“Brokers?… Brokers?… Brokers?…”
Have you ever seen Ferris Bueller’s Day Off? Well, if you have, read the above line again in Ben Stein’s voice and it will make a lot more sense, and garner a chuckle, if you picture the very bored economics’ classroom scene in the movie (and if you haven’t seen the movie *tsk tsk* go home, rent it, and watch for a great laugh. “You’re welcome” in advance. THEN, re-read the blog to also be a part of the “cool” chuckling crowd that got it in the first place.)
Anywho, down to business.
There is a lot, I mean A LOT, of press regarding the new Moving Ahead for Progress in the 21st Century bill that has been put into effect by the Federal Motor Carrier Safety Administration (FMCSA), or as they have so considerately shortened it to MAP-21. Others in the trucking industry have also shortened it to “headache,” “hassle,” “over-regulation,” and a few other nicknames that I don’t find it professional to repeat.
Within the Bill there are endless topics covered including provisions that affect public transit and the trucking industry alike. On the trucking industry side of the world, MAP-21 has sparked what seems to be MORE controversy then compliance especially in regards to the truck drivers because of the new Hours of Service Regulations, Driver Medical Registry, and the New Electronic Log Books.
But MAP-21 also directly affects those involved in the logistics-side
of the transportation industry.
Sections 32916, 32917, and 32918 of the bill deals directly with freight brokers and the changes coming in October 2013 for brokerage authority compliance.
Let’s review shall we? “…regulations, Anyone? Anyone? Voodoo regulations…” (Watch the movie!)
Section 32916 | Registration of Freight Brokers
Good News! You no longer have to be “fit” to be a broker, so put the sweatband and resistance ropes away! Now, you only have to have “sufficient experience to qualify…to act as a broker for transportation.” (Wait isn’t that the same thing?) Registration remains in effect as long as the broker is in compliance with all regulations.
A new addition to the experience or training requirements is that a brokerage must have one individual who has at LEAST three years of experience or “must prove to the Secretary one’s knowledge of rules, regulations, and industry practices” in order to be registered.
Additionally, “a broker for transportation may NOT provide transportation as a motor carrier unless the broker has registered separately under this chapter to provide transportation as a motor carrier,” which is cited as being for the “protection of motor carriers and shippers by motor vehicle.” An attempt at reducing chameleon carriers in the industry. This issue is sparking a whole new issue for carriers, who must now have separate brokerage registration and bond, but that is off topic. Another blog, maybe.
Section 32917 | Effective Periods of Registration
Registration must be renewed “no later than four years after the date of enactment of the Commercial Motor Vehicle Safety Enhancement Act of 2012. “So, after five years, a business’s brokerage registration will expire, unless renewed before the five year deadline.
Section 32918 | Financial Security of Brokers
To be a broker you must have a surety bond, proof of trust fund, or a combination of both. (That is static and has not changed in the new regulations.) A group surety bond, trust fund, or other security may be authorized by the Secretary. Assets must be “readily available to pay claims without personal guarantees… and will pay for any claim arising from failure to pay freight charges under its [the brokers] contracts, agreements, or arrangements for transportation.” When claims come against the broker, the broker has the right to review and consent to payment, as long as the broker responds in a “reasonable amount of time” to the claim. If they do not, then the validity of the claim will be “reduced to a judgement against the broker.”
Now, here is the controversial part – Minimum financial security. “Each broker subject to the requirements of this section shall provide financial security of $75,000 (a jump from $10,000.) for purposes of this subsection, regardless of the number of branch offices or sales agents of the broker.” If available financial security falls below the required amount then a broker’s registration will be automatically suspended.
So, with all of the controversy surrounding the last paragraph, I asked Albert Puig, president of ARPCO Transport Services what his opinion of the increased bond amount. With an industry voice of over twenty-five years of experience in freight brokerage and logistics, Albert did not disappoint his response.
As you can see below, by the very meaning of the word “ bond” or “surety bond,” as in the case of freight brokers, it is to make good on the debt of the principal [broker] in the event that they default on their obligations to the obligee [carrier]. Neither the current requirement to procure and maintain a $10,000 bond or the new MAP-21 requirement to increase the bond to $75,000 is adequate for the protection of the obligee [carrier].
For example, CH Robinson does billions in annual sales. They maintain a $10,000 dollar bond as required. ABC Logistics does less than 1 million in annual sales. They also maintain a $10,000 dollar bond. In my opinion, neither company is bonded sufficiently to meet the underlying obligations to their carriers. If the industry wants to improve the business relationship between the carriers, brokers, and shippers, then we should begin by applying banking-industry-type rules so that anyone who handles someone else’s money (fiduciary responsibility) should be held to a high standard and maintain sufficient bonding to satisfy the debts stacked against it. For example, the FDIC guarantees your bank account [obligee] up to $100,000, per account, in the event that the bank [principal] were to become insolvent. The SEC guarantees their account holders $500,000, per account, in the case of default.
For example, ARPCO guarantees their carrier partners payment of freight bills regardless of whether ARPCO is paid or not by their customer. With this guarantee, the carrier looks only to ARPCO’s credit and payment practices to make the decision to offer services, and therefore, should remove ARPCO’S customer from the freight payment equation. If our Industry would adopt, implement, and honor these good business practices there would be no need for the bond requirement.
In closing, there is no amount of government regulation, over-sight, or increase in bond amount that will eliminate the bad actors, chameleons, and aliases from scamming, robbing, and trying to put you out of business. All businesses have inherent risk associated. Do your due diligence before you do business with anyone and try to mitigate your risk as best you can. There are no guarantees in business. Eventually, government regulation will simply regulate you out of business.”
Bond Definition: A surety bond or surety is a promise to pay one party (the obligee) a certain amount if a second party (the principal) fails to meet some obligation, such as fulfilling the terms of a contract. The surety bond protects the obligee against losses resulting from the principal’s failure to meet the obligation.
There you have it, the same problems will carry over from the $10,000 dollar bond to the $75,000 dollar bond. It is true to say that if you are in the business of “bad business” no amount of regulation will stop you from accomplishing just that. Other honest brokers, and businesses in general, will suffer and have to shoulder the cost of bad reputations and literal financial burden to achieve success amidst the fog of dishonesty and over-regulation.
I asked Albert if he was concerned about the increase in bond price and he said, “No. If I take care of my own business with the four pillars I founded my company on – Excellence, Integrity, Goodwill, and Enterprise – then the bond doesn’t have to.”
So, don’t be downtrodden, as an honest, pay-your-bills-and-answer-to-your-obligations-freight-broker, you have nothing to worry about.
In the eternal words of Ferris Bueller, “Smile, babe. Just smile…”
U.S. Government Printing Office: http://www.gpo.gov/fdsys/pkg/PLAW-112publ141/pdf/PLAW-112publ141.pdf