Opinion: Exercise Caution When Using a Broker

James P. Lamb

President

Association of Independent Property Brokers and Agents

In the aftermath of the 2013 broker bond increase, some questions remain, such as whether the increase had the intended effect of “fighting fraud” and whether the bad brokers really were chased out of the industry.

The Federal Motor Carrier Safety Administration recently acknowledged that more than 9,000 intermediary businesses spontaneously shut down in December 2013, when the new bond took effect. Some brokers gave up their businesses and joined bigger brokerages as agents. But others are still out there, and they continue to operate without any bond, unchecked in the current climate of zero FMCSA enforcement.

Indeed, we’ve recently seen a rise in third-party agents calling themselves “dispatchers” and “dispatch services” instead of brokers. With respect to those unlicensed entities who “dispatch” for more than one carrier, they are currently breaking federal law with impunity.

“Property broker” is defined in 49 CFR 371.2: “Broker means a person who, for compensation, arranges, or offers to arrange, the transportation of property by an authorized motor carrier.”

However, the rule says there is an exception: “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.”

That means you are not a broker if you are a “bona fide agent” of one (and only one) carrier defined 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.”

Regardless of whether you work for a shipper or carrier and whether you touch the shipper’s money, you are a broker if you are paid by anyone else in the equation to arrange transportation.

As FMCSA points out, “Brokerage or brokerage service is the arranging of transportation or the physical movement of a motor vehicle or of property. It can be performed on behalf of a motor carrier, consignor, or consignee.”

The word “dispatching” is covered within the official FMCSA definition of “motor carrier” at 49 CFR 390.5: “Motor carrier means a for-hire motor carrier or a private motor carrier. The term includes a motor carrier’s agents, officers and representatives as well as employees responsible for hiring, supervising, training, assigning, or dispatching drivers.”

According to agency law, you cannot be a nonexclusive agent of two or more competing carriers because you violate your “fiduciary duty of agent to principal.” That is, you can’t lawfully help two competing carriers and call yourself an agent of both of them because you violate your fiduciary duty when you choose to load one of your carriers over the other. Contracted brokers don’t have this level of fiduciary responsibility.

Calling yourself a “dispatch service” when you service multiple carriers instead of a “broker” is like saying, “I’m not a lawyer. I’m an attorney.”

Shakespeare would say: “A rose by any other name would smell as sweet.”

This matter was settled by the Interstate Commerce Commission years ago. In “Practices of Property Brokers,” ICC considered the distinction between agents of carriers and brokers and concluded that one who is in a position to allocate shipments between competing principals is a broker, who requires a license. An agent who devotes his service exclusively to a single carrier is part of that carrier’s organization and does not require a license.

Many third-party “dispatchers” charge motor carriers a 6% minimum fee, taking loads from brokers who are scoring at least 12%.

Inserting a second middleman into the equation is therefore bad for carriers’ bottom line. These folks would be wise to note that “dispatchers” are not bonded by law for your protection. Only licensed brokers and forwarders are. So, letting a “dispatcher” handle your money is not a wise choice.

When it comes to “dispatch services,” the law is clear: It

is not what you call yourself that defines whether you are a broker or not; it is what you do. Notwithstanding being a “bona fide agent” of one motor carrier, if you receive compensation in exchange for arranging motor carrier transportation of regulated commodities across state lines, then you are

an interstate property broker, no matter what you call yourself. Period.

Unlawful brokers unfairly compete with duly licensed brokers and agents by circumventing the broker licensing and bond requirements. They can operate at less of a cost than a law-abiding broker who pays up to $10,000 annually for a $75,000 surety bond or trust fund instrument.

Based in Fort Lauderdale, Florida, Lamb is a non-attorney transportation practitioner duly admitted to practice before the U.S. Surface Transportation Board and Federal Maritime Commission. He also is chairman of the Small Business in Transportation Coalition.