Like many industries, logistics has its nuances and challenges. One such challenge, which has been a growing concern for many in the industry, is double brokerage. It affects not only the brokers but carriers and shippers as well. We talked to experienced Logistics Managers at US Ravens to know what exactly double brokerage is, how can you detect double brokering, and how to avoid it.
What will we cover
What is Double Brokerage?
Let’s start with the basics. In the logistics world, a “broker” is like a middleman. They connect people who want to ship things (shippers) with those who transport them (carriers or truckers). Double brokerage happens when one broker acting as a 3PL partner, after making an agreement with a carrier, secretly passes that job to another broker, often for less money. Imagine you hire someone to paint your house, but they secretly hire someone else to do it at a lower rate and pocket the difference. That’s double brokerage in a nutshell.
Is Double Brokering Illegal?
Yes, double brokering is illegal as it involves a broker or carrier handing over the load to the other party without the shipper’s knowledge at a lower rate. They then get paid for the shipment instead of the actual party that took possession of the load for delivery. This answers the question of how do double brokers make money. What’s worse is that there is no penalty for double brokering. However, there are platforms where the victims of double brokering have reported double brokers.
Who Gets Affected by Double Brokerage?
Double brokerage is like the silent predator of the shipping world. It lurks in the shadows, and by the time you realize it’s there, it has already taken a bite out of your profits and reputation. From brokers to carriers and shippers, it affects everyone.
- Brokers: Not all brokers play these games, but those who play fair can find themselves at a disadvantage. They might pay carriers genuine rates, but those carriers may have passed on the load further but received payment themselves. It can ruin the broker-shipper relationship.
For example, a broker, let’s say “A,” contacts a carrier “B” to haul a load who further sends the load to another carrier “C”. In that case, A will pay B, with whom they struck the deal. But B won’t pay C, who actually transported the shipment, and will stop replying to calls or emails.
C will then go to A to get payment for the load they delivered. If that doesn’t work, they may go directly to the shipper as they have delivered the load and know who the customer is. As a result, the shipper will think that A is not paying their carriers and may stop working again with A, ruining broker A’s relationship with their shipper.
- Carriers/Truckers: Carriers agree to transport goods at a set rate. If a shipment is passed onto them from another carrier without them knowing, it can mess up their plans. They might not get paid what they expected or have to deal with unexpected terms and conditions.
For example, in the scenario we discussed earlier, C is a genuine carrier. Still, it will not get paid for transporting the shipment as broker A already paid carrier B. C may get little or no money for the load they hauled.
- Shippers: Shippers who want to get their goods transported safely, on time, and at the agreed price are also affected by double brokering. Double brokerage introduces more hands into the process, which can mean more chances for errors, delays, or even lost goods.
Effects of Double Brokerage on Brokers
Double brokerage fraud causes loss of millions of dollars to the logistics company. Though carriers and shippers are also affected by it, brokers are hit the hardest. It can have the following effects on brokers in the freight industry:
- Double the Cost for Broker: According to many brokers who were the victims of double brokerage, the most significant effect was that they had to pay double the cost of the load. They already paid carrier B, their contact person, and had to pay C as well. Had they not paid the money to C, it may have put a claim against their bond, disrupting their operations.
- Ruin Relationship with Shipper: Carrier C, who is not paid by carrier B, will generally contact the shipper directly. It can cause trust issues between shippers and their brokers. If the shipper is new, brokers may abstain from paying carrier C as they have already paid carrier B. They may end up losing the customer. On the other hand, if a broker is working with a customer for a long time, they may not want to jeopardize their relationship and will end up paying again for the same load before carrier C reaches out to the customer.
- Risk of Insurance Bond Getting Cancelled: Technically, broker A is not liable to pay carrier C as he has already paid carrier B. In case of non-payment, carrier C may claim the insurance bond of the broker. If the carrier goes to the shipper, the shipper can also claim on the broker’s bond, stating that they are not paying their carriers. So, the broker is at risk of receiving bond claims from both sides.
- Reduce Competitiveness in the Market: When carriers approach shippers directly due to non-payment, they may reveal the rate at which they are hauling the load. It can indeed reduce brokers’ competitiveness in the market. They may face challenges in justifying their higher prices to customers and will end up losing the customer.
How to Avoid Falling Victim to Double Brokerage
We talked to some freight brokers working with US Ravens and tried to understand how one can keep themselves safe against double brokerage frauds.
Check Driver’s Details Carefully
According to Jess Baker, Logistics Manager, to avoid double brokerage,
ask the dispatcher about truck and trailer number, VIN, driver’s name and number. You can also ask for the driver’s license who will be picking up the load.
This is one of the best ways to detect double brokering. If the dispatcher is trying to do double brokering, the details of the actual driver will be different from the details provided by them.
If you are directly talking to the driver, ask for the same information. Once you have all the necessary information about the driver, you must verify the details with the carrier company with whom the driver is associated.
You can call their registered number and ask if the person concerned works there or email them to their official email address. You can use any carrier onboarding software and search for their name to get their registered emails or phone numbers.
After all the verification, you can give these details to the shipper so that they can double-check to ensure the right driver and truck has come to pick up the load.
Conduct Background Check on Carrier Company
You can use carrier onboarding tools to perform background checks on carrier companies. It will help you ensure they meet safety and compliance standards. Check their safety ratings to see if they have any history of accidents, violations, and non-compliance with safety regulations. You can also see if carriers comply with all relevant regulations and industry standards. This includes confirming that they possess the necessary operating authority, licenses, and permits for the type of freight they intend to transport.
Double Check the Email Address
Sometimes, not paying attention to a missing letter or name spelled the wrong way can cost you a lot. Fraudsters tweak the names of well-known brokers or carrier companies and reach out to potential victims. Therefore, you must pay attention to distinguish them from genuine entities.
So, double-check the email address from where you get the load confirmation to stay safe from potential double brokerage fraud.
You can CC the main email of the carrier company and ask them to confirm if the email is correct.
Rachael Jones, another Logistics Manager, suggests,
Call the main number and confirm whether the mail you got is correct to book loads with the company as it is not registered with the company.
Once they confirm the email, you can continue the conversation by keeping the primary company email in CC.
Establish Clear Communication with Your Load Provider
As a carrier, if you are given a load from transport company “X” but there is a different name on the BOL (let’s say company “Y”), then make sure that you contact company Y directly. You can ask them that you are going to book a load with them, but it is provided by someone else, so if they can confirm if it’s a genuine load. It will help you avoid any trouble down the line.
Check Carrier Information on Carrier411
Brokers who have earlier fallen victim to double brokerage are more likely to report the fraudsters on Carrier 411. You can diligently vet the carrier with whom you are booking a load. Utilize Carrier411 to thoroughly verify carrier credentials, insurance, safety records, and their history with double brokering incidents.
Regularly monitor Carrier 411 and other industry platforms like SaferWatch and FMCSA for any signs of the carrier double brokering. Routinely audit and cross-verify carrier information to detect any discrepancies or potential double brokering activities promptly.
Now that you know everything there is to know about double brokering, you are better equipped to stay safe from double brokerage. Is there any other way to ensure that you avoid double brokering? Tell us in the comments below.