Almost every business requires some type of contract. Freight brokers are no exception – they’re involved in a highly sensitive business, where paperwork becomes critical. Without the right contracts, you could be held liable for lost or damaged freight, trucker injuries, car accidents, and other incidents. Read on for more information on the contracts you’ll need.
Perhaps the most important contract is the carrier/broker agreement. It applies to all dealings you have with a particular carrier, and also provides for changes, such as differences in rates. Before entering a carrier/broker agreement, specify three important items:
- Valid motor licenses. Obtain all license numbers and check their validity.
- The carrier should be liable for any freight damage while in its possession. Liability agreements should also cover injuries to vehicles and equipment, as well as personal injuries.
- Shipping negotiations. These include what you will pay for each shipment, when the carrier receives payment, and what the carrier must provide before receiving payment.
Bill of Lading
A bill of lading contains information on each load’s destination, size and nature, and any special handling requirements. Shippers and carriers work together to ensure bills of lading are accurate. The carrier signs the bill to acknowledge it has received the load described. All information on bills of lading must be accurate at all times; otherwise, the freight company owner and the carrier could be held liable.
Always keep signed bills of lading in your files. Your carriers will send them to you for each load along with invoices. Keep bills and invoices together so you can access them if customers or shippers have questions later.
Invoices are an essential part of freight brokerage – and have their own requirements. For example, all invoices need accurate pickup and delivery dates. Each invoice details the commodity, pieces, and weight of a delivery, along with special fees or handling instructions. If a delivery exceeds weight limits, this will appear on the invoice along with any extra fees.
Some deliveries require contract labor. Your invoice will tell you how much labor was used and how much your shipper charged for that labor. Additionally, your invoice will note whether your shipper sent a particular delivery “collect.” If that’s the case, you don’t bill the shipper. Instead, the shipper gives you billing information and you bill a consignee.
Contract of Carriage
This paperwork is different from a broker/carrier contract because it is not a document. It also isn’t the same as a bill of lading, although many new freighters assume otherwise. A contract of carriage often covers elements not included in a bill of lading, such as exceptions to basic delivery rules and how to handle them. Contracts of carriage also can include tariff provisions, service descriptions, and pricing.
Contracts of carriage ensure all parties involved follow state, federal, and other regulations. It also ensures freighters, shippers, and consignees follow a company’s specific regulations. These contracts provide protection against disputes over liability, damaged freight, personal injury, and other incidents. Additionally, contracts of carriage keep everyone apprised of legal trade precedents.
Contract Labor Receipts
As previously mentioned, sometimes a shipper will use contract labor. If your shipper is in charge of several vehicles of freight, it may need a team to unload the vehicles at their destination. In these cases, laborers provide receipts directly to the drivers. The drivers then send the contract labor receipts to you, the freight broker, for payment. If your shipper does not want to cover contract labor costs, you may need to absorb the expense. This might feel like a negative consequence, but it can help you maintain rapport with drivers and shippers while your company grows.
As a new freight broker, don’t forget your own business license obligation. You should apply for broker authority with the Federal Motor Carrier Safety Administration (FMCSA), a division of the U.S. Department of Transportation. There is an application fee, and processing takes 4-6 weeks. However, several reputable companies can guide you through this process.
Surety Bonds and Trust Funds
Most companies, including freight brokers, need some form of surety bonds. These let shippers, drivers, and customers know you will complete deliveries on time and with no damage. They also ensure you have the cash or assets to cover monetary amounts if you cannot fulfill contracts. All freight brokers must carry at least a $75,000 surety bond or trust fund.
Starting a new business of any kind, especially freight brokerage, is a long process. You may be tempted to cut corners, but never do so on paperwork. Your contracts will protect both your business and your customers, so it’s crucial to keep them up-to-date.