Nearly 8,200 freight companies shut down after failing to post new surety bond requirement of $75,000
As we’ve previously discussed on our blog, the Federal Motor Carrier Safety Administration (FMCSA) set new surety bond requirements for brokers and freight forwarders. As of October 1, 2013, freight forwarders had to carry $75,000 surety bonds. This marks a sharp increase from the old minimum, which was set in 1980, of $10,000.
A surety bond is a bond given to protect the recipient against loss in case the terms of a contract are not filled; and a surety company assumes liability for nonperformance.
The increase was part of the Moving Ahead for Progress in the 21st Century Act (MAP-21 Act). The change was made to combat bad bond brokers who were taking advantage of the low bond requirements and short-changing truck drivers the charges they were owed.
Well, now that the dust has settled and the FMCSA’s 60-day grace period has ended, the ramifications of this change are being seen. As a result of the increased surety bond requirements, approximately 8,200 brokers had their operating licenses revoked over the past month. That represents a stunning 38% of the nation’s 21,000-member brokerage community. This data comes directly from the revocation information contained on the FMCSA website.
Opinions regarding the mass revocation of operating authority are split. Supporters of the increased bond – which include the powerful American Trucking Associations (ATA) – maintain that the revocations only affected brokers that were already inactive, and for all intents and purposes weren’t really operating.
Additionally, other proponents, like the Transportation Intermediaries Associations (TIA) have pointed out that many companies have duplicate operating authorities and the revocation process actually functioned as a tool to help them rationalize how many of the different freight forwarding operations they should maintain.
But opponents of the increase are telling a different story. For instance, one commentator, Michael J. Curry, has criticized the FMCSA revocations, pointing out that a number of brokers have moved addresses and had their forwarding addresses expire. Consequently, those freight forwarders were not even aware that their licensure was due to expire.
Another criticism coming from the Association of Independent Property Brokers & Agents points out that the widespread freight forwarder closings concentrate more buying leverage in the hands of a few very large brokers. The argument is that expanded pricing power will put downward pressure on rates that truckers can charge. Also, the lessening of competition among brokers will adversely affect shipper choice and will force shippers to pay more for broker services in general.
Having litigated truck accidents for nearly 20 years, I understand all too well that far too many transport companies are founded upon an unsafe business model. I believe that this increase will positively impact safety within the trucking industry. By removing brokers who maintain the old low surety bond, the FMCSA is significantly reducing the risk that bad freight forwarders will take advantage of truck drivers.
When brokers rip truckers off, the truck driver is left to his or her own devices to make up for the money that they’ve lost. Sometimes, unfortunately, this means truckers will be under financial pressure to violate important safety rules. These drivers may be more inclined to speed, to violate hours of service and to falsify their logs, or to commit other unsafe acts so that they can make up the money.
It will be very interesting to see how things develop moving forward.