More on broker bond increase, highway bill

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Given the June 30 hard deadline for the highway reauthorization negotiations ongoing between House and Senate, it’s likely that any highway bill that successfully emerges, whether longer term or another six-month-or-more extension of current priorities, is more or less already finished.

Regardless, following my last post on the issues of the EOBR mandate and broker surety bond minimum increase included in the Senate’s MAP-21 two-year reauthorization, James Lamb, president of the Association of Independent Property Brokers and Agents, offered up an edited version of a letter he wrote to the Transport Topics newspaper as a response to criticisms of his group’s opposition to the proposed bond increase.

As I’ve written about here and in this month’s magazine, Lamb favors an increase to $25,000 to adjust for inflation from $10,000, rather than the increase to $100,000 that was proposed in the Senate bill.

Another opponent of the bond increase, James Sanders, a consultant to surety provider Pacific Financial, also wrote, disputing OOIDA Executive Vice President Todd Spencer’s argument for the increase, part of which proceeds from his contention that, as I wrote last week, “the problem with serial late payments or nonpayment from brokers is not one associated with large bokerages.”

That, said Sanders, “is utterly misleading. In the first place, given the verifiable fact that the freight brokerage industry, as with real estate brokers, is largely skewed towards self-employed individuals (such as myself), the ‘large brokerages’ referred to comprise fewer that 1 percent of the total of more that 20,000 such transportation intermediaries holding FMCSA licenses, a significant statistic in such regards.”

Secondly, Sanders noted, “when such ‘large brokerages’ do blow up, they do so spectacularly. Such was the case with Enron’s freight brokerage unit, for which a $100,000 surety instrument wouldn’t have been much more useful that the $10,000 BMC-85 filing they’d secured through Chase Bank in Boston. In the event, a $20 million bond just might have been enough….”

Thoughts? Tell me.

The full text of Lamb’s letter follows:

Recently, Transportation Intermediaries Association President Robert Voltmann was quoted in Transport Topics regarding the people involved with the campaign to defeat the proposed $100,000 brokers bond. His remarks were published in an article headlined “Provision in Senate’s Transportation Legislation Would Raise Broker Surety Bond to $100,000.” 

The article first quoted James Sanders, a consultant to Pacific Financial Association Inc., a company the article said “.provides bonds for about 25 percent of brokers in the United States.”  Sanders called the bond’s proposed increase to $100,000 from $10,000 “preposterous” and said it was intentionally designed to put small brokers out of business by requiring them to obtain surety that no bond company would actually give them because small brokers rarely have the necessary collateral. 

The article then quoted Voltmann’s rejection of Sanders’ position: “These are specious arguments by fear mongers, and they’re being spread by the people who this legislation is designed to stop — the cheats, the churners and the thieves.” The article further quoted Voltmann saying the only brokers the legislation might put out of business would be the ones trying to cheat the system.

On the contrary, the 1,173 people who stand with the Association of Independent Property Brokers & Agents, the true voice of the small and mid-sized broker to Washington, are good, honest, hardworking people who are, in fact, afraid that TIA is about to put them out of business. With respect to “fearmongering,” it is the TIA who is playing the role of “Chicken Little.” 

Even after 79 percent of TIA’s own members polled in 2010 told TIA they would prefer anything other than a $100,000 bond, Voltmann is still spending $250,000 per quarter on lobbying and purporting that this is all about fraud. However, according to Pacific Financial, there is an average of only one actionable claim per year for each 100 possible motor carrier claimants. As a former DOT Investigator, I can confidently state the sky is not falling, Mr. Voltmann. There is no need for new, anti-competitive laws to make the big brokers richer at the expense of small brokers and carriers, owner-operators, shippers and consumers. If this passes, shippers and consumers will pay more… and the big brokers will pay truckers less.

Voltmann and TIA know very well that a $100,000 bond would be a barrier to small business because Voltmann said so himself in Transport Topics back in 2004:

“Fraud exists in both the brokerage and the motor carrier industries, and increasing the bond will have no effect on fraudulent operators. Those advocating raising the bond assume that a company’s intent on fraudulent activity will nonetheless meet the legal requirement of getting a higher bond. A company starting a new brokerage every Monday, for example, is unlikely to get any bond, let alone one worth $500,000.”

As Voltmann rightfully said in 2004 — before he sold out the little brokers — it is the illegal brokers who are the real problem. As for Jim Sanders, he is right on. The $100,000 bond would put up to 17,000 of the existing 20,000 brokers out of business, including most AIPBA members.

It is now the 11th Hour and a Highway Bill is expected this week. We are hoping lobbyists on our side will get the amount changed from $100,000 to $25,000, which would fairly adjust the current $10,000 bond last set in the late 1970s for inflation. However, if the $100,000 bond is passed the remaining 3,000 big brokers will be able to offer lower freight rates to carriers and owner-operators. TIA and the big brokers will not address the fact that the bonding companies will require $100,000 cash collateral because of the tenfold increase in their risk exposure. They mislead people into thinking this is just about coming up with a $5,000 annual bond premium.

This measure has failed twice before as stand-alone legislation in both chambers. The fact is that supporters of the bigger bond had to sneak this language into the massive highway bill as a footnote to the Reid amendment in order to get it through the Senate. This $100,000 bond measure is nothing more than an anti-competitive power play for the big brokers speciously being implemented under the guise of “fighting fraud.”  

Lastly, TIA has the nerve to collect $660 a year from small brokers, which they represent will be used to defend and promote their interests. In actuality, they spend that money on lobbyists to enact legislation that will eliminate small brokers. If Mr. Voltmann is looking for fraud, he might start by looking in the TIA Boardroom. 

James Lamb
Association of Independent Property Brokers and Agents
Morristown, N.J.