Broker vs Dispatcher & More | Final Mile 103

Nate Cross & Ben Kowalski answer your freight brokering questions and discuss:

• Broker vs Dispatcher: We break down the differences between a freight broker and a dispatcher, and whether one person can legally and effectively perform both roles.
  
  
• Fraudulent Carrier Scenario: A listener shares a case where a broker paid a fraudulent carrier and now refuses to pay the real trucking companies who actually moved the freight. We discuss legal and ethical options to resolve the situation.
  
  
• Insurance for 1099 Agents: Should a 1099 freight agent carry insurance?

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Transcript

Welcome to The Final Mile

Speaker 1 0:19

All right, welcome back for the final mile. This is our segment where we answer your questions that you guys send to us each and every day, it feels like at this point, through YouTube, the website. We appreciate it, so we can't get to every single question. We try to answer a lot of them on YouTube or on the show or via email, but we got some good ones that we'll get to today. Make sure to check out all of our other content at Freight360.net and on YouTube, and you can check out the Freight Broker Basics course on our website as well for an educational option. And please check out the sponsors in the description box. That will help support our channel. All right, ben. Our first question Does a broker and a dispatcher play the same role?

Speaker 1 1:02

And, if not, can one person be the dispatcher and the broker? So I'm assuming the way that they're using the word dispatcher can be taken multiple ways. What I want to say is if you're a dispatcher for a trucking company, like an independent dispatcher that represents trucking companies, you are not a broker. Those are two different things. Brokers are things. Brokers are licensed. Dispatchers are not licensed. There is some um, tia, industry standard like guidance on dispatch services, but there's no like legal groundwork for at this point. Can you be both? You could be both, so what's your? How would you take this Cause? I want to make sure we're not talking about like the dispatcher inside of the brokerage who's actually like contracting the truck and tracking the truck.

Speaker 2 1:54

When it says the same role I'm going to. I'm going to zoom into the word role and try to define it from there, right. So role could mean a few different things. Like if you're meaning the role is like what you're doing all day. Meaning like you are connecting a carrier with a shipper that has a load right. Like that is different for a dispatcher than a broker right.

Speaker 2 2:16

So for a dispatcher, the way I always understand the guidance is you do not have the ability to choose between motor carriers for any given load as a dispatcher. As a dispatcher, you are contracted with a trucking company and you are able to source loads for that trucking company and book their trucks on that load. You are not able to book of many multiple MCs for one given load. You work for the trucking company, you book loads for them as a dispatcher.

Speaker 2 2:48

The thing that makes it a little confusing is under the guidance, my interpretation is that, like you are able to dispatch for multiple trucking companies but they need to have a distinguishing quality. Meaning like, yes, like I have a reefer company I'm a dispatcher for and a van, so like if I have a van load it only goes here, a reefer load only goes there the guidance clearly states that, like you, can't be a dispatcher for six different dry van companies because now you're operating as a freight broker without a license. So to me that is the distinction and rules. Distinction and rules. A broker allows you to work, with your license, any shipper and vet and work with any carrier to move that load right. A dispatcher is constrained or only able to work with typically one trucking company unless that trucking company can't provide other services like maybe drayage, maybe intermodal or maybe like, or maybe like or different areas of the country.

Speaker 1 3:44

Yeah, correct, what this trucking company only is a dispatch service, basically having a load from a broker and being like, hmm, I got these six truck companies available this one pays me this much and you know it's like, uh, if you're, if you're, they're then having some control over, um, you know, carrier selection, that is a freight broker's role and that's our license.

Speaker 2 4:09

The ability to vet and determine the carrier selection. You can determine the carrier selection, but it has to have differences Like to your point. Like I can use this trucking company and they're all vans because they only operate in the northeast. Oh, I need to move this load in the southwest. I can use that trucking company I'm contracted with for that load because one can't do the other one's load.

Speaker 1 4:31

If you could pick between the two. Yeah, the dispatcher cannot take paint. Money cannot run through the dispatcher.

Speaker 2 4:35

Right, right. They have to pay the trucking company. The trucking company pays the dispatcher.

Handling Fraudulent Carrier Situations

Speaker 1 4:38

Yep Brokers, the money runs through us, so all right. Next question I think this is from a shipper, actually. So we recently found out that our broker booked a few loads with a fraudulent freight hauler so a fraud carrier. That broker still wants to be paid for the loads. They paid the fraud motor carrier but doesn't know who the trucking company who actually delivered the load is and likely won't pay them if they come forward Any advice. So, all right.

Speaker 1 5:10

This is a very common scenario in double brokering where, like, shipper gives load to, we'll just pretend that me and you are part of this equation, right? So Shipper gives a load to you as a freight broker and I'm trucking company, right, you give it to me and you think I'm going to haul it. What do I do? Is I give it to I without a license or the authority to do so. I give it to some owner operator who then hauls it. I take payment from you and I just fall off the face of the earth, right?

Speaker 1 5:45

And you know whoever that carrier is to hold it at some point is going to come around and want payment and per, like the laws, like the, that you wouldn't have to pay them, right?

Speaker 1 5:57

The actual shipper is responsible for freight payment, which, I tell you, lose a customer if you don't own up to your errors. Yes, so this? This shipper is asking for advice because the broker that they used let's see the broker wants to be paid but doesn't know who it was. So, yeah, I mean I wouldn't, I wouldn't pay the broker, I'd freeze their pay, but I would try to work with them on a relational piece of like hey, if we want to do business together, like, we've got to have processes in place to make sure that who you're sending into us is legitimate. Or I mean, depending on how bad this is like, just don't ever use this broker again. Like, because you are as the shipper, you are going to be held liable to pay whoever hauled that load of yours when they come around and if the broker says I'm not paying them, they're going to come to you.

Speaker 1 6:43

So yeah, I wouldn't pay. Yeah.

Speaker 2 6:53

And again like I wouldn't pay. Yeah. And again like I would be curious how the shipper found out the broker paid a fraudulent company and still wants paid. I'm guessing because how that arose, like how the shipper found out the broker paid a fraudulent company Right, but hadn't yet paid the broker.

Speaker 1 7:03

To me is probably like a whole lot of things were like the brokers like, yeah, I hired this Trucking company and a shipper, something happens, goes wrong. They can't get a hold of somebody. Next thing you know they're like who'd you load? Oh, we loaded ABC Trucking. And it's like no, we contracted XYZ. Like it was probably something along the line, like something must have happened. And when they started going back through the details they probably realized like who actually got loaded and hauled? It was not the same as who the broker booked.

Speaker 2 7:33

And the broker's like probably like, like, yeah, I clearly one slip past me type deal and I think if I'm the shipper, I, to your point, would work with a broker and try to gather as much information as you can, because what your real objective here isn't to screw anybody as a shipper, it's to just make sure the payment gets to the company that moved the load Right. So, whether that's me as a shipper, it's to just make sure the payment gets to the company that moved the load right. So, whether that's me as a shipper, trying to figure out from my loading doc do we have any images, photos or documentation of the trucking company that we loaded? Does my receiver have any of that documentation or images? Try to find the MC of the carrier that actually hauled it. Get them in the loop to contact them to make sure they're involved and the money gets to them.

Speaker 2 8:17

Because the only scenario at which I'm paying that broker for that load is that the broker in writing is going to release the payment I give the broker to the actual carrier, which doesn't solve the broker's problem.

Speaker 2 8:31

The broker, at the end of the day, if they want to keep the customer, is already out the money they paid the fraudulent person and even if they get paid from the shipper, they still have to pay the second carrier that actually moved the freight anyway. So, regardless of how this works for the broker like, they're out that money if they want to keep the relationship with the shipper as the shipper. If you don't get those funds to that trucking company that hauled your freight, they will come back eventually in the next few weeks or months and they're going to reach out to you because they know they picked a load up from you and they're going to shoot an email or call your facility and say, hey, who did you guys arrange this load with? Because we didn't get paid. You'll look up the load number and then you'll be able to close the loop on what actually happened. That's usually how these kind of play out.

Agent Insurance and Financial Protection

Speaker 1 9:13

Yep, all right. Last one Do you think an agent working as 1099 should buy some kind of insurance? What insurance? Do you think Bad debt is not a concern? Okay, I actually get this question. I've got this question from people within our because Pierce is agent based, so we get you know questions from agents about, like you know, agent based, so we get you know questions from agents about, like you know, do I need to have any insurance? Blah, blah, blah. So here here's the breakdown. The brokerage that you're contracted with as an agent will have insurance policies that any brokerage would have, right, like general liability, um, contingent cargo, contingent auto, things like that, um, you are cut, your the business that you're doing is covered under those policies. What doesn't happen like so the the general liability policy, for example, like a slip trip or fall in the office, those do not trickle down and cover a contracted agent.

Speaker 2 10:06

So if your agent pierce, isn't in charge or on the lease. If you had an office as an agent, you're right, you know my agents that have an office and have employees.

Speaker 1 10:16

Well, usually their office lease is going to require that they show proof of their own general liability policy. But yes, that is an instance when you would want to have a policy to cover things of that nature. So if someone's in your office and you know falls and breaks their back, you're not going to lose your house over it.

Speaker 2 10:38

So here's, but as far as you don't need like a contingent cargo policy or anything like that for your shippers. Let me throw. Let me throw a what if? Scenario at you. Sure, I'm an agent for you say pierce does not have receivables insurance, okay, yep, but pierce and my contract is a 1099 agent. You guys pay me on loads delivered. I'm not saying that is your setup, but like that's not uncommon for some agents we pay on invoice, sorry. Yeah.

Speaker 1 11:01

The scenario you're going to give me has probably happened at our company or something, so I'm getting paid on loads delivered every week.

Speaker 2 11:08

Right, I'm paying my employees as an agent underneath Pierce, employees as an agent underneath Pierce, but then my customer, of which Pierce approved credit for, because Pierce is funding the invoices and taking the risk between paying me and when they get paid from my customer, if my customer goes under, goes bankrupt and everybody did what they were supposed to and it's just a risk, like Del Monte which came up recently, right? Or like they just can't pay their bills and likely lots of these free bills don't get paid. Is there a scenario in which me as an agent wants to pay for my own receivables insurance, because if my customer doesn't pay you, pierce is going to withhold future money from me. It's not like you're just going to eat that risk and be okay with my getting paid on all my loads and you being stuck for the invoices.

Speaker 1 11:58

Yeah, so like the common agent world practice is like we we use a receivables insurance company, right, yeah, I know.

Speaker 2 12:08

I'm just saying a lot other agents.

Speaker 1 12:10

So right, so prior to that, when we didn't. And this is common in the agent world is like your contract will outline like your splits like we're 70 30, which means like if there's profit, it's 70 30. If there's loss, it's 70 30. Right, and you know so. If there's a lot of you know, customer goes out of business and leaves a ten thousand dollar balance and an agent's the 70% stakeholder in that like, well, they, they now have a $7,000 debt. In that scenario, right, what plays out normally in that is that that agent's like yeah, I'm not gonna pay that back to you, so I'm just gonna quit and go to another company and then we'll try to invoice them, and then you know whatever. Um. So to your point about receivables insurance for the agent. If the company doesn't offer it, it's you know itself. Um, yeah, I mean you, you might be able to, I don't even. I don't know if you can, though, because I don't think you can.

Speaker 1 13:06

Because if you're the, if you're the I'm a contractor.

Speaker 2 13:08

I can't insure your receivables, you're not my company. If you're an agent, it's not your receivable, but I'm liable for them.

Speaker 1 13:15

Yeah. So if I'm an agent for a company that doesn't have an insurance policy like that, if you've got a large customer and you want to protect that in that credit line, have the conversation with that brokerage and just say, hey, I'd really like to do x, y and z and here's an option. So, like we use allianz, which is formerly euler, and I use them at a previous company as well, there's a, there's a price tag pro false is a good one.

Speaker 2 13:43

Like we've looked at how to repulse it. Like there's a quite a few out there that you can get this with. Because, to your point, right, like I used to think about this a lot when I worked at, like TQO. Okay, because my previous job, like I worked at a bank and I evaluated credit risk to lend people money, whether it was a business or real estate, right, real estate right. And I'm like, okay, like my job is to read through the financials, look at their credit reports, determine if this is a good bet. Like, if I give this business or person money, can they pay me back? Like I'm involved in that decision. But then at TQL, what I noticed is like, oh, as a broker, I am not involved in the credit allocation. You just send over the company's information and TQL goes okay, well, you get a hundred grand in credit and then, if that company goes out of business, I don't get paid any commission, because I got to make sure I don't get paid commission until they pay their bills.

Speaker 2 14:36

And I always, I always felt like that is a misalignment in responsibility. So I'm like, okay, well, like if I'm on the hook, then let me read their credit, let me determine how much credit we're going to give them, because I'm not even involved in this decision. You guys decide to give them this amount of money and then they don't pay me and then I lose the money when I wasn't even involved in that and to me I was like that felt like a disconnect in how the but again, in a practical stance, you can't train practice so like correct, you can't train a bunch of freight brokers on how to run credit risk to the extent your credit department can.

Final Thoughts on Broker Liability

Speaker 2 15:08

So it makes more sense. But like I just have that unique perspective because I had both jobs and I'm like, wait a minute. But also like to your point, like from a practical standpoint, like a broker is going to ask for more credit, almost always to push that limit because they're going to get more margin and that's usually what it is is there.

Speaker 1 15:25

there's a push and pull game being played between the credit rep and the broker. I've had people like in the past that were like you charge back a commission because a customer didn't pay the invoice, and they're like, well, what did I do wrong? And it's like really nothing. But at the end of the day we, just as a business, you can't pay a commission on money that you never receive. Like it's just, you just can't Just sucks Cost of doing business situation.

Speaker 1 15:54

Good questions. That's a. That's a unique one. I don't think we've ever had any kind of questions like that. That is a really good one, but yep, all right. Final thoughts.

Speaker 2 16:02

Whether you believe you can or believe you.