When is a Broker a Common Carrier?
Forty percent (40%) of trucking business is brokered (about $300 Billion in 2007). The liability of the broker is in question. One motor carrier hiring another motor carrier is brokering and by far is the majority of the billions of the percentage figure quoted above. Both of these carriers are 100% liable for loss, one to the other.
The legal precept is the definition of “strict” liability as it has been interpreted since 1601, when Judge Coke presided in the case Southcote v Bennet, where “strict” liability was decided in a multiple carrier loss, giving birth to the concept of the “common carrier”. The precept is still in force and Regulation and Statue memorialize Strict Liability as the modus operandi that governs modern transportation. Brokering occurs, a majority of the time as one mode hiring another mode of transportation and both will be liable for the result. Neither mode of transportation can barter or contract away their liability for the transportation to the public or individual buyer of transportation. Licensed property brokers, however can escape this “Strict Liability” ostensibly.
The United States has created the concept and license of the “property broker” since trucking was decided to be regulated in the 1930s. The Licensed property broker is “to arrange transportation for compensation” between willing buyers and sellers (mode) of transportation, obviating that the brokering of transportation could be accomplished without “Strict Liability” assigned to the motor carrier, much as a travel agent escapes liability in the event of a plane crash.
The liability of the Broker is determined by his sales and operations conduct of the actual brokering transaction of transportation loss, by recent DOT Chief Counsel opinion. The net effect of the Governments’ position, is that a broker can maintain his lack of liability, as long as they do not undertake any of the activities of “an offeror or transporter” as defined. Thus, should a broker undertake the activities of a motor carrier during brokering sales and/or operations activity, they would in fact, be conducting business as a motor carrier (common carrier), not a broker as defined. The old saying modified to fit; “If it quacks like a common carrier, it must be a common carrier, not a broker” has been the refrain in most recent cases I have been associated with.
Broker’s defending themselves against motor carrier liability have had mixed results with the issue in various State and Federal Court actions. Virtually every broker in a transportation loss, takes the position that “they are not liable for loss” because they are “licensed” and thus are immune from action. In actuality in most cases, the broker is in fact acting and is then liable as a motor carrier. Most brokers receive their License from the FMCSA (FMCSA.dot.gov) for $300 believing they are immune from liability. They are assuming 100% of the liability for a 15% commission, and consequently, results are that only 1 in 19 brokers survives into a 3rd year of business, primarily because there is insufficient cash flow to cover losses.
Most License applicants hold or are about to receive an “Authority “ as a motor carrier. They get the License thinking that they can “take possession” of cargo and broker it to another carrier without having to insure the cargo, because the hauling carrier has theirs, thus escaping the “Strict Liability”. Most brokering, then are, in fact from one carrier to another. A licensed broker can accomplish the feat of separating liabilities, only if they separate the two businesses sales statements and operation actions.
Very few broker’s are successful in operating as a non liable broker (travel agent of freight). Training is required because the two operations, carrier and broker actions, are diametrically opposed to each other in function, purpose, and intent.
Shippers have been moving away from working with brokers (w/o assets) who are not liable toward those brokers who accept, bill and insure the risks as a “truck broker”. In other words shippers are foregoing the price benefit of the travel agent for freight for the security of a motor carrier who can be held 100% liable for loss. In my most recent experience, a shipper was completely flummoxed by working with one of the nation’s largest carriers who bailed on their liability for a stolen cargo using their brokering Contract as a get out of jail FREE card.
Solution to this problem is huge, eliminate the broker’s license? Be careful what you wish for, over 60% of America’s food supply is hauled by America’s smallest carriers who rely on brokers of both types, for 100% of their livelihood.
By David G. DwinellABOUT THE AUTHOR: David G. Dwinell
Transportation Brokering Forensic Expert Witness
Transportation Brokering Forensic Expert Witness
David is a recognized expert in transportation, specifically brokering. Due to his experiences in trucking and/or brokering, administering over 93,000 cargos since 1980, his services are sought by those seeking accurate and current transportation information; specifically, news bureaus, economists, attorneys, regulators, investment counselors, and fund managers. Since 1987 his clientele of drivers, transportation managers, supply chain personnel and new entrepreneurs have bought his learning products and attended his lectures and seminars. He brokers freight every day, helping a select group of shipping customers make a significant dent in their skyrocketing freight costs. He uses the brokering experience to teach and instruct those attending his HANDS ON Classes. Mr. Dwinell serves on several of the nation’s think tanks as an expert.
Copyright David G. Dwinell
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.