In late November the Federal Motor Carrier Safety Administration (FMCSA) asked for comments on a request to open a rulemaking that would force freight brokers to be more transparent in their financial dealings. The agency got quite an earful in the form of at least 1,380 written submissions so far.
The intensity of the tussle over the proposal is just the latest development in the conflict between truckers and brokers that stretches back to the trucking industry’s origins in the early 20th Century. This symbiotic arrangement has always been uncomfortable, with brokers of unethical bent blighting an industrial landscape where most truckers have been too small to possess the wherewithal for securing loads nationwide on their own.
The latest salvo in this war was launched last fall when the Owner-Operator Independent Drivers Association (OOIDA) and the Small Business in Transportation Coalition (SBTC) asked that FMCSA strengthen rules designed to combat perceived continuing abuses perpetrated by freight brokers.
The source of the friction isn’t hard to discern. Truckers often view brokers as unnecessary parasites who get between them and the shippers and siphon off profits the truckers could make if the brokers weren’t in the way. Brokers see themselves as professional third-party intermediaries who provide real value by matching shipper loads with carriers who often are too small to secure loads themselves.
Complicating matters, transportation functions have broadened throughout the supply chain. Warehouse operators have truck fleets. Larger truckers operate warehouses. And in today’s world almost everyone also has freight brokerage authority and operates as freight forwarder and intermodal marketing companies.
It’s a big, wonderful world of transportation choices—unless you are an independent owner-operator or manage a small trucking company with a handful of trucks and drivers. An example of how hard this can be for them was the collapse of the Texas broker CHAI Freight Logistics, which filed Chapter 7 bankruptcy in early December owing more than 45 trucking companies hundreds of thousands of dollars in unpaid freight bills.
Such bankruptcies are not unusual in the freight brokerage industry where the broker can range from a guy in his basement with a cell phone, a laptop and an Internet connection to a corporate giant like C.H. Robinson, a Fortune 500 company with more than $15 billion in annual revenues that started as a domestic agricultural product broker and now offers international logistics services.
The bankruptcies rub truckers’ faces in the fact that they are too small to protect themselves in these circumstances. The hope is that the new rulemaking proposal will help equalize the relationship, even if in only in regard to financial transparency already mandated by law but seldom followed, according to the trucking groups that petitioned FMCSA.
Under the OOIDA and SBTC proposal, brokers would be required to automatically provide trucking companies with transaction records within 48 hours after brokered services have been completed and prohibit freight brokers from requiring that carriers waive their rights to access such records.
Although brokers are required under current regulations to share this information with truckers, many don’t and enforcement has been virtually nonexistent, according to OOIDA. For years, small-business truckers have expressed frustration that regulations designed to provide transparency are routinely evaded by brokers or simply not enforced by FMCSA, the association told the agency: “While freight rates have started to rebound since the initial weeks of the COVID-19 pandemic, the need for better broker transparency remains urgent.”
Turning Back the Clock?
For its part, the national organization representing brokers, the Transportation Intermediaries Association (TIA), followed up the truckers’ petition to FMCSA with their own request that the financial reporting requirements already in place for brokers be eliminated. TIA asserts that the financial reporting rule was created during a time in the last century when concerns over broker misbehavior had a more reasonable basis in fact, but was aimed at the kind of past practices that no longer hold sway.
TIA pointed out that the FMCSA regulation permitting access to broker transaction records was originally written by the long-defunct Interstate Commerce Commission (ICC) at a time when the federal government strictly regulated trucking industry rates and other economic practices. Following economic deregulation of air, railroads and trucking, FMCSA was created as part of the U.S. Department of Transportation dedicated primarily to enforcement of safety regulations.
The brokers also argue that if adopted, the proposed rule would lead to increased costs for both freight brokers and truckers.
American Trucking Associations (ATA), which primarily represents larger for-hire trucking companies and fleet operations, told FMCSA that the agency lacks sufficient legal authority to force brokers to make available the information demanded by the owner-operators. Attempting such a move would turn the clock back on four decades of economic deregulation, ATA contends.
“Forcing brokers to provide after-the-fact information about their gross would not just be an anachronistic intrusion into the freedom of carriers to negotiate with their customers, it would not give carriers any information they would not otherwise have available at the time they need to decide on a particular transaction,” ATA said. “In other words, it simply could not address the supposed problem petitioners complain of.”
The National Industrial Transportation League (NITL), which represents the nation’s freight shippers, told FMCSA that granting the petition would force companies to make public the terms of negotiated financial arrangements between brokers and their customers that are reasonably expected to remain confidential.
“Petitioners, if successful, would require property freight brokers to provide an electronic copy of each transaction record within 48 hours after contractual service has been completed and prohibit brokers from including a contractual provision that allows carriers to waive this right,” NITL said. “That record would disclose the rate that the shipper paid the broker for each transaction.”
For its part, OOIDA concedes that the regulatory landscape shifted largely away from economic regulation of interstate trucking in 1980, but stresses that freight brokerage regulations were kept largely intact for a good reason. When Congress approved the abolition of the ICC in 1995, the Senate report on the measure said broker rules were “needed to protect the public from unscrupulous brokers,” the association reminded FMCSA.
“Nothing has occurred in the last 40 years to mitigate the need for broker regulation,” OOIDA asserted. “In fact, the proliferation of the number of brokers from dozens in the early 1980s to tens-of-thousands today shows the need for broker regulation has only grown.”
The deadline for responding to FMCSA’s request for public comments on whether to open a proposed rulemaking is Jan. 25, 2021. The comments request also lists several questions that the agency asks commenters to address regarding definitions of terms, size of brokers involved and scope of enforcement.
