At Advanced Commercial Capital, we’re proud of the reputation we’ve been able to earn over the years as an industry leader in terms of factoring for trucking companies. With over 100 years of combined experience, our team wants to become a partner in every sense of the term – one that is every bit as invested in the ongoing success of your business as you are.
In addition to helping with things like common truck factoring rates, we also want to help shed light on topics that are important to the industry. Case in point: double brokering. What is it, is it considered illegal, and how could it potentially harm your company negatively moving forward? The answers to those questions require you to keep several key things in mind.
What is Double Brokering?
At its core, it is a practice that involves a shipper who provides freight to a freight broker under the assumption that said broker will then pass the freight along to a carrier, who will then haul everything to where it needs to go. What can happen, however, is that the broker passes the freight onto a carrier then who re-brokers the freight, either on their own or through another broker, without informing the shipper or getting permission to do this in any way. Depending on the complexity of the situation, double brokering can involve two, three, or more carriers and brokers at a time.
Part of what makes this such a bad situation has to do with what is largely considered to be criminal intent. Yes, it’s entirely possible that a carrier may mistakenly assign a shipment to multiple brokers due to an “innocent mistake” or “misunderstanding.” But more often than not, a load is accepted by a company that has no intention of actually hauling it. Instead, they find another trucking company willing to do the job at a lower rate than their contracted rate, allowing them to keep the difference, or worse, not pay the hauling carrier at all.
Note that this is not the same thing as co-brokering. This, too, is a situation where multiple brokers are involved in the transportation of freight. However, the fee for the entire task is split among all parties involved in a way that they all A) know about, and B) have agreed upon.
Is Double Brokering Illegal?
The answer to this question largely depends on the form of double brokering that you’re dealing with.
Due to many of the reasons outlined below, acting as an intermediary for a load without criminal intent isn’t expressly illegal – however, it is highly frowned upon and it is definitely not recommended by any legitimate company.
The type of double-dealing that is illegal, on the other hand, involves a situation where a broker or carrier accepts payment for a shipment, then fails to provide any type of payment to the carrier that actually hauled the freight.
This type of deal in particular is considered to be “theft of services” and can lead to not only significant fines but potentially jail time as well.
Engaging in the act of accepting payment for a shipment and then failing to provide compensation to the carrier who transported the freight where all parties involved do end up getting paid is not technically illegal. However, virtually everyone disapproves of it, and with good reason.
How to Avoid Being Double-Crossed by a Double Broker
- Perform due diligence on all brokers. Call to check the credit of brokers. Look for variations in broker name, location, contact information, and billing information. Often these fraudulent brokers alter the documents they receive from actual carriers to convince victims that they are a part of a legitimate company.
- Verify a carrier’s information with their Department of Transportation registration. If the phone number and address don’t match the information you’re given, that’s a big red flag.
- Double check the broker’s rate. Use common sense and apply the old adage, “if it sounds too good to be true, it probably is.” A scammer posing as a carrier may accept a load for much less than the going rate to entice a broker into taking the deal. Or, a scammer may offer a carrier more money than originally offered by a broker to take advantage of someone who needs a quick payday.
- Be aware of timing. Deals posted late in the week or at the end of the day are frequently made by fraudulent brokers. Why? Because they’re preying on truckers’ worries over not being able to schedule a load by a certain time. And anytime a broker seems in a rush to get you to agree, you should also be wary.
- Check their Authority to Operate. Search FMCSA’s Safer and Fitness Electronic Records system website, https://safer.fmcsa.dot.gov/ to make sure the DOT/MC authority to operate number matches with what the carrier has submitted
How Does Double Brokering Hurt a Company?
Double brokering can hurt the original company shipping the freight primarily because they’re losing visibility into what is already an inherently flexible process. Their goods have changed hands to the point where they are no longer aware of who is in possession of it or who is responsible for seeing them through to their intended destination.
From their perspective, this could lead to shipments that are significantly delayed with no real explanation as to why. This could also result in delayed or even missed payments from their own clients and vendors as well – causing major cash flow issues in a situation where they probably can’t afford to deal with such a problem.
Dangers of Double Brokering
All told, this practice is dangerous in a number of different ways, both literally and figuratively.
Legal Liability
Perhaps the most pressing risk of engaging in such conduct is the potential for legal responsibility. If a carrier is in possession of double-brokered freight and gets into an accident, for example, virtually no insurance company will approve a claim that has been made due to the circumstances. This is true regardless of your pre-existing relationship with that provider.
Financial Loss
Financial loss is a major risk that can arise when there is a breach of trust between parties involved in transportation arrangements.
Whether a carrier knowingly or unknowingly accepts a load that has been double-brokered, there is a high chance that they might not actually be paid once the job is done. Even if there is no criminal intent on behalf of the company doing the double brokering, this could still happen. If the company receiving the freight files a dispute due to goods having been damaged in transit or delivered late, for example, at best it will significantly delay that carrier’s ability to get paid, and at worst they won’t see any money for the job at all.
This is if they aren’t inadvertently dealing with a fraudulent broker who simply disappears after the freight has changed hands.
Service Quality
Naturally, a major danger of double brokering has to do with a significantly diminished service quality. The more parties are involved in shipping, the more opportunity there is for something to go wrong. Likewise, from the point of view of the original company doing the shipping, just because you trust the first company doesn’t mean that you can trust whoever they end up double brokering your freight to. You have no idea of this company’s reputation or credentials – if you’re even aware that they’re in the mix at all.
Reputation
Finally, double brokering comes with significant reputational risks for all involved. Because this practice is, at the very least, frowned upon (and often illegal as outlined above), it could lead to the potential cancellation of a company’s FMCSA authority or it could have them entirely blacklisted with reputable organizations like shippers and other brokers in the industry.
If you’d like to find out more information about the inherent dangers of double brokering, or if you have any additional questions that you’d like to get more specific answers to while talking to an expert, please don’t hesitate to contact the team at Advanced Commercial Capital today.