In the previous installment of PARCEL Counsel, we took a look at last summer’s Highway Bill, MAP-21, and its provisions relating to the new requirement for transportation brokers and surface freight forwarders to have in place a $75,000 surety bond. In this installment we will focus on the provisions relating to registration and operations of brokers and surface freight forwarders. It should be noted that these provisions do not apply to bona fide ocean freight forwarders or air freight forwarders, also known as indirect air carriers. 

    One driving force behind the passing of the new laws is one aspect of the “double payment problem” faced by shippers and brokers as well. Simply put, this is the situation where a shipper or a broker tenders a load to someone who they believe to be a carrier, who then retenders the load to another carrier to perform the actual transportation. 

    The shipper or broker makes good faith payments to the entity they think is the carrier, but when that entity fails to pay the actual carrier, the actual carrier comes back against both the consignor and consignee of the shipment to collect its charges. Under the current state of the law, these claims are very troublesome to say the least, and in some instances can involve very substantial dollar amounts.

    This is very different than when a shipper tenders a load to someone they know to be a broker. When a shipper knows that it is dealing with a broker, there are certain steps that can be taken to reduce the risk and consequences of the broker not paying its carrier, e.g., contractual provisions, requirement of a surety bond to protect just that shipper, spot checking the broker’s contracts with its carriers, random audits of the broker’s payment practices, and similar measures. However, when a shipper doesn’t know that its carrier is retendering loads, they are caught completely off guard with claims seeming to come out of nowhere.

    The new requirements address this problem in several ways. First, motor carriers, surface freight forwarders, and brokers will have to have a distinctive registration number (now known as an “MC number”) for each category of service. The new registration numbers must also include “an indicator of the type of transportation service for which the registration number is issued.”

    The new legislation also requires that “for each agreement to provide transportation or service… the registrant shall specify in writing the authority under which the person is providing such transportation or service.” While this requirement would obviously apply to individually negotiated contracts, it is unclear whether it would also apply to a bill of lading… which, in the absence of an individually negotiated contract, is also the “contract for carriage” as well as a receipt for the goods.

    Another driving force is that over the last few years the instances of outright fraud have substantially increased. The persons perpetuating these various shams and scams currently operate in a shadowy world where dormant authorities with low registration numbers are purchased to create the appearance that they have been in business for some time. Other fraudulent practices involve the obtaining of a new authority… which is then abandoned once the name or MC number becomes known as a disreputable or fraudulent operator. 

    At the present time it is very difficult to determine who the actual principals are behind the license. To help solve this problem, the legislation created a new statute requiring the Federal Motor Carrier Safety Administration (FMCSA) to make “publicly available on the internet” the names and business addresses of the principals of each entity holding such registration. 

    There is also a requirement for new entrants that a broker or freight forwarder shall employ as an officer an individual who “has at least three years of relevant experience” or can provide “satisfactory evidence” of the individual’s knowledge of “related rules, regulations and industry practices.” Further, and as a requirement for obtaining a license, a new registrant must demonstrate that it has “sufficient experience” to qualify them to act as a broker or freight forwarder. 

    These new statutes went into effect on October 1, 2012. However, they cannot be fully implemented until the FMCSA establishes regulations to fill in the details for the practices and procedures going forward.

    At the time of the writing of this article in early January, the FMCSA had not yet initiated any rule making procedures. It is my understanding that the FMCSA intends to initiate rule making procedures “sometime” in 2013. It would then take at least a year or two, if not more, until the regulations were finalized and put into effect.

    All for now!
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