One of the most controversial issues that you’ll get to know more thoroughly in freight broker training school is double brokering—a grey area where freight brokers, motor carriers and shippers have conflicting stances.
A shipper trusts the broker to find a trustworthy carrier to deliver their cargo to the consignee safely and promptly but how the other players accomplish this at the root of the disagreements.
Double Brokering and Co-Brokering: Definitions
Co-brokering, according to most industry experts, is the legal option of the two practices. In this setting, a licensed property broker agrees to move a load for a shipper and asks another licensed freight broker’s help in finding transportation for the cargo. Co-brokering usually happens when the second broker has the expertise and experience that the original broker doesn’t have in moving the load.
It’s a matter of not turning away a business opportunity when there are resources available to move that load, just not strictly by your own brokering outfit. This arrangement is possible as long as the first broker’s contract with the shipper does not specifically forbid co-brokering.
Double brokering, on the other hand, is the practice that’s fraught with risks. Here, the freight broker and the motor carrier agree to move a load…and then the trucker promptly brokers the load to another carrier to transport without (or even with) the original broker’s consent or knowledge. The original carrier may pass on the load as a trucker or through its own brokerage firm. The chain of custody becomes murky and the shipper and consignee may be left holding an empty bag once the smoke clears.
When the freight broker is unaware of its motor carrier’s actions, several things are happening at once:
- It’s unclear who’s handling the freight;
- The second motor carrier may not have the appropriate license to move the load;
- The actual carrier may not have the financial coverage to cover the liability if things go wrong;
- The original carrier may not have done a thorough due diligence check on the actual carrier; and
- It becomes difficult finding out who’s accountable for the cargo—the freight broker, the original motor carrier or the actual carrier who delivered the load.
The Risks of Double Brokering for Freight Brokers
In co-brokering, all the parties are aware, in writing, of their responsibilities with regards to each other, to the shipper and to the shipment. Ascribing liability when things go wrong, even in legal proceedings, is more or less straightforward.
As you can see above, following the chain of custody for the shipment becomes tricky in doubly brokered shipments. Ideally, when a double brokering occurs, the party who obtained the services of the second carrier should be the one accountable for the actions of its mover(s). If the freight broker was careful in doing background checks on the carrier but still didn’t catch the double brokering, then s/he may be protected from damages.
It isn’t the same though if the freight broker was aware of the carrier’s frequent double brokering practice and still ignored it. This assumes that (1) the broker knew of the substitution and didn’t evaluate the second carrier’s safety and reliability record or even, (2) the broker didn’t know which carrier has the actual custody of the load. When this happens, the freight broker can be charged with irresponsibility and become liable for damages borne by the shipper when something bad happens to the freight.
Another risk worth mentioning is the fact that the original carrier who passed on the shipment may not pay the actual carrier for moving the load. In this instance, you as the freight broker may end up paying twice—the original carrier and the actual carrier—for the service.
Protecting Yourself with Due Diligence
When a freight broker agrees to be responsible for a shipment, the shipper assumes that the broker has conducted due diligence in sourcing his/her carrier and that they have the integrity to get that load delivered.
With the perils inherent in double brokering, freight brokers have to exercise prudence and caution when arranging transport for the shipments they’re responsible for to make sure the shipper’s assets are safe.
Note though that co-brokering is not without its vulnerabilities. Some freight brokers ended up working with fly-by-night brokers whose bait-and-switch modus operandi left respectable brokerage firms high and dry. They hype up their services, enter into co-brokering agreements, pass off the load to another carrier and when they get paid, they disappear off the face of the earth without paying their carriers. The original broker ends up paying and if it’s a small operation, they could end up seriously hobbled with major losses.
Due diligence—making sure you investigate the other party’s background, experience and capabilities thoroughly—can go a long way to ensuring you’re protected from liabilities. Here are some ways to do it:
- Double-check safety ratings, registration, safety scores, FMCSA inspections, and insurance filings before entering into a contract of carriage.
- Conduct credit checks to make sure the carrier can guarantee the liability.
- Ask for and follow up references given.
- Be clear in defining obligations and responsibilities in co-brokering agreements.
- Include a clause against unauthorized double brokering and the penalties associated with it in the contract of carriage.
- Make sure that carriers are moving loads under their own authority and that you have access to their records to prove it.
- Maintain direct communication with the drivers while the load is in transit.
Once you accept responsibility for a load, you’re liable for what your agents (and their agents) do and fail to do. A freight broker’s business viability is dependent on keeping your shippers’ trust and confidence. Once broken—and frequently—it’s a matter of time before you’re shuttering your freight brokerage business altogether. And that is something that you don’t need to go to freight broker training school to know.