Law Offices of Seaton & Husk, LP

A Broker is Still a Broker
Doing Business Online Doesn't Waive Legal Responsibilities
By Henry E. Seaton
November 2000
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 logistics company.

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 with it.

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.