Nearly 40 percent of U.S. brokers have licenses pulled after noncompliance with new surety bond rules
The nation's property brokerage community will end 2013 less populated than when it started.
Nearly 8,200 brokers had their operating licenses revoked over the past month after being unable to comply with a congressionally mandated increase in surety bond levels used to pay claims by truckers for late payment or nonpayment for services rendered, according to a carrier marketing website. The number of affected brokers represents about 38 percent of the nation's 21,000-member brokerage community.
The data, compiled by MyCarrierResources, a Platte City, Mo.-based company, came from revocation information on the Federal Motor Carrier Safety Administration's (FMCSA) website. FMCSA, a Department of Transportation (DOT) subagency, regulates brokerage operations, among other responsibilities.
Under a 2012 law reauthoring the nation's transportation funding programs, brokers were required to post a $75,000 surety bond to protect shippers and carriers against a broker's failure to compensate the carrier for delivering the shipper's freight. The language stirred controversy because it represented a more than seven-fold increase in the $10,000 bond limit that was in place for 30 years.
Smaller, independent brokers strongly opposed the size of the increase, saying brokers who couldn't make the upfront payments or obtain a bank letter of credit attesting to the funds' availability would be forced out of business or become agents of larger brokers. Supporters of the language, including the Transportation Intermediaries Association (TIA) and the two largest trucking trade groups, the American Trucking Associations (ATA) and the Owner-Operator Independent Drivers Association (OOIDA), called it a measured response to ensure that a broker protected the shipper's and carrier's financial interests. Truckers had lobbied Congress for a bond as high as $500,000.
The new rules took effect Oct. 1, but a 60-day grace period was permitted to allow brokers to adjust to the new limits. FMCSA mailed warning letters to noncompliant brokers starting Nov. 1. The revocation process began Dec. 2 and ran for a little more than two weeks.
There is a difference of opinion as to the impact of the mass revocations. Robert A. Voltmann, president of TIA, said the revocations have affected operating authorities that were already stale and long inactive. Many companies have duplicate operating authorities and used the revocation process to rationalize how many they should maintain, according to Voltmann. Some brokers didn't generate enough sales during the year to qualify for a bond, Voltmann said.
Michael J. Curry, who runs the MyCarrierResources website and has 30 years' experience as a broker, said that some of the revocations involved old licenses but that there is no way to quantify the amount. Curry said the FMCSA can only cancel operating authorities that are active but aren't meeting current licensing requirements.
Curry said he found in his research that the addresses of many brokers in his database differ from the addresses on file at DOT. Curry said an undetermined number of brokers may have moved and let their forwarding addresses expire, thus being unaware their licenses have been revoked. FMCSA has not replied to requests for comment.
Curry doesn't expect more revocations on the mass scale of early December. Brokers are eligible for reinstatement if they meet the bonding requirements.
James Lamb, president of the Association of Independent Property Brokers & Agents, said in mid-December that the mass revocations would cause widespread business closings and concentrate more buying leverage in the hands of a relative few very large brokers. The expanded pricing power will put downward pressure on rates that truckers can charge, Lamb said. In addition, the lessening of competition among brokers will adversely affect shipper choice and will force shippers to pay more for broker services in general, he added. Brokers make money on the spread between what they pay the carrier and what they charge the shipper.
Lamb accused TIA of pushing for the change so it can promote its own surety bond payment solution, a charge TIA has repeatedly denied.
That hasn't stopped TIA from developing its own bonding program. According to Voltmann, the organization's most expensive option would cost brokers $5,600 per year. "If a broker does five loads a day, $5,600 is about the cost of a caramel macchiato per load," said Voltmann, referring to a popular beverage sold by Starbucks Coffee Co. Citing internal TIA studies that 87 cents of every dollar that a broker "touches" actually belongs to the trucker, Voltmann asked if that amount is "really too much to protect someone else's money?"
