One of the dilemmas that opponents of possible changes in the broker transparency rule have had is that they have argued that carriers should have no right to see broker data that would need to be disclosed automatically if the regulation is changed.
But the reality is if a carrier was willing to go through all the hoops and hurdles inherent in the current regulation, it could see some of that data now, including information that could be used to calculate what a broker’s margin on a deal was and what a shipper paid to move freight. That’s a juicy morsel of data for any of that shipper’s competitors.
But what the Transportation Intermediaries Association (TIA) said in its recently filed comments on possible changes in the rule, the current regulations were drawn for market processes that no longer exist. Given that, proposals that would automatically take that data from the brokers and send them to carriers and shippers should be rejected.
And to emphasize that point, TIA has filed its own petition with the Federal Motor Carrier Safety Administration (FMCSA) seeking to outright overturn the regulation at the heart of the dispute, 49 CFR 371.3(c), which gets referred to simply as 371.3. The TIA petition was filed at about the same time FMCSA held a listening session to hear input about possible changes in 371.3
At issue is an ongoing FMCSA information-gathering process in which it is considering two petitions. One is from the Owner-Operator Independent Drivers Association (OOIDA) and it would require brokers to automatically send carriers financial data on any transactions in which brokers use the services of a carrier. It cites the provisions of 371.3 as the basis for its request. The automatic sending of data would alleviate the burden on carriers to take several steps to get that information, including the possibility of needing to physically go to a broker’s office to view it.
The second is a request from the Small Business in Transportation Coalition (SBTC) seeking to have FMCSA halt any alleged blackballing of carriers that request data under 371.3. The possibility of being blackballed if a request is made under 371.3 has been cited by some in the industry as the reason why there are almost never any requests under its provisions.
What TIA said in its comments is that the current regulation that allows such access was written in 1980 for a different era, one in which the economics of shipper to broker to carrier transactions were utterly unlike what exists now. Given that, to widen the flow of data distribution on the basis of 1980 conditions fails to acknowledge those differences, TIA said.
TIA Vice President of Government Affairs Chris Burroughs, who submitted the comments on behalf of the organization, said the 1980 deregulation of trucking came with it a concern that brokers might get what amounted to a kickback from carriers if they were chosen by the 3PL.
But it was also put into law because of the way the market worked then, Burroughs wrote. “In 1980, brokers were paid a percentile commission from the motor carrier to find freight to be carried.
“At the time this regulation was put in place it was designed so that the motor carrier could verify that the commission paid was correct per the agreement with the broker, and the broker was not the same entity as the shipper,” Burroughs wrote.
He also cited commentary from that time issued by the now-defunct Interstate Commerce Commission, which promulgated 371.3, that said its “goal in regulating transactions between brokers, carriers and shippers is to remove all unnecessary restrictions which might impede the free operation of the marketplace.”
Burroughs said that market procedures have completely changed and that the rule, particularly if changed, would impede markets.
Brokers are no longer “commissioned sales agents of motor carriers,” he wrote. “Brokers pay motor carriers regardless of the rate that the shipper pays the broker. The need to verify commissions no longer exists.
“This change occurred because motor carriers wanted the broker to pay them more quickly than the shipper was willing to pay the broker,” he wrote.
A carrier might want its money quickly but a shipper might not pay for 60 days or more, according to Burroughs. That has led to an evolution in which the broker takes on credit risk of paying the carrier “before the broker collects payment from the shipper.”
“The notion that brokers have ‘no skin in the game’ is not only offensive to the 22,000 licensed property brokers, many of which are small businesses, but is not founded in facts,” Burroughs wrote. The quotes around “skin in the game” is apparently to mock a criticism sometimes heard of brokers.
The criticism of the proposed rule — that shippers don’t want their information on what they paid to move freight to be made public and will sign contracts that make that explicit — does appear to run up against the provisions of 371.3, which allows carriers to get that data even if obtaining it can be onerous.
But Burroughs said it conflicts with another federal rule on transportation, Title 49 U.S.C. 14101 (b). That rule, quoted by Burroughs in his comments to FMCSA, discusses a transaction directly between carrier and shipper, without mentioning brokers.
“If the shipper and carrier, in writing, expressly waive any or all rights and remedies … for the transportation covered by the contract,” the rule states, then essentially they’re allowed to do that, as long as it doesn’t deal with things like safety.
Burroughs then cited another ICC ruling in which the agency says brokers can be viewed as shippers. Given that, he said, if the 14101 rule allows carriers and shippers to waive some rules in a transaction, then brokers should be viewed as a shipper under the regulation.
If all this can be confusing or apparently in conflict with each other, why not just dump 371.3? That’s what TIA requests in its own petition.
The petition goes over much of the same ground that the TIA cites in its comments to FMCSA on the OOIDA/SBTC petitions and cites the need for confidentiality.
“Shippers often require confidentiality provisions in their contracts with brokers and, thus, brokers often are required to include confidentiality provisions and other contract language that motor carriers waive their rights to see the transaction documents under section 371.3(c),” TIA stated in its petition. “Most carriers do not object because they want the business and have no need to verify the broker’s commission, because that scenario is no longer applicable.”