A new Federal Motor Carrier Safety Administration (FMCSA) rule aims to crack down on brokers and freight forwarders refusing to pay motor carriers for completed services.
According to PMTA Member and FMCSA Pennsylvania Division Administrator Chris Henry, FMCSA received a “great deal of feedback” from carriers sharing concerns about dealing with brokers and freight forwarders who failed to pay them for the legitimate services they completed.
This final rule will ensure brokers who do not pay carriers for the agreed upon work performed will have their operating authority quickly suspended and will be unable to continue accruing claims over time.
Brokers and freight forwarders are defined as transportation intermediaries that work with shippers to arrange the movement of freight.
Brokers arrange the transportation of freight by authorized for-hire carriers but do not handle the freight directly.
Freight forwarders are intermediaries who handle freight directly, including assembling, consolidating, break-bulking, and distributing shipments. They assume responsibility for transporting the freight and use, for any part of the transportation, a motor carrier subject to FMCSA jurisdiction.
“We have more than 32,000 brokers and freight forwarders registered with FMCSA, and we know the majority of them operate with integrity and uphold the contracts made with motor carriers and shippers,” Henry said in an email to PMTA. “Unfortunately, a minority of brokers with unscrupulous business practices can create unnecessary financial hardship for unsuspecting motor carriers.”
The new rule will provide carriers with more information to help avoid contracting with unscrupulous brokers and could help carriers get paid faster for the work completed.
Henry says FMCSA will:
- The assets in these trusts are used to satisfy legitimate claims against brokers who fail to pay for services rendered.
- Limit the asset types that can be maintained in broker or freight forwarder trusts to cash, irrevocable letters of credit (ILCs) issued by a Federally insured depository institution, and Treasury bonds.
- Trusts are agreements between a broker and a financial institution.
- The listed asset classes are stable in value and can be easily liquidated within seven calendar days of an event that triggers a payment from the trust.
- Establish procedures and requirements for the immediate suspension of broker and freight forwarder operating authority registration if the available financial security falls below $75,000.
- Clarify when a broker or freight forwarder is in financial failure or insolvency and establish related requirements.
- Remove “loan or finance companies” from the list of financial institutions allowed to provide BMC-85 trust funds for brokers and freight forwarders, as they are not robustly regulated at the federal or state level like the other entities on the list.
- Amend FMCSA regulations to add civil penalties for surety and trust fund violations of the regulations and establish a process for the suspension of sureties and trusts in the event of noncompliance with the regulations.
The Broker and Freight Forwarder Financial Responsibility rule will go into effect January 16. It can now be viewed in the Federal Register: View Federal Register