Broker vs Dispatch – What’s in a Name?
Confusion has long been lingering in the trucking world of what constitutes a freight broker and a freight dispatcher. With the lines blurred and a lack of structured repercussions for those that can work the system, drivers and brokers alike are looking to the FMCSA to make changes. On June 10th a notice was posted by the FMCSA with intention to address the ongoing concern of current guidelines regarding brokers and bona fide agents. In this notice they stated, “guidance must take into consideration the extent to which technology has changed the nature of freight brokerage, the role of bona fide agents and other aspects of the freight transportation industry,”
New guidelines are expected to be published by November 15th of this year.
Which is what and who is who?
Let’s define each of these bests we can when it comes down to function. Starting with a freight broker:
According to Freight Flock –
“A freight broker is a middleman between shippers and carriers. Instead of taking possession of the freight, the broker facilitates communication between the shipper and the carrier. They’re the ones making sure the handoff goes smoothly between carriers and shippers, and that freight arrives safely, on time.”
There are many benefits for both the shippers and the carriers when working with a freight broker. For the shippers, they have one main point of contact and don’t necessarily have to deal with the negotiating and tracking of goods. Not having to stay on top of multiple check points in the shipping process puts less strain on their workload and are able to focus on the job at hand. They also eliminate the need for shippers to have to plan the routes their freight takes.
Regarding carriers, freight brokers play the role similar to a dispatcher. They are able to bring available lanes to the drivers at reasonable rates that benefit both parties. They also will help eliminate deadhead miles and can be a good plan b when certain regular customers of a carrier start running thin.
It’s important to note that a freight broker is part of a company that most the time will deal in brokering freight only. The company and the individual have a license to do and do not represent either the shipper or the carrier.
Now to define a freight dispatcher. We looked to Truckstop.com to get a straightforward definition:
“A freight dispatcher represents your trucking company in negotiating freight. They find new customers, book new loads, and manage delivery schedules for you. Many trucking dispatchers will also take care of back-office tasks, from customer support to billing and payment collections, and even maintaining motor carrier compliance.”
As mentioned above, while the freight broker represents neither party, a freight dispatcher represents the carrier or owner operator. This allows the driver to focus on his job and not have to worry about scouring load boards to find a load and avoid empty miles.
A dispatcher does not need a license to operate and book loads but it helps having experience in the transportation industry while negotiating loads with shippers.
It is not uncommon for small carriers and mid-size carriers to utilize both freight brokers and dispatchers. Sometimes while having a freight broker, you may experience fees that could include getting paid faster, breaking into a new lane, or doing a one-off job and not committing to a specific route.
A quick note about double-brokering
Double brokering happens when a freight broker has set up a transaction for a shipper’s freight to go directly to the carrier, but instead the freight is brokered out by a second broker by the original broker, thus having more fees incurred on the shipper whilst the shipper is oblivious to what has happened. For example: Broker X has an agreement with the shipper to move their freight with the carrier for payment. Broker X will re-broker that shipper’s freight to another broker at a negotiated rate. Whatever carrier that the freight gets re-brokered out to will likely not get paid, thus seen as a theft of services in the eyes of the law.
Further, Digital Dispatch explains:
“While double brokering in its main form is more heavily disapproved of than outright illegal, there is one form of double brokering that is illegal, and that is when a broker takes payment for brokering a shipment, re-brokers it to another company, and then fails to provide payment to the carrier once the freight has already been shipped.
This kind of brokering constitutes theft of services and can lead to years of prison time for fraud as well as fines for restitution to recover the stolen services of the motor carrier.
As far as double brokering where the carrier gets paid, it may not be technically illegal, and many shippers heavily disapprove of it due to the breakdown of communications and liability involved with transferring freight through an unknown third party without direct authorization. But that doesn’t stop brokers from doing it, because freight brokerage laws are not stringently enforced.
This often leaves motor carriers at the whims of the brokers as much as the shippers are, which is a large reason neither party is very supportive of double brokering practices.”
Back to the confusion…
So, what is going on in the industry that is making shipper and carriers alike pressure FMCSA to dig deeper into freight brokerage and freight dispatching functions and responsibilities? Simply put, there is a blurry line of what brokers and dispatch are legally defined as, further smudging the functions of the two.
As of now, the definition for a broker is defined in 49 U.S.C. 13102(2) as a “person, other than a motor carrier or an employee or agent of a motor carrier, that as a principal or agent sells, offers for sale, negotiates for, or holds itself out by solicitation, advertisement, or otherwise as selling, providing, or arranging for, transportation by motor carrier for compensation.”
While in 49 CFR 371.2(a) as a “person who, for compensation, arranges, or offers to arrange, the transportation of property by an authorized motor carrier. Motor carriers, or persons who are employees or bona fide agents of carriers, are not brokers within the meaning of this section when they arrange or offer to arrange the transportation of shipments which they are authorized to transport and which they have accepted and legally bound themselves to transport.”
These almost loose definitions are what has made it easy for dispatchers to act as near freight brokers in their position. The definition mentions “bona fide agents” which translate to “non-brokers” in practice and creates an umbrella for dispatchers to operate as basically freight brokers. This has sparked controversy not just for shippers and carriers, but licensed freight brokers as well. It has them asking what the point is of getting a license to distinguish themselves.
“But some dispatch services interpret this regulation, FMCSA notes, “as allowing them to represent more than one carrier yet not obtain broker operating authority registration. Others interpret this regulation to argue that a dispatch service can only represent one carrier without obtaining broker authority.” – freightwaves.com
By creating a clearer definition of what a broker is and establishing more in-depth requirements to operate as a broker, carriers especially are hopeful that this will create a level of transparency within the industry. While negotiating a contract brokers/agents can, and do, charge shippers for extra services, fuel surcharges, and various other fees and then pay the carrier whatever percentage they agreed upon. While this isn’t uncommon it has been brought to the industries attention that many feel that some have began to take advantage of the system and are able to upcharge, make more money basically, than the carrier would. Though there has been speculation of price gouging from freight brokers/agents, the TIA (who represent freight brokers) denied those claims stating that there is not enough freight to go around at this time.
FMSCA is being called to ultimate complete three action items:
- Examine the role of a dispatch service in the transportation industry.
- Examine the extent to which dispatch services could be considered brokers or bona fide agents.
- Clarify the level of financial penalties for unauthorized brokerage activities under 49 U.S.C. 14916, applicable to a dispatch service.
They are now asking the public these following questions in order to issue new guidance this year by November 15th:
- What evaluation criteria should FMCSA use when determining whether a business model/entity meets the definition of a broker?
- Provide examples of operations that meet the definition of broker in 49 CFR 371.2 and examples of operations that do not meet the definition in 49 CFR 371.2.
- What role should the possession of money exchanged between shippers and motor carriers in a brokered transaction play in determining whether one is conducting brokerage?
- How would you define the term dispatch service? Is there a commonly accepted definition? What role do dispatch services play in the transportation industry?
- Do dispatch services need to obtain a business license/employer identification number from the state in which they primarily conduct business?
- If a dispatch service represents more than one carrier, does this in and of itself make it a broker operating without authority?
- When should a dispatch service be considered a bona fide agent?
- What role do bona fide agents play in the transportation of freight?
- Electronic bulletin boards match shippers and carriers for a fee. The fee is a membership fee to have access to the bulletin board information. Should electronic bulletin boards be considered brokers and required to register with FMCSA to obtain broker operating authority? If so, when and why?
- How has technology changed the nature of freight brokerage, and how should these changes be reflected, if at all, in FMCSA’s guidance?
- Are there other business models/services, other than dispatch services and electronic bulletin boards, that should be considered when clarifying the definition of broker?
- Are there other aspects of the freight transportation industry that FMCSA should consider in issuing guidance pertaining to the definitions of broker and bona fide agents?
Ultimately, these guidelines will be put into place with intention to benefit all parties that are involved in these transactions and hopefully create a more fair and profitable market.
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