Monday, January 7, 2013

Important Notice! Impending Changes in the Rules for Subcontracting Loads

When implemented by regulations to be promulgated by the FMCSA, the “FFIT” (Fighting Fraud in Transportation) statutes will affect the established practices of interlining or convenience interlining of shipments.

Traditionally, truckload carriers have retained or subcontracted with other carriers to meet excess capacity requirements, and to extend this practice as an acceptable legacy consistent with the definition of carrier service and the exclusion from the existing broker regulations which provide that a broker is a party other than a carrier who arranges for transportation.


MAP-21 and the FFIT legislation will change all of this by redefining as brokerage any arrangement by a carrier which results in the hiring of another carrier to perform interstate services unless the equipment “interchange” rules are involved.

Potentially, this means that all carriers will be required to set up a separate entity as a property broker, obtain a $75,000 bond, and run all carrier-to-carrier transactions through the broker affiliate to ensure that the subcontracted carrier is not somehow defrauded or denied access to the increased bond amount.

Whether implementing regulations are forthcoming in 6 months or a year (the time could be longer) cannot be accurately predicted.  Ultimately, the enrollment process will be cumbersome and paperwork intensive given the large number of potentially affected carriers, the increased bond amount and new entry requirements which will be promulgated.

It is prudent for carriers without separate broker affiliates to establish a separate corporation and file for brokerage authority under the simplified existing rules.  Current cost of compliance is a simple application and a $10,000 bond or broker’s trust which can be easily obtained and put in place in approximately 30 days.  Although it is not possible to predict with accuracy what ultimate procedures will be required to obtain new brokerage authority, the benefits of being grandfathered by having an existing stand-alone brokerage operation outweigh the cost of compliance.

Militating in favor of needing to establish a separate broker affiliate now, is the heightened vicarious liability concern of exposing your asset based carrier affiliate to direct vicarious liability exposure when the carrier affiliate is named as a contracting party with the subcontractor and is the carrier in possession of the shipment on the bill of lading.

Now is the time to set up and establish a separate broker affiliate, retaining licensed, authorized and insured carriers.  This advice is consistent with best practices, the recommendation of major insurers, and will give you a leg up in complying with the new “FFIT” regulations when they are promulgated.  For information about how to file for your broker authority go to http://www.transportationlaw.net/authority.html and to receive notice of developments and recommended compliance solutions, please email info@transportationlaw.net.

Yours truly,
Henry E. Seaton

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