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Don’t Let Your Trucking Company Get Trapped by Double Brokering

By 10.05.22November 29th, 2022No Comments
Don't Let Your Trucking Company Get Trapped by Double Brokering

The act of double brokering is the unauthorized transfer of a load to another trucking company. Due to market volatility, the industry is seeing an uptick in this illegal practice. Sometimes, it is an act of negligence committed because of overbooking or a lack of communication between parties. However, in other more fraudulent situations, double brokering is being executed with malicious intent, leading to financial loss for trucking companies.

Awareness is the first line of defense to help prevent your trucking company from getting tripped up in the double brokering trap. In this article, you’ll learn what it is, why it’s so common, how to avoid it, and the severity of the financial and liability risks associated with getting caught in the middle of such an unwelcome practice.

What is Double Brokering?

Double brokering is the illegal act of a broker or carrier transferring a load to another trucking company without notifying the shipper. In a legitimate shipper-broker agreement, the broker assigns loads to carriers, and those carriers pick up and deliver the loads according to the terms of a broker-carrier agreement. If a load is transferred to another broker or carrier, these agreements are only legitimate if done with the original shipper’s consent.

Either of the following arrangements is considered an act of double brokering:

  • A carrier accepts a load from a broker and then assigns it to another carrier without the original broker’s consent.
  • A broker gives the load to another broker without the original shipper’s consent.

Double brokering is not to be confused with co-brokering. While double brokering is an illegal act, co-brokering is not. Co-brokering is the legal practice of multiple brokers and carriers working with the original shipper to arrange freight transport. Additionally, the freight broker fee for the load is split among the parties involved in a fair and agreed-upon manner.

Key takeaway: For a shipper-broker, or a broker-carrier agreement to be legitimate, any cargo handed off to another broker or carrier requires the original shipper’s consent.

Why is Double Brokering so Common?

Double brokering happens all the time. It is often the result of negligence and poor decision-making in a competitive industry with slim margins and rapidly changing freight rates. Following are the two most common scenarios that drag legitimate trucking companies down into the trap of a double broker situation:

  • Carriers that work to establish regular lanes may push hard to take on as much business as possible. In the push to book loads, they sometimes commit to more freight than they can handle. When this happens, the carrier may be tempted to pass a load onto another carrier. If all parties involved are notified, and proper authority from the shipper and broker is provided, then it is the legal act of co-brokering. However, if shortcuts are taken to get the load on the road, those carriers may be double brokering unknowingly. Carriers need to be fully aware that without proper notice and authorization, the act becomes illegal with potentially severe consequences, including financial loss and imprisonment.
  • Brokers who have trouble managing freight using only the carriers within their established network may occasionally pass the freight onto another broker whose network of carriers is better suited or have the required capacity to get the job done. They may think this solution will prevent the shipper from realizing their inability to fulfill the haul. And to ensure it stays under the radar, the original broker may attempt to transfer the load onto a secondary broker without notifying the shipper. However, like the above case with carriers, the act becomes illegal if the transfer is done without the shipper’s knowledge and authorization.

In either of the above two cases, if the correct channels and communication are not followed to transfer the load, it will result in double brokering. Ultimately, taking on more loads than they can handle can get carriers and brokers into trouble.

The Criminal Intent Version

However, double brokering isn’t always an innocent mistake. It’s also a standard fraudulent scheme used by illegitimate companies to prey on careless and unsuspecting trucking companies who see an opportunity to make easy money:

  • Illegitimate carriers and brokers often accept a load for a set fee with no intention of hauling the payload. Instead, they pass the freight onto another trucking company for transport at a lower rate and pocket the difference. The most malicious form of double brokering is when the illegitimate party accepts payment, pockets the fee, and disappears without paying the carrier (which could be you)!

Key takeaway: Carriers and brokers must notify all parties involved and gain proper authorization from the shipper to transfer loads onto another trucking company to avoid the illegal act of double brokering.

How Does Double Brokering Damage Trucking Companies?

When a load is double brokered, the originator no longer knows who is transporting the cargo. An unauthorized load transfer could lead to many potential risks, including extremely delayed or absent payments, liability, and reputational damage for all parties involved. At best, the load gets delivered, everyone gets paid, and no one is the wiser – a more likely outcome is that someone gets burned!

Financial Risks

Carriers run a high risk of not being paid after hauling a double-brokered load. For example, if the receiver registers a dispute due to damaged goods, late delivery, or any other issues, the carrier faces an uphill battle to get paid. The first problem for the carrier is identifying and contacting the original broker responsible for the cargo. The next issue is to negotiate payment. Without a contract or even knowledge of the carrier, the original broker is unlikely to settle payment without legal intervention.

The carrier faces even more significant difficulties if the double-brokered freight involves a fraudulent broker who has disappeared with the shipper’s payment. While a carrier has some recourse to recoup costs, it can be a long process and burden a trucking company already operating on tight margins.

The originating shipper and broker also face financial risks, even if they are not part of the scheme. These groups can be held financially responsible for their loads and could end up paying twice if an illegitimate broker takes payment and disappears without paying the carrier.

Liability Risks

Carriers hauling double-brokered loads may have to deal with insurance claim denials if a load is lost or damaged. But the worst-case scenario lies in the event of an accident related to the haul that causes injury or death – no insurance company will stand behind you or your company, no matter how good or how long the relationship has been.

Reputational Risks

Additionally, carriers and brokers can experience reputational damage if the company is confirmed as being involved in double brokering. Involvement can lead to the possible cancellation of FMCSA authority or blacklisting with reputable shippers, brokers, and carriers.

Key takeaway: Double brokering is illegal and dangerous, exposing carriers and brokers to extreme financial, liability, and reputational consequences, plus the possibility of imprisonment.

 

Conclusion

Double brokering is illegal, unethical, and detrimental to the transportation industry. The practice is becoming widespread and can occur inadvertently as well as with criminal intent. Either way, the verdict may still be “guilty as charged” and going down that road may be putting your business at risk.

The bottom line is that whether you are taking on another carrier/broker’s load or passing your loads on to someone else, you must ensure that the shipper agrees to the change in writing. When it comes to managing your loads, be thorough, be transparent, and be part of the solution. Anything less puts you at risk of being a part of the double brokering outbreak plaguing our industry. Be aware of the dangers and take precautions to protect your business from double brokering.

About eCapital

Since 2006, eCapital has been a trusted financial partner for thousands of owner-operators, small and mid-size fleets in all stages of development. Our customer base continues to grow as our reputation for delivering fast, easy-to-manage freight factoring and industry expertise endure. The credit information our credit department can uncover helps your trucking company to choose creditworthy shippers and brokers, helping to avoid the dangers of double brokering.

For more information about how freight factoring, fuel discount programs, credit advice, and more can help grow your trucking company, visit us online at eCapital.com


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