How to Protect Yourself from Bad Freight Brokers

Freight brokers play an essential role in trucking by matching you as a carrier or driver with shippers to haul freight. Generally speaking, they come with a distinct set of benefits and challenges. Most brokers are committed to fair deals in which the shipper pays a competitive price, the trucker receives adequate compensation, and the broker fee is reasonable compared to industry averages. Unfortunately, there's a handful of brokers who are untrustworthy and unreliable.

Whether their behavior is intentional or unintentional, it makes working with them especially challenging. Here's how you can protect yourself, including the impact of bad freight brokers, warning signs to look for, and questions to ask to be sure you're doing business with trusted, reliable partners.

The impact of working with a bad broker

When you are already busy running your business and focused on transporting your loads safely and on time as promised, putting extra time into vetting multiple brokers may feel burdensome. But, it is time well spent because the consequences of a single interaction with a bad broker can be devastating.

Common issues caused by bad brokers include:

Delayed payment - or no payment at all
Damage to your reputation
Formal complaints against your MC number
Double- or triple-brokered loads

And that's just the beginning. As the adage says, an ounce of prevention is worth a pound of cure.

Beware of outliers: is pricing unusually low or inexplicably high?

Reputable brokers are interested in building long-term relationships, and their pricing reflects that goal.

They charge shippers based on what it will cost you to haul the load, and they include the following factors in their calculation:

Dimension and weight of the cargo
The distance the cargo must travel
Amount of time available to complete the job
Special handling
Market conditions

Broker commissions average about 16 percent of the total invoice; the rest goes to the carrier. Of course, some brokers charge more - sometimes, a lot more. If your broker is an outlier, that is a cause for concern.

The trouble is that there isn't a lot of transparency when it comes to broker pricing. So when spot prices fell off a cliff at the start of the COVID-19 pandemic, many truckers blamed unscrupulous brokers for the low pay. In response, the Owner-Operator Independent Drivers Association (OOIDA) lobbied for better broker pricing transparency.

By law (U.S. federal regulation CFR 371.3), brokers must keep detailed records of each transaction and provide them to truckers upon request. In practice, that rarely happens. Most contracts include a clause that waives carriers' rights to review transaction records, and brokers that don't have such a clause in their contracts are still likely to make it difficult for carriers to look at the paperwork.

Reform is underway in terms of increasing transparency in this area, but in the meantime, you can still protect yourself from bad brokers. Ask questions to understand the calculation better if the compensation offered seems off. If you aren't satisfied, don't take the load.

Remember, trucking runs on supply and demand like every other market. If no carriers are willing to haul cargo at a specific price point, shippers and brokers will boost pay until they find a match.

Unusually high pay is as much a red flag as very low compensation. If a broker offers far more than the going rate, ask questions until the rate makes sense. No one will overpay unnecessarily, and if it seems too good to be true, it is probably a scam.

Expect questions: did the broker complete due diligence before contracting with you?

You know better than to sign a contract with a new broker before you have done your due diligence. A quality broker knows that, too. If a broker is ready to commit without asking you some questions, it's cause for concern.

The broker's primary function is to connect shippers with carriers, but doing the job right takes more than a few emails or a quick phone call. Shippers count on brokers to ensure loads are delivered safely, on time, and as agreed, and that means finding a reliable trucker.

If a broker isn't interested in your qualifications, safety record, license status, insurance status, and similar, alarm bells should go off.

If the broker isn't checking you out, he or she also hasn't done due diligence with the shipper. Who knows what load you will find waiting for you upon arrival and whether you will ever receive payment.

4 questions to ask before doing business with a new broker

Over time, you will build relationships with many brokers that are fair and trustworthy, but until then, be sure to check out anyone you are considering as a partner before you sign a contract. These are the four most important questions to ask before accepting a load:

1. Does the broker have all the appropriate credentials to operate?

Begin with the must-have credentials, which include proper registration and appropriate insurance. You can check these through the U.S. Department of Transportation's Federal Motor Carrier Safety Administration website. Under no circumstances should you accept loads from brokers with invalid licenses, inactive or canceled insurance, not registered with the Unified Carrier Registration (UCR), or without active surety bonds.

Follow up by looking at the broker's reputation with the Transportation Intermediaries Association (TIA) - a professional organization for brokers and other third-party logistics industry stakeholders. It has more than 16,000 members, 70 percent of which are small, family-owned businesses.

Among other services, the TIA offers a certification program that allows brokers to earn a Certified Transportation Broker (CTB) credential. Though this designation is not required, if your brokers have it, it is a good sign that they are knowledgeable about industry best practices.

2. What is the broker's history?

Examine the broker's basic business information, including the following:

Run a credit check and pay special attention to whether there is a history of defaulting.
How long has the broker been in business? Three or more years is ideal.
How long does it take the broker to pay? If brokers require shippers to pay within 30 days but won't pay you for 45 days or more, it may be a sign of financial distress.
Do the broker's processes integrate with yours? For example, if you are trying to go paperless and the broker requires hard copies of documents, you may find the partnership difficult.

Doing the due diligence can slow down your ability to book a load quickly. Technology platforms like TrueNorth will screen out brokers who have a history of not paying or no history at all, so that carriers can book quickly, capture the best loads and feel confident they'll get paid.

3. What is the broker's reputation?

A quick online search can provide reviews of a broker's performance from shippers and carriers. Don't pass up the chance to learn from others' experiences. Though you might not consider a single lousy review problematic when offset by plenty of positive comments, a pattern of negative feedback is a red flag.

4. Does the broker prioritize open, transparent communication?

The goal is to build long-term relationships with your brokers, so don't jump into a contract without a conversation. For example, is the broker willing to answer questions about pricing? Do they have the details you need to complete the job properly?

Suppose the broker is unwilling or unable to provide you with this information. In that case, it's a good bet that something will go wrong.

A broker who doesn't communicate well is unlikely to be a good partner in resolving problems as they arise.

Carolyn, Operations Manager at TrueNorth, tells us, ‚"if the broker does not know the details of the load, there is a high chance that the load is not theirs. You should not have to wait on a broker to get you information. This should already be in their hands if they are the brokerage tendering the load."

Unfortunately, far too many brokers have gotten into the habit of leaving most of the work up to their Transportation Management Software (TMS), which intends to complement - not replace - human skills.

What to do when a bad broker strikes

If you have a run-in with a bad broker, there are three steps you can take to hold them accountable:

Place the broker on your blocklist to ensure you never do business with them again.
Report the broker to industry watchdogs, intermediaries, and regulators - for example, US DOT Office of Inspector General (OIG) and DAT Freight & Analytics.
Share reviews of your experience with others.

If the broker has vanished and you can't make a claim against the bond, you may still be able to collect from the shipper - consult your attorney to evaluate your options.

Carolyn closes by sharing, "It is key for truckers to inform each other and have each other's backs when it comes to bad brokerages. Word of mouth still goes a long way, if you are comfortable sharing on social media, by all means, share your experiences with other drivers. We are in this together."

Other relevant articles:

From Carrier Packet Templates to Broker Setups: What to Know

The Challenges and Benefits of Working with Brokers

The Owner-Operator's Guide to Getting Paid On Time Every Time