Is that ādispatch serviceā helping a motor carrier secure new business operating as a ābona fide agentā of the carrier or is it a ābrokerā? An important distinction when the latter comes with the required broker authority and a $75,000 bond or trust fund.
In the Infrastructure Investment and Jobs Act (IIJA), Congress directed the Federal Motor Carrier Safety Administration (FMCSA) to clarify these three terms and discuss whether advancements in technology call for a change in regulatory definitions.
FMCSA conducted an initial review of the terminology in June 2022. Trucking industry comments concurred that using the internet to operate freight brokerages has not changed the essential nature of the business. So, FMCSA has not initiated a rulemaking to adjust the existing definitions of ābrokerā and ābona fide agent.ā
Now FMCSA has published āinterim guidanceā on the three terms, with a particular focus on ādispatch service,ā a term not defined in regulation. While the guidance does not have the force of law, as would a regulation, it clarifies FMCSAās approach to a topic. Here, FMCSA underscores, facts are central to determining which term applies to an actor in the freight brokerage sector. The āinterim guidanceā reviews the facts FMCSA looks for.
Because this is āinterimā guidance, you can submit comments through Jan. 17, 2023.
Why is this guidance important? Ā Because there are financial consequences for getting it wrong. A ādispatch serviceā may perform many functions for a motor carrier, which can be very helpful to a smaller carrier without a large staff. But if the ādispatch serviceā also secures loads for the carrier — and perhaps does so for other carriers, as well ā and in doing so negotiates with shippers, then FMCSA says those facts says may indicate āunauthorized brokerage activities.ā That would subject the ādispatch serviceā to financial penalties under law, leaving the motor carrier without the protection of the $75,000 bond an authorized broker must carry.
The regulatory definitions of ābrokerā and ābona fide agentā highlight the factual differences FMCSA considers. Under federal law, a broker is a āperson who, for compensation, arranges⦠the transportation of property by an authorized motor carrier.ā Brokers, however, are not themselves motor carriers āor persons who are employees or bona fide agents of carriers.ā
By contrast, ābona fide agentsā under federal law āare part of the normal organizationā of the carrier, performing duties āunder the carrierās directions pursuant to a preexisting agreementā and do not have discretion āin allocating traffic between the carrier and others.ā
A motor carrier retaining a ādispatch serviceā can control the facts FMCSA examines by using a time-honored mechanism ā the written contract. That contract can lay out exactly the functions to be performed by the ādispatch service.ā It can say, when it comes to securing loads, the ādispatch serviceā is working exclusively for the hiring motor carrier and cannot negotiate with shippers or handle the finances. In other words, the contract can position the ādispatch serviceā closer to the definition of a ābona fide agent.ā
There is nothing wrong with a motor carrier doing business with a reputable freight broker and gaining the protection of the $75,000 bond. But if the performance of multiple tasks, possibly at a lower cost, is desired, a ādispatch serviceā may be the route to go ā under a well-defined contract.
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