Deciphering a Broker’s Depth Chart

Q: My company (we are a broker) was tendered two loads by our customer, which is a third party representing the actual shipper of the load. The shipment was moving to a company that I understand represents the actual intended receiver of the goods.

We contracted with our carrier who in turn re-brokered without our consent (as well as signing our contract saying double-brokering is prohibited). All went well with the delivery. Our customer paid us, and we paid the carrier (or actually their freight bill factor).

That was seven months ago. We just received a phone call from our customer telling us a collection agency has been calling them saying they represent a company I'll call Carrier B and that Carrier B has not been paid on the loads and is threatening to sue them for $7,000. Carrier B is apparently the carrier to which the carrier we hired (Carrier A) re-brokered the shipments.

We were paid by our customer, and we paid Carrier A in full. Carrier A has shut down and now operates under a different name and has no bad marks against it on the Transportation Intermediaries Association Web site, etc. Now seven months later, we are being held up.

Is my customer liable to Carrier B on this shipment? Am I liable to Carrier B? Carrier B, in my opinion, should have done a credit check on Carrier A before it took the load.

Help!

 

A: There are days when I feel a lot older than on other days. I mean, I remember when people actually did business directly with each other, quaint though that idea may seem today. If I wanted to buy something from you, I bought it from you; if I wanted you to haul it, I hired you.

I also have this recollection of people trying to sell me scorecards with the inducement that “you can’t tell the players without a scorecard.” But that was at the ballpark, unrelated to business transactions.

You've thrown so many third parties into this picture that I'm loathe to introduce yet another, but I must. Documents you sent me along with your inquiry show that Carrier B invoiced for its charges quite promptly — but sent the invoices to yet another third party, this one associated with Carrier A.

I know it's de rigeur these days to have intermediaries play big roles in even the simplest business transactions, but, really, five of them (six if you include the factor) in one ordinary sale? I shudder to think of the mark-ups involved, not to mention the confusion.

Oh, that confusion gets worse. You sent me scads of documents, among them the bills of lading for these shipments. They don't help a lot. On one, you're shown as the carrier; on the other, the carrier is left anonymous under the rubric "Pick Up." Moreover, both show freight terms as "collect" notwithstanding that (a) the shipper’s third party was supposed to pay and did, and (b) nobody at all has yet sought to collect from the (third party) consignee.

And you want me to sort out what a court might make of this mess?

My best take is that Carrier B has no valid claim against anybody except the party that evidently hired it, Carrier A. I base this in small part of the fact that Carrier B's name is mentioned on neither bill of lading nor any other document associated with either shipment (the proofs of delivery don't name a delivering carrier). Because Carrier A’s name is mentioned only in your own dispatch instructions, though, this isn’t all that telling.

What hits my hot button are those Carrier B invoices, both directed to Carrier A’s proxy. That tells me Carrier B understood its role as subcontractor and accordingly looked primarily to Carrier A for its compensation. Only when Carrier A failed to pay (and subsequently went out of business) did it come chasing anyone else for its money.

Your argument that Carrier B should have run a credit check on Carrier A before accepting the loads falls flat to me. How about you? Shouldn’t you have checked Carrier A’s credit before tendering the loads? That thought is reinforced by the fact that you did know Carrier A was factoring its bills, often (though not always) a sign of financial precariousness.

If Carrier B decides to sue, I won’t guarantee this is how it’ll go; the situation is so messy a court could decide for or against anybody. All I can say is, this is my opinion.

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.

 

For the full story: Log In, Register for Free or Subscribe