the Perils of Being Carrier and Broker
By Henry E. Seaton
Reprinted from etrucker.com
With drivers in short
supply and freight plentiful, many small carriers accept shipments they
cannot deliver with their own equipment. If you hire another carrier
to provide service on your behalf, you can act either as carrier or
a broker. Your choice has potential legal consequences.
The 1995 Interstate Commerce Commission Termination Act redefined "motor
carrier" to allow carriers to arrange for movement of property.
A broker is a person or company other than a motor carrier that arranges
for transportation for compensation. Many small carriers don't understand
the legal distinctions between carrier and broker status.
Carriers have traditionally been allowed to obtain both carrier and
broker authority. As carriers, they have accepted loads under bills
of lading contracts and then, as brokers, tendered those loads to subcontractors.
Similarly, many pure brokers encourage use of their name as the carrier
on bills of lading because it isolates their customers from the actual
carrier and advances their own credibility.
Neither practice is wise - or entirely legal. Broker regulations provide
that a broker shall not, directly or indirectly, represent its operations
to be that of a carrier. Any carrier claiming to act as a broker in
its own name - or any pure broker claiming to be a carrier - violates
this regulation and risks litigation for cargo claims, physical damage
and personal injury that brokers, in the absence of negligent entrustment,
could otherwise avoid.
If you allow yourself to be named as the carrier on the bill of lading
or represent yourself as the carrier on a load you actually broker,
you may face a lawsuit - even if you prevail on contract indemnity.
Absent special arrangements with your insurer, you may have no coverage
as a carrier on loads you arrange. If you are a pure broker, you are
subject to a lawsuit if you are named on the bill as the carrier.
To avoid litigation, establish a separate but affiliated brokerage or
logistics company with its own name and docket number. By contract and
by tariff, reserve the right to handle shipments entirely through your
broker affiliate. Warrant that your affiliate will pay the carrier and
that the service provided meets your shipper's contractual standards.
Then instruct the subcontracting carrier to execute the bill of lading
in its own name, ensuring the bill clearly shows your broker affiliate
as the third party to be billed. Do this, and you will have reasonable
protection against suit. Although the 1995 statute allows you, as a
carrier, to arrange for transportation without being a broker, the practice
outlined above is safer.
Setting up a broker affiliate to handle excess freight makes for simpler
compliance with regulations that require segregation of broker revenue
from non-broker revenue. It also makes it easier to steer clear of liabilities
and claims issues. Establishing an affiliate also makes for easier accounting
to insurance companies and state revenue departments, which require
carrier payments based on revenue and profit. And you can analyze your
"pure" carrier operations as a distinct profit center more
If you set up a broker affiliate correctly, you can spare you shippers
and subcontracting carriers confusion and protect yourself from potential
liability that could arise from failure to define your role in brokered
the formal definitions of motor carriers and brokers, see 49 U.S.C.
Sec. 13102 at www.truckingco.com/resources. For regulations concerning
brokers, see 49 CFR 371 at the same location.
legal precedents regarding carriers acting as brokers and vice versa,
see Franklin Steel v. Marlo, 749 F.2d 30 [4th Cir. 1984] and Maggard
Truck Lines v. Dieten [MD.Ga. 1983].