Letter: Higher Broker Bonds
This Letter to the Editor appears in the July 2 print edition of Transport Topics. Click here to subscribe today.
Highway Broker Bonds
I am writing today regarding the June 18 Opinion titled “Higher Bonds Still Not the Answer” by Daniel Larson, president and chief operating officer, Pacific Financial Association Inc. (p. 9).
I realize the op-ed is Mr. Larson’s opinion, and I respect the fact that his opinion is based on his experiences in the sector of the transportation industry he is involved in. But at the same time, I believe one-sided opinions add to the problems instead of working for solutions.
I, of course, come from the opposite side of the street on this issue. I deal daily with small-business truckers who fulfill their agreed-upon obligations to find out 30 days later there is no pay. Then, to add insult to injury, they find they cannot get paid through the trust for which the sole purpose is to ensure payment of owed freight charges.
I agree with Mr. Larson that simply increasing the bond/trust amount from the outdated amount of $10,000 to the more industry-practical amount of $100,000 will not resolve all the issues plaguing today’s industry, but it is a step in the right direction.
It is also important to mention that the “broker legislation” attached to the current version of the highway bill goes much further than simply increasing the required surety or trust amount.
Getting the legislation passed is simply step one. Before new requirements are implemented into regulation, the requirements will go through the rulemaking process, which usually is where the final details are worked out.
Mr. Larson ended his op-ed by asking readers to call and write their members of Congress to generate support for the opinions he stated. Contacting and communicating with elected officials is always smart, but it is important to have your facts and voice the opinion that creates smart, useful results.
The facts are that, in this highly regulated industry, the broker sector is the least-regulated entity of all. If you have $300 for the authority and have a credit line, or the cash for the $10,000 surety or trust, you can be a broker. You can operate out of your home or out of your vehicle. You go through no type of audit or review, and currently no one tracks your operation or activity. You are allowed to draw up contracts without guidance, restrictions or oversight.
Brokers are allowed to set payment periods at will; industry practice has — kind of — mandated 30 days, but it is not a federal requirement. In addition, brokers are allowed to implement charges if a motor carrier would like to opt for quick pay instead of waiting the typical 30 days.
Compare that to the motor carrier side of things: Motor carriers — small, large or single-truck operations — are required to secure authority, have at least $750,000 liability coverage, cargo insurance, in some states mandatory occupational or workers’ compensation insurance and be enrolled in a drug-and-alcohol testing program.
They are restricted in their daily operations by hours-of-service requirements and limitations. They must have updated state permits, must be registered with UCR [Unified Carriers Registration] and IFTA [International Fuel Tax Agreement] and are required to file quarterly and yearly reports — all of which come with fees — and not to mention the additional taxes and insurance. Motor carriers also are required to go through a new-entrant audit within the first 18 months of operation.
This is the cost of doing business as a motor carrier. With that in mind, using the argument that increasing the required surety or trust amount from $10,000 to $100,000 will put small-business brokers out of business doesn’t seem quite right or fair in comparison to the requirements already in place and enforced on small-business truckers.
Mr. Larson stated his company, Pacific Financial Association, provides surety instruments on behalf of almost 5,000 licensed transportation brokers — approximately 25% of the entire industry.
He went on to say his company handles, on average, roughly 10,000 claim inquiries per year for the 5,000 brokers insured through PFA, which averages out to two claims per insured per year. Even though I am not an insurance expert, I believe that is excessive in any book and most certainly creates a “dire” need for reform.
Mr. Larson confused and lost me in his comparison of the total number of claims filed through PFA each year vs. the industry total number of authorized motor carriers. Surely he is not implying that, since his numbers reflect a small average of truckers being ripped off, this is a non-issue?
In regard to the statement by Mr. Larson that 90% of the claims filed are resolved with a telephone call to the broker: In 2011, OOIDA filed claims with PFA on behalf of our motor-carrier members totaling $147,544.73; $94,262.73 of that amount is still outstanding. The $10,000 trust(s) was not enough to cover the balances owed by the nonpaying brokers.
OOIDA filed additional claims in 2011 with other surety and trust companies totaling $169,801.73. Of those claims, a balance of $95,651.44 remains unpaid. When you consider that OOIDA has a two-person staff handling these claims, and we file claims only on behalf of OOIDA members, these are pretty high numbers but in no way reflect the total dollar amount of claims filed each year or the total of unpaid claims.
When PFA is unable to pay claims because of inadequate funds, they advise you in writing to contact the broker or shipper directly for payment — a practice that doesn’t seem to fit with 90% of the claims being resolved by them making a phone call.
Each individual sector of this industry is going to have its own position on this matter, and all of us have an opinion. But we also have a responsibility to ensure those opinions are weighed by facts, not individual desires. This is an important issue, one that is years past due in being addressed. The legislation currently pending does not fix the entire problem, but it is a step in the right direction.
In an industry that is as regulated as the trucking industry is, why would it ever be OK with any of us to continue to allow small-business truckers to give their time, use their equipment, provide their insurance and front money for fuel for a broker that has no incentive to pay the agreed-upon freight charges?
My final comment addresses the last question posed by Mr. Larson, “Who protects the brokers?” Under Federal Regulation Title 49 CFR §387.307 and Form BMC-85, not you, Mr. Larson. Your responsibility is to the motor carrier or shipper owed the money when your insured fails to fulfill his/her legal obligations under the contracts and or agreements they have made.
Karen Johnston
Business Services Manager
Owner-Operator Independent Drivers Association
Grain Valley, Mo.
