FMCSA Requests Public Comments on Broker Transparency Petitions

The Federal Motor Carrier Safety Administration (“FMCSA”) requested public comments on petitions for rulemaking backed by owner-operator/small-fleet groups to address the transparency of broker rates. The notice is in response to petitions filed by the Owner-Operator Independent Drivers Association (“OOIDA”) and the Small Business in Transportation Coalition (“SBTC,” and, together with OOIDA, the “Petitioners”). 

49 C.F.R. 371.3(a) requires brokers to maintain detailed records of their brokered transactions, including the amount of compensation received by the broker for the brokerage service performed and the name of the payer, and the amount of any freight charges collected by the broker and the date of payment to the carrier. 49 C.F.R. 371.3(c) gives each party to a brokered transaction the right to review the record of the transaction required to be kept. 

OOIDA’s Petition for Rulemaking

OOIDA’s petition requests that the FMCSA adopt a rule requiring property brokers to provide an electronic copy of each transaction record automatically within 48 hours after the contractual service has been completed, and that the FMCSA explicitly prohibit brokers from requiring carriers to waive their right to access such records.

Motor carriers have expressed frustration about the lack of transparency between brokers and motor carriers. OOIDA believes the problem is that the regulations designed to provide transparency are routinely evaded by brokers or simply not enforced by the FMCSA. While the current rules require brokers to keep transaction records and permit each party to a brokered transaction to review the records, many brokers implement hurdles they know will prevent a carrier from ever seeing this information. Given that many business transactions now take place electronically, OOIDA believes that the rules need to be updated to improve transparency and prevent brokers from keeping their transaction records from motor carriers that are not located near the broker. The updated rules would also prevent brokers from retaliating against carriers that request the transaction information.

SBTC’s Petition for Rulemaking

SBTC requests that the FMCSA amend 49 C.F.R. 371.3 to prohibit brokers from coercing or otherwise requiring parties to brokers’ transactions to waive their right to review the record of the transaction as a condition of doing business. SBTC also requests that the FMCSA adopt regulatory language indicating that brokers’ contracts may not include a stipulation or clause exempting the broker from having to comply with the transparency requirement.

SBTC explained that freight rates have dropped drastically and that motor carriers have reported instances of brokers engaging in “profiteering, price gouging and low-balling tactics.” SBTC

claims that in some instances, brokers are receiving commissions of up to 65% on loads due to a sudden shortage of freight and over-capacity in the transportation market. SBTC stated that, to evade regulations, some brokers have resorted to requiring carriers, as parties to broker transactions, to waive their rights to obtain documents that show the amount the shipper is paying the broker. SBTC further states that the provisions in 49 C.F.R. 371.3 should be strengthened to stop this abuse.

Transportation Intermediaries Association’s (the TIA) Position

The TIA, an industry group that represents brokers and other intermediaries, was not part of the FMCSA’s request for public comment, however it has addressed the topic.  In a letter to members, TIA President Robert Voltmann responded to an article published by OOIDA regarding this issue. Voltmann emphasized that owner-operators rely on brokers to be their sales force to keep their trucks full and stay in business. Further, Voltmann pointed to the costs incurred by brokers in employing people, investing in their knowledge, investing in technology, and maintaining a sales force to find freight to give to the owner-operators, and brokers negotiate appropriately based on these costs. From a statutory interpretation perspective, Voltmann explained that 49 C.F.R. 371.3(c) only requires brokers to make their transaction records available for review by “each party” to the transaction, which includes the shipper and the carrier, and maybe the consignee, but not the carrier’s trade association or an owner-operator that is working for another company. Furthermore, in an unpublished portion of a Transportation Nation Network’s  interview, Voltmann argued: “The 371 rules were promulgated during a time when rates were highly regulated and brokers earned a commission from the carrier, rather than the current system where the broker negotiates a price with the shipper and then negotiates a separate price with the carrier. The rules are there as a failsafe, but are no longer applicable to a modern, deregulated marketplace.”

FMCSA’s Request for Public Comments

The FMCSA requested comment on the following issues:

  • whether the FMCSA has statutory authority to provide the requested redress;
  • what actions the FMCSA should take to ensure appropriate exercise of such authority (assuming it exists);
  • whether perceived roadblocks to receiving records are more common amongst large brokers, small brokers, or is the issue more widely spread;
  • if large brokers only, what revenue threshold should be adopted with a rule (if one is adopted);
  • how would electronic records be provided to carriers as OOIDA demands;
  • cost estimates related to complying with OOIDA’s request;
  • quantitative benefit to motor carriers if FMCSA adopted OOIDA’s and SBTC’s requests; and
  • a quantitative estimate of the economic costs to brokers or others if FMCSA adopted the rules OOIDA and SBTC request.

 

The comment period closed October 18, 2020.

Public Comments Received

FMCSA received a total of 1,220 public comments during the public comment period. The majority of the comments submitted came from owner-operators in support of rules that provide for greater transparency and increased access to brokerage transaction records. In contrast, some of the largest brokerage and logistics providers submitted comments in opposition to the Petitioners’ request for rulemaking. 

The common bases for opposition highlighted by brokerage and logistics providers are: (1) the promulgation of rules related solely to financial transactions is inconsistent with the FMCSA’s modern mission, (2) part 371 is an archaic regulation that is inapplicable to the current brokerage marketplace, (3) there are mechanisms in place that allow interested parties to access sufficient information pertaining to market rates and other financial information, and (4) the contemplated rulemaking would increase costs for brokers and shippers, and provide no economic benefit to motor carriers.

FMCSA Statutory Authority

Brokerage and logistics providers consistently conclude that the promulgation of financial regulations by the FMCSA exceed the scope of the agency’s mission. According to the FMCSA, its primary mission is to “reduce crashes, injuries and fatalities involving large trucks and buses.”[1] C.H. Robinson, one of the largest and oldest property freight brokers, analogizes the requested rulemaking with the FMCSA’s decision to eliminate minimum cargo insurance requirements that it concluded were “not a concern for the public, nor [did] they raise safety issues that might justify such Federal intervention.”[2] The TIA also concludes that any regulation that requires brokers to implement IT solutions to accomplish OOIDA’s request for electronic submission of rates would be outside the jurisdiction of the FMCSA because “it is not tied directly to safety like the ELD mandate.”[3] Similarly, Mode Transportation concludes that the promulgation of the requested rule “is outside the FMCSA’s jurisdiction as it is not directly connected to its purpose” of promoting safety.[4]

Part 371 and the Modern Brokerage Transaction

Brokerage and logistics providers highlight the history of part 371, which was promulgated forty years ago, at a time when the brokerage model was radically different. According to C.H. Robinson, the regulation was intended to apply to a model where there was a single transaction between the shipper, broker and motor carrier whereby the motor carrier paid a commission directly to the broker.[5] Further C.H. Robinson explains that the modern brokerage transaction model largely consists of the motor carriers negotiating rates and financial terms directly with the broker, “independent from the rates and payment terms negotiated between the shipper and broker.”[6] As such, C.H. Robinson argues that part 371 is incompatible with the modern brokerage model where there is no longer a single transaction between the shipper, broker and motor carrier, but rather there are now two distinct transactions.[7]

Other commenters express similar sentiments. Mode Transportation highlights the fact that the logic underpinning the transaction record requirement of part 371 was to provide motor carriers with a method to verify that the commission was paid correctly to the broker, and that the broker was not the same entity as the shipper.[8] Likewise, Coyote Logistics highlights the fact that the “48 hour rule” was “logical and relevant” at the time it was promulgated, but changes in the industry have rendered the rule moot.[9]

Modern Mechanisms that Provide Market Rate Transparency

Brokerage and logistics providers further highlight the fact that financial information about the freight transportation market is readily available to all industry participants. C.H. Robinson notes that OOIDA provides its members with access to tools to monitor market rates, including a “proprietary discount to the load board and rate monitoring [system] branded ‘DAT MembersEdge.’”[10] Further, C.H. Robinson also highlights the fact that it is a publicly traded company and that its financial information, including overall profitability and margins, are widely available.[11] Similarly, Coyote Logistics concludes that “[r]ates on the sport market are already incredibly transparent,” citing service providers such as DAT and Truckstop.com which “provide real-time visibility to both capacity demand and pricing.”[12] Further, brokers question the rationale for providing motor carriers with increased financial information about brokered shipments, because the marketplace ultimately dictates the value that a carrier and broker can charge for their services and both parties are free to negotiate amongst themselves.[13] As such, brokerage firms find there is no utility in imposing such requirements on freight brokers.

Potential Increased Cost for Brokers and Carriers

Brokerage and logistics providers generally conclude that there would be no economic benefit derived by motor carriers if the FMCSA adopts the requested rules. According to freight and logistics provider ArcBest, the Petitioners’ requests for modification to part 371.3(c) would “increase each property broker’s personnel, equipment and software programming costs to at least $500,000 annually.”[14] Further, ArcBest concludes that the increased costs would prove detrimental to shippers, consignees and consumers, and most likely to motor carriers as well.[15]  Similarly, C.H. Robinson concludes that motor carrier costs could rise due to potential payment delays resulting from the Petitioners’ request.[16] C.H. Robinson estimates that payment may be delayed to motor carriers by an average of seven days or more compared to the current state.[17] Accordingly, C.H. Robinson believes that motor carriers’ revenue per transaction would decrease due to delays in payment.[18]

Transportation Intermediaries Association’s (the TIA) Comments

 

The TIA filed comments which reiterate its belief that the current part 371.3(c) regulation was created for market processes that no longer exist.[19] Correspondingly, the TIA has filed its own petition for rulemaking with the FMCSA seeking the elimination of the requirements of part 371.3(c) and seeking clarification on what legally constitutes a “dispatch service.”[20] The TIA stresses that the proposed transparency requirements could be deleterious to shippers because it could lead to the leakage of proprietary rates and transportation costs to competitors.[21] Further, the TIA highlights the fact that the motor carrier spot market is one of the most transparent marketplaces in the world, citing the extensive availability of information on load boards, the internet, and through direct rate quotes.

Conclusions and Considerations

The market factors that necessitated part 371.3 have shifted significantly since the regulation was promulgated forty years ago. Similarly, the FMCSA’s mission has also shifted from one that had significant oversight of financial matters as part of the Interstate Commerce Commission (ICC), to one that is primarily focused on safety today. While some motor carriers argue that increased access to brokerage transaction records would provide a benefit, brokerage firms believe that such a requirement would increase inefficiency and costs. Further, brokerage firms would generally prefer that the FMCSA eliminate the transparency rules in their entirety instead of making modifications that they argue would further burden brokers.

 

 




[1] Federal Motor Carrier Safety Administration. 2013. Our Mission. Retrieved from https://www.fmcsa.dot.gov/mission.

[2] C.H. Robinson, Comment Letter on Request for Public Comments on Petitions for Rulemaking to Amend Certain Requirements for Property Brokers (Nov. 13, 2020).

[3] Transportation Intermediaries Association, Comment Letter on Request for Public Comments on Petitions for Rulemaking to Amend Certain Requirements for Property Brokers (Oct. 26, 2020).

[4] Mode Transportation, Comment Letter on Request for Public Comments on Petitions for Rulemaking to Amend Certain Requirements for Property Brokers (Oct. 13, 2020).

[5] Supra note 3.

[6] Supra note 3.

[7] Id.

[8] Supra note 5.

[9] Coyote Logistics, Comment Letter on Request for Public Comments on Petitions for Rulemaking to Amend Certain Requirements for Property Brokers (Oct. 19, 2020).

[10] Supra note 3.

[11] Id.

[12] Supra note 9.

[13] ArcBest, Comment Letter on Request for Public Comments on Petitions for Rulemaking to Amend Certain Requirements for Property Brokers (Sep. 14, 2020).

[14] Id.

[15] Supra note 13.

[16] Supra note 3.

[17] Id.

[18] Id.

[19] Supra note 4.

[20] Transportation Intermediaries Association, Elimination of 49 CFR. §371.3(c) and Guidance on Dispatch Services, Petitions for Rulemaking (Aug. 8, 2020).  The TIA’s request for guidance on what constitutes a “dispatch service” cites loopholes in the current regulations that allow dispatch services to essentially function as unlicensed brokers.    The TIA notes that dispatch services handle freight monies but are not subject to the statutory licensing and financial security requirements of licensed brokers. Further, the TIA points to ambiguity of part 371.2(b), which defines what constitutes a motor carrier bona fide agent.  The TIA notes that it is unclear whether a company/person can be a bona fide agent of multiple motor carriers without exercising discretion in allocating traffic between such motor carriers. The TIA seeks published guidance that expressly provides that dispatch services are allowed to be agents of only one motor carrier, and that anything further would require a brokerage license.

[21] Id.

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