A Landmark Supreme Court Ruling Is Upending How America Moves Its Goods

Daniel Ilg started out in the freight brokerage industry at 14 years old, learning from his dad how to match trucking companies with loads of goods that needed to move around the country. About two decades later, now running the business his father started, Ilg is more worried than ever that choosing one wrong trucker could put it at risk.

A US Supreme Court decision in May changed the stakes for freight brokers like Ilg, opening them to lawsuits if a driver for a contracted carrier gets into a collision. The ruling leaves plenty of uncertainty about when a broker ultimately might be held responsible. But last month, a jury in Texas offered a glimpse at just how costly the new landscape could become: It recommended $604 million in damages against one of the country’s largest freight brokers and two other defendants.

While the legal process will likely drag on for more than a year, the size of the potential penalty is already reshaping the roughly $16 billion brokerage industry — and changing who gets to haul America’s freight. Brokers are shrinking their carrier networks, insurance premiums are soaring for some firms and investors have wiped billions of dollars from the value of publicly traded brokers as they grapple with the new legal risk.

Shares of CH Robinson Worldwide Inc., the broker involved in the Dallas County case, have fallen nearly 30% since it disclosed the jury’s recommendation, and industrypeers Landstar System Inc. and RXO Inc. have also slid.

The Texas case centered on a fiery pileup in 2021 in Mississippi after an 18-wheeler slammed into stopped traffic, leaving the driver and three other people dead. CH Robinson had arranged the shipment of goods with the company that owned the truck.

The plaintiffs said that the broker exercised enough control over the shipment to bear responsibility for the crash and failed to take reasonable steps to ensure it was transported safely. They also accused the broker of negligence in selecting the carrier, alleging it hadn’t adequately screened the companies it hired.

CH Robinson chose a carrier that had safely completed almost 270 loads, held the highest safety rating from federal regulators and kept that rating after a review of the accident, Chief Financial Officer Damon Lee told Bloomberg News. He added that the driver worked for the carrier and not for CH Robinson.

“We strongly disagree with the verdict and remain confident in our position on appeal,” Lee said in an email. The company said in a statement that it didn’t “direct, supervise or control” the driver’s actions.

Brokers are the industry’s matchmakers, connecting companies with trucking firms that collectively haul the majority of goods that flow through the country and end up on factory floors or store shelves. Roughly 28,000 brokers arrange about one-third of all of that freight. For years, choosing carriers depended partly on government safety data, but more often on something harder to measure: relationships built over thousands of loads and years of experience.

Now brokers are drawing much harder lines around which companies they’re willing to use, worried that a carrier they’ve trusted for years may mean little if a crash ends up in court. They’re reluctantly culling their networks and favoring larger, more established trucking operators over smaller competitors.

“It’s not that we felt like we were risking it before,” said Ilg, who runs ILG Logistics in Tinley Park, Illinois. “But we’re in a new world now.”

Before the Supreme Court ruling, Ilg’s employees had 15,000 to 18,000 carriers they could conceivably match with their customers’ freight. Today, Ilg said that number is a little over 8,000. His team now uses hard-and-fast criteria based solely on government safety data to screen trucking companies, disregarding the institutional knowledge that previously guided hiring decisions. It isn’t because half of them suddenly became unsafe. It’s because the data is more likely to hold up in court; relationships won’t.

If a carrier is below a certain safety threshold, “there is no relationship that my attorney is going to be okay with” superseding the numbers, he said.

Unreliable Data

Until May, freight brokers routinely defended themselves against negligent-hiring claims by arguing that federal law shielded them from state lawsuits over the carriers they selected. In Montgomery v. Caribe Transport II, the Supreme Court unanimously rejected that defense, ruling that such state claims involving motor-vehicle safety can apply to brokers, too.

The ruling didn’t address how brokers should determine which trucking companies are safe enough to hire — a difficult task when the government’s own data don’t always provide a clear answer.

The Federal Motor Carrier Safety Administration maintains a database that brokers can use to evaluate trucking companies based on inspections, crashes and other measures. But Ilg and others say the data are not always reliable. The Government Accountability Office flagged the problem more than a decade ago, finding that most carriers are too small and inspected too infrequently to generate sufficient safety performance data. The issue continues to vex underwriters trying to insure the industry.

With the threat of a lawsuit hanging over every carrier selection, the absence of information has become especially problematic. Brokers have an incentive to avoid companies that look risky on paper, putting smaller trucking companies at a particular disadvantage. More than 90% of carriers operate 10 trucks or fewer, meaning most of the industry consists of the kind of independent operators that may have the thinnest safety records to evaluate.

The ruling is also changing the economics of being a broker, with insurance premiums already climbing. While it’s still too early to determine the overall impact to brokers’ rates, experts agree they will soar across the board.

In the weeks following the court decisions, the market has been “frenzied,” said Thom Albrecht, chief revenue officer at Reliance Partners, an insurance firm serving the freight industry. Albrecht said that for brokers unlucky enough to have had to renew their policies recently, premiums have seen “strong” double-digit increases. “There’s risk in there that didn’t appear to exist just a few months ago,” he said.

The burden will likely fall hardest on smaller firms with fewer resources to absorb higher costs or to fight expensive lawsuits.

That prospect has led some investors to see an opportunity for the industry’s giants. Sam Klar, who holds CH Robinson shares in the GMO Domestic Resilience ETF he manages, expects the new legal environment to push some small brokers out of business and send more freight to larger players in what remains a highly fragmented industry. He sees CH Robinson as a prime candidate to buy struggling smaller firms.

Yet the $604 million advisory verdictagainst the company and the two other defendants in the case shows even those best positioned to benefit from consolidation can face enormous litigation exposure. Investors are now trying to determine whether one will outweigh the other.

TD Cowen analyst Jason Seidl, who downgraded RXO to sell after the jury decision, said the Dallas County case is just the first of many to hit the industry.

“The ship that is the brokerage industry is looking at five feet of an iceberg that is 1,000 feet deep,” he said.

The Effect on Costs

Whatever happens, the costs are likely to trickle beyond brokers.

Higher insurance premiums and more extensive carrier vetting will ultimately have to be built into the price of moving freight. Trucking companies could also command higher rates as the pool of available carriers shrinks further. Capacity in the industry is already being squeezed by increased federal enforcement on drivers and higher fuel costs, pushing up rates in recent months.

“The amounts that you’re paying to insure freight are higher,” said Jayne Bart-Plange, an Illinois-based transportation litigator. “All those costs go somewhere. Usually they end up on the consumer.”

That doesn’t necessarily mean the old system was better. The Supreme Court ruling rests on the idea that brokers, like others involved in putting trucks on the road, can be held accountable if they fail to exercise reasonable care in choosing a carrier.

“They’re providing a vital role in the industry and yet they were immune from liability,” said Greg Reed, a transportation attorney at HansonBridgett. Now, brokers have more skin in the game, he said, so they’ll be less likely to use carriers of unknown or lower quality. “That is probably for the better of road safety, cargo security and the American public.”

Some firms and industry groups are hoping that through regulation the federal government will more clearly define who is responsible for damages when a truck accident occurs. CH Robinson, for its part, is calling for “legislation that creates one national carrier-selection safety standard.”

It’s more likely, however, that the lines will be drawn as future lawsuits unfold and more verdicts are handed down.

Until the industry gets more clarity, Harman Cheema, who runs a midsize freight brokerage and trucking carrier in Pacific, Washington, is navigating the uncertainty from both sides. Business has dipped at the brokerage arm of Cheema Freightlines LLC, but it’s surging on the trucking side as some shippers bypass brokers and hire carriers directly to reduce their exposure to litigation.

Cheema hopes the new scrutiny ultimately makes the roads safer. But he also worries about what a single massive lawsuit could mean for the business.

“Now it’s not just about our trucks and our trailers. It’s about who we’re using to haul our freight,” he said. “We don’t know what the future holds and, I guess, where the buck stops.”

Photo: Trucks parked at a Pilot gas station in Eloy, Arizona. Photographer: Rebecca Noble/Bloomberg