Backing the bond

Q: You’ve defended the new $75,000 bond requirement for motor carrier brokers in the past, and I disagree. I can assure you the bond hurts the small broker.

I’m a commodity trader. We employ a lot of trucks, some through direct contact with the trucking company and others through brokers. I have instances where I have a customer who needs freight and a trucker that wants to haul freight. We want to do business, and everyone is comfortable with the credit status. We feel we should be able to make money for this service, and why shouldn’t we?

But we don’t do enough of this to justify the expense of the bond. This part of our business has potential to grow, but the cost is prohibitive. We have six-figure credit limits with many of the largest companies in the business. So why, “because it is freight,” do we have this special rule to ensure creditworthiness? This law keeps two willing parties from doing business.

The old $10,000 bond was a joke for the reason you’ve mentioned before: Many brokers were way over that limit and there was no supervision. But it gave the truckers a sense of misplaced security. The $75,000 bond is no better security for the same reasons.

Why not do away with the bond and let managers manage and free enterprise work? Parties should be able to do business with whomever they want. They should do due diligence. If they fail to do that, they — not everyone else — should suffer the consequences. As it is, the consumer ends up paying more.

So far as I can see, the large brokers benefit because the cost is nominal to them and this law kills competition. The bond companies are making tons. When a settlement is required, the lawyers will wind up with the $75,000.

 

A: I’m going to step on some toes here, including yours, but frankly I’m a little tired of listening to people whine about the brokerage bond requirement.

I won’t argue with your statement that the new bond requirement is as much of a joke as the old one. In fact, a recent case has come up in which creditors of a defunct brokerage were owed many times as much as the $75,000 bond and the bonding company threw up its hands and turned the claims over to a court for resolution, obliging each claimant to pay a filing fee of several hundred dollars to maintain its claim. The bonding company also asked the court to let it take its own attorneys’ fees off the top before paying anybody else. The whole thing validates your suggestion that only the lawyers will get anything out of the $75,000.

Even so, the new requirement is a reasonable effort by the government to establish at least some partial protection for carriers left unpaid by insolvent brokers. I think it’s a laudable goal.

Your idea that “due diligence” should be enough to let the carriers self-protect against this is unrealistic. And, in an era in which government makes itself busy about such matters as who may marry whom, what plants people are allowed to grow or ingest, the purposes for which people are permitted to spend their money and so on, it seems reasonable that it also should attempt to protect U.S. businesses from being ripped off.

The bond requirement strikes me as serving one useful purpose (here comes the toe-stepping part): It helps keep amateurs such as you out of the motor carrier brokerage business. The modern transportation industry cries out for professionals to meet the contemporary needs of the business community, not for dilettantes looking for a potentially lucrative sideline without investing any real effort into it.

Today’s broker is expected to vet the safety ratings and records of carriers that it provides to its shipper-customers. It’s expected to ensure that the carriers have the experience and capability to transport the goods the shipper wants to haul. It’s expected to make sure the carrier has adequate cargo insurance in the event of in-transit loss or damage. And, unlike those who broker services in other economic sectors, the motor carrier broker acts as principal on the economic end of the transaction, responsible for collecting from the shipper and paying out to the carrier.

By your own description of what you’d like to do, I think you’re ill-equipped to meet these obligations, as are many would-be part-time brokers who have scant commitment to this aspect of the business. The bond requirement is sufficient to require that commitment, and thus does perform a useful function, in my view.  

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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