Commingling Leads to Conflict

Q: My wife is thinking of starting a brokerage company, and I have a few questions.

1. Is there a Department of Transportation or other federal audit for freight brokers?
2. Where can I find information concerning the laws and requirements of a freight broker?
3. Would it be a conflict of interest or illegal for my wife to broker freight for the company I work for or for the customers I sell to?

A: Well, good for your wife, intrepid lady that she must be — and that she will have to be, to make the business go.

I don’t mean to put a damper on anyone’s ambitions, but there are an awful lot of brokers out there, most of whom don’t last long. It’s a tough business, and a tougher one yet for someone who isn’t well-versed in the industry, as (judging from your questions) I gather you and your wife not to be.

“To be a broker, you need only a telephone and a desk — and you can do without the desk in a pinch.” That’s a line I’ve used often in educational seminars I’ve presented, and it holds as true now as it ever has. Which is to say, it’s a field for dabblers, those who aren’t really invested in transportation as a profession but may nevertheless serve to dilute (and pollute) the available marketplace.

That said, I’ll try to answer your questions in order.

First, no, there’s no DOT or other federal audit of brokers. As long as a broker meets the minimal licensing (with the Federal Motor Carrier Safety Administration) and bonding ($10,000) requirements, one goes about one’s business without significant governmental oversight.

Those bare-bones requirements, and a few others, are found in the U.S. Code and the Code of Federal Regulations, Title 49, Sections 370-400. But that’s just the very minimal legal end of things, of very little real help to someone trying to crash the industry as a new entrant.

Your best bet for more information is the Transportation Intermediaries Association of Alexandria, Va., which has something called a new brokers kit. They sell it for $225 to members or $350 if you don’t take out a membership. The price of membership is $660 minimum a year, plus a $50 application fee.

The final question you asked is the trickiest, because none of the things you postulate — her doing work for your company, as a broker, or doing work for your customers — is illegal. However, neither is a very good idea.

Let’s start with the idea of her working for your employer. I really don’t think I need to devote a lot of space to telling you what a truly lousy notion this would be. Indeed, I doubt your employer would even countenance it if you were open about your spousal relationship with this new broker; and attempting to conceal that relationship would place not only the brokerage operation, but also probably your own job, at risk.

Well, then, how about your customers? That, too, strikes me as pretty dicey. For starters, if your customers know their aspiring new broker is married to one of their supplier’s key employees, would you seriously expect them to hire that broker happily? And if they did, wouldn’t there be at least the appearance that they did so in response to pressure from you — pressure that, however much it might serve your marital relations, would not be in furtherance of your employer’s interests?

And suppose something goes awry, as sooner or later it must — the shipment shows up damaged, it’s lost, it’s late, something. Now the injured customer is claiming against the broker who, no surprise here, is married to a vendor executive. What fun!

To me, “conflict of interest” doesn’t go far enough to describe such a mess. Plain old “unethical” comes a lot closer, and it’s not something you care to get involved in unless you care nothing at all for your job.

If your wife is serious about wanting to be a broker, she needs to go find her own customer base far away from anything to do with your own work. Commingling the interests just won’t get it done.

It occurs to me that her newfound ambition may be a result of pillow talk between the two of you — your complaining of the ineptitude of your current suppliers, and her feeling, “Hey, I could do that better.” The thought is admirable, and maybe she could. But this isn’t the way to go about it.

Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455; phone, 843-559-1277; e-mail, BarrettTrn@aol.com. Contact him to order the most recent 351-page compiled edition of past Q&A columns, published in 2010.

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