February 23, 2015
Top 4 Legal Tips for Freight Brokering [Updated 2021]
Freight brokers have to deal with shipments all over the state lines and because of this, the Federal Motor Carrier Safety Administration (FMCSA) will oversee all freight broker authority businesses. When learning how to become a freight broker, you should study in detail all the rules that deal with freight brokering.
You may already know the basic requirements that are required when becoming a freight broker. This includes having an operating license from the FMCSA, the services of process agents, and a surety bond for possible financial liabilities. However, you might not know of the other rules that govern freight brokering.
If you’re interested in becoming one, keep these tips in mind to keep your broker company compliant.
1. Work With Authorized Motor Carriers
A freight broker is part of the transportation industry and works under the oversight of the Department of Transportation. Since brokers work closely with motor carriers, they need to register with the DOT using their FMCSA freight broker license.
Make sure that you only work with entities that you recognize to avoid risks or liabilities. The motor carrier moving your load must carry an authority that matches yours. For example, if you have a property broker license, you can only work with a carrier that has a valid property motor carrier authority. If you arrange a load with a carrier that doesn’t have the right license, the FMCSA may subject you to penalties and fines. Frequent violations may lead to cancellation of your freight brokering license altogether.
2. Keep Your Records Up to Date
Because liabilities are a part of brokering, freight brokers should always maintain a record of every transaction for their future reference. You’ll be dealing with the same truck drivers and shippers most of the time, meaning you can keep the task simple and eliminate unwieldy records-keeping by creating a master list of all the records. The FMCSA must see each transaction or the master list of all transactions, which should include the following:
- Shipper’s name and address
- Carrier’s name, address and registration / USDOT number
- Bill of lading / freight bill number
- Freight brokering rates and who paid for the brokering service
- Other non-brokerage services you did the regards to the shipment, how much you were paid for it, and the person who settled the obligation
- Freight charges you collected and the date the motor carrier was paid for the shipment
There’s no cut-and-dry rule on how to sort out this information. You can create a record tracker that is perfect for you and your work flow as long as all these fields are captured correctly.
Both your carriers and your shippers have legal access to transaction records that pertain to brokering services you did with or for them. However, you can destroy the records after the third year of holding them.
3. Pay Attention to Double Brokering and Co-Brokering
Due diligence is required for all freight brokers, mainly because heavy penalties and liabilities could arise from unethical brokering practices. There are two common industry practices that tend to present some problems:
- Double brokering
What Is Double-Brokering?
Double brokering is when a motor carrier contracts another carrier to handle a load you have given the first trucker. This is usually frowned upon and comes with many risks, usually when shipment problems happen. Whether you are aware of the double brokering or not, you may have to pay the shipper for losses related to the load. Authorities examine due diligence steps you’ve taken to determine whether you’re responsible for this error or not.
What Is Co-brokering?
Co-brokering is when you work with another freight brokerage in arranging transportation for a load that you can’t handle anymore. The difference between co-brokering and double brokering is that this is legal and acceptable, as long as the agreement with the shipper allows for this arrangement.
4. Recognize Brokering Exempt and Non-Exempt Commodities
When you arrange transportation for loads from shippers, be aware of the following rules for exempt and non-exempt commodities:
- 49 U.S.C. §13506(a)(6): list of items that are exempt from USDOT regulation
- 49 CFR §372.115: list of non-exempt items that are similar to exempt cargo or created from exempt cargo
- Administrative Ruling No. 133: freight not exempt under 49 U.S.C. §13506(a)(6) as stated in 49 CFR §372.115
- Administrative Ruling No. 107: composite commodity list
You can arrange shipments that contain unregulated freight whenever you need. However, shipments that have non-exempt cargo bring you under FMCSA oversight. Keep in mind that specific commodities require specific authorities for bother freight brokers and motor carriers.
Its important to remember that if a shipment is exempt then you don’t need authority to broker the load nor does it need to be moved by an authorized carrier. Also, if the load is non-exempt, both you and the carrier need the appropriate authority to handle the cargo.
Become a Successful Freight Broker
If you are considering beginning the process of becoming a broker, the first step is to get your broker authority. We can take care of everything, including helping you organize your business structure. Get in touch with a coach today by calling 866-739-2032 to get your custom game plan and start your new business. With our measure twice, cut once method, we can make sure you don’t pay more than you have to to run a successful new company.