By a Biometrica staffer
Towards the end of June, as part of an investigative series, FreightWaves asked many transportation professionals whether “double brokering” is legal. The most common answer? It’s complicated. Double brokering, which we will explain further through this piece, has been around ever since shippers began relying on brokerages to find truckers to haul their freight. That said, double brokering scams end up costing the industry over $100 million annually, the FreightWaves article adds.
Brokering is a key component in the freight space, and — as with all other cogs in the interconnected world of transport and logistics — if anything goes wrong at the brokering stage, the repercussions can be far reaching. There has been news recently of a sophisticated, elaborate double-brokering scheme that has allegedly defrauded hundreds of trucking companies.
To make matters worse, it comes at a time when the trucking industry is already reeling under immense pressure to make up for a shortage of drivers across the nation. While the lack of drivers has been an ongoing challenge for years, the Covid-19 pandemic sent demand for shipped goods soaring even as early retirements spiked. This has led to everything from gasoline outages at filling stations to airports running short on jet fuel. In fact, the trucker shortage has become so severe that companies are trying to bring in drivers from abroad seemingly like never before, Bloomberg reported on Monday, Aug. 2.
Against this backdrop, it is perhaps more crucial now to examine the issues of double brokering than it ever was earlier.
The Recent Scam In Brief
One scheme, as we mentioned earlier, has allegedly affected hundreds of companies. It was discovered when Joe Howard, who works for an unnamed Midwestern logistics company, grew frustrated with brokers and carriers being looted by the elaborate network of load-board scammers posing as legitimate companies. Two years ago, Howard created a spreadsheet to track a list of suspect companies, of which a large number were based in Southern California, FreightWaves reported.
When Howard started the spreadsheet, it only included a handful of suspect companies. In May 2021, when FreightWaves reported on the issue, the list had grown to nearly 500. In July, the list had more than 600 companies on it. Howard said the alleged double-brokering ring originally started with three large brokerages who used a network of employees and fake motor carrier (MC) numbers to pretend to have a truck, so that they can then re-broker the loads.
For our non-transportation readers, we pause at this point to explain a couple of industry terms: An MC number is a unique identifier assigned by the Federal Motor Carrier Safety Administration (FMCSA) to moving companies operating in interstate commerce, i.e., those that haul cargo across state lines. And a load board, sometimes called a freight board, is an online marketplace for truck owner-operators, shippers, and freight brokers to post and search for loads. Users of a specific load board typically pay a subscription fee to log into the load board to post loads or post empty trucks, in order to either cover their freight or get their truck loaded. For more information on how load boards work, we recommend this blog on Truckstop.com.
Now back to the scam that’s come to light this year.
Although Oregon-based DAT load board removed the three brokerages, as FreightWaves reports (citing Howard), they were back vying for loads not long after under the guise of two new brokerages. Several complaints are said to have been lodged against the original three brokerages. Meanwhile, the CEO of several transportation companies linked to the ring has claimed he’s been unfairly targeted, and has denied any involvement in the double-brokering network.
Howard says, per FreightWaves, that the cities of Glendale, Tujunga, North Hollywood, and Burbank in Southern California “could maybe hold between five to 10 legitimate trucking companies,” yet over 400 MCs are registered there. “This is definitely the most complex operation I’ve seen in my 20 years in the logistics industry. I’ve shared this information with several brokers and receive multiple requests for the list daily,” FreightWaves quotes him as saying.
For further information and updates on this particular scam, we’d recommend FreightWaves’ Long-Haul Crime Log podcast.
When Does Double Brokering Become Illegal?
We take you back to the beginning of this piece now, where we said transportation professionals said the question of whether double brokering is legal or not is complicated to answer. Why? It is, indeed, a practice that’s been around seemingly forever, and if done right, it is also legal. When does it cross over into the realm of the illegal? If it is done without the explicit knowledge and consent of the shipper, or the carrier.
In other words, the shipper has to consent to the double-brokering arrangement and the carrier hired to haul the load also needs to be privy to the details and is paid. But freight brokers agree that even when done legally, double brokering is an arrangement that can be fraught with risk. It becomes illegal, of course, if the shipper has specifically said that its loads are not to be re-brokered.
For instance, in the case of the double brokering ring we spoke about in the previous section, the fake network involved allegedly ended up creating hundreds of fake MC numbers according to Howard, FreightWaves reports. Then, another entity that was also part of the same elaborate set up would re-broker the freight to legitimate carriers, who often have no idea that the freight has been illegally double brokered.
Once the legitimate carriers pick up the load, the scammers seek payment from the broker they booked the load with for transportation services or request fuel advances from the brokers before their unauthorized re-brokering scheme is discovered, the article adds. Ultimately, and often, it’s the legitimate trucking companies that end up paying the price for the scheme. They have little to no communication with the shippers who, in cases of illegal double brokering, themselves have no idea about the arrangement and have not authorized it. The end result is that legitimate trucking companies often have to fight to be paid, if at all.
For more information on fraud in the transportation industry, check out this webinar by Moseley Marcinak Law Group on YouTube.