SBTC's Response to a Carrier Asking about Double Brokering and Co-Brokering

Yesterday, I went at it with an independent owner operator who wanted me to pick up his torch and apparently say co-brokering is illegal because a broker license does not state he can co-broker. Of course, that is not the way the law works, it is not illegal and I can't say it is. Federal broker regulations (49 CFR 371) do not prohibit co-brokering. Unless we are talking a military shipment (DOD prohibits double brokering), the matter of double brokering, although generally frowned upon, has pretty much been left to the theory of laissez faire. We think all parties should avoid becoming involved in double-brokering transactions. Read on, and we'll tell you how you can do just that...

Some of you may remember this article about a double-brokering scheme a while back.

There is indeed much risk exposure when it comes to double-brokering so I figured it's high time we address this for the little guys in the industry.

The first thing we have to do, here, is define the two terms and note the difference is whether there is disclosure that two brokers are involved. If there is, it's co-brokering. If there isn't, it's double-brokering. One broker did a pretty good job of explaining the difference so rather than re-invent the wheel, I'll just point to his article here.

After my twitter exchange yesterday, another carrier wrote to me. Here is my response:

<Name Redacted>,

When a load is offered to a carrier by a broker and the load originally came from another broker there is an issue of which bond is in place and who is ultimately liable for payment to the carrier.

When Shipper A authorizes Broker B to arrange for transportation and Broker B, in turn, contracts with another broker, say, Broker C, instead of hiring a carrier direct, we then have Broker C actually hiring Carrier D.

Here, if Broker C fails to pay Carrier D, Carrier D is able to file a claim on Broker C's bond assuming he was actually licensed and bonded. If the bond is already depleted, then Carrier D would be inclined to seek payment from Broker B (in fact, Broker C will invite him to do so especially if Broker C did not get paid and Broker B got the money from the shipper). But Carrier D can't file a claim because he has no carrier broker contract with Broker B. Theoretically, Shipper A will have paid Broker B and if Broker B fails to pay Broker C, broker C is not likely to want to pay carrier D when he did not get paid. Unless Broker C falsely represents to the bonding company that he was the carrier, he can't file a claim on Broker B's bond. Even if he did, he can't furnish a bona fide carrier-broker agreement which the bonding company will request because both parties were acting as brokers. Any attempt to furnish same would be wire or mail fraud on his part. The claim would therefore be denied.

Ultimately, Carrier D will seek payment from Shipper A because he is legally liable to the carrier regardless of what brokers were involved. But the shipper has no bond and a lawsuit would likely result with the shipper saying go get your money from Broker B because that is who I paid. The shipper will of course lose the suit as a matter of law, the carrier will get paid if he took it that far, and then the shipper would likely file a claim on Broker B's bond or have to sue him. By then, one or both of the brokers involved have moved on to setting up new brokerage companies probably without admitting to their previous MC numbers (making them potential targets of the USDOT OIG) and we might as well start calling them Broker Q and Broker R.

In other words, shippers and carriers that allow multiple brokers in a transaction are asking for a convoluted mess and many headaches if something goes wrong.?

The best way to deal with this is for there to be a clause in a shipper-broker agreement and another clause in a broker carrier agreement that calls for treble damages in the event that the broker rebrokers out the load to another broker without the written consent of the shipper or fails to disclose in writing to a carrier that his client is actually a broker and not a shipper.?This sets up a contractual disclosure requirement that is missing from the regulations that can be enforced as a matter of civil contract law and civil scheme to defraud.

This also suggests that re-brokering without disclosure is a no no (we'll call that double brokering) and collaboration in brokering is ok (we'll call that co-brokering) as long as there is disclosure.?

The only issue left is whether these brokers were each trying to impose a full broker commission (shame on them) or if they both shared one commission so as not to rip off either the shipper or the carrier or both (that would be in line with what is reasonable and customary in a typical three-way broker transaction).

We believe the answer is not to expect FMCSA (which believes there is no 'safety' mission in economic regulation) to act like the old ICC to protect shippers & carriers along these lines with new regulations, but for shippers and carriers to protect themselves contractually.??

I hope this helps. Feel free to share this with your fellow Drivers including <Name Redacted> who is all riled up over this issue.

Regards,

James

Double brokering can also be defined in terms of a shipper contracting with a carrier who then outsources the load to another carrier (notwithstanding interlining) with or without a broker license. Same theory applies. If the parties know and agree, then there is nothing wrong per se (except if the carrier is engaging in brokering without a license and bond; they may call this "dispatching" but it is still unlicensed brokerage if they are getting any compensation whatsoever). A carrier would be crazy to take a load from a carrier that does not have a broker license and bond in full force and effect. It amounts to doing business with unlicensed brokers.

I hope this helps folks understand the SBTC's perspective on double brokering versus co-brokering and the need for the market to run itself with minimal governmental interference.