What is a Broker/Carrier Agreement?
A broker/carrier agreement is a vital contract within the transportation and logistics industry. Carrier brokers, who serve as middlemen between shippers and carriers, depend on these contracts to clarify the rights and responsibilities that exist in their networks. For carriers, they’re equally important as they clearly designate responsibilities and liability for lost or damaged loads.
These contracts are essentially an agreement between a carrier broker and a carrier . Any discrepancies in the agreement could lead to huge setbacks and loss of money for all parties involved, so it’s important that you avoid cutting corners. By law, all motor carriers transporting property for hire must obtain a broker carrier agreement before delivery. Before signing one, you should consult an attorney in order to ensure you’re legally protected.
A broker/carrier agreement covers:
These agreements are unique, although some terms tend to be incorporated in most contracts.
What Are the Essential Parts of a Broker/Carrier deal?
The broker/carrier agreement is set out in one of the following forms: (1) a Master Agreement; (2) a Master Service Agreement; (3) a Broker-Carrier Agreement; or (4) a Shipper-Contract Carrier Agreement. Regardless of the type of form used, it should contain the following important elements: (1) payment terms; (2) responsibilities of parties; (3) damages or liability clause; and (4) a miscellaneous clause of provisions stating how the agreement may be modified, where disputes are to be filed, what law will govern the agreement, and whether there may be a waiver of a provision of the agreement. Regarding a broker/contract carrier agreement, often, the parties also include in their form an Indemnification Provision, Insurance Provision, Carrier as Independent Contractor Provision, and clause conforming the form to the Federal Employers’ Liability Act and interstate transportation statutes.
Legal Issues and Broker/Carrier Agreements
A detailed and comprehensive broker/carrier agreement is important to prevent disputes between the broker and carrier. Broker/carrier agreements can also show whether a transportation broker is acting as a broker or a carrier, which assists in determining which laws apply. Both parties need to be aware of Thirteenth Circuit case law, such as Carolina Freight Carriers Corp. v. Daughtrey, 681 F.2d 1154 (4th Cir. 1982), where the court held that (i) when an agreement includes the phrase "as if you were us," the carrier is likely acting as a broker and not a carrier and (ii) a broker/contract carriage agreement, in which the carrier contracts with the shipper and then subcontracts with the broker, the carrier acts as a broker and not a carrier. In addition, the case of Yellow Freight Sys., Inc. v. Martin, 954 F.2d 1275 (10th Cir. 1992), held that an agreement under which a carrier holds itself out to the public as a common carrier, rents trailers from the broker, and the broker retains all control over the driver, means that the broker is acting as a carrier that is leasing trailers. Estimating the value of goods in a shipment during the formation stage of the broker-carrier agreement is critical because it will determine the legal protection available to the parties if the goods are lost or destroyed in transit. Transportation law provides greater recovery on behalf of carriers than brokers, so proper classification is essential.
Advantages of a Well-Written Broker/Carrier Agreement
A well-structured broker/carrier agreement creates the foundation for a smooth-running operation. It minimizes disputes, tracks all transactions and ensures compliance with the Federal Motor Carrier Act (FMCA) and other federal transportation regulations. A good agreement also helps to foster a strong, growing business relationship with your trucking company.
In the case of an FMCA audit, you can provide proof that you’ve fulfilled your responsibilities to your carriers and that they, in turn, have fulfilled theirs. There are two key elements to include in your contract that can safeguard your business.
Insurance. All carrier contracts should contain a provision that you (the broker) maintain excess insurance. You can offer this insurance to your shippers as an additional service. Your carriers should also carry minimum limits set forth by federal law, such as: $750,000 for general liability; $100,000 for cargo (though it is typically recommended to carry $250,000); and $5 million for public liability and property damage.
Breach notice and cure period. The contract should indicate that if either party breaches the agreement, they must notify the other in writing within a specific time period. This section should also state the parties will have a predetermined period of time in which to fix the issue.
Areas to Avoid Pitfalls
Despite the value that a well-drafted and clearly written agreement can provide, there are still pitfalls that can ensnare even the most experienced brokers. Some factors that can lead to confusion include:
Trade name confusion
A broker must use its full registered name. Many new broker/agents enter into a broker/carrier agreement under a trade name or mark, which is not the name on their license. As a result, the broker may not qualify as an "agent" of record with the carrier. In the event of a dispute, the broker may find itself in the unenviable position of having no valid agreement with the carrier. If you must use a DBA for business reasons, be sure to include both your legal name and the trade name in the relationship description.
Recital confusions
Many brokers set out the goal or purpose of the relationship in the introductory recitals. For example: Where the descriptive goal is of general application, it is useful. Specific agreements or obligations of each party should be included in addition to the recitals. Careful thought should be given to the use of recitals. Too often , the recitals become wholly unrelated to the actual provisions in the agreement.
Broker/agent license rights
The broker/agent should be diligent in protecting its status as a licensed broker/agent. The agreement should include a condition precedent that the model agreement is contingent on the broker’s actual status as a duly-licensed insurance broker at the time the agreement is executed. This point is especially true where the broker has no employees and engages in independent brokering exclusively in its own name. Where the broker finds itself using its own name and not its employer’s name, it is essential to ensure that the specific terms of its appointment are clear between both parties. Absent such clarity, the broker may become an agent of the carrier and not a broker.
Official signing authority
Agreements require signatures but the broker should be certain that the signatory has actual authority to bind the broker to the terms. It is recommended that the right to act on behalf of the broker be confirmed in writing and that a signature card be prepared for management’s signature.
Negotiating Contracts with Broker/Carrier Provisions
The negotiation of a broker/carrier agreement is arguably the most important part of the implementation process, and is one at which both sides should take considerable care in order to achieve the terms they would like. The right to indemnification will not be found in the absence of an indemnity provision. The right to recovery of attorney’s fees and expert witness costs will not be found in the absence of a prevailing party provision. And while time may be of the essence, failure to ask the right question when off-boarding a provider could put a timely renewal agreement at risk. The broker that taxes its provider knowledge, and the carrier that instructs its sales management to leverage its market position, do so at their respective perils.
Although the language of a broker/carrier agreement can and will vary based on the type of cargo and risks at issue, certain boilerplate provisions will find their way into almost every agreement. As noted above, this includes force majeure and third party indemnity provisions. It may also include a confidentiality mandate, and requirements for the return of confidential information following completion of the relationship. Non-Circumvention, or use of information/contacts provided by the other party in furtherance of the relationship, is commonly seen as well. Each party should pay particular attention to the post-termination provisions. Do they enable either to retain information obtained through the course of the relationship, and the right to reach out to contacts made by the other for future business? What is the carrier’s non-solicit period with the broker’s agents, and should there be a limit on its right to solicit the broker’s clients? Similarly, what is the carrier’s non-solicit period with the broker’s employees, and what limitations are placed upon the carrier’s right to hire those employees once the relationship is over?
Amending and Enforcement of Agreements
A neglected area of broker/carrier agreements that deserves attention is the need for periodic review of an agreement in light of changes in your business operations and/or regulatory requirements. Examples of events requiring review of these agreements include the growth or contraction of a company into a larger or a smaller business entity, new bidders offering different pricing arrangements for the services already provided, new technology being introduced by other bidders, and changes in law. Other factors such as legislation that may have a bearing on the agreement should also be considered . A good example of this is the Gramm Leach Bliley "privacy" laws requiring periodic updating of policies issued after November 13, 2000.
Because a broker/carrier agreement is potentially an asset of the business, by failing to keep the agreement updated and make proper disclosures to a buyer, may render the agreement worthless.
As point of general advice, all agreements should be reviewed at least every 12-18 months or as needed in any event, just as you would with any other legal document important to the operation of your company.