License to Bill?

License to Bill?

Q: We’re a public warehouse operator. As part of our service to our customers, we often set up motor carrier arrangements for our customers to move their goods out of our facility and on to other destinations (usually our customers’ customers, but not always).

The carriers bill us directly, and we then re-bill our customers at a small markup. As an accommodation to our customers, we will also handle any over, short and/or damage claims with the carriers.

One of our customers has become concerned about this service, telling us we need a broker license to do it. We don’t have one, regarding this service as merely ancillary to our primary business of storing, maintaining inventories, etc., of our customers’ goods, and we don’t want to get one because of the bonding requirement. But this customer tells us that without the license, we’re acting illegally.

Do we need a license? If we do, is there a way around the bonding problem? Can we get in trouble if we don’t have the license?

A: In order, the answers are yes, no and probably not.

A broker, according to the statute — 49 U.S.C. 13102(2) — is one who “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.”

OK, you do this, you say, only as “ancillary” to your primary business as a warehouseman, but doesn’t that describe what you’re doing to a T? You’re setting up motor carrier service for your customers, you’re getting paid for it (your “markup” on the carriers’ bills), and so that makes you a broker.

And you need a license — actually a “registration” with the Federal Motor Carrier Safety Administration — to do that legally. Your customer is therefore correct.

Can you get around the bond requirement? No. The Code of Federal Regulations is pretty clear on this point: “A property broker must have a surety bond or trust fund in effect for $10,000;” 49 CFR 387.307(a)(1). No ifs, no ands, no buts; you must have one, period. Indeed, the FMCSA won’t accept and maintain your registration if you don’t.

Your third question, though, is one I kind of wish you hadn’t asked: Can you get in trouble if you don’t register as a broker with the FMCSA?

Technically, you can. There’s this statutory requirement that you register and get your bond, and you’re flouting it if you don’t. When the law and government regulations say do this, and you don’t do it, you’re a scofflaw and liable for all sorts of penalties — as innumerable taxpayers have discovered when they’re caught messing with the April 15 requirements.

When it comes to rules and standards in this area, however, the FMCSA is just a hair more lenient about dealing with violations than is the Internal Revenue Service. In fact, the FMCSA as an entity actually doesn’t give a fig for your compliance or noncompliance.

That’s not to say it’s simply that nobody will notice. The FMCSA’s Office of Motor Carriers, which has responsibility for this sort of thing, is a diligent lot and might notice, especially if somebody — whether that might be your disgruntled customer or one of the motor carriers you use — raises his, her or its voice. So you could well be discovered.

Which will, however, matter not a whit. To the FMCSA, its Office of Motor Carriers is an orphan stepchild, roughly akin to Cinderella before the Prince came along. The OMC was jammed down its throat by the sunsetting of the old Interstate Commerce Commission, its duties are alien to the FMCSA’s primary mission of protecting highway safety, and it doesn’t want to hear about OMC problems. Nor does it have any mechanism for enforcing the standards overseen by the OMC.

In other words, nobody’s going to cite you for violating the law or the regulations. Nobody’s going to take you to court about it. Nobody, plainly speaking, ain’t gonna do nothin’.

Remotely, it could come back to haunt you. You might wind up with a huge claim, one large enough to warrant litigation, in which your status — as a broker — could become an issue. The fact that you’re acting as an unregistered broker could conceivably tell against you, and therefore your shipper/customer, in such a setting.

Even that, though, is pretty unlikely. And nothing else comes to mind. So, especially given your limited broker activity, you can probably get away without registering — provided, that is, you can persuade your reluctant customer to go along.

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, Contact him to order the compiled edition of past Q&A columns, published in 2010.