What is a Dispatch Carrier Agreement?
A dispatch carrier agreement is a written document that outlines the professional relationship between an owner-operator and a freight broker. The owner-operator can simply be an employee or subcontractor handling specific loads for the freight broker or a company that has a specific contract with a freight broker for transportation services as a freight carrier. Regardless of the specific circumstances, a dispatch carrier agreement is used to clearly set out the terms of this relationship and to ensure the freight broker will get paid for the loads the dispatcher coordinates for the client .
Such agreements usually contain a few essential elements, including the following:
As a freight carrier, a contractor may also want to enter into these agreements as the freight broker may want to shift some of the risks associated with the loads to the contractor. The contractor will then be required to enter into an insurance policy that meets his or her duty of care and insurance requirements.
Finally, after a successful delivery, the freight broker will send the client a freight invoice for payment. As a freight carrier who has settled the invoice with the freight broker, the carrier can either wait until the freight broker is paid by the client to receive payment for his or her services or pursue payment from the client after the appropriate time period has lapsed based on the contract with the broker.
Legality and Compliance
It is not uncommon that a carrier signs up with a dispatcher without giving a second thought about a dispatch carrier agreement, even if the carrier has been in the business for years. Despite of common mistakes, however, a properly drafted and executed dispatch carrier agreement can have a lot of benefits for a carrier.
It is important for carriers to understand that an independent contractor who has entered into a dispatch carrier agreement must be independent from the carrier. In order to be independent, a dispatcher cannot interfere with the operation of equipment, and/or must not have a possessory interest. If a dispatcher has physical control of a truck or trailer, it becomes an agent of the carrier, and the carrier will be liable for damages caused by the actions of its agent. Under the California Labor Code, if the dispatcher also has a possessory interest, the relationship may be deemed a Joint Employment one. Under Pennsylvania law, if the dispatcher is an W2 employee, then the dispatcher must be under the control of the carrier, and the dispatcher can be subject to punitive actions by the Federal Motor Carrier Safety Administration (FMCSA).
The terms of a dispatcher agreement are negotiable. A carrier should not feel rushed into signing an agreement, and if so it probably means there is no value to the relationship. Some of the most important terms include, but are not limited to:
It is also a good practice for a carrier to require the dispatcher to agree to keep confidential the information related to customers, rates, routes, and general business information. The carrier also has a right to receive a percentage of any fees received by the dispatcher for brokering its loads.
Carefully written and enforced, a proper dispatch carrier agreement can benefit an independent contractor carrier looking to increase freight business, without the carrier giving up the autonomous control it has over how, when, and where to do the business. A carrier should consult with experienced transportation counsel when entering into any contract.
Key Terms to Include
When drafting a dispatch carrier agreement, there are a few key clauses specific to the delivery business that must be included. In addition to the responsibilities of each party and payment terms, the agreement should detail the liability and indemnification terms, insurance requirements, additional types of insurance that may be required, and dispute resolution mechanisms. Each of these clauses can have a substantial impact on your future liability as a carrier.
- Responsibilities of Parties
- Payment Terms
- Liability and Insurance
- Dispute Resolution Mechanisms
Advantages of a Dispatch Carrier Agreement
A major benefit of entering into a dispatch carrier agreement is the ability to more effectively manage risk on both sides. The agreement generally specifies who is responsible for certain risks and how those risks will be contained. Another benefit is having a designated party to handle administrative functions, thereby streamlining operations and saving time. Entering into an agreement with a third party can also strengthen business relationships. Carriers and freight brokers mutually benefit by agreeing to allow a third party to serve as a buffer for their contract. Additionally, a dispatcher can decide whether they should leap while the other companies are still in the water, or wait for further offers that could lead to better rates.
Common Issues and Solutions
The life of an owner-operator is often filled with unexpected hurdles that require strategic thinking to overcome. Sometimes an owner-operator will participate in a dispatch agreement but soon realizes they are losing money, aren’t receiving all of their payment for the freight, or some other issue is arising. An owner-operator may find that the dispatch company is withholding all of their payments and/or doing a poor job finding loads.
The question then becomes what can be done to minimize the damages from a poorly functioning dispatch relationship, and how can an owner-operator exit the relationship without incurring huge losses? The first step is for a driver to understand what his or her options are.
The following issues are frequently faced by owner-operators that are satisfied when they know the options that are available to them. First, as discussed above, the owner-operator may realize their dispatch company has withheld certain funds for loads. This can be solved after a review of the owner-operator’s trip sheets, proof of delivery and agreement between the owner-operator and dispatcher for the load in question. Sufficient documentation will help ensure the owner-operator is paid in full for the loads it has delivered .
Sometimes the reality of the arrangement and the compensation received isn’t what the owner-operator anticipated, and an owner-operator may have to make adjustments to its business model to be successful.
A failure to find sufficient loads can sometimes be an issue, though usually a serious and chronic issue leads to a request from the owner-operator to exit the relationship. When that happens, an owner-operator can start fresh by approaching the issue as a cancellation of the agreement with the dispatch company. Oftentimes the owner-operator will need to ask for assistance from the company that helped them become independent.
The owner-operator having difficulties is well advised to seek assistance before making any unilateral decisions or taking any unilateral steps to avoid liability under the dispatch agreement.
Choosing an independent dispatch service that has experience working with owner-operators and understands their business can be the difference between owner-operators achieving their goal of independence or being forced back into the arms of a carrier or freight broker. When an owner-operator has a well-drafted independent contractor agreement with a broker or carrier, and a good, strong dispatch agreement with an experienced dispatch company, the owner-operator is more likely to achieve his or her business goals.
How to Create a Dispatch Carrier Agreement
There are a variety of ways to create an enforceable and comprehensive agreement between a broker and a carrier regarding their business relationship. Writing the agreement in plain language, explaining everything as simply as possible; identifying what you expect from the carrier clearly and concisely; and including necessary clauses and terms that will make sure that the agreement is enforceable and binding are typical ways of getting around any issues.
Another option is rewriting the entire agreement in narrative format. While this is uncommon, it may be helpful to use it as a form of persuasion to get the person reading the agreement (which is usually a company president or a director) on your side by giving them a clear picture of what is happening. You may also want to hire a professional writer to do this for you, as a dispatcher will typically be too busy to spend the time needed to write a story when they have so many other responsibilities.
No matter how you write the agreement, it should contain, at minimum, the following clauses:
- Termination of the Contract – This section allows both parties to terminate the contract. It states how much notice they must give to terminate the contract (usually 30 days) and the possible options for delivering the notice (by mail or email, for example). It also explains what happens to any freight that is in transit when the agreement is terminated can be at the receiving end after the agreement has been terminated if the carrier has not provided the broker with written confirmation before the load is in transit meaning the agreement is still in effect.
- General Dispatch Agreements – This section specifies how many shipments a carrier will handle. For example, a truck does 400 loads per year at 13,000 miles for a broker with several trucks. This means that the carrier cannot broker out a shipment if there are no available trucks. The bad news about this clause is that it essentially leaves the carrier to his own devices is truck orders begin to increase, but this could also mean more money for him.
- Permits – This section discusses what will happen to the permits and bonding fees when a carrier terminates its contract with a broker. It typically states that the carrier will be responsible for the fees unless otherwise agreed upon. It also states that the broker owns the permits and will keep copies of them until the contractor terminates. Some brokers will even pay for those bonds and permits, or charge the carrier a fee for it.
- General Terms – This is the main part of the agreement. It contains information about everything that happens in a broker-carrier relationship. It includes information about scheduling, the broker’s responsibility to the carrier if the shipment is late, who the carrier should work with if something unexpected happens, how accessorial charges will be handled, and what will happen when electronic communication is not available. It will also include a confidentiality clause stating that the broker will not share any details about the shipment when he dispatches it.
Small- and Large-Scale Business Considerations
Small and large businesses should keep in mind that there is often a practical issue between the nature of their operations and the advantages and disadvantages in entering into a dispatch carrier agreement. Some small businesses will not have sufficient freight volumes to make a dispatch carrier agreement worthwhile. Others may have sufficient freight volume, but not have the financial resources to enter into a dispatch carrier agreement.
For example, larger businesses are often in a position to offer a signed guarantee to a dispatch carrier for payment to a freight company for freight charges. This is an important aspect of a dispatch carrier agreement. If the dispatch carrier is required to pay freight and misses a payment, the freight companies, as is their practice, will pursue their claims against the party that is obligated to them. In other words, the carrier virtually always looks to the financially responsible party, the principal, rather than seeking payment from the broker. However , if a small business that does not have the financial capacity to offer a signed guarantee at the beginning of the relationship and insists on entering into a dispatch carrier agreement, the freight companies may insist on being paid directly by the broker. There is no inherent reason that the parties cannot be flexible and deviate from this pattern, but the freight companies and others often have significant leverage to make it difficult for the startups and small companies to enter the freight transportation business with a practical financial risk.
In addition, if smaller freight companies require payment from the broker and seek statutory freight charges under the Carmack Amendment, many times the relationship will not be economical and the parties will not be able to sustain the relationship. Many domestic carriers, especially smaller carriers, are not able to permit a substantial delay in payment because financial pressures make it difficult to carry that risk. Furthermore, it is not unreasonable for a shipper or freight broker to insist that invoices be paid in 10 or 30 days and not consider the 30 or 60 day payment terms offered by a broker.