What, exactly, is a freight broker?
A page on the Federal Motor Carrier Safety Administration’s website defines it as “a person or an entity which arranges for the transportation of property by a motor carrier for compensation. A broker does not transport the property and does not assume responsibility for the property.”
Seems pretty straightforward — but in reality, it’s not. That’s why the Infrastructure Investment and Jobs Act, also known as the Bipartisan Infrastructure Law, passed late last year, requires the FMCSA to issue new guidance on the definition of brokers and bona fide agents — by Nov. 15, 2022.
The law also requires the agency to consider the impact of technology and the role of dispatch services in the freight transportation industry.
In a new rulemaking notice, FMCSA is requesting responses to a number of questions to help it determine those definitions.
Brokers are required to get operating authority and operate under federal regulations. But it appears that the rise of load boards, dispatching services, and load-matching technology are muddying the waters, in some cases leading to illegal double-brokering, lawsuits regarding who’s responsible in the case of a crash, and more.
Why the Confusion About Freight Brokers?
Federal regulations define “broker” slightly differently in different places.
In 49 U.S.C. 13102(2), it’s a “person, other than a motor carrier or an employee or agent of a motor carrier, that as a principal or agent sells, offers for sale, negotiates for, or holds itself out by solicitation, advertisement, or otherwise as selling, providing, or arranging for, transportation by motor carrier for compensation.”
But in 49 CFR 371.2(a) a broker is defined as a “person who, for compensation, arranges, or offers to arrange, the transportation of property by an authorized motor carrier. Motor carriers, or persons who are employees or bona fide agents of carriers, are not brokers within the meaning of this section when they arrange or offer to arrange the transportation of shipments which they are authorized to transport and which they have accepted and legally bound themselves to transport.”
FMCSA wants to know what evaluation criteria it should use when determining whether a business model/entity meets the definition of a broker. It also wants examples of operations that meet the definition of broker in 49 CFR 371.2 — and examples of operations that do not meet the definition.
Dispatch Services: Brokers or Bona Fide Agents?
FMCSA wants to know how the industry defines “dispatch service” and what role they play.
Some critics of the agency contend that the federal government raising the required broker bond amount in 2013 in an effort to drive bad brokers out of the industry had unintended consequences.
More than 9,000 intermediary businesses shut down when the new bond took effect. Some of them joined bigger brokerages as agents, operating under the larger brokerage's authority. But others simply kept operating without any bond. There was a rise in third-party agents calling themselves “dispatchers” and “dispatch services” instead of brokers.
Some “dispatch services,” FMCSA explains in its call for comments, cite another regulation pertaining to “bona fide agents” as the reason they do not obtain brokerage authority registration.
Federal Motor Carrier Safety Regulations 49 CFR 371.2(b) defines bona fide agents as “persons who are part of the normal organization of a motor carrier and perform duties under the carrier’s directions pursuant to a pre-existing agreement which provides for a continuing relationship, precluding the exercise of discretion on the part of the agent in allocating traffic between the carrier and others.”
Some dispatch services interpret this regulation as allowing them to represent more than one carrier yet not obtain broker operating authority registration. Others interpret this regulation to argue that a dispatch service can only represent one carrier without obtaining broker authority.
Technology and Freight Brokers
Another question FMCSA wants to address is the role of technology in today’s trucking industry and how the definition of broker applies.
Electronic bulletin boards match shippers and carriers for a fee, the agency notes. The fee is a membership fee to have access to the bulletin board information. FMCSA asks, should electronic bulletin boards be considered brokers and required to register with FMCSA to obtain broker operating authority? If so, when and why?
It also wants to know how technology has changed the nature of freight brokerage, and how these changes should be reflected, if at all, in FMCSA’s guidance.