Dec 26, 2023

A Deep Dive into the Havoc Caused by Widespread Double Brokering in Q2

The logistics industry has been facing numerous challenges in recent years, and one of the most prevalent issues is the widespread practice of double brokering. This deceptive practice involves a freight broker assigning a shipment to multiple carriers, resulting in a chain of intermediaries and increased rates for shippers.

While this practice is not new, its impact has intensified in the second quarter of 2021, causing havoc in the transportation industry. Double brokering not only leads to financial losses for shippers but also disrupts the supply chain, causing delays and inefficiencies.

As the demand for shipping services continues to rise, so does the prevalence of double brokering.

In this article, we will take a deep dive into the havoc caused by widespread double brokering in the second quarter of 2021.

We will explore its implications for various stakeholders, including shippers, carriers, and freight brokers, and discuss potential solutions to mitigate its negative effects. It is imperative for all players in the industry to be aware of the consequences of double brokering and take proactive measures to combat this unethical practice.

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Recent Survey Conducted

According to a recent survey conducted in Q2 2023, a significant 85% of participants, including freight brokers and carriers, reported being adversely affected by the practice of double brokering.

The financial consequences of this issue were severe, with nearly 56% of businesses incurring losses of up to $50,000, while 18% experienced a drain of $50,000 to $150,000. Alarmingly, 10% of respondents faced costs ranging from $150,000 to $500,000, and 1% suffered losses exceeding $500,000.

These findings were among the most noteworthy results obtained from the comprehensive survey conducted by FreightWaves and TriumphPay. The survey targeted freight brokers, third-party logistics companies (3PLs), and asset-based carriers to gauge the impact of double brokering. The survey's detailed findings and potential solutions were extensively covered in the informative white paper titled "Freight's Breaking Point: The Double Brokering Dilemma."

A Clearer Understanding

To provide a clearer understanding, double brokering occurs when a broker posts a load on a load board and assigns it to a carrier, who then re-brokers the load to another carrier without disclosing this to the relevant parties. The initial carrier profits from double brokering by securing a lower rate for the load.

Unfortunately, the second carrier often remains unpaid for their services, resulting in a financial loss for the original carrier.

The repercussions of double brokering are felt by carriers and brokers alike, disrupting operations and exposing all parties involved to financial and liability risks. It is estimated that this practice impacts an estimated annual air freight volumes value of between $500 million and $700 million.

The Extensive and Severe Impact

Due to the extensive and severe impact of double brokering, brokers and carriers remain vigilant in identifying warning signs. Respondents have prioritized a list of prevalent indicators that they consider to be highly reliable in detecting potential instances of double brokering. These warning signals encompass:

  1. Inability to establish communication with either the carrier or the original broker.
  2. Brokers who are hesitant to disclose their motor carrier numbers.
  3. Brokers or carriers requesting unconventional payment methods.
  4. Carriers displaying unfamiliarity with the specific details of the load.

By closely monitoring these red flags, brokers and carriers aim to enhance their ability to prevent and combat the detrimental effects of double brokering.

A High Level of Vigilance

Carriers and brokers maintain a high level of vigilance in order to identify warning signs related to double brokering and other fraudulent activities. Unfortunately, over three-quarters of respondents reported financial losses due to double brokering in the previous quarter.

However, the majority of respondents expressed confidence in their ability to detect such scams. In fact, 57% of respondents reported a confidence level of 4 out of 5, while 20% reported extreme confidence with a rating of 5 out of 5.

It is worth noting that only 10% of respondents do not have a systematic method for tracking bad actors in the industry. The majority of respondents rely on external databases or market share resources, maintain an internal list of bad actors, or employ other strategies to combat double brokering.

For instance, one survey participant mentioned that their company's process involves double and triple checking paperwork. However, while this may be effective in the short term, it may not be a sustainable long-term solution to address the widespread issue of double brokering.

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A Crucial Role

Trust plays a crucial role in business relationships within the air freight industry, and approximately 72% of respondents agreed that trust is significantly influenced by a broker's payment process. While the industry has traditionally followed a "trust but verify" approach, there is a growing need to shift towards a "verify-then-trust" method to combat the prevalence of double brokering on load boards.

Implementing a verify-then-trust approach would involve rigorously verifying a broker's payment practices before engaging in any business transactions. TriumphPay, a carrier payment platform, has partnered with Highway, a technology provider specializing in carrier identity management, to enhance the industry's fraud detection capabilities.

By leveraging TriumphPay's extensive data on freight spending and Highway's detailed information on carriers and their equipment, they can effectively identify carriers who handle more freight than their equipment capacity would allow, a common indicator of double brokering.

This collaboration aims to provide the industry with enhanced tools to combat fraudulent activities and ensure the integrity of business transactions.

In Conclusion

Double brokering is a serious issue that has caused significant havoc in the freight industry during Q2. From delayed deliveries to damaged goods, the consequences of this practice can be far-reaching and costly for all parties involved.

As the industry continues to grow and evolve, it is crucial for companies to be vigilant and take measures to prevent and address double brokering. By working together and implementing stricter regulations, we can minimize the impact of this issue and ensure a smoother and more reliable transportation process for all.

Let's use this opportunity to learn from the mistakes of the past and strive towards a more secure and efficient future for the freight industry.

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