Double brokering is a particularly controversial aspect of transportation logistics that is hotly debated.
Some advocates call this practice co-brokering, which is technically legal and usually involves the consent of the original shipper. But when this practice is conducted without the knowledge of the shipper in order to increase profits, this practice is called double brokering.
So what is double brokering, and why is it a problem? Double brokering is when a freight broker accepts a shipment and passes it off to another freight broker rather than a motor carrier. This process opens up the original shipper to liabilities they did not agree to even if their chosen broker had brokerage authority to pass the cargo on.
Double brokering can be avoided by motor carriers who also operate as freight brokers by not taking on more freight for their personal fleet than they can take on without having to offload it on other carriers.
If cargo is going to be handed off to another broker, it needs to be done with the original shipper’s consent for the deal to be legit. Double brokering is illegal as well as unethical. Read on to find out more about double-brokering, why it should be avoided by ethical freight handlers, and how you can avoid it.
What Is Double Brokering?
Double brokering comes about when a broker conspires to pass their freight off to another broker rather than the carrier themselves. In some cases, this is simply a case of sloppy or complicated business. In others, it can be a deliberate scam designed to steal a carrier’s pay.
There is also a process of brokerage called co-brokering, but this process is slightly different than double brokering even though it has the same complexities involved. Co-brokering involves two brokers working together to assign a carrier and splitting the fees between them.
The main difference between co-brokering and double brokering is that co-brokering is usually done with the full consent of the company doing the shipping, and there are clear lines of communication set up between all parties involved in the line of logistics. In double brokering, the shipper often doesn’t know that the cargo has been passed off to a third party other than the carrier at all.
Is Double Brokering Illegal?
While double brokering in its main form is more heavily disapproved of than outright illegal, there is one form of double brokering that is illegal, and that is when a broker takes payment for brokering a shipment, re-brokers it to another company, and then fails to provide payment to the carrier once the freight has already been shipped.
This kind of brokering constitutes theft of services and can lead to years of prison time for fraud as well as fines for restitution to recover the stolen services of the motor carrier.
As far as double brokering where the carrier gets paid, it may not be technically illegal, and many shippers heavily disapprove of it due to the breakdown of communications and liability involved with transferring freight through an unknown third party without direct authorization. But that doesn’t stop brokers from doing it, because freight brokerage laws are not stringently enforced.
This often leaves motor carriers at the whims of the brokers as much as the shippers are, which is a large reason neither party is very supportive of double brokering practices.
The Differences Between Double Brokering and Co-Brokering
Because co-brokering is often seen as synonymous with double brokering, both have suffered similar negative press as a result. Instead, co-brokering involves brokers working together with the authorization of the shipper to facilitate a more efficient shipping strategy.
Here is a breakdown of the main differences between co-brokering and double brokering.
- Double brokering is illegal according to the MAP 21 legislation; co-brokering is legal. That is probably the single largest difference between the two forms of brokerage, even though the line between the two types can get blurry otherwise.
- In double brokering, the original shipper who assigned the load to the broker has no idea that the load has changed hands again and is unaware of who has their freight. In co-brokering, the shipper is often aware of the co-broker relationship, and communication lines are open.
- As opposed to double brokering, where each broker gets their own commission, co-brokering involves each broker splitting a single commission, effectively making them partners (at least for the scope of the load they’re collaborating on).
Co-brokering can be a good way for brokers to get their loads covered effectively when there is a breakdown of logistics provided the original shipper has given consent and hasn’t specified restrictions against double brokering in their contract.
The main operational difference between co-brokering and double brokering is the level of communication involved. Logistics is largely a matter of having all one’s ducks in a row—making sure that the right insurance policies are in place, the right certifications have been met, the right paperwork has been signed.
Adding an additional brokerage to the chain of transit without informing the shipper decreases transparency and increases the chances of a major problem if there is a breakdown in communication down the line.
Advantages of Double Brokering
There aren’t that many advantages associated with double brokering. Other than that, it can help a broker keep cargo moving in the event of a shipping emergency, and possibly help increase the profit margin slightly.
While some brokers might swear by double brokering as the only way to make a decent paycheck off brokerage, the perceived benefits of double brokering are far outweighed by the risks. Between the threat of cargo loss or liability for deadly accidents, the price is just too high to risk double brokering, especially since it is already a violation of FMCSA legislation.
Just because you haven’t been caught double brokering yet doesn’t mean they won’t throw the book
at you, if your double brokering scheme leads to somebody getting killed on the road or a shipment being lost.
According to MAP 21, double brokering is illegal. So you can get penalized or even have your licenses suspended if you get caught doing it.
Disadvantages of Double Brokering
For both shippers and motor carriers, double brokering means that they assume the majority of the risks involved while gaining very little benefit from the process of double brokering (if any). In its basic form, double brokering involves a company not doing the work they were contracted to do, and instead of passing the buck onto someone else.
A motor carrier is much more likely not to be paid for a shipment on a double brokered load or otherwise end up with some kind of logistics problem as the result of miscommunication when multiple brokers are involved in a load.
One of the biggest disadvantages of double brokering is that if a motor carrier knows your load is double brokered, many will be reluctant to take the load as a result. This can bar brokers from using the most efficient carrier systems to move their freight.
Double brokering doesn’t just leave truckers and shippers alike exposed to fraud; it also means that if something goes wrong with the load, the shipper often has no idea what’s causing the delay and has no way to mitigate the problem.
Double Brokering Has a Bad Reputation Because of Fraud
The fraud committed during double brokered deals where the broker simply takes off with the payment and leaves the motor carrier on the hook for the shipping expenses is a large reason why double brokering has such a bad reputation among carriers and shippers.
Not only does this leave carrier without payment, but it also raises the question of who exactly is liable for the payment that has been skipped out on. Is it the original broker, who assumed that the secondary broker would do as they said they would do? Or is it the shipper, who didn’t even know the shipment had been farmed out without their consent?
The worst part of brokers using double brokerage as a fraud is that because of the nature of third party logistics, brokerage businesses are very easy to set up and dissolve quickly online. That means a scam broker can take a few payments before dissolving the business and disappearing, leaving the other companies with no ability to recoup their expenses.
Advantages of Co-Brokering
In contrast to double brokering, co-brokering can often provide specific advantages to a broker when their own network of carriers and other freight transit resources won’t do the job. Depending on who their co-broker is and what their network looks like, a broker might be able to move a load of freight far more effectively by using another broker’s carriers than by utilizing theirs.
The main goal of a broker is to adjust to shifting parameters in order to get freight moved in as little time as possible and at as little cost as possible, but that involves being open to adaptation and changing things up at the last minute if it means getting the cargo there that much quicker or cheaper.
Co-brokering allows brokers to take on loads that they would otherwise have to turn down and can result in a profit from a job that they would not have been able to take on without help somewhere along the line.
While double brokering is largely seen as a way of undercutting the motor carrier in order to keep as much of the profit for the brokers as possible, co-brokering can instead be a way for brokers to form temporary alliances in order to provide the logistics necessary for the most efficient transfer of cargo they can manage.
Niche Co-Brokering vs. Double Brokering
Another way that brokers can turn a decent profit without resorting to double brokering is to co-broker in a specialized cargo market. Here are some of the different kinds of cargo that freight brokers can specialize in to become a subject matter expert in a certain kind of freight:
- Border crossings
- Hazardous materials
- Local contracts
- Bonded freight
- Oversized equipment
In each of these cases, these forms of freight can require special certifications, methods of transport, or other considerations that can be easier to acquire if working with a broker that has a network of resources that also specializes in that kind of freight or those kinds of shipping routes.
For those brokers looking to break into the logistics game successfully, deciding to specialize in a niche market and co-broker with more traditional transport brokers can be a way to get your foot in the door and maintain profitability.
MAP 21 and Transportation Laws Against Double Brokering
Easily the most important reason why brokers shouldn’t get involved in double brokering is that it has been officially outlawed.
With the enactment of MAP 21, federal regulations for motor carriers now dictate that illegal brokering (by their definition, any brokering where the shipper has not given express written consent and authorization for freight transfer) is against the law and can result in fines and penalties.
Despite the fact that these regulations are not very strictly enforced (yet), motor carriers, shippers, and brokers alike should be aware that this change in legislation has occurred and adjust their business models accordingly.
While double brokering might seem like a quick way to turn a buck, it isn’t worth losing your entire business. The fines involved in most shipping violations could easily put most small operators under with a single blow. It simply isn’t worth the risk of losing your business entirely just to make extra money.
How Carriers Can Avoid A Double Brokered Load
Sometimes motor carriers get blindsided by a double brokered load simply because they didn’t realize the broker they were working with wasn’t on the up and up. Luckily, there are a few ways you can inspect the background of a broker to see if they are legitimate or note. Here are some tips for figuring out whether you can trust a broker:
- Do a background check. Check the broker you’re considering working with against FMCSA registration to make sure they’re not shady or have a fly-by-night reputation. Call the broker to confirm load details and make sure you know who you’re dealing with directly. Check the broker’s credit score.
- Read your rate confirmation carefully. If your rate confirmation requires you to check in as a different carrier than you actually are, you’re probably hauling a double brokered load. Make sure the data on your bills of lading matches the data on your rate con.
- Develop a network of brokers you trust and know are ethical. It’s easy to jump on a load if the money looks good without doing any background checks on a broker, but it’s much safer and more responsible to develop trusting relationships with brokers that you know. By doing this instead of just taking a load from anyone, you can avoid a lot of pitfalls.
Double Brokering Isn’t Worth the Risk
Whether you’re looking to become a freight broker or you’re looking to work with one as a motor carrier, double brokering is an important issue to be aware of, and it’s an important one to take a stand against. Not only is this predatory practice unethical and dangerous, but it also leaves every person in the line of transit at risk in case something goes wrong.
Without clear communication between the shipper, the broker, and the motor carrier, there is no way to ensure that a shipper’s cargo can be safely and legally delivered over long distances. And in the case of a problem, if there are multiple brokers involved, both carriers and shippers will have no way to effectively contact each other.
Add in the risk of one of the brokers pulling a runner with the freight payment, and it just isn’t worth the hassle to get involved with double brokered loads.
Transparency is Key to Avoiding Brokerage Fraud
From the shipper all the way to the motor carrier, the most important factor in making sure a shipment gets effectively transported from one location to another is making sure that the right hand knows what the left hand is doing. Double brokerage overcomplicates an already overcomplicated process.
However, under the right circumstances and with high levels of precise communication, co-brokering is a form of freight brokerage that has the potential to generate profit for brokers who are willing to both network and provide niche benefits.
Staying on the right side of transportation laws with regards to brokerage can mean the difference for a small operator between staying in business and being run out of business, so making sure to stay away from double brokered loads is a big part of that.
Co-Brokering and Niche Brokering Provide Profits Where Double Brokering Doesn’t
For those who feel like normal brokering doesn’t provide enough profit to make a living, there are ways to increase the profit that can be gleaned from it by teaming up with niche brokers or carving out a specialty with regards to what kind of freight you work with and who your resources are.
However, double brokering doesn’t provide profits worth risking fines, suspension of licensing, or worse.
The post The Problem with Double Brokering Freight and How to Avoid It appeared first on Digital Dispatch.