What is Double Brokering, Why It's a Major Problem, & How Tech Can Fix It
Double brokering has become a significant issue for the freight industry, often leaving a carrier unpaid or a shipper unaware of their load's location or delivery timeline. Additionally, double brokering results in a shipment not covered by insurance, as the policy doesn't apply to rebooked freight.
In a world that demands fast, efficient deliveries despite tight capacities, instances of double brokering have taken off, and scams cost the industry over $100 million annually. We’re here to tell you what double brokering means and what you can do to combat it.
Let’s start by explaining what double brokering is. Double brokering occurs when a freight broker books a load with a carrier, only to learn later that the “trucking company” is actually another broker. The secondary broker changes prices when they book the shipment with another carrier. Sometimes, the secondary broker will disappear and never pay the carrier.
An illicit double broker leaves a load without insurance, clouds the transparency of cargo's movement, and potentially defrauds the shipper and freight hauler, causing severe reputational damage to the initial broker and shipper.
Co-brokering is very different from double brokering because two brokers work together with the shipper's approval when the initial broker's network of carriers and resources can't get the job done. The co-broker is an asset that might move the freight more efficiently and effectively through their network, benefiting the shipper.
With co-brokering, there is transparency, and the shipper receives updates on their freight's status. The adaptability offered by co-brokering often results in savings for the shipper and gets the cargo where it needs to go much more quickly.
Co-brokering is an opportunity for brokers to take on loads they might otherwise not be able to accommodate. The brokers split the fee, and the shipper gets optimal results.
It's a win-win-win situation.
While double brokering is often considered a way to undercut carriers, co-brokering is an alliance to provide the necessary logistics and efficient freight transfer.
When learning more about what is double brokering in freight, a natural question is the legality of the practice. Is double brokering illegal? Yes, but it's complicated. It's legal if the shipper consents to the use of a second broker, and the arrangement benefits the shipper and is transparent. But as discussed previously, that's a co-brokering situation.
It is illegal if the shipper doesn't know that a load is double-brokered, and there is no situation where double brokering doesn't introduce risk and possible harm to multiple parties. As such, double brokering violates many state and federal laws, specifically MAP 21 legislation.
If you suspect double brokering is occurring, contact the appropriate law enforcement agencies, as it hurts the industry and many innocent parties.
A double brokerage example would be when the shipper approaches a broker to arrange a shipment, and that broker unknowingly ends up using a second broker. Another circumstance might be that the motor carrier agrees to transport the freight under the guise that it will be a hauler and then re-brokers it to another carrier through its brokerage.
Essentially, double brokering is a broker pretending to be a hauler. Neither the shipper nor the broker knows that the freight contract has been violated.
Either event compromises the original broker and the shipper because:
The hauler handling the freight is unknown.
The permits and legal requirements of the hauler are unknown.
Insurance for the load is potentially compromised or inadequate.
There is no transparency regarding what due diligence was performed on the carrier.
Tracking the cargo becomes impossible or dubious, causing the broker and shipper to receive incorrect information and have no knowledge of when the freight will reach its destination.
Double brokering is a fraud; often, a double broker disappears with the money only to form another entity or use the name of another company and defraud others.
Like all situations involving fraudulent actors, it can be tough to know when working with a double broker.
Preventing double brokers from taking advantage of you requires a commitment to due diligence on every party with whom you do not have a long-standing and successful relationship. Due diligence is challenging, as carriers and brokers that seem legitimate work the load boards and book shipments to be moved. A load contracted with an authorized carrier might even appear on the load board again with the details of the authorized broker changed.
One sign that a carrier is questionable would be a lack of inspections in the federal system. It indicates that a freight carrier claiming to have 20 trucks might only have one and is double brokering. If you don't see an inspection over the past year, that should trigger immediate concerns, as any carrier with multiple trucks would indeed have at least one recent inspection. An MCS-150 filing can claim the carrier has any number of trucks, but a lack of inspections will reveal that to be untrue.
For carriers, identifying a double brokering scheme might be more difficult as due diligence on a broker often results in no red flags other than the low rate on an offer. Carriers need to hold the line on their profitability and be suspect of someone using a Gmail address or an email address different but similar to a reputable brokerage's website. The best due diligence is calling the company directly to verify identities.
With complexity growing and more freight shifting between spot and contract markets, these schemes have a higher likelihood of surviving.
A FreightWaves investigation into double brokering revealed a multimillion-dollar load board scam involving nearly 600 companies formed by just one company.
A broker working for a Midwestern logistics company used a spreadsheet to track suspect companies — mainly in Southern California — and saw the numbers go from several to 600 in just a few years. The network created hundreds of fake MC numbers, pretending to have the trucks necessary to carry the loads.
Double brokering scams cost the industry over $100 million yearly, resulting in losses of hundreds of thousands of dollars for some shippers and brokers and tarnishing the entire industry.
With so many bad actors, these scams could be a few orders or hundreds of orders committed by a single entity. Depending on the size of the scam, losses may range from a few thousand dollars to over $100,000 for a single company.
It is too easy to misrepresent who is hauling the freight, make money, and then disappear to start the next fraudulent entity.
The double-broker offers below-market rates to pocket the difference, which traditionally means the unverified carrier is not qualified to carry the customer's freight due to various factors, including safety records or the age of the business. This unverified carrier results in significant liability issues in the event of complications such as accidents or theft.
The environment is ripe for fraud as shippers want quick turnarounds for a shipment that "has to go," often resulting in a lack of due diligence by a rushed broker. Industry resources that quickly provide reliable information are hard to come by.
Carriers might work via dispatch services or under various MCs and DOT numbers. The used truck market adds additional complexity as their use in active fleets for small and midsize trucking companies clouds the ability to tie one piece of equipment to a carrier.
From a business standpoint, tremendous risk results when the party on the other side of the phone can't be thoroughly identified. In situations so conducive to scams, a company is stuck taking someone at their word, which is unacceptable.
Our partnership with Highway allows Edge to verify the person on the other end of the call, preventing the chance of fraud and eliminating the trust gap, resulting in Edge staff focusing on carriers that can prove their legitimacy.
Highway doesn't only verify the company we are considering for order placement but also the individual, eliminating the chance of misrepresentation by a double broker. A full readout on each carrier allows Edge to maintain a strong network and adapt to new onboarding processes without issues.
Bad actors aren't going away and will continue to evolve, jeopardizing the industry with new schemes and methods. Using the tools in Highway gives Edge the ability to counter double brokering with comprehensive due diligence. We can make educated decisions on every carrier, protecting our shippers.
Double brokering will continue to be a significant threat to the freight industry as scammers find new ways to take advantage of others. The results of illegal double brokering are severe and costly for brokers and shippers.
Efficient and accurate due diligence provided through the Highway platform gives Edge Logistics the upper hand over double brokers with every booked load, and it’s just one of the many ways we protect and assist our shippers in moving freight safely and efficiently.
Edge eliminates the tremendous risks of those who misrepresent themselves to profit at the expense of others. Contact us today, and let us protect your organization from the threat of double brokering.
About the Author
Pamela is the Senior Marketing Manager at Edge Logistics. She has a Bachelors of Arts from DePaul University in Public Relations and Advertising with a minor in Photography. Pamela is responsible for overseeing advertising, marketing, press, and social media related to Edge.