Who’s Got The Freight?

By Henry E. Seaton
February 2010
Reprinted from:www.ccjdigital.com / etrucker.com

Q: We are a property broker that arranges transportation using various load matching services. We do all that we can to confirm that the carrier we hire is licensed, authorized and insured, and our contract precludes double brokerage. We are sick and tired of our customers being dunned by subcontracted carriers who do not get paid by the carrier we hire. It seems like the spot market is full of dishonest middlemen who accept shipments as carriers and then broker the loads to third parties, collect the money and disconnect their phones. How can we keep our customers from being dunned by the carriers these middlemen hire but fail to pay?

A: The problem you raise seems to be getting worse, not better. Under traditional principles of federal transportation law, the bill of lading is the contract between the consignor and the carrier who provides the service. The carrier delivers the freight on time and intact, in return for the consignor’s promise to pay the freight charges. As I have written before, most circuits allow the carrier recourse to the consignor in the event of nonpayment by the intermediary that the shipper retains.

Hence, a predicament results when somebody in the middle runs off with the money and the victims are left to sort out who bears the risk of loss. The carrier that demands payment from the consignor probably does not know you were even involved. It is not a party to the contract between you and the carrier/broker who tendered him the load, so he had no notice that the shipment was being double-brokered without your permission.

While I believe the equities in case law generally favor the carrier’s recourse to the shipper and double payment by you or the shipper if necessary, my opinion does not solve the problem or create a safe and secure supply chain. The problem of double brokerage goes well beyond the issue of freight charge payment and is exacerbated, if not caused, by the fact that all too frequently the consignor does not know or does not care who actually transports its freight.

All too frequently, the shipper prepares the bill of lading and inserts the broker’s name as the carrier. It is a mistake, in my view, for the broker to allow this. The consignor needs to know the name of the contracted carrier and to make sure that the contracted carrier is the one that makes pickup. This can be done by simply matching the name on the bill to the name on the door of the tractor.

Completing this loop is necessary for several reasons. First, if the POD was verification that the carrier you hired provided the service, your double-payment exposure would be largely alleviated. Secondly, it is a misrepresentation of the broker regulations for you to represent yourself as a carrier. If you sign a shipper’s contract as a carrier and allow your name to appear in the carrier block on the bill, aren’t you contributing to the very confusion and fraud that creates the problems of which you complain? Moreover, when you are represented on the bill as the carrier, you invite being named in a vicarious liability lawsuit when some renegade carrier you never hired is involved in an accident.

Thirdly, you should have real concerns about cargo loss or damage claims. When loads are double-brokered without your knowledge, you have no way to assure your shipper that the carrier in possession and control of the shipment can even pony up a certificate of cargo insurance for what it’s worth. Finally, after 9-11, there are ever-increasing TSA and FDA regulations that require verification and monitoring of chain-of-custody issues that are violated when the shipper cannot identify the actual custodian of its freight, to say nothing of the potential hijack or larceny-by-fraud issues that can result.

In sum, I know it is a novel idea to suggest that a broker should provide the shipper with the name of the authorized carrier it hires and ensure that chain of custody be verified and confirmed at point of origin. However, “trust but verify” is the most prudent course of action.

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