TIA’s stark message: Double brokering, fraud out of control

The situation has become so critical that it is forcing the industry into action. About a week before the TIA convened in Orlando, Florida, TriumphPay (NASDAQ: TBK) and Highway announced a joint initiative that will combine the data that TriumphPay has on cash flows moving in to thousands of companies along with the information that Highway has on company equipment, such as tractors and trailers, to provide red flags to clients of the two companies. If the two are wildly out of whack, it’s caveat emptor.

And TriumphPay is in a good position to see what’s going on, according to Garrett Wolfe, the chief strategy officer of TriumphPay, who spoke on the final-day fraud panel.

TriumphPay is annually handling more than $23 billion in payments, Wolfe said, “and over the last nine months we would get calls daily and hourly from brokers who would say, ‘We just caught somebody double brokering.’” 

Wolfe said based on internal reviews at TriumphPay, the amount of freight that would be “by-the-letter double brokering” is about $500 million to $700 million per year. 

That would trigger a stop in payments to the carrier undertaking the double brokering, Wolfe said, but would also lead to TriumphPay looking into the carrier. There were times, when on the same day the company was notified of double brokering by a carrier, he would find there were 10 additional payments slated to go to that double-brokering carrier that day.

“We couldn’t decide how big of a problem this was until we heard about it again and again,” Wolfe said.

Truckstop survey shows breadth of the issue

The double brokering/fraud crisis also has engaged load board operator Truckstop, which recently conducted a survey of users on the issue. 

In anticipation of the TIA meeting, Truckstop released results of a recent survey. The poll showed that 78% of the respondents said they had lost time resolving fraud-related issues; 65% lost time resolving fraud-related issues; and 24% needed to deal with legal implications from fraud. 

Brent Hutto, director of relationships at Truckstop, said there have been surges in double brokering in the past. They often are linked to downturns in the market. For example, he said Truckstop data shows that in 2008-2009, when the trucking market was in a downturn along with the early months of the financial crisis, “complaints about fraud went up 100% in that time frame.”

He said the drop-off in the market from a strong 2018 and into 2019 resulted in the same development.

The precise definition of double brokering and fraud can be somewhat vague. There is outright theft of trucks by carriers, an action that has led to a significant legal battle over broker liability involving Landstar (NASDAQ: LSTR).

Then there is the more garden variety of double brokering, in which a broker contracts with a carrier to move a load and the carrier in turn finds another carrier willing to move the load for a lower rate. The first carrier pockets the difference and fails to alert the broker that put the wheels in motion about change. The second carrier’s safety record, insurance coverage and other potential legal land mines would not be known by the broker until those land mines actually explode. Sometimes, the carrier that actually moves the freight doesn’t get paid by the carrier that did the double brokering. And if complaints about getting stiffed make it to the original shipper, the broker is in the middle of a three-way or four-way dispute, the latter occurring only if the carrier that originally accepted the freight can be located.

One broker speaking to FreightWaves prior to the final session said the money involved can be just a few thousands dollars at times, but trying to fix the messes that occur because of the double brokering can eat up many hours of otherwise productive time.

Kenneth Lund, the vice president for support operations at 3PL Allen Lund Co. in California, had math that said fraud had increased by 300% in the last three months. And he had a warning for those in the audience: “They are coming after you.”

When discussion came up of how brokers could fight it, one relatively simple solution was noted several times: Talk to the driver. 

“Ask to talk to the driver,” Lund said. “And if they say no, that’s a red flag.”

John Miller, the owner of Plains Dedicated LLC and a member of the panel, said the fight against fraud and double brokering needs to be carried out through the entire 3PL sector. “Make sure it is not just the carrier or dispatch team,” he said. “Make sure your clerical staff, the night dispatcher, your entire team understands that you need to verify the driver.”

Lund expressed particular frustration with the lack of calling on the part of younger brokers. “They are not talking, they are texting,” he said. If a conversation takes place instead of texting, it may mean that the driver “tells you their story,” and that can help root out fraud. 

In an industry in which brokers can be the size of publicly traded companies like C.H. Robinson (NASDAQ: CHRW) and RXO (NYSE: RXO) or a group of just a few people working the phones, the financial ability to use tools available to 3PLs can vary widely. But in the days leading up to the TIA’s final-day panel, the meeting’s exhibition hall was full of companies that offered various forms of data and information 

“You better connect with them and it’s got to be multilayered,” said Lund, who also recommended doing a thorough check of email addresses from carriers, looking for companies with generic domain addresses and purchasing cyber insurance to protect against hacks.

Truckstop is one of the companies that Lund was referring to about a provider that has data on carrier capabilities, coming from its acquisition in 2021 of RMIS, which provides rapid carrier compliance information.

TriumphPay and Highway team up on fraud battle

Besides its sheer size, TriumphPay is in a key position in the fight against double brokering and fraud because an operator that wants to get in, pull some scams and then get out is going to turn to a quick pay provider like TriumphPay to get its cash quickly. 

Separately, Melissa Forman, president of TriumphPay, said aggregation of data on troublesome carriers that might be candidates to engage in double brokering is necessary, and it will take cooperation to get that done.

Its recently announced joint initiative with Highway (Aaron Graft, CEO of TriumphPay parent Triumph Financial, and Highway CEO Jordan Graft are brothers) is a combination of data about companies seeking payment from TriumphPay and an inventory of their equipment, which is provided by Highway.

TriumphPay’s data is granular down to ZIP code levels, and it can show carriers that are doing an enormous amount of truck movement in a short period of time. While that might work for a larger carrier, Forman said the combination of Highway and TriumphPay data can reveal that the company has nowhere near the level of equipment it would need to haul that much freight in that duration.

“We can compare these data sets,” she told FreightWaves. “If they only have two insured vehicles, how are they doing 100 trucks of freight?”

They prefer not to call the carrier “bad,” Forman said. “But the question is to the broker. What is within the realm of possibility?”

The data review product will be available to joint clients of TriumphPay and Highway.

Several times during the final-day panel, the enormous jump in volume of motor carrier authorities coming out of FMCSA was mentioned. Wolfe, acknowledging a dilemma, asked: “Should we shut down quick pay for new authorities” on the assumption that some scam artists will be operating under a new MC number? 

The problem, he said, is that “it’s a blunt tool. There are guys striking out for the first time and they want to make sure they have the financing.” But he conceded TriumphPay will need to “pay attention to these new authorities.”

Getting a shipper dragged into a double brokerage or fraud occurrence is something that needs to be avoided, according to the panelists. In a situation in which the original carrier double brokers a load to a second carrier that then doesn’t get paid because the double-broker carrier disappears, the consensus was clear: The broker needs to pay that final carrier. The risk is that the unpaid carrier goes to the shipper, “and people don’t love that phone call,” he said 

Making sure the company that actually delivered the load is paid for its effort reduces the chance the shipper will get dragged into the dispute, considered the worst possible outcome.

“People have lost lucrative contracts because of these things,” Wolfe said.

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