Traps For The Unwary Freight Broker

A freight broker who does not hold itself out as the actual transporter of goods is not liable for cargo loss of damage except in very limited circumstances since the strict liability imposed on carriers by the Carmack Amendment for freight damages, losses or delays simply does not apply to freight brokers. Rather, freight brokers may be subject to state law claims such as breach of contract or negligence, with the burden of proof being on the alleging party.

However, increasingly more and more shippers are compelling freight brokerage companies to sign contracts in which the broker agrees to take on the liability of a carrier. In the absence of such a contractual agreement by a broker to assume “carrier liability”, the broker has no obligation to pay for loss or damage unless the shipper can prove: 1) the broker either assumed so much control over the movement of goods that it is acting in the capacity of the carrier, or 2) the broker was negligent in its duties as a broker. Conversely, specific terms incorporated into the Shipper/ Brokerage contract may obligate the unsuspecting broker to pay for damages and delays to freight which it never touched and over which it had little, if any, control.

These contracts can be a trap for the unwary broker who does not have the requisite knowledge to modify specific terms in the contract. They can also be tools for a shipper who wishes to ensure payment for damages or loss of its freight when that shipper has no input into the carrier actually chosen to move the freight. By requiring a broker to assume Carmack liability and requiring that broker to have contingent cargo coverage, the Shipper is protected when the delivering carrier damages the freight and has inadequate insurance coverage. However, the unsuspecting broker may not be aware of their exposure or adequately insured for this situation. The provisions are certainly a double edged sword to be given thorough consideration during the contract negotiation process.

The best way a broker can effectively protect itself is through the negotiation of a fair agreement with its shipper customers and a good broker-carrier contract. Every broker should consult a knowledgeable transportation attorney to negotiate its contracts with shippers and to prepare standard contracts for use with its shipper customers and brokered carriers. If your company does not already have standard contract agreements, our firm has years of experience in transportation law and can provide contracts or contract review and negotiation which will accomplish your company goals.