Are there still deep pockets in this economy?
By Advance Business Capital
Sometime this year Congress will pass potentially lethal legislation for small and start-up freight brokers. Ironically, the force behind this peril is small brokers’ mainstay customers, independent truckers.

The Federal Motor Carriers Safety Administration (FMCSA), which licenses brokers, has for years required a surety bond of only $10,000. Though not insurance, such bonds are bought and sold in a similar way, with premiums determined by the applicant’s financial health. A well-capitalized business may pay a 3% premium, others 18% (or more).

Almost any serious would-be broker can afford a $10,000 bond, even at the high end. The amount was set deliberately low to encourage small businesses. That would change if Congress approves OOIDA’s request, which is for a hike between—get ready—$350,000 to $500,000!

Bigger Bond, Better Brokers?
OOIDA’s action isn’t just cussedness. It’s born from a legitimate issue. When a shipper fails to pay for a load hauled by an O/O and assigned by a small broker, both broker and hauler may be stiffed. Unlike larger brokers, small ones don’t always have the financial wherewithal to compensate a blameless carrier.

While FMCSA enforces transportation law, the actual statutes are written by Congress, so OOIDA’s request has been under consideration by the House Subcommittee on Transportation and Infrastructure since it was proposed in 2004. The delay, long even by congressional standards, is mainly due to a forceful objection by the Transportation Intermediaries Association (TIA). However, recently TIA suggested a compromise of $100,000, provided the government comes up with tougher measures for bonding companies, who often balk at forking over their measly ten grand.

Bad news for brokers, but good news for truckers, right? Not necessarily. Dissident voices view even a $100,000 bond as bad for both. One is James Lamb, onetime New York transportation regulator and now president of DOTAuthority.com, a regulatory consulting firm. In a recent Transport Topics op-ed piece, Lamb opined that its effect on brokers would be “commensurate with the meteor thought to have wiped out the dinosaurs.”

Used-Car Salesmen  
“OOIDA members,” said Lamb, “will be left to beg loads from the surviving mega-brokerages, which in turn will be free to play rate games with the owner-operators. We don’t need Nostradamus to predict the antitrust climate change that will follow.” Lamb proposed a more modest increase of $25,000.

Likewise, trucking veteran Tim Brady—author, radio host and blogger (for GetLoaded among others)—has penned a thoughtful column (here) that a $100,000 bond will do more harm than good. 

But the heads of two established brokerages authored opinions of their own to Transport Topics in agreement with the increased bond. M.D. Shaffner of Competitive Transpiration Inc. charged that unfit brokers too often find more profit in pocketing money owed the carrier and simply forfeiting a bond worth “peanuts.” Tim Higham of Interstate Transport Inc. concurred. “The brokering business has become more like the used-car business than a true and well-respected profession. Until we stand up as an industry and push out brokers who add little or no value, we will continue to suffer the consequences.”

Leave Room for the Little Guy 
All food for thought. O/Os are little guys who shouldn’t be subject to someone else’s mistakes. But small brokers are little guys too. Entrepreneur Magazine’s start-up guide to freight brokering is its second hottest title. At $70, it’s not a book for the merely curious. By keeping trucks and cargo moving, independent brokers are trying to find their own route to the American Dream.

Nothing comes free, but let’s hope somewhere there’s a middle ground that will repair brokering’s broken cred while keeping it open to people whose main capital is honesty and hard work. The industry needs ‘em.

This story was drawn from articles in TruckingInfo, J.W.Surety Bond Consulting, Entrepreneur Press and Transport Topics.

This article is provided as a service for truckers and everyone in the trucking industry by Advance Business Capital. ABC is the first and only factoring service designed by truckers for truckers. We provide innovative financial solutions exclusively to For-Hire truckers and Freight Brokers and are proud to be the first factoring company to receive the P3 (Preferred Platinum Provider) endorsement from the Transportation Intermediaries Association. www.advancebcap.com