Thousands of Freight Brokers Forced Out of Business by Costly New Regs

Monday, 30 Dec 2013 11:15 AM

By Andrea Billups

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Thousands of small-time freight brokers and agents have been forced out of business due to a provision in the federal transportation bill that raised their bonds from $10,000 to $75,000, according to an association that represents them.

Freight brokers are federally regulated individuals or companies that link an entity needing shipping services with an authorized carrier, and they must obtain a license from the Federal Motor Carrier Safety Administration and carry a surety bond, a promise to pay one party if a second party fails to meet its obligations.

The association asserts that the steep increase is beyond the budgets of independent small-business owners, forcing many to close, limiting competition, and ultimately raising the price of consumer goods they transport.

"On Dec. 1, there were 21,080 independent brokers. Today there are 12,996," says James Lamb, president of the Boca Raton, Fla.-based Association of Independent Property Brokers & Agents (AIPBA), who describes the measure as "killing the American" dream in favor of big business.

Lamb told Newsmax that the provision in the transportation bill means that independent brokers are now being treated the same as larger "multinational competitors."

Lamb claims the measure has fostered a crisis among the smaller freight brokers, with 927 such businesses closing in Texas, 906 in California, and 533 in Illinois.

Similar closings will occur in all 50 states, he said. "This is a crisis for the independent freight industry and for American consumers and manufacturers, as costs will rise for virtually all goods shipped within the U.S."

Trucker John Benning, who is based in Nevada, is among the brokers who had their license revoked because of the bond increase. Benning told Newsmax that he received little notice that his fees would increase and says for such a big change, he would have expected more time.

"I think it was sneaky the way it was [put] into the bill," Benning said of the provision. "I would say it's probably more special interest influence than government. I don't know what transpired behind the scenes, but it's such a huge move from what was previously required."

Lamb's group brought a lawsuit in federal court challenging the new regulation and is also appealing on the legislative front, seeking relief from House and Senate Judicial Committees, saying the law lacked "proper rule-making and fact-finding."

Larger trucking associations are backing the measure, and dispute claims made by the AIPBA. Among those supporting the legislation are the Transportation Intermediaries Association (TIA), the American Trucking Associations, and the Owner-Operator Independent Drivers Association.

They say the law was not set up to penalize small companies but to protect those in their business from incidents of fraud.

"We were asked by Congress, following battles over this, to sit down with the three biggest players in the industry and address fraud," Nancy O'Liddy, Director of Public Affairs at the TIA, told Newsmax.

"For our members, brokering is a big issue," O'Liddy said, noting the measure will ensure carriers are vetted, rated, and insured, and make surety companies that provide bonds more vested than they were in the past.

The TIA's Senior Manager for Government Affairs Chris Burroughs disputed Lamb's allegations of the number of brokers going out of business. "We believe they are extremely inaccurate," he said.

O'Liddy said the cost to secure a bond of $75,000 is anywhere from $1,500 to $5,600 annually. "I'm not quite sure why this put someone out of business. They are moving some high-dollar freight. If you don't pay the carrier, the bond is used for non-performance. That carrier can say 'I had a $3,000 trip, I want to get paid.' If it's a valid claim they should get paid.

"Brokers in this industry have become the banks. They have to pay well in advance of when they get paid by shippers. A small carrier has to have enough money to pay insurance for his rig, to pay for the rig itself, so brokers need much more skin in the game."

Lamb told Newsmax that the fraud allegations are overstated and that there is a "hidden agenda to throw out small players and prevent new entrepreneurs from coming into the business.

"Although there is fraud out there in the industry, as the TIA acknowledged in 2004, this is really throwing the baby out with the bathwater."

"You look at why they are doing this and you have to conclude that you are throwing out too many small brokers just to get rid of a few who are committing fraud. This smacks small businesses and makes it impossible for new folks to come into the business. Should we deal with fraud through regulation or the criminal justice system?"

While some have charged that many brokers who have not had licenses renewed were simply in the system but already inactive, Lamb said that is not in case.

"There are revocations that have been put in place on active licenses. These were people who were paying the $10,000 amount and now those have been cancelled," he said. "You don't keep applying for a bond if you aren't doing business.

"Now we are faced with questions of antitrust and collusion and whether this was an attack on competition rather than an attack on fraud."

The AIBPA has filed an anti-trust claim with the Justice Department. A request for an injunction was denied but a petition before the Court of Appeals will be heard in 2014, according to Lamb. "Unfortunately the damage, because we didn't get the injunction, has already been done."

In the future, Lamb said he hopes to get the bond figure reduced from $75,000 to a more manageable $25,000, a figure he says was suggested by the U.S. Department of Transportation.

Some states, he added, have also set their own figure at $25,000, agreeing that such a figure was appropriate considering that the $10,000 fee was set in 1979 and had never been raised in more than three decades.

Benning, the longtime trucker, also believes concerns over fraud have been overstated. Working in the trucking business as an owner and a broker, Benning said he had only one broker go out of business and leave him in the lurch in 25 years.

Benning said he and others operated their business on a buyer-beware standard, doing research into the companies and people they dealt with. That, he said, was crucial.

"I set my own credit limits and I set the limits that I would extend to someone," said Benning, 47. "I always paid everyone right away and that was one of my selling points. As soon as I got paid, I cut a check the next day."

Benning said he believes a $25,000 bond is a better figure than forcing those who are independent to obtain the full $75,000 bond. He says reputation is everything in the freight and brokering business.

"The market itself will rectify any problems fairly quickly," he said. "Nobody will do business with you if you don't pay your carriers."

Benning said he will continue to work as a truck driver for now, logging in 130,000 miles per year to make a living. At some point, he may resume brokering.

"At the level [the bond] is now, I don't see myself being able to start back up," he added. "I just think it was really unscrupulous the way the increase was slipped in and the amount. For a small outfit, it's a lot for anyone to come up with. I'm just disappointed in the way it was pushed through, almost under the radar."

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