Higher Bond Enrages Small Brokers

This story appears in the July 23 print edition of Transport Topics.

A provision in the recently enacted federal transportation legislation aimed at protecting truckers and shippers by dramatically raising the bond freight brokers must pay has ignited a storm of controversy.

The provision, which will raise freight broker surety requirements to $75,000 from $10,000, is intended to make it more difficult for “fly-by-night operators” to do business, said Robert Voltmann, president and chief executive officer of the Transportation Intermediaries Association, a group composed mostly of 1,300 brokers and freight forwarders.

The increased surety requirement, which was slipped into the transportation bill as a last-minute amendment, is supported by TIA, American Trucking Associations and the Owner-Operator Independent Drivers Association — three trade groups that often disagree on transportation legislation. But smaller brokers claim it is a move by larger brokers, represented by TIA, to put them out of business, and some members of a smaller broker association have sent emotional e-mail messages to Voltmann.

For example, Voltmann received an e-mail from Jim Murrell, president of JMG Freight Group LLC, Franklin, Tenn., who asked: “Are you the president, CEO of the Transportation Intermediaries Association for the large intermediary companies or all intermediaries? Please remind me again who you represent?”

Voltmann said the new federal provision will address what has been for years a “Wild West mentality” in the broker industry and will allow those who are cheated by brokers to pursue civil damages in court. It also will require carriers and brokers to have separate operating authority and to indicate in all transactions whether they’re acting as brokers or carriers, Voltmann said.

Raising the bond has been widely debated for years, and various past attempts to implement the higher requirements failed to pass Congress.

Voltmann said the higher bond requirement will help to put out of business load-board double-brokering scammers such as Kulwant Singh Gill, who was sentenced to more than 10 years in prison in April for defrauding 165 brokers and motor carriers of more than $1 million (4-16, p. 5).

“By making the bond higher, we actually created larger pools of money to sue against,” Voltmann said. “We can go after the trust company. We can put class actions together.”

“This is a game changer, but not just because the bond went up,” Voltmann told Transport Topics. “There are things [in the bill] that will start addressing some of the fraud that crept into the marketplace because DOT refused to be the sheriff.”

A spokeswoman for the Federal Motor Carrier Safety Administration, the agency under the U.S. Department of Transportation that would be responsible for policing the new federal mandate, did not respond to a message seeking comment by TT’s press time.

Prasad Sharma, vice president and general counsel of ATA, said he is hopeful the legislation will be a step toward reforming the broker bond surety industry and help eliminate some of the fraudulent practices that sometimes leave carriers unpaid when dealing with brokers.

“DOT always had the authority to set the bond amount required to register as a broker,” Sharma said. “But on numerous occasions, they have declined to increase that amount from the $10,000 that was set back in the late 1970s.”

Todd Spencer, executive vice president of OOIDA, said the bill’s language will close loopholes that crooked brokers have used to defraud truckers.

“The bad guys have gotten away with exploiting the system for far too long,” Spencer said. “When fully implemented, the increased bond, coupled with greater accountability that comes with it, will be a win-win for truckers and the many legitimate brokers they deal with.”

But the new federal provision has drawn the wrath of a trade group of small brokers, the Association of Independent Property Brokers and Agents, which has accused TIA of attempting to put small operators out of business.

James Lamb, president of AIPBA, said the legislation’s increased surety requirement is an “underhanded” attempt by “mega brokers” and TIA to eliminate their smaller competitors.

Lamb even charged that Voltmann was pushing the higher surety requirements to help TIA’s bond underwriting program, an allegation that Voltmann denied.

* This bond will take effect July 1, 2013.