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July 6 2020

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44 The Journal of Commerce | July 6 2020 By Colin Barrett Q&A Q A Is co-brokering legal? Lately, I've seen lots of freight brokers tendering loads to other brokers, probably their friends who they expect to make a few extra bucks with freight that at least as a matter of ethics should be tendered or offered first to carriers. Is it legal for brokers to tender freight to other brokers so they can go and look for a carrier and give the freight to them without a logistical or any other valid reason that could make this transaction absolutely necessary? WELL, I GUESS it's legal, at least so far as I can tell, pro- vided proper disclosure is made to the shipper, so they know what's going on. Of course, that begs the real question: Why would a shipper sit still for this and continue to use a broker who regularly behaved so? Now, if the two brokers are essentially just splitting the markup (from what the carrier is being paid) between them, it's not a big deal economically. But even so, it's certainly not a benefit to the shipper. Every time you add a new third party to a transac- tion, you increase the distance between the purchaser of the service — i.e., the shipper — and the actual provider — i.e., the carrier. This becomes important in the case of loss of or damage to the freight. Brokers don't normally assume L&D liability, so the carrier is directly account- able to the shipper, even though the two otherwise interact through the medium of a third party. When a shipper engages a broker to move his freight, the shipper naturally surrenders the con- trol it might otherwise exercise to ensure that the carrier is economically sound enough (or has adequate insurance in place) to cover against such an eventuality. If the broker fails in this delegated responsibility, it can generally be held liable for such a failure to the extent that the shipper has been injured by a carrier's inability to satisfy a valid claim. When you add another broker into the mix, the situation obviously becomes more confused. I'm sure any good lawyer representing the shipper in such a case would take the tried-and-true "Big Daddy Lipscomb" approach to the lawsuit, so called after the famous foot- ball player's remark about his philosophy of defense: "I just scoop up all the players on the other team that I can, and throw them away until I get to the one who has the ball." In other words, the lawyer would name everyone involved as a defendant and pretty much let them sort out liability among themselves. But while that's going on, the outcome is likely to be delayed more than usual while the attorneys for the other side bicker over which of their clients is going to pay what part of such judgment as the court prescribes. That certainly won't be to the shipper's benefit. In addition, the introduction of a co-broker into the trans- action means that the shipper loses still further control by no longer being able to determine to whom the responsibility of vetting the selected carrier's financial circumstances has been delegated. All things considered, I see no advantage to the ship- per in this kind of co-brokering arrangement, and the potential for some significant disadvantage. Under current statutes and regulations, the broker(s) involved must keep the shipper apprised of what's going on. That means the original broker — the one hired by the shipper — can't set up the kind of co-brokering you've described behind the shipper's back, as it were, representing to the shipper that the load is being given to a carrier who'll perform the physical transportation when in actual fact the load is being passed on to a sec- ond broker who won't have any direct role in moving the shipment. But, provided this condition is met, I think what you've described is consistent with the law, what- ever the original broker's motivation. Even so, as I said to start, it's lousy customer rela- tions by the broker that regularly does this, which risks alienating its customer base. To be fair, there may be occasions when there are sound operational reasons for such a choice — e.g., when the load is unusual in terms of commodities with special handling needs or, more rarely, unusual geographic ranges. The co-broker may specialize in this type of traffic, whereas the original one is out of its depth on that particular load. But I expect that a broker who does what you've described on a regu- lar basis won't stay in business very long. JOC Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455, phone (843) 559-1277, e-mail For compiled past columns and other transportation-related publications visit I see no advantage to the shipper in this kind of co-brokering arrangement, and the potential for some significant disadvantage.

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