What are freight Broker-Carrier Agreements?
Freight broker-motor carrier agreements are business-critical legal documents that trucking business owners encounter on a regular basis in the supply chain & logistics industry. Broker-Carrier Agreements are used to establish the business relationship between a freight broker and a motor carrier, legally binding the parties to the terms of the relationship in writing. As an owner-operator in the trucking industry, understanding Broker-Carrier Agreements and knowing how to utilize them advantageously is essential for protecting your interests and ensuring smooth operations in your trucking business.
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Well-crafted broker-carrier agreements are important for carriers
Broker-carrier agreements are legally binding contracts that outline the terms and conditions under which a motor carrier will provide transportation services to a freight broker. These agreements serve as the foundation for the working relationship between the two parties, defining their respective roles, responsibilities, and obligations.
Why are broker-carrier agreements so important for owner-operators and small trucking businesses?
Key components of Broker-Carrier Agreements
The freight broker-carrier agreement is a comprehensive, long-term contract that establishes the overall business relationship between the broker and the carrier. The agreement serves as the foundation for all future transactions between the broker and carrier, setting the general terms and conditions that will apply to their ongoing business relationship.
Look for a typical broker-carrier agreement to include language covering subjects such as contract duration, payment terms, liability terms, insurance requirements, carrier and broker identifying information (i.e. MC numbers, USDOT numbers, etc.), invoicing and payment procedures, guidelines for carrier selection, compliance specifications, procedures for handling disputes/issues, and more.
Here is a brief overview of some of the key components found in many broker-carrier agreements:
1. Scope of services
This section defines the specific transportation services the carrier will provide. It should clearly outline the types of freight to be transported, geographic areas covered, and any specialized services required.
Simple example of a 'Scope of Services' section in Broker-Carrier Agreements
Scope of Services
The Carrier agrees to provide transportation services to the Broker under the following terms:
Geographic Coverage
Carrier will transport shipments within the continental United States and Canada. Any transportation outside these areas requires prior written approval from the Broker.
Commodity Types
Carrier is authorized to transport general freight, excluding hazardous materials, oversized loads, and temperature-controlled goods unless specifically agreed upon in writing for individual shipments.
Equipment
Carrier will provide clean, dry, and suitable equipment for the transportation of the specified commodities. This includes:
- 53' dry van trailers
- Flatbed trailers (when required)
- Necessary cargo securement equipment (e.g., straps, chains, tarps)
Additional Services
In addition to transportation, Carrier may be required to perform the following services:
- Loading and unloading of freight (when specified in the load rate confirmation)
- Proper securement of cargo
- Providing status updates at designated checkpoints and/or as requested
- Adherence to appointment times for pickup and delivery
Subcontracting Prohibition
Carrier is strictly prohibited from subcontracting, re-brokering, or interlining any shipments without prior written consent from the Broker. All loads must be transported using Carrier's own equipment and operating authority.
Compliance
Carrier agrees to comply with all applicable federal, state, and local laws and regulations governing the transportation of goods, including but not limited to FMCSA regulations, hours of service rules, and safety requirements.
Communication
Carrier will maintain open communication with the Broker, providing timely updates on shipment status, any delays, or issues that may affect the successful completion of the transportation service.
This Scope of Services section outlines the core responsibilities and expectations for the Carrier, providing a clear framework for the transportation services to be provided under this agreement. Terms may be amended by Broker at any time for any reason.
2. Payment terms
One of the most critical components, this section should specify:
- Any general guidelines meant to govern the rate of compensation including fees, surcharges or potential penalties
- Payment timeline(s) and/or method(s)
- Invoicing procedures
Simple example of a 'Payment Terms' section in Broker-Carrier Agreements
Payment Terms
Invoicing and Payment Schedule
CARRIER shall submit invoices to BROKER for services rendered under this agreement within 30 days of completed delivery. Each invoice must include:
- The agreed-upon rate as shown in the signed rate confirmation
- Copy of signed rate confirmation that includes BROKER's Load/Shipment Number
- Date of delivery
- Origin and destination
- Signed bill of lading or other proof of delivery that is acceptable to BROKER
BROKER shall pay CARRIER within 30 days of receipt of a complete and accurate invoice that is acceptable to BROKER.
Payment Method
Payment will be made via electronic funds transfer (EFT) to the bank account designated by CARRIER and approved by BROKER. CARRIER is responsible for providing and maintaining accurate banking information.
Rate Confirmation
The agreed-upon rate for each shipment will be documented in a separate Rate Confirmation sheet, which shall be considered as a legally-binding addendum to this agreement. Any additional charges must be pre-approved in writing by BROKER.
Disputed Charges
In the event of a dispute regarding charges, BROKER shall pay the undisputed portion of the invoice within the standard payment terms. The parties agree to work in good faith to resolve any disputes within 15 days.
No Back Solicitation
CARRIER agrees to seek payment solely from BROKER and shall not seek payment from the shipper, consignee, or any other party involved in the transaction.
Offset Rights
BROKER reserves the right to offset any amounts owed by CARRIER against payments due to CARRIER under this agreement.
Late Payment Fees
BROKER agrees to pay a Late Payment Fee not to exceed 1% per month, which CARRIER may apply to any undisputed payments not made within the standard payment terms.
3. Insurance requirements
The agreement should detail the types and amounts of insurance coverage that may be applicable and/or required by the Broker during the term of the broker-carrier agreement, including but not limited to policies such as:
- Primary & General Liability insurance
- Bodily Injury & Physical Damage Insurance (BIPD)
- Workers Compensation Insurance
- Motor truck cargo insurance
- Rental reimbursement coverage in the event of a breakdown
- Refrigeration Breakdown insurance
Simple example of an 'Insurance Requirements' section in Broker-Carrier Agreements
Insurance Requirements
CARRIER shall procure, maintain (at its sole cost and expense) and provide BROKER with certified proof of the following insurance coverage:
General Liability Insurance
Carrier shall maintain commercial general liability insurance with a combined single limit of not less than $1,000,000 per occurrence[1][3]. This policy shall cover bodily injury, property damage, personal injury, and contractual liability.
Auto Liability Insurance
Carrier shall maintain automobile liability insurance covering all owned, non-owned, and hired vehicles used in the performance of Services, with a combined single limit of not less than $1,000,000 per occurrence. For transportation of hazardous materials or dangerous goods, the limit shall be increased to $5,000,000, including coverage for environmental damages due to release or discharge of hazardous substances.
Cargo Insurance
Carrier shall maintain motor truck cargo legal liability insurance with a limit of not less than $250,000 per occurrence. This policy shall cover loss, damage, or delay of cargo while in the Carrier's care, custody, and control.
Workers' Compensation Insurance
Carrier shall maintain workers' compensation insurance as required by applicable state law, with employer's liability limits of not less than $1,000,000.
Additional Requirements
1. All insurance policies shall be issued by insurers with an A.M. Best rating of A- or better.
2. CARRIER shall provide BROKER with Certificates of Insurance listing BROKER as Certificate Holder evidencing the required coverages prior to performing any Services.
3. CARRIER shall name BROKER as an additional insured on the general liability and auto liability policies.
4. CARRIER's insurance shall be primary and non-contributory with respect to any insurance maintained by BROKER.
5. CARRIER shall provide BROKER with at least 30 days written notice prior to any cancellation, non-renewal, or material change in the required insurance coverages.
6. Upon BROKER's request, CARRIER shall provide BROKER with copies of the complete insurance policies within 3 business days of request.
CARRIER acknowledges that maintaining the required insurance coverages is a material term of this Agreement, and failure to do so may result in immediate termination of the Agreement by BROKER.
4. Liability and claims
This section outlines the carrier's liability for cargo loss or damage and the procedures for filing and resolving claims.
Simple example of a 'Liability and Claims' section in Broker-Carrier Agreements
Liability and Claims
Carrier Liability
CARRIER shall be liable for any loss, damage, or delay of shipments while under CARRIER's care, custody, and control. CARRIER's liability shall begin at the time CARRIER or its agent receives the cargo and shall continue until the cargo is delivered to the consignee or its agent in good condition.
Claims Processing
1. CARRIER shall comply with 49 C.F.R. §370 and any amendments thereto when processing claims.
2. CARRIER shall acknowledge receipt of all claims in writing to BROKER within 30 days of receipt.
3. CARRIER shall pay, decline, or make a firm compromise settlement offer in writing to BROKER within 60 days after receipt of any claim.
Cargo Insurance
Notwithstanding any other Insurance Requirements noted herein, CARRIER shall maintain cargo insurance in the amount of not less than $100,000 per shipment. CARRIER shall provide BROKER with proof of such insurance immediately upon request.
Exclusions
CARRIER shall not be liable for the following:
1. Acts of God
2. Public enemy
3. Authority of law
4. Acts or default of the shipper
5. Inherent nature or vice of the goods[2]
Broker Liability
BROKER assumes no liability for cargo loss, damage, or delay. BROKER's insertion as the carrier on a bill of lading shall be for the shipper's convenience only and shall not change BROKER's status as a property broker nor CARRIER's status as a motor carrier[5].
Indemnification
CARRIER agrees to indemnify and hold BROKER and any/all of BROKER's customers harmless from any and all claims, actions, or damages arising out of CARRIER's performance under this Agreement, including cargo loss, damage, or delay.
Salvage
CARRIER shall not sell, salvage, or attempt to sell or salvage any goods without BROKER's express written permission[5].
5. Operational requirements
This section of broker-carrier agreements should include specific language and detail on trucking-specific operational and/or business requirements on the part of the carrier that the broker may wish to spell out for clarity, such as:
- Compliance with Federal and State Laws and Regulations
- Safety standards and ratings that must be met and maintained
- Driver qualification standards
- Equipment specifications
Simple example of an 'Operational Requirements' section in Broker-Carrier Agreements
Operational Requirements
Equipment and Personnel
Carrier shall provide, at its sole cost and expense, all equipment necessary to perform the transportation services required by this Agreement. Carrier shall employ only competent and properly licensed personnel to operate its equipment.
Compliance with Laws and Regulations
Carrier shall comply with all applicable federal, state, and local laws, rules, and regulations governing the transportation of freight, including but not limited to:
- Federal Motor Carrier Safety Regulations
- Hazardous Materials Regulations (if applicable)
- Hours of Service Regulations
- Drug and Alcohol Testing Requirements
Carrier shall maintain all licenses, permits, and operating authorities required by regulatory agencies.
Safety and Performance Standards
CARRIER agrees to:
- Maintain a satisfactory USDOT safety rating or, if unrated, shall maintain safety performance standards acceptable to Broker.
- Immediately notify Broker of any change in its safety rating or any safety violations.
- Maintain on-time pickup and delivery performance of at least 95% at all times.
Communication and Tracking
CARRIER shall:
- Provide Broker with 24/7 dispatch contact information.
- Provide shipment status updates to Broker at least once every 24 hours or as otherwise requested by Broker.
- Immediately notify Broker of any delays, accidents, or other issues that may affect timely delivery.
Documentation
Carrier shall provide legible copies of signed bills of lading and proof of delivery documents to Broker within 24 hours of delivery completion. All such documents must be free from exception unless otherwise noted at time of delivery.
Subcontracting Prohibition
Carrier shall transport all shipments on equipment operated under its own authority and shall not re-broker, assign, or interline any shipments without prior written consent from Broker.
6. Term and termination
As the name suggests, the term and termination section of broker-carrier agreements should specify the duration of the agreement and the conditions under which either party can terminate the contract.
Simple example of a 'Term and Termination' section in Broker-Carrier Agreements
Term and Termination
This Agreement shall commence on the Effective Date and shall continue in full force and effect for a period of one (1) year (the "Initial Term"). Thereafter, this Agreement shall automatically renew for successive one-year periods (each, a "Renewal Term"), unless terminated as provided herein.
Termination Without Cause
Either party may terminate this Agreement at any time, with or without cause, by providing thirty (30) days' prior written notice to the other party.
Termination for Cause
Either party may terminate this Agreement immediately upon written notice if the other party:
1. Materially breaches any provision of this Agreement and fails to cure such breach within ten (10) days of receiving written notice of the breach;
2. Becomes insolvent, files for bankruptcy, or ceases to conduct business in the ordinary course; or
3. Loses its operating authority or insurance coverage required under this Agreement.
Effect of Termination
1. Upon termination of this Agreement, CARRIER shall complete all shipments in transit and BROKER shall pay all amounts due for services rendered prior to termination[1].
2. Termination of this Agreement shall not release either party from any liability or obligation accrued prior to the effective date of termination[1].
3. The provisions of this Agreement relating to payment, insurance, liability, and indemnification shall survive the termination of this Agreement.
Transition Period
In the event of termination, both parties agree to cooperate in good faith to ensure a smooth transition of services and to minimize any disruption to shippers or consignees[2].
CARRIER acknowledges that any breach of this Agreement may result in irreparable harm to BROKER and that BROKER shall be entitled to seek injunctive relief in addition to any other remedies available at law or in equity.
Broker-Carrier Agreements are not the same as Rate Confirmations or Trip Leases
It's important to recognize and understand that Broker-Carrier Agreements are different legal documents than Rate Sheets, Rate Contracts, Rate Confirmations or Trip Leases. While they can often be closely related, each document serves a different purpose and should not be confused with each other.
Rate Confirmations provide specific pricing and details
A rate sheet or rate contract typically focuses solely on pricing for specific lanes or services. While the terms on a rate confirmation or rate sheet are very important, rate confirmation documents lack the comprehensive legal and operational framework provided by full broker-carrier agreements. Essentially, you can't have one document without the other.
More about Rate Sheets, Rate Confirmations, Rate Contracts
A rate confirmation is a transaction-specific document that pertains to a single shipment or load. Rate confirmations are also be referred to as Rate Contracts, Rate Sheets, Load Confirmations, Trip Sheets or by many other names. Irrespective of the name, it is essentially a short-term contract that outlines the details of a particular job that it tendered to a carrier by a freight broker.
Terms on a Rate Confirmation typically include:
- The agreed-upon rate for the specific shipment
- Origin and destination of the shipment
- Type of commodity being shipped
- Shipping date
- Total cost of the shipment
- Any special instructions or requirements for the particular load
The rate confirmation is legally binding and serves as proof of the agreed terms for that specific shipment. It is often considered to be an addendum to a Master Broker-Carrier Agreement.
Key Differences between Rate Confirmations and Broker-Carrier Agreements
Scope
The broker-carrier agreement is broad and covers the entire business relationship, while the rate confirmation is specific to a single shipment.
Duration
The broker-carrier agreement is typically long-term, while the rate confirmation applies only to the duration of a single shipment.
Content
The broker-carrier agreement covers general terms and conditions, while the rate confirmation focuses on the specifics of a particular job.
Frequency
The broker-carrier agreement is usually signed once at the beginning of the business relationship, whereas a new rate confirmation is issued for each individual shipment.
Legal standing
While both documents are legally binding, the rate confirmation is subordinate to the broker-carrier agreement. In case of any conflicts, the terms of the broker-carrier agreement would typically take precedence.
In essence, a broker-carrier agreement provides the legal framework for the ongoing relationship, while the rate confirmation serves as a specific contract for each individual transaction within that relationship.
Not at all legally similar to a Trip Lease
When an owner-operator or trucking carrier moves freight under a trip lease arrangement, the legal framework is not at all the same as shipments moved by a carriers under Broker-Carrier Agreements.
A trip lease involves a much deeper integration between the lessee carrier and the leased equipment/driver, with the lessee assuming significant operational and regulatory responsibilities. For example, any shipment a leased-on driver transports for a lessee carrier under a trip-lease agreement would be transported under the FMCSA Motor Carrier Operating Authority and insurance coverage of the lessee carrier. Under a broker-carrier agreement, on the other hand, the same driver would retain full operational control and compliance responsibility, and would transport the load using his/her own insurance and motor carrier operating authority. Broker-Carrier Agreements maintain a very clear separation between the broker and the responsible carrier, while trip leases generally involve a carrier taking direct control and responsibility over a vehicle and/or driver for the duration of a shipment.
Broker-Carrier Agreements are not the same as Trip Leases
Trip leases and freight broker-carrier agreements are two distinct arrangements in the trucking industry, with several key legal differences:
OPERATIONAL CONTROL
Trip Leases
Under a trip lease, the lessee carrier assumes exclusive possession, control, and use of the leased equipment for the duration of the lease. This means the lessee carrier takes on full operational responsibility for the vehicle and driver during the leased trip.
Broker-Carrier Agreements
In a broker-carrier agreement, the carrier maintains full operational control of their equipment and drivers. The broker does not assume any operational responsibility or control over the carrier's assets or personnel.
REGULATORY COMPLIANCE
Trip Leases
The lessee carrier becomes responsible for regulatory compliance during the leased trip. This includes ensuring adherence to hours of service regulations, vehicle inspections, and other safety requirements.
Broker-Carrier Agreement
The carrier remains solely responsible for all regulatory compliance. The broker has no direct compliance obligations related to the carrier's operations. *Important note: There have been several well-documented legal challenges to this principle over the years, which have led to the rise of increased carrier vetting, carrier monitoring, and driver tracking in the trucking industry.
INSURANCE AND LIABILITY
Trip Lease
The lessee carrier must provide insurance coverage for the leased equipment and assume liability for its operation during the lease period. This includes public liability and cargo insurance.
Broker-Carrier Agreement
The carrier maintains their own insurance coverage, regulatory compliance and liability insurance. The broker will perform due diligence in it's carrier sourcing and vetting procedures, however it does not assume direct operational liability over the driver during the shipment other than to perform routine tracking and/or check calls as agreed with the carrier prior to shipping.
OPERATING AUTHORITY
Trip Lease
The leased equipment operates under the lessee carrier's operating authority for the duration of the lease. This allows the equipment to haul regulated commodities under the lessee's authority, insurance coverage, etc..
Broker-Carrier Agreement
The carrier operates under their own authority. The freight broker generally does not provide or transfer any motor carrier operating authority to the carrier.
COMPENSATION STRUCTURE
Trip Lease
Compensation is typically based on a negotiated rate between the lessee carrier and the leased driver for the specific trip, which must be clearly stated in the driver-carrier trip lease agreement. The lease must also specify payment terms, along with any additional charges, fees, performance bonuses or deductions.
Broker-Carrier Agreement
The carrier's compensation is usually negotiated on a per-load basis between the broker and the carrier and bound by a signed rate confirmation. The freight broker's compensation is usually a commission for arranging the shipment that is paid to the broker by the shipper of the freight.
DOCUMENTATION REQUIREMENTS
Trip Lease
Requires a detailed written lease agreement between the carrier and the owner-operator that meets specific regulatory requirements, including equipment identification, duration, compensation, and operational responsibilities.
Broker-Carrier Agreement
Typically involves a less detailed agreement that focuses primarily on the terms of the brokerage arrangement and load-specific details, such as a Rate Confirmation.
DURATION
Trip Lease
Generally short-term, often for a single trip or a specified short duration.
Broker-Carrier Agreement
Can be ongoing and is generally a longer-term arrangement, with individual load agreements (i.e. Rate Confirmations) made as addendums to a broader contractual relationship.
What to look for in Broker-Carrier Agreements
Carriers and owner-operators may not always have much room to negotiate terms in broker-carrier agreements in today's competitive transportation market, however that does not mean it is not important to review every agreement carefully to ensure your interests are protected. When reviewing a broker-carrier agreement, carriers should pay close attention to:
By carefully reviewing and negotiating broker-carrier agreements, owner-operators can protect their interests, ensure fair compensation, and establish strong, mutually beneficial relationships with freight brokers. Remember, it's always best to seek legal counsel when reviewing or drafting these important documents to ensure all aspects of your business are adequately protected.
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