We talk a lot about trucking companies, but they aren’t the only players in the supply chain. Critical to ensuring goods get to where they go include brokers. But who are these brokers and what do they do? There is a lot of information out there, so it is time to learn more about a freight broker. If you plan on starting your own trucking company, you will need to know how to work with them.
Freight brokers hold an important role in the transportation sector. They are the middlemen that help get cargos shipped and optimized in different ways. When it comes to bringing shippers and carriers together, freight brokers play an indispensable role. So, let’s take a look at some of the myths and realities of the freight broker profession.
Freight Broker Myths
First, some think that freight brokers and freight forwarders are the same thing. In fact, they are two distinctly separate professions within the transportation sector. Freight brokers act as a missing link between those who have goods to ship and transportation companies who can ship them. On the flipside, freight forwarders are fully in charge of the goods they are in possession of. Freight forwarders act on behalf of the cargo through the entire shipping process.
Another myth that seems to have legs is that anyone can become an online freight broker. Here at QuickTSI, we can tell you it isn’t as easy as that. Sure, it is possible to start a freight brokerage without any training or a ton of up-front capital, but that doesn’t mean it is easy. There are freight brokering schools out there that provide top-notch training materials. While you may have to put some time and investment into your training, you will be ready to run your own freight brokerage.
Speaking of investment, some think that it costs upwards of $75,000 to get a freight broker license. Why? Because the FMCSA has a criterion that says that. Still, that does not mean it is the only way to get your freight brokerage license. Enterprising freight brokers can utilize a freight broker surety bond. Now, you will have to pay a small premium, but that premium is based on your business and personal finances. The form you are required to fill out during this process is called a BMC-84.
Pay Attention to Licenses and Goods
Here is another one to consider: Freight brokers cannot get a bond with bad credit. In fact, there are bad credit surety bond programs specifically created for those who have bad or poor credit. Sure, you will have to pay a higher interest rate, but it will still be below 10%. The surety bond provider will have a holistic look at your record to ensure you are not a risk.
A dangerous myth is the one that you can operate as a freight broker without a license. Remember, you must always get permitting authority from the FMCSA before you begin working as a broker. The name of the license if the Property Broker Registration and all freight brokers must have one. It is against the law to operate as a freight broker without proper licensing.
Also remember that freight brokers do not take possession of their clients’ goods. In fact, most freight brokers never see the cargo they coordinate. They organize the transportation of the goods, but they are not physically present anywhere in the process. There are some situations where asset brokers may take possession of the cargo for a period, but that is atypical of most situations.
A final thing to remember when it comes to money, assets and licenses is that freight brokers without assets still have access to a vast carrier network. Even for brokers who have no trucks of their own, they have a vast network of connections they can draw upon.
Safety is one of the main reasons freight brokers need to have lots of knowledge and training. Why? Because fleets themselves are not the only interested parties when an accident happens. Brokers and third-party logistics companies can get wrapped up in lawsuits. So, how do freight brokers know they are working with a responsible party?
Safety Across the Board
The fact is all companies working in the transportation space must ensure they are always operating safely. It must be safety across the board. There are industry advocacy organizations that are concerned about this very thing. Freight broker and third-party liability is real. The Transportation Intermediaries Association (TIA) asserts that nuclear verdicts specifically are a problem.
Not only do motor carriers suffer huge damages, but plaintiff’s attorneys also go after freight brokers when an independent contractor hire becomes negligent. If the freight broker “should have known” the carrier was possibly unsafe, they can be targeted in court. As a result, brokers are subject to huge liability risk in negligent selection and vicarious lawsuits.
And if you think it can’t happen, think again. It happened in 2012, in the state of Oregon, where a jury awarded millions to the family of a man killed in a commercial motor vehicle accident. And while that example may have been the first case of punitive damages against a transportation broker, it most certainly will not be the last.
In that case, the plaintiff’s attorneys were successful in arguing that the logistics firm did not conduct due diligence when it hired a trucking company to haul goods for Nestle Waters of North America. The problem here was that the motor carrier the logistics provider hired was operating without insurance or operating authority. The load should not have been brokered to them.
In the case, the attorneys came out stating that there is not enough government oversight of the transportation broker industry. They stated that with no regulatory watchdog keeping an eye on the job brokers are doing, so they said it was up to the courts in this case.
Setting a Standard for Brokers
So, what is happening now? Currently, the TIA is making a big push to get the government to get involved. They want to have a standard set so that brokers can check a carrier’s safety record before bringing them on to handle freight.
As a result, Congress has been working on the Motor Carrier Safety Selection standard. The bill was introduced in July in the U.S. House. It would require freight brokers to check certain data points before hiring anyone on for a load. With no current standard in place, it is unclear how a new standard would look and what interested parties should expect.
The bill would require anyone brokering a load to ensure the carrier they broker on behalf of their customer:
- Has proper and current FMCSA registration and is authorized to haul loads.
- Has obtained the minimum level of insurance.
- Is not out-of-service for any reason.
Here is the thing: Don’t expect the bill to go anywhere. The bill was passed through the Democratic House but has received new viewing in the Senate. Should the Democrats take over in the November elections, it is likely we could see the legislation revived.
Addressing the Safety Fitness Determination
There are other areas that the TIA is putting pressure on the government. The FMCSA has been working on a safety fitness determination for a long time. The TIA wants the agency to finish it up as it has been almost a decade since they began working on it. And while the CSA program can help shine a light into carrier behavior, it does not specifically address whether they are fit to operate. Only compliance inspections do that.
While the FMCSA did issue a proposal in 2016 called the safety-fitness proposal, nothing has moved since then. Much of the trucking industry said the safety-fitness proposal should not be completed before the CSA system, which is exactly what happened. The CSA program was designed the Safety Measurement System (SMS), which was eventually scrapped in 2017. You can see how confusing this all gets.
Many consider the CSA program to be broken, and while the FMCSA has had something in place to fix it, a proposal put forth by the National Academies of Science, there seems to be little will to take action. It is likely that the FMCSA will not even replace the current system with the IRT model that was recommended. The question now is: When will we see a fair system put in place that benefits all parties involved?