Federal regulators have attempted to clarify the differences between brokers, bona fide agents and fulfillment services in new interim guidance released Tuesday by the Federal Motor Carrier Safety Administration.
The guidelines, imposed by last year’s Infrastructure Act, aim to crack down on companies that broker trucks but without the proper approval of the FMCSA, a move brokers say illegally undermines their business.
Although the FMCSA recognizes that shipping services “can help ensure that the carrier has a steady stream of shipments” that allows it to focus on moving cargo, the manner in which shipping services perform this function can Whether they are under FMCSA authority—including requiring them to post a $75,000 bond to protect their shipping customers from defaulting on payments—or not.
To make this distinction, the FMCSA listed six factors that help determine whether a shipping service requires a representative authority. Such power of attorney is required when the carrier:
- Interact or negotiate a freight shipment directly with the carrier or a carrier representative.
- Accept or take compensation for a fee from the broker or factoring company, or take part in any part of the monetary transaction between these companies.
- Arranges a freight shipment for a carrier when there is no valid written contract with the carrier that meets the above criteria.
- Accept a shipment without a truck/carrier and then try to find a truck/carrier to transport the shipment.
- It is a named party in the contract of carriage.
- You are applying to the open carrier market to move a freight shipment.
FMCSA guidelines clarify that shippers who act as unauthorized intermediaries face civil penalties of up to $10,000 for each violation.
Congress also directed the FMCSA to clarify what defines a “broker” versus a “good faith agent” working specifically for or on behalf of an airline. However, since most comments on the proposed guidelines saw no need to change the current definition of ‘broker’, the Agency felt it necessary to make only one clarification: the relevance of the handling of funds in transactions between shippers and carriers.
For example, the Transportation Intermediary Association (TIA), which represents brokers and 3PLs, and the Independent Driver Owner-Operator Association believed that money management “has at least some relevance in determining whether one is a broker,” stated the FMCSA.
Although the handling of money exchanged between shippers and carriers “is a factor that strongly suggests the need for a broker’s authority, it is not an absolute requirement for being considered a broker,” the agency said.
Regarding the definition of a “bona fide agent,” the FMCSA noted that several commentators, including the TIA, the National Industrial Transportation League, and the Small Business Transportation Coalition, argued that only a transportation company could be represented to be considered a bona fide agent to become.
The FMCSA disagrees, stating that “representing more than one airline does not necessarily mean one is a broker rather than a true agent”. In other words, a bona fide agent does not necessarily represent an individual carrier.
But the FMCSA also notes, “Each determination will be very fact-specific and will include determining whether the person or entity is involved in the allocation of traffic between carriers.”
Commenting on FMCSA’s guidelines, Chris Burroughs, TIA’s vice president of government affairs, said the agency has adopted several of the association’s proposals on shipping services.
“This is a positive first step, although the TIA believes this should be the first step rather than the last as illegal brokering activity continues to increase and these illegal shipping services circumvent registration and regulatory requirements,” he told Freight Waves. “TIA looks forward to continuing to work with FMCSA on this important matter.”
The FMCSA determined that the interim guidelines do not have the force of law and are not binding. The public has 60 days to comment, with the agency’s guidelines potentially being updated based on comments received.