GUEST COLUMNIST Partner - Franklin & Prokopik The transportation industry has seen a dramatic increase in the roles played by freight brokers, and other third party “intermediaries”. It is also quite common now to motor carriers, both large and small, who also offer freight brokering services, either directly or through a related entity.
An additional factor in the broker-motor carrier relationship is the increase, in recent years, of claims being filed against freight brokers, and even shippers, for accidents involving motor carriers. While the specific theories vary, the underlying essence of them is that the broker was negligent in tendering the load to a motor carrier which it knew, or should have known, was unsafe. The increase in lawsuits under such theories is clearly driven by the fact that a motor carrier’s insurance is often insufficient to cover the damages in a given claim, particularly in light of ever higher jury verdicts. As a result, plaintiffs’ attorneys and, unfortunately, judges, have become ever more creative in seeking additional parties to hold responsible. Brokers must, accordingly, take that exposure into consideration when entering into related agreements, including its contract with the motor carrier.
As with any contract, one entering into a broker-motor carrier agreement needs to understand that “one size does not fit all”, and that the use of someone else’s “form” can result in disastrous consequences. Each such agreement should be customized, premised upon the parties’ specific circumstances.
There are, however, certain fundamental issues which need to be addressed in any broker-motor carrier contract, including those pertaining the scope of the services to be performed, the parties’ qualifications, procedures for shipments, and for resolving issues regarding loss, damage or delay of freight, or for rejected shipments. Compensation needs to be carefully addressed, including issues pertaining to what rights the motor carrier has to withhold freight, or go against the customer directly, in the event of a dispute concerning compensation. In addition, the broker will almost certainly insist upon a provision requiring the carrier to maintain confidentiality of customers’ and other information, and not to “back solicit” loads from the broker’s customers. The parties should also carefully draft their respective indemnification obligations.
As noted above, one may face certain legal exposures in conjunction with the brokering of freight. Accordingly, it is imperative to operate one’s brokering operations through a separate entity, in order to better protect the resources of each entity. In fact, that is a sound approach to business in general. For example, recent changes in federal law have facilitated the use of a separate entity to own equipment, and lease it to the operating entity, so that the equipment may not be at risk if a judgment exceeds a motor carrier’s insurance limits.
Brokers and motor carriers “need each other” in order to generate revenue. The relationship, however, is inherently somewhat problematic, due to their competing interests. It is, therefore, important for the parties to clarify their relationship, and carefully draft the contract between them. If sound business and contract practices are followed, the parties will hopefully minimize their respective exposures, and the possibility of related litigation. While doing that will necessitate the use of some resources, any such “expenditure” will almost certainly be far less than that which the entity will face if it fails to do so.
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Robert T. Franklin is a principal with the law firm of Franklin & Prokopik, where the emphasis of his practice is the representation of motor carriers and private fleet operators, and their insurers. Bob serves as General Counsel to Maryland Motor Truck Association and Counsel to the Maryland Movers Council. He is an active member of the American Trucking Associations, the American Moving & Storage Association, and National Tank Truck Carriers. Bob is a Past-Chair of the American Bar Association Commercial Transportation Litigation Committee, and the Defense Research Institute (DRI) Trucking Law Committee. He is also an active member of many other transportation-related professional organizations, including the Trucking Industry Defense Association (TIDA), the Transportation Lawyers Association (TLA), the Association for Transportation Law, Logistics and Policy, the Federal Bar Association Section on Transportation Law, the Maryland Chamber of Commerce Transportation Committee, and the Traffic Club of Baltimore. Bob is an honors graduate of Duke University and the University of Maryland School of Law, and served as an adjunct professor at the University of Baltimore School of Law from 1988 through 1991.
Hi I'm Jo Bernard,
This link is to a legal challenge all Independent Operators are faced with http://therealdealtrucking.com/id16.html#law It expresses a legitimate concern to the reality that freight brokers are not legally required to document from the paying party what the actual cost is in the load, and thus a documented price that can be checked by the carrier once arriving at the shipper or consignee "whoever is paying.
As far as I'm aware the broker has no legal right to withhold this information from the carriers, however the carriers can not usually get the truth out of freight brokers and especially not documented from the paying party. This allows the freight broker to retain all the opportunity of cash flow out of a load that may be book at a much higher rate than the trucker is lead to believe. The trucker has the responsibility of the load, the equipment and all the work involved and in many cases may be paid less than half of what's "in the load"
Since the only thing that will force intermediaries to disclose this information to trucking companies before any negotiating takes place should legislation be enacted to legalize disclosure to carriers from intermediaries?
See also Levels of Trucking Responsibilities at http://therealdealtrucking.com/id26.html
Posted by: Jo Bernard | May 04, 2009 at 03:20 PM