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When brokers go broke

LETHBRIDGE, Alta. - For some trucking companies, the use of load brokers is a necessary evil. While most fleets don't like seeing their profits skimmed by a middle man, the broker can play an importan...


LETHBRIDGE, Alta. – For some trucking companies, the use of load brokers is a necessary evil. While most fleets don’t like seeing their profits skimmed by a middle man, the broker can play an important role in the industry.

However, it’s little wonder that many in the trucking industry are very apprehensive about using brokers. All too often, when a broker declares bankruptcy or disappears altogether, it’s the carrier that pays.

Take for instance the case of Ontario-based pet supply manufacturer Normerica Inc. Twice now, in just over a year, the broker working for Normerica has gone belly up. First, in May 2002, Crossdock International folded its operations and less than a year later, Landers Wing did likewise.

Mike Taylor, vice-president of Surrey, B.C.-based Accord Transportation, was one of the victims. After realizing his company was out $19,000 following the demise of Landers Wing, Taylor made some phone calls to see just how many carriers were affected. What he discovered after placing just a few calls shocked him.

Over $148,000 owed to more than 10 trucking companies went unpaid. In fact one carrier alone got burned for $50,000. Taylor feels Normerica should be held accountable.

“In my mind, there’s a fair level of irresponsibility on their part,” says Taylor. “They should be aware that if they’re using brokers, there’s the potential for the brokers to abscond with the money.”

There’s no evidence that the two broker bankruptcies are related, but there’s been plenty of speculation among the victims. Especially considering one individual reportedly worked for both companies. Everyone’s heard the horror stories about brokers who’ve declared bankruptcy only to open back up under another name shortly thereafter.

In a letter dated May 9, 2002, Crossdock International told its creditors that “Regrettably, the operations of Crossdock International have now ceased…At this time, no funds are available to pay the outstanding claims of creditors and very little, if any, future funds are expected to be recovered for the benefit of creditors.”

The letter went on to blame the company’s demise on a key broker who left the company, taking some important accounts along.

Normerica has washed its hands of the situation, which infuriates Taylor.

“Normerica must have been aware that these guys weren’t paying their bills and in a situation like that…they should be doing something to ensure the carriers are taken care of,” says Taylor.

Marge Doerksen of Class One Driving School was also victimized. The Lethbridge-based company hauled Normerica’s products from its Lethbridge plant and like the other carriers, the company says it lost thousands of dollars.

Doerksen insists the shipper was well aware of the situation, because she brought it to the company’s attention on more than one occasion. In fact, Doerksen says when she contacted Normerica to explain Crossdock wasn’t paying its carriers, a company representative told her not to send the broker’s account to a collection agency because Normerica was holding back funds to ensure carriers would get paid if something went awry.

Since Crossdock folded, Doerksen says no compensation has been paid and letters to Normerica have gone unanswered. Phone calls from Truck News have also gone unreturned by Normerica.

Unfortunately, the victimized carriers are finding there’s little they can do to recoup their costs. Trying to collect from a bankrupt broker is like drawing blood from a stone and what few rules there are regulating brokers vary from province to province.

For instance in Ontario, brokers are supposed to be licensed, but in other parts of the country essentially anyone can put a sign in their basement window and call themselves a load broker.

Ontario brokers are also required to establish a trust fund so if they do go broke, the carriers can still collect what’s owed to them. However that does little good to the carriers hauling for Normerica, since both the company’s load brokers were based in Manitoba.

John S. McNeil, a Toronto-based lawyer who’s been involved in several lawsuits against brokers and shippers, says the carriers can sometimes file suit against the shipper itself.

“It’s a factually-oriented case,” say McNeil. “It can go both ways.”

He says the key is to determine whether the broker acted as a completely independent sub-contractor, or whether it was in fact an agent for the shipper. It’s often possible to prove the broker was acting as the shipper’s agent, which could make the shipper responsible.

“I truly believe that the broker, in 90 per cent of the cases, is actually an agent,” says McNeil. “He’s out there finding a carrier to do a job for the shipper.”

If the shipper argues that the broker is a completely independent sub-contractor, then McNeil always asks ‘Who would be responsible for any cargo damage that happens en route?’

“If the shipper says it’s the carrier (that would be responsible for the cargo damage) and the only role the broker plays is a brokerage role, then (the broker) was acting as an agent,” says McNeil.

While it’s sometimes possible to sue the shipper in these cases, McNeil says it’s not a cheap procedure, often costing more than $10,000 in legal fees. So unless it’s a large amount of money that’s gone unpaid, he suggests contacting a collection agency and then pursuing the losses through small claims court.

Dick Whenham, owner of Edmonton-based W5 Transport, knows that first-hand. In his case, a Toronto-based load broker disappeared along with $8,000 of the flatdeck carrier’s money. Along with some other victims, W5 filed suit against the broker, but no money has been returned to the carriers. That experience was enough to discourage Whenham from using brokers altogether.

“They’re the scourge of the industry,” he blasts. “I’d much rather deal directly with the customer rather than go through all of this.”

Whenham says there should be a national standard for load brokers that would require each of them to be licensed and bonded.

“There are too many middlemen in the business and they’re always taking advantage of people,” says Whenham. “This is a tight business we’re in here, there’s not that much margin there to be giving guys extra money.”

Bob Gyles, owner of Liaison Freight Services (LFS) in Winnipeg says his company offers a service that differs from traditional load brokerages and offers fleets protection from broker fraud and bankruptcies. Instead of relying on the broker for payment, LFS’s clients bill the shipper directly and then, once they’ve collected, they pay a seven per cent commission to LFS.

“In essence, we’re an agent for the trucking companies,” says Gyles. “I work for the carriers. They’re the ones that pay me so they’re my customers.”

Under LFS’s system, it’s the brokerage itself that accepts the risk of not getting paid. Gyles says traditional methods of brokering loads leave carriers too vulnerable.

“There are a lot of (brokers) out there that just soak the carriers – it’s pathetic,” admits Gyles. “They get greedy. A lot of those guys start at seven per cent and then realize they can get 10 per cent, then 12 per cent.”

Gyles says only a handful of Canadian companies offer the same type of risk-free service as LFS.

Other brokers have also been very critical of those that hang carriers out to dry. Heather Nelson of T.R.U. in Lethbridge says her company has also lost money as a result of the Normerica fiasco – to the tune of about $5,000. However, arguably the lost revenue isn’t the most damaging consequence – it’s the irreparable harm that’s done to the industry’s image.

“We like to give brokers a good name, not a bad name,” says Nelson. “We pride ourselves on paying our bills and paying on time.”


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