April 8, 2013 8:00 AM, EDT

Groups Seek Changes to MAP-21 Regulations That Affect Brokers’ Bonding Requirements

By Daniel P. Bearth, Staff Writer

This story appears in the April 8 print edition of Transport Topics. Click here to subscribe today.

Several organizations said they are pushing to repeal or modify parts of last year’s highway funding law that set new registration and bonding requirements for freight brokers and forwarders.

The groups said the law will raise the cost of shipping by limiting competition among brokers and making it harder for motor carriers to subcontract freight hauling services. Others, however, are expressing support for measures contained in MAP-21, which increases the minimum bond requirement to $75,000 from $10,000 and requires that brokers and forwarders have an officer with three years of experience or can demonstrate knowledge of the rules.

Jon Samson, executive director of the Agricultural and Food Transporters Conference of American Trucking Associations, said he would like to see lawmakers modify the law to explicitly permit subcontracting by motor carriers. He said the practice of subcontracting is commonplace among carriers that haul containers from ports, as well as food haulers that must scramble at times to meet peak shipping needs.

“It’s a huge intermodal issue,” Samson said.

Samson said ATA’s Intermodal Motor Carriers Conference and 29 ATA-affiliated state trucking associations are part of an industry coalition pushing for congressional action.

Another vocal critic of MAP-21 is James Lamb, president of the Association of Independent Property Brokers & Agents, an organization he started in 2010 to represent small brokers and independent sales agents.

Lamb said the new rules will do little to combat fraud and will drive many small brokers out of business while making it harder for individuals to start new companies. He wants Congress to repeal the bond requirement before it takes effect later this year.

However, Federal Motor Carrier Safety Administration spokesman Duane DeBruyne said the agency is “on track” to have a final rule in place by the Oct. 1 effective date for the heightened bond requirements.

“FMCSA has instituted a rulemaking covering the nondiscretionary provisions of MAP-21 that will include the $75,000 broker and forwarder bond requirement,” DeBruyne said.

The agency, however, will solicit public comment for a separate rulemaking on knowledge testing requirements for brokers and forwarders, DeBruyne said.

In February, FMCSA issued a statement to clarify whether a carrier that hands off freight to another carrier through an interline agreement is acting as a broker and would be subject to new broker rules.

Such interlining arrangements are permitted, the agency said, as long as the carrier participates in a portion of the move.

Confusion arises, Samson said, when a carrier farms out the entire shipment to another carrier.

“The industry is beginning to interpret the law on [its] own,” he said. “This leads us to believe that a legislative fix is necessary to remedy the problem.”

Gregory Feary, a managing partner with Scopelitis Garvin Light Hanson & Feary in Indianapolis, said he is concerned about another provision in MAP-21 that requires motor carriers to notify shippers, in writing, of the authority under which freight is being transported.

“If a shipper seeks brokerage services from the motor carrier, will such brokerage be a violation of the law?” Feary asked.

He also warned that new registration requirements for brokers and forwarders could “become an extremely protracted bureaucratic process.”

Transportation attorney Brent Primus said he is worried about FMCSA’s ability to promulgate new regulations in a timely manner.

“Delays in finalizing the regulations will lead to uncertainty,” he said. “Uncertainty breeds confusion, and confusion breeds litigation.”

Meanwhile, other leaders have expressed support for higher bond requirements.

Robert Voltmann, president of the Transportation Intermediaries Association, a trade association representing brokers and forwarders, said the new requirements will help brokers and carriers by increasing the level of professionalism in the industry.

“It’s good that they raised the bond requirement,” said Satish Jindel, a transportation industry researcher and business consultant in Sewickley, Pa. “It should be harder [to start a brokerage] than becoming a plumber or electrician.”

Joel Clum, vice president of CarrierDirect LLC, a Chicago firm that helps trucking companies make connections with freight brokers, said larger players in the brokerage market are likely to benefit from the new rules.

“It will help to limit the number of new entrants, [and] it helps reduce the risk of one of their employees going off and starting [a new company] after the employer invests significant capital in teaching them a trade,” Clum said.

Although larger firms may benefit from consolidation, Clum said, he doesn’t see the new rules discouraging new entrants.

“We see brokers popping up every day, simply because the opportunity to build a business as a domestic freight broker is so large and the barriers to entry are so few,” he said.