Trucker, Broker or Both?

Q: You’ve written lately about several truckers who have, as you’ve put it, “subcontracted” loads to other carriers. I know it happens a lot, but I’m a registered motor carrier broker and to me this is plain and simple illegal brokerage.

I just love these guys who broker out their loads without authority and call it “subcontracting.” It’s like a hooker calling her fee a “donation.” Sorry about being facetious, but carriers that are illegally brokering deserve all the problems you’ve been describing in your past columns.

A: As I pointed out to you in a reply e-mail, and you reluctantly agreed, as a matter of law this “subcontracting” isn’t illegal at all.

You were having so much fun grumping about the practice that I kind of hated to burst your bubble, and I’m glad you really knew it was legal anyway. What you told me was that “these one- and two-truck carriers that operate almost strictly as brokers without bothering to notify their customers that it’s really an outside truck under the load, are the ones that get my goat.” And I can sympathize with your feelings, though not your actual situation.

A broker is legally defined as “a person, other than a motor carrier or an employee or agent of a motor carrier, that as a principal or agent sells, offers for sale, negotiates for, or holds itself out by solicitation, advertisement, or otherwise as selling, providing, or arranging for, transportation by motor carrier for compensation;” 49 U.S.C. Section 13102(2).

I obviously don’t need to point out that a motor carrier isn’t “a person other” than one. So long as the carrier is properly registered with the Federal Motor Carrier Safety Administration as a motor carrier, it’s free to sub out loads to other carriers without also registering as a broker, and without representing itself to shippers as one.

As for your “one- or two-truck carriers” that make it a regular practice to subcontract loads without advising shippers up front that they’re doing so, that, too, is quite legal. Indeed, a carrier actually need not itself haul a single load tendered to it, but can sub out every last one if it chooses.

What you’re overlooking in your diatribe is that a carrier that does this may be evading the regulations that burden brokers — registering and maintaining a bond, for example — but is in fact exchanging them for an even more onerous regulatory regime.

First, the carrier must buy and maintain insurance that greatly exceeds the $10,000 bond requirement imposed on brokers. This includes accident liability insurance as well as, at least, the minimum $5,000-per-shipment, $10,000-per-“incident” cargo insurance set forth in FMCSA regulations.
Second, and perhaps still more important, the carrier must issue bills of lading in its own name for each load. It also thereby assumes direct liability to the shipper for any loss or damage occurring while the loads are in the hands of its subcontractors.

Contrast this with the obligations of the registered broker, who issues no bills of lading of its own and incurs no loss-and-damage liability whatever to its shippers. I’d seriously question the sanity of anyone choosing to accept this trade-off simply to avoid having to register as a broker.

You do make one good point: that the practice of carriers subbing out loads on a regular basis is a bit deceptive to its shippers. I mean, if I hire John to haul my freight and he’s forever giving it instead to Tom, Dick and Harry, I’m not exactly getting the deal I planned on, am I?

But if I’m dumb enough not to monitor who’s actually picking up my stuff on the shipping dock so I’m unaware of what’s really going on, I’m kind of party to my own deception. So if Tom, Dick or Harry loses my shipment or damages it, and John hasn’t the wherewithal to pay my claim, I’ve earned my problem with my lack of oversight.

Your real gripe seems to lie in your perception that, as a registered broker, you’re being subjected to unfair competition from those masquerading as carriers while acting as brokers. I hope what I’ve written will help persuade you that this simply isn’t the case. The “carriers” you describe may indeed be misrepresenting themselves in the market, but they’re paying a considerable price for that misrepresentation, one that realistically more than offsets any competitive marketplace advantage they may attain.

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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