A Threat to Mom & Pop Trucking Companies


November 7, 2012

Call out the troops – again

Here we go again; the idea that creating more government regulation is the solution to the woes of the trucking industry.

There’s currently a piece of legislation in front of Congress, H. R. 7, American Energy and Infrastructure Jobs Act of 2012. This Act addresses many of the concerns about our decaying highway infrastructure which need to be acted upon – and soon.

But – there are also an aggregate 12 pages in this 847-page bill, through lobbying pressure from the Transportation Intermediary Association (TIA), representing the larger freight brokers in this country and OOIDA, which will put many micro- and small carriers out of business.

Here is the exact wording of the area of greatest concern within the proposed legislation: “Minimum financial security.— Broker subject to the requirements of this section of H.R. 7 shall provide financial security of $100,000, regardless of the number of branch offices or sales agents of the broker.”

What this says is, regardless of the size of the freight broker, its bond will be $100,000. As an example, a small mom and pop trucking operation which has a freight brokerage to move excess freight from their customer base, will need to secure the same $100,000 Surety Bond as a company the size of C.H. Robinson Worldwide, Inc. (During the year ended December 31, 2010, CHR handled approximately 9.2 million shipments for more than 36,000 customers. It operates through a network of 231 offices. Public, NASDAQ:CHRW).

In other words, under the provisions of H.R. 7, C.H. Robinson with 231 offices will be required to secure a single bond in the amount of $100,000. A small mom & pop trucking company with one office inside their truck will be required to secure a bond for the same $100,000.

If this is going to be fair and equitable, shouldn’t C. H. Robinson (CHR) have to secure a bond for each one of their 231 offices separately? As we learned with the failure of Lehman Brothers (NYSE ticker symbol LEH), no company or enterprise is too big to fail. CHR should be minimally required to post a $23,100,000 bond to make the law fair and equitable.

Will increasing the bond to $100,000 per broker actually stop the withholding payment thievery from truckers who hauled the loads? No, it just creates the atmosphere for a larger amount to be absconded from unsuspecting carriers by unsavory freight brokers. It does nothing to fix the problem.

So what needs to be done to protect the trucker and not put honest, small mom & pop businesses out of business?

1. If it’s going to be fair and equitable, the bond should be based on 25% of the annual revenue of the broker, starting with a minimum bond of $25,000.

2. Every office of a broker should be required to have a bond. C.H. Robinson, as an example, would have a bond for all of their offices based on the overall revenue produced by the company divided by 231. Based on CHR’s 2011 annual truck brokerage operations revenue of $1,236,611,000, each office would post a bond of $1.3 million (rounded up). A mom & pop trucking operation with a brokerage operation annual revenue of $100,000 would post a $25,000 bond.

3. Just like real estate and other property brokers who act in fiduciary capacity, freight brokers should be required to maintain a fiduciary escrow trust account where all monies from a freight hauling transaction are deposited. All parties, including the freight broker, should be paid from the escrow, just like a Real Estate closing. There would be no commingling of carrier owed funds and the freight broker’s general account. It would be much easier to track any inconsistencies or brokers trying to steal from the carrier/shipper, plus everyone involved in the transaction would know what everyone was being paid in full disclosure.

(More information on Fiduciary Escrow Trust Accounts – https://irem.org/pdfs/publicpolicy/brokertrustaccounts.pdf)

Having been a yacht broker, a real estate broker and an insurance agent over the past 35 years, I have experience in the areas of fiduciary escrows and bonds. In the first two examples of being a broker, I was required to carry a fiduciary bond and maintain a Fiduciary Escrow Trust Account; in the last example, I wrote fiduciary bond policies. Insurance brokers, real estate brokers, yacht brokers and attorneys are all required to post a fiduciary bond and maintain a fiduciary trust escrow account. And it has been a successful means to ensure all parties in the transactions they handle are paid fairly and that there is no commingling of clients’ monies with the broker’s or attorney’s general business account.

Many small carriers rely on brokering excess freight to grow their operations. H.R. 7 will put every one of those small carriers out of business if they have to maintain a $100,000 freight brokers bond. This disastrous result has not been addressed in this legislation.

Many small carriers/brokers are grossing far less in their freight brokering operations than an amount that would justify the cost of a $100,000 bond. In many cases, what they net is less than what the premium would be. This is because they are focusing on hauling asset-based freight with their trucks and are brokering out the excess freight for which they haven’t the capacity. Being able to broker the excess freight of their direct ship customers gives them the extra revenue and ability to slowly grow the asset side as they build their customer base with the brokering side. It also helps them wean their trucking operation from brokers. The proposed legislation puts them out of business.

If you see the inequality in this legislation, I request you do two things:

1. Contact your Congressional Representative and let them know the changes that need to be made to SEC. 6206, FINANCIAL SECURITY OF BROKERS AND FREIGHT FORWARDERS of H. R. 7, American Energy and Infrastructure Jobs Act of 2012 (pages 525 through 530).

2. Go to https://petitiononline.com/100KBOND/petition.html and sign the online petition, Keep Property Broker Bonds Reasonable.

Feel free to copy and paste any portion of this blog article you think is needed to promote your position.

Drive long and prosper.

Timothy Brady ©2012 To contact Brady go to timothybrady.com
For more information on Trucking Business Courses go to: truckersu.com