Broker is Still a Broker
Doing Business Online Doesn't Waive Legal Responsibilities
Henry E. Seaton
Reprinted from etrucker.com
At a recent industry
meeting, a representative of an e-commerce logistics company stated
that while it provided brokerage services, it did not act as a regulated
broker and did not require a license or a bond. I disagree. There is
no exemption from the broker regulations for non-carriers who broker
freight on the Internet or for large third-party logistics companies
- so-called 3PLs - that offer brokerage services.
The term "logistics company" has no standing or definition
under the laws and regulations governing the interstate transportation
by motor carriers of regulated shipments. The statute recognizes the
terms "motor carrier," "freight forwarder," and
"broker." All three require various licenses or permits and
evidence of financial responsibility.
A property broker is an entity other than a motor carrier or its bona
fide agent that arranges for transportation for compensation. With few
exceptions, 3PLs do not claim to be motor carriers or agents of individual
motor carriers. Instead, they typically manage the traffic function
for shipper customers and earn commissions or markups on each load they
place with subcontracting carriers.
For many years, several companies have operated electronic billboards
and posting services that function in many ways like a stock exchange,
providing a conduit for shippers, carriers and brokers to conduct business.
You could argue that these companies aren't property brokers if they
are not: (1) involved in arranging the transportation; (2) entering
into contracts with shippers and carriers for the movement of specific
freight; or (3) involved in the payment of freight charges. If, however,
the intermediary arranges for regulated interstate truck service, it's
acting as a property broker and is - as it should be - subject to licensing
and bonding requirements.
As a practical matter, FMCSA probably won't prosecute a 3PL for operating
without a license. The $10,000 bond requirement probably doesn't make
you feel all that secure anyway. So if the 3PL seems reputable, you
might think it's reasonable to do business with an unlicensed Internet
Don't make this decision lightly, however. You should be concerned about
large 3PLs that either don't know or apparently don't care that the
broker laws might apply to them. There is more at issue than the $10,000
bond. The broker rules contain other protections for carriers, including
regulations pertaining to the segregation of funds, the keeping of accounts,
misrepresentation and the assumption of payment duties with respect
to freight charges. If your 3PL partner claims not to be a regulated
broker, you may be waiving those rights by choosing to still do business
It is only good business for a 3PL to obtain a broker's license and
comply with the broker regulations. A broker's license is no seal of
approval or evidence of credit assurance, but there are significant
adverse legal consequences for carriers and shippers that do business
with unlicensed brokers.
Numerous courts have ruled that federal and state licensing requirements
are intended to protect the public and that the contracts and business
dealings of unlicensed entities may not be enforceable by the unlicensed
party. No 3PL should want the validity of its contract called into question
because it did not comply with the broker regulations. And no small
carrier should disregard an intermediary's lack of compliance with federal
regulations simply because the company has the word "logistics"
in its name.
Copyright© 2006 Law Office of Seaton & Husk, LP. All rights