Updated as of September 30, 2020, to reflect subsequent developments, including investigatory activity at FMCSA around this issue as well as developments as they pertain to petitions to the agency for change in brokered-transaction-records disclosure.
Market difficulties for owner-operators with the COVID-19 stall in April and May, to say the least, are no secret. Blood boiled over the fast fall in brokered-freight rates at that time from a variety of quarters.
As Diane Marchand of Williston, Fla., wrote to me April 29, wanting to know who the principal culprit in falling rates was: Have rates really been dropped by the shipper? she asked. Are the brokers just “price-gouging the truckers?” Or are the lowest bidders among the truckers themselves to blame?
Things have changed markedly for spot rates since then, of course, and one answer to Marchand’s questions is easily all of the above. But there’s another aspect to the questions — the power to determine whether you’re being treated right by a broker on a load-to-load basis is held by … guess who?
That’s you, assuming you haven’t signed away that right by agreeing to a contract in which you waive it. (Read those contracts.)
I’m talking about what I wrote back in January of 2019 here on the blog about the regulation that in essence gives a carrier the right to review the record of any freight shipment, including what the shipper paid for the load. Armed with such information, of course, you’ll know whether your broker is treating you the way you ought to be or whether you’re truly being taken advantage of.
Target gross margins on loads will vary from broker to broker — the average, according to research by broker group the Transportation Intermediaries Association, is around 16%. Some brokers will no doubt shoot higher, just as some will do well on lower when carriers are in more demand and shippers are paying top dollar, as is happening in some quarters in the spot market at this very moment. Walker Price, commenting under the story linked above from last year, emphasized the give and take of negotiations in business conducted with integrity, and the financial reality brokers themselves face. “It takes integrity to give and take instead of always take,” Price wrote. “If you’re not passing on cheap rates to your customers and keeping your margins close to 20%, you won’t be a freight broker long.”
Price went on to cite a rule of thumb that only around one in 20 people who enter trucking as a broker last more than six months or so: “If you don’t have integrity as a freight broker, you’ll be banished to the bottom 95% almost immediately and you’ll live the same miserable lives they’re living.”
The Transportation Intermediaries Association, too, heard loud and clear the variety of complaints about brokers in the market during the pandemic stall, as then President Robert Voltmann felt the need to take to video April 30 amid all the uproar over brokers to explain supply/demand fundamentals when it comes to freight, among other things. Voltmann would later step aside as TIA head, and the organization itself seemed to acknowledge that bottom-feeding 95% Price hinted at above, noting that “there will always be unscrupulous actors in any industry taking advantage of an emergency or crisis.” Carriers, however, TIA said, “have a choice in which brokers they work with.”
Since truckers’ Mayday 2020-begun demonstration near the White House dragged on for weeks and included a meeting with White House Chief of Staff Mark Meadows and then Acting FMCSA Administrator Jim Mullen (since stepped down himself — sense a pattern here?), awareness of truckers’ concern with a lack of transparency into whether they were being treated fairly in a collapsing rate environment has been raised, in spades, no doubt. FMCSA acknowledged as early as mid-June that it had begun investigating several complaints around 49 CFR 371.3 that rose to the level of potential noncompliance with the requirement of records disclosure, when requested, by a broker.
FMCSA Office of Enforcement and Compliance Director Joe Delorenzo noted some of those investigations were ongoing in a brief exchange we had during the August 26 session around the new hours of service changes. Raise the awareness and “we are hearing more and more about it,” said DeLorenzo. Some of the cases “get a little bit difficult like the Coercion Rule cases,” where evidence of intent to coerce can be hard to come by.
Yet DeLorenzo emphasized what he called the “real crux” of 371.3 for carriers and owner-ops to focus on: “If they ask, they should get the information listed in the regulation,” as detailed below, including all freight charges and broker fees.
For carriers who are experiencing issues determining fairness of fees, he said, “Start asking” for the information.
A comment period is open through October 19 on petitions to, variously, prohibit brokers’ use of those contractual waivers to the right to the information mentioned above and potentially require automatic disclosure of the transaction records in 371.3. FMCSA’s Wiley Deck, currently leading the agency in absence of a permanent administrator after Mullen’s August departure, told OOIDA’s Land Line recently the agency was planning to hold a formal listening session on the subject, too, as early as this month. Stay tuned for further details there.
Meantime, when the next down market comes, keep high in mind that in addition to the right to refuse any rate, which Gary Buchs emphasized so eloquently at the time, you have this particular tool in the box, too — that right to review any load’s details. If you believe you’re in a situation where you’re being taken advantage of, use it. I’m posting the relevant part of my post from last year below, in case you missed it. Here’s a link to the full post. And find further resources at bottom.
The broker-margin transparency federal law already affords to carriers who request it
… Speaking of regulation, and more to the point suggested in the title of this post, David Dwinell re-emphasized for me a regulatory reality many of you likely already know about that at least in theory has long codified load transaction transparency, giving carriers the right to know what the shipper has paid for any load. Dwinell pointed to the record-keeping requirements of freight brokers spelled out in 49 Code of Federal Regulations part 371.3, which I’ve highlighted elsewhere in the past — note particularly sub-items (4) and (6) to provision (a), and the very last provision, of course:
(a) A broker shall keep a record of each transaction. For purposes of this section, brokers may keep master lists of consignors and the address and registration number of the carrier, rather than repeating this information for each transaction. The record shall
(1) The name and address of the consignor;
(2) The name, address, and registration number of the originating motor carrier;
(3) The bill of lading or freight bill number;
(4) The amount of compensation received by the broker for the brokerage service performed and the name of the payer;
(5) 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
(6) The amount of any freight charges collected by the broker and the date of payment to the carrier.
(b) Brokers shall keep the records required by this section for a period of three years.
(c) Each party to a brokered transaction has the right to review the record of the transaction required to be kept by these rules.
Problem is, of course, that brokers, whether operating traditionally or via increasingly online digital models, aren’t always keen to proffer these kinds of details to trucker partners. I’m reminded of what owner-operator James Woods had to say about at least verbal requests for transaction transparency of this type as part of the 2017 Overdrive Radio podcast edition that follows, also included in a piece of the “Highway robbery” feature published [in 2018].
As Woods put it then: “Brokers know that we will take a load to keep from sitting. I’m one of the few guys who will actually get out and talk to the shippers — we know the shippers are paying $3,000 for a load of tomatoes, for instance, and the broker comes to us and says, ‘Man, all I’ve got in it is $1,900.’ Ask one for a rate sheet or transparency now, and you know what they’ll tell you? ‘You have a good day, sir.’ ”
Dwinell believes more owner-ops would do well to do their due diligence on brokers by requesting details of transactions, particularly useful when you expect dishonesty and if you have nothing to lose in the relationship with a particular broker. “Are brokers abusing carriers?” he asks, then answering his own question: “Every day and twice on Sunday! … On virtually every brokered load, carriers are denied, by brokers, of their rights under FMCSA regulation.”
Far too many brokers, rather than embracing the proper middleman’s role “think motor carriers work for them and their interests,”‘ not the opposite, he adds.
Right to review, though, is far from an automatic disclosure requirement, and a right does nothing for anyone if not exercised. Attorney Paul Cullen Sr., who’s represented OOIDA in a myriad of legal cases, wrote a handy how-to about this particular issue back in 2009, accessible via this link at Land Line‘s site. As he notes, some brokers are glad to share what the shipper is paying for the load in verbal fashion, but putting the request in writing may drive the point home if not. He shared draft example language for such a written request in that 2009 post. Brokers who fail to comply with such requests, he notes, open themselves up to legal action to compel it.