These are two things that you are bound to come across when researching options for shipping freight. The term “middle-man” or those who act as an intermediary between the buyer and the seller can sometimes have a negative connotation. But in shipping, there are very good reasons for having those in the middle who can wade through the difficulties involved with transportation of huge amounts of goods and services.
A freight broker is just what you would imagine when thinking of the word broker. They bring together a buyer of services and a seller of services. In this case the person or company that needs shipping services is buying (even though they may be selling a product, they are purchasing a service – namely, shipping – in order to sell it). The seller is the carrier, often a trucking company.
Freight brokers have the expertise, the contacts, and the knowledge to initiate this buy and sell transaction. They negotiate with the parties and initiate the terms. They may be a single person, in theory, even running it out of a home office.
A freight forwarder does much of what a freight broker does, but with additional benefits and services. They assemble, disassemble, or consolidate shipments so they are sent in the most efficient manner. Because of this, they are bound to be more than just a single person working out of a small office. They require more logistical capital to make it work.
There are also considerable legal differences between the two. Although both are legal and legitimate services, freight forwarders have a statutory freight claims liability, which means they are liable and responsible if something goes wrong with the freight. Under the law, they are considered a Common Carrier and are required to have this additional insurance. Freight brokers can get that additional liability coverage, but they are not required to have it. And since it usually costs twice as much as contingent coverage, they often do not have that additional insurance. Contingent coverage does not benefit the shipper, but is insurance for the broker. Freight forwarders have more comprehensive cargo insurance and have much more incentive, if there is a claim, to represent the shipper and his or her best interests. This is a significant difference. For many people and companies, it is a deciding factor on which type of service to use. Since these are inherently bulk and costly shipments, liability can be a major factor.