Double brokering and co-brokering are both terms used in the freight industry. Between co-brokering vs double brokering, one is legal and the other not-so-much (and fraught with issues).
What does double brokering mean and is double brokering illegal?
Double brokering - in trucking typically - occurs in the following transactions:
- A legitimate carrier that does not have a freight brokerage license contracts with a shipper to move a shipment. But instead of moving the shipment on their trucks they (unbeknownst to the shipper) subcontract the business to a broker.
- The carrier’s motor carrier cargo insurance does not cover cargo loss. So in a case where there is a loss/damage claim, there is no policy to cover shipment.
- A shipper contracts with a person(s) fraudulently representing themselves as a broker. The illegal broker then subcontracts the shipment to another broker or carrier.
Both of the above situations constitute double brokering of freight, an illegal practice that brings with it many issues.
What does co-brokering freight entail?
Co-brokering, on the other hand, can be positive and beneficial. It is an arrangement in which all parties in a freight movement are transparent and communicative. They work together to ensure the successful movement of a shipment by pooling their resources and expertise.
In a co-brokering situation, the shipper is aware of and agrees to use multiple brokers - who split the commission. A key benefit of co-brokering is that brokers can help provide a higher value to their clients and carriers. This occurs by taking advantage of each others’ strengths to build a more efficient and effective freight network.
Problems encountered with double-brokering
As indicated earlier, double brokering freight can lead to a number of problems and complications. These become issues for all parties, including the shipper, carrier and broker. Problems associated with double brokering schemes include:
Payment Issues
A fraudulent broker's end goal is to receive payment from the shipper and never pay the carrier.
The carrier/broker can collect the charges if not paid in the transaction - even if the shipper paid the fraudulent broker. In other words, the shipper is often left paying double.
Liability Issues
Double brokering can create confusion about who is responsible for the shipment. Quite often, there is zero coverage because the secondary broker does not have proper authority that provides legally binding coverage.
Lack of Transparency
Double brokering often involves a lack of transparency and communication between the parties involved. This can lead to confusion, delays and other complications that could even include stealing the shipment.
That lack of transparency is the goal in a fraudulent broker situation. And if communication is difficult or non-existent, it's a red flag to watch for in shippers' relationships with brokers.
Legality Issues
Double brokering may be done by an individual or asset carrier. The key distinction is the lack of a Federal Motor Carrier Safety Administration (FMCSA) freight broker operating license. In this scenario, the contract between the original broker or assumed broker is not legal. And that means it does not carry with it the cargo and liability insurance a legally brokered shipment includes.
Risk of Fraud
In some cases, double brokering can be used as a cover for fraudulent activity beyond lack of payment. There are times the end goal in an illegal double brokering situation is to steal the shipment in its entirety. However, cargo theft is often not the end goal in a fraudulent double brokered load. That's because the stakes are much higher and law enforcement can more easily pursue stolen products.
How to avoid double brokering
Too often when we hear of a double broker situation it occurs because people are in a hurry. Our number one recommendation to avoid double brokering then, is to slow the decision process down. Perform thorough due diligence on the freight provider you've tasked to haul the freight for your company.
Below are some of the recommended checks in conducting your due diligence.
Work with Reputable Brokers
Choose a broker with a known good reputation in the industry and do a background check. Investigate their credentials, certifications, and references including the FMCSA - double brokering can often be snuffed out this way, right away.
Talk with colleagues to find who they would recommend so you are led to reputable brokers. Avoid being caught off guard in desperation to cover the critical load of the day. Again, take your time rather than making an ill-advised move in haste.
Use Contracts
Use written contracts that clearly define the terms and conditions of the transaction, including payment, liability, and carrier selection. Ensure that the contract prohibits double brokering.
As part of the contract process, do a credit check on the broker you're proposing to work with on your business. Use Dun & Bradstreet and similar tools in the credit score review.
Verify Credentials
Verify that the carrier selected by the broker is properly licensed, insured, and bonded - with a solid safety rating. This is less than a five minute task to flag double brokering through the FMCSA portal.
Validate the Broker’s Email Address
Another simple check is to validate the email the broker is using. If it does not match the website of the company they are representing, then move on because they are fraudulent.
The email of a bad player could be just one character off from the legitimate broker's address. Or they could modify the website extension by adding a “-.” Some examples of the extensions include: -sales, -ops, -corp, -usa, etc.
Track the Shipment
Use a tracking system to monitor the shipment from pickup to delivery. This can help identify any unauthorized or unexpected stops along the way early in the process. If one occurs, shippers can potentially report their double brokering suspicion while the fraudulent load is still under shipment.
Communicate with the Broker
Maintain regular communication with the broker to ensure they are meeting their obligations and that the shipment is moving as expected. Again, if communication and transparency is a challenge, it's a red flag.
Check the Broker’s Relationship with the TIA
The TIA (Transportation Intermediaries Association) has taken several steps to combat double brokering. Among those is developing a code of ethics for its members that includes a prohibition against double brokering. TIA also offers training and education for members on how to avoid double brokering and how to recognize and report it.
In addition, TIA has worked with the FMCSA to develop regulations that address double brokering and other unethical freight industry practices. TIA has also advocated for stronger enforcement of these regulations and for harsher penalties like going to jail for double brokering.
The TIA is committed to promoting ethical business practices in the freight industry - protecting the interests of shippers, carriers and brokers.
Conduct Audits
Regularly audit the broker's performance to ensure they are complying with the terms of the contract and industry regulations.
By taking these steps, shippers can help ensure a smooth and successful transaction with a greatly reduced risk of double brokering.
Fraudulent buyers and shippers
Before closing out this topic, there is one more fraudulent activity on the rise. Be on the lookout for scenarios in which a person represents themselves as a buyer for various commodities.
In these cases, the fraudulent buyer contacts a shipper to buy goods. After passing through a fraudulent credit application, the purchase is made. The fraudulent buyer then contracts a broker or carrier to pick up and deliver the product.
When the fraudulent buyer is successful, both the shipper and broker are out money, as neither will be paid. The shipper is out much more though, as these thefts involve high value products often shipped and re-sold overseas.
Conclusion
Illegal double brokering is on the rise and something logistics pros should be aware of to better protect their businesses. A recent article from Transport Topics on double brokering said there have been 80,000 double brokering complaints since 2012. The article quoted an executive from Truckstop citing a 400% increase in complaints from trucking companies the past two quarters.
And remember not to confuse double brokering with cobrokering, which is not illegal and actually can be quite beneficial.
If you're looking for help avoiding double brokering with your freight and logistics operations, let us know. Fill out our brief Request a Quote form, and we'll follow up to discuss your unique shipping needs. For more information about this or other freight topics, visit our Freight Guides page.
