The FMCSA on Tuesday sent shockwaves through the freight world by announcing it intended to make a rule obliging brokers to provide carriers detailed transaction records -- including the rate the shipper paid the broker.
Even before the Transportation Intermediaries Association, the biggest broker trade group, had finished reading through the 78-page proposed rulemaking, they already knew they opposed it and would fight against it.
Owner-operators polled by Overdrive early this year overwhelmingly see positive outcomes of the kind of increased rates transparency envisioned by the rulemaking, turning this into one of the hottest debates anywhere in freight.
[Related: Broker margins, rates data, transparency: What owner-operators really think]
Now that the FMCSA has signaled its intentions on broker transparency, Overdrive asks owner-operators and truckers once again to weigh in via this survey.
Existing broker regulations in 49 Code of Federal Regulations 371.3 already give carriers the "right to review the record of the transaction," but FMCSA's rulemaking notice pointed out longstanding reality that carriers almost never get to exercise that right. Instead, brokers inject contract clauses asking carriers to waive the right, or otherwise find ways to make that record inconvenient or impossible to review.
TIA held a call on Tuesday, in part scheduled to talk about the organization's anti-fraud agenda and introduce their new President Chris Burroughs, yet the org inevitably addressed the elephant in their room. Burroughs and many brokers take the view that 371.3 is an outdated relic of the deregulation era, and something they shouldn't have to comply with.
"We have a lot of problems with the 1980s regulation," said Burroughs. "It doesn't apply to the way the marketplace currently operates."
[Related: Why brokers don't want to give owner-ops transparency in freight transactions]
It's no secret many carriers disagree with that very notion. Owner-Operator Independent Drivers Association President Todd Spencer's statement called broker transparency "necessary for a fair, efficient transportation system, and it's especially important to help carriers defend themselves against alleged claims on a shipment."
Trucker Jayme Anderson, member of the National Owner Operators Association and outspoken broker transparency advocate, lauded the notice as an "advancement" that needs owner-operators "to engage and comment, that's what drives it home."
OOIDA said it would also file comment.
For TIA's Tuesday meeting, while the organization's legal counsel hadn't yet completely digested the NPRM in the immediate hours after publication, Burroughs nonetheless was willing to stand firm, saying "our position is likely not going to change" and calling 371.3 an "unnecessary, outdated, burdensome regulation" that would "hinder the marketplace."
TIA v. FMCSA
At once, FMCSA noted in the proposal that its predecessor agency, the Interstate Commerce Commission that regulated trucking before being replaced by FMCSA around the turn of the century, did intend 371.3 to continue post-deregulation.
Explaining why the carrier's "right to review" should be replaced by a "regulatory obligation" placed on brokers, FMCSA mentioned the "ICC’s intent that brokers continue to comply with those duties and obligations, particularly disclosure of such records to shippers and motor carriers who find value in such information."
FMCSA contended the cost to brokers of providing these records to carriers should be minimal. Brokers in large part already keep electronic records, employing plenty of technology to do so with an entire freight-tech sector catering to and anticipating their needs.
FMCSA "believes that the cost of the proposed rule would be minimal," the NPRM said. Based on broker interactions, "the Agency believes that most brokers already keep records electronically and that these records already contain the information that would be required by the proposed rule." Since brokers already digitally distribute necessary documents (rate cons, pickup numbers, the like) to carriers for any given load, FMCSA "believes that these current practices can be adjusted, at relatively low cost, to provide broker transparency information within 48 hours of request."
FMCSA seeks input on that front, and it's a good idea for carriers to comment, but FMCSA also emphasized it "does not believe that this rule would be economically significant."
Burroughs indicated some agreement with FMCSA on that front: The dollar cost of the reporting requirement wouldn't exactly bankrupt your average broker, but he said the administrative burden could indeed be high.
One TIA member and broker on the call, Dylan Rexing, said "the cost would be more than minimal."
"We do business with 18,000 carriers," said Rexing. "If 18,000 carriers called us and emailed us... I wouldn't say it was easy. Obviously it could be done, but I think there would be a large cost to that."
Another broker on the call admitted "the data" to be reported under the proposed regulation "is sitting there," but added "things are not structured or separated out" currently to be sharable with carriers.
At that point, the brokers got all patriotic.
An official statement from TIA said the organization was "deeply disappointed" by FMCSA's move on broker transparency, saying it failed to address the "far more pressing issue of freight fraud, which costs the U.S. supply chain over $1 billion annually." TIA went on to call the proposal outright "un-American."
"We live in a free market system," Rexing said. "If you go to Walmart and buy a bottle of ketchup, Walmart is not required to tell you" what Walmart paid for the ketchup, a kind of analogy often made in the broker transparency context. (FMCSA's proposed rule would be more like buying ketchup at Walmart, and once the transaction is closed you can in fact see what Walmart paid for the ketchup.)
FMCSA with its rulemaking hoped to promote, it said, "fairness and efficiency in the transportation industry," a correction to the current situation: brokers today enjoy a windfall of information about any load compared to carriers. FMCSA went on to cite an Office of Management and Budget document as listing a goal of correcting information asymmetries as a valid reason for federal regulation.
In short, according to the U.S. government, it's in the American interest to balance such asymmetries between carriers and brokers in freight markets.
[Related: 'Brokers don't set prices' -- really?]
Broker transparency and the fraud question
TIA contended that, "during the COVID-19 pandemic [in 2020], when broker transparency was last debated" at length and with considerable fire, "the National Consumer Complaint Database recorded zero complaints related to this issue. In stark contrast, there were more than 80,000 complaints related to freight fraud and unlawful brokerage activities."
FMCSA's rulemaking disputes that, saying between 2018 and 2020 it saw 32 transparency complaints through the NCCDB and elsewhere. Furthermore, FMCSA believes brokers showing their records should prevent at least one kind of fraud: Brokers scamming carriers and shippers alike.
"Shippers may use transaction records to verify that the services that they were billed for by the broker were provided. This can help to prevent fraud or errors in billing," wrote FMCSA. Following a listening session at the 2023 Mid-America Trucking Show, FMCSA said it heard "multiple commenters" discussing "charge backs and claims after loads were delivered."
Broker transparency, therefore, could "possibly aid in rectifying discrepancies and spurious charge backs with brokered freight contracts," FMCSA said, adding it doesn't know how much fraudulent or inaccurate charge backs cost carriers. But it nonetheless "concludes that there would be some cost savings for motor carriers if they are able more readily to contest these charges with the increased transparency information."
Dale Prax, an anti-fraud vigilante and broker regular readers have seen quoted in these pages before, supports increased broker transparency precisely because he believes it will help tamp down the fraud problem. "In the context of freight brokerage, brokers act as fiduciaries, holding payments collected from shippers in trust for the carriers," Prax told Overdrive. "By complying with 49 CFR § 371.3, brokers uphold their fiduciary duty, ensuring transparency, proper allocation of funds, and the prevention of fraud or misappropriation."
FMCSA does appear willing to enforce this new rule as well. "FMCSA has the authority to suspend or revoke a broker’s operating authority for willful failure to comply with a condition of registration," the agency wrote in the proposal, or it may refer cases to the Department of Justice. "FMCSA may also decline to renew a broker’s registration if the broker has demonstrated it is not willing or able to comply with the regulations."
[Related: FMCSA's first-ever general-freight-broker regs enforcement blitz under way]
At the very least, the new broker transparency rule could make double brokers guilty of yet another violation when inevitably they fail to comply with a transparency request. Also, the rule would impose a greater regulatory burden on the numerous shady operations that don't keep records or misrepresent them. (Otherwise, FMCSA is in the midst of a massive overhaul of its registration system, and a new enforcement initiative aimed at potentially unlawful brokerages in "Operation Protect Your Load," both efforts to strike back at the fraud problem. TIA also fired back at the agency over the enforcement initiative, just last week.)
Ultimately, TIA's Burroughs said the organization hoped to "build stronger relationships with its carrier partners," and look out for small carriers by rooting out fraud, but it may have a steep hill to climb based on the broker-carrier divide over rate transparency.
Surinder Gill, a California-based owner-operator, fresh off a tooth-and-nail fight for a couple of bucks from a broker to pay a lumper fee, said it was "about damn time" FMCSA did something on broker transparency, and that he'd like to see the broker's rates and expenses this mega-broker used to justify taking $15 off his rate.
"I'm excited," about broker transparency, he said. "Let's just see how much it's enforced."
[Related: Broker margins, rates data, transparency -- what owner-operators really think]
