The industry has a serious love/hate relationship between motor carriers and brokers. That relationship can be even more volatile with dispatch services in between the brokers and the carriers. The reality is that in today’s market, carriers are looking for every edge they can find to get the best rates possible to secure the future of their companies. At between 3-10% of a truck’s revenue, small carriers find value in having a contract dispatch service not only finding loads to keep them rolling, but also to provide vital back-office support to ensure continuous cash flow. Since dispatch services are unregulated, and fall outside the purview and jurisdiction of the Federal Motor Carrier Safety Administration (FMCSA), there is a significant risk to a motor carrier who works with a dispatch service. This piece serves to break down a “good” or “ethical” dispatch service verses a “bad” one, and the value that a proper dispatch service brings to the industry.
Risk of Using a Dispatch Service
Dispatch services operate by representing carriers to freight brokers for the purpose of booking loads and providing support to the carrier in a variety of back-office functions. In order to do this, a carrier must trust the dispatcher with critical company information like their FMCSA authority certificate, a voided check, a notice of assignment (NOA) from the factoring company, and a certificate of insurance (COI). These documents allow anyone to successfully book loads in a carrier’s name. Depending on the additional services provided, a dispatcher may be given access to a carrier’s email, invoicing software, portal access for insurance, and a host of other sensitive, password protected data points that, in the wrong hands, can be used to cause havoc in the carrier’s name. Information access is the greatest risk, but it’s not the only one.
A dispatcher is the public face of a motor carrier. Their demeanor, integrity, and ability to communicate speaks volumes toward the reputation of a carrier. A good dispatcher can, in the worst of situations, serve as a willing conduit for information and support for brokers when things go bad. Clear and effective communication between a dispatcher (on the carrier’s behalf) and a broker could be the difference between a broker-imposed industry sanction (like a Highway or Watchdog report) and a successful, mutually beneficial solution to any problem that makes both the carrier and broker look like heroes. Misrepresentation of carrier’s capabilities and intentions by the dispatcher damages the carrier to an extreme point and can cause the carrier to lose business.
Carriers rely on dispatch services to ensure that the carrier is running “legal”. In this context, we are referring to hours of service (HOS) compliance, among other compliance items. A dispatcher can put a carrier in such an awkward position that the carrier will be forced to violate HOS regulations in order to meet service expectations. A dispatcher is also in a position to overload a carrier if they are not careful. Today, many carriers seek to consolidate freight in order to achieve positive margins. Overcommitting freight weight or freight value can cost a motor carrier a fortune in fines and claims.
Dispatch services essentially operate as fleet managers for small carriers. They have virtual control of business and operations so that the carrier can focus on driving. This requires trust and assurances that the dispatch service has the skill and capability to meet stated responsibilities and have the ability to shoulder liability of mistakes that are made. Too often, bad dispatch services will disappear or brush off liability issues to the detriment of the motor carriers they serve.
What Dispatch Services Can and Cannot Do
In 2023, FMCSA issued guidance to the industry regarding the organizations referred to as “Dispatch Services”. There is no statutory definition of such services, but the guidance offered is designed to prevent such services from infringing on brokerage activity. FMCSA guidance attempted to delineate if a dispatch service requires a broker authority or not. It is from this delineation that we can classify a dispatch service as ethical.
There are 9 criteria under which a dispatch service is not required to have a broker authority. Each is followed by a clarifying example to illustrate the guidance:
- “The dispatch service has a written legal contractual relationship with a motor carrier that clearly reflects the motor carrier is appointing the dispatch service as a licensed agent for the motor carrier. This is often a long-term contractual relationship. The written legal contract should specify the insurance and liability responsibilities of the dispatch service and motor carrier.”
There must be a contract between the carrier and dispatcher. That contract needs to spell out the full scope of services and arrangements, including the liabilities each side takes on as part of that relationship.
- “The dispatch service complies with all state licensing requirements, if applicable.”
There are very few, if any, states that define a dispatch service in a licensing sense. Ethical services should at the very least be a registered corporate entity with the applicable Secretary of State office, and have a Department of Treasury Employer Identification Number (EIN) to demonstrate legitimacy as a business entity.
- “The dispatch service goes through a broker to arrange for the transportation of shipments for the motor carrier and does not seek or solicit shippers for freight.”
This restricts the dispatcher’s activities to presenting motor carriers for spot or contract lanes advertised by freight brokers. The critical point of this guidance is that dispatchers are not permitted to solicit freight from shippers in any way.
- “The dispatch service does not provide billing or accept compensation from the broker, third-party logistics company, or factoring company, but instead receives compensation from the motor carrier(s) based on the pre-determined written legal contractual agreement.”
Dispatchers are only paid by motor carriers. Compensation on behalf of the broker, shipper, or other entity is forbidden. That is not to say that a dispatcher cannot be paid by the carrier through other means. Factoring companies often offer carriers the ability to pay dispatchers for the carrier, but that is a specific service the carrier must request from the factoring company.
- “The dispatch service is not an intermediary or involved in the financial transaction between a broker and motor carrier.”
This means the dispatcher cannot handle the carrier’s money from shippers or brokers. This would require the dispatcher to hold a form of trust or bond. The broker pays the carrier (or factoring company per Notice of Assignment). The dispatcher may negotiate rates, and even file invoices on the carrier’s behalf, but never handles monies.
- “The dispatch service is an IRS 1099 recipient from the motor carrier, or a W2 employee of the motor carrier as specified in the legal written contract agreement.”
This is usually addressed in the contract, and most often is a 1099 role.
- “The dispatch service discloses that they are a dispatch service operating under an agreement with a specific motor carrier, and the shipment is arranged for that motor carrier only.”
This is the “Dispatch Transparency” requirement. Dispatchers are not allowed to act as the carrier. They must disclose that they are a dispatcher. This is best done with a disclaimer in the dispatcher’s email signature block.
- “The dispatch service does not subsequently assign or arrange for the load to be carried/moved by another motor carrier.”
FMCSA concedes that it is not financially feasible for a dispatcher to only represent a single carrier only. Knowing that dispatchers may represent multiple carriers at any given time, the dispatch service is not permitted to utilize a load booked for “Carrier A”, and have “Carrier B” haul the freight. If Carrier A is not able to meet a load obligation (breakdown, delays, etc), the dispatcher can offer to the broker Carrier B as a recovery option. If the broker agrees to such a change, a new rate confirmation must be issued formally assigning the load to Carrier B. The dispatcher cannot “do the broker a favor” and quietly substitute carriers. There is a formal process for this rooted in legal liabilities and an ethical dispatch service will follow that process to the letter. To do otherwise would put the dispatch service in a position of illegal brokerage.
- “A dispatch service does not provide their “services” for a motor carrier unless that motor carrier specifically appointed the dispatch service as their agent in accordance with the aforementioned requirements.”
Some dispatch contracts have a formal Letter of Appointment for the carrier to sign that designates the service as being able to perform dispatch functions on the carrier’s behalf. Some will use a Limited Power of Attorney for the same purpose. A dispatcher must be willing to provide this document to the broker, if requested.
Despite these recommendations, FMCSA does admit that they are not enforceable by the agency. These guidelines, however, help carriers and brokers determine if the dispatcher is operating in the industry’s best interests.
How to Select an Ethical Dispatch Service
From the day that a motor carrier applies for a DOT number, they are inundated with solicitations for dispatch support, among other services, usually from foreign entities. Carriers need to be cautious about who they choose to do business with. The best dispatchers rarely advertise. A carrier can get tips on ethical dispatchers from other carriers. Probing social media seems to be the easiest way to find a dispatcher, but a carrier should not just agree to work with the first person who reaches out to them. Vetting of dispatch services is critical.
Vetting should include an interview between the dispatcher and carrier. Carriers should seek to know the experience level of the dispatcher. Does the dispatcher offer references? Does the dispatcher offer a draft agreement for the carrier to review? Does the dispatcher have any other industry experience (former driver, warehousing, broker, etc). Does the dispatcher have a website or a private email domain? Is the dispatcher registered as a legal entity with their Secretary of State’s office and is in good standing? Are there any reviews about the dispatcher, good or bad? Does the dispatcher have a process for vetting brokers?
Additionally, a good dispatcher will vet a carrier in the same interview. If the dispatcher is not taking a critical interest in the carrier’s business or does not ask questions regarding the carrier’s expectations or needs, move on to the next interview.
Summary –
A “bad” dispatcher is a drain on a motor carrier, where a “good” dispatcher can add real value. Even FMCSA acknowledges that dispatch services, properly run, can be an integral part of the transportation network. However dispatch services are not for every carrier. A carrier must determine for themselves if a dispatch service is a necessary component to their business. After all it is an additional cost (anywhere from 3-10% depending on equipment and scope of service provided) and does the addition of a dispatcher bring additional value enough to cover that cost?
If you need assistance in evaluating a dispatch service, contact the Freight Fraud Task Force on LinkedIn or from our website at https://freightfraudtaskforce.com.