In a 90-minute online listening session Wednesday to have Federal Motor Carrier Safety Administration (FMCSA) leaders hear views about possible changes in current broker transparency regulations, one question regarding a possible rule change with potentially serious repercussions came up repeatedly: what about the shippers?
At issue are the major requests of the two petitioners to FMCSA, owned-operator trade group OOIDA and the Small Business in Transportation Coalition led by James Lamb. There is no proposed rule. But if FMCSA adopted what OOIDA and SBTC want, brokers would be required to automatically send to carriers documentation of the details of a transaction electronically, and to do it quickly.
FMCSA is seeking comments on a list of questions it released in August in response to the OOIDA and SBTC petitions. The listening session was part of the agency’s gathering of information.
Carriers can get information on transactions now under federal law but may need to physically show up at a broker’s office to do so — an effective impossibility.
In a session where several impacts of such a rule were discussed at length, the focus on shipper confidentiality requirements came up several times.
Larry Minor, FMCSA’s associate administrator for policy, asked a question of the listeners and commenters on the session: Given confidentiality agreements in the contracts between brokers and shippers, “are you as brokers in a situation where the contracts you have with shippers state you couldn’t provide information even if you wanted to?”
Jeff Tucker, the CEO of 3PL Tucker Worldwide, said during the comment period that shippers do not want information on what they are getting charged for shipping to “get down to the carrier level, because shippers don’t want their competitors to know what they’re paying for freight.”
A commenter named Justin Olsen said shippers “consistently” require nondisclosure agreements with brokers, and “brokers are bound to honor these requirements and are contractually bound to honor the requirement of nondisclosure.” Olsen said he also believed that the regulations under Section 371.3 of Title 49, which spells out the requirements for broker disclosure now, might be in conflict with other federal laws regarding disclosure.
As one commenter said, the information about what the broker is charging the shipper and other pieces of financial information are “none of the carrier’s business.” If the carriers don’t like it, “they can source their own shippers if they choose.”
But existing law effectively makes it their business, though with a lot of hurdles to get it done. What is at issue is the method of transmission of the information to carriers. The ability of the broker to get that information now, regardless of how difficult it might be, has essentially established that carriers have a right to see it.
The question of the confidentiality agreements could be moot if FMCSA does implement changes and bars such confidentiality agreements between shipper and broker. Instead, a confidentiality clause among all three parties could become part of the new rule, said Lamb, president of the SBTC. “Are you saying carriers can’t keep a secret?” Lamb added.
In the model contract for broker-carrier relationships, confidentiality is required, and he objected to accusations that carriers would “routinely breach this.”
Todd Spencer, the president of OOIDA, responding to Minor’s query, said shippers’ concerns about confidentiality could be “fully satisfied” with nondisclosure and noncompete clauses in broker-carrier contracts.
One of the questions FMCSA has published is what brokers would need to spend to comply: “How much profit reduction on a per-transaction basis would brokers experience, and what percentage of the costs would be passed through to shippers or motor carriers?”
Jason Craig, the director of government affairs at C.H. Robinson, said the cost would be significant and a challenge to calculate accurately. OOIDA and SBTC have not anticipated a “corresponding increase in costs solely in delays to payments the requested remedy will require, due to information required in 371.3a5 for rate accounting of non-brokerage services like fees and detention time.”
Craig said the current law harkens back to a time when carriers often paid a commission to a broker, so that the underlying amount of the load would need to be known for a fair accounting.
But Craig and other commenters noted that is no longer how the market works, and there’s plenty of rate transparency. Tucker said there is “incredible” transparency in the market, and rate information is available down to the granular level of a particular lane.
But he noted rates are also subject to Bell curve-type distributions. And it is at the tail end of those rates that spurred the actions by OOIDA and SBTC, when the historically low rates of April, in the middle of the pandemic, kicked off the protests that led to the groups’ respective petitions.
Chris Burroughs, the vice president of governmental operations at 3PL trade association Transportation Intermediates Association, questioned the need for a radical overhaul brought on by a temporary situation. “If this was a systematic problem, why were there no complaints before COVID-19?” he said.
But the other side of the argument is what one carrier said was the disadvantage that fleets would always face. “When we do not know what the shipper pays the broker, then we do not know how to negotiate the rate and we end up grossly shorted,” the carrier said. And it isn’t just the carrier side of the ledger, she said. “Shippers are grossly overcharged.”
The other complaint, which has spurred part of the petitioners’ requests, is that asking to see the data that is now guaranteed in the law brings negative consequences for carriers. “The brokers are bullies if you ask too many questions,” the unidentified carrier said. “You will be blackballed and put on a ‘do not use’ list.”
The docket for taking comments on the FMCSA questions is open through Nov. 18.
More articles by John Kingston
TIA’s Voltmann in video defends brokers against anger over rates
TIA Q2 broker margins up over first quarter, down from 2019
Comments on proposed FMCSA transparency rule show huge gap between brokers and drivers