The Federal Motor Carrier Safety Administration has again denied a request from a group of truck brokers for an exemption from a $75,000 bond requirement — but the petitioners contend the agency missed the point of their exemption request.
In a notice scheduled to be published on Thursday, the FMCSA said it was denying the Small Business in Transportation Coalition’s (SBTC) five-year exemption request for brokers and freight forwarders with annual revenues below $15 million because it “does not meet the statutory factors” for such an exemption.
In addition, “SBTC fails to show how exempting a large segment of the broker industry from the bond requirement would be in the public interest merely because some entities are currently not complying,” FMCSA stated. “The core public interest implicated in Congress’s imposition of the $75,000 financial security requirement is that motor carriers (and shippers) be paid in the event of broker or freight forwarder non-payment. SBTC’s exemption request, if granted, would undermine that goal.”
It was the second time SBTC has been rejected by FMCSA on the broker bond exemption. SBTC’s predecessor, the Association of Independent Property Brokers and Agents, was denied a similar request in 2015.
SBTC President James Lamb did not expect FMCSA to approve the group’s latest exemption request.
“We filed the application because we wanted to stimulate industry discussions and publicly make a point that has FMCSA failed to follow through on its 2013 promise of a ‘comprehensive enforcement program’ to crack down on illegal brokers, many of whom now call themselves independent ‘dispatchers,’” Lamb stated in a tweet.
“If you make legal brokers get a license and $75k bond, yet allow people to operate illegally as ‘dispatchers,’ then you will be viewed by the public as being nothing more than bureaucratic hypocrites.”
SBTC asserted in its latest petition, filed in September 2019, that unlicensed entities, including motor carriers and dispatch services, are engaging in unfair competition because FMCSA has not enforced the broker licensing requirement.
“We are therefore now asking for all small property brokers and freight forwarders as defined by the [Small Business Administration] for freight transportation arrangement with revenues under $15 million be made exempt for five years to give FMCSA more time” to develop its enforcement program. “Until FMCSA levels the playing field, enforcement against some transportation intermediaries — but not others — constitutes an unlawfully arbitrary and capricious regulatory scheme.”
Watch: Broker earnings in 2021 (11/2/21)
FMCSA received 22 comments on SBTC’s petition, most of which opposed it.
“SBTC’s request would exempt from the bond requirement those brokers who, according SBTC, do not have sufficient resources to readily or cost-effectively obtain a $75,000 bond — and would thus perversely deprive motor carriers of the protection of the Congressionally-mandated bond precisely where it is needed most, in doing business with brokers who turn out to be financially precarious,” commented the American Trucking Associations.
Bond issuer JW Surety Bonds stated that the $75,000 bond required is not a barrier to entry for small or startup truck brokers.
“Surety premium rates remain consistently low and declinations of applicants are primarily limited to freight brokers with previous unpaid claims to prevent bad apples from re-entering the market and burning more carriers,” the company stated in comments opposing the exemption.
“Removing the bond protection which shippers and carriers rely upon would be disastrous and an exemption of the bond requirement would be of greatest benefit to repeat offenders that are regularly in breach of their payment commitments harming carriers.”
Melissa Carbonell, a broker with Fort Lauderdale, Florida-based High End Transport, agreed that the current bond requirement is not a burden on small brokers.
“We have $10,000 in a trust account and only pay $2,500 a year for our broker bond,” Carbonell stated. “Any broker doing more than $1 million a year in business should be able to afford this amount. If they can’t afford the bond, then they are not solvent enough to be getting hundreds of thousands of dollars in credit on the backs of carriers.”
Lamb points out that despite opposition to SBTC’s exemption request, the issue over requiring a $75,000 broker bond will not be adequately resolved until the FMCSA clarifies the definition of a broker. Congress required FMCSA to issue guidance on how brokers and dispatchers operate as part of the bipartisan infrastructure bill that was signed into law in November.
“We’re in favor of the agency defining what a dispatcher is and is not allowed to do, and believe it should be based on established precedent,” Lamb told FreightWaves.
“You can’t be an agent of competing motor carriers. When you have one load and you choose to give it to another carrier you claim to be an agent for, you are leaving one holding the bag, which violates the agent’s fiduciary responsibility under agency law.”