On October 1, 2013, the Federal Motor Carrier Safety Administration (FMCSA) published in the Federal Register a final rule on a number of self-implementing provisions contained within the Moving Ahead for Progress in the 21st Century Act (MAP-21). The new rules contain many changes regarding property broker and freight forwarder obligations that may significantly affect your carrier operations.
Of primary impact for carriers is that MAP-21 prohibits carriers from providing brokerage services unless they register as a broker. The new rules make clear that carriers do not have the inherent authority to broker shipments. As such, carriers cannot arrange or offer to arrange for the transportation of property by a carrier for compensation when not transporting the property and assuming responsibility for the property.
MAP-21 thus abolishes the practice of “convenience interlining” by carriers that do not have broker authority. “Convenience interlining” is when the origin carrier does not provide service on its own equipment for at least a portion of the journey. The carrier is tendered a shipment, but for various reasons does not transport the shipment on its own equipment. Rather, the carrier subsequently tenders the shipment to another carrier for actual transportation. Those carriers who wish to continue their past practices of “convenience interlining” must obtain a broker’s license or freight forwarder permit to continue these types of operations.
True interlining is still allowed. True interlining is when the property is transferred between two or more carriers for movement to its final destination. The new rules, however, narrow the term transportation in this regard to situations where the shipment is actually transported for at least a portion of the shipment’s route on equipment owned and operated by the carrier. Loading, unloading, cross-docking or similar activities do not appear to suffice as transportation for interlining. True interlining is allowed under the carrier’s own operating authority or under the authority of the originating carrier.
The FMCSA acknowledges that it does not have a mechanism to monitor compliance by carriers with the requirement to obtain brokerage authority since the agency is not in a position to know whether carriers are brokering freight. However, the FMCSA is inviting aggrieved parties to file complaints against carriers that are brokering freight through its National Consumer Complaint Database. The agency is also committed to developing, for the first time, a comprehensive enforcement program to monitor compliance.
If a carrier is found to be brokering freight without having obtained appropriate broker authority, the carrier will be liable for fines and private causes of action. The fines to be imposed by the FMCSA for unlawful brokering can be as much as $10,000 per occurrence ($25,000 for Household Goods). In addition to company liability, the company’s officers, directors, and “principals” can be held personally liable for any fines imposed. MAP-21 also creates a private right of action for unlawful brokering for injured third parties for all valid claims regardless of the amount.
Carriers that wish to avoid $10,000 fines per occurrence may obtain broker authority by filing an OP-1 application requesting broker authority with the FMCSA. The carrier is instructed to provide its USDOT number, but to not include its current MC number. Existing carriers applying for property broker authority in the same legal entity will be issued a second MC number with respect to the property broker authority. Importantly, there is currently no obligation for existing companies holding both authorities to take any steps to obtain a second MC number. To obtain new or maintain current broker authority, proof of a surety bond or trust fund agreement in the amount of $75,000 must be filed with the FMCSA in the form of a BMC-84 or BMC-85.
There has been much confusion since MAP-21 became law regarding whether or not the new rules will require separate legal entities for each authority held. Some commentators have taken the position that MAP-21 prohibits a single legal entity from holding multiple authorities; however, that position directly contradicts the text of MAP-21 and the FMCSA’s own position that confirms that a single entity can continue to hold multiple authorities. While separate entities are not needed for carrier and broker authority and operations, it is still recommended as the best practice to hold the authorities and conduct operations under separate legal entities.
Another point of confusion is in relation to co-brokering (where one broker relies on the services of another broker to arrange transportation of freight shipments). While MAP-21 established regulations forbidding carriers from brokering freight and brokers from providing carrier services, there is no mention within MAP-21 of co-brokering. As such, co-brokering will continue to be utilized throughout the industry. However, to do so, one should ensure that co-brokering is not prohibited by the shipper-broker contract, gain the consent of the shipper, and ensure that shipments are only co-brokered pursuant to a co-broker contract.
Finally, if your company or affiliated companies have dual authority, you will be required to specify, in writing, the authority under which the service will be provided upon being tendered a shipment. That is, you will need to inform the shipper in writing whether you will be accepting the shipment as a carrier or broker. The FMCSA has not provided any guidance on how to properly handle this notice requirement. Possible solutions may be to have a simple check box on all load confirmations and/or bills of lading where you can indicate whether the shipment is accepted under your carrier or broker authority. It may also be possible to amend your contracts or tariff to indicate that any shipment accepted under your carrier authority may be passed on to your broker operations due to capacity constraints. Or you could simply route all shipments through your brokerage operations. Other solutions are also likely available.
The FMCSA has published helpful guidance on the new registration and financial security requirements for brokers of property and freight forwarders. It is highly recommended that you review that document which can be found at http://federalregister.gov/a/2013-21539
Determining whether your operations will need dual authority, how to structure your entities, and how to handle dual authority will depend on each carrier’s particular circumstances. If you have questions on whether or not your operations require you to obtain broker authority or have questions on how best to set up your carrier and broker operations, please feel free to contact me.