Opinion: Higher Bonds Are Not the Answer
By Robert A. Voltmann
Transportation Intermediaries Association
This Opinion piece appears in the May 13, 2004, print edition of Transport Topics. Click here to subscribe today.
There has been some debate lately about increasing the broker bond from $10,000 — to as much as $500,000 — in order to protect motor carriers and shippers. Increasing the bond, however, will not achieve the results desired by those seeking the increase. Risk is a fact of life.
In any business where one company extends credit to another for a service that cannot be repossessed, risk exists. Brokers, like most motor carriers, are small businesses. Brokerage, like trucking, looks easy from the outside; but also like trucking, doing it successfully is not easy. Motor carriers should check out the companies to whom they are extending credit. They can check on a broker’s bond and license at http://.li-public.fmcsa.dot.gov.
Carriers can also check to see if a broker is a member of the Transportation Intermediaries Association. TIA is the trade association of ethical brokers and third-party logistics companies.
Brokers assume risk as well. On average, our members report they pay their carriers in 24 days from receipt of documentation, while they report payment from the shippers in 39 days. The result is 15-day faster payment to carriers using brokers than if they billed the same shippers directly. This also means that the broker is paying the carrier 15 days before it is known whether the shipper will pay its bill to the broker.
In 2002 and 2003, our members report that they wrote off more than $65 million in unpaid freight bills from more than 16,000 shippers, yet their carriers still got paid.
Who protects the broker? No one. Fraud exists in both the brokerage and the motor carrier industries, and increasing the bond will have no effect on fraudulent operators.
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