By John E. Anderson, Sr. and Rodney D. Butler
This article originally appeared in the 3rd Quarter Edition of Dickinson Wright’s Automotive Quarterly
Use of freight brokers has become increasingly common in recent years. These third party companies can provide valuable services to assist you in finding cost effective alternatives for your shipping needs. Thus, the question seems to arise as to “How does one find a reputable broker or freight forwarder?” This article will provide some insight into the areas to examine when searching for a reputable freight broker as well as some general comments regarding transportation agreements.
There are three categories which stand out above all others when evaluating whether to retain a broker. These qualities include: (i) its history or reputation in the industry; (ii) corporate financial stability; and (iii) appropriate and adequate insurance.
First, a reliable and reputable broker can be vetted by reviewing historical information such as the broker’s D&B PAYDEX score, and by obtaining a list of references and a list of customers. The D&B PAYDEX score is a score that is based upon information reflective of a company’s reputation and prior relationships with motor carriers. Specifically, it is an indicator of the timeliness of the payment of its debt. Additionally, reputable brokers should not hesitate to provide you with a client list and references. Any hesitation to provide this information to you should serve as a warning sign.
Second, with respect to corporate financial stability, there are several resources available which include reports from Dunn and Bradstreet, credit reporting agencies such as Experian or Equifax, Uniform Commercial Code (UCC) filings, and court filed liens and lawsuits. Again, the PAYDEX score can be a valuable piece of information in this area.
Third, but certainly not the least important criterion for evaluating a broker, is whether the broker has adequate insurance coverage. A registered broker is mandated by the FMCSA to post a bond or establish a trust fund in a minimum amount of $10,000 to pay shippers or motor carriers should the broker fail to complete its end of the contract. However, there is no prohibition on brokers preventing them from buying supplemental insurance or posting a higher bond amount. Additionally, a broker should have a general commercial liability policy of at least $1 million. Finally, the broker should have contingent cargo insurance. Contingent cargo insurance provides coverage in a situation where the primary cargo insurance carrier denies coverage or becomes insolvent.
Finally, remember to review all contracts or shipping agreements. This is important for all shippers regardless of the goods being shipped or the handling requirements. Typically, shipping agreements are drafted in a cookie cutter or one size fits all mentality which is quick, simple and cost effective. As a precaution, you should approach this from the perspective of anticipating a breach of contract by a broker or motor carrier. Thus, should the broker or motor carrier fail to deliver the goods, or damage or destroy the goods, do the terms of the shipping agreement provide you with adequate protection for this breach? You should make sure there are terms in the shipping contract stating that damage will be presumed to have occurred when certain circumstances have taken place, and spell those out or define the terms with simplicity. Many of these terms will be industry specific, shipper specific, or load specific. Due diligence prior to shipping may save you from costly litigation and claims.
Click here to read more articles from the 3rd Quarter edition of Automotive Quarterly.
