What You Need to Know about Shipper-Broker Agreements

A solid business relationship begins with a contract, and shipper-broker relationships are no exception. Shipper-broker agreements lay the groundwork for how the business relationship is structured and help outline all the important details like billing, liability, and course of action if something doesn’t go as planned. 

When properly executed, shipper-broker agreements ensure that both parties are protected and set both the shipper and broker up for success. Read on to learn the ins and outs of shipper-broker agreements, the main purposes of these agreements, common pitfalls to avoid, and more.

What is a Shipper-Broker Agreement?

A shipper-broker agreement is a legal contract between two or more parties that outlines the responsibilities and obligations of each party. While federal regulations address many situations or aspects of a shipper-broker agreement, there are still many details that need to be outlined in the agreement, including:

• Names of all parties involved in the agreement
• Duration of the contract
• Services the broker will provide
• Amount and types of carrier insurance required
• Liability limits

Standard agreements are based on the regulations set by the Federal Motor Carrier Safety Administration (FMCSA) and Department of Transportation. But since each business relationship is unique, it’s not uncommon for companies to supplement the baseline standards to address their individual needs.

Are Shipper-Broker Agreements Necessary?

The short answer—yes. 

You need to be crystal clear about the expectations and responsibilities each party has. Shipper-broker agreements outline the terms and conditions each party must abide by to secure your business. Without a shipper-broker agreement, you aren’t able to account for specific business needs and have no document to refer back to in the event there are freight losses, damages, or delays..

Why Do I Need a Shipper-Broker Agreement?

Shipper-broker agreements outline a variety of essential information pertaining to the relationship between the shipper and freight broker. The two main purposes of this kind of contract are to:

Define the working relationship

The shipper-broker agreement clearly defines the responsibilities of each party so that everybody understands what to expect. 

When determining the terms of the shipper-broker agreement, both parties should be sure to include any item or expectation that is important to them and their business. Discussing these terms and including them in the agreement helps to minimize the chances of misunderstandings or unfulfilled expectations. Here are a few questions to consider when creating an agreement: 

• In the event of a complication, who should each party contact? 
• What expectations does each party have for availability and communication with the other party?
• What is the fuel surcharge rate? Remember that these can—and should—be negotiated to ensure you have the best rate possible. 
• Are there any requirements for the carriers that the broker contracts? These could include safety ratings, level of experience, equipment, and so on.

Establish liabilities 

While the goal is always to have smooth, complication-free deliveries, the fact of the matter is that you will sometimes encounter problems. Being prepared for things that could go wrong—and the plan for what to do in the event that happens—is an essential purpose of drawing up a contract. 

It’s much easier to determine where liability lies for various issues that could pop up ahead of time, rather than trying to establish who is responsible for what after the mistake is already made. When your shipper-broker agreement clearly defines who is liable for what, you have a written record to refer to, saving you valuable time and preventing disputes.

How to Avoid Shipper-Broker Agreement Pitfalls

It’s clear by now that having a solid shipper-broker contract is an important part of having a smooth relationship with your freight broker. But that doesn’t mean that writing a fair, enforceable contract is always easy. Here are a few pitfalls that shipper-broker agreements should avoid.

Using the wrong type of contract

All contracts are not created equal. General contracts that are intended for vendors, subcontractors, or motor carriers aren’t going to cover the specific terms that are relevant to the freight broker’s responsibilities.
Broker-shipper contracts should include details about the duration of the contract, which services each will provide, insurance details, and any liability limits or how to conduct damage claims. It can also include non-disclosure details, information about compliance and applicable laws, and rules on how disputes would be handled.

Incorrect carrier insurance requirements

As a shipper, you’re understandably concerned about both the insurance requirements for your freight broker and the insurance coverage the broker requires of the carrier. And while it seems that higher insurance coverage requirements are always better, that’s not always the case. 

Requiring above-market insurance coverage can limit the capacity a broker has to find carriers willing and able to move your freight. Of course, if you really do require a high cargo coverage, it should be stated as such in your shipper-broker agreement. But if you don’t, consider lowering the carrier insurance requirements to a more appropriate level to avoid limiting carrier capacity.

Overly broad indemnification sections

These important sections of a shipper-broker agreement lay out what happens if one party is damaged in any way as a result of the partnership. The way that these sections are phrased are incredibly important to making sure that they’re actually useful. 

It can be tempting to use broad language to cover all your bases, but generalized language can actually make it more difficult to enforce the contract, as it is often too vague or unclear. Keep your indemnification sections as clear and direct as possible to avoid dispute and confusion in the event that the clauses are enacted.

Create a strong shipper-broker agreement

Having an effective shipper-broker agreement is an essential part of ensuring that your relationship with your freight broker is clearly defined and operates smoothly. They can help protect you in the event that issues arise during the course of your contract period and clearly define the responsibilities of each party.