Legal Double Brokering for Freight Brokers!? | Final Mile #44

Speaker 1: 0:19

Welcome back. It's another edition of the Final Mile. It's all Q&A, all from you guys, all for you guys. Our questions come from a variety of sources, whether it's our YouTube comments, our website, Freight360.net, through our email. However you guys want to reach out to us, we're here to answer your questions. While you're on our website, make sure to check out all of our free content in the content section, as well as the Freight Broker Basics course If you'd like to learn about our educational platform. That'll take you through everything on how to start a brokerage, get customers, build carrier relationships and hire team members. And please take a moment to check out the sponsors in the description box to support this channel Without further ado. Ben, let's get into some questions. Our first couple are kind of related here, so I'm going to read them both and we'll have a little discussion and we'll hit on both of them. Does that sound fair?

Speaker 2: 1:13

It does, and a reminder for all the listeners out there that, no matter what the headline says, we answer multiple questions in the Q&A section every week. So if you're frustrated, we will get to the question that is in the title. If it isn't the first one, we will cover it, amongst others.

Speaker 1: 1:27

For sure, I think I'm going to use a catchy title like how to legally double broker for this episode, because here's what our questions are about.

Speaker 2: 1:35

I wanted to add one other thing and I emailed you this, but we talked about this and it just seems like people I don't know and you get lots of people that probably watch a video here and don't follow everything we do. But the reason we do the sports in the podcast is because we're literally trying to show you examples of how to use things that are kind of current events to build rapport with people you're prospecting. It happens to be sports that we jump in with, or sometimes news, but we're not randomly talking about something that has nothing to do with freight brokerage or sales. It's to get you used to that's how our conversations start with most of our prospects. Yeah, one person finally coming was like oh, I get it. He's like, oh, this makes so much sense, like I'm starting to understand how and why you're talking about this. I'm like, oh, and why you're talking about this.

Speaker 1: 2:24

I'm like, ah, Anyway, it was refreshing. Yep, it was All right. I'm going to read these first two questions and we'll get into it. So here's the first one Do brokers need a broker-to-broker agreement if a broker wants to help other brokers find carriers for commission from a load board? And if so, where do I find paperwork templates? A lot of use of the word broker there. And the next question is in regards to double brokering what about when one broker passes the load to another broker because the previous broker has a lot of loads and both of them are taking a piece of the same load? Okay, so a lot to unpeel here and unpack.

Speaker 1: 3:02

So for the first part of this question, or first question, is a broker to broker agreement needed if a broker wants to find carriers for commission from a load board and rebroker them? That's not the intent of a load board. A load board is intended to connect motor carriers with shippers, right? Or really freight brokers on behalf of shippers? Okay, I don't think that's what they meant, though. What do you think the question asks? So we can?

Speaker 2: 3:40

clarify. I think what they're asking is hey, I'm a broker, I've got somebody that wants to either learn or make some extra money, whatever the motivations are, and they're like hey, I need some help. That wants to start working in the industry or has worked and they know how to find trucks and they just want to get paid for every truck they find for me. I'm the one running it, I'm the one vetting it, it's going through my TMS.

Speaker 1: 4:17

That person isn't a broker, was my interpretation. Okay, we'll answer it both ways, because it's written. If a broker wants to help another broker, yes, so let's say it's your route, right. Someone who wants to be a freight broker and they want to help an existing broker source capacity, as long as they're doing it under the authority of the initial freight broker that they're doing it on behalf of, that's fine. That's kind of like what a carrier sales rep does or a dispatching rep for a freight brokerage does, not to be confused with an independent dispatcher for carriers, and in that case, if you're representing the freight broker with their authority, there's no broker-to-broker agreement, aka co-broker agreement, needed.

Speaker 1: 4:57

Now, if you're a freight broker and you're new and you don't have any customers, going to the load boards to find freight is not the right way to do business. There are instances where brokers help other brokers secure trucks through maybe a unique niche carrier network that they might have, or a specific motor carrier that is looking for a backhaul and they want to engage in a co-brokerage agreement and it's all transparent and the customer knows and both brokers know and all that and that's fine. But if you're just going to go in and cherry pick loads off the load board and try to re-broker them. That is double brokering if there's no transparency, if there's no contract. So what I would recommend is go get your own customers. Easier said than done. We've got a lot of content on prospecting and lead generation.

Speaker 1: 5:46

But either way, to answer the question, if you are going to engage in a relationship where you are a broker giving a load to another broker or you're a broker receiving a load from another broker, there needs to be a co-brokerage contract or agreement in place that outlines who is broker A, in other words, the original broker that has the customer shipment, and who is broker B, which is, in other words, the broker that's going to secure the truck for broker A on behalf of the shipper. It can become a very complex chain here and now. If you want to know where to find a template agreement, if you're a member of TIA, the Transportation Intermediaries Association, the TIA has a lot of good model contracts that they've vetted and they're pretty ironclad and they cover the vast majority of the situations out there. So that's where, I would say, to go for your templates. We've got a similar version on our website that you can take a look at as well, at Freight360.net. Now let's look at the second part of this, or the second question in this little series.

Speaker 2: 6:48

I was going to go through the first one though. Yeah, go ahead, Let me go through the other side of how just I was interpreting the first one, right? So let's say there's two brokers me and let's say, Nate, you run your own book of business through Pierce, I run mine through business to business logistics, right. And let's say you just have idle time, your team's super efficient and I'm new and I'm like hey, Nate, I got some customers but I don't really have enough time to get the trucks quick enough. Can you help me for a little bit? And you're like hey man, yeah, I know you, I want to be able to help you out.

Speaker 2: 7:19

Pay me a little bit for every truck I find for you, Even though you work for a brokerage. And if you're an agent, you can still work with me underneath my brokerage, in essence, right. So in that scenario, if you're just helping me find trucks or carriers from the load board, I can pay you a commission or they call it like a SPF, I don't know whatever 20 bucks a load 50 bucks a load some portion of the commission, a finder's fee 20 bucks a load, 50 bucks a load some portion of the commission of finder's fee, the only.

Speaker 2: 7:48

you wouldn't need an agreement between companies because you are operating as like a subcontractor to me. The only thing that you would want to do is to pay you as a contractor and maybe you would want to have like a loose agreement as a contract and like I'm paying you for this and you want to pay them to do it correctly. You want to pay them as an expense from the company so you get credit for writing it off. So if I book the load and there's a $500 margin, just for a round example, and I'm giving you 50 bucks or 10% of the $500 margin for finding that truck for me, I would pay the carrier and do everything I normally would, and then I would cut you a check literally out of my business account the same way you'd cut a carrier sales rep a check right.

Speaker 2: 8:27

Yes For 50 bucks and I would assign it to you so that in my accounting it shows I paid you to help me find this and now I can write that 50 bucks off. It's still included in there. It really wouldn't affect the load or the TMS. It's just another expense line item I've got in my accounting software, QuickBooks, that shows I paid you so I can write that money off.

Speaker 1: 8:48

Yes, that's exactly right, Because to the carrier, they're dealing with one brokerage, even if it's multiple people at the same brokerage, and the money's all flowing through your brokerage. It's not going from your brokerage to my brokerage to the carrier. That's right, exactly, very good. I've had people in the past that they're an agent for a brokerage and they've got some go-to carriers and the carrier wants a backhaul. They don't have a load available, so they'll go even as just like a value add. Hey, I'll go to the load boards for you, I'll find you a backhaul. I'll even call on behalf of you as the carrier and try to secure this load for you. But they're not acting as a broker there, they're just acting on behalf of that carrier. You know, for free, whatever. If the carrier wants to pay him a little dispatch fee, that's cool. The key here is not to have it run through your brokerage unless it's transparent. Everybody knows about it and there's a co-broker driven in place.

Speaker 2: 9:45

So very, very fine, and the gray line becomes if you're doing this a lot, you're almost working as a dispatcher, and there's a whole other discussion that can be had as to that. You would want to treat them more as like a subcontracted not employee but like, literally, a contractor.

Speaker 1: 10:02

Yeah, yep. So the second part. Here it says, in regards to double brokering, what about when one broker passes the load to another broker because the previous broker has a lot of loads and both are taking a piece of the same load? Now the same thing we just talked about could apply here. But if you are truly going to push it through from one brokerage to another and let's say we'll use Ben, we'll use your brokerage and mine again, like we just did so BTB for business to business for you and Pierce for me let's say that you've got you know you're swamped you've got a bunch of loads. I've got some carriers that align with your. You know, with the loads that you've got, if you're you know, if there's transparency, your customer is cool with it.

Speaker 1: 10:46

Hey, nate's brokerage is able to secure capacity. That I can't right now for you, but we'll take care of it. Your pricing is still whatever. We're able to secure a truck at a reasonable rate. We can do that as long as you are set up as a broker for the customer. I am set up with a co-brokerage agreement with you and the carrier is contracted to me and then the way that it flows in a co-brokerage is shipper tenders load to broker A, you. You tender the load to broker B me, and then I tender the load with a rate confirmation to the motor carrier.

Speaker 1: 11:22

All right, carrier invoices me and I pay them. I invoice you, you pay me. You invoice the customer and they pay you. There's a contract in place. It details who's responsible for collecting monies, who's responsible to pay who, who's responsible to vet carriers, who's responsible for track and trace, et cetera. It's very transparent. There's no funny benefits or shenanigans going on. As far as trying to pull a fast one, that's fully legal and it's typically only makes sense to do in situations where you otherwise would not be able to service the customer properly and load that carrier properly. So yeah.

Speaker 1: 12:01

And I've done a lot of those. Is that good? Does that make sense?

Speaker 2: 12:03

Yeah, yeah, I've done a lot of them and they can work really well in scenarios that make sense. Project freight tends to be an area where I see this happen from time to time or very large moves on very short amounts of lanes, like for the military. When you do like troop movements and you've got 50 loads to move over a five day period, it's a lot of times easier to maintain the same rate as well in the market when both of you are kind of working together and you're going to pay for that and that's okay too, right. But like there's a lot that needs to be ironed out, as you said, because what you said in the contract absolutely should be in writing, but you absolutely want to confirm this all the time, like almost every day, like even though, like, I can still tell you the guy's name I did this with like nine years ago it was Marco and he worked with Landstar. But like the one thing we made sure every day was like one.

Speaker 2: 12:51

How are you vetting them? How did you vet it every day? Like, did you vet this guy? And just just reminding him? Because there's a lot of risk when you're letting somebody else vet your carriers and fraud and things. And then the other big risk is if you're booking trucks for me and you're in another office somewhere and I can't talk to you all day like I need to make sure that I've got real good updates, either live tracking or check calls, to make sure that if something goes wrong that doesn't get lost in communication between the carrier calling you and you making sure I know, because at the end of the day that needs to be seamless to your customer. The customer needs the updates, as if everybody knows what's happening, and every time you add somebody to the chain of communication there's more risk that something falls through those cracks.

Speaker 1: 13:35

Exactly, yep, communication is key. All right, our next question Is it common for trucking companies to also engage in brokerage activities? Also, do all brokerages aim to acquire their own fleet of trucks, or is it typical to operate without owning any trucks? This is a good question, so very good. Yeah, there's not a right or wrong direction to take your business in. There's pros and cons to both. Is it common for truck companies to also engage in brokerage activities? Yeah, I'd say it's common. It's a pretty loose word, but it's common for them to do brokerage, but typically under a different entity, right? So if I'm a brokerage, which my company, pierce, is, we also have a trucking company called Warren Pierce and Company two different company names, two different authorities, same address, same ownership, and they work in conjunction with one another, but they're two different entities, they're insured separately, etc.

Speaker 1: 14:40

Okay, now the benefit to offering brokerage in addition to trucking, or trucking in addition to brokerage as the question asked both ways is that you're not confined to just one solution for your customer, right? So if you have, let's say you've got a fleet of 20 trucks, right, but those trucks are going to be limited to a few things when are they located and where can they go? What kind of equipment type do you have? How many do you have? Right? So you're going to be limited to that. Now, what happens if a customer of yours as a trucking company has something outside of that wheelhouse? Right, it doesn't fall in the coverage area that you have or the equipment type that you have or the volume of trucks that you have, but that shipper loves to work with you. Well, if you have a brokerage authority as well, they can keep a single point of contact and still get serviced on their loads, knowing and being able to trust that you're going to take care of them.

Speaker 1: 15:33

The key thing here is to make sure it runs through the proper entity. So if it's going on one of your trucks, you can put it right to your trucking company. If it's going to a third-party carrier, it's going to run through your brokerage. The invoicing has to follow that same chain of custody as well. That way, it's all done by the book, legitimately.

Speaker 1: 15:50

Now the other part here is for brokerages that aim to acquire their own fleet. That's a great value add. Hey, in addition to me being able to service you as a broker, I have some of my own trucks that I can guarantee you capacity for on certain lanes, and a lot of brokers they aim to do that, to grow relationships with their customers, saying hey, not only can I take care of you, but as you guys grow, I can help you grow and you can help me grow at the same time, and I'll guarantee you a certain capacity on these lanes because it works for you, it works for me and all is good in the world. It's just important to make sure that the conversations are transparent and the business is running through the proper entity. Would you add anything else here?

Speaker 2: 16:32

Yes, I would say one of the biggest misconceptions in our industry that is widely held is that both of these companies provide the same types of service. They do not. Brokerages and trucking companies provide very different types of service, even though they're both trucks and they both ship things and they both move them right. And it's in predictability versus unpredictability. The more predictable a shipper's load schedule is, the more likely they are to work with directly with trucking companies. Because, again, trucks need to schedule things for their drivers ahead of time. They can't just magically move a truck over in the country to somewhere it needs to be in a few hours. It sounds simple but it's really important because a brokerage can handle anything that a customer needs, but usually they're not willing to pay to try to get a broker to find them a truck two weeks from now they can find a carrier that can move that into their schedule. So it's usually the shorter time frames, the more urgent and the unpredictable that brokers help with. So what you see is lots of smaller carriers open brokerages for the reason you've said, but many of them struggle to operate both because they're very different mentalities and it's not that one is harder than the other, they're just very different and when one is used to doing one side of it to transition to the other, you really got to understand how the customer views you and sometimes the customer views you as the same thing, but they're really very different.

Speaker 2: 17:56

Right, and you had a great example. It's like I might have six trucks and I might run the same lanes with my customer and they might go. I just have twice the volume this week. We want to give it to you. I'm like I just don't have enough drivers. That's great.

Speaker 2: 18:07

If I got a brokerage and I've got relationships with other local trucking companies that I know, that I know I can bring in to my customer's freight temporarily to help with the increase in volume, which will come right back down to normal. Usually that's really where you see the smaller trucking companies that have brokerages, where they really do well, or in very tight markets where there's so much demand that they're able to help service their customers, like you said, through one point of contact. But the biggest differentiator is in the liability, because as a broker, if you tried to own trucks and have a dual authority, your insurance bill goes up commensurate, as if you moved every load on, even if you had one truck. So, for not only liability reasons but also insurance reasons, they're rarely, if ever, the same company. They're almost always split into two different entities for insurance and liability purposes.

Speaker 1: 18:59

Yeah, Like you said, rarely have. I have seen them. Liability purposes yeah, Like you said, rarely have I have seen them. It's rare, but I have seen them where it's a dual authority, where it will say carrier and broker on the you know the authority for the company snapshot on FMCSA's website. But with that comes insurance costs, so all right.

Speaker 1: 19:16

Last question Should heavier loads pay more because of fuel and the wear and tear on the truck? Short answer If all else is the same and there's no other factors, yeah, In most cases heavier would mean more because of the cost of fuel and wear and tear. But the reality is All else is not always the same. Right, A heavy shipment could be paying more because, well, it's an extremely heavy part for a machine that has to get there and it needs to get there now, because if it doesn't get there now it's going to shut down production, which could have an opportunity cost of a million dollars a week. Right, so that increased cost really comes from the urgency of the delivery time, more so than the weight of the shipment. You could also because the same.

Speaker 1: 20:12

If you just reverse engineer this question, you could say well, should I be able to pay less because the shipment only weighs 20,000 pounds instead of 42,000 pounds. Well, if I'm a trucking company or a truck driver, if you're taking up my entire truck I'm a trucking company or a truck driver. If you're taking up my entire truck, sure, my fuel costs might be a little less, but I'm still using my entire truck to haul this for three days. So there's a lot else that goes into this. You could even have a heavy shipment that costs less because you've got a carrier that's willing to take it for less than market value because they're trying to do a backhaul.

Speaker 1: 20:42

I mean, it just really depends on what is most important to the customer and to the motor carrier, and we talk about this all the time. When it comes to how to price a lane or a spot quote for that matter, is you need to figure out, underneath everything else, what is the real priority and what's really the most important thing to all the parties involved here. Is it speed? Is it quality? Is it just the price by itself? I mean, there's all kinds of things that go into this. What's your take?

Speaker 2: 21:12

So one very simple example there are loads that pay per weight onions. They pay per hundred bat, per hundred pound weights, right? So for every hundred pounds of load in that truck is how they pay their rates. And then you scale after to verify what was loaded before you go pick up and after, so that you get the exact amount that was loaded. That's going to determine your rate, right? So for sure, like that is a big part of it. But, as Nate pointed out, like there are lots of other variables and again, just take big part of it. But, as Nate pointed out, like there are lots of other variables and again, just take brokers out of it.

Speaker 2: 21:46

Say, a carrier is working directly with a shipper and every Monday and Wednesday they run the same, you know whatever five or 600 mile load and it always weighs 30,000 pounds and they always charge 1500 bucks, whatever. Now, all of a sudden your customer goes hey, I got a one-off this Monday. This load weighs an extra 8,000 pounds. Like you're probably not going to ask your customer for much more because you work with them a lot. And you're probably like, yeah, hey, you know, it's a little bit extra fuel, maybe a hundred bucks or whatever here. Like they'll usually just move it and just call it cost of doing business. Yep, so there's a lot of things that don't go apples to apples, even from the shipper's point of view, where, like to your point, if it's a company that is trying to max out weight that they need to move for efficiency, they will usually compensate for more or less.

Speaker 2: 22:38

Right now, on the exact opposite side of that Right Like and it's kind of say a tongue in cheek, but like I can tell you I have never seen a carrier ever refund money when the load was lighter than it was supposed to be and I've never seen anybody request a discount when loads are lighter. It only ever moves one way. And a lot of these things again, like people get really frustrated. I get why carriers do, especially when they're told it's a 30,000 pound load but they get loaded at 43 or 42.5.

Speaker 2: 23:11

Like there are extreme examples that, like they have every right to be angry for and should ask for more comp. But in a lot of these scenarios, right, Like it's not even clear, like the shipper sometimes might actually think it's a 30. And then when they go to load, somebody at the loading dock was aware that somebody in the shipping office, wasn't that? It's actually heavier. And then everybody starts yelling at everybody and it's a lot of times really just an honest mistake and you're trying to make the best out of just an unfortunate situation. These are rarely as egregious or or like mean, like people aren't typically doing this on purpose, I would say, but again there's definitely unethical people in every industry.

Speaker 2: 23:51

So I'm sure there are instances of it, but from a general standpoint, like it doesn't factor in as much as probably people wish that it could. For sure.

Speaker 1: 24:00

Last thing I'll add is if it's, you know, over the legal limit and you need permits, that's definitely going to be a situation where you're going to have an increased cost. Yes, for sure, that's a different story though. So, but great questions. Let us know what you think in the comments and make sure to send us a message if you have any thoughts or questions that you want us to answer. Let us know what you guys do as far as co-brokerage and how you price out heavier, lighter shipments and all that other good stuff. But good questions. Keep sending them our way. And any final thoughts, Ben.

Speaker 2: 24:33

Whether you believe you can or believe you can't, you're right.

Speaker 1: 24:37

And until next time go Bills.