Transportation Brokers and Motor Carriers: Best Practices when Aligning Your Businesses
February 28, 2017
Author: Austin Kline, Marketer
The freight broker game is becoming more and more competitive. New freight brokers are stepping into the arena to compete for business, while several other divisions of the shipping industry are joining the competition. Emerging technologies drove competition and are changing the way of brokering freight by streamlining the processes. It is more important than ever to vet out each broker and motor carrier before doing business with one another. There are many variables to consider when entering a contract or agreement.
There are many different practices a motor carrier should consider when working with a broker. Always check and ensure the broker is properly licensed. According to the Federal Motor Carrier Safety Administration (FMCSA), Federal law requires a federal property broker license issued by the FMCSA for anyone arranging transportation for compensation. A motor carrier brokering loads without broker authority will signal the first red flag. Confirm proper authority and licenses are in place.
As a motor carrier working with a broker, it is beneficial to research the broker’s history to determine how long the brokerage has been in business. The first year in business in the Transportation industry will often prove to be the most difficult. The first couple years the goal for the broker is to survive. Aligning yourself with a broker whom has an established track record and history of successful execution will carry with it less risk then the new comers in the broker space.
Lastly, as a motor carrier it is important to ensure payment can be made by the broker. Verifying brokers are financially stable and making timely payments is a good start. A credit check can give the motor carrier the tools to confirm if the broker is profitable or if there are liens and/or legal judgements against them. Doing business with a brokerage dealing with financial and/or legal issues will only cause more hardship in the event there are any claims.
Always review the motor carrier and broker contract agreement. Contracts are very specific and it is important to review the document in its entirety before agreeing to any terms. The wording in those agreements can be the difference between having coverage for a claim, or taking on the responsibilities of covering a loss out of pocket. A few critical terms to look for in a broker-motor carrier agreement are broker requirements, broker obligations, assignment/modification of agreement, and non-exclusive agreement.
Brokers working with a motor carrier are responsible for screening each carrier before entrusting them a load. Consider reviewing each motor carriers COI (Certificate of Insurance) and safety rating before brokering any freight. Certificate of Insurance review is a consideration that will directly affect the coverage of the load. Validating the certification for adequate coverages is the first step. Also confirm they have the correct limits and coverage terms in place. Verify the insurance provider is financially solvent, the rating ‘A-‘, or better is recommended. Some claims take time to resolve, and it is important to review the financial strength of the insurance provider to determine if they will be in business in the next 5 years.
The DOT and FMCSA utilize SAFER (Safety and Fitness Electronic Records System) to provide a concise electronic record of a company’s identification, size, commodity information, and safety record, including the safety rating. SAFER is a powerful tool for verifying company information and most importantly identifying the motor carrier’s safety rating. Ideal safety rating is “Satisfactory” and often times a “Conditional” rating will show some safety issues. Finally, when entering a contract with a motor carrier, always make sure the Broker Carrier Agreement is signed and completed before brokering any freight.
The most important document to collect as a broker is the Bill of Lading. A BOL or Bill of Lading is a document issued by the motor carrier as receipt of freight for shipment. BOL has many important functions: Evidence of Contract of Carriage, Receipt of Goods, and Documents of Title to the goods.
There are several considerations that should be made as a broker or motor carrier when entering a contract. It is crucial that all contracts and terms are read and understood before signed in agreement. Spend the time to research the brokerage or motor carrier to understand the history and the operations before aligning your businesses.
-Broker Registration Overview. (2017, January). Retrieved from FMCSA: https://www.fmcsa.dot.gov/registration/broker-registration
-Glenn A. Stebbings, P. a. (n.d.). Domestic Logistics and Financial Exposures Reviewed.
-Global Insurance Credit Ratings & Information Srevices. (2017, January). Retrieved from A.M. Best: https://www3.ambest.com/ambv/ratingmethodology/
-Safety and Fitness Electronic Records (SAFER) System. (2017, January).Retrieved from SAFER: https://safer.fmcsa.dot.gov/
-Transportation Broker Risk Scorecard. (n.d.). Cottingham & Butler.