Broker-carrier agreements form the foundation of the working relationship between a freight broker and a trucking business. These contracts outline the rights, responsibilities, and expectations for both parties, making it crucial for carriers to thoroughly review the terms before signing. A well-crafted broker-carrier agreement can protect your trucking business from costly surprises, while a poorly structured one can leave you exposed to risk.
To help you navigate this process, here are three critical things trucking businesses should keep an eye out for in a broker-carrier agreement:
1. Cargo Insurance Requirements: Are You Covered Enough?
One of the most important sections of a broker-carrier agreement is the insurance requirement, specifically cargo insurance. Cargo insurance protects against the loss or damage of goods while in transit, but the amount and type of coverage required by brokers can vary. Here’s what to look for:
Coverage Limits: Many agreements will require a minimum cargo insurance coverage, often around $100,000, though this can vary depending on the type of freight you’re hauling. Ensure that your policy meets or exceeds the broker’s requirements. If not, you may need to increase your coverage, which could add costs to your business.
Liability for Specific Types of Freight: Brokers may require $250,000 or more for their higher-value shipper accounts. Some contracts may specify different insurance requirements for high-value or specialized cargo, such as electronics, pharmaceuticals, or hazardous materials. If you’re transporting high-value loads, make sure your cargo insurance is sufficient to cover potential losses or damages.
Additional Insured Clause: Some brokers may require that they be added as an “additional insured” on your policy. This provides them with added protection, but it could complicate claims and shift more liability onto your business. Make sure you fully understand this clause before agreeing to it.
Tip: Work closely with your insurance provider to ensure your policy complies with the agreement while still protecting your business. Don’t be afraid to negotiate these terms with the broker to avoid taking on more liability than necessary.
2. Detention and Accessorial Charge Policies: Are You Compensated for Delays?
Detention time is a major concern for carriers, as waiting around to load or unload eats into your valuable hours without compensation. Many broker-carrier agreements address this issue, but the terms can vary widely. If it is not listed in the broker-carrier agreement, it should be listed in the rate confirmation which acts as an addendum to the broker-carrier agreement. Here’s what to look for in your contract or rate confirmation:
Detention Time: The agreement should specify when detention charges start. Typically, brokers ask for a grace period—often two hours—before detention fees kick in. Review this grace period carefully as it may require particular points of communication to qualify for detention.
Detention Rate: Confirm the detention rate in the agreement, which can range from $25 to $100 per hour, depending on the market and the broker. Ensure this rate is competitive and adequately compensates you for your time.
Accessorial Charges: Accessorial charges, such as layover fees, lumper fees, and extra stop charges, should also be clearly defined in the agreement. Make sure that all potential scenarios are covered and that the rates are fair. Check out our Trucking Accessorials Guide which includes a definitions guide, pricing template, and pricing examples for the most common types of trucking accessorials.
Tip: If the agreement’s detention or accessorial charge policies seem vague or
insufficient, consider negotiating better terms. Transparency and fairness in these areas are crucial to protect your time and income when unexpected delays happen.
3. Liability and Indemnification Clauses in Broker-Carrier Agreements: Are You Protected?
Liability and indemnification clauses in a broker-carrier agreement outline who is responsible for covering various losses, damages, or legal issues that may arise during the transportation process. These clauses are often complex, and it’s easy for carriers to overlook their long-term implications. Here’s what to keep in mind:
Indemnification Clauses: Many agreements will include broad indemnification clauses, which can require you to take on liability for a wide range of issues, even those outside your control. For example, you may be held responsible for damage or loss of cargo, even if the shipper or consignee was at fault. Look for indemnification clauses that unfairly shift liability onto you and try to negotiate more balanced terms.
Loss or Damage Provisions: The agreement should clearly define your liability for damaged or lost freight. While it’s standard for carriers to be responsible for cargo in transit, ensure that the terms don’t unfairly place all the risk on your shoulders. Review the terms carefully and ensure they align with your insurance coverage.
Dispute Resolution: The agreement should also outline how disputes related to claims, liability, or performance will be resolved. This can include details about arbitration, mediation, or which state’s laws will apply in case of a legal conflict. Ensure that the dispute resolution process is clear, fair, and doesn’t leave your business at a disadvantage.
Protect Your Business with a Careful Review
A broker-carrier agreement is more than just a formality—it’s a legally binding document that can have a big impact on your business’s success and profitability. By paying close attention to cargo insurance requirements, detention policies, and liability clauses, you can avoid potential pitfalls and protect your trucking company from unnecessary risks.
Before signing any agreement, take the time to thoroughly review and, if necessary, negotiate terms that safeguard your interests. When in doubt, seek legal advice to ensure you’re not agreeing to terms that could harm your business.
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Soshaul Logistics LLC and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. It is meant to serve as a guide and information only and Soshaul Logistics, LLC does not assume responsibility for any omissions, errors, or ambiguity contained herein. Contents may not be relied upon as a substitute for the FMCSA's published regulations. You should consult your own tax, legal and accounting advisors before engaging in any transaction or operation.
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