Tackling the Double Brokering Threat: Insights and Solutions for Freight Brokers
Double brokering was found to be the number one type of fraud that worries freight brokers the most, with 50% placing it as their top concern. Here's what can be done about it.
In a recent FreightCaviar Poll, double brokering was found to be the number one type of fraud that worries freight brokers the most, with 50% placing it as their top concern.
Over the past five years, double brokering scams have increased significantly. In Q4 of 2022 and Q1 of 2023, Truckstop, a load board provider, saw a 400% increase in complaints regarding double brokering in the industry. This fraud involves a deceitful carrier obtaining a load from a legit broker only to reassign it to another unsuspecting carrier. Unfortunately, the carrier who delivers the load often ends up not receiving payment for their services.
FreightCaviar often receives reports of these scams via social media, as in a recent case where carriers were contacted by individuals impersonating major freight brokers.
What Makes Double Brokering so Difficult to Stop?
- Lack of Transparency: Double brokering often involves a primary broker assigning a load to a carrier, who then re-brokers it to another carrier without informing the original parties. This lack of clarity clouds the transparency of cargo's movement, potentially defrauding shippers and freight haulers, and causing severe reputational damage.
- Complex Supply Chains: The freight industry's reliance on complex and multifaceted supply chains contributes to the difficulty in tracking and managing loads. Carriers may work under various MCs and DOT numbers, and the used truck market further complicates the scenario, making it hard to tie one piece of equipment to a carrier.
- Weak Regulation and Enforcement: Regulatory frameworks and enforcement mechanisms are not robust enough to combat double brokering effectively. So, although double brokering significantly affects the industry, with losses estimated between $500 million and $700 million annually, it is seen as just “the price to play.”
- Carrier and Broker Challenges: Trust is a fundamental aspect of business relationships in the freight industry, with payment processes heavily influencing this trust. Only 10% of industry participants lack a systematic way of tracking bad actors. While current methods like maintaining internal lists or relying on external databases help, they are not comprehensive enough for large-scale mitigation of double brokering.
Red flags that may indicate double-brokering include brokers who don't want to provide their motor carrier numbers, unusual payment methods, and carriers unfamiliar with the details of the load.
The Impact of Double Brokering
Double brokering in the freight industry has several significant impacts, each contributing to the challenges carriers, brokers, and shippers face.
Environment of Mistrust:
- Undermined Confidence: The occurrence of double brokering creates an environment of mistrust among the various stakeholders in the freight industry. When carriers or shippers discover they have been involved in a double brokering situation, their trust in the brokerage system is eroded.
- Long-Term Relationships Affected: This mistrust can have long-lasting impacts on business relationships, making it harder for honest brokers and carriers to build and maintain trust with their clients and partners.
Disruption of Operations:
- Operational Inefficiencies: Double brokering can lead to miscommunications and misinformation about load statuses and locations. This can result in delays, missed delivery windows, and additional logistical challenges.
- Compromised Delivery Schedules: The initial carrier or broker's inability to track the load accurately often results in compromised delivery schedules, affecting the end customers' satisfaction and business operations.
The Financial Impact:
- Direct Financial Losses: Double brokering frequently leads to financial losses for carriers and brokers. In cases where the secondary broker does not pay the carrier, the financial burden falls on the initial parties.
- Reputational Damage and Associated Costs: Beyond direct financial losses, there are costs of reputational damage. Losing credibility in the market can lead to reduced business opportunities.
- Insurance Implications: Since double-brokered shipments are often not covered by insurance, there are additional risks of financial losses due to damage or loss of cargo, further exacerbating the financial impact.
Fight Back: Collaborating with Key Partners
Partnering with OTR Solutions can be a game-changer in safeguarding against double brokering scams. Here's how their offerings can enhance your defense:
- Stringent Onboarding & Underwriting: Ensures only legitimate, vetted carriers are engaged.
- Background Checks & FMCSA Verification: Adds an extra layer of security by confirming personal and regulatory compliance.
- Proactive Compliance & Carrier Blacklisting: Keeps a close eye on carrier activities, including those attempting to re-enter the market fraudulently.
- Alerts & Monitoring: Stay informed with double broker and chameleon carrier notifications, helping you act swiftly.
- Audit & Compliance Tools: Includes Power Unit Discrepancy Audits and insurance compliance checks.
- Enhanced Financial & Operational Visibility: Feel in control with ongoing monitoring of lien filings and real-time visibility.
- Efficient Processes: Faster document delivery and front-end freight audits streamline operations while maintaining quality.
These measures can be a significant asset in a broker's toolkit to combat fraudulent activities in the industry.
Support for Carriers
OTR Solutions also provides valuable services for carriers:
- 24/7 Broker Checks: Carriers can instantly check the approval status of brokers, ensuring reliable partnerships. OTR Solutions' system allows unrestricted access, offering approvals without credit concentration limitations.
- True Non-Recourse Factoring: This program shields carriers from the risk of non-payment on cleanly delivered loads. Eliminating chargebacks shifts the liability away from carriers, providing a more secure financial environment.
These tools enable carriers to operate confidently and securely in their business dealings.
Best Practices for Freight Brokers
To avoid double brokering in the freight industry, freight brokers should adopt these key practices:
1. Build Strong Partnerships: Forge relationships with trusted carriers and brokers known for their reliability and professionalism.
2. Verify Carrier Credentials: Thoroughly screen carriers to confirm their credentials and insurance coverage.
3. Clear Contracts: Ensure all contracts and agreements are explicit, with well-defined responsibilities for all parties.
4. Open Communication: Maintain transparent communication with carriers and shippers for aligned understanding and expectations.
5. Utilize Tracking Technologies: Employ real-time shipment tracking technologies to detect potential double-brokering activities.
6. Exercise Caution with Dispatch Services: Be vigilant when dealing with dispatch service providers, as they may increase double brokering risks.
Combating double brokering demands vigilance, informed strategies, and strong partnerships. Recognizing red flags, implementing best practices, and leveraging tools from partners like OTR Solutions are key steps in protecting your operations. It takes a collaborative effort to maintain the integrity of the freight industry.