September 5, 2013

FMCSA establishes guidelines ahead of Oct. 1 rules governing brokers, forwarders

Agency sets two-month grace period for securing higher surety bond amount.

By DC Velocity Staff

The Federal Motor Carrier Safety Administration (FMCSA) has issued guidance governing the operation of property brokers and freight forwarders once new laws take effect on Oct. 1.

Under the FMCSA guidelines announced yesterday, entities providing brokerage and forwarding services will be required to register for brokerage authority by Oct. 1 if they had not already done so. By that date, brokers will also be required to post a $75,000 surety bond that will guarantee payment to motor carriers receiving loads if the broker fails to make payment.

Despite the stated deadline, FMCSA will actually give brokers a two-month grace period to post the higher bond. Brokers not in compliance by Nov. 1 will receive a warning letter from the agency. Brokers in noncompliance by early December will have their operating authority terminated, said the subagency of the Department of Transportation.

Under the new law, as of Oct. 1 a trucker can no longer take possession of freight from another trucker or a broker, a practice known as "double-brokering." A trucker also cannot broker freight without a brokerage license, and the brokerage authority must be completely separate from the trucking operation. The trucker showing up at a shipper's dock must be the same carrier whose name appears on the bill of lading. If not, a shipper must create a new bill with the new trucker's name and identification number and pay just the new carrier. Truckers can accept cargo only with their own equipment.

A broker must ensure the trucker with which it has arranged the transaction is the carrier appearing at the shipper's dock. A broker cannot insure the cargo except as a contingency, meaning its coverage would kick in if a carrier's policy fails, a rare occurrence. A broker cannot appear on the bill of lading as a carrier.

The agency will continue to allow the practice of "interlining," where the origin trucker accepts the load, drives a certain distance, and then tenders the goods to another carrier. The originating carrier must pick up and haul the load as part of a continuous movement under its own operating authority, FMCSA said.

Companies with both broker and freight forwarder authority will be required to post only one surety bond as long as the same legal entity holds both certificates, according to the agency. However, the company will be required to file two separate forms for the broker and forwarding rights.

FMCSA will establish an enforcement program to identify and, if necessary, punish violators. In the meantime, it advises that complaints of unregistered brokerage activities of motor carriers be filed through the National Consumer Compliant Database.

The new rules were part of the 27-month, $109 billion reauthorization of federal transport funding programs signed into law by President Obama in July 2012. Supporters say the provisions lay out exactly what carriers and brokers can and cannot do. It gives shippers peace of mind that the carrier on its bill of lading will be the same one that shows up to haul its freight, they say. And it curtails the practice of "churning," where a trucker without brokerage authority grabs freight from a load board, gets an advance from the shipper or broker, flips the load to another carrier, and then disappears, leaving the second carrier empty-handed.

However, the $75,000 surety bond requirement, a more than seven-fold jump in the long-standing $10,000 ceiling, has drawn the ire of smaller brokers who argue it will drive many independents out of business and concentrate activity in the hands of large, well-financed brokers.

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