The transportation sector comprises numerous enterprises that provide logistics solutions through diverse methods. However, while these logistics providers aim to streamline the supply chain, the technique employed to achieve this objective can vary significantly from one provider to another. It is imperative to understand that there is no perfect option regarding logistics services, with both brokers and carriers offering unique services that cater to the specific requirements of a business.
Yet, in an attempt to explore the best possible option, most elements in the logistics industry tend to conflate specific terms, most notably co-brokering and double brokering. This confusion has led to a negative perception of both practices, especially considering how unethical and risky double brokering can be. On the other hand, co-brokering can be a valuable asset for a brokerage business; hence, understanding the distinction between these concepts is crucial for the growth and success of the transport industry.
What is Double Brokering
While both terms may look similar, they offer very different modes of operation. Double brokering refers to a scenario where a freight broker is awarded a shipment and transfers it to another freight broker without obtaining permission from the shipper. In most cases, the secondary broker falsely represents themselves as a carrier and operates without the consent of the cargo owner.
Double brokering can happen in several instances and becomes illegal when a carrier who does not have a brokering authority gives work assigned to themselves to another party.
It is considered unethical in the logistics sector and is met with disapproval from all parties involved in a transaction. This practice features a breach of contract and can severely affect the reputation and trust within the industry.
What is Co-brokering
In the case of co-brokering, a freight broker deliberately collaborates with another broker who possesses unique expertise, knowledge, and abilities necessary to handle a shipment. When done correctly, a co-brokering arrangement can complete cargo transportation, with both brokers leveraging each other’s strengths to achieve a common goal. This strategy establishes a mutually beneficial relationship between two brokers, characterized by transparency, clear expectations, trust, and mutual understanding.
Aside from cargo safety and efficiency, another scenario where co-broking could be the best course of action revolves around connections. Brokers may not always have a good enough network of carriers to handle specific shipments. In this case, the broker can collaborate with another broker with an extensive network to handle the load without exactly driving the rates up significantly.
However, when engaging in co-brokering, it is crucial to understand that the profit margin from a shipment is split between brokers. So, while it is an excellent option in some scenarios, it is not a good idea to co-broker when you don’t need to. Although, if you must, it is crucial to have clear and transparent communication regarding the terms of the agreement and establish an acceptable split of the profit margin.
Downsides Of Double-Brokering
By the very nature of the transaction, double brokering is fundamentally different from co-brokering (In fact it is illegal). As such, it is essential to understand the distinction between the two to ensure ethical and responsible business practices within the transportation industry. In truth, there are no benefits to double brokering, only risks.
Double brokering exposes the original broker to the possibility of being placed in a double-jeopardy scenario. In a situation where the contracted broker fails to pay the actual carrier, there is a risk that the original broker or its customer may be held responsible for paying again for the same freight shipment. This puts brokers in a vulnerable position and highlights the importance of careful consideration when selecting carriers and negotiating contracts.
In the event of double-brokering, the original broker also faces several risks.
- They are not aware of who is handling the freight.
- They are also unaware whether the actual carrier has the required permits.
- There is inadequate knowledge of the carrier’s insurance coverage.
- They are unable to check the carrier’s reputation adequately.
- In most cases, the original broker is exposed to incorrect information, resulting in difficulty tracing the freight.
There is no doubt that this type of unethical behavior has contributed to the tarnished reputation of the transportation brokerage industry. Such dubious parties have cast a shadow of suspicion over the entire community and raised concerns about the industry’s standards of conduct and integrity. As such, it’s best for all parties to engage in more ethical and responsible practices such as co-brokering.
Benefits Of Co-brokering
A partnership with another broker is an opportunity to offer services beyond your capacity before the alliance. Once a broker recognizes the benefits of co-brokering, it can add the services of its co-brokering allies to its portfolio, thereby expanding its range of services provided. Here are some of the benefits brokers can gain through co-brokering.
● Increased Capacity
Increased capacity refers to handling more extensive and complex shipments, freight, and cargo. By working together, co-brokers can access a larger pool of carriers and trucks, which expands the transportation process’s capacity.
This strategy can be especially beneficial for businesses that require significant and frequent shipments, as co-brokering can provide constant access to more resources and greater capacity.
● Better Coverage
Another benefit of co-brokering is that brokers can extend their geological reach and cover a large area. This can be particularly beneficial for long-distance shipments or those that go through multiple locations, as it allows for a more comprehensive network of resources and carriers to be utilized.
By collaborating with other brokers, each can expand their coverage and offer transportation services to a broader range of customers and locations. This will inevitably lead to better opportunities for business growth and increased customer satisfaction, as brokers can provide more comprehensive transportation solutions.
● Improved Efficiency
When multiple brokers share the responsibility of shipping a load, the tasks can be completed more quickly and efficiently, resulting in faster transit time and improved delivery schedules. Co-brokering makes for more efficient transportation, benefiting all brokers and shippers.
For example, two brokers may specialize in different elements of the logistics process. By dividing the responsibilities to ensure each broker can focus on their area of expertise, the transportation process can become more effective and efficient.
● Enhanced Expertise
This benefit picks up from improved efficiency. Each broker in a co-brokered shipment brings a distinct set of expertise and knowledge to the transportation process. By combining these skills, co-brokering can provide more comprehensive freight shipping, resulting in improved customer satisfaction and increased business growth opportunities.
Co-brokering allows brokers to collaborate and leverage each other’s strengths, leading to better customer service. As each broker brings unique expertise to the table, co-brokering becomes a valuable strategy for transportation.
● Reduced Risks
As several brokers collaborate on a single shipment, each party takes on a portion of the responsibilities for the transportation process. One way this benefits all parties is the ability to reduce the risk for each broker involved. When brokers share responsibilities, they reduce the potential for disruptions and delays, improving the logistics process’s overall reliability.
With co-brokering, brokers can spread out the risk of any issues that may arise during the transportation process, such as carrier, cancellations, weather disruptions, and other unexpected changes to pickup or delivery schedules. This helps ensure that shipments are delivered on time and in good condition.
To sum up, co-brokering is a mutually beneficial collaboration between two transportation brokers, working together to provide a more effective and efficient logistics solution under certain circumstances. On the other hand, double-brokering involves two carriers and is not only frowned upon but illegal.
With double-brokering, the initial broker is not transparent with the customer and can result in several disadvantages and liabilities. Understanding each provider’s strengths, limitations, and business practices is crucial to make an informed decision when choosing a logistics provider – these pieces of information help to select the option that will meet your specific needs and requirements.