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MAP-21 New Brokering Provisions & What It Means

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MAP-21 New Brokering Provisions & What It Means

MAP-21 is sweeping new federal legislation that addresses a number of issues in the national transportation system. Of special interest to those in the freight business are new laws that directly affect freight brokers and forwarders and, indirectly, shippers, carriers and factors like Advance Business Capital. In other words, it impacts just about everyone whose livelihood touches upon freight transport. If you’re unfamiliar with the legislation, this article will tell you what you need to know.

MAP-21 is short for “Moving Ahead for Progress in the 21st Century.” A good deal of the legislation is devoted to funding infrastructure, but this article confines itself to those parts that relate to brokers and forwarders. Here are the legislation’s main components.

1.  Anyone acting as a freight broker or forwarder must register as such and obtain authority. It will surprise only those not in the freight business that there are people posing as legitimate brokers who aren’t registered and haven’t posted bond. These people don’t necessarily have criminal intentions, but they are lying to shippers or carriers who deal with them. They can’t meet liabilities in case of freight damage or loss. They are sometimes inexperienced and don’t know what they’re doing. And then sometimes they are crooks. If properly enforced, this requirement will go a long way to correcting this problem.

2.  Brokers and forwarders are required to have a minimum surety bond of $75,000. At present there are 24,000 brokers in the US and inevitably a significant number of these won’t be able to secure that amount. These businesses will lose not only authority but credit privileges from freight factors, so if you’re a small broker/forwarder, you must find a bond source if you want to stay in business. (The good news is that if you act as both broker and forwarder, one bond is sufficient.) But those firms that registered as freight forwarders in the past to avoid the bond, now must obtain minimum $75,000 financial responsibility.

3.  Motor carriers that sometimes act as “unofficial” brokers must now register as brokers. Brokering is not the same thing as interlining, which is where a carrier transports freight to a point where it’s picked up by another carrier for ultimate delivery. Interlining is a common and legitimate practice and different from freight brokering because each carrier is hauling under its own authority.

Freight brokering by carriers is legitimate too but from now on carriers must have separate brokering authority. To illustrate, suppose “Zippy Freight” hires another company, “Sure Delivery,” to deliver one of its shipments. In that case, Zippy is brokering its freight and must have both authority and bond. The purpose of this new regulation is not to discourage carriers from brokering but to ensure that the practice is identified as such for those inevitable times when shipments are late, lost or damaged. Those carriers that continue to broker without authority are liable for a $10,000 fine for each instance. Further, liability is joint and several for the entity, carriers, directors and principals. Ouch.

4.  No group surety bonds or group trust funds. The new regulations prohibit these at this point. Further, only companies approved by the Treasury Department may issue bonds and trust funds.

5.  Regulations take effect October 1, 2013. Everyone in the industry has known about this law for a year but there is a phase-in period of thirty days where you still have time to get it together. If you don’t, cancellations will start being issued on November 1, 2013.

The eventual effect of MAP-21 will be to remake the legal map of freight transport. Whether you think that’s for better or worse depends on your point of view. (If, for instance, you’re a small broker you may feel picked on.)  The ultimate outcome will affect different areas of the industry differently.

Brokers – The regulatory climate for brokers/forwarders is now stricter. Besides having a higher bond, a broker would be wise not to take what the law calls a “beneficial interest” in the cargo. In other words, don’t insure it except contingently; don’t be a party to the bill of lading. (On the other hand, while brokers technically don’t have responsibility for damaged/lost loads, those that want to stay in business should be prepared to assist shippers in filing carrier claims.)

Shippers – Shipping companies must exercise greater due diligence in granting loads. If you grant a load (yes, that’s legalese, but this is all about legality) to a carrier, that carrier must haul it under its own authority, i.e. be identified as carrier on the bill of lading. If you fail to require this, you’re assuming liability for any transport mishap to your shipment. If you’re working with a broker, be aware that the broker has no liability for the load; that liability is still with the carrier. In other words, shippers should know to whom they are entrusting their cargo. Check out authority, registration and bond.

Motor carriers  - The longstanding informal arrangement of carriers wearing two hats—hauling and brokering—is no longer legal. If you contract with another carrier to hire your load (all the way or part of the way), you must be registered as a freight broker and you must have a $75,000 bond just like people that do that for a living. If this is how you do business, by all means keep on doing it but be sure you’re following the law. This is not only legal but smart; it’s in your interest not to be liable for transactions done wearing your broker hat.

For a number of years the industry has negotiated shipping contracts in a non-regulated (or partly regulated) environment where anything goes. Loads have been arranged by carriers, sub-hauled, double-brokered and moved by uninsured parties. Brokers have acted as carriers and carriers as brokers. Freight forwarders have conducted business as no more than unbonded brokers.

Worst of all, bad carriers and bad brokers have routinely risen from the ashes of the old without penalty. They close their doors and reopen under new names and new MC numbers with their wives, cousins or brothers-in-law listed as principals. And you don’t know who you’re dealing with until the stuff hits the fan belt.

The new law and its interpretations will attempt to change this landscape, but only enforcement action by the FMCSA can actually achieve that end. That body’s capability to enforce is marginal, and it will probably be some time before the ultimate impact of MAP-21 is clear.

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