Freight 360

The Hidden Risks of Running a Freight Brokerage | Episode 287

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Profits can vanish fast when brokers cut corners. Nate kicks things off with a wild National Guard story from inside New York prisons, then we dive into real-life brokerage disasters: a $50K trailer fail, insurance loopholes that killed claims, and a rejected tanker load no one wants to touch. If you’re in freight, these lessons could save your business.

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Speaker 1:

Welcome back for another episode of the Freight360 podcast. We're up to 287. We're going to be telling some good old claims stories today, but we've got lots to catch up on from sports and news and where the hell I've been the last month and where I'm going the next month to hang out with you, ben. So we'll get into it here today, but first, if you haven't, make sure to check out all of our other content at Freight360.net. We've got all kinds of blogs, youtube videos you can go to YouTube as well. You watch our shorts, share us with your friends. I know you guys are doing that. We're getting a lot of traction lately, which is a good sign for the market.

Speaker 1:

I've always noticed that people's engagement with our content tends to be commensurate with what the freight market's doing. Like, we saw a big peak during the COVID peak and then it kind of plateaued, as the market did, and we're seeing a bit of a bit of an uptick. So make sure to keep doing that. You've got the course to for the freight broker basics course. If you're looking for training options for your team or for yourself. And yeah, leave us that review. It helps us, helps the algorithm. So, ben, what's happening man? How's South Florida on this fine day?

Speaker 2:

Honestly, weather's beautiful. Booked my accommodations for when you come down, so looking forward to that. It's definitely a a time of year. Daughter's off on spring break, which makes things a little less schedulable than normal, but we're rolling with it. She's super excited to be off for the week and I am very curious even though I talked to you pretty right early, haven't got a chance to hear how everything went with you in the correctional facilities.

Speaker 1:

Yeah, it was wild. I'll give the down and dirty. I think it was February 19th. Basically like there's about 40 state run corrections facilities, like jails, prisons in the state of New York, and they're all run by state employees, corrections officers.

Speaker 2:

None of them are privately owned. That was one question I was curious.

Speaker 1:

No, so there was like discussion of like. So basically here's what happened. Right, it's like these guys are like pissed off. The CEOs are upset with the working conditions and like forced overtime and the the amount of rights that the inmates are getting or actually they're as Kathy Hochul, our governor, requires them to be called. They are incarcerated individuals or eyes, but they're inmates. They're these are prisoners, but they're inmates. They're. These are prisoners. And a lot of the rules restrict what a CO can do to punish an inmate that does something wrong, like if you've ever watched the show Orange is the New Black, you've probably heard of the SHU special housing unit. It's the solitary confinement. There's rules in New York state that limit how long someone could be in solitary confinement for in a given period of time. So if they get in trouble, do something bad, they can only go in there for so long and then if they come out and do the same thing, they can't go back in.

Speaker 2:

So it's like you know what so normally, or what it used to be, was they could go in, but like if you did it again, you would go in longer. And there were some.

Speaker 1:

Yeah, I mean every, every state, every. I don't know how the federal penitentiary system works or, like you know, county ones, but like most areas, if you're bad you get punished. If you're bad again, you get punished again, sometimes for longer. Right In New York State it's not that way. It's like screw up, go into the shoe for two weeks, come out, screw up again. You can't go back in. You got to wait like months before you're eligible to go back in solitary. So like it's very skewed system, totally, like you know, the vast majority of the population and the public like sided with the CEOs.

Speaker 1:

Here's the issue. No-transcript, ceos cannot go on strike. Teachers cannot go on strike. People have been. People have gone to jail for striking illegally in New York State. So these, you know, the CEOs have a union. The union knows they can't go on strike, so the union does not sanction anything like this.

Speaker 1:

So they just a wildcat strike happened, so literally like a bunch of dudes at two of the jails were like, hey, we should just walk out, and they did. And then the next day, like almost every other facility followed suit and like 90 percent of their prison staff is just gone. They're on the picket line. So you've got like a bare bones crew of like some sergeants and lieutenants and like super you know superintendent staff and civilian staff to like your teachers and nurses and cooks that are running the prison. So the governor like activates the National Guard overnight. So we all show up and we start putting soldiers in prisons.

Speaker 1:

So, all that to say, I'm in an aviation unit and a logistics role, so we very, you know, anti-cost effectively flew soldiers all over the state to get them in prisons and helicopters because apparently it's too far to drive. You know, either way we ended up. You know there's like a four million dollar aviation cost to like use our helicopters. For that month New York State was burning about five million dollars a day of taxpayer dollars to have us activated untrained. It was just a mess but I mean I got. You know, I had soldiers in the prisons and we went and visited like four of them and insane, dude, there's they're burning stuff like smoking stuff. There's the way they're dealing drugs is like wild, the intelligence and like the the uh, like tactical skills that these inmates have. I'm like if you just applied that to like anything that's legal, you'd be a millionaire yeah, but it's funny when you say that.

Speaker 2:

Right, so one I don't know. Have you ever have you seen this that there's a tv show that's been out for the past couple years? It's actually shot in pittsburgh and taylor sheridan did it? You know one of the guys that has like one of a lot of really good series out. He did Yellowstone it's. It's about a prison and I think it's technically in Canada. I can't remember, but it is basically a show around a guy they call. It's called the mayor of Kingstown.

Speaker 1:

Oh yeah, yeah, someone told like someone told me about that show when we were doing this mission and they're like, you got to watch it, like it'll.

Speaker 2:

It'll give you so much context it's it's very good for one and two like I mean my cousin. I have two cousins that have worked in the correctional facility. I think both are retired now, but you know 25 years they were MPs in the military before they did this, so like and then they were parole officers at some point, so like I've got a pretty decent view of what it's like from their point of view. You know, just over the years and stories and things and like to me it's wild and honestly like the thing that reminded me of this again recently there was a news article where they were talking about prisons and they just just the picture of the prison right In the rain that they showed on the news like makes you feel kind of uncomfortable, like that confinement and like just the social.

Speaker 2:

I feel like emotion when you see it and what it reminded me of was we. I had a buddy in high school and I can't even remember what it was, but a long time ago, 20, 30 years ago or whatever, and I can't even remember what he went away for, but we went and visited him when we were like in our in college Right, and to this day like there was such an emotional impact of even driving up to it going in, and I remember this fear of like you kind of feel like you're not going to be able to get out, even though like you're going there as a visitor and like you did nothing wrong. It just has this impending and imposing emotional impact. I think when you're there and it just made me think one of you guys being there to have honestly like what it's actually like to go to work there every day, what the emotional toll is, like that is going to be enough, man, like incredibly stressful job? Yeah, it's, they're gross there every day.

Speaker 1:

What the emotional toll is like. That is gonna be enough, man. Like incredibly stressful job. That, yeah, it's. They're gross, like we had, you know, yeah, soldiers were being given narcan because exposure to fentanyl. Um, we had multiple soldiers go like get hospitalized from exposure to drugs, piss thrown on their face, getting like their ass kicked, not like you know terribly, but like you know, getting in some scuffles and shanks getting pulled, like just to you know. And you.

Speaker 2:

What's the resolution? So the resolution is they're still there and like they're all still on strike.

Speaker 1:

So a lot of CEOs basically like the long story short.

Speaker 1:

There was some mediation, an agreement was reached, the CEOs rejected it and then they went and mediated again and they made a final deal and said, like, come back to work, here's the new deal, the union agreed to it and if you don't come back, you're fired.

Speaker 1:

And they fired like 2000 CEOs. So now you've got some of us have gone home that are no longer needed, but there's still like 5,000 National Guard troops like activated and there's like a minimum manning level that has to be reached at each facility and we have a lot of soldiers that have volunteered to stay on. So it's like what they've called an enduring mission now, and they've done this for other stuff, like when COVID hit, the Guard set up like test sites and whatnot, and that lasted for like two years. After 9-11, they set up like a task force, like an armed task force, to protect the New York City subway system, and that's been going on for over 20 years now. So the National Guard is like a long term solution for certain things in our state and it will be, I would imagine, for like the next six months. There's gonna be soldiers in prisons in New York.

Speaker 1:

I am really the level where, like you know, the number of volunteers that we have match it, you know, along with the number of CEOs that they have. Um, get some to that minimum level and then the all the involuntarily activated soldiers will go home. So there's like a gap. I want to say like fifteen hundred right now. But they're going to have, you know, ceo, academy classes, graduate, you'll probably have more come back to or, like you know, they'll work some deal where you're allowed to get rehired if you were fired, and I don't know.

Speaker 2:

Some compromise.

Speaker 1:

But anyway, that was, that was my last five weeks, yeah but I'm super excited to see you in person. I was going to say luckily I came home just in time to hop on a plane this week and fly out to Florida for almost a month. We'll be hanging out down there and yeah, and it's snowing in Buffalo today, so here.

Speaker 2:

And I will tie all that into freight brokerage and transportation to make that relevant. Right Is anytime two parties are negotiating and one is treated, you would say, like it's way out of balance. Right, they say like a good negotiation is like you should walk away. Both parties should walk away, a little upset, meaning like they both kind of feel like they didn't get exactly what they wanted, like that's almost an ideal negotiation, what they wanted Like that's almost an ideal negotiation.

Speaker 2:

But anytime one party has a ton of leverage over the other, it again in capitalism and a free flowing, economic capitalist society it always swings back too far before it comes back to the middle. Like I remember learning. Like just in the principles of it is like it's a pendulum and if one side gets way more in one long-term agreement, it always swings back too much in the other direction before it comes back to the middle. Which is exactly what happens in transportation every time the market cycles. The market gets super tight and then the carriers have all the leverage and rates go up and then as soon as it swings back at all, the shippers try to push as hard as they can and it swings back too far before it comes back to the middle right as hard as they can and it swings back too far before it comes back to the middle right.

Speaker 2:

This same thing happened in Pennsylvania 20 years ago when I was in college we studied it was the tollbooth workers that ran all of the well tollbooths on all of the turnpikes in Pennsylvania and I want to say like again. This is back when, like average starting salary for like a corporate job was like 40 grand. I remember like they were making something like 85 to 140 grand to work at a toll booth, like to collect money for cars coming past, because of their collective bargaining. And then when it swung back because they were so far out of budget, they basically let go of like 30 or 40% of them, put in automated systems and all these toll booths and like so many of these people lost their jobs and it was like if they would have just kind of negotiated something reasonable in the middle, it would have worked out better for everyone.

Speaker 2:

And we talk about this a lot right, like whether it's a spot load with a shipper and a carrier or a contract for the whole year. You really want to listen to both sides and, as a broker, like that is our job as the intermediary. And when you are just listening to your shipper and trying to beat carriers up on rates and use them transactionally, it will come back and bite you. Whether it's a claim out of service, they're not going to tell you what's going on. Your job gets harder. Just as simple as that, right. And it goes the same way the other way. If you're trying to lean too hard on the shipper, eventually they stop using you. Really good brokers or intermediaries in any transaction in the entire economy need to be able to listen to both sides effectively, to find that middle ground, to be able to have lasting relationships.

Speaker 1:

Yeah, I'm dealing with. I'll get into this story shortly. I don't even know if I've mentioned it, brought it up with you yet, but I'll talk about one that we've got ongoing right now at our company. That's gotten messy. I want to get a little sports update here. It's been a little while so since I was last on the show excluding our DAT live event last week, which, by the way, thanks for all that attended live, Great outcome we had some good live questions. The Buffalo Bills signed Joey Bosa Love. That that's a good good add to our, our muscle on the team. Stefan Diggs, former Bills wide receiver, who went to the Texans, signed I think it was a two year deal. Three year deal, maybe with the New England Patriots this week. So the Bills will get to play their former wide receiver that was mostly unliked by the time of his departure twice a year. Um, the big question for your steelers has no quarterback.

Speaker 2:

Russell wilson went to the giants and we do.

Speaker 1:

It looks like you're gonna probably get aaron rogers. It's like the most likely free agent right now. Yeah, but the question is, do the steelers want Aaron Rodgers?

Speaker 2:

Every morning.

Speaker 1:

That is the conversation I don't think I would want him if I was a Steelers fan.

Speaker 2:

That is pretty much the sentiment in Pittsburgh radio I still listen to it every morning and that is probably 75% of morning radio every morning is nobody really wants him there. But also there is no quarterback and it's like last year okay, like one of the things they said was the issue with Russell Wilson was that like he only had one receiver you know, to throw to with George Pickens and didn't really when they double teamed him they didn't have enough running game to open up the field, to create options. So they go and get the most expensive solution to this by bringing on and my mind's blanking, you'll remember his name. They just brought him on like two weeks ago.

Speaker 1:

Really good wide receiver I am so out of tune with like a lot of sports right now.

Speaker 2:

They just signed my mind's blanking a phenomenal wide receiver, like two weeks ago and then, and he used to play with Russell Wilson at the at the seahawks oh, dk metcalf yeah, signed metcalf I didn't even see that until just now and like, okay, well, russell's got you know.

Speaker 2:

And they said, like even their families have great relationships, their wives, like they really have played together and have stayed friends. They're like with pickens and metcalf, like this could be what russell was missing. And then he goes to the Giants and they bring in possibly Aaron Rodgers or no quarterback as of now.

Speaker 1:

So, like DK is like a, I like that pick because he's only like what is he Like five, six years in? He's like yeah, he's not like an old dude and he's not like a rookie. You know he, yeah, 2019. So this is like his season number six. Basically, who knows man?

Speaker 2:

Other news.

Speaker 1:

F1. For all the F1 fans out there, season is back up and running now. I think there's two, two races under the belt now and baseball starts this week. So all you baseball fans, I'm a I'm a Red Sox fan. If anyone's ever seen me wear a Red Sox hat on this show, I'm pretty excited to see you know. They seem to have done some work in the offseason to get a better lineup, so we'll see how it pans out. News Nothing terribly noteworthy. I feel like whenever I put our newsletter together each Tuesday and Thursday, like it's just tariff updates, like it's just more ridiculous, like all right, you know, if you bought. Now it's like if you buy oil from Venezuela, we're going to tariff you and it's like what are we doing?

Speaker 2:

So to that point. I wanted to point this out for anybody that wants a deep dive on what is actually happening and what the plan is with the administration. There were two fantastic interviews I listened to yesterday and the day before. One was with Scott Besson, which I think is the Treasury Secretary, and then the other one is and these are both long-form interviews. The other one is and these are both long form interviews the other one is with Howard Lutnick. He is, I think, over the Department of Commerce, but he's basically. These are two very important positions in the administration, and these are the first two long form interviews I've heard, but with sort of like an hour and a half. They're on the All In podcast and a lot of those folks. In fact, one of the guys on the podcast is now the czar of crypto on the Trump administration, david Sachs.

Speaker 2:

So what was really good about them, though, is most of these interviews with these folks are soundbites. They're five, 10 minutes. They're talking heads. People are yelling at each other. It's really hard to understand what the comprehensive plan is with tariffs, what they're doing, the back and forth. They call it like whipsawing. It's like it's this one day, it's this the other day.

Speaker 2:

These are the first two interviews I've heard where both of them really lay out what the comprehensive plan is Like, how tariffs play into the economy, what that piece is versus what Doge is doing on the expense cutting side, and what the overall plan is over the next four years to both bring budget and the government spending in, to be able to rebalance some of the tariff situations and also reduce taxes on folks that are making $150,000 or less, to be able to make it easier for companies to manufacture in the United States and to push labor costs, because we're not going to pay people in America what they pay in China, for instance. However, if every factory worker doesn't pay taxes on 150 grand or less, it's cheaper for the company to hire them because they keep more of their money. Right, if I'm paying you 150 grand and you're paying 25% taxes, you only end up with whatever 110 grand. If you pay no taxes, you get to keep all that money, so you get a livable wage without the government in your pocket for lots of these companies.

Speaker 2:

And again, there's, I think, a lot of ifs and how this would play out the way they think it would with anything. There's so many variables, but it is for sure, the only time I've heard two people actually explain what this plan is in a way that makes coherent and is like actually somewhat makes sense from an economic standpoint. That like if you were able to do all these things, like theoretically, this does kind of make sense. The question is, what does the transition look and who is going to have the pain in between here and where they think we're getting?

Speaker 1:

yeah, my, my take on it is like, clearly, the people that are like the economists and all this, that have these plans, like they're way smarter than me in that realm. So I, I, I don't care what side of the aisle it's on like I generally like respect their intelligence, right, yeah, for the most part, um, so there's obviously some kind of sub on it. I think the, I think one of the big, the, the big like pushback is like there's so so much happening so fast in this administration. I think a lot of people are like, oh my gosh, so it's just kind of like a whiplash effect, like you know, such as I was going to ask you this.

Speaker 1:

So one of the places we're going in florida is siesta key, which is on the Gulf side. Have you seen these Golf of America T-shirts that are like flying off the shelves? I haven't, not, yet I think I'm going to have to buy one when I'm there, just for like, for fun.

Speaker 2:

Well, to that point and this is related to shipping, ok, but in the interview Howard Lutnick talks about this, and if you remember hearing in the news, like when Trump started talking about the Panama Canal which, by the way and I don't know these percentages, I should have looked them up before the show a large portion of the things that get shipped in the United States come through the Panama Canal right, and it was like 1913 or whatever. The United States completed it. I think France started. It couldn't do it. It was a huge undertaking at the time. Malaria and everything like literally no other country was able to build the canal that basically allows cargo ships to go from the pacific ocean into the gulf and into the atlantic ocean, and a lot of stuff that we ship in the united states goes through there right you're like a quarter of those workers died, like they, yes it's a.

Speaker 2:

It's crazy so many. It's really interesting. If you've ever watched a documentary, I've watched a couple also the train tracks that they built that go into the Keys was a similar situation with like malaria and things. This was they're done in the 20s but, like for the Panama Canal, related to shipping. Right Like I was at like last year, somewhere in the past 12 months a cargo ship ended sideways, blocked it. It blocked tons of cargo coming to the United States for like a couple of weeks. It was all over shipping news but Trump's-.

Speaker 1:

Talking about the ever given or whatever. Yeah, yes.

Speaker 2:

So Trump was talking about taking back the Panama Canal and it was all over mainstream media. And then the president of Panama was like this is ridiculous, like this is, you know, was given to us 110 years ago. And everybody was like, like this is ridiculous, like this is, you know, was given to us 110 years ago. And everybody was like, like this is ridiculous. He's calling the Gulf of Mexico Gulf of America and now he wants to take back the Panama Canal. And it seemed unhinged the way I was reading it. Right, but what Lutnick says in this interview and I didn't hear this anywhere is he goes listen. Like Trump asked me to go investigate what was actually happening at the Panama Canal, cause like nobody's really like paying attention. It just kind of existed.

Speaker 1:

It's like and you like just hear about it on the news too.

Speaker 2:

Right, he goes. I sent two people down there to just with iPhones record a trip from one side of the other. Right, like what does it just look like there and bring back some video and to try to see what is actually happening there. And he goes. There are two huge bridges on either side of the Panama Canal that are owned by China. He goes 70 or 80 percent of all the businesses, signs and things you see on that trip through the Panama Canal are all Chinese businesses, chinese um, like, uh language on the signs, everything.

Speaker 2:

He's like, if you think about this, right, like one of our technically like you know adversarial countries that we have contentious relationships with has such a large presence there that, like, you can't go 30 seconds when you go through the Panama Canal without either seeing their businesses.

Speaker 2:

And he's like, again, like not to be like extremist, but like there's two giant bridges. If either one of those things collapsed on either side of the Panama canal, it becomes impassable and that is a huge threat to just the economic viability of the United States. So like, and he's like you know it was made it seem like this was just some like random thing he said he's like, but we did research this for like quite a bit before we decided to like approach the situation before he said anything publicly and he's like there is some real substantial reasons behind why we want to negotiate the situation there, because it's gotten out of hand, at least again anecdotally, and what it looks like just going through it. They didn't go too in depth, but it was pretty interesting Cause it was like I never thought of that, never heard about it, and I'm like kind of makes sense, like, yeah, we, we did a.

Speaker 1:

one of the uh education levels I had done in the army is, uh, it's called um, intermediate level education. It's what you need to like if, if I were to get promoted again which I probably will just retire before then. But we have a big section on like near-peer threats and you know things like china, north korea, russia, like what that means, iran, like what certain things in the world mean for the american for our everyday life to happen. You know, as if everything's all good and the average citizen doesn't think about these kinds of things, and that's why not to get like way off track here, but like that's why I'm glad that, like, at least people are like someone's looking at these things and talking about these things. So, um, all right, what else we got here?

Speaker 1:

Um, messy claims, yeah, so, and we'll just kind of call this like messy situations almost, because the one I wanted to bring up first you kind of maybe think about it with like the negotiation earlier. Um, and I think the the big takeaway from this discussion today will be like things not to do and hopefully you'll think twice before you like take a shortcut right and your decision making a great place to start, because I had this happen yesterday and I got a story after you finish yours on exactly a good place to start.

Speaker 1:

Yeah, so here's one that we're dealing with right now and I'll keep like the because it's still ongoing. I'll keep like the companies and details as broad as possible. But, like we set up a trailer trailer, a drop trailer program for a customer, meaning, um, this customer has multiple distribution centers. They ship a certain product that you know is a consumer. It's a good, that gets, it's, uh, it gets installed in your house. I'll leave it at that. Right, it'd be the equivalent of, like you know, a building material and, but it's a finished product. So, and they want, you know, because of how they operate in their supply chain, they would prefer to be able to have time to load their trailers when you know when they can. Right, and they understand that, like, if I'm going to bring a truck in here with their own trailer, we're going to end up having detention costs, layovers because of how long it takes to load.

Speaker 1:

Yes, so the solution is all right. We will get you trailers. We will get you trailers staged at your different locations and we will hire power only drivers to you know when it, when the trailer is loaded and ready in the yard, we'll come grab it and take it to wherever it's got to go, and then we'll get it returned there and staged. So you've got you know, you always have X amount of trailers available. You guys can load in your in whatever time you need to, and then we'll get them moved out, you know, whenever, right, that's a, that's a drop trailer program. In a nutshell, right, it's not like a, it's nothing new. You guys are using repower, right? Yeah, so we ended up.

Speaker 1:

Our solution was we use Repower, which is like a I always call it like the Airbnb of trailer rentals. So like, if I have a trucking company and I've got idle trailers I don't want to sell them, but I'm not using them, I can put them on Repower and someone can rent them for me, you know, for X amount of time. And if I want trailers for my fleet or, you know for, in this case, for a drop chart program, we can go on there and rent them. And so we've got a few different um you know, basically renters, um that we're getting trailers from and we have them staged at these locations. So anyway, fast forward, um, we factored in, like the what it would cost us to rent these trailers and we factor that into our bid to this customer and we get them all staged, which obviously, like, if you're just staging trailers, you're not making money at that point because we're having to pay a lot of cases to get these trailers moved.

Speaker 2:

So what's the daily rate give or take average for a trailer to sit there per day through repower? I think I looked it was like different for reefers in areas of the country than vans were like 30 bucks a day give or take it totally depends.

Speaker 1:

Like I've seen 30 bucks a day, I've seen 20 bucks a day, some and again. Repower is like the middleman, so they, you know they can negotiate for both parties. So, like we basically said, we're going to do this volume for this amount of time. We're able to get a discount, um like a reduced rate with this with this provider. Um, so anyway, we get the trailer staged and then, like I'm tracking, like the monthly amount we're paying to rent these trailers and I'm looking at the profitability of the account and I'm like, dude, we're in the hole. What is going on here? So we going on here, so we like dig into it and, um, the customer just decided they weren't going to tender the loads to us that we contractually were awarded and our trailers are sitting there and we're paying for them. So we end up like I'm like we got a pole plug here, like was it a price situation return?

Speaker 1:

they just went to cheaper carriers they just yeah, I mean they just went to. They didn't have like they had turnover and personnel and, like they just decided, we're going to tender these to whoever we want, even though we were awarded the bit we were awarded, like position one in the routing guide for a bunch of lanes, and then p2 and p3 for, like other lanes so question though, because I want to understand the details like you guys were awarded the lanes, because we get this question a lot right.

Speaker 2:

Yeah, there is nothing right that you can actually do if one of two things happens. One, if they don't have the product or the orders to sell to their customers, like the, the tenders just never come to fruition, like they just don't ever exist because they didn't sell as much as they thought, which is one scenario. Another scenario is the company that you get awarded the loads with does get the orders and just decides to use a different provider yeah, but in this one instead yeah, but in this one, like you've got trailers just sitting in their yard, like they have a huge yard where they brought in other another.

Speaker 2:

They had to bring in another company's trailers while you guys were just having, so I honestly don't even know what they ended up doing.

Speaker 1:

They might have just hired um. They might not have done the drop trailers thing. They might have just hired carriers and live loaded and just didn't pay attention or something we literally have. No, idea, um, but yeah, there's no recourse contractually, like if they just don't give us the business, what are we gonna do, right? And then, uh, I mean, it's kind of like if I go to three mechanics and I'm like, hey, quote me to get my transmission rebuilt, and I tell the one guy, like all right, you're getting the cheapest and then, like I decided to go with somebody else, like just because I told this guy I've he's getting my business, like he can't sue me because I didn't bring my car into his shop, right?

Speaker 1:

so anyway, we end up like we got like 40 or 50 000 in like trailer rental costs that we never, never used. The trailers just sat there and we got up ended up getting a return. We at least stopped the bleeding, but now we're doing 50 grand like we sent a legal notice with an invoice to the customer.

Speaker 1:

we're like hey, here's the, here's the contracted award, here's all the correspondence with your individuals that stated that we were awarded this, here's the volume we were awarded and here's the requirements, including the, the trailer, um, trailers being staged. You guys, you know you reneged on that deal and, um, so we here, basically, here's the bill, here's the bill for the trailers that that you guys had the ability to use and never got invoiced for, and the guy just basically doesn't respond. So then I I follow up with him as, like you know, one of the leaders of the company and I'm like, hey, you know, did you and I made sure to use, like, hubspot, so I've got like, did he open it?

Speaker 1:

Yada, yada, and, like you know, I think, because he saw like a title of someone that- wasn't just a broker he's he responded to me within like minutes and he's like yeah, we received this, this is, this is denied, Like he just left it at that. So now we're like having to basically like try and go the legal route and try to like get a lawyer to look at everything and say do we have grounds to try and sue them because they breached contract?

Speaker 2:

Cause they clearly breached the contract um, have a contract for the loads. Like they actually sent you a contract that you guys signed contract.

Speaker 1:

We have tons of email court. We have everything i's dotted, t's crossed. Like you know, we're going to do this, it's going to be billed through us it'll. The cost of it will be absorbed in your freight freight bills, so it'll be a clean you. You know one invoice thing right. Whereas moving like so, the lesson learned was moving forward for other customers that we do this with if there's a trailer charge, that like for a rental company they will be given an invoice, separate from the freight bill, for the use of those trailers.

Speaker 1:

Right, that way, if they don't use them, they still have to pay. So it'll entice them like we need to be pushing this through this company, because we're paying for the trailers regardless.

Speaker 1:

So yeah, it got messy and the worst case scenario is we might just be out 50 grand, right, and that sucks. But like, don't make that mistake. It's kind of like when, if a customer's like, hey, we, we need an edi integration. I got a customer right now, same thing, like we want to bring them on um and there's integration costs man in time.

Speaker 1:

So like if we end up spending 10 grand to set something up and we don't get a single load out of them, like those are the risks you run when you're dealing with complex customers. I'm not telling you to not go down these opportunities.

Speaker 2:

But evaluate the risk Exactly 100%.

Speaker 2:

Here's the other takeaway and I learned this, somebody was talking about this in a podcast and it made so much sense and I implement this is whether it's just a person or even a company, there is an emotional aspect to paying a bill and if you pay a large bill in smaller increments, you're less likely to get pushback than a larger bill one time.

Speaker 2:

So in your scenario, right, like it's much easier to get a company used to paying for the trailers if they're getting invoiced either daily or weekly right, and let's just say it's five grand a week, right. If you invoice them five times for a thousand dollars that week, right, and let's just say it's five grand a week, right, if you invoice them five times for a thousand dollars that week, right, it's easier to get them to pay it. Right, because from the budgeting standpoint, looking at the money out the door, it's easier to get someone to spend money at smaller increments more often than once with a larger bill, because it is really hard emotionally and even for the person pushing that button even if it's the company's money to send one bill at the end of the month for 20 grand than it is to do it every week at five grand, and it's even easier to get them to pay them at one grand right and the more you get them in that habit, the easiest is to not pay the bill at all and have it included in your freight bill.

Speaker 2:

You know, what I mean Right, which is why.

Speaker 1:

I think they liked our option.

Speaker 2:

Exactly, because then they didn't have to see it as a line item. But, to your point, like you really want to think about that risk and how that plays out. Yeah, here's another one too, and I think this falls into the category of avoiding a claim. And then I'm going to go into our two stories that we were talking about before this, the one that you had and the one that I'd run into. But this is one I ran into recently, okay, and it's. It seems straightforward, but I really want to outline this for the audience.

Speaker 2:

Okay, so when you're vetting a carrier's insurance, almost every vetting software I've seen except for like the high one at highway only, and I don't even know that this one can do it Cannot tell which trucks are actually listed on the cargo policy and the certificate of insurance. What the systems do will say is this cargo insurance enforced for the dates, does it have the amount and does it have the policy? And usually, like, it'll manually pull that from, like my carrier packets or RMIS, and it'll say, like, this trucking company has cargo insurance, right, but it doesn't tell you one of two very important details Is it all auto or scheduled auto?

Speaker 1:

And if a highway, highway does that, I think MCP does as well.

Speaker 2:

It. My MCP does not because this happened yesterday with MCP. So in this scenario the carrier had cargo insurance. But on highway, when I look into highway it shows the insight that there were observed equipment not listed on insurance. So highway could see that there were inspections for this MC on assets like the truck and the VIN that weren't on their certificate insurance.

Speaker 1:

This truck was seen, but it's not insured currently.

Speaker 2:

Here's what it also then looked like. I could see six trucks observed in the highway for this carrier, right. But when I look at the listed right above there on highway it shows registered right Like the FMCSA number, and it shows three. I'm like, okay, well, they've seen six, but only three are like through the FMCSA. So clearly they're running a leased on program or are just double brokering loads to another carrier, putting a magnet on their truck and letting them pick up these loads. Okay.

Speaker 2:

Now here's where this gets not necessarily confusing, but why. It's important to understand this. If you go to the certificate of insurance, if it is all auto, that means that trucking company, any truck that runs under their MC, is covered under that insurance. If there is a lease agreement in place meaning Nate owns a trucking company, he owns two trucks, has an all auto policy. But Ben's trucking company that he owns two trucks has an all auto policy. But Ben's trucking company that's next door has an extra driver this week because my business is slow, Nate goes hey, I'll lease that guy on. This week I've got extra business. I sign a lease agreement with Nate for that truck to work under Nate's MC for this week. Now this is a question to you, nate do you have to contact your insurance company once I sign that lease agreement? Provide that lease agreement to the insurance company for it to be covered under all auto, or does the lease agreement make it covered?

Speaker 1:

Well, it's any autos. Is the one you're talking about? You don't have to give them the VIN number, it's just like it covers your entire fleet.

Speaker 2:

So if I have a lease agreement with you, you and I sign it, no one else sees it. I'm technically insured under your policy, if I ran your load.

Speaker 1:

Yes, because here's how the insurance certs will say any auto, owned autos, only hired autos, only scheduled autos or non owned, owned autos Only. I'm looking at a COI right now to verify it. So any auto is literally anyone that's operating under your company's authority leased on or company owned, doesn't matter, owned only. Clearly it's your trucks. Hired are ones that you're hiring out. Scheduled autos means just the numbers that I put on.

Speaker 2:

Does hired cover leased on?

Speaker 1:

Yeah.

Speaker 2:

If.

Speaker 1:

I third party, like if I lease on a driver and I don't own their trailer, that would be hired autos. Hired auto, yep, scheduled autos and again, we're not the insurance experts. This isn't my experience. Scheduled autos that's the one where it's like, where it really matters, because your, your policy only covers the vin numbers that are listed on that certificate and it's usually on, like, the second page, there's a list of them. So, um, and then you've got non-owned autos only, which I? I couldn't even tell you what that means.

Speaker 2:

So under scheduled auto. This was a scenario yesterday and I look and on that scheduled auto there is one truck, one VIN listed. So there's six clearly have been observed running right. There are three listed with the FMCSA but only one on their insurance. So they do have cargo insurance, but technically on one truck. Now the broker's like hey, I talked to the dispatcher. He said they told the insurance company it's just not updated. But they're good, it's not updated yet. And I was like what that means is that truck has no cargo insurance and also and I don't know the answer to this I don't think it has general liability either. Because if it's not listed under scheduled auto, it doesn't matter.

Speaker 1:

Scheduled auto's box is in the auto liability section, but like. So I'm looking at one right now and it has like your general liability, and then you have auto liability, which is where your scheduled autos would be, and then you've got like your umbrella workers comp and then your additional listed ones like interchange.

Speaker 2:

Well, cargo is the one I'm curious about. So cargo, does cargo fall under this? Because if this VIN for this truck is not listed under scheduled auto, okay, then does that truck have cargo insurance? I don't believe it does, correct.

Speaker 1:

I wouldn't think so. I mean, let me look up, I'll pull up. Here's a cargo policy. Because it usually says the VINs next to cargo it just lists I'm going to go ahead and say no. I would assume if you're using a scheduled huddles policy, literally every policy on that COI is only applicable to those VIN numbers listed. That's the way. I've always done it Because I mean clearly, when you go to add a VIN to your policy, they're getting covered for all those different policies and this is what the dispatcher verified.

Speaker 2:

He's like, yeah, we told them, but it's not on there yet. I'll get it updated. So then the broker's like hey, I talked to the dispatcher. He says it's good. And I'm like you cannot send that truck in until you have a document from the insurer the insurance company not the dispatcher that lists the truck that is going to pick up our cargo, because we don't know if it has cargo insurance. In fact, based on the email from the dispatcher, they're saying it's still not listed, which means you are gambling right with the entire value of this shipment to make that margin. I'm like, say it's a $60,000 load. You basically went into a casino and put 60 grand on the table to win 200 bucks. I'm like, does that seem like a good bet? Like you need to go to the insurance company to make sure this truck has the insurance to cover our customer, otherwise he doesn't have it. You're just hoping something bad doesn't happen, right?

Speaker 1:

I've had it happen twice. I've seen it happen twice in the last few years where the claim was denied because the VIN number was not listed, and this is why we have policies in place at Pierce where we can prevent this now.

Speaker 2:

And here's the thing that I want everybody to understand is whether you're a broker or own a brokerage out there or run a team is. What happens is is somebody does this without looking, uses that carrier, nothing bad happens. They booked five, six loads over the past month or two and they're like hey, I know this company, they've done a good job, they delivered the loads on time, why can't I use them? This is what happens in practice in your company, right, and then the manager or me or you looks at this and goes well, because they don't have insurance, get the right insurance and they should run the load. And then all of a sudden you get pushback from a dispatcher and everyone I've ever looked at it's the same scenario. I'm like I'll bet you are trying to cover this load for way below DAT average. Yeah, why? That's the reason this truck can run your load for your rate because they're not paying for insurance and like I've had trucking companies as clients that tell me that this happens all the time.

Speaker 2:

They're like we're on WhatsApp groups. We know the carriers that don't have insurance. They'll take the load for $300 less than us because they're not paying insurance. So we make a hundred bucks, give them the load and then they run it Like it's super prevalent. But you got to understand that, like just because something bad didn't happen, it's even worse because it reinforces the risky behavior. The broker that used that truck is more willing to use it again because they didn't have a claim. But again, like just because you got a good driver and good equipment. And even if all those things are true, without insurance, there are lots of things that can happen that have nothing to do with that driver or that equipment.

Speaker 2:

That insurance needs to cover. If there's an accident, if there's a pileup on the interstate, if there's a horrible storm, if there's road debris that rolls down on the road that somebody didn't see, and they get into an accident. Like your freight is not covered at all. And now all of a sudden, oh wow, I ran 10 loads of this carrier and made two grand or whatever, or 1100 bucks over the past six weeks Great. And then one claim. You lose $60,000. That insurance won't cover it, your brokerage's insurance won't cover it and the shipper's going to go. Oh you know what? All 50 grand of those invoices we owed you for the past month. We're going to hold those until you pay that claim.

Speaker 1:

Because you got to remember, ultimately we're not liable for that claim, the customer just wasn't insured. But you got to remember, on our books we have receivables.

Speaker 2:

Yes, and you're absolutely right, your customers almost always are going to owe you money, which is how they protect themselves.

Speaker 1:

Yep.

Speaker 2:

Like there's two fundamental parts to this job. It's hiring the trucking company for a rate that works for your customer. But the second part that is, I think, the one least paid attention to is you've got to vet that company and their insurance to the requirements of the shipper. If you aren't doing the second, you are taking huge gambles every time you move a load unwittingly and that risk eventually plays out Like I had a client last year. They spent over like $150,000 in claims and I went okay, you spent 150 grand. What's your average margin per load? 200 bucks.

Speaker 2:

I was like you've got to run like four 500 loads just to make up for that loss. And I said that doesn't include your expenses. If you include your expenses, I ran the math. I'm like you worked for 10 weeks last year for free because of that $150,000 in claims. 10 weeks I'm like that is almost a quarter, like that is damn near 25% of last year was wiped out. All of the money you made, all the work that everyone did for 20, that's one in four days you went to work for free. As a company Like this is not a small thing and it can. It bankrupts companies often.

Speaker 1:

Yeah, we had. This is a story from a while ago. I probably told it before we had the potato knocked over propane here, knocked over propane here. So basically, like one of the one of the brokers in the company, instead of getting carriers that had a reefer unit cause they, what they needed to do was keep these potatoes from freezing in the winter time, so you'd you'd want to, or reefer where you can set the temperature high enough that it's going to you know it's not going to freeze. So instead of that, the guy was hiring like vans or vented vans and just telling the driver to go buy like a portable propane heater and set it up in the in the friggin unit and then, every now and then, like, the propane heater falls over and they automatically shut off and you get frozen stuff.

Speaker 1:

So, like we had, I think we had like eighty thousand dollars worth of like on unpaid, like losses from the insurance company because they're not going to pay out a claim. Like they're not, they don't have a reefer unit, they don't have reefer breakdown and they definitely don't have, oh, temperature controlled using a propane heater in your vented van insurance. So the broker ended up having, like I mean, $80,000 had to be recouped out of his profits, which he did a lot of business, but still, like, you end up working for free for a very long time to recoup that. So yeah, don't make that mistake. If it seems too good to be true, or like. You know, we talk about fraud too. Like, if it seems too good to be true, or like you know we talk about fraud too.

Speaker 1:

Like if it seems too good to be true, it probably is right, yes, and eventually you'll get. You'll get, it'll catch up with you so what's one of the two?

Speaker 1:

you have a really good one with trailers, a situation, and I've got one with tankers um, yeah, I'll try to keep mine brief since we're we've gone on kind of a long time, but mine this is one that's ongoing now as well and so I don't have the final disposition of how it's played out yet. But we had a situation where another like trailer situation where this this customer is actually a large trucking company and our, our business with them is to reposition their fleet of trailers, so it's loadouts. They say, hey, I've got. You know, for example, I have a trailer here. It needs to get to this other city. You have 10 days to get it done. So they pay us.

Speaker 1:

We find a trucking company power only that will haul it. We say, hey, you can use the trailer for a week and a half, do whatever you want with it, and just make sure it gets delivered to the city by this date. Right, and a lot of times you can get a carrier to do that for free. So it's just straight profit and the benefit for the carrier is they just get to use the trailer for free and go haul another load.

Speaker 1:

So we had one where it's going on right now, where, like it was supposed to get delivered like three weeks ago. The customer's like dude, this never showed up and so I ended up like I went on Genlocks. I was able to find the trailer with the carrier we hired still driving with it two weeks later after it was supposed to be delivered. Carrier was dodging us, they claimed it was delivered. Thenrier was dodging us, they claimed it was delivered. Then they're dodging us and, like now we have like physical, photographic proof of where they were at what time, heading in what direction, on what highway. All right, we ended up like getting law enforcement involved. We get a hold of this carrier, we kind of call them on their bluff and we end up getting like the police show up and the where the carrier was that like a fast food joint or something like that, still with the with our customers trailer hooked up and the cops like you, like you can't just be hanging out at McDonald's or whatever it was like. So they ended up like the driver left, they got it toweded to like a storage yard or whatever, like right nearby and it sat there over the weekend, like Friday night, saturday night, sunday night. So then Monday, this week, you know, we get a hold of this storage place. We're like, hey, we're going to come pick up our trailer. The guy's like, yeah, that'll be $7,000. And we're like seven grand for storing our trailer over the weekend. Like that's egregious.

Speaker 1:

And now we're in this, this battle of like well, the carrier is ultimately responsible for this, but we're not paying them anything, so we have no funds to dock them on. So what are we? What are we going to do? We got to try and like and it hasn't. It hasn't finished playing out yet, and it hasn't. It hasn't finished playing out yet.

Speaker 1:

But my guess is that, like the ultimate goal would be just have them invoice this carrier that clearly is responsible for this. Or, you know, worst case scenario, we end up paying the whole seven grand, but more so. There's a middle ground of like, all right, here's a realistic price to come release this trailer. But we're trying to balance like, how do we get this trailer back? How do we keep our customer happy? How do we not lose seven thousand dollars? Like this could have all been um prevented if we had a more like, if the the actual guy running this business if he was tracking the location of all this stuff way better, because he I mean a lot most of this stuff. He's got gps on, but clearly he either wasn't paying attention or got too over what whatever?

Speaker 1:

like driver turned it off on the customer, being like, hey, I never got my trailer back two weeks later or three weeks later, whatever it is um, but yeah, preventable, just you know.

Speaker 2:

Yeah, things to consider what's your last story here? So this one happened in a tanker scenario, right, okay, and it isn't resolved, but it's a really good case to understand what can happen we talk about. Everyone always asks like what is FOB? Customer says things are FOB. Why does that matter, right, okay? So in this scenario, right, our customer is the receiver. Okay, they are getting product from a very large company. Their contract with their supplier is they'll arrange transportation and, by definition, like, it is set up as FOB origin. Now, what that means in practice, right, is you?

Speaker 1:

probably learned this if you went to business school right in your accounting classes.

Speaker 2:

So Nate, okay, say Nate's the receiver right and Acme Supply is who he buys it from. Nate's agreement is he's going to send the truck in to pick up from Acme Supply FOB origin. Because Nate thinks he's either going to get better service with those carriers or better prices. It's usually one of those two, usually price. So Nate signs that agreement, says I'm going to buy whatever 10 loads off you this month, I'll send my own trucks in Company. Says I'll just sell you the product you send your trucks in.

Speaker 2:

Now in Tanker it's a good example because there are requirements to load product to make sure that product isn't contaminated. So in this scenario the trucking company, before it is allowed to load, has to send a certified letter, basically on their letterhead, that says these are the last three loads in this truck and the dates for this trailer and then state this trailer is only food grade, meaning like it's never used for anything but food grade products. Here are the last three loads moved and then sometimes provide the bills of lading with those dates. Okay, then they need to have the type of tank wash needed done. In this case it's called a type three kosher wash. So they verify what was in the truck for the last three shipments. And then they need a document from the tank wash that says it was cleaned as a type three, certified by that tank wash.

Speaker 2:

The tank wash also cleans all the hoses and things for the pump, for that equipment. So it was what was in it last three loads. Was it cleaned and certified? At what time they show up to load at the loading facility, they visually inspect the truck, look at the pumps, check the documents and go we're good to load. They load the product in the tanker. Now, this is the important part as soon as that tanker is loaded and leaves that property, it is the possession and owned by Nate, the receiver. It is not Nate's possession. When it gets to Nate it is at origin, which means as soon as that product pulls out of Acme Supply's parking lot, their property, nate owns it.

Speaker 1:

The trucking company does not take possession Right, so literally like if I'm the shipper right as soon as it's on that truck. That inventory is off my accounting books.

Speaker 2:

I no longer own it. The sale is recognized at that point. As soon as that truck left Acme Supply, acme Supply goes product is sold.

Speaker 1:

And the point here is if there's a claim, the person who's going to file a claim or the beneficiary of the claim is now the receiver At that point, anytime after it's been loaded and leaves it's no longer the shipper's responsibility, so they don't care.

Speaker 2:

And here's the other important thing, right Is the carrier does not take possession or ownership of the product. They are in custody of it. It is owned by Nate. When it leaves the property, the truck is just bringing it to Nate. They don't ever take ownership of it, and that is important detail. So what happens is product gets to the customer, customer says this doesn't meet our standards, we are rejecting it, we won't take it, leave Okay. So the carrier can't deliver it.

Speaker 2:

But now here's where it gets a little sticky. Because the receiver still owns it. They owned it when it left. They still own it now. So the carrier can't just dispose of the product because the receiver still owns it. They owned it when it left. They still own it now. So the carrier can't just dispose of the product because the receiver just said we reject it, but they still own it. So there's a difference between I won't take this and put it in my tank and I'm giving you this product, right, like they still own it, even though they won't technically receive it, which is different than a standard shipment where, like, if they reject it, like it's not owned by them, it's owned by the shipper and a normal scenario. Right, in this scenario. They're like we're not going to take it, figure it out, but we're like, hey, you still own this.

Speaker 2:

Now, where it gets sticky is like it's still in that truck truck and the brokerage is getting storage fees on that trailer every day until we have this formal declaration from the receiver that says this is why it didn't meet the standard, this is the value of the cargo, this is what we tested. This is why we want to file a claim. This company has not provided that documentation now for over two weeks. Storage fees are incurring every single day that the brokerage is going to get bills for right. However, we can't tell the carrier just go and dispose of the product until the insurance company comes in and decides we're either going to test the product or we're going to say you can formally dispose of it. And that process can't happen until you get the formal documentation from the company that owns it, that technically was receiving it. And just because they sent an email and says like, hey, we're okay with you doing whatever you want with it, that doesn't mean the insurance company is going to say the same thing. So you're in a scenario as a broker where like, okay, guess what, technically, like the carrier might have liability related to why the product was damaged or not in the right quality. That may be case may not be. The insurance company has to decide that. The insurance company can't decide it until the company that owns it, that was going to receive it, provides a documentation. And in the meantime, that carrier can't use that trailer and the brokerage gets a bill for storage every single day. It's sitting there Right and to Nate's point.

Speaker 2:

What we were talking about earlier is like, technically, this company still owes us for all the other invoices and loads we've run for them. But here's what's really going to happen. They're just not going to pay those bills until they get reimbursed for the product they said was damaged and isn't their fault. There's no way to tell if it was the carrier's fault until the insurance gets involved. So it sits in limbo in this middle ground where there's still bills and nobody's doing anything because the receiver doesn't feel like they need to hurry to do this. And then the shipper. They sent their documentation within 24 hours and said we did this, certifications were good, tank was cleaned. We visually inspected it. There was nothing wrong. It left our property. This isn't our issue. So they take care of their end within 24 hours. The receiver just feels like it's not that important to deal with.

Speaker 1:

It's someone else's problem. Well, they're going to pay the receiver because they're like I'm just not going to pay anybody. So what does it matter? Correct?

Speaker 2:

And then here's what happens, though, is that, in practice and they've said this to us like, this is why we use a broker, so you can work through these scenarios, but that doesn't mean they don't owe us money for the other things of which they're gonna drag their feet to pay. And then, once you involve attorneys, it just takes longer, costs everybody more money, and nobody recruits this right. So these are just really good scenarios to think about. When you're working with a customer, like there's almost always inherent risk.

Speaker 2:

Some things are far more complicated than they appear, and most of the time, like I've worked with this customer for like three or four years, none of these things have ever happened, right, but then, the one time it happens, it might cost you 50 to $100,000 to work through, whether it's legal fees or paying the carrier, so they don't file on your bond because we still owe that carrier for the other loads they ran, regardless of whether the customer pays us, and even if we factor it, the factoring company's got a clock on when that customer pays them before they're going to charge us back.

Speaker 2:

So these things don't have they're not riskless, right? Like there is a risk in a lot of these things. These are risks you take as a broker, and just because you're not liable for a claim technically, that doesn't mean you have no risk at all as the intermediary right and this will be an interesting one, both yours and mine. We'll do a recap when they play out but just thought they were really good examples to share with people on what happens in practice when you're actually doing this.

Speaker 1:

Yeah, so hopefully you guys learned something today and you can prevent your own mistakes or your own headaches, because they're not fun, whether it's a claim or a dispute on charges or whatever the case might be. So, but good discussion. Going to be back. Looking forward to seeing you in Florida here pretty soon, ben. Any final thoughts?

Speaker 2:

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

Speaker 1:

And until next time go Bills.

People on this episode

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Benjamin Kowalski

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Nate Cross

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