Broker Transparency and Regulatory Enforcement
Broker transparency and the enforcement of 49 CFR 371.3, which pertains to records brokers must keep and carriers' rights to review these records, remain hot topics in the trucking industry. Small carriers and owner-operators demand transparency from brokers, while large brokers prefer to keep their financial details confidential. Earlier this year, Overdrive Magazine reported that about 75% of owner-operators want brokers to disclose the rates shippers pay, as required by the regulation. Overdrive's previous publications of shipper-broker contracts, such as the Ikea contract with Convoy, have garnered significant interest.
However, 49 CFR 371.3 is rarely enforced, joining other regulations like the Federal Motor Carrier Safety Administration's (FMCSA) reluctance to penalize commercial violations or acts of perjury by registered entities. Despite promises to address petitions that could increase freight transaction transparency, the FMCSA has delayed action. Trucking stakeholders await news on these petitions, which, if approved, could mandate automatic disclosure of records as early as October this year.
The Impact of Deregulation: A Historical Perspective
Jeffrey Tucker, CEO of Tucker Company Worldwide and former chairman of the Transportation Intermediaries Association, provides a historical perspective on broker transparency. His family’s involvement in trucking predates deregulation, which he describes as a "big bang" moment for the industry.
Before 1980, trucking was highly regulated, with government control over who could contract with whom and where they could do business. Deregulation began under President Carter and continued under President Reagan, leading to the dismantling of the Interstate Commerce Commission, the industry’s commercial regulator.
Post-deregulation, carriers and brokers could freely enter the market with minimal formalities. Tucker’s company sponsored tens of thousands of new carriers during the 1980s. At that time, brokers primarily earned money by aligning with motor carriers and taking a percentage of the invoice. The original intent of 49 CFR 371.3 was to ensure transparency in these transactions.
However, Tucker argues that today, this transparency serves no purpose because brokers no longer operate on fixed percentages. Modern broker agreements, such as those between large shippers and brokers, involve varied rates for different loads and lanes, making uniform transparency impractical.
The Reality of Broker Margins
Ken Adamo, head of analytics at DAT Freight & Analytics, tracks broker margins, which he estimates average around 15%, similar to reports from major publicly traded brokers. Tucker argues that there is no "correct" broker margin, as each transaction is unique.
Most carriers either accept or reject a price without requesting broker transparency. Tucker notes that in his 63 years of business, only once did a carrier ask to see his rate. He believes the regulation requiring brokers to disclose their rates to carriers is outdated and impractical, as it does not align with standard business practices where non-contracting parties are not privy to contractual details.
The Debate Over Broker Transparency
The debate over broker transparency is often seen as more about generating anti-broker sentiment than addressing real policy issues. Tucker contends that the regulation on the books is disliked and often ignored by brokers, while carriers have their own set of regulations they wish to avoid. Despite this, the Transportation Intermediaries Association (TIA), in collaboration with the Owner-Operator Independent Driver's Association (OOIDA) and other trucking organizations, is pushing legislation to enforce existing regulations, particularly against double brokering and fraud.
The Consequences of Mandating Transparency
Tucker warns that mandatory transparency could lead to a "race to the bottom," with shippers pushing for lower margins, ultimately driving down freight movement costs and harming the entire trucking industry. Instead, he proposes a collaboration between owner-operators and brokers to compete against mega fleets. By uniting, smaller entities could better navigate market fluctuations and avoid being undercut by large asset-based carriers during capacity crises.
Conclusion
The issue of broker transparency remains contentious, with significant implications for the trucking industry. While small carriers and owner-operators advocate for greater visibility into broker transactions, large brokers argue that such transparency is outdated and impractical in today's market. The debate continues as stakeholders await potential regulatory changes that could reshape the landscape of freight transactions.
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