Tag Archives: FMCSA

FMCSA proposes tougher rules for truck broker financial backing

A few dishonest truck cargo brokers are making it necessary for the Federal Motor Carrier Safety Administration (FMCSA) to tighten rules for all brokers.

In the Consolidated Appropriations Act of 2023, passed just before the end of 2022, Congress directed the agency to make new rules making clear the distinction between legal truck brokers, bona fide agents, and dispatch services.

Truck brokers have to post a $75,000 bond with a surety company or trust fund, which is used to guarantee claims against the brokerage such as for accidents or mishandling of loads. Dispatch services have not needed to post this bond in the past; they claim they merely connect the shipper with a load to carry with a trucker; the contract for carriage is between shipper and carrier. Many dispatch services do not handle the funds, though somehow they get paid for their services; perhaps the trucker pays a subscription. Occasionally the dispatch service handles the payments; are they then functioning as a broker?

FMCSA recently released the draft of the new guidelines, which they have been working on. They focus on posting the bond and making sure it is paid up. I’m not sure this will address what Congress requested, but certainly the question of whether the bond is posted will go a long way toward making sure claims for accidents or losses or mistaken freight bills can be adjusted.

The guidelines don’t clarify whether a dispatch service is a broker or not. I’m not sure the FMCSA wants to open up that discussion. It’s not hard to register as a broker, but you do have to come up with the bond; that’s the biggest hurdle. The dispatch service does not want liability for financial damages associated with the load.

FMCSA believes about 1.3% of all registered brokers each year, based on 2022 data, are subject to drawdowns of the $75,000 bond they post to legally operate. The bond is supposed to be surety against incorrect charges to their customers. When customers fight the charges, the bond is ‘drawn down’, or pledged to repay the customers. It must be replenished by the broker when the claim is paid.

Of these brokers, about 17% receive total claims over $75,000 in 2022. Unless the bond is replenished, these brokers are violating the law, and also causing their customers a lot of extra work fighting for fair charges.

The bond is held by the surety agency or the trust fund provider. Both are legal entities to hold the bond for the broker. If the bond isn’t replenished, an ‘interpleader’ lawsuit is filed by the surety or trust company, and these legal proceedings against the broker take time and money. The new rules should reduce the number of these filings.

According to John Gallagher, the Transportation Intermediaries Association (TIA), a group representing brokers, believes that the problem often lies with fraudulent surety and trust entities. These companies can run out of funds to pay the claims against the trusts or bonds they hold, meaning that the carriers are unprotected. In other words, the brokers’ representative claims it’s not the brokers’ fault. The FMCSA rules have not focused on surety or trust fund viability in the past.

While both sides may have half a point, fraudulent brokering is not good for drivers or for the industry, though brokers have a vital role to play, especially helping owner-operators and small firms capture and service loads.

And the dispatching services? They want to stay out of the broker loop, preferring to operate in an unregulated fashion. They do provide ‘liquidity’ for truckers, allowing empty backhauls to be filled and reducing operating costs for independent truckers and small carriers. That’s a tremendous advantage for truckers and for the environment; preventing those empty miles is a major concern. It’s not clear whether the dispatchers should be folded under the broker category by the FMCSA.

John Gallagher·Wednesday, January 04, 2023

FMCSA proposes tougher rules for truck broker financial backing – FreightWaves

John Gallagher·Tuesday, December 20, 2022

Congress directs action on broker-related regulations – FreightWaves

FMCSA revising guidance on freight brokers and agents

The list of questions to be asked to test whether freight broker functions are being satisfied is interesting.

An important controversy is whether load boards are performing broker services. Usually these boards provide load choices for truckers for a membership fee. The actual transaction is between the shipper and and the carrier, and the freight payment is not processed by the load board.

Conventional brokers perform these matching services but collect the fees for each deal, paying the carrier directly using the money collected from the shipper, and deducting their brokerage fee.

The load board service is in some ways similar, and in some ways different. So there are arguments to be made on both sides. A study is required to see if the FMCSA should weigh in to make definitions differently and impose any rules changes.

The main requirements for brokers are to register with the FMCSA, and to file a bond to cover cases when the broker and the other parties cannot agree on the settled amounts of a transaction, or the resolution of claims when the broker goes out of business.

To what extent should load boards be required to do these things? Or is a different type of registry required, to be sure that load boards follow established business principles?

There’s a similar scenario in US government regulation: the FMC’s regulation of ocean freight forwarders or brokers and non-vessel-owning common carriers (NVOCCs). While the differences between the two are not similar to the truck broker case, the pattern of having two registration entities is the same.

It will be useful to see if the FMCSA can find any specific performance reasons why load boards or matching services should be subject to specific regulations.

I suspect that there should be some controls on their practices. But the controls required may not be well covered by making them freight brokers, as the rules are currently framed.

Truckers probably need some protection if a load board goes out of business or fails to deliver load contracts as they promise. And there should be some regulations to speak to the nature of contracts offered and their fine print that might be unfair to either the trucker or the shipper. But these shouldn’t be more severe or more far-reaching than those imposed on true brokers.

Truckers certainly have much more freedom to use a load board or not, and to accept contracts generated or not, and this is an advantage for them individually. They can select the kind of service relation they would like to provide.

John Gallagher Thursday, June 9, 2022

FMCSA revising guidance on freight brokers and agents – FreightWaves