The auto transport & logistics industry has been undergoing significant disruption over the last several years. Supply chain issues have impacted both the retail automotive industry as well as transport and logistics. As the industry transforms, so does the practice of not only helpful, but hurtful practices.
Transport and logistics, like other industries, is not immune to fraudulent practices. One such practice that has gained attention over the last several months is double brokering.
In this article, we’ll delve into what double brokering is, its legality, consequences for car carriers and brokers, and how to not only spot it, but avoid it.
What is Double Brokering?
Double brokering is a practice where a motor carrier accepts a load with the intention of booking another carrier for the shipment, often posing as a third-party logistics brokerage (3PL). This practice puts all other parties at risk. Shippers lose control of their vehicles and are exposed to liabilities that were never agreed to, transporters don’t get paid and the broker has to contend with the resulting mess.
In a double brokering scenario, the fraudulent company or individual will apply for a motor carrier (MC) number, use that MC number to book a load with a reputable 3PL, and then, using the documents provided by the 3PL, pose as a different reputable 3PL to pass that load onto a different carrier that will actually haul the freight.
The outcome of this is that the fraudulent individual will either steal the shipment or have the carrier deliver it as promised, only to collect payment from the brokerage and disappear.
Is Double Brokering Legal?
The legality of double brokering is complex. To draw some clear lines around this issue, MAP-21 Laws were enacted in 2012. These laws made it illegal for motor carriers without a proper broker authority from the FMCSA (Federal Motor Carrier Safety Administration) to broker shipments. It is also considered illegal for motor carriers with authority to double-broker loads without the knowledge and consent of all parties involved.
However, there is a legal practice called “co-brokering” where a shipment is passed onto another carrier, but the shipper has first given consent and agreed to the liabilities involved. Co-brokering works if a carrier has more loads than it can effectively manage but only if that carrier also has the proper brokerage authority to re-broker the freight to a different carrier company.
The main difference between co-brokering and double-brokering is that, in the former, the practice is done with the shipper’s knowledge and consent, while the latter is done secretly to exploit money. Double-brokering a shipment is always considered illegal.
What are the Consequences of Double Brokering?
Double-brokering scams, including fraudulent fuel advances, are estimated to cost the transportation industry more than $100 million per year.
For carriers, the consequences of double brokering can be financially devastating. When a carrier unknowingly participates in a double-brokered deal, payment ends up not being received for services rendered. All of their time, labor and resources that have been invested, including fuel and maintenance costs, go uncompensated. Brokers, on the other hand, must handle both disgruntled shippers and carriers, while spending considerable time resolving disputes. Additionally, both carriers and brokers face damaged reputations by being associated with failed or problematic deliveries, even if they had no knowledge of the double brokering.
Auto dealers are also at risk. When a vehicle is double brokered, the dealer loses control and visibility over the transportation process, leading to uncertain delivery times and vehicle conditions. This can disrupt a dealership’s operations significantly. Stores could have customers waiting for those specific vehicles. Even if they don’t, all dealerships plan their inventory management based on estimated delivery schedules. In the worst-case scenario where a vehicle becomes stolen or totaled during transport, the dealer could potentially face financial loss of that unit.
How to Spot and Avoid Double Brokering
Preventing double brokering requires diligence and attention to detail on behalf of all parties involved. The transportation industry is a complex web where drivers, dispatchers and everyone in between frequently move from one company to another. Individuals with malicious intent can take advantage of the chaos that’s created by these changes, in order to sneak into even the most robust of networks.
Dealers can mitigate their risk exposure by choosing reputable shipping partners that verify all of their carriers’ information and certifications. Not only will this help avoid double brokering scenarios, but dealers gain an extra level of support if a situation ever does arise.
Staying clear of double brokering is a difficult task for carriers that are trying to move as many loads as possible. Because of that, we’ve included some tips for carriers to ensure that their companies are not engaging with someone that’s impersonating a brokerage firm:
- If you’re using a new broker for the first time, there are tools provided by the DOT like SAFER that provide company snapshots to verify information.
- Ask yourself, “Is the rate too good to be true?” Is it consistent with the lane, or does it seem too high? Scammers will often post loads with inflated prices to secure a carrier, without any intention of paying for it.
- If a contract or other documentation has been provided, does it look like it has been altered?
- When agreeing to take a shipment, did you speak with an actual person, or was the communication strictly through email or text messages? Have you repeatedly attempted phone calls without success?
- Do the email address and web address match (e.g., @ExampleTransport.com and www.ExampleTransport.com)?
- If a broker communicates through a free email service like Yahoo! or Gmail instead of a company domain, that is a red flag.
Conducting your due diligence can prevent major headaches as well as thousands of dollars in thefts and claims. Double brokering can be avoided with the right knowledge and vigilance. By understanding what double brokering is and how to spot it, carriers and brokers alike can protect themselves and maintain the industry’s integrity.
David Sperau is the co-founder and chief revenue officer of Autosled.