Sam Tucker is the founder and CEO of Carrier Risk Solutions, Inc., an Atlanta, Georgia based transportation risk management startup. Prior to this venture, Sam spent 13 years underwriting trucking and logistics accounts at some of the most well known insurance companies. He holds degrees in Business Economics and Finance/Risk Management as well as multiple professional insurance designations. Carrier Risk Solutions' innovative safety management platform can be found online at MySafetyManager.com. Reach Sam by email at STucker@CarrierRiskSolutions.com.
I'm sure that there are many ways to easily ruin your freight brokering business or that division of your trucking/transportation company. But, here are three different ways that might not be that clear or well understood.
Let's get to it!
#1 Not Giving A Crap About Carrier Compliance
Having a good slate of qualified motor carriers is just as important as having a full pipeline of shippers in a freight brokerage company. Many brokers tout the high number of carriers that they have in their network as if that is a true point of pride.
Notice the wording that I used a moment ago...well qualified....
There is nothing short of about 500,000 potential motor carriers that a freight broker could hire to complete a haul for them. The question arises: How many in that potential universe deserve to be considered to haul for your client?
Having a solid carrier screening and monitoring plan in place is essential to the well-being of your brokerage operation and the lack of one could easily mean certain death.
Brokerage operations must develop, implement and communicate a well defined plan to on-board a new carrier, to ensure that the carrier partner meets the predetermined guidelines and to monitor that carrier's continued compliance with those guidelines.
Unless you want to invest the time, energy and expense into understanding the FMCSA's CSA BASIC and Safety Measurement Systems and how they potentially relate to any kind of actual safety performance, then PLEASE do yourselves a favor and avoid using any kind of CSA BASIC data in your carrier compliance.
What will likely end up happening is that you will establish a guideline around a set CSA BASIC score or something to that effect and one of your agents will load a carrier who violates that guideline. Murphy's Law says that the one load that may happen on will be the one where the motor carrier is involved in a fatality accident.
If you really want to include some sort of measure of a motor carrier's true safety performance, try using something like the amount of their paid liability losses over the last 3 years (Can be reported to you and verified by loss runs from their insurance company...or their accident to power unit ratio over the last 24 months. That can be calculated like this:
Total State and Federal Reportable Accidents (last 24 months)
Average Number of Power Units (last 24 months)
Please note that the average for all motor carriers in the US is around 6%.
Remember: Your corporate communications (including policies and procedures) are generally discoverable at pre-trial.....so...you may want to re-consider what you include or exclude from those documents.
Regardless of what is included or excluded, you need to ensure that your company or division makes every effort to ensure that compliance with your guidelines is maintained at all time!
(This is especially true at 4:30 on Friday afternoon!!!)
Cargo thieves have found a really cool new way to rob folks blind. They will create a fake motor carrier and then dupe an unsuspecting freight broker (who has lax carrier compliance guidelines) to give them a Monday delivery load...they make off (quite literally) like bandits with the cargo and they have a 2 to 3 day head start on any sort of recovery effort!
Another neat newer trick that they like to play on freight brokers is where they will steal the identity of an insurance agency as well. The thieves set up a fake new trucking company.
When you call the phone number of the insurance agency to verify the motor carrier's insurance coverage (in accordance with your handy carrier compliance guidelines), you actually reach the thieves using a burner phone and posing as the insurance agent assuring you that the motor carrier is legit, well covered...and probably "goes to church with the "agent" on Sunday".
Instead of simply calling the number that the Certificate of Insurance has for the insurance agency, use your preferred search engine to find the phone number of that agency and call that number.
To avoid too much extra work on behalf of the agency, use some common sense...if the last 4 digits of the provided number are different then they are probably just routing you to the best person to answer your question. If, however, the number on the cert is a 219 area code and you find a 404 area code for that agent...you may want to dig a bit further....
IF YOU NEGLIGENTLY HIRE A MOTOR CARRIER, YOU COULD BE FOUND LIABLE FOR THEIR ACTIONS....meaning you could get you ass sued off.
Don't believe me, just ask the folks at C.H. Robinson...and a few others who have experienced this problem first hand.
#2 Acting Like A Motor Carrier
Another fun and easy way to kill your brokerage business is to act like a motor carrier. This is especially true for those companies who operate a trucking division as well as a "separate" brokerage operation.
To do that well, you must have as much physical separation between the two entities as possible. At a minimum, I would suggest:
- Separate corporations
- Separate locations (or at least separate buildings)
- Separate insurance
- Separate employees
- Separate phone numbers
- Separate bathrooms for men and women...that's just a good idea in general.
You want to do everything possible to ensure separation between these two businesses or operations. Avoid "piercing the corporate veil" between these two entities in the event of a claim situation.
This one makes plaintiff counsel giddy and your attorney's reach for a pink colored indigestion relief medicine!
You are trying to avoid "double stacking" your insurance limits (which your insurance company HATES) and the potential for your other businesses assets to be attached to a lawsuit that only one entity should be responsible for.
While losing one of your businesses would be harmful...imagine losing both for this reason...utter devastation....
Another important thought on this topic is to limit the number of check calls that you make on a load and avoid making use of the available technology to track the truck that you hire.
These types of activities could be construed as being "dispatch like" rather than brokerage...and you could accordingly be seen as being a motor carrier rather than a freight broker.
#3 Assuming A Motor Carrier's Liability For Freight Loss and Damage
Freight brokers are NOT liable for freight loss and damage under 49 USC 14706 (more commonly known as the Carmack Amendment). Motor Carriers are liable for freight loss and damage!
In an attempt to limit their loss exposure and ensure that their freight loss and damage claims are paid, some shippers require that you sign a contract that states that you will assume liability for freight loss and damage as a motor carrier...even though you are clearly a freight broker and not legally liable for these losses.
I'll take a moment to pause and let that sink in....go and check your contracts if you want to.....read about 1/2 to 3/4 of the way through the contract and stop where it says "Liability for Freight Loss and Damage" or "Freight Loss and Damage" or something of that nature.
Ideally, that passage says that the provisions of 49 USC 14706 apply (meaning that the motor carrier will be held liable for freight loss and damage) and everyone can work together in harmony the way this is supposed to go.
If that provision says anything different, you may want to call your attorney...or me. I read somewhere between 5 to 10 transportation contracts daily and I've seen the whole spectrum of how "creative" some attorneys try to get sometimes...
Bottom line is that you shouldn't assume the liability that you aren't being paid to assume. The shipper is using this contract provision as a weapon against you!
This is their fake insurance against you hiring a bonehead motor carrier (see number 1) rather than doing good due diligence and ensuring that the motor carrier who who hired is capable of both physically protecting their goods or having a good cargo insurance policy that will fully compensate them if you don't.
While we're on the topic...your contingent cargo insurance policy is most likely worth less than the paper on which it is printed....how much real protection do you expect to receive from a policy that costs about the same amount or premium as a motor carrier pays to insure a single vehicle?
You can either roll the dice on this or find a cargo liability insurance policy that will actually cover your potential liability for cargo loss or damage. There are some very good cargo liability policies out there....and many that are purely "camel through the eye of a needle type policies"...frankly I'm surprised that contingent cargo policies aren't illegal. But, that is an inland marine coverage form...which is not regulated by any insurance commission in the US. Very much a buyer beware type deal.
In other words, don't count on the "Contingent Cargo" liability insurance policy that you purchased to cover anything. Uninsured cargo losses from a motor carrier who you hire (See number 1 again) will likely end up being a business loss for you!
Even if the freight loss or damage claim doesn't end up being a direct financial loss to you, the reputational damage suffered by a freight broker who hires an unqualified carrier to haul their client's goods is extremely high.
So, that was a bit long. Let's tie a bow around this one.
Know who you are doing business with on both ends of the equation. Invest time into developing strong relationships with both your shipper and motor carrier clients.
Understand how safely your motor carrier partners actually operate rather than using some canned (potentially worthless) number that the Federal government provides for the public to use. (Whoops, actually officially you're not supposed to use any of the FMCSA's information since the DOT is explicit about not using the information that they use to judge how safe a motor carrier operates).
Know who you are and act like it. Don't act like a motor carrier if you are holding yourself out to the public as a freight broker. That is dangerous to your business as a going concern!
On the same token, don't be pushed into taking on someone else's responsibilities if your shipping partner isn't going to compensate you for that (meaning pay you a higher freight rate and good freaking luck with that!).
Your contingent cargo policy is most likely worth very little in terms of protection. Your motor carrier's cargo insurance policy may not be either. Until CarrierCert (www.CarrierCert.com) was invented, it was very hard to know what was actually covered under a motor truck cargo liability policy.
Want to chat about any of this, I would love to! Just give me a call at 1-855-211-5550 or shoot me over an email at STucker@CarrierRiskSolutions.com.