Q I know a company that double brokers most of its loads and then when people find out, simply changes its name and address. Is this legal?
A Clearly, it is not “legal” for a company to commit fraud. It is larceny by fraud for one to take freight charges under the pretext that it provided the services and then to abscond with the proceeds, leaving the unwitting carrier, the shipper and the lead broker to sort out who will bear the risk of loss.
Moreover, the broker regulations and a prior opinion from the interpretations branch of the ICC suggest that double brokering, per se, is not contemplated by the regulations. A broker is one who arranges for transportation “by an authorized motor carrier.” Brokerage services can be performed “on behalf of a motor carrier, a consignor or consignee” not on behalf of another broker. See 49 C.F.R. Sec. 371.2. A broker is required to keep records, showing the amount of freight charges it collected and “the date of payment to the carrier.” See 49 C.F.R. Sec. 371.3.
The regulations, therefore, contemplate that a broker, when acting on behalf of the consignor or consignee, should retain and pay the actual carrier that provides the service. Most brokers require carriers they retain to warrant that (1) they are carriers and (2) service will be provided in equipment owned or leased to them. Any company that brokers a load in violation of such an expressed warranty has committed misrepresentation and a technical violation of the regulations that provide “a broker shall not directly or indirectly represent its operations to be that of a carrier.” See 49 C.F.R. Sec. 371.7.
Unfortunately, in the real world, what is legal or proper often does not make much difference. Other than the cleansing light of public exposure, there is little to keep unscrupulous middlemen from setting up a succession of phony “carriers/brokers” and repeating the scam you describe with impunity.
Criminal prosecution is rare, if not unheard of. As a civil matter, the victims of the fraud – the shippers, the lead brokers and the carriers – are most often left to sort out the problem themselves. Generally, no single party suffers enough to justify the legally arduous task of proving the fraud, piercing the corporate veil and finding enough of the ill-gotten gains to make a suit feasible.
But double brokering is far more than a nuisance. When shipments are unknowingly double brokered, both the proper payment of freight charges and the settlement of cargo claims are compromised.
When the alleged “carrier/broker” does not discharge its payment responsibility to the actual carrier who handled the shipment, that delivering carrier likely will demand payment of its freight charges from the consignor if bill-of-lading recourse permits. The lead broker, who may have paid the middleman in good faith, now must indemnify its customer and explain away what appears to be negligent entrustment.
An even worse situation occurs if the cargo is stolen or damaged in transit. Even if the lead broker got a valid certificate of insurance from the company with which it contracted, if the shipment was actually hauled by someone else, chances are that certificate of cargo coverage will be worthless. The customer surely will ask the lead broker a hard question: “Who hauled this shipment anyway, and is there any cargo insurance to pay my claim?”
How can legitimate carriers and brokers avoid the surprises of unapproved double brokering? Brokers should direct shippers to:
- Execute Section 7 showing a third-party billing.
- Clearly indicate that the carrier should send the freight bill to the lead broker (without recourse).
- Call the broker at once if the pickup unit does not bear the logo of the carrier with whom you contract.
- Make sure the bill of lading contract clearly identifies the actual carrier who took physical possession and control of the goods.
Carriers are just as interested as brokers in proper completion of the bill of lading and should instruct their drivers to look carefully at the bill of lading at time of pickup. If the shipment is tendered without recourse to the consignor, or if there are third-party billing instructions to an intermediary with whom the carrier has no contract, a driver should immediately notify his dispatcher. Instruct drivers to sign the bill of lading on behalf of the carrier for whom he works. Finally, when transmitting the proof of delivery, if there is any ambiguity, the actual carrier should use a “P.O.D. Certification” to make clear to the shipper and anyone else in the payment loop – lead broker, factor, etc. – that it was the party that actually provided the service under the bill of lading contract.
If carriers and brokers follow these procedures, the ugly surprises of double brokering could be avoided. If a given transaction requires convenience interlining or the use of multiple intermediaries, at least the parties can be properly identified and contractually protected from the outset.