FMCSA Issues Guidance on Brokerage Terminology

The guidance was issued in response to a mandate included in the Infrastructure Investment and Jobs Act. (Scharfsinn86)

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The Federal Motor Carrier Safety Administration has issued interim guidance on the definitions of brokers, bona fide agents and the role of dispatch services in the supply chain.

The guidance, announced by the agency Nov. 16 in a Federal Register notice, was issued in response to a mandate included in the Infrastructure Investment and Jobs Act that was signed into law a little more than a year ago.

The mandate directed FMCSA to issue guidance clarifying the definitions of the terms “broker” and “bona fide agents” that would take into consideration “the extent to which technology has changed the nature of freight brokerage.”

The infrastructure law also required that the agency’s guidance must at a minimum examine the role of a dispatch service in the transportation industry, examine the extent to which dispatch services could be considered brokers or bona fide agents, and clarify the level of financial penalties for unauthorized brokerage activities applicable to a dispatch service.

The Transportation Intermediaries Association, a third-party logistics trade member group, called the guidance a positive first step.

In a statement, TIA said that its members “continue to see a rise in the amount of unlawful brokerage activities and an increase of dispatch services that illegally broker freight by handling ‘traffic allocation’ for multiple motor carriers without the proper registration and regulatory requirements.”

“Our piece of the pie is that we want a level playing field,” said Chris Burroughs, TIA’s vice president of government affairs. “Our members have been talking about carriers who were double-brokering freight and not having authority to do that. With a lack of enforcement, dispatch services has sort of sprung up. From our perspective, these companies are essentially brokering freight without a license.”

The agency interim guidance defined a broker as a “person, other than a motor carrier or an employee or agent of a motor carrier, that as a principal or agent sells, offers for sale, negotiates for, or holds itself out by solicitation, advertisement, or otherwise as selling, providing, or arranging for, transportation by motor carrier for compensation.”

“Given the prevailing view among commenters that the current definition of ‘broker’ is adequate, the agency feels the need to clarify it in only one area: the relevance of an entity’s handling of funds in a transaction between shippers and motor carrier.”

FMCSA defined bona fide agents as “persons who are part of the normal organization of a motor carrier and perform duties under the carrier’s directions pursuant to a pre-existing agreement which provides for a continuing relationship, precluding the exercise of discretion on the part of the agent in allocating traffic between the carrier and others.”

Specifically, the agency said that if dispatch services handle the exchange of money between shippers and motor carriers, then broker authority would likely be required. Additionally, dispatch services will need brokerage authority if they do business with more than one entity if they handle traffic allocation.

However, the agency said, “While it is clear that there is no commonly accepted definition of a dispatch service, such services appear to have certain common features. First, they work exclusively for motor carriers, not for shippers. Second, they source loads for motor carriers. And third, they perform additional services for motor carriers that are unrelated to sourcing shipments.”

“After careful consideration, FMCSA clarifies that when a dispatch service does not participate in the arrangement of freight, or when it represents only one motor carrier, it is not a broker,” the guidance said. “If a dispatch service arranges transportation on behalf of multiple motor carriers and engages in the allocation of traffic, it is not a bona fide agent and must obtain broker operating authority registration. Ultimately, the analysis of whether a person or entity requires broker authority is often highly fact-specific and must be made on a case-by-case basis.”