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Property Brokers – Risks and Rewards

April 12, 2013

Kevin N. Summers

Many trucking companies are setting up property broker operations to handle excess freight or reduce operating costs and risks. Is this worthwhile? Do property brokers really avoid the financial risks that face trucking companies?

While recent court cases suggest that being a property broker is not risk free, there still may be good reasons for trucking companies to either establish property broker operations or provide similar services under their existing trucking licenses.

Licenses. True property brokers hold licenses issued by the Federal Motor Carrier Safety Administration (“FMCSA”). Their legal definition is as persons who “arrange the transportation of property by an authorized motor carrier.”

Obtaining a property broker license is very simple. The major hurdle is arranging the $75,000 surety bond that must be filed with the FMCSA.

Agreements. Property brokers largely are governed by the agreements they enter into with shippers and carriers. Broker-shipper agreements cover pricing arrange-ments, the extent to which the broker assumes responsibility for loss or damage to the shipper’s goods, and the extent to which the broker will indemnify the shipper from any accident lawsuits that arise from the transportation arranged by the broker.

Broker-carrier agreements cover the price that the carrier will charge the broker for the actual trucking service, require proof that the carrier has its trucking license, and may contain prohibitions against re-brokering or back solicitation.

Many broker-shipper or broker-carrier arrangements are one-time situations often established by internet or fax documentation. It is very important that any broker have pre-packaged agreements that it can easily send to a shipper or trucking company to cover a particular load brokered on short notice.

Risks. Compared to trucking companies, property brokers have almost no exposure to risks involving loss of trucking equipment, compliance with trucking regulations, or employer-driver relationships. Brokers also have no automatic statutory liability for cargo losses. In many instances, however, shippers are not willing to deal with brokers unless the brokers assume cargo responsibility.

For many years it has been assumed that property brokers have no risk of liability when the trucking companies hired by these brokers have an injury accident. This assumption has been called into question by a number of recent cases.

Some cases hold a broker liable because the broker allegedly should have known that the trucking company had a bad safety record. Other cases have found brokers liable for truck accidents when the broker exercised direct control over the trucking company’s driver or took other steps that made it a joint participant with the trucking company in controlling the operations of the truck.

The best solution to liability risks for brokers is to maintain adequate insurance. Ordinary trucking insurance, however, may not cover a broker because the broker does not own or control the equipment. So-called commercial general liability coverage may protect brokers as long as they have been forthright with their insurer and advised that they are involved in truck brokerage.