Jim Heide & Ted Calligeros
Double brokering has always been an issue in the freight industry but it’s taken an alarming upward turn in the last year. The statistics speak for themselves — Truckstop reported a huge 400% increase in double-brokering complaints between Q4 2022 and Q1 2023, while The Loadstar states that it’s costing the US market more than $500m a year.
With that in mind, it’s vital we assess exactly what’s causing the surge in double brokering, and what the implications are for the wider industry, including everyone from shippers to insurers.
How does double brokering happen?
Essentially, double brokering is when an entity bids on a load posted by a broker, and then brokers it out to a third party carrier. In the past, there have been instances where this has happened by necessity — for instance, the last-minute replacement of a carrier that doesn’t have the right credentials or equipment for a certain shipment.
With criminal double brokering, a freight broker awards the job to a fraudulent motor carrier, who could be posing as a 3PL. This motor carrier then re-brokers the load to a second carrier, who they’ll either underpay or fail to pay at all, so they can pocket the difference. It happens without the knowledge of the shipper, the original freight broker, and sometimes even the secondary carrier, who could end up shipping the load for free.
Neither the shipper or the original freight broker has any idea of the conditions the load is being transported in, who’s driving it, or whether it’ll arrive at its destination, which causes all kinds of complications for the supply chain.
Double brokering is also inspiring load phishing
Within double brokering, a type of straight-up theft called ‘load phishing’ has also emerged. With load phishing, it’s the carrier moving the goods that’s fraudulent, usually impersonating an established trucking company with an almost-identical name, to fool shippers that need to get their goods out ASAP. The carrier picks up the load, flashes their fake credentials, and drives off into the distance with the cargo.
Why the sharp rise in double brokering?
Inflation is contributing to the steep increase in cargo fraud more generally. As the value of certain goods increases, they become more attractive to criminals, whose methods are only getting more resourceful and ingenious.
There’s a huge number of variables at play in the freight and logistics industry, all operating in a platform economy. That means shippers are navigating digital marketplaces, TMS boards and more, which minimizes visibility between organizations in the supply chain, allowing double brokering and other types of cargo fraud to thrive. According to recent reports, there are an estimated 16,000 freight brokers in the US, and 400,000 carriers. A standard load could easily touch four or five different entities during transit, from the freight broker through to the forwarder, carrier and driver.
Yet even with advanced physical and cyber security measures in place, the complex nature of logistics makes cargo vulnerable to these more sophisticated forms of fraud.
What does double brokering mean for shippers?
This crime is dually profitable. Not only does the fraudulent entity get the fee for being awarded the load in question, but the shipment could be stolen and resold too — meaning they would profit from the value of the load itself.
This series of events is a nightmare for shippers, who are left to deal with a range of difficult consequences, such as:
- Goods being damaged in transit
- Goods being stolen for resale
- Goods delivered late
- Other forms of supply chain disruption
- Unreported accidents in transit
With so many shipments in transit uninsured, these risks wreak havoc on the supply chain and profits of SMEs. Even if a shipment is insured, there’s no guarantee it’ll be covered for loss or damages caused by double brokering. For instance, while Ocean Cargo policies would likely pay out, a standard MTC policy generally won’t. Not to mention, many cargo insurance providers have slow, manual claims processes that leave businesses waiting around for a payout.
What are the implications of double brokering for insurers?
It’s a logistical nightmare for shippers, but there are big implications for cargo insurance providers too. Inevitably, a spike in double brokering means a higher number of claims for brokers to deal with, which can cause a backlog for companies without efficient automated claims processes.
Equally, when insurers pay out, they can often recoup some of the settlement from the carrier (if they’re liable). With claims resulting from double brokering, the carrier might be completely unknown, so underwriters end up swallowing more of the loss than they would normally, which isn’t sustainable over the long term.
It’s clear that the skyrocketing rates of double brokering pose a substantial risk to shippers, carriers and insurers alike. It’s disrupting supply chains and causing businesses to hemorrhage cash during a period that’s already rife with economic uncertainty. As is often the case, procuring the correct type of freight insurance is among the essential steps shippers can take to minimize the impact of cargo fraud — in all its evolving forms — on their business.