6 Legal Areas All Freight Brokers Must Know About

Because freight brokers have to answer for shipments that cross state lines, your business will be overseen by federal authorities, particularly the Federal Motor Carrier Safety Administration under the 49 CFR §371 rule. In freight broker training school, you’ll have a chance to study in detail all the rules that deal with freight brokering.

You already know the basic requirements for freight brokers – an operating license from the FMCSA, the services of process agents, and a surety bond for possible financial liabilities. Here’s a quick summary of the other rules that govern freight brokering:

1. Working with Authorized Motor Carriers

A property or freight broker is part of the transportation industry so they go under the oversight of the Department of Transportation. Since you’ll be working closely with motor carriers (or truckers), you’ll have to register with the DOT using your FMCSA freight broker license.

Make sure that you only work with recognized entities to avoid risk or liability. That is, the motor carrier moving your load must carry an authority that matches yours. For example, if you have a property broker license, then you can only transact loads with a carrier that has a valid property motor carrier authority. If you arrange a load with a carrier that doesn’t have the right license, say a household goods motor carrier authority against your property broker license, the FMCSA may subject you to penalties and fines. Frequent violations may lead to a cancellation of your freight brokering license altogether.

2. Record-Keeping

Liabilities are an unfortunate part of brokering that’s why freight brokers need to maintain a record of each transaction for future reference. You’ll be dealing with the same motor carriers and shippers most of the time so to simplify this task and eliminate unwieldy records-keeping, you can create a master list of these records. The following are the information that FMCSA must see in each transaction/master list of transactions:

  1. Shipper’s name and address
  2. Carrier’s name, address, and registration/USDOT number
  3. Bill of lading/freight bill number
  4. Freight brokering rates and the person who paid for the brokering service
  5. Other non-brokerage services you did with regards to the shipment, how much you were paid for it, and the person who settled the obligation
  6. Freight charges you collected and the date the motor carrier was paid for the shipment

There’s no cut-and-dried rule on how to sort out this information. You can create a record tracker that fits your work flow as long as you capture all these data correctly.

Both your shippers and carriers have legal access to those transaction records that pertain to brokering services you did with or for them, up to a period of 3 years. After the third year, you can destroy these records.

3. Freight Broker Accounting

You may have other businesses alongside your freight brokerage. When it comes to revenues and expenses, the law requires separate financial records for your brokering firm. In case your businesses share common expenses—say rental and utilities—third parties must be able to identify what outlays are from the brokerage and what are not. Of course, it goes without saying that you must be able to explain how and why you assigned these amounts to the brokerage in an audit.

4. Misrepresentation

Whatever advertising that you do—whether in print, radio or web—your business must be what you say it is. That is, you cannot go around introducing yourself as a carrier to your customers if you are not. You have to use the same name which was approved in your freight broker license in any transaction that you do. Misleading information on your broker status can be a cause for liabilities or heavier penalties.

5. Double Brokering and Co-Brokering

Due diligence is required of all freight brokers, mainly because heavy penalties and liabilities could arise from unethical brokering practices. Two common industry practices—double brokering and co-brokering—present some problems.

Co-brokering is when you work with another freight brokerage in arranging transportation for a load that you can’t handle anymore. This is legal and acceptable, as long as the agreement with the shipper allows for this arrangement.

Double brokering, on the other hand, is when a motor carrier contracts another carrier to handle a load you have given the first trucker. This practice is frowned upon and fraught with risks, particularly when shipment problems happen. Whether you are aware of the double brokering or not, you may still have to pay the shipper for losses incurred related to the load. Authorities will examine due diligence steps you’ve taken to determine whether you’re answerable for this error or not.

6. Brokering Exempt and Non-Exempt Commodities

When you arrange transportation for loads from shippers, you must be aware of the following rules governing exempt and non-exempt commodities:

  1. 49 U.S.C. §13506(a)(6): list of items that are exempt from USDOT regulation
  2. 49 CFR §372.115: list of non-exempt items that are similar to exempt cargo or created from exempt cargo
  3. Administrative Ruling No. 133: freight not exempt under 49 U.S.C. §13506(a)(6) as stated in 49 CFR §372.115
  4. Administrative Ruling No. 107, March 19, 1958

You can always arrange shipments that contain unregulated freight. Shipments that have non-exempt cargo bring you under FMCSA oversight.  Keep in mind that specific commodities require specific authorities for both freight brokers and motor carriers. The long and short of it:

  1. If a shipment is exempt, then you don’t need authority to broker the load nor does it need to be moved by an authorized carrier; and
  2. If the load is non-exempt, then both you and the carrier need the appropriate authority to handle the cargo.

Failure to comply with exempt/non-exempt guidelines could be grounds for penalties, the suspension of your operating license, or worse, revocation of your freight broker license.

Disclaimer: This article does not constitute legal advice; if you require legal assistance, please consult the services of a professional who has the necessary legal education, certification, training and experience in the freight brokerage sector.

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