The Dangers Of Working With Freight Dispatchers
Freight dispatch might seem like an appealing and financially-rewarding occupation. However, if you have aspirations of going down this path, there are significant risks and downsides you must consider. This article aims to inform you of these risks to make the right choice and avoid straying to the wrong side of the law.
What is a Freight Dispatcher?
Freight dispatchers, also known as truck dispatchers, solicit freight dispatch and moving services to trucking companies. However, freight dispatchers are not property brokers. Moreover, many are unlicensed and uninsured, meaning they are moving freight illegally.
Freight dispatchers have become more widespread within the logistics industry in recent years. They generally work from home, representing multiple trucking companies. Companies that use freight dispatchers tend to be small operations with no internal dispatch system. For instance, owner-operators with no time to book freight because they are driving.
This situation may appear convenient for some companies. However, there are risks to using unlicensed freight dispatchers.
Federal Motor Carrier Safety Administration (FMCSA)
Trucking companies that use anonymous freight dispatchers who they don't employ could be on the wrong side of the law. That's because these freight dispatchers may not be qualified property brokers. Therefore, if they pull loads off for a fee, you could be in for more than you bargained for with the FMCSA.
The FMCSA levies strict penalties on those who fail to protect the shipper (consignee) or others involved in moving products. If you take possession of freight illegally, you could have your trucking authority revoked. Moreover, you could be liable to pay damages if the shipper claims you took their property under pretenses.
If the FMCSA discovers the involvement of a 4th party, such as a freight dispatcher, they could raise other legal issues. Do you want to be exposed to such risk?
The Difference Between Freight Dispatchers and Property Brokers
The most obvious difference between working with an unqualified and unlicensed 4th party is that it will cost more. You might expect this not to be the case, but let's face it, another unnecessary link in the chain will increase fees.
However, we're not going to dwell on the costs. Instead, let's consider the legal roles. After all, this article is focused on the legal aspects. Hopefully, this will remove some of the confusion many people have in thinking freight dispatchers are the same freight brokers.
Let's get a couple of things straight. Firstly, freight dispatchers have no legal right to receive compensation for moving freight. Secondly, they are the 4th link in a chain that only requires three and an additional person to receive payment.
Who is Authorized by FMCSA to Receive Compensation for Moving Freight?
In Title 49 part 371.2, the FMCSA defines two categories of persons authorized to receive compensation for moving freight; brokers and bona fide agents. Let's take a look at each of these.
Broker. A person who arranges the movement of a shipper's property by an authorized carrier.
Bonafide agent. An individual who carries out transportation organizing duties under a motor carrier's direction on a continuing basis and is part of the organization.
The FMCSA clarifies that bona fide agents, carriers, or motor carrier employees are not brokers. This situation is true even though they are authorized to arrange shipment transportation and have accepted legal responsibility. The FMCSA also recognizes other (non-brokerage) services carried out by brokers, such as dispatching. They do not recognize any such services provided by freight dispatchers or bona fide agents.
Bona Fide Agents
On analysis of Title 49 part 371.2, it is challenging to understand how a freight dispatcher can consider themselves a bonafide agent. For instance, working from home hardly embeds them within the organization of a motor carrier - one of the requirements of an agent. Moreover, in many cases, the freight dispatcher has had no contact with the carrier, apart from a financial transaction.
A bonafide agent will arrange the load and organize the directions and traffic for the carrier. Freight dispatchers rarely get involved in the traffic aspect of a shipment, and it is only the compensation part that interests them. In an attempt to stay on the right side of the law, they use the loosely-defined title of freight dispatcher.
The lines between bonafide agents and freight dispatchers have become blurred for many people who are not fully informed. That's because dispatchers act like agents, charging the carrier for arranging the freight. However, all they are doing is adding another step to the process and creating confusion.
Risks of Dealing With Freight Dispatchers
Many people's confusion between freight dispatchers and bonafide agents is an issue within logistics. However, lack of clarity about where they fit into the transportation sector is not the only damage they do.
Freight dispatchers charge between 6-10% of the gross cost. Many people believe this to be wrong, if not illegal, for several reasons. Freight dispatchers generally fail in the following three areas
Lack of liability or cargo insurance.
Unqualified to move freight.
Don't operate in the trucking companies' interest.
Let's take a look at these in more detail.
Lack of Liability or Cargo Insurance
Most freight dispatchers cannot get insurance cover. That's because there is no clear definition or description against which an insurance policy can be written. If a claim arose, the motor carrier involved could be placed in a dangerous position.
Responsibility is generally clear when an accident occurs, or a product is damaged. For instance, if a shipper's goods are damaged, they will likely claim against the broker who handled their shipment and organized the carrier.
However, what if another link gets added to the chain - the freight dispatcher? The broker has no control over which carrier they allocate for a shipment. Therefore, how can the broker have liability when a carrier has an accident?
Of course, you might expect the freight dispatcher to cover the liability. However, even if they have insurance, the insurance company is unlikely to pay out as freight dispatchers do not come under FMCSA guidelines. As the freight dispatcher is uninsured, they may simply walk away from the situation, leaving the shipper, broker, and carrier to sort out the mess.
Ultimately, the shipper will suffer in terms of tangible loss of product, time, cost, etc. However, there will also be costs for the carrier and broker. Certainly in terms of trust, reputation, and customer relationships. All this results from an uninsured freight dispatcher.
Unqualified to Move Freight
You can liken dispatchers in the freight brokerage business to ambulance chasers in the legal profession. All dispatchers want is to make easy money, and they frequently bypass requirements to meet regulations or industry qualifications.
When you work with a freight broker, you are dealing with someone who is bonded, insured, and licensed. A broker can provide multiple freight avenues, all of which are legitimate. However, freight dispatchers are unqualified, unbonded, uninsured, and unlicensed.
Given these lackings, it may seem surprising that freight dispatchers have ended up in the middle of transportation. They are effectively getting the same benefits as legitimate brokers without their credentials. Why? Because obtaining these credentials costs money. Brokers pay several thousand dollars to operate legally, while freight dispatchers pay a small sum for load boards. Who would you prefer to trust with your freight?
Dispatchers Don't Operate in the Trucking Companies' Interests.
The fact that freight dispatchers are willing to make money from shipments without being insured indicates that they don't operate in the trucking companies' interests. As indicated above, Title 49 317.2 states that a bonafide agent must be part of a motor carrier company's everyday operations. How can someone working from their home, often without contact with the company, be part of daily operations? In short, they can't, and that's where problems arise.
When freight dispatchers pull loads, they do so with little or no concern for the carrier or shipper. They are only interested in turning-over loads quickly, which can cause carriers lower returns and higher deadheads.
Freight dispatchers are spreading this trend across the logistics industry, forcing trucking companies to accept lower pay to haul freight. Freight dispatchers have no concern here, as they are not part of the company. Their only driver is making money through moving volume quickly. Not only does the carrier suffer through lower pay, but they also face potential FMCSA compliant issues.
Trucking Companies Beware
If a trucking company uses a freight dispatcher, it could fall foul of FMCSA regulations. Ultimately, the FMCSA could remove a trucking company's authority. Therefore, you should consider the risk of working with a non-qualified and non-licensed person.
In Title 49 part 371.2, the FMCSA defines two categories of persons authorized to receive compensation for moving freight; brokers and bona fide agents. Consequently, you should only engage with such people for your freight dispatch services.
What's more, you'll receive better service, and generally at a better price. That's because they can help trucking companies stay within respected freight lines and have the power to negotiate better terms on your behalf.
However, it's not just about tangible aspects such as price and service. The carrier and freight broker can build a strong relationship over time. This bond enables the broker or agent to better represent the carrier, ensuring their interests are catered for. This situation is ideal and cannot be achieved with a freight dispatcher.
Moving freight is a serious business, so you need to trust those responsible for handling it. To truly trust someone, you need to have a strong relationship. Moreover, you need to ensure you are covered should something go wrong.
If someone is uninsured and unqualified to perform the tasks you need them to do, this should raise concerns. Can you truly trust them if they are willing to take such risks? We think not, and we believe it puts you on the wrong side of the law. Therefore, work with a property broker, not just to increase profit but to stay legal.