Freight broker


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Freight broker

  1. 1. FEDERAL BROKER REQUIREMENTS AND RECORDS TO BE KEPT Transportation laws are not governed by individual states – they are governed by federal laws, as set out by the Federal Motor Carrier Safety Administration(FMCSA), a division of the Department of Transportation (DOT): FMCSA: 400 7TH STREET, S.W., WASHINGTON, DC 20590 The legal definition of a transportation broker, or a broker of property, by the FMCSA, is: FMCSA – Broker of Property (except household goods) §371.2 Definitions: (a) Broker means a person who, for compensation, arranges or offers to arrange the transportation of property by an authorized motor carrier. A motor carrier, or person who is an employee or bona fide agent of a carrier, is not a broker within the meaning of this section when it arranges or offers to arrange the transportation of shipments which it is authorized to transport and which it has accepted and legally bound itself to transport. (b) Bona Fide agents are 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. (c) Brokerage or brokerage service is the arranging of transportation or the physical movement of a motor 1
  2. 2. vehicle or of property. It can be performed on behalf of a motor carrier, consignor, or consignee. (d) Non-brokerage service is all other service performed by a broker on behalf of a motor carrier, consignor, or consignee. Here the federal law outlines records that brokers are required to keep: §371.3 Records to be kept by brokers: (a) A broker shall keep a record of each transaction. For purposes of this section, broker may keep master lists of consignors and the address and registration number of the carrier, rather than repeating this information for each transaction. The shall show: (1) (2) (3) (4) (5) (6) (b) The name and address of the consignor; The name, address, and registration number of the originating motor carrier; The bill of lading or freight bill number; The amount of compensation received by the broker for the brokerage service performed and the name of the payer; A description of any non-brokerage service performed in connection with each shipment or other activity, the amount of compensation received for the service, and the name of the payer; and The amount of any freight charges collected by the broker and the date of the payment to the carrier. Brokers shall keep the records required by this section for a period of three (3) years. 2
  3. 3. (c) Each party to a brokered transaction has the right to review the record of the transaction required to be kept by these rules. [45 FR 68942, Oct 17, 1980. Redesignated at 61 FR 54707, Oct. 21, 1996, as amended at 62 FR 15421, Apr. 1, 1997] Federal law also prohibits a broker from using any other name other than its registered name, and specifically prohibits a broker from representing itself as a motor carrier. The law specifically spells out that all advertising that the broker does shows that they are a broker (see law 371.7, outlined below). One way that a broker can make sure that they represent themselves from the outset as a broker, and not as a carrier, is by using the word “logistics” in their business name (which is synonymous to being a third party and not a carrier). This way it would be clear on their business cards, and on all of their marketing materials that go out, they are representing themselves as a broker. Here is the law: §371.7 Misrepresentation: (a) A broker shall not perform or offer to perform any brokerage service (including advertising), in any name other than that in which its registration is issued. (b) A broker shall not, directly or indirectly, represent its operation to be that of a carrier. Any advertising shall show the broker status of the operation. [45 FR 58942, Oct 17, 1980, Redesignated at 61 FR 54707, Oct. 21, 1996, as amended at 62 FR 15421, Apr. 1, 1997.] 3
  4. 4. One of the main reasons that the law specifically states that the broker must not misrepresent itself as a motor carrier, is that brokers are not required by law to provide cargo insurance on shipments, since they never handle the freight – they only make the arrangements. Just as a real estate brokerage could not be held responsible for a roof falling in on a house that they represent, a freight broker normally could not be responsible for any damages or insurance claims, because they are never in a position to touch the freight. A motor carrier that handles and transports the freight is legally required to carry cargo insurance on the freight while it is in their possession. They are responsible for insurance claims on any damaged or missing freight, whereas a broker is not. So, it is important that the shipper knows when he is dealing with a broker (or agent of a broker). The broker by law must make that clear. In recent years there have actually been court cases where shippers have sued brokers along with the carriers on shipments for large damages or for a wrongful death, because the shipper said that the broker took on liability by representing themselves as an agent for a carrier, or did not disclose to the shipper that they were a broker (thus false advertising). As a broker, you would not want to take on liability by being negligent in your advertising, because otherwise you would legally have no liability – since you cannot have any control over the shipment if you never touch it. So as a broker, your wording in your advertising should be chosen carefully, and reviewed briefly by a transportation attorney. Here is the law regarding compensation for brokers: §371.9 Rebating and Compensation: 4
  5. 5. (a) A broker shall not charge or receive compensation from a motor carrier for brokerage service where: (1) (2) (b) The broker owns or has a material beneficial interest in the shipment, or The broker is able to exercise control over the shipment because the broker owns the shipper, the shipper owns the broker, or there is common ownership of the two. A broker shall not give or offer to give anything of value to any shipper, consignor or consignee, their officers or employees, except inexpensive advertising items given for promotional purposes. In other words, Section 371.9 (a) explains that a broker can’t broker a load and make money on the freight charges if he has a financial or other material interest in the freight, or if the broker owns the company that is doing the shipping, or visa versa. So, a manufacturing company can’t decide that they want to open an in-house brokerage owned by their organization to broker their own loads and profit from it, instead of using an outside brokerage. Section 371.9 (b) is self-explanatory, but states that brokers can only give inexpensive business and promotional gifts to their shipper clients. §371.10 Duties and obligations of brokers: (a) Where the broker acts on behalf of a person bound by law of the FMCSA regulation as to the transmittal of bills or payments, the broker must also abide by the law or regulations which apply to that person. [45 FR 68942, Oct 17, 1980, as amended at 62 FR 15421, Apr. 1, 1997, 66 FR 49871, Oct. 1, 2001.] 5