Compliance Myths: Double brokering is illegal

It’s no secret trucking is one of the heaviest regulated industries in the United States, at least from a safety perspective. With hundreds, maybe even thousands, of laws and regulations to be concerned with, there's bound to be some misunderstanding or misinformation out there on various regulatory topics. So in this series, we aim to dispel some of the most widespread trucking compliance myths and hopefully bring some clarity to these often complex issues.

The first myth we wanted to tackle—driven by some recent regulatory developments which we’ll get to later—is the idea that it is inherently illegal to engage in so-called double brokering. In other words, that its unlawful for a motor carrier who has been hired to haul freight to turn around and broker that freight to another carrier. Spoiler alert…that’s not necessarily true.

If you’re even somewhat plugged into trucking-related social media and forums, you’ve undoubtedly seen some pretty heated debates online about double brokering. Some folks get pretty up-in-arms on the topic, and rightfully so. If I’m a shipper or broker who needs to get freight from point A to point B and I spend time researching and selecting a carrier who I believe can get the job done safely and efficiently, the last thing I want is for that carrier to hand my freight off to a different carrier who I know absolutely nothing about and who I have no contractual relationship with. If that unknown carrier is then involved in a serious accident or damages my freight, it’s certainly going to be much tougher for me to find any recourse.

Without a doubt, double-brokering is a problem in the industry. But is it illegal? Is it a violation of any law for a carrier to tender a shipper’s or broker’s freight to another carrier to haul without that shipper’s or broker’s knowledge? Judging by the comments in various trucking forums, you may be inclined to think that it is, but in reality, not necessarily.

You see, since the 1990s, trucking has been deregulated, at least in the commercial sense. No longer is the U.S. Congress and the FMCSA heavily involved in the commercial dealings among shippers, brokers, and carriers. Instead, these are now private transactions among private parties who generally enjoy the freedom to contract as they see fit.

That said, the federal, and some state, governments do continue to regulate in this space but only in certain key areas like safety. As it pertains to the issue of double brokering, it’s important to know that federal law, and the laws of some states, do require for-hire motor carriers and brokers to register and obtain operating authority, essentially a license, from the government to carry on their respective businesses. Thus, property brokers must register with the FMCSA and obtain property broker authority to be eligible to arrange for the interstate transportation of freight for hire. And motor carriers must obtain motor carrier authority from the FMCSA in order to perform interstate for-hire transportation services. But once these entities hold these respective authorities, federal law places very little restriction on how they go about performing their services.

So, when it comes to the issue of double-brokering, federal law does not prohibit a motor carrier who also happens to hold property broker authority from brokering freight that it contracts to haul to a different motor carrier entirely. It isn’t illegal for the carrier to do that, again assuming it is properly licensed or authorized to broker that freight, meaning there is no mechanism in place, at least at the federal level, for the government to come in and put a stop to this practice. It is within that carrier’s authority to do that.

On the other hand, if the carrier happened to lack the necessary brokerage authority to tender freight to third-party carriers, then it may be guilty of engaging in unlawful brokerage, but that’s more about lacking the necessary license to engage in that conduct than the act of blindsiding the original shipper or broker of that freight. And even then, there is a concept that’s codified in federal law known as interlining which, in limited circumstances which we won’t get into here, allows authorized carriers to hand off freight to other carriers without holding property brokerage authority.

Long story short, it's inaccurate to claim double brokering is illegal.

Of course, that’s not the end of the story. Just because it isn’t unlawful, doesn’t mean it isn’t a bad idea for a variety of reasons. For example, in many cases when a shipper or broker hires a carrier to haul freight, there will be some written transportation agreement in place between those parties. And very often, those contracts will very explicitly prohibit the carrier from subcontracting the transportation services to another carrier or double-brokering the load. So, if the carrier turns around and does so anyways, that certainly would be a breach of that agreement that’s in place between the original parties. And so, the original shipper or broker would, in most cases, have some contractual recourse against that first carrier for breaching the contract. But of course, that would require the shipper or broker to pursue some action against that carrier, usually in the form of a private lawsuit.

On a somewhat related note, there’s a concept in federal law that was implemented through Congress’s MAP-21 legislation that requires parties to a transportation agreement to clearly articulate under what authority they will be performing the contracted service. So generally speaking, those agreements should clarify that the broker will be operating under its federally-issued property broker authority and the carrier will be operating under its federally-issued motor carrier authority. So, in those situations, if the carrier turns around and brokers the freight to another carrier, that flies in the fact of the representation in made in the agreement, which could potentially be viewed as a violation of the MAP-21 legislation; however, in my experience, there really is no federal enforcement of that provision, so there are really no consequences except for the potential private litigation.

So with that in mind, there definitely can be some exposure to a carrier that engages in the practice of double-brokering, but that exposure is typically in the form of private litigation, not governmental enforcement.