What is double brokering vs co brokering? What is the difference between the two and are either of these practices even legal? That is what we are going to answer today once and for all in this video and article. As long as I have been a freight broker myself, we have engaged in the collaboration between other freight brokers who may have a farther reach than us as a company.
We see this in other industries as well like real estate, but there is certainly a gray area surrounding these practices that in some cases make them completely illegal. We are going to clear your understanding today and by the end of this video & article, you will have a full grasp of the concept of co-brokering, understand how it’s done, how to protect yourself, and how it differs from the illegal practice of double brokering.
In fact, let’s start by defining co-brokering right now.
What is Co brokering in freight?
Co-brokering in freight is the act of a freight broker, enlisting the service of another freight broker to help fulfill an order given by their customer. The brokers act together with full transparency and are protected by a co-broker agreement. Both brokers will typically split the commission of the sale.
While it is not uncommon for brokers to work together, many brokers typically won’t engage in this practice because of the liability it places on everyone involved. When you don’t have full control over a shipment it makes it difficult for you to solve problems, and keep your customer fully informed about their shipment.
How does Co brokering Work?
A cobrokering transaction is not much different than any other freight transaction. It involves 4 parties, a shipper, a broker (broker 1), a co-broker (broker 2), and a carrier who will ultimately move the load.
The full transaction takes place in about 5 steps.
- The shipper will tender a load to broker 1 for an agreed rate.
- Broker 1 will enlist the help of their trusted co broker, broker 2. The two brokers will sign a document known as a co broker agreement that protects each party in case of a discrepancy.
- Broker 2 will hire one of their trusted carriers in order to have the load moved. This may be done with or without the knowledge of the shipper. So long as the shipper is fully aware of everything that happens to their freight, there is typically no problem with this arrangement.
- The carrier will deliver the load and as always will send a proof of delivery to broker 2. Broker 2 will be responsible for paying the carrier. Broker 1 will collect the monies due from the shipper and use this to compensate Broker 2.
- After all parties are paid, the brokers and carriers are free to repeat the process or move on with their business. Co brokering is not an exclusive agreement under any circumstances.
What are the benefits of co-brokering in freight?
Co-brokering can provide a number of benefits to brokers, especially during the start-up phase of a brokerage.
- Leverage a larger network.
When you enlist the help of a co-broker, you are able to take advantage of their network as well as your own. This multiplies your reach and helps you get more work done that you wouldn’t otherwise have been able to handle.
- Leverage reputation.
If you are new to the industry, you may not have a strong credit score or reputation with carriers. By utilizing another trusted broker who maybe does have a better reputation and credit than you, you will be able to grow your shipper base and slowly build up credit of your own.
- Expand your Expertise.
Lets face it, as much as we all want to be experts at everything, there will always be someone better at what we want to do. We can choose to ignore this or we can embrace it. There are infinite possibilities of niches in the freight industry and some brokers have a better grasp at some of these than others. Co brokers are a great way to explore niches that may not be your strength.
For example, my brokerage specializes in liquid bulk transport. As a matter of fact, if you search “liquid bulk”on Google, my site is the first result to come up. We get 5-10 calls daily from other brokers seeking our help with their liquid bulk freight. Rather than be angry about this or greedy, we embrace this opportunity to grow our industry connections and get more business together.
What is Double Brokering in Freight?
Double brokering is the evil twin of co-brokering. This practice is not only frowned upon but Illegal and results in millions of dollars lost in freight per year.
Double brokering is the act of a carrier, without a registered broker authority is assigned a load from a broker and proceeds to tender this load to another broker or carrier, with or without the authorization of any other parties to the transaction.
In other words, rather than a broker tendering a load to another broker as we see in co-brokering between freight brokers, in this case, a carrier tenders a load to another carrier.
This is illegal because a carrier’s MC number authorized by the FMCSA does not give a carrier the right to perform this action. By law, when a carrier accepts a load, they must utilize their own equipment in order to perform the work they were given. This act is illegal because carriers simply do not have the proper licenses, bonds, or authorization from the FMCSA.
How do you recognize a Double Brokered Load?
Double brokered loads can be hard to recognize and most don’t come to light until it is too late. However, there are a few items you can run through a pre-load checklist to see if you are a victim of an illegal double brokering operation.
- The dispatcher never has accurate information
When dispatchers fail to provide updates about their truck’s whereabouts or you find it difficult to get in touch with them, that is a possible indication of a double-brokered load. While some dispatchers are just plain irresponsible and bad at communication, if you can not get clear answers from them you should try to avoid using them at all costs.
- A Different Carrier than the one you assigned calls for pickup information
If you ever find yourself in a position where a carrier, who you did not assign to a load, calls you with questions about the load as if they are picking it up, this is a strong sign that your load was brokered. In every instance, you need to be aware of the carrier who is hauling your freight. If this is ever different than what or who you were expecting. You must take action to figure out the situation immediately.
- The door sign on the truck does not match the rate confirmation
By law, every truck with a carrier authority must have a “door sign” this is a sign on their truck’s door with identifying information such as an MC number, company name, business address, etc. A good practice is to have your shipper verify the name on the door sign of the carriers who are picking up your loads. It will be very easy for you to identify a mismatch and catch a double-brokered load before it ever starts.
Closing thoughts
I hope this article has brought some clarity to you about the complex topics of brokering and double brokering. While we established that co-brokering is a perfectly legal and acceptable practice in the freight broker industry, double brokering is completely illegal, frowned upon, and results in millions of dollars lost to scammers in the industry every year.
Now, aside from this article and the video which you should have watched to supplement this information, there is plenty more you can do to protect yourself from losing money in a double broker scheme. Our program, the freight skills academy, covers this in depth, and when you join, not only do you have access to a professional co broker agreement, but you get full access to all of Luis’ industry tips that have protected his brokerage for over 15 years. Check out the Freightskills academy today and never fall for a double broker scheme ever again.
