Double brokering can be a shady practice in the logistics industry that occurs when shipment gets hauled by an unauthorized carrier that was not originally intended to carry the load. There are many different instances that double brokering can happen.
Double brokering can happen when there is a lack of communication or poor planning between the parties involved with getting the shipment to is desired location. It can also be used with malicious intent with the goal of leaving the financial impact on a carrier and not paying them for their services.
Double brokering should not be confused with co-brokering, which is legal, where multiple brokers or multiple carriers work together to get the load to it's destination.
When a shipper has a load that needs to be delivered, the shipping party will reach out to a freight broker. A freight broker is an entity that does not necessarily have the equipment to move the load themselves but has a relationship with carriers. The carriers have the equipment needed and can deliver the load to it's destination.
The freight broker will have a shipper-broker agreement with the shipping party and a broker-carrier agreement with the carrier. These will outline who will be involved in the entire process, payment terms, insurance etc.
The transportation industry is a highly competitive and low margin industry. With the price to ship cargo and freight rates changing daily, it is a fast paced environment where mistakes are easily made. Sometimes freight can unintentionally get double brokered, other times it can happen with malicious intent. Here are some examples of double brokering:
Example 1: A carrier takes on too much work
Sometimes when carriers are accepting loads, they might take on more than they can physically handle. They may run into conditions that they were not expecting or do not have the equipment available to move a load inside its time frame.
ABC freight LLC was contacted by his broker to take a load to Huntington, WV. The driver who was intended to take the load was caught in a snow storm out west and will not be back in time to make the pick-up and delivery. Instead of telling the broker about the situation he reaches out to his friend at XYZ transportation. XYZ transportation picks up the load pretending to be ABC freight and makes the delivery. ABC freight pays XYZ a cut under the table and no one is the wiser.
In a situation like this, a carrier might pass the load off to another carrier who is a friend or close contact who can take the load. This is a double brokering event. The new carrier (XYZ transportation) was not part of the original agreement and the shipper and broker is no longer aware of who has the freight. This carrier may not have been vetted or have the proper safety rating to even move the load. If the load is successfully delivered then there is no paperwork in place to get the new carrier (XYZ transportation) paid for the load or cover any of the expenses. ABC freight has done an illegal act that leaves everyone involved exposed to financial and reputation loss as well as exposing themselves to harsh penalties.
Properly notifying the broker and shipper and getting the proper authorizations could have made this a legitimate co-brokering situation. It is critical that everyone keeps communication channels open and everyone who is involved with a shipment on the same page.
Example 2: A broker doesn't have a broad network
Brokers who are unorganized or have trouble working with freight may not have the network of carriers available to move certain loads.
G2 Freight Management is a relatively new broker in the trucking space and has a shipper needing a flatbed to haul transformers to Texas. G2 freight mgmt doesn't have a network of carriers with flatbeds but instead of passing on the load and risk getting passed up for future loads they try to pass the load to United Freight Management without the shippers knowledge so they can stay in the loop. This exposes everyone to risk and bring on serious consequences.
Example 3: Illegitimate brokers or carriers committing fraud
The worst possible outcome with double brokering is intentionally passing a load to a carrier or owner/operator for less than the shipment rate in order to pocket the difference or not paying the carrier at all.
This type of situation is a huge risk to the unsuspecting carrier who may get caught paying for all of the expenses to deliver a load and never being paid for their work. This can quickly put a new carrier out of business or place them in other serious situations in the case of an accident.
Any situation where there are parties that are kept in the dark about how the load is getting handled can easily lead to double brokering. If a 3rd party is brought in that was not part of the original agreement it is most likely being double brokered.
The risk involved with double brokering are far and wide. Everyone who is involved with a load can be exposed even if they did not have any involvement in the process. The illegal act can also lead to even more serious consequences or imprisonment.
Most of the risk falls on the carrier. Operating in an industry with tight margins can make it difficult to recover from double brokering situation. If you are involved in one of these situations you can expect the following risk.
Reputational risk
Double brokering will instantly erode any trust with shippers, brokers or carriers. If you are discovered to be participating in double brokering then then FMCSA can step in an revoke your authority or blacklist you to other shippers, brokers or carriers.
Liability risk
The liability risk can be catastrophic. Double brokered loads will not be insured. If there is a claim or wreck that involves injury or death your insurance provider will not stand beside you or your company no matter how good the relationship. In a less serious event, carriers can also be held liable for any cargo that is rejected or damaged during transit.
Financial risk
For a carrier hauling a double brokered load they could be on the line for all of the expenses that occurred to deliver the load and not getting recouped when the broker disappears after getting paid by the shipper. This can be a serious impact for a small carrier.
Brokers and shippers can also be financially on the line and forced to pay twice if an illegitimate broker walks off with the payment when a carrier is not paid for their part in the delivery.
Making sure that you know who you are doing business with is the best way to avoid double brokering. Having constant communication with your shippers, brokers and carriers can build a trusting relationship and bring up any red flags that might occur.
Making sure that all of your paperwork contains all of the information of all of the parties involved is a good way of telling if you were double brokered. If BOLs have a different brokers or carriers name it is possible double brokering has occurred. In this situation you should stop everything and get it addressed and corrected before moving any further.
If you have been double brokered you should report the offender immediately to the FMCSA National Complaint Database and the TIA (Transportation Intermediaries Association)