Compliance risk is serious business for shippers, and it can have significant repercussions. Just consider cargo theft, which is merely one aspect of compliance risk.
During the third quarter of 2018 (the most recent data available), there were 328 incidents involving stolen vehicles or cargo, missing drivers, and other events, according to CargoNet. Of those, nearly 60% were cargo thefts. The average per-theft cost was $143,949, totaling a whopping $13.9 million for that 3-month period.
Multiply $13.9 million by 4, and you come up with some good reasons to pay attention to how your freight brokers operate and manage risk.
Assess your freight suppliers
Not only do you need to make sure your broker meets basic obligations (more on that below), but, more importantly, you also need to verify that your service providers set rigorous compliance standards for carriers, use industry-leading practices to mitigate risk, and ensure adherence to those standards throughout the carrier relationship.
How can you find out about your brokerage and 3PL partners’ compliance standards? Begin with a supplier assessment.
Start with these seven questions to assess your transportation partners’ compliance practices.
1. Are your basic qualifications covered?
If you are new to the industry or looking to hire a broker for the first time, you’ll want to start with the following basic qualifications:
- Ensure your broker or asset carrier has a valid authority. That means the company is registered to operate as a brokerage under federal regulations. All freight brokers are required to register and hold a license with the Department of Transportation (DOT) and the Federal Motor Carrier Safety Administration (FMCSA), which allows shippers to search their database for freight brokers and their respective licenses online.
- Make sure they are bonded. All freight brokers are mandated to hold a freight broker bond in order to operate legally.
2. What are your record-keeping practices?
Understand your broker’s record keeping in case an issue comes up. They should keep detailed records of all transactions for three years. These records should preferably be digital and include names, addresses, motor carrier, the bill of lading, and the amount of money received.
3. How are carriers vetted during onboarding?
When a broker onboards a carrier into their network, they are giving that carrier access to haul your freight.
Brokers need to set high standards for the carriers they allow into their network. That includes having a strict, data-driven, and automated process to make sure carriers who are allowed in meet those standards.
Do your due diligence and make sure your brokers and 3PL partners verify the carriers entering their network. Carriers should:
- Possess the appropriate authority to operate in intrastate or interstate commerce. Authority is granted at the state level, and at the federal level by the DOT and FMCSA.
- Have verified their identity and that the person signing up is authorized to make decisions on behalf of the carrier.
- Provide a current certificate of insurance evidencing required levels and types of insurance and effective dates, and that the carrier’s insurance is on file with the FMCSA.
- Have a safety rating and/or CSA safety scores that meet or exceed your standards.
- Have signed a service contract.
- Don’t have outstanding reports against them in one of several carrier reporting services. (If your brokers leverage these useful services, the type and severity of incident that would cause a carrier to be flagged for removal from a broker’s network will vary.)
4. How is carrier safety assessed?
According to the FMCSA’s Large Truck and Bus Crash Facts 2016 (most recent report available), 2016 had 4,440 large trucks and buses that were involved in fatal crashes, a 2% increase from the year before — and a 28% increase from 2009 and 2016.
Accidents are an unfortunate reality in this industry, so you need to take proactive steps to mitigate risk by requiring transportation partners to set safety standards that are acceptable for your business. However, there is no federally mandated national hiring standard, so brokers have their own.
Ask for a list of what their safety standards are. You should be provided with a speedy and thorough reply that amounts to more than “We don’t use unsatisfactory rated carriers.”
Make sure you know:
- If your brokers work with conditional rated carriers.
- If they factor CSA safety scores into their carrier assessment criteria.
- How they find out about and respond to carriers in their network who receive “Out of Service” orders.
Think twice if they don’t have standards, skirt around the subject, or provide a response lacking details. Every shipper determines their own threshold of standards, but answers to these questions will be telling.
5. What types of insurance does the asset carrier or broker have, and what do they require of their underlying carriers?
The majority of motor carriers in the U.S. have the following types and amounts of insurance:
- $100,000 Primary Cargo (alternatively called Inland Marine)
- $1,000,000 Auto Liability
- Statutory levels of Workers Compensation
However, many shippers require more insurance than this — for good reason.
In some cases, the cargo value is more than $100,000. And, in most cases, financial exposure due to an accident on the road can exceed $1,000,000.
Yet shippers still need access to the nation’s large base of small carriers. This is where a broker with a comprehensive and thoughtfully designed suite of insurance policies will be a better partner in managing risk. It’s a critical second layer of protection for shippers.
What should you look for?
Needs vary widely between industries, commodities, and individual companies, but you’ll sleep easier at night by verifying that your broker has the following core types of coverage or suitable equivalents:
- Broker Liability. This coverage can vary but is typically inclusive of insurance such as general and logistics liability, products and completed operations, errors and omissions, contingent motor truck liability bodily injury and property damage, and fines and duties, to name a few.
- Excess Liability. Depending on how much coverage you need, a good excess or umbrella policy that sits over a broker liability policy can provide the right amount of insurance.
- Contingent cargo (may be included in Broker Liability). This serves as a backstop to the primary cargo insurance of the underlying motor carrier.
- Additional transportation cargo.Commonly referred to as “Shippers Interest,” but also going by other names, these programs can provide shippers with additional cargo insurance above $100K when necessary. These can be structured on a per shipment or ongoing basis.
- Workers Compensation and Employer Liability
- Crime
- Mandatory broker bond
6. How are carriers screened after onboarding? How often do these audits take place?
It’s not enough to check for compliance requirements at the time of onboarding. Even regularly scheduled static checks (e.g. once a quarter or, gasp, once a year) of carriers is insufficient. Why?
The various statuses of motor carriers will change over time. And, those changes aren’t going to conveniently align with your broker’s scheduled static check of their carrier network.
Ongoing monitoring of the following categories is a foundational and essential part of a good compliance program. Here is a glimpse at how often these categories typically change:
- FMCSA rating – typically monthly, but in some instances safety ratings can be updated more frequently
- CSA Safety Scores (commonly calculated and reported as equivalent BASICS by third party carrier monitoring services) – monthly
- Status of DOT – daily
- Status of MC – daily
- Out of Service designations – daily
- Insurance registered with FMCSA – daily
- Data for newly registered carriers – daily if interstate; monthly if intrastate
- Carrier monitoring Service reports – daily
Knowing that the carriers who are moving freight for you are in compliance within these categories is critical. We recommend working with partners who can audit their carriers automatically and in real time — at least daily if not more frequently.
7. How is fraud identified and addressed?
Those who have been in the industry for awhile have experienced their share of “nightmare” loads. Theft. Fraud. Chameleon carriers. Double Brokering. Back solicitation. A load “held hostage.” It’s enough to give you chills.
In this industry, data is a powerful tool that everyone should use to prevent these unfortunate incidents. Ask your partners what they do to prevent fraud.
Transportation providers should have a process to identify fraudulent sign-ups onto their platform. This can be done through:
- Automated methods to identify and stop duplicate profiles.
- Checks to ensure the carrier “is who they say they are” and are authorized to make decisions or sign a contract on the carrier’s behalf.
- Dual factor authentication.
Additionally, there are some excellent carrier reporting services that allow brokers and shippers to submit reports of bad behavior. These reports are visible to members of the reporting service and can serve as warnings to other users. If used wisely, these reports can serve as an important layer in the carrier vetting process. Ask your broker or asset carrier if they have incorporated the use of these reports into their compliance monitoring process. And again, a process to monitor reports in real time vs. static checks is a far superior approach.
There are thousands of licensed freight brokers and 3PLs operating in the U.S. — with more entering the market every year. Make sure you cover the basics, and ask the advanced questions to ensure you, your goods, and your business is protected.
To learn more about shipping with Convoy, visit the shipper hub or contact us at (206) 971-1237.
This article is the latest in Convoy’s “Compliance Matters“ series on transportation risk in the supply chain. In part one, we identified compliance risks and discussed why shippers should care about them. Stay tuned for the next installment, where we’ll look at how Convoy measures up to the assessment categories discussed in this article, how it compares to the industry, and the benefits of our differentiated service.
The information provided by Convoy, Inc. is for general informational purposes only. The author does not in any way guarantee or warrant the accuracy, completeness, validity, or reliability of any information and will not be held responsible for the information provided herein. The information presented is not intended to convey or constitute legal advice. THE USE OR RELIANCE OF ANY INFORMATION CONTAINED ON THIS PAGE IS SOLELY AT YOUR OWN RISK.
Lorin developed a passion for logistics as a Captain in the US Army Transportation Corps and never looked back. He has spent his career engaged in various supply chain focused roles for both carriers and shippers, to include leading the North American Transportation Operations team at Starbucks. Lorin holds an MBA and a MS in Supply Chain Transportation and Logistics from the University of Washington, where he is on the advisory board of the Supply Chain Transportation and Logistics Center. He is currently the Director of Carrier Quality and Compliance for Convoy.
This article is published jointly with our partners at Convoy. To view more Future of Freight content, click here.