Paul Stewart

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Paul Stewart

Logistics and Transportation Law/Commercial Transactions- Representing National Logistics Companies,Shippers and Carrier

In this time of severe limitation on over-the-road motor carrier capacity, the practice of “double-brokering” a load is rampant. Those interested in this article from the title most likely know the nature of a double-brokered load.

However, further clarification is found in a decision by the Minnesota District Court, Jets Prolink Cargo, Inc. v. Brenny Transp., Inc., 2003 WL 22047910:

“This involves the practice of a broker receiving a shipment from a shipper and subsequently tendering the shipment to another broker for movement by a motor carrier. It is frequently done without the shipper’s knowledge or the motor carrier’s knowledge.     No written or even oral contracts exist between the shipper and the second broker or between the motor carrier ultimately used and the initial broker.”

Thus, even before specific problems arise, the initial broker, by double-brokering the load, has most likely violated their contract with the shipper; been a party to misrepresentation of the nature of the transaction to the carrier; and, violates one or more regulations governing the broker’s license.

In addition to the double-brokered load being without proper disclosure to all parties; and, as such, being without appropriate contractual privity among all parties, it is most likely accomplished in violation of several regulations governing brokering, to include 49 C.F.R. 371.2(a) (the definition of a broker); and, 49 C.F.R. 371.7 (providing that a broker shall not perform any brokerage service in any name other than in which its registration is issued.)

Add to these culpable results for the original broker a potentially more damaging result. By “contracting” with the subsequent broker, the original broker has authorized the subsequent broker to select the carrier. Should the subsequent broker be negligent in the selection of the carrier, and the carrier be guilty of negligence in producing catastrophic injury or death to others, the original carrier may arguably be vicariously liable to all such injured parties.

One has to wonder why this practice continues, except for the obvious conclusion that is is an ill-thought, easy answer for those in the brokerage business needing a quick, albeit precarious, answer to “covering a load”. Even with the design and implementation of the so-called “co-brokering” agreements between the original and subsequent broker, in most such arrangements the original broker is breaching their contract with the shipper, adequate disclosure to the carrier is still lacking, and the carrier is taking dominion over a shipper’s load without proper authorization.”

A Common Sense Alternative Needing Only a New Discipline

For as long as I have advised clients on this issue I have preferred the practice of “Referral Agreements”.

Under a referral agreement, federally regulated brokers may enter into a written contract in which the brokers agree to refer motor carriers to other brokers when the broker who has accepted a load from a shipper is unable to engage an available or reliable motor carrier. The referring broker will only refer to motor carriers who have been advised of the specifics of the load and payment and which the referring broker has used in the past without problems. However, the receiving broker would have the responsibility to make its own independent investigation of the motor carrier and to actually contract with the referred motor carrier. A reasonable referral fee, payable within a reasonable period to the referring broker, would be paid for a referral that results in the movement of the load.” Hardaman, Transportation Law Journal, Vol 34, p. 312

Space here does not allow for a discussion of the drafting particulars of such a referral agreement, but suffice it to say, the referral agreement when properly drafted accomplishes at least the following:

  • The broker service contemplated is actually performed by the broker with whom the shipper contracted.
  • There is no potential vicarious liability from the actions of an “unauthorized” broker.
  • Credit problems and the potential for “double payment” of transportation charges are eliminated.
  • The efficiency of properly “covering the load” is accomplished without a nightmare of other potential problems.
  • Solving capacity problems with proper referral payments to the referring broker is made even more efficient for all parties, and capacity is produced with better velocity.
  • Transactions and documentation of such a load eliminates several other layers of operations functions and negative results.

This more efficient, legal, financially astute, and pragmatic alternative is readily available to those who guide strategic development of their brokerage operations.