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
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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.
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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.]
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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:
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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.]
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