TIA’s Response to Rate Transparency Petitions

Chris Burroughs | Transportation Intermediaries Association

ON AUGUST 19, 2020, the Federal Motor Carrier Safety Administration (FMCSA) published in the Federal Register a notice and request for public comments on two separate petitions filed by the Owner-Operators Independent Drivers Association (OOIDA) and the Small Business in Transportation Coalition (SBTC). These petitions were filed based on the political issue of “rate transparency” and their claims of so-called “price gouging” by brokers during the COVID-19 pandemic. In the petitions, OOIDA and SBTC are asking FMCSA to promulgate strict regulations on the way brokers conduct their business—and  which are not applied to any other business or industry in the United States.

The OOIDA petition asks for two regulations from FMCSA. These include:
•   Requiring property brokers to transmit electronically a copy of each transaction within 48 hours after delivery of the freight; and
•   Prohibiting property brokers from including language in their contracts that states motor carriers waive their rights to see the “commission” per 49 CFR §371.3.

According to document 2020-18130 filed in the Federal Register on August 19, “SBTC requests that FMCSA prohibit brokers from coercing or otherwise requiring parties to brokers’ transactions to waive their right to review the record of the transaction as a condition of doing business. SBTC also requests that the FMCSA adopt regulatory language indicating that brokers’ contracts may not include a stipulation or clause exempting the broker from having to comply with the transparency requirement.”

TIA filed comments on behalf of our 1,700 member companies and the 3PL industry in strong opposition to this potential outreach by OOIDA and SBTC. Here are a few excerpts from the TIA comments.

TIA strongly opposes the petitions filed by OOIDA and SBTC. The reality is that like many industries during the COVID-19 pandemic, property brokers and motor carriers were negatively impacted by the pandemic and its effects on the American economy. The “historic low rates” were a by-product of that economic downturn, not a systematic price-gouging scheme, as OOIDA and SBTC would like to contend, which is unfounded in facts. A current examination of the marketplace will show that with the volume of freight increasing as states have begun to reopen, demand for freight has risen along with truck rates, which are nearly at the historic highs achieved in 2018. More government regulation and oversight are not the answer to an economic disaster and runs contrary to President Trump’s Executive Order 13924, titled “Regulatory Relief to Support Economic Recovery,” which seeks to eliminate or reduce burdensome regulations on American businesses. As will be explained below, the regulations in question were put in place in 1980 with an entirely different goal in mind—not to regulate rates or broker margins.

49 CFR 371.3(c) was formalized in the Federal Register on May 12, 1980, during a time of deregulation within the transportation industry. Prior to the Motor Carrier Act of 1980, motor carriers could only operate in certain lanes, a limited number of licenses were issued to brokers and motor carriers, and rates were filed directly with the federal government for enforcement. In the May 12, 1980 Federal Register notice, the Interstate Commerce Commission (ICC) outlines this intended purpose:

The primary purpose of our record-keeping requirements is to ascertain whether improper rebating activities are taking place.

Today, 40 years later, 49 CFR §371.3(c) is in direct conflict with the original intent of the ICC to ensure that “all unnecessary restrictions which might impede the free operation of the marketplace” are removed. In today’s marketplace brokers are not commissioned sales agents of motor carriers. As noted above, brokers pay motor carriers regardless of the rate that the shipper pays the broker. The need to verify commissions no longer exists. [To this end TIA has filed its own Petition for Rulemaking to the Agency to eliminate 371.3(c).]

This change occurred because motor carriers wanted the broker to pay them more quickly than the shipper was willing to pay the broker. For example, a motor carrier might insist on payment within 30 days of delivery, while a shipper might take 60, 90 or even 120 days to pay the broker. To satisfy both parties the broker must bear the credit risk of advancing the funds to the carrier before the broker collects payment from the shipper. Furthermore, brokers expend major financial investments through technology to meet their shipper and motor carrier customer’s needs. The notion that brokers have “no skin in the game” is not only offensive to the 22,000 licensed property brokers, many of which are small businesses, but is not founded in facts.

… the regulations in question were put in place in 1980 with an entirely different goal in mind—not to regulate rates or broker margins.”

One of the questions posed by the Agency is estimating the cost for implementing an IT solution to accomplish OOIDA’s request for electronic submission of rates. While we do not feel this is necessary and runs contrary to the intent of 371.3 as we discussed above, in our opinion it also runs outside the jurisdiction of the Agency to promulgate an IT requirement because it is not tied directly to safety like the ELD mandate. There would be substantial costs for the brokers and motor carriers to safely achieve this because of concerns with data privacy. Because of concerns about protecting proprietary information and the safe transmission of information from a broker to a motor carrier, the only conceivable way to achieve this would be through an EDI or API integration. It is worth noting that email transmission would not meet the necessary data privacy requirements and will eventually be phased out as the United States moves closer to a system like that of GDPR in European countries. The most recent example of this is the state of California enacting the Consumer Privacy Act.

Our members currently utilize similar solutions with their shipper and motor carrier customers at the cost of anywhere from $2,500 – $10,000 per implementation. For example, if a broker utilizes 5,000 carriers in their database and the motor carriers use their own proprietary IT solution, that would be a cost of $12.5 million to $50 million for IT implementation. The motor carriers would additionally have to pay similar fees to implement the solution on their end. With 70% of TIA Members and a major portion of the property brokerage industry being small businesses with less than $5 million in annual revenue, and with 90% of motor carriers having less than five trucks in their fleets, this would be a huge barrier to entry and devasting to the brokerage and motor carrier industries. TIA strongly urges the Agency not to implement this harmful and unnecessary burden.

As of this writing, more than 800 comments have been submitted to the record on the two petitions. TIA will remain a leader for the 3PL industry in defending our members from burdensome regulations and regulations like broker transparency that are not founded on facts, but emotions during a global pandemic and downturn in the economy that would be hugely detrimental to our membership and goes to the core of our member’s
business.              

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

Image credits: WR7/SHUTTERSTOCK.COM, SERGII GNATIUK/SHUTTERSTOCK.COM