Broker Caught In the Line of Fire

Q: You’ve addressed the issue of brokers paying carriers and carriers not paying subcontractors many times, yet I find myself unsure about this specific situation. In the past, I must admit to a bit of smugness when I read of other brokers’ struggles. Well, now it’s my turn.

We’re brokers. We have every carrier under contract with clear language that double brokering isn’t allowed, and for the shipment in question, we have a signed confirmation that also makes this clear.

We contracted with Carrier A for a shipment from one of our customers’ warehouses to another. It gave the shipment to Carrier B, who delivered without incident. We were duly paid, and in turn paid Carrier A, which has now disappeared and, needless to say, didn’t pay Carrier B. Now our customer has received a letter from a lawyer saying the customer will sue to collect the $3,000 payment Carrier A owed to Carrier B.

The bill of lading, completed by our customer, shows us as the carrier. Our customer is listed as the shipper and the consignee. Section 7 is not executed, and under “Freight Charges” is a box titled “third party” that is checked. The driver signed the B/L on the line marked “agent.”

My understanding of the law is that our customer owes this freight bill, but we’ll have to pay any settlement and deal with any lawsuit to protect our customer relationship. I can’t risk the relationship with this customer, who is already mad because of the letter, and because the delivering carrier charged much less than we charged them (we paid Carrier A $3,600 and charged the customer $4,400, but now they see the actual carrier charged only $3,000).

Irrelevant, but aggravating, is that we pay high rates specifically to avoid using unreliable carriers, all of which we check out thoroughly.

Am I correct that, although the customer already paid us, they’re still liable for Carrier B’s freight bill? If so, do I have any legal ammunition to try to force a settlement for a lower amount? Does the indication that this is a third-party charge force them to try to collect from us rather than our customer?

Looking back, I can’t see what we should have done differently; this must just be a hazard of being a broker.

A: Neither can I find anything you did wrong. As you say, it’s a risk of the trade.

Without a bill of lading in its name, Carrier B is going to play hob trying to collect from your customer. Indeed, if it seriously cares about the money, it probably won’t even sue; its legal costs would vastly exceed the three grand it’s trying to collect.

But as I understand you, your problem isn’t the risk of a lawsuit; it’s trying to keep your relationship with your customer. What’s important to you is that this problem goes away without further hoopla — and I’ll bet Carrier B’s lawyer is aware of your dilemma.

So now you play a game of chicken with Carrier B and its lawyer. You make a small offer of settlement, say a few hundred, and dare them to sue; they make a big counteroffer and say they will, too, sue if you don’t pay. You go back and forth for a while and sooner or later meet somewhere in the middle.

If the case got to court, the outcome would probably depend mostly on who enlisted greater sympathy from the judge (or, God forbid, the jury). Legally, your customer is on strong ground; Carrier B can claim no contract with it supporting the payment. Any contract for the haulage it may have had was clearly with the now-missing Carrier A.

Equitably, the carrier has a small edge; it hasn’t been paid for a service it provided that benefited your customer. Against this, however, may be set the customer’s argument about double payment — once to you and Carrier A, a second to Carrier B. The outcome likely would come down to the company that could becry its woes loudest.

But that’s moot in the circumstances. Even if it prevailed in court, your customer almost surely would walk away with a bad taste in its mouth, which it would ascribe to you. That you weren’t directly at fault would carry scant weight; it’s the soldier on the front lines who takes the fire, and from your customer’s standpoint, that’s you.

There’s one thing you can do to avoid a recurrence: Keep closer tabs on your carriers’ finances. Carrier A (your choice) clearly had economic problems for a while, and you might have stayed on top of that situation better. Do so in the future.

Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455; phone, 843-559-1277; e-mail, BarrettTrn@aol.com. Contact him to order the most recent 351-page compiled edition of past Q&A columns, published in 2010.

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