Ask a transportation college, and you may receive conflicting information when attempting to distinguish between co-brokering and double brokering. Despite the similarities, these two practices are different, and hold distinct legal implications. In this article, we aim to clarify the difference between double brokering and co-brokering while shedding light on the associated risks and potential solutions.
What is double brokering?
Double brokering, in its traditional sense, occurs when a freight broker initially contracted by a shipper, tenders a load to a carrier, who subsequently brokers the load out to another carrier, whether legally or illegally.
What are the risks of double brokering?
Double brokering not only creates unnecessary risk and confusion, but may result in cargo theft, or loss. It is especially important to take into account cargo liability. Consider the following scenario: in the event of cargo loss, the freight broker who originally tendered the shipment to the original carrier, will seek reimbursement and file a claim against the original carriers’ insurance company. In most cases, the insurance company will deny coverage, as the original carrier is no longer the one hauling the freight on their own asset. Filing a claim against the insurance of the carrier who was hauling the cargo in this scenario, will also likely result in denial, as the freight contract is between the original broker and original carrier, leaving the second carrier in a gray area, in legal terms.
Worst still, the original broker will lose control of the logistics and carrier selection, increasing the likelihood of stolen freight. Fraudulent companies often will impersonate a carrier company, book the freight, re-tender the load to yet another carrier, at which point, it may be too late to take action. Freight can altogether disappear, or in best case scenario, arrive in damaged condition at the receiver's dock.
What is Co-Brokering?
Co-brokering involves two brokers collaborating, with one (Broker A) legally contracting the other (Broker B) to move a load. Broker B, in turn, contracts a carrier to transport the freight.
What are the risks of co-brokering?
When done correctly, co-brokering will mitigate many risks associated with the double-brokering scenario. However, many brokers may hesitate to engage in co-brokering due to concerns about giving up direct control over the logistics.
To combat this, a properly set up co-brokering contract is crucial, outlining the responsibility of each party. Typically, the secondary broker will assume liability for hiring and vetting the right carriers, while granting the primary broker permission to file insurance claims on behalf of the customer.
However, this practice, while prevalent with larger 3pl’s and freight forwarding companies, has played a large role in contributing to a rise in freight fraud and cargo theft.
Conclusion:
Understanding the difference between double brokering and co-brokering is crucial for transportation companies both big and small. While double brokering processes significant legal and operation risk, co-brokering can be an effective tool, when set up correctly.
Effectively addressing fraud in the industry will take both sides of the industry, carrier and 3pl, to curb freight fraud. A notable trend observed in the industry is the larger players closing their door to onboarding for small to mid-sized companies, which will only further contribute to the overall fragile state of the industry.
To achieve a reliable domestic logistics network, it is important to acknowledge the importance of collaboration. And this includes FMCSA, freight brokers, shippers, factoring companies, and bond companies. How long must we wait for such a framework to come together? The answer to that question will ultimately depend on how much more fraud and theft we are willing to endure.