Rethinking Payment Processes to Defend Against the Double Brokering Epidemic
In the second quarter of 2023, the freight industry was rocked by the widespread issue of double brokering, leaving brokers and carriers grappling with significant challenges. A survey conducted during this period, primarily comprising freight brokers and carriers, revealed that a staggering 85% of respondents were directly affected by the double brokering dilemma.
The financial repercussions were profound, with nearly 56% of businesses reporting losses ranging up to $50,000, and 18% facing financial drains between $50,000 and $150,000. A further 10% found themselves in the unfortunate situation of incurring costs ranging from $150,000 to $500,000, while 1% experienced losses surpassing the half-million-dollar mark.
These findings, as well as potential solutions, have been meticulously documented in the comprehensive white paper titled “Freight’s Breaking Point: The Double Brokering Dilemma.”
The mechanics of double brokering are often as follows: a broker posts a load on a load board and assigns it to a carrier, who subsequently re-brokers it to another carrier without disclosing these actions to the involved parties. The first carrier profits by double brokering the load for a reduced rate, while, more often than not, the second carrier is left unpaid, resulting in financial losses for the original carrier.
The adverse impacts of double brokering ripple through the industry, disrupting operations and introducing financial and liability risks for all stakeholders. It is estimated that this issue affects between $500 million and $700 million worth of freight annually.
Given the widespread and detrimental nature of double brokering, both brokers and carriers are now on high alert for warning signs. Respondents in the survey ranked common indicators that they believed were the most reliable red flags for potential double brokering. These red flags included:
The inability to contact the carrier or the original broker.
Brokers reluctant to provide their motor carrier numbers.
Requests for unusual payment methods from brokers/carriers.
Carriers unfamiliar with load details.
Carriers and brokers are actively monitoring these and other warning signs. Despite over three-quarters of respondents reporting financial losses due to double brokering in the previous quarter, most expressed confidence in their ability to identify and prevent such scams. Fifty-seven percent reported a confidence level of 4 out of 5, while 20% expressed extreme confidence with a perfect 5 out of 5 rating.
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However, only 10% of respondents admitted to having a systematic way of tracking down bad actors. Many rely on external databases or industry-shared resources, maintain internal lists of suspicious entities, or employ alternative strategies to combat double brokering. For instance, one respondent mentioned that their company’s approach was to “double and triple check paperwork.” While effective in the short term, such methods may not provide a scalable solution to root out double brokering.
Trust forms the cornerstone of business relationships in the freight industry, with approximately 72% of respondents concurring that a broker’s payment process significantly influences trust. While the industry has long operated under the motto “trust but verify,” transitioning to a “verify-then-trust” approach may be the necessary evolution in an environment rife with double brokering on load boards.
A verify-then-trust approach would entail a rigorous verification of a broker’s payment practices before proceeding with any business transaction. This shift in approach could prove pivotal in combating the challenges posed by double brokering and reestablishing trust within the industry.
