Opinion: Calls to Restore Regulation Misguided

By David Dwinell

Professor

LoadTraining.com

This Opinion piece appears in the May 10 print edition of Transport Topics. Click here to subscribe today.

There have been calls for re-regulating transportation by testing applicants for Federal Motor Carrier Safety Administration operating authorities and broker licenses.Doing that would accomplish nothing.

Such authorities and broker licenses are issued on a “fitness only” basis and bar only felons.

About 90% of all brokers and their agents are motor carriers with operating authorities. Brokers are not a transportation “mode,” as defined; authorities are a “mode.”

A licensed property broker is defined in the Code of Federal Regulations (49 CFR 371.2) as “. . . a person who, for compensation, arranges, or offers to arrange, the transportation of property by an authorized motor carrier. Motor carriers, or persons who are employees or bona fide agents of carriers, are not brokers within the meaning of this section when they arrange or offer to arrange the transportation of shipments which they are authorized to transport and which they have accepted and legally bound themselves to transport.”

Thus, most brokers by their conduct assume the risks inherent in motor carriage and are not successful in separating the 100% strict motor-carrier liability as defined as well as conducting a nonliability broker operation. Instead, most brokers continue to assume motor carrier liability for a 15% commission or thereabouts. That is the principal reason 18 out of every 19 brokers fail, hurting the motor carriers involved.

Required testing of applicants for either an operating authority or a license wouldn’t accomplish anything, aside from barring many willing and able transportation entrepreneurs from entering the marketplace.

Training is available for applicants, but most neither seek it nor receive it. Instead, they apply to FMCSA, erroneously assuming that trucking and brokering are basically the same thing.

They aren’t.

Those who obtain an authority are 100% liable for loss and insure that risk. Those with broker licenses are not liable for loss, unless, by their conduct, they take on the responsibilities of a carrier. This is the main reason brokers — 90% of whom by my estimate are truckers themselves — fail.

My company has trained licensed brokers, authorized motor carriers and agents for more than two decades. Speaking from that experience, I believe the federal government has neither the time nor the inclination to license or test agents.

Indeed, the federal government itself doesn’t understand the broker’s license, and FMCSA continues to list it on that agency’s website as an operating authority and requiring insurance to obtain one.

The license is not an operating authority nor is insurance required. The surety bond is not insurance but rather a collateralized instrument.

On the other hand, virtually all successful trucking companies “broker.” In 2009, the annual supplements to Transport Topics ranking the top 100 for-hire carriers in the United States and Canada and the 50 top logistics companies made it very clear to readers that the largest motor carriers also are the largest freight brokers.

I believe the time has come to accept the obvious: You cannot succeed in trucking without learning to “broker” — and understanding the concept of “double-brokering,” i.e., when the carrier selected by a broker gives the load to a different trucker without the broker’s knowledge or consent.

Double-brokering — which, incidentally, could result in the broker’s being held liable in the case of an accident — cost American truckers an estimated $1.5 billion in unnecessary broker commissions in 2009 alone.

Learning how to “broker” without motor carrier liability is the trick to the license, and learning how to separate the “strict liability” of trucking from the nonliable broker should be a requisite for all who get a government authority or license grant. Government testing would fail 98% of American trucking companies and brokerages, just on the issue of liability.

The broker’s conduct determines whether the “liability” that goes along with operating as a carrier applies. As the popular proverb goes: If it walks like a duck, quacks like a duck and looks like a duck, it must be a duck. If a broker acts like a motor carrier, it usually is found to be a motor carrier and unprotected from liability.

A remedy for brokering incompetence can be attained by making changes to the current “definition” of what constitutes a broker in the aforementioned 49 CFR 371.2 and changing it to: “Broker is a ‘fiduciary’ of the motor carrier(s) making the act of transportation, in that the funds they collect from the shipper shall be held ‘in trust’ for the motor carrier of record; disbursed, less agreed commission; and shall not be pledged as collateral or in any way encumbered by the broker.”

These changes would provide penalties for the uneducated.

Today, there are no penalties for absconding with motor carrier funds, but with the creation of penalties, state fiduciary laws could be invoked. Fiduciary penalties would obviate applying to become informed and educated and would provide a relief to unpaid truckers. Penalties also would provide motivation to become more informed and mitigate double-brokering losses. Improve trucking with changes, but a government test without knowledge is a waste of taxpayers’ money.

LoadTraining, Phoenix, is a school for freight brokering and transportation education.