Federal regulators have attempted to clarify differences between brokers, bona fide agents and dispatch services in new interim guidelines issued Tuesday by the Federal Motor Carrier Safety Administration.
Mandated by last year’s infrastructure bill, the guidelines are aimed at cracking down on companies that engage in truck brokering but without proper authority from FMCSA, an issue that brokers claim illegally undercuts their business.
While FMCSA acknowledged that dispatch services “can help to ensure the motor carrier has a steady stream of shipments” that allows them to focus on moving freight, the way in which dispatch services perform that function can mean the difference between being under FMCSA authority — including the requirement that they have a $75,000 bond to protect their motor carrier customers from nonpayment — or not.
To make that distinction, FMCSA listed six factors to help determine if a dispatch service needs broker authority. Such authority is needed if the dispatch service:
- Interacts or negotiates a shipment of freight directly with the shipper or a representative of the shipper.
- Accepts or takes compensation for a load from the broker or factoring company, or is involved in any part of the monetary transaction between any of those entities.
- Arranges for a shipment of freight for a motor carrier, with which there is no written legal contract with the motor carrier that meets the aforementioned criteria.
- Accepts a shipment without a truck/carrier then attempts to find a truck/carrier to move the shipment.
- Is a named party on the shipping contract.
- Is soliciting the open market of carriers for the purposes of transporting a freight shipment.
FMCSA’s guidelines clarify that dispatchers operating as an unauthorized broker carry civil penalties of up to $10,000 for each violation.
Congress also mandated that FMCSA clarify what defines a “broker” versus a “bona fide agent” that works specifically for or on behalf of a motor carrier. Because the view among most of those providing comments on the proposed guidelines saw no need to change the current definition of “broker,” however, the agency felt the need to make only one clarification: the relevance of handling funds in shipper-motor carrier transactions.
For example, the Transportation Intermediaries Association (TIA), which represents brokers and 3PLs, and the Owner Operator Independent Drivers Association viewed the handling of money had “at least some relevance as to whether one is brokering,” FMCSA stated.
However, while handling money exchanged between shippers and carriers “is a factor that strongly suggests the need for broker authority … it is not an absolute requirement for one to be considered a broker,” the agency stated.
As for the definition of a “bona fide agent,” FMCSA noted that multiple commenters, including TIA, the National Industrial Transportation League and the Small Business in Transportation Coalition contended that to be considered a bona fide agent one can represent only one carrier.
FMCSA disagrees, stating that “representing more than one motor carrier does not necessarily mean one is a broker rather than a bona fide agent.” In other words, a bona fide agent does not necessarily represent only one carrier.
But FMCSA also states: “Any determination will be highly fact specific and will entail determining whether the person or company is engaged in the allocation of traffic between motor carriers.”
In commenting on FMCSA’s guidelines, Chris Burroughs, TIA’s vice president of government affairs, said the agency incorporated several of the association’s suggestions on dispatch services.
“This is a positive first step, though TIA believes it should be the first and not final step as the number of unlawful brokerage activities continues to rise and these illicit dispatch services skirt registration and regulatory requirements,” Burroughs told FreightWaves. “TIA looks forward to continuing to work with the FMCSA on this important issue.”
FMCSA emphasized the interim guidelines do not have the force of law and are nonbinding. The public has 60 days to comment, with possible updated guidance from the agency based on comments received.
John D Thomas
I’ve got a good amount of accounting and brokering experience and would make one or several comments here: one, we’ve all heard stories of brokers taking 30-50%, or more, of a load. I would say – if you were to have access to the broker’s books on his profits and margins, you’d find out that these incidents (30-50%) are abnormal and you would need to know the AVERAGE profit and margin of ALL the loads for specific time frames. Two, as an example, if broker’s are required to show their income from shippers, are carriers going to track ALL the loads of this broker to get to an AVERAGE? That’s not practical. Again, an example, what if a broker takes a load from a long-time customer and agrees to move it for 0% just to maintain the relationship. Is the broker still going to be negatively judged when he takes a load from the same customer that yields a 30% profit to make up for the 0% load earlier? Get realistic. Let the market work by itself.
Not all brokers are good, not all are bad…stop taking freight from low end load board posters, problem will eventually correct itself. Use tool such as rate mate thru DAT, that will give 7 day rate average. Walmart doesn’t show what they paid for product, pharmaceutical companies don’t show either, transportation companies should be no different. If load pays 20k and carrier knows that there is 2k in profit then carrier wants 22k…not all carriers feel that way but most do. If carrier complains of brokerage fees then why add to that with dispatch service fees? As there are bad brokerages there are also bad dispatch service companies which also leads to poor communication and penalties which is all passed down to the carrier. Stop counting on someone to do your work, develop a relationship with a few reputable brokers, book your own loads, show up on time and be honest if there’s a problem and you will be a success.
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