When should a dispatch service be considered a bona fide agent? What role do bona fide agents play in the transportation of freight? The FMCSA has considered stakeholder comments and have an interim guidance in place.
Since there are differences in the definition of a broker in different sections of federal regulations, the FMCSA is aiming to stop certain dispatch services that claim to qualify as “bona fide agents” of motor carriers who are likely to be engaged in unauthorized brokerage.
In June, the Agency asked for help to inform future guidance on the definitions of broker and bona fide agents, while also clarifying the level of financial penalties for unauthorized brokerages.
Now, after reviewing stakeholder comments, FMCSA released a notice that seeks to clarify the statutory and regulatory definitions of the terms “broker” and “bona fide agent” in response to a mandate in the Infrastructure Investment and Jobs Act (IIJA).
So, let’s break this down.
Definition of Broker
First things first, the FMCSA says this interim guidance “does not have the force and effect of law and is not meant to bind the public in any way, and the document is intended only to provide information to the public regarding existing requirements under the law or agency policies.”
Currently, broker is defined in 49 U.S.C. 13102(2) as:
- A “person, other than a motor carrier or an employee or agent of a motor carrier, that as a principal or agent 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.”
It is also defined in 49 CFR 371.2(a) as:
- A “person who, for compensation, arranges, or offers to arrange, the transportation of property by an authorized motor carrier. Motor carriers, or persons who are employees or bona fide agents of carriers, are not brokers within the meaning of this section 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.”
When it came to defining a broker, the prevailing view among commenters was that the current definition of “broker” is adequate.
So, the Agency only felt the need to clarify the definition in one area: the relevance of an entity’s handling of funds in a transaction between shippers and motor carrier.
“FMCSA wishes to clarify that handling money exchanged between shippers and motor carriers is a factor that strongly suggests the need for broker authority, but it is not an absolute requirement for one to be considered a broker.”
Definition of Bona Fide Agent
In 49 CFR 371.2(a), bona fide agents are defined as “persons who are part of the normal organization of a motor carrier and perform duties under the carrier’s directions pursuant to a preexisting agreement which provides for a continuing relationship, precluding the exercise of discretion on the part of the agent in allocating traffic between the carrier and others.”
FMCSA notes that “after careful consideration, FMCSA has determined that representing more than one motor carrier does not necessarily mean one is a broker rather than a bona fide agent.”
Any determination will be highly fact specific and will entail determining whether the person or company is engaged in the allocation of traffic between motor carriers.
Role of Dispatch Service
Lastly, the agency notes that dispatch services have certain common features:
- They work exclusively for motor carriers, not for shippers
- They source loads for motor carriers
- They perform additional services for motor carriers that are unrelated to sourcing shipments
“FMCSA clarifies that when a dispatch service does not participate in the arrangement of freight, or when it represents only one motor carrier, it is not a broker. If a dispatch service arranges transportation on behalf of multiple motor carriers and engages in the allocation of traffic, however, then pursuant to 49 CFR 371.2, it is not a bona fide agent and must obtain broker operating authority registration.”
Ultimately, the analysis of whether a person or entity requires broker authority is often highly fact specific and must be made on a case-by-case basis.
Whether a dispatch service is a bona fide agent, one must analyze whether the service falls within the definition of bona fide agent in 49 CFR 371.2(b). However, if the dispatch service allocates traffic between two motor carriers, it cannot be a bona fide agent by definition.
“If the dispatch service is deemed to be providing unauthorized brokerage services pursuant to 49 U.S.C. 14916, the service will be subject to applicable penalties. If no finding of unauthorized brokerage is made, it will not be subject to such penalties.”
For a full breakdown of the guidance and a list of factors surrounding dispatch services, you can check out federalregister.gov/d/2022-24923.
What kind of insurance coverages do brokers need?
Today, brokers need a wider variety of protection that often includes:
- Truck/Freight Broker Auto, General Liability Coverage – Up to $5,000,000
- Professional (E&O) – Up to $1,000,000
- Contingent Cargo Liability – Up to $500,000
Truck Broker Liability (TBL) is designed for truck brokers, along with trucking operations, that have brokerage authority. TBL is a hybrid primary liability policy that addresses the truck broker’s general liability arising out of the ownership and use of a truck by the motor carrier of a brokered cargo move, in compliance with a written truck brokerage agreement.
It provides bodily injury and property damage liability coverage protecting the truck broker if legal action is taken because of a truck accident involving a motor carrier to whom they brokered a load.
General Liability is designed to respond to the liability a freight broker could assume other than liability to cargo or liability as result of a vehicle being driven. For example, a freight broker might be pulled into a lawsuit if third-party trucker or warehouse personnel was injured because of cargo being unloaded from their truck.
Errors and Omissions Insurance (E&O or professional liability) is designed to protect brokers from lawsuits that claim you made a mistake in your professional services and can help cover expensive court costs or settlements.
Contingent Cargo Legal Liability is designed to protect a transportation broker or freight forwarder against the liability assumed when deciding to move cargo for others. This provides coverage when a trucker’s primary motor truck cargo policy fails to assume the responsibility for cargo loss or damage.
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