Freight Brokers; Liability or Asset for a Shipper

As the freight world sits in a somewhat static freight recession, most of the business out there is being driven by rate reductions and cost savings, which slightly favors freight brokers and logistics companies. But it doesn't mean that every company will be opening their traffic doors to the non-asset based model, because asset based carriers are catching up to speed, trying to capture or recapture business based on price.

In my drivel today, I want to address the issue of shippers turning away brokers and logistics companies based entirely on the premise that they are an extra liability.

The fact of the matter is non-asset based companies can add liability to a companies transportation department if they are not run well or do not have the proper procedures in place. There are a lot of freight brokers and logistics companies out there who do not carry a Contingent Cargo insurance policy, which is not required by law for them to operate. And if you delve deep into most Contingent Cargo policies, you will find a lot of them have way too many exclusions. And speaking of exclusions, there are a lot of truckload carriers out there that have Cargo and Liability insurance only on scheduled autos. This means that the broker should verify coverage any time they see an insurance certificate showing coverage only for scheduled autos to make sure the VIN # of the truck hauling their freight is listed as one of the scheduled autos.

Another major risk posed by brokers is the unscrupulous get rich quick scheme of moving freight for some shippers, billing the shipper for the freight moved, collecting the money for the service and never paying the actual truck that moved the freight. Legally, the actual carrier of the load can bill the shipper for the service provided if they can prove they were never paid. (This actually protects the truck that moved the goods, which is the way it should be). And another form of this scam is the double brokering scheme, where a crooked company accepts loads from other brokers, posing as a carrier, (with what appears to be valid contract carrier authority and insurance), and then the same crooked company brokers these loads to actual carriers who move the freight. The crooked broker/carrier then collects money from the original broker, but never pays the actual trucking company that moves the load. These schemes happen every day in the transportation industry and they are the reason freight brokers earned a bad name in the 1990's.

But there a positive sides to shippers using a broker/logistics company. The first being that in the situations shown above, the broker should have procedures in place to keep these scenarios from happening. And if something does happen, the broker should protect the shipper by making sure the actual carrier is paid for the load, (even if it means they have to create a payment plan or borrow the money).

Other positive aspects of using a broker include added protection for the shipper through these procedures, technology for data and tracking, reduction in freight costs and additional insurance, (if it is a quality policy that carries merit). The broker can be an asset through the relationships it has developed over time with small, medium and large trucking companies and the broker can help a shipper fill its need for trucks, especially if their shipping volume is very inconsistent or volatile.

But probably the most important consideration for using a broker or logistics company is the ability of the broker to be flexible. The broker/logistics company must be able to adapt to the individual needs of the customer, (whether it be rates, equipment, time constraints, etc.). And this is where the people and technology of the broker have the chance to stand out.

I know I haven't addressed all of the pros and cons of using a broker. (There are far too many with most of them being basic arguments ie. control of the driver, knowing where the freight is, etc., but all of these can be defended by a reputable, experienced broker).