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Bogus brokering met with aggressive counterattack

July 5, 2023
A new TIA task force joins a final FMCSA rulemaking this month that clarifies broker and 'bona fide agent' definitions to combat freight fraud and the practice of double brokering, which stakeholders say costs the cargo industry up to $1 billion annually.

Each year, $500 million to $1 billion, is stolen from carriers, shippers, legitimate brokers, and ultimately consumers. These are estimates of losses that stakeholders cite from freight fraud, double brokering, and shipment diversion—called several things and treated akin to cargo theft. But the losses to the freight transportation industry are enormous and likely to continue to grow.

One industry group is paying extra attention this month with a new task force and educational emphasis, and the federal government is out with final guidance on what a broker is, what constitutes a “bona fide agent” and what a freight dispatch service does.

But the new government guidance only is so helpful in addressing the problem of bogus brokering, which only proliferated during the pandemic and in the age of digitization for freight transportation, said Anne Reinke, president and CEO of the Transportation Intermediaries Association, the principal U.S. trade association that represents legitimate freight brokers and the third-party logistics industry.

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“We are facing the downside to the digitization of freight, in that it’s a heck of a lot easier to spoof it,” Reinke told FleetOwner. “Back in the old days, we had faxes and phone calls [to verify the validity of a load].”

Reinke quoted the millions upon millions in losses, which also is generally cited by industry payments leader TriumphPay. In April, TriumphPay partnered with Highway, a technology provider for carrier identity management, in their own effort to combat double-brokering fraud schemes.

"Our partnership with Highway will significantly strengthen our efforts to combat double-brokering fraud in the freight industry, which we estimate affects $500 million to $700 million worth of freight annually," Melissa Forman, president of TriumphPay, said in a release.

"Partnering with TriumphPay, the open payments network for freight brokers, factors, shippers, and carriers in the U.S. trucking industry, brings us one step closer to our goal of stamping out fraud, identity issues, and double brokering in the transportation sector," said Highway CEO Jordan Graft added. "Our collaboration will make transactions more secure, efficient, and profitable for all parties involved, ultimately leading to a safer and more trustworthy industry ecosystem."

All about misdirection of freight payments to bad actors

What’s double brokering? It’s a situation where the freight broker that originally tendered a shipment gives it to another broker without the knowledge or consent of the party owning the cargo (in some cases, the original broker). Criminals can use false identities to bid and be paid for these loads. A single bad actor can obtain hundreds of Federal Motor Carrier Safety Administration “MC” numbers (every legitimate broker must have one) to perpetrate fraud, Reinke added.

TIA just this month announced a fraud task force made up of industry executives within the 3PL industry and technology companies that are focused on tech-driven solutions to combat fraud. The internal task force “will examine the latest marketplace trends, develop strategies to address fraud internally within brokerage operations, and work on legislative and regulatory solutions in the short, medium, and long term,” she said in a TIA release announcing the task force.

TIA said the task force will convene regularly to fulfill its mission and goals, which include reducing fraudulent activities and actively engaging with FMCSA to address these concerns.

See also: Supply chain leaders reorganizing for resiliency from disruptions

TIA followed the announcement about the task force this month with the release of a free educational course for its members on fraud in the supply chain. The course focuses on rampant fraud in the marketplace, which can take several forms and requires several different strategies, according to TIA.

“Fraud in the supply chain is an unfortunate evil that good companies must deal with,” said Kenny Lund, executive VP of Allen Lund Co. and chairman of TIA’s highway logistics conference committee. “The internet has accelerated the pace of business, but it has also allowed a dramatic increase in fraud. The best way to prevent being a victim is through education.”

“We hear from our members on a daily basis about rampant fraudulent activity within the industry. As an organization that recognized the imminent fraud crisis with the enactment of the Fighting Fraud in Transportation Act in 2012, which was incorporated into the Moving Ahead for Progress in the 21st Century Act (MAP-21), we want to continue to be a leading voice on the subject.”

To address this issue, TIA has collaborated with carrier organizations to elevate the matter on Capitol Hill and has engaged with FMCSA, which also this month issued final guidance clarifying what a broker is and the definition of “bona fide agents,” a rulemaking it says will combat freight fraud and double brokering.

Reinke told FleetOwner that the TIA task force is “trying to put some granularity around freight fraud so that we can tell our federal friends why they should care,” later adding: "We aren’t finding a whole lot of public-sector solutions.”

FMCSA 'minimal' in its engagement on cargo fraud

At present, TIA’s position is that FMCSA’s “response has been minimal, necessitating urgent action.” Others also see it as not exactly helpful.

FMCSA's final guidance this month only served to introduce more nuance and perhaps confusion into enforcement against fraudulent freight activities, according to Scopelitis, Garvin, Light, Hanson & Feary, a prominent law firm that represents trucking, transportation, and related industries.

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In a June 16 blog post, Scopelitis laid out its interpretation of the final FMCSA guidance:

A “broker” must obtain authority from FMCSA, whereas a “bona fide agent” is not required to obtain this authority. Because it is guidance, the interpretation does not have the force and effect of law but notifies the public of how FMCSA views the distinctions.

The guidance notes that a “bona fide” agent must perform its duties pursuant to a pre-existing agreement with the motor carrier it represents, meaning that such an agent can’t allocate traffic, which means “any exercise of discretion … when assigning a load to a motor carrier. Therefore, although a “bona fide agent” can represent multiple motor carriers, to avoid having to register as a broker, it must structure the relationship to avoid allocating traffic between the carriers.

The guidance doesn’t define “dispatch services” but does provide factors that show whether a “dispatch service” is acting as a “broker” or a “bona fide agent.” The determination is based on a totality of the circumstances but assessed through the extent of control a motor carrier has over a “dispatch service’s” actions. The greater the control, the less likely the “dispatch service” needs broker authority.

For example, Scopelitis said, a “dispatch service” that isn’t involved in the financial transaction and is paid solely by the motor carrier and that only solicits freight for the carrier from brokers and not shippers is among the several factors indicating the “dispatch service” is acting as a “bona fide agent” and does not require broker authority.

About the Author

Scott Achelpohl | Managing Editor

I'm back to the trucking and transportation track of my career after some time away freelancing and working to cover the branches of the U.S. military, specifically the U.S. Navy, U.S. Marine Corps, and the U.S. Coast Guard. I'm a graduate of the University of Kansas and the William Allen White School of Journalism there with several years of experience inside and outside business-to-business journalism. I'm a wordsmith by nature, and I edit FleetOwner magazine and our website as well as report and write all kinds of news that affects trucking and transportation.

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