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Broker trade group renews double-brokering debate with new white paper

The leading trade group representing the brokerage industry is diving anew into the double-brokering issue.

In a white paper recently distributed to its members, the Transportation Intermediates Association focuses to a large degree on instruction and precaution as well as advocacy.

Double brokering has multiple definitions. But it has a consistent meaning for the TIA, according to Vice President of Government Affairs Chris Burroughs.

“So the TIA definition of double brokering for us is typically a broker selects a trucking company to haul their freight,” Burroughs said in an interview with FreightWaves. “And then unbeknownst to the broker, the trucking company proceeds to re-broker or double broker the load back out to another carrier that ultimately makes the haul.”

That doesn’t always result in the freight being brokered safely and on time. Burroughs said the double brokering may go to a company without proper authority and the original broker doesn’t find out about it “unless something bad happens.”

The issue is not new, though Burroughs said it has flared up again recently to levels he has not seen for a long time.

“It’s getting worse,” he said. “We talked with one of the largest factoring companies in the U.S., and their latest quote is that double brokering is affecting upward of $500 million to $700 million in freight.”

The so-called “Glendale Gang” from Southern California appears to be a key reason for the surge and the concurrent concern. The double-brokering activities of the Glendale Gang involved numerous companies popping up and then disappearing.

It was an issue back in 2012 when TIA worked on the MAP 21 legislation, an Obama-era law that dealt with surface transportation and was more formally known as Moving Ahead for Progress in the 21st Century Act. Burroughs said that legislation requires the brokerage of freight to have legal authority. It also raised the bond requirements for brokerages to $75,000 from $10,000.

“What we’re seeing as middle players are more fraudulent companies masquerading as trucking companies,” Burroughs said. “They are often based outside the U.S. and they might have some operative in the U.S. who gets authority with [the Federal Motor Carrier Safety Administration] until they get shut down.”

The modus operandi for these companies, according to Burroughs, can vary. But one scenario he spelled out involves getting a load, seeking quick-pay services (which does take a “haircut” out of the payment), and then reposting the load on load boards at a wildly inflated price. The middle company gets its quick-pay cash, it does not pay the carrier it dumped the load to that accepted the load at the rich price, and the double brokering “carrier” then disappears.

That obviously is not a long-term business plan. Burroughs said a company that is located offshore can operate like that for about 30 days “until FMCSA figures out what is going on.”

A TIA member recently found that one of their load board accounts was hacked and then used for double brokering 30 to 40 loads, Burroughs said. “So here were 30 to 40 carriers getting screwed.”

There are other problems that come with double brokering, long discussed in the industry and echoed by Burroughs. Safety is near the top of the list, since the carrier moving the freight on to somebody else has little incentive to care about the safety record of the trucking company actually moving the freight.

But if it’s the carriers who are mostly the victims of these scams, what is the TIA’s interest? Burroughs said in many cases the broker that legitimately started the chain will compensate the carrier at the end of the chain that found itself the financial victim of the double brokering. “Many times the fraudulent company is never heard from again, and to save relationships with the carrier, we often pay the one that ultimately delivers,” Burroughs said. But he noted that comes after the scam carrier got paid too.

Burroughs said TIA’s goal with the white paper was to “provide our members with educational potential red flags.”

Some of the steps seem painfully obvious, such as more careful inspection of a company’s email address. While the white paper has not been made public other than to the group’s members, Burroughs listed other red flags to signal a carrier that might be in business just to double broker:

— A carrier’s authority that has just recently been activated.

— Multiple address changes.

— Resistance to adopting technology such as tracking apps or to something as simple as giving out a cell number.

— The request for quick pay. which is legitimate in many transactions but in conjunction with other red flags could be a sign of trouble.

— And a willingness to take a rate for a load that is less than what is being posted because the plan is to cash out quickly anyway before the double broker is detected.

Burroughs said not all double brokering is illegitimate. For example, a carrier that had freight brokered into it might find itself in a capacity squeeze and needs to turn around and re-broker some of that freight into a carrier that has capacity. However, in a situation like that, the shipper is expected to be notified and its permission granted for the re-brokering.

As far as a potential revived role for FMCSA, Burroughs said MAP 21 includes penalties for double brokering of up to $10,000 per incident. “That was put in there as a deterrent,” he said.

“We know the agency is strapped and doesn’t have a lot of investigators,” Burroughs said of FMCSA. So during the writing of MAP 21 back in 2012, Burroughs, who was involved in the discussions, said the goal was, “Let’s give them this civil penalty provision to financially go after bad actors in the space.”

But Burroughs said FMCSA believes it has been restricted by an administrative law judge decision from 2019 that bars the agency from enforcing civil penalties for commercial violations. FMCSA needs to stick to its mandate to govern safety, according to its interpretation of the decision, Burroughs said.

The TIA did manage to get legislation into the omnibus spending bill at the end of 2022 that, as Burroughs put it, reiterated that Congress “meant what we said back in 2012 [about double brokering] and we need to figure out how to address this.”

TIA does not believe FMCSA is without recourse even if the administrative law judge decision does limit its powers. “There are other avenues they can take,” he said. “They can put people out of service but there seems to be no appetite to do that.”

In its prepared statement on the release of the white paper, TIA said the problem has “remained unchecked” by FMCSA.

FMCSA had not provided responses to FreightWaves questions about the TIA white paper by publication time.

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