What is Double Brokering?

IS DOUBLE-BROKERING ILLEGAL?

Brokering without a broker license violates federal law

A number of laws exist that prohibit individuals without a broker license from brokering loads. It’s important to understand how they impact you, your business, and other individuals you may interact with in the moving of freight.

By enacting MAP-21 in 2012, Congress clarified that a person or company must have a broker license/authority granted by Federal Motor Carrier Safety Association (FMCSA) to broker freight.

To underscore and emphasize the illegality of brokering freight without a license, Congress set forth liabilities for those that broker freight without a license. For example, 49 U.S.C. § 14704(a)(2) states, “A carrier or broker providing transportation or service subject to [FMCSA] jurisdiction…is liable for damages sustained by a person as a result of an act or omission of that carrier or broker in violation of [provisions of MAP-21].”

Below is a sampling of additional statutes and guidance issued regarding broker operations without the appropriate licensing.

• Federal statute 49 U.S.C. § 13901(a) states, “A person may provide transportation as a motor carrier…or service as a broker…only if the person is registered…to provide such transportation or service.”
• Federal statute 49 U.S.C. § 13902(a)(6), “A motor carrier may not broker transportation services unless the motor carrier has registered as a broker under this chapter.” 49 U.S.C. § 13902(a)(6).
• FMCSA guidance, issued September 5, 2013: “Although MAP-21 left in place the previous statutory definition of ‘broker,’…the new law separately prohibits motor carriers from brokering transportation services unless they are registered as a broker.” Fed. Reg. Vol. 78, No. 172 (citing 49 U.S.C. § 13902(a)(6)).
• Federal statute 49 U.S.C. § 14916 provides that “Any person who knowingly authorizes, consents to, or permits, directly or indirectly, either alone or in conjunction with any other person, a violation of subsection (a) [which prohibits brokering without a license from FMCSA] is liable – (1) to the United States Government for a civil penalty [of up to] $10,000 for each violation; and (2) to the injured party for all valid claims incurred without regard to amount.”
• Federal statute 49 U.S.C. § 14916(d) allows any business or corporate veil to be pierced. It makes the company and the individual officers, directors, and principals of such companies personally liable for the civil penalties and liability to injured parties.
• FMCSA guidance, issued September 5, 2013: “MAP-21 requires motor carriers that broker loads, even occasionally, to register both as motor carriers and as brokers.” Id

If found guilty of brokering without a license, the penalties can include a civil penalty of up to $10,000 and potential liability for all valid claims of injured third parties, regardless of the amount.

Double-brokering violates contracts

Even if a person/company has a broker license, nearly all broker-carrier agreements prohibit the carrier from re-brokering or double-brokering loads. It is a breach of contract and typically allows the broker to withhold payment from the carrier.

It is unacceptable to reassign, transload, subcontract, etc., to another carrier without the original broker’s consent or proper authority/license.

WHAT PROBLEMS DOES DOUBLE-BROKERING CREATE FOR CARRIERS?

Payment delays or denials

Carriers who haul a double-brokered load may not get paid. Many carriers that double-broker loads fail to pay the delivering carrier and do not have a broker bond or broker trust fund to which the delivering carrier may look for payment.

Additionally, some of these carriers await payment from the original broker or shipper before paying the delivering carrier. When the original broker or shipper detects the possibility that a carrier double-brokered a load, they will not pay anyone until the situation is resolved to protect themselves from multiple conflicting demands for payment.

Lack of insurance coverage

When a load is double-brokered, there may not be insurance coverage for damage to the cargo. Many insurance policies are specific to certain tractors or trailers. Cargo insurance policies also often require certain contractual provisions, supplying of repair and/or maintenance records or other in connection with an insurance claim, etc.

In short, when unauthorized brokering occurs, many questions arise about whether cargo insurance is effective.

Communication challenges

If you’re late for an appointment, there is cargo damage or the load is refused, you may have difficulty determining the original broker or shipper, and they may not even know you exist. The delivering carrier has difficulty contacting the correct parties to arrange inspections of the cargo, exploring salvage options that would reduce the delivering carrier’s liability for the claim, and ensuring all proper parties are involved.

Invoice factoring complications

If it is detected that you are not the carrier listed on the bill of lading, your factoring company may refuse to purchase your invoice for that load as payment to them (and ultimately to you, whether the invoice is factored or not) is jeopardized or, at minimum, may be severely delayed.

AS A CARRIER, HOW CAN I PROTECT MYSELF?

As a carrier, you are vetted by legitimate brokers. Use the same approach and vet anyone from whom you accept loads. Be sure that you are dealing with the company and/or broker with whom you think you are dealing.

Research, research, research

Always completing adequate due diligence is the best way to protect your business. Here are some tips to help avoid fraudulent brokerage schemes, with the first three being the most important:

1. Confirm the company has “broker” authority through FMCSA’S website before accepting a load (other than a true shipper/consignee). Choosing the “Carrier Search” menu option will allow you to search. If there is no broker authority, do not accept the load!
2. Make an outbound phone call to the company number listed on the FMCSA website to verify.
3. Verify which email addresses are authentic for the broker during your outbound call to the FMCSA-verified phone number.
4. Check for discrepancies from verified email addresses. For example,
   1. Using an email address such as englandlogistics@gmail.com rather than @englandlogistics.com (which would be the true email address).
      1. Most brokers have their own email domains and don’t use @gmail.com, @yahoo.com, @outlook.com, @hotmail.com, @icloud.com, @msn.com, or similar email domains.
   2. Having a slight variation to verified emails: for example, johndoe@englandlogisticss.com (an additional “s” at the end of “logistics”) or johndoe@englandlogisticsinc.com (adding “Inc,” “LLC,” or something similar to the email domain).
5. Verify the email from which you receive and to which you send information.
6. Type in the verified email. Don’t just reply, as the email address may be “spoofed.”
   1. Occasionally you can detect “spoofing” by hovering your computer cursor over the email address.
7. Go to the broker’s website to check the true email address domain (e.g., @englandlogistics.com)
8. Be cautious If any of the following is true of the “broker”:
   1. Recently obtained/activated broker authority and/or has lapses in authority.
   2. Multiple or recent changes to address in the FMCSA database.
   3. No physical address location.
   4. Negative reports on FreightGuard, TIA Watchdog, etc.
   5. Offers a rate that is too good to be true.
   6. Carrier has a small number of trucks and has obtained broker authority.
   7. Affiliations with other carriers through common address, email, phone, etc. (Carrier411 is a good tool to detect this).
   8. Misspellings and typographical errors in the rate confirmation.
   9. Doesn’t vet you thoroughly. Nearly all legitimate brokers have a robust vetting process.

Use owner-operator agreements

As a carrier, you can assign a brokered load to an owner/operator who runs under your authority. You remain responsible for the load as if you hauled it on one of your trucks. If you use owner-operators, very specific requirements need to be included within a lease agreement. See 49 C.F.R. §§ 376.11 and 376.12.

Review the BOL for the correct carrier name

Reputable brokers regularly audit Bills of Lading (BOL). If the BOL has a different carrier name, this red flag could indicate a double-brokered load. This will, inevitably, delay payment and could result in adverse reports being issued against those involved, impacting your ability to conduct business.

SUMMARY

To safeguard yourself from financial losses caused by double-brokering, it’s crucial to carefully evaluate brokers and other carriers before working with them. Double-brokering can result in non-payment, delayed payment, or rejected invoices and unnecessary liability for your business. By partnering with trustworthy individuals, you can mitigate these risks. Be sure to verify their broker authority and confirm their identity to ensure that you’re working with the right person.