Fuel Smarts

Broker Groups Fight It Out Over New Senate Legislation

July 15, 2010

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Brokers and freight forwarders are at odds with each other over the Senate's Motor Carrier Protection Act, which would beef up regulatory oversight of brokers if passed. The Transportation Intermediaries Association (TIA), which is supportive of the bill, and the Association of Independent Property Brokers & Agents (AIPBA), against the bill, are at the center of the debate. The two organizations held webinars this week, voicing their opinions and laying out some of the impacts
the legislation would have on the truck brokerage industry.

The bill was introduced in mid-June by Sens. Olympia J. Snowe (R-Maine) and Amy Klobuchar (D-Minn.), who worked closely with the Owner-Operator Independent Drivers Association on the bill. A key change to broker oversight would be an increase in the broker bond requirement from $10,000 to $100,000, a provision that is drumming up some heated debate.

Other provisions of the bill would provide strict regulation of broker surety companies so that they cannot cheat brokers or forwarders; provide greater transparency for those seeking to become brokers or forwarders; establish significant penalties including unlimited liability for freight charges for those operating without the required authority; require motor carriers to hold broker or freight forwarder authority; and require that there must be at least one corporate officer who has met minimum training standards or equivalent experience.

The Bond Battle

According to TIA, the OOIDA and the American Trucking Associations have been seeking an increase in the broker bond for years. In 2004, OOIDA requested an increase in the range of $300,000 to $500,000. This time around, the TIA was able to sit across from OOIDA at the negotiating table, and the $100,000 bond amount was a compromise the organization had to make, said Robert Voltmann, president and CEO at TIA. Voltmann said the concession was much less onerous than what's been proposed in the past.

"In a perfect world, there'd be no bond requirement," said Chip Smith, president of CS Advisory Group and TIA chairman.

"We have to find some support across the table if we're going to get any traction in Congress," Voltmann said. "The ability to simply say 'no' had come and gone. We believe the time was necessary to compromise."

During the webinar, TIA emphasized that it offers a $100,000 bond to members that meet certain qualifications, including a high credit score and cash and positive net worth on the balance sheet. To qualify, brokers also need to have insurance, such as non-follow form contingent cargo, general liability, errors and omissions and contingent auto liability.

But AIPBA President James Lamb chided the TIA for switching over so quickly to talk about their own bond offering. "How convenient," he said, during Thursday's webinar.

Hurting Small Brokers

Lamb, which just launched AIPBA in early July to promote common business interests and improve business conditions for brokers, said he believes the TIA is pushing another agenda. He believes the group wants to get a $100,000 bond and push small brokers out of the industry, in an effort to sell more memberships and bonds and collect more dues from large brokers. "This is not sensationalism. This is reality."

Smaller brokers bringing in under $7 million in revenue per year need separate representation under the law, Lamb said.

"The argument in favor of a $100,000 bond is specious," he said. "It's not about fraud. It's about creating an oligopoly for big brokerages under the guise of fighting fraud."

According to Lamb, a $10,000 bond, which is the current requirement, costs a broker between $350 to $550 a year. Under the TIA's $100,000 bond, it would cost about $2,000 a year, while it would cost between $3,500 and $5,000 a year under other plans, he said.

"New entrants can't afford such high premiums," he said. "Mere talk of the bond increase is already deterring new entrants."

Lamb says the bond increase will result in a shortage or deficit of freight brokers, reducing competition. "Owner-operators will then have less opportunities to find loads and less negotiating power with the few remaining big brokerages offering loads," he said.

But TIA's Voltmann said the proposed bond requirement won't put 99 percent of the industry out of business.

The Common Problem

The TIA emphasized that it had to compromise with the OOIDA in order to address a common problem plaguing the industry - fraud. Voltmann says the legislation is aimed at catching "churners" and should "reduce incidents of unauthorized re-brokering of freight."

This includes some carriers who re-broker freight by putting it on another company's truck. "Black is black is black is black," said CS Advisory Group's Smith. In other words, the freight is brokered whether you're a carrier or a broker.

Voltmann says the bill will put trust companies and carriers under the gun, and weed out the bad apples. "This is not about big companies versus small companies as some will suggest," he said. "This legislation will bring an end to bad bonding companies, carriers brokering without a license or bond, scam artists that come in and out of the market to rip people off, and it will create a competitive playing field for the legitimate industry. This legislation is not about regulating brokers or carriers, it is about fighting fraud in the trucking industry."

But Lamb believes the bill has an alternate agenda, aside from fighting fraud. "The true way to fight fraud is by cracking down on the illegal brokers and revoking the licenses of unscrupulous, licensed brokers," he said. "It is bad public policy to punish all brokers because of the bad apples. The answer lies in assessing ongoing fitness through compliance audit and enforcement. Simply stated, freight brokers who do not pay their carriers should be shut down."

Alternatives

During his webinar, Lamb proposed a $25,000 bond requirement as a reasonable alternative. Several states have this amount of bond, and the Federal Motor Carrier Safety Administration has required $25,000 for brokers of household goods. "FMCSA has the specialized expertise needed to get the bond amount and assess the impact," he said. The same should be done for property brokers, he suggested.

According to Lamb, a fair alternative to the $25,000 bond would be to scale the requirement according to the broker's revenue. For example, those companies making $7 million and below would be subject to a $75,000 bond requirement and below.

For more information about the TIA's effort, visit www.tianet.org.

For more information about the AIPBA's effort, visit aipba.vpweb.com.

Share your opinion on the subject on our Facebook page, at www.facebook.com/heavydutytrucking.



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