When Has a Shipment Been Brokered?

John Anderson Contracts, Q & A, Regulations, Transportation

A broker asks: What determines when a shipment has been brokered? If we tender the shipment to one carrier, who does not have brokerage authority, but they give the shipment to another carrier, is it brokered? How do owner-operators fit into this, and whose authority and insurance is the carrier running under?

Response: A broker is “a person, other than a motor carrier or employee or agent of a motor carrier … that … 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. 49 USC 13102(2).

Further,  “motor carriers, or persons who are employees or bona fide agents of carriers, are not brokers … when they arrange or offer to arrange the transportation of shipments which they are authorized to transport and which they have accepted and legally bound themselves to transport.” 49 CFR 371.2(a).

Unfortunately, it is common to say that a shipment was “brokered” anytime a motor carrier arranges for another motor carrier to transport a shipment. That is incorrect. By definition, a motor carrier is not a broker once it accepts and legally binds itself to transport a shipment. If the first motor carrier arranges for a second motor carrier to transport the shipment, it is “subcontracting,” not “brokering.”

On the other hand, a non-asset based broker holding broker authority only “brokers” a shipment when it arranges for a motor carrier to transport a shipment or for another broker to arrange for the transportation (a co-broker situation).

Once a motor carrier accepts a shipment it is authorized to transport, it remains a motor carrier with respect to the shipment even if it hires (subcontracts) a second motor carrier to actually transport the shipment. This is the case even if the first motor carrier also holds broker authority.  Only in the unlikely situation that the first motor carrier makes it expressly clear to the shipper that it accepts the shipment under its broker and not its motor carrier authority can the first motor carrier argue that it was acting  as a broker. However, motor carriers seldom, if ever, make this distinction.

If a motor carrier uses owner-operators, the answer depends on whether the owner-operator is leased to the motor carrier or operates as an independent motor carrier. When  the owner-operator is leased to the motor carrier, the owner-operator’s equipment is treated as the motor carrier’s  equipment, and service must be provided under the motor carrier’s own name, authority, USDOT number and insurance. If there is no lease, then the owner-operator must operate under its own name, authority, USDOT number and insurance and, in this situation, the owner-operator is a motor carrier operating as a subcontractor for the first motor carrier.

Brokers need to have written Broker-Carrier Contracts that not only prohibit the motor carrier from “brokering” shipments, but also prohibit the motor carrier from subcontracting or otherwise delegating to another the motor carrier’s obligation to actually transport shipments.

The Broker-Carrier Contract also should require the motor carrier to transport every shipment with equipment registered/licensed by it,  identified with its own name and USDOT number, operated under its own authority, and insured under its own insurance policy; and  the motor carrier should be obligated to indemnify and hold harmless the broker from and against any and all losses or damages resulting from its failure to do so.