What is double brokering and how to avoid them?

Whether it’s the pandemic, inflation, or a desire to capitalize on a cracked global supply chain, we’re always seeing an uptick in fraud throughout the transportation industry. Criminals usually know their way around the freight market, making it quite hard to detect scams. But, there are many ways that carriers can validate the identity of the person they’re working with and avoid being defrauded.

This blog will look at what is double brokering and how to avoid them and prevent from getting wrapped up in one.

What Is Double Brokering?

Double brokering can be referred to as a practice that occurs when a freight broker offers a load to a particular carrier and that carrier assigns the load to another carrier.

Double brokering loads is a questionable practice and is quite different from the brokerage process of co-brokering. A major difference is that double brokering is not done with the agreement of the company doing the shipping.

However, in double brokering, the shipping company is unaware of the double-brokered load status. There are several risk factors associated with double brokering and also laws on double brokering freight. Understanding the double brokering process can be helpful for a person to avoid the potential consequences of double-brokered loads.

The Process of Double Brokering

The process of double brokering is multilayered and widespread throughout the United States. Double brokering starts when a freight broker books a load with a particular brokerage company, considering the company will move the brokered loads with their truck and driver.

Instead, the brokerage company will negotiate the booked loads out to another trucking company, showing it as their load. The actual trucking company will complete the pickup and delivery of the brokered loads, thinking they hauled the load for the brokerage company they just worked with – the secondary brokerage company.

Then, the actual trucking company that completed the transport of the brokered loads, will send the invoice of the trip to the brokerage company that hired them. The secondary broker will invoice the original freight broker for payment. The original freight broker will then pay the brokerage company they booked with, believing the company hauled their brokered loads.

The worst part of the double brokering scheme is when the secondary brokerage firm receives payment, but it does not pay the actual trucking company which hauled the brokered loads. Anyway, the freight broker is compelled to pay the actual trucking company or double pay.  Thus, double brokering loads is unethical and there are laws on double brokering freight.

Is Double Brokering Illegal?

The question “is double brokering illegal?” is very complex. As there are laws on double brokering, and a possible penalty for the same in some cases, other times double brokering is considered unethical rather than illegal.

The actual answer to when double brokering is illegal is when a broker receives payment for brokered loads and doesn’t pay the carrier after the freight is shipped. This type of double brokering is called theft of services or fraud and can result in a jail sentence or penalties for restitution per laws on double brokering freight. It is important to avoid double-brokered loads.

In 2016, a Michigan-based freight broker was sentenced to prison for double brokering fraud. The broker was found guilty of accepting payments from customers for shipments but failed to pay the carriers who actually transported the goods. The broker was ordered to pay $743,000 in restitution to the victims.

How to avoid Double Brokering Freight?

There are various ways freight brokers can avoid double-brokering freight. Avoiding double brokering starts with some important preventative steps as listed below.

i) Investigate the Broker

To avoid double brokering, it is extremely crucial to investigate the broker. This involves completing a background check on the potential broker against the Federal Motor Carrier Safety Administration registration for any reported concerns regarding suspicious dealings or unethical actions. Also, cross verify the brokers’ credit scores and safety ratings.

ii) Work with Trusted Brokers

To reduce double-brokered loads, build and maintain relationships with brokers you trust to be ethical. Stay in touch with brokers who are transparent and known to be honest. While tempting to broker a low-priced load, to prevent the risk of getting caught in a double-broking scheme, it’s always safer to use trusted brokers.

iii) Mind the Freight Rate

Another way to avoid double brokering by an untrustworthy broker is to validate the rate confirmation after brokered loads have been booked. One indication that double brokering occurred is, if the rate confirmation needs you to check in as someone other than the actual carrier in which brokered loads was booked.

Confirm that the bill of lading matches the rate confirmation at the time of pick up. Another indication that double brokering loads have happened is when brokered loads have an unreasonably high rate and the broker requests proof of delivery to be forwarded to a random email address immediately after delivery.

iv) Use a Trusted Loadboard

Not all load boards are created safely that considers validating basic threat checks and safety measures. Look for one that verifies and approves carriers and brokers prior to posting or handling loads and has strong security measures in place. For instance, the DAT Load Board has an entire team dedicated to denying access to fraudulent parties and verifying every carrier and broker.

v) Find Tools to Automate your Processes

Carrier onboarding and monitoring tools, like Risk Management Information System (RMIS) will help you in reducing fraud and compliance vulnerability. In addition, other transportation software helps you streamline your work and prevent the potential for human error, reducing the risk of costly mistakes.

vi) Read Contracts Carefully and Verify The Documents

This is one of the major steps in avoiding this scam as many agreements address double-brokering head-on. Check the language minutely and ensure all compliance documents, insurance certificates, and required licenses are current and valid.

vii) Don’t Hesitate to Stop the Transaction

If you feel that something seems off, trust your intuition. Start interrogating, do your due diligence, and take extra precautions. The shipper will indeed appreciate the effort you took to protect their freight instead of taking incautious and unnecessary risks.

Double-brokering is uncontrolled in the transportation industry. However, if you are equipped with the right tools, you can go the extra mile to safeguard your business and your reputation against freight fraud and malicious purposes.

Who Gets Affected by Double Brokering the Most?

Well, if you are working for a small company and if you have a couple of these invoices of $8,000, $9,000 and $10,000 – Multiply it by 4-5 loads that you are not getting paid for. That is where the problem arises along with the question, how are owner operators or company truck drivers going to pay the bills, if they didn’t get paid.

Small fleet owners are probably the ones that are getting affected by these the most. If you are working for a small fleet company that is getting caught up in the middle of this double brokering then they won’t have sufficient funds to secure your payment as a company truck driver.

In addition, owner operators who are working for a small carrier or working with a fleet of five to six trucks and get caught up in this double brokering and the respective broker isn’t paying your invoice, you might also suffer miserable in terms of funds shortage.

Additional Details in the risk of double brokering

When double-brokering occurs, the original broker of the goods no longer knows who is handling their customer’s cargo but is still responsible for its transportation and delivery. This is risky especially because the “new” carrier might not be qualified to haul the load or have the required documents or permits.

And, the carrier that is transporting the freight is at risk of being left unpaid by the party who facilitated the scam. They could also face legal consequences unknowingly, be denied an insurance claim, or be held accountable in the event of an accident or lost or damaged cargo.

Conclusion

In conclusion, this article covers the essential part of What is double brokering and how to avoid them? It’s always good to be on the safer side but storing all this information in mind beforehand rather than finding yourself in one of these scams. Is double brokering illegal has also been discussed along with all the tips to avoid this fraud.