As a transportation company, you will often find yourself needing to work with a broker, either to ship freight or as a trucking company. However, there may be a scenario where your broker will need to enlist another broker or another entity other than a carrier to ship out a load. This is often interchangeably referred to as double brokering or brokering without authorization. However, are the two terms one and the same thing? Is either action legal?
When a shipper hires a truck broker to move an interstate shipment on their behalf, the expectation is that this broker will directly consign the shipment to an authorized carrier and on behalf of the shipper the broker will pay the carrier after the movement is successfully completed within the terms agreed upon between the broker and the carrier. This transaction is the norm in brokering.
The confusion between double brokering and brokering without authority begins when a normal broker transaction does not occur. However, it is easily cleared up by knowing the exact definition of each phrase.
Double brokering occurs when the broker who was hired by the shipper fails to find an authorized carrier and instead, turns the load over to another broker to hire an authorized carrier. Freight moved by double brokerage is technically legal, but often is regarded as a deceptive practice.
Brokering without Authorization
You will commonly hear people refer to the following situations as “Double Brokering”, but it is not Double Brokering, but Brokering Illegally or Brokering without authorization, pick your saying. If a carrier hired by the broker, instead of moving the shipment on one of their trucks, runs the shipment through a brokerage company they own and hires a different truck to move the shipment or the Carrier hired tries running the load through a totally different Broker or Carrier, then they are brokering without authorization.
Moving a load without brokerage authority is illegal. It is mostly done by authorized carriers that don’t have available equipment to move a given load so they turn it over to another carrier, but remain the middle man between the shipper and the actual carrier so they don’t lose business with the shipper.
The shipper who is paying for the freight now has no clue to who is actually hauling their load. Besides being illegal, there are many problems that can arise from this type of transaction: Who would the shipper seek restitution from if the load is damaged? Who does the actual carrier seek payment from if the hired carrier doesn’t pay them. Can they file on the Carrier’s Brokerage companies Bond?
Note: In order to get legitimate brokerage authority a company or an individual must make an application to the FMCSA, which is the governing body on all interstate trucking. Additionally, the individual or company must put up a $75,000.00 bond, or cash, or enter into a trust agreement with a financial entity for the same amount. If all is approved the company or individual becomes an authorized truck broker.
Why is Double Brokering Performed?
If a shipper is requesting an interstate shipment of freight and there is more than one broker involved in the transaction between that shipper and the carrier that moves the freight, that is the text book definition of double brokering.
Brokers are extremely protective of the business with their customers. With some customers, brokers will have an office in their customer’s building and will handle all of their traffic.
In any case a broker will never want to tell a shipper customer that they can’t find a truck for their shipment. If they cannot locate an authorized carrier directly, they may contact another broker as a last resort to protect their relationship with the shipper.
In this case, the broker knowingly involves another broker when they have run out of options. In less frequent cases, the original broker may not know another broker is involved. This happens when the carrier they try to hire also owns a brokerage company and rather than haul the load on their truck they use their brokerage to hire a different carrier to haul the load.
Double brokering is legal but arguably unethical. At least one of the parties involved in a double brokered shipment is being deceived. If all goes well with the shipment and everyone gets paid as agreed then the deception probably goes unnoticed.
However, if there is a problem with the shipment or someone doesn’t get paid as agreed then the deception unravels and relationships can be seriously or even permanently damaged. UC Factors will not factor double brokered freight bills because of the potential for disaster and because we are not fans of any kind of deception.
Although you may not be able to know if you are involved in a transaction that utilizes double brokering or broking without authorization, we would advise all our clients to be very cautious. Working with a reputable and trustworthy broker is the best way to ensure that you are participating in transactions that are above the law and do not involve any deception from any party.
Another way to avoid shady or illegal transactions is by working with a reputable factoring company who knows the ins and outs of your industry. A company like UC Factors has the knowledge and experience to find out if a broker is reputable or if they are someone your company should avoid.
One of the best ways to avoid deceptive transactions is by working with a factoring company who knows the industry. Learn how to choose the best factor for your business here: