Who pays the price when freight brokers go under?

April 9, 2024

The freight brokerage business requires a high level of trust, with deals being made for high-value shipments being entrusted to intermediaries. But what happens when that trust is breached? Consequences from recent financial fluctuations have been felt at each level of the industry, leading to widespread closures and bankruptcies. These disruptions affect stakeholders and their partners, but the pain from these situations can be felt most acutely when brokers go out of business unexpectedly.

“Unfortunately, over the twenty years that I’ve been here, we’ve had a few,” says Slate Kamp, Director of Logistics and Transportation at Litehouse Inc., on instances of unpaid loads. “Every one of them was a brokered load that we took off one of the major boards.”

The defunct broker scenario is a concerning for a number of reasons. When a carrier or broker goes out of business, there’s often a scramble to salvage what’s left, which unfortunately includes attempts to pass off fake invoices. This nefarious practice not only tarnishes the industry’s reputation but also poses significant financial risks to unsuspecting parties.

Who is ultimately responsible for financial resolution when a broker goes under? Find practical answers to this question and more in the latest episode of the Stay In Your Lane Podcast.

“Diligence is everything,” says attorney Thomas Kern, Partner at Bensech Friedlander Copan and Aronoff.  “Nobody’s perfect, but just keep an eye on what’s been paid, what hasn’t, and look for discrepancies in the person you’re used to dealing with.”

The industry consensus for dealing with defunct broker situations leans towards a shared burden, with carriers, brokers, and shippers potentially facing legal entanglements in their pursuit of recourse. In the case of a broker going out of business leaving a trail of unpaid bills, carriers find themselves in a precarious position. While the immediate reaction is to pursue legal action against the broker, attention also turns to shippers, who may unwittingly find themselves embroiled in the mess.

“What does a carrier do when they’ve done business with a reputable broker, and the broker goes out of business and leaves a large group of unpaid bills?” Asks Triple T Transport Senior Sales Executive and Podcast Host John Mahle. “Where do those carriers go to be made whole? We know they’re going to go to the shipper.”

An important piece worthy of consideration in these matters is the bill of lading – a seemingly mundane document that holds significant weight in resolving these disputes. The importance of meticulous attention to detail when filling out the bill of lading, particularly regarding the designation of prepaid or collect shipments, cannot be overstated. However, the reality in these situations often leans toward inconsistency in oversight, with many bills of lading lacking crucial information or proper documentation.

“You look to the bill of lading, which becomes your contract,” says Kern. “It’s not completely dispositive all the time, but it’s a very strong factor in getting things resolved.”

As stories of futile attempts to recoup unpaid invoices will show, there’s a pressing need for vigilance and proactive measures in dealing with defunct brokers. While there may not be a foolproof solution to the scourge of fraudulent activity, fostering transparency with your transport partners can mitigate risks and safeguard the integrity of the industry.

The freight transport community must remain vigilant, informed, and proactive in combating fraud and upholding trust. By fostering a culture of responsibility and accountability, stakeholders can work together to navigate the murky waters of the modern supply chain, ensuring the integrity and sustainability of the industry for years to come. Triple T Transport remains committed to these values and pledges to continue facilitating positive change by providing world-class brokerage services.

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