TIA Advocates for Higher Surety Bond Performance Standards

Chris Burroughs | TRANSPORTATION INTERMEDIARIES ASSOCIATION

I am writing this article in response to the November 5,
2019 article published on Overdrive titled, “When the Broker Disappears with the Owner-Ops Money.” As the leading trade organization representing the third-party logistics industry, the Transportation Intermediaries Association (TIA) has a few different opinions on several points articulated in the article. TIA agrees that the regulations surrounding the bond/trust requirements for licensed property brokers is in desperate need of clarification from the Federal Motor Carrier Safety Administration (FMCSA).

Specifically, MAP-21 requires FMCSA to establish specific performance standards for bonds and other acceptable sureties. These performance standards require that the broker or forwarder file a bond issued by a surety registered and in good standing with the U.S. Department of the Treasury; or a trust or other security acceptable to the Administrator, provided that the surety amount consists of assets readily available to pay claims without resort to personal guarantees or collection of pledged accounts receivable. This makes the bond issuer, trust or other security holder ultimately responsible for failure to make required payments.

With all this being said, a property broker’s
bond/trust must have an enough time to respond to claims versus shutting the entity down immediately without due process.

TIA has been a leader in the bond/trust regulatory environment along with the Owner-Operators Independent Driver’s Association (OOIDA), working hard to ensure that fair practices are adhered to and motor carriers are getting paid in a timely fashion for valid claims. Back in 2014, TIA petitioned the FMCSA to begin a rulemaking process examining several concerns within the industry.

Specifically, the Agency needs to clarify under Section 13906(b) (6) and (c) (7) what constitutes financial failure or insolvency. Clarification will ensure that the surety or trust provider will not be at risk if it invokes the procedures under those sections to terminate the security and begin running the 60-day clock for final submission of claims. This scenario sometimes occurs over the objections of the broker or freight forwarder, who may not want to acknowledge that it is in financial difficulty, even though unpaid claims are mounting. TIA supports that three or more valid claims (from different sources), aggregating more than $25,000, which have remained unresolved for at least 30 days is one reasonable standard that could offer a “safe harbor” for the surety provider.

A key piece of TIA’s petition for rulemaking that would ensure that motor carriers are being paid is to ensure all surety/trust providers make paid claims’ information publicly available. TIA has concerns that some current BMC-85 trust fund providers are either underfunded or insolvent. There are a number of serious concerns with allowing underfunded or insolvent trust fund providers to guarantee the assurance of payments to motor carriers required by MAP-21. Such trust fund providers, if not required to show that they pay claims, tarnish the brokerage industry and disadvantage those operating legally. This enables irresponsible brokers to continue operating without adequate security, and to cheat motor carriers and thereby lessen the safety of the transportation industry. The TIA 3PL Market Report indicates that the average truckload shipment is $1,693 with 86% of that money belonging to the motor carrier. When an owner-operator does not get paid, they have to find ways to cut their costs; possibly by cutting safety investments.

TIA is aware that the Agency has concerns about how to enforce the financial solvency requirements of BMC-85 trust fund operators and urges the Agency to adopt a simple requirement that will allow the private sector to be the enforcement mechanism. TIA urges the Agency to require that all BMC-84/85 bond/trust operators publish, on their website, the schedule of carrier payments from a broker or forwarder bond/trust. Such payment publication should be organized by the broker or forwarder MC or DOT number and list the amount paid to each carrier MC or DOT number within 30 days. In this way, the carriers will be able to quickly review whether claimants were paid, and seek either clarification from the BMC-85 trust operator as to why a claim was not paid, or judicial review as MAP-21 makes the trust operator ultimately responsible for the trusts they issue.

TIA is aware that the Agency has concerns about how to enforce the financial solvency requirements of BMC-85 trust fund operators and urges the Agency to adopt a simple requirement that will allow the private sector to be the enforcement mechanism.

Ensuring that licensed property brokers are given fair due process is an essential part of this rulemaking for TIA and its 1,800-member companies. A licensed property broker or freight forwarder should not have their authority suspended immediately based on claims received, because invalid claims are often made. For example, an invalid claim could include claims on exempt commodities, intrastate moves (which are not subject to Interstate Commerce regulations), cargo claims, a payment claim contrary to a contractual agreement, a claim from a shipper or receiver on the transportation of the product, etc.

Furthermore, suspending authority without due process would cause a flood of authority reinstatements and re-processing for the FMCSA and all involved, ultimately increasing the burden on the Agency both in time and money. Maintaining a structure of due process is essential for all parties involved.

The answer is simple. Now is the time for FMCSA to move the rulemaking process forward and provide property brokers, motor carriers, and bond/trust providers with clear guidance and an equal playing field that ensures that due process is afforded to property brokers, that motor carriers are paid for valid claims, and fraudulent entities are removed from the industry.              

Chris Burroughs is Vice President of Government Affairs with TIA. He can be reached at burroughs@tianet.org.

Photo credits: iQoncept/Shutterstock.com, Trieffelpix/Shutterstock.com