When is Broker Registration Required?

When is Broker Registration Required?

Copyright 2006, Traffic World, Inc.

Q:

I have a question that I believe I know the answer to, but cannot verify with exact language or regulations (at least I haven''t been able to find the answer yet).

A friend of mine owns a local trucking company and engages in the distribution of freight from their terminal to customers across the state. While they have interstate authority, they are unionized and are not able to realistically engage in operations that would require a driver to be out overnight.

Two issues: First, this carrier occasionally gives freight to a carrier partner in another part of the state if they can''t make delivery directly themselves. They don''t have brokerage authority to do so and I believe that they must have authority to give anything to another carrier, correct?

Also, they are going to begin picking up freight in a major city outside the state and will use another carrier (running under that carrier''s authority) to do so. I''m certain that they need brokerage authority to tender to another carrier any shipment that has been tendered to them, but haven''t found the actual language to prove it. Since they give freight to another carrier now in their state they don''t think they need the authority.

Can you help me answer this question? The basic question is: When is brokerage authority required for current contract carriers with interstate authority?



A:

You''re not going to find "the actual language to prove" that your friend needs broker authority - actually, registration with the Federal Motor Carrier Safety Administration - for either its present or proposed operations, because it doesn''t.

Everything you''re describing amounts to nothing more than either interlining or substitution of service, both of which are part of normal motor carrier operations and are well within the scope of the service permitted by the carrier''s FMCSA registration as a motor carrier. And this is well documented in the statute.

Under 49 U.S.C. ? 13102(2), a broker is 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" (emphasis added). Quite apparently this doesn''t fit your friend''s operation at all, since it is a motor carrier and regularly provides motor carrier service.

There are, however, a few factors of which your friend ought to be aware. The first is that, in as much as the freight is being tendered to his company, the bill of lading is a contract only between him and the shipper and he subs it out to another carrier at his own risk and responsibility.

That is to say, in the first place, that he''s the one who ought to be billing the shipper at his own published or agreed rates and charges. If the second carrier has higher established rates, that''s your friend''s problem; he can''t arbitrarily up the ante to the shipper, but will have to bear any added costs himself. And that holds true even if the subcontracted carrier''s rates are so high as to exceed the amount he himself holds out to the shipper, so that he loses money on the deal.

In addition, any rules, accessorial charges, etc., maintained by the subcontracted carrier won''t apply to the extent that they differ from those that your friend''s company maintains. If, for example, your friend allows four hours free time for loading and unloading and the subcontractor only allows two hours, the two-hour period can''t be enforced against the shipper since it didn''t contract with the subcontractor; if there''s a discrepancy, your friend''s obligation is to make good to its subcontractor.

Furthermore, if the goods are lost, damaged or delayed in transit your friend can expect to receive the shipper''s claim and will be just as liable for that claim as if he''d hauled the shipment himself. Under the Carmack Amendment, 49 U.S.C. ? 14706(a)(1) he''s liable for "loss or injury to the property caused by (A) the receiving carrier [his own company], (B) the delivering carrier or (C) another carrier over whose line or route the property is transported."

That doesn''t, of course, exonerate the subcontracted carrier if the loss, damage or delay occurred while the goods were in its custody. But your friend can scarcely expect the shipper, who contracted for him to move the goods, to re-route its claim to some stranger who it may not have known was even going to be anywhere near the shipment, nor does the law oblige it to do so. It''s your friend''s responsibility to seek recovery from the responsible carrier via an interline claim.

With these caveats, though - none of which, by the way, apply to brokers - what your friend is doing now as well as what it proposes to do out of state is entirely within its authority as a registered motor carrier, and it need not register also as a broker.



-- Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at P. O. Box 76, Morganton, Ga. 30560; phone, (706) 374-7201; fax, (706) 374-7202; e-mail, BarrettTrn@aol.com. Contact him to order the 536-page compiled edition of past Q&A columns, published in 2001, at $80 plus shipping.