at our warehouse and we drop it at an airlines), shipper to carrier, or carrier to receiver.
- Broker: We don’t touch the freight at all. For example, we arrange pickup at the shipper’s location by a third party trucking company and it is taken directly (or indirectly) to the receiver’s location.
- Courier: This would be if we picked up something (typically small things) and delivered it straight to the receiver, billing either the shipper or receiver.
For some reason, commercial auto insurance is more expensive for freight forwarders who operate their own (owned or leased) trucks (asset based freight forwarders).
A possible way to help this cost is to have a separate entity that only does the trucking. The freight forwarding entity would then hire the trucking (carrier) entity to transport the freight. The commercial auto insurance would be paid for by the trucking entity, being cheaper (hopefully).
Added costs would be licensing, registration, creation and other fees for the trucking entity, so the numbers need to be projected to verify insurance savings would out-weigh the other costs.
Other potential negatives:
Bookkeeping – the trucking entity would need to invoice and be paid for each shipment transported for the freight forwarding entity)
Customer Billing – in some cases, the trucking entity may be able to, want to, or should bill the customer directly instead of going through the freight forwarding entity. This could cause confusion for the customer.
Employees – who works for which entity? Do some people work for both? Health insurance?
Owners – who owns what, salaries vs profit share