Even if they have a "voice combination of Fergie and Jesus", don't fall into their double-brokering trap! Double brokering is the unauthorized transfer of a load from one brokerage to another brokerage or from a motor carrier to another carrier. Let's talk about it!
A freight broker is an intermediary (aka middleman) between shippers and carriers. Freight brokerages are third-party logistics providers (3PLs) that typically don’t own the assets – the trucks and trailers – used to move their customer’s freight.
Shippers work with freight brokers to be a single point of contact in finding carrier capacity to haul a shipper’s freight.
Carriers work with freight brokers to help locate good freight to haul, identify better routes, reduce deadhead miles, lower operating costs, and ideally get better rates.
There are instances when multiple freight brokers or brokerages need to work together to get the job done. For example, one brokerage may have access to the right freight, while another brokerage may have access to the right carrier that can move the freight efficiently and effectively from origin to destination. This type of coordination between multiple brokerages is actually legal and commonly referred to as co-brokering.
There are other situations that amount to something called double brokering, which is not exactly ethical nor is it exactly legal.
What is double brokering? Is double brokering legal?
Double brokering is the unauthorized transfer of a load from one brokerage to another brokerage or from a motor carrier to another carrier.
Double brokering occurs when one freight brokerage works with a shipper and is tendered a load but then knowingly or unknowingly hands the load over to a different freight brokerage without the knowledge or approval of the shipper. Sometimes the initial freight brokerage is duped by a shady freight brokerage passing themselves off as a carrier, taking the freight, taking a cut of the revenue, and subbing it out to another carrier. This amounts to fraudulent activity and likely a breach of contract. It could stretch even further and become an illegal act when the carrier that completes the job is not paid by the second brokerage or the entity that initially posed as a carrier.
There are similar instances where a motor carrier accepts the freight and then sub-contracts it out and essentially brokers the load to another carrier. The latter is brokering without a license or authority, which is illegal.
In short, double brokering occurs when a:
Brokerage gives a load to another brokerage without the shipper’s consent, and sometimes without the original brokerage's consent because the second brokerage posed as a motor carrier. The entity accepts the brokered load as the carrier and then tenders that load to another carrier without the original brokerage’s knowledge or consent.
Carrier accepts a load from a brokerage claiming that it plans to use its own assets and the carrier (or its dispatch service) essentially re-brokers the load by tendering it to another carrier without the brokerage’s consent or the shipper’s consent. In these instances, the freight has been double-brokered.
For double brokering to be legal, or on the up-and-up, the shipper must consent to the arrangement and the carrier placed on the load must also be aware of the details and the active carrier must also be paid.
It’s illegal or a breach of contract when the shipper stipulates that its loads are not to be re-brokered and the load or loads are re-brokered.
What are the benefits and risks of double brokering?
There are no benefits to deliberate double-brokering.
And there is no doubt that double-brokering is loaded with risk. All it really has to offer is an unnecessary and undue risk.
The shipper and original broker lose all visibility and control of the freight. They have no idea about the authority and quality of the carrier that is put on the load. The carrier’s safety and service record are suspect at best. Insurance coverage is a complete unknown. Tracking and tracing the load is complicated by not having direct contact with the actual carrier. Any communications will either be delayed or falsified. In short, the processes of coordinating and transporting the freight become a big question mark.
Delivery becomes a question mark. The potential for theft increases. On top of all that, pay becomes a big question mark. The carrier that ends up hauling the load might not get paid. The original broker could end up paying the brokerage that was pretending to be a carrier and they might not pay the carrier that hauled the load. If the brokerage/fake carrier fails to pay the carrier that actually hauled the load, then the initial brokerage or the shipper could end up having to pay again for the same load.
You (the carrier) could end up not getting paid, or you (the original broker or shipper) could end up having to pay twice.
Carriers should be suspicious that double-brokered loads won’t pay as well or won’t pay at all. Carriers should worry that communication will not be clear or that it won’t be with the original broker who’s responsible for the load.
Carriers need to be aware that without proper consent and authorization from the shipper, the act of co-brokering drifts into the realm of double brokering. This comes with some serious consequences, including financial loss, losing authority, lawsuits, and/or imprisonment. It’s simply not worth the risk.
How to avoid double brokering?
Before conducting business with another broker, or with any broker or carrier for that matter, you should do your research and get to know the different partners you’re thinking about working with. Take whatever steps necessary to qualify and vet brokerages:
How long has the brokerage been operating?
How many employees does the brokerage have?
What does their credit score look like?
Does the phone number match up with what’s listed on the FMCSA’s website?
Are they known for not paying or not paying on time?
How many loads do they broker per year?
What area of specialization or expertise do they have?
How often do they engage in co-brokering?
What does the brokerage think about double-brokering?
What steps do they take to prevent double-brokering from happening?
It makes sense that brokerages need to do the same in terms of qualifying and vetting carriers.
The bill of lading (BOL) requires signatures from the shipper, carrier, and consignee to be valid. As an extra layer of protection and to help make sure the right carrier gets paid, the driver should also write the company’s name (carrier’s name) and MC number below the driver’s signature. The original freight broker will need to see proof of delivery and receive a copy of the BOL before paying the carrier invoice. If the carrier’s MC number and name of the trucking company don’t match what the original broker has on record, then the broker can investigate the matter and contact the actual carrier to make payment. Some carriers use stamps with their name and MC number when they sign and validate bills of lading because it makes it easier to identify that they were the actual carrier on the load. Plus, it makes it more difficult for double brokers to operate and go undetected.
If it smells like double-brokering, then odds are good that it is double-brokering. Avoid it where you can.
What is co-brokering? How is it different from double brokering? Is co-brokering legal?
Again, co-brokering is straightforward. It’s when a licensed freight brokerage accepts a load from a client or customer (i.e., a shipper) and then works with another brokerage to arrange transportation of the freight using its carrier network. Is this legal? Yes! What is key in all of this, making it different from double-brokering, is transparency and communication. Everyone – particularly the shipper – is kept in the know and are well aware of the parties involved and who is responsible for what.
PROTIP – Some shipper-broker agreements prohibit co-brokering. To play it safe, shipper-broker agreements and broker-carrier agreements should contain language that says any load or any freight handed off to another broker or carrier requires shipper consent.
What are the benefits of co-brokering?
The obvious benefit of co-brokering is that the load gets covered. It follows that the customer will be satisfied with the experience. It leverages the expertise of another brokerage when resources are limited and things might be coming up short. Some brokerages specialize in things such as equipment, oversized loads, or border crossings, for example. The original brokerage avoids having to give back the load or decline the load. It saves face. Everything is handled using the best service available. Everyone should come out ahead as a result.
PROTIP – As a carrier, you can assign a brokered load to an owner-operator who is legally operating under your motor carrier authority, as if you hauled it on one of your own assets or trucks.
If you’re seeing double (-brokering), say something. Report it. Double brokering is unethical, illegal, and simply not worth the risk. Do everything that you can to protect yourself and protect your business.
Co-brokering makes sense when better capabilities are available and can be coordinated and leveraged. It provides a wider range of service offerings with greater flexibility when facing challenging situations. Again, everyone involved comes out ahead by providing the best customer service and hitting revenue targets. It’s worth noting that co-brokering contracts do exist that specify the role of each party involved.
Get to know the market players or the key major players you’re working with. Vet and qualify your partners.
More importantly, know that shipper consent is key. If you are taking on another broker’s load or passing your loads on to someone else, you must make certain that the shipper is aware and agrees to everything in writing. Brokers and carriers must notify all parties involved and receive proper approval and authorization from the shipper to co-broker and transfer loads to another company or else you’ll be engaging in the unethical, if not illegal, act of double brokering. Complete transparency and full communication are a must. Anything less is not worth the risk.
Even if they ask to "play the drum set" or "do karate in the garage" (sarcasm), don't fall for the fake friendship or BS brotherhood offered up in some double-brokering scheme.
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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.