Federal fee hike putting thousands of freight brokers out of business, industry says

By M.D. Kittle | Watchdog.org

MADISON, Wis. — Americans fork over $1.75 trillion each year to comply with federal regulations, according to estimates from the Small Business Administration Office of Advocacy.

Thousands of independent freight brokers and agents nationwide will tell you the immediate cost is deadly.

A new provision in the federal transportation bill jacks up the surety bonds that freight brokers and forwarders must pay from $10,000 to $75,000.

Since its rollout last fall, the provision – which critics allege was slipped into the massive transportation bill and greased by the massive contributions of interests representing the mega freight brokers – has forced more than 7,500 active property brokers to shut down as of March 14, according to the Association of Independent Property Brokers and Agents.

The association claims there were 21,565 brokers on Oct. 1. Nearly six months later, the industry has shed about 36 percent of its players, a loss that will hit consumers and the U.S. economy at large in the pocketbook, according to the association.

James Lamb, president of the Boca Raton, Fla.-based group, says the steep increases in bond costs to ensure freight delivery is just too much for a lot of small businesses to bear.

“A lot of these folks narrowly survived the Great Recession,” he told Watchdog.org. “These are people who were struggling to begin with. This was the last thing these folks needed.”

By late December, Lamb said, some 2,500 smaller freight brokers in California, Illinois and Texas alone had closed shop.

The heftier bond rates are included in the Moving Ahead for Progress in the 21^st Century Act, commonly known as MAP-21, signed into law in July 2012 by President Obama. The transportation bill, the first long-term highway authorization enacted by Congress since 2005, included more than $105 billion for surface transportation programs in fiscal years 2013 and 2014.

As logistics trade publication DC Velocity put it, under the MAP-21 provision “the federal government makes it more expensive for brokers to do business, enforces strict rules on what brokers and truckers can and can’t do, and levies stiff fines for noncompliance.”

The broker bond provision was backed by major freight-hauling players such as the American Trucking Associations, the Transportation Intermediaries Association and the Owner-Operator Independent Drivers Association.

Higher bonds will cut down on the incidents of fraud, the associations insist.

TIA, in defending the measure, has said the surety bond increase is in line with the Federal Maritime Commission rates, with similarly situated ocean transportation brokers paying $75,000 bond. The association says the issue is not one of “big versus small, it is an issue of being well run regardless of size.”

“Today’s brokerage-based logistics industry is a profession and not a hobby. While we still think having no bond requirement is the right answer, that position was not acceptable to the carriers or to Congress.”

Incidentally, TIA does offer the “TIABond at the $75,000, $100,000, and $250,000 levels,” according to the association’s website.

Lamb acknowledges fraud within the industry but vehemently disputes the accusation that it is widespread. He said there were no studies tracking incident rates brought before Congress before the bond provision was tucked into the 1,656-page transportation bill. Lamb’s association claims the trade groups serving the biggest brokers, including multi-billion dollar companies, “hooked up with small truckers and their trade group to cut a deal.”

“Our position to the trucker community is this is cutting off your nose to spite your face,” Lamb said. “Who’s going to be left? There will be fewer brokers left, and truckers will be desperate to get business from the big brokers, which will charge more and pay truckers less.”

The Association of Independent Property Brokers and Agents has filed a lawsuit in federal district court hoping to block the provision.

“AIPBA believes a number of big brokers have colluded to influence Congress to raise the bond for the sole purpose of limiting competition under the guise of fighting fraud and that this constitutes a violation of Antitrust Law,” the association states on its website.

One association member who says she has been in the transportation industry for more than 30 years asserts the government has “declared war on small businesses in almost every industry.”

“There is a fine line between doing something for protection or for control, this looks like an attack on free enterprise,” wrote Frances from Ninilchik on the association’s website.

Contact M.D. Kittle at watchdog.org