A unanimous Supreme Court ruling is sending shockwaves through the US trucking industry, with freight brokers warning that expanded legal liability could drive up insurance costs, squeeze small carriers and eventually result in higher prices for consumers.
The decision in Montgomery v. Caribe Transport II allows freight brokers to face state-level negligent-hiring lawsuits when trucks operated by carriers they selected are involved in crashes.
Brokers serve as middlemen between companies that need products shipped and the trucking companies that move the freight.
Industry leaders say the ruling significantly increases the risks brokers face when choosing carriers.
Daniel Ilg, who runs ILG Logistics in Tinley Park, Illinois, said companies are now operating in a dramatically different environment.
“It’s not that we felt like we were risking it before,” Ilg said. “But we’re in a new world now.”
The ruling means brokers could potentially be held liable if courts determine they failed to adequately examine a carrier’s safety record before arranging a shipment.
The potential consequences became clearer last month when a Texas jury recommended $604 million in damages against freight brokerage giant CH Robinson Worldwide and two other defendants over a deadly 2021 crash in Mississippi.
Four people, including the truck driver, were killed in the fiery pileup.
CH Robinson had arranged the shipment with a carrier that held the highest federal safety rating and had reportedly completed nearly 270 loads without incident.
The company has challenged the verdict.
“We strongly disagree with the verdict and remain confident in our position on appeal,” Chief Financial Officer Damon Lee said.
CH Robinson also maintained that it did not “direct, supervise, or control” the driver involved in the crash.
The verdict and Supreme Court ruling have nevertheless rattled the approximately $16 billion freight brokerage industry.
CH Robinson shares have fallen nearly 30 percent since the verdict was disclosed, while competitors including Landstar System and RXO have also experienced declines.
Brokers are now reportedly cutting smaller trucking companies from their approved carrier networks in an attempt to reduce legal exposure.
That could have major implications for independent truckers because more than 90 percent of carriers operate 10 trucks or fewer.
Ilg said his company has reduced its potential carrier network from between 15,000 and 18,000 operators to slightly more than 8,000.
“If a carrier is below a certain safety threshold, there is no relationship that my attorney is going to be okay with” overriding the safety numbers, he said.
Insurance premiums are also rising.
Thom Albrecht of Reliance Partners described the insurance market as “frenzied,” saying freight brokers are encountering “strong” double-digit premium increases when renewing policies, per the Conservative Brief.
“There’s risk in there that didn’t appear to exist just a few months ago,” Albrecht said.
Smaller brokers could be particularly vulnerable because they lack the financial resources and legal teams available to larger corporations.
TD Cowen analyst Jason Seidl warned the industry could still be seeing only the beginning of the fallout.
“The ship that is the brokerage industry is looking at five feet of an iceberg that is 1,000 feet deep,” Seidl said.
Those increased costs could eventually reach ordinary Americans.
Higher insurance premiums, stricter carrier vetting and fewer available trucking companies could increase the cost of transporting products across the country.
“The amounts that you’re paying to insure freight are higher,” transportation attorney Jayne Bart-Plange said. “All those costs go somewhere. Usually they end up on the consumer.”
