Dealing with Brokers – “Caveat Emptor”

Reproduced with the Permission of Miles L. Kavaller

The term “broker” is defined in the ICC Termination Act as:

“…a person, other than a motor carrier or an employee or agent sells, offers for sale, negotiates for, or holds itself out by solicitation, advertisement, or otherwise, as selling, providing, or arranging for, transportation by motor carrier for compensation.”

A broker is therefore a transportation intermediary typically arranging transportation on behalf of a shipper with a motor carrier.  Brokers receive compensation from the shipper, the carrier or sometimes from both.  And, while a broker will ordinarily be responsible for the payment  of the carrier’s freight charges, there are more than occasions where the shipper will be required to pay those charges when the broker doesn’t.

The decision of whether or not to use a broker, and then the selection of such an entity should never be taken lightly.  Pre-shipment investigation is essential.  Shippers should obtain a broker’s operating permit from the Federal Highway Administration.  The existence of a permit signifies that the broker has a surety bond in the sum of $10,000.00.  This bond is available to motor carriers whose freight charges have not been paid.

But insuring that a broker is licensed is just the beginning.  The broker will deal with various trucking companies.  While the broker may profess expertise in the transportation business and particularly with the shipper’s cargo, it is really the services of the motor carrier which the shipper is buying.  Shippers should therefore insist that the broker provide, at the very least, the Acord form certificate of insurance furnished by the motor carriers which identifies the various insurance companies providing coverage, including motor truck cargo coverage.  And, it is even good practice to obtain copies of the motor truck cargo insurance policies together with the declarations. 

This information will provide the shipper with the terms of the policy including exclusions, limitations and restrictions, not to mention the policy limits.  Indeed, there is no reason why the shipper cannot instruct the broker, preferably in writing, to use only specified carriers after the shipper has received and reviewed their motor truck cargo policies.

As I have indicated, there are occasions where a shipper will be required to pay a motor carrier’s freight charges, even though the arrangement with the broker called for the broker to do so.  Shippers can avoid this most significant problem by first having a written agreement with the broker which requires the broker pay the motor carrier’s charges.  Further, the shipper can insist, in its contract with a broker, that the carriers the broker selects agree to look only to the broker for payment of their transportation charges.  Shippers may therefore insist that before a broker uses a particular carrier, the carrier has executed an acknowledgment, in one form or another, insuring that it will look only to the broker and not the shipper for payment.

The horror stories from shippers about brokers are legion.  The two areas of most significant exposure are unpaid freight charges and unpaid claims.  These risks can be minimized by careful investigation of brokers and the carriers the utilize and with carefully drafted contracts.