What is double brokering?
Double Brokering is the unlawful practice of a person or company re-brokering a shipment to a different shipping company without proper brokering authorization.
It is a violation of the Federal Motor Carrier Safety Administration (FMCSA, under Map-21, section 32919 “Unlawful Brokerage Activities.”) In this section, it states that to broker shipments, a person or company must be registered and pay a $75,000 bond or trust as part of a financial security requirement.
An example of double brokering is when a broker signs an agreement with a carrier to ship a customer's goods, but instead of the carrier shipping the goods as promised, they re-broker the load to another company. This second company may be cheaper, have less regulations, or an unacceptable insurance coverage than what the business and broker originally signed. Additionally, the company may pocket the funds without ever paying the carrier who actually shipped the load.
Why is it a problem?
Doubling brokering creates a lot of problems for shippers, brokers, and customers. Currently, it is costing our industry $100 million. As said in the previous segment, the double brokered carrier may not uphold the same standards, routes, or safety regulations that were in the original agreement.
Moreover, this puts all parties in liability, as it complicates issues with insurance. The initial company that the shipment is brokered to may be insured; however, this policy does not carry over whenever the shipment is rebooked. This means in the case of an accident, not only may the freight not be insured or covered, but the company that initially brokered the deal may be held liable for persons injured. Furthermore, the criteria the original parties agreed on to tender the freight may not have been communicated which creates additional exposure to all.
The people who actually make the deliveries may not be paid properly as well, such as when a Tijuana resident committed a double brokering scheme. The man posed as a California transportation company (California-based interstate carrier) and took on deliveries. He then went to other companies and pretended to be the shipper, where he would re-broker the shipments. The man did not pay the carrier who completed the deliveries and pocketed the money for himself. This also means shippers or brokers are at risk of paying for the load more than once.
Why does this happen?
Often, double brokering occurs because of scammers, a carrier wants to save on money, or an overall lack of enforcement. Moreover, it's only illegal for someone to broker a load without a license or securing the financial requirements. Carriers may try to find ways around contracts or ignore certain terms in order to re-broker the load to another company as they may have cheaper rates or combine multiple loads into one truck. So if this issue is costing our industry millions and creating safety concerns— why is it still occurring?
There are a number of reasons why people commit double brokering:
- It's relatively easy to do.
- Since there are over 20,000 logistic businesses and hundreds of thousands of carriers, sometimes carriers who aren't fully vetted get selected. By the time this is caught, it is already too late and the bad actor moves on.
- Currently, there is a major lack of enforcement from the FMCSA which is due to a lack of resources. Even so, regulations are more concerned with the safety aspects then any other effects.
To help brokers make sure they are using trusted freight carriers, FMCSA has implemented a system that allows them to validate their credentials, compliance status, and safety rating. Unfortunately, this system is not the perfect solution, as the database is difficult to use and double brokering still occurs.
What are we doing to stop this?
The best solutions to eliminating double brokering practices include:
- Education and awareness.
- Better technology (for vetting carriers to help establish legitimate and weed out illegitimate carriers).
- Federal regulation and enforcement.
The Transportation Intermediaries Association (TIA) is seeking congressional support against unlawful brokering activities. They were able to meet with over 200 Members of Congress during the 2022 TIA Policy Forum Fly-In. During this, they were able to explain issues the freight industry is facing and convince Members of Congress to contact the FMCSA.
Kristy Knichel personally advocated on this issue to Members of Congress. She stressed that they need to work with the FMCSA to help enforce the MAP-21 law and levy fines. Once they start collecting fines, they will also have more resources to enforce this. Hopefully, this will motivate the FMCSA to better enforce their policies, thus diminishing illegal double brokering practices.