Tag Archives: regulation

FMCSA proposes tougher rules for truck broker financial backing

Posted on January 8, 2023 by | 1 comment

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

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‘Insult to injury’: Record rail demurrage adds to shipper costs

Posted on February 5, 2022 by | 1 comment

This article spells out some of the issues in demurrage charges rail lines are charging for cargoes that are not being removed from their premises.

Demurrage is charged, say the rail lines, when cargo is left at a rail terminal beyond a specified number of days. Charges vary by railroad. The chart they provide, reproduced below from Supply Chain Dive, shows how the seven Class I rails charge demurrage rates.

How individual railroads charge for demurrage varies
RailroadRange of daily demurrage fees
BNSF$150 to $500, depending on container dwell time and facility
CN$100 to $450, depending on container dwell time and facility
CP$75 to $350, depending on container dwell time, facility and who owns the equipment
CSX$100 to $500, depending on container dwell time, facility and whether the equipment is for domestic or international use
KCS$100 per day after free time expires, in all cases
NS$100 to $300, depending on container dwell time and facility
UP$100 to $225, depending on container dwell time, facility and whether the equipment is for domestic or international use

SOURCE: Letters in response to the STB, as linked. Union Pacific did not disclose its specific fees in the letter, but its rates are available online.

Shippers complain that sometimes the demurrage is due to the fact that rail lines have canceled trains that they previously were running. The shift by all of the Class I rails to some form of Precision Scheduled Railroading (PSR), a system of lean operations in which only the movements required are made, is responsible. If a shipper delivers a cargo, but then the train is canceled, who is to blame?

And it’s understood that regardless of what they say, all of these rail lines have adjusted capacity in line with the principles of PSR, even if they won’t call it that. But setting capacity based on experience is not easy when we are experiencing not only a surge in customers, but also many abnormal conditions throughout supply chains that disrupt the standard patterns. Decisions about PSR, such as reducing the number of locomotives or yard staff or engineers, are based on forecasts, and forecasts are always wrong; so it’s a question of whether the rails have left enough slack in the system to handle the variation in the rest of the system. The answer appears not.

One particularly vexing problem with the current system is being addressed by the Surface Transportation Board (STB) which governs rail operation in the US. In the past, demurrage was viewed as something infrequent that did not matter much, and railroads did not develop systems to capture and bill for it in a regularized way. But now, it’s essential that the accounting for it be accurate and transparent, and that bills be sent in a way that shippers can handle digitally and determine the facts from their side about each incident. More accurate and standardized billing is key. That’s what the STB wants to achieve by regulating the nature of demurrage charges by rails.

Already in place at the end of 2020 are new rules requiring bills to be sent to shippers rather than intermediaries, and

“provide machine-readable access to minimum information on billing, including details on the billing cycle covered by the invoice, the car involved, the commodity being shipped, and railroads’ original estimated time of arrival for the cargo in question”

Supply Chain Dive, ‘Insult to injury’: Record rail demurrage adds to shipper costs | Supply Chain Dive, Jan 12, 2020.

As expected, some rails complain this will lead to more litigation and questioning. Of course! But in fact no one wants the delays that cause demurrage, and it’s in everyone’s interest to understand exactly what happened to cause the problem. The new billing standard will clarify a lot, and get into shippers’ hands so they can do something about the problem.

I think it is a big step forward in the rail arena. I wish it were as clear in ocean shipping, in the port and terminal arena.

Published Jan. 12, 2022

Sarah Zimmerman Associate Editor

Edwin Lopez Lead Editor

‘Insult to injury’: Record rail demurrage adds to shipper costs | Supply Chain Dive
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Posted in Logistics, Rail, Shipping

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Shippers, brokers square off over ocean carrier tariff prices

Posted on June 19, 2021 by | 2 comments

This article shows the extreme confusion generated by the extra charges and rapidly fluctuating shipping rates with ocean carriers. Everyone is annoyed to say the least. The essence of contracting is being disrupted by these surcharges. Brokers are caught in the middle.

As many ofthecharges are not realized till after the shipment, it is hard to know how they could possibly bill for them in advance or even give notice to shippers. The result is they always look bad to their customers, even if they have given a good effort to get a successful shipment for the cargo owner.

The FMC should not create more confusion and unintended consequences. I’m not a fan of brokers particularly– they are just one player in supply chains– but they have a useful role by securing capacity in advance and making it available to shippers. In fact, they secure a large portion of ocean carrier capacity themselves and resell it., they also play a role by making sure extra services, such as end point delivery, are also made available, when shippers would have more trouble handling the details working directly with carriers. We should not write rules that make it hard to keep the market functioning.

American Shipper logo

John Gallagher, Washington Correspondent Follow on TwitterThursday, June 17, 2021

Shippers, brokers square off over ocean carrier tariff prices – FreightWaves

More on this subject:

By Mike Wackett 16/06/2021

Carriers ‘feasting’ on rates boom, oblivious to supply chain chaos around them

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Posted in Logistics, Shipping

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