Don't Let Broke Broker Break You
By Henry E. Seaton

March 2009
Reprinted from

Unrelated offset has no bearing on your bill

Q- As a carrier, we signed a broker-carrier agreement appointing a broker as our agent for collection of freight charges. Now the broker claims it cannot pay us because the shipper has offset a cargo claim incurred by some other carrier that the broker used on unrelated shipments. Can they do this, and what should we do?

A- Unfortunately, this is an all-too-frequent occurrence. Undoubtedly, the shipper selected the broker to find carriers to service its account but was unwilling to accept responsibility for the broker’s misfeasance or malfeasance in transmitting payments to you. It is fairly typical that brokers want to be your agent for the purposes of collecting freight charges, even though the broker actually is retained first by the shipper under a long-term logistics agreement. Yet, if what the broker tells you about the offset is true, and you have not signed away your rights otherwise, all is not lost.

As mentioned before in this column, a carrier has recourse to the shipper for payment of freight charges in the event of broker malfeasance or misfeasance under prevailing case law in most circuits. Even if the shipper were to argue that by contract you made the broker your agent so that the shipper’s payment to the broker cut off that recourse, the shipper hardly can argue that in such an agency appointment you agreed to act as a cargo reinsurer for services provided by unrelated carriers or to accept an offset for the negligent acts or omissions of the broker in retaining other carriers to service its account.

Unless waived by contract, the broker regulations require the intermediary to segregate accounts and to keep accounting showing on a freight-bill-by-freight-bill basis who was billed, when they paid, and when the payment was transmitted to the carrier. I suggest you immediately send a letter to both the broker and its shipper stating that you have not been paid in terms and request this accounting data. Make clear that you expect to be paid and that any alleged dispute between the shipper, the broker and unrelated parties has nothing to do with the shipper’s obligation to transmit payment for your invoices to the broker and, in turn, for the broker to transmit those receipts in trust to you. Only by asserting your position promptly in writing can you protect your legal rights under these circumstances.

It is unfortunate, but all too often brokers totally ignore the regulations concerning cross-collateralizing their carrier payables to the point that these problems occur. A broker under the Carmack Amendment has no liability for cargo loss or damage. If they want to accept this liability on a direct or contingent basis, they need to have contingent cargo insurance or be self-insured with adequate letters of credit to meet that obligation.

Shippers who think they merely can offset six-figure cargo claims against brokers without precipitating a breach of the broker regulations are naive. Unfortunately, with freight revenues dropping, brokers who have been “living off the float” are beginning to encounter cash flow shortfalls that expose their actual insolvency. Accordingly, carriers need to fortify and revisit their credit and collection policies, ensuring that recourse and adequate credit assurance is maintained to avoid this type of predicament. - Henry Seaton is a transportation lawyer who represents carriers.
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