OPINION & POLICY POSITION
WHAT WE THINK IS WRONG WITH THIS
A carrier agreed to transport a load for $600, completed the transportation, and delivered the freight successfully. 917Smith then attempted to reduce the carrier's compensation by $300 — 50 percent — without, based on the records presently available to us, demonstrating a corresponding $300 loss to the broker or customer.
The Carrier's Rate Pays for Transportation
When a motor carrier agrees to haul a shipment for $600, that rate is compensation for performing the transportation service.
The carrier supplies the truck, trailer, driver, fuel, insurance, maintenance, operating authority, labor and operational risk necessary to move the shipment.
In this case, the transportation was completed and the receiver accepted the shipment.
A Deduction Should Not Begin With the Broker Simply Choosing a Number
We believe there is an important difference between an actual, documented loss caused by a carrier and a broker simply imposing a financial penalty.
If a carrier causes an actual financial loss to a shipper or receiver, there should be a process for determining:
- what happened;
- who was responsible;
- whether an actual financial loss occurred;
- the amount of that loss;
- whether insurance applies; and
- how the responsible party will resolve it.
What should not happen, in our view, is for one intermediary to make all of those determinations privately and then simply remove money from the carrier's transportation charge.
The Broker Is an Intermediary — Not the Carrier
Federal broker regulations define a broker primarily as a person who, for compensation, arranges or offers to arrange transportation by an authorized motor carrier.
The carrier is the entity actually performing the transportation.
We do not believe that should be the default system.
A Simple Example
Suppose the Driver Damages the Shipper's Property
Assume a carrier's driver accidentally drives across a shipper's lawn and causes $2,000 in damage.
There is an actual alleged loss.
In our view, the proper process is straightforward.
The incident is documented. The carrier is notified. The facts are investigated. The amount of damage is established. The carrier has an opportunity to determine whether responsibility is accepted or disputed.
If responsibility is accepted, the carrier might pay the claim directly or provide its insurer's information.
What should not automatically happen is for the broker to privately negotiate the claim, decide what the carrier owes, and simply subtract that amount from an unrelated freight bill.
Where §371.3 Becomes Important
What §371.3 Actually Does
49 CFR §371.3 requires brokers to maintain a record of each brokered transaction.
Among other things, the record identifies broker compensation, non-brokerage services and compensation, freight charges collected, and payment to the carrier.
Most importantly for this discussion, each party to the brokered transaction has a right to review the transaction record required by the regulation.
Section 371.3 does not expressly say that every broker deduction is illegal.
That distinction matters.
Our criticism is that resistance to transaction transparency creates exactly the environment in which questionable deductions become difficult for carriers to challenge.
If the broker tells a carrier:
the carrier should not have to simply accept that representation without access to the records necessary to determine whether it is true.
The Information Imbalance Is the Problem
The Broker May Know
- what the shipper actually paid;
- whether the shipper reduced its payment;
- whether the customer made a complaint;
- whether the customer demanded compensation;
- what amount was negotiated; and
- whether the broker actually suffered a loss.
The Carrier May Be Told Only
- “You violated the rate confirmation.”
- “The customer complained.”
- “We're deducting $300.”
- “You agreed to this in our contract.”
That information imbalance gives enormous practical power to the party controlling both the customer communication and the carrier's payment.
The Contract Should Not Replace Proof of an Actual Loss
Broker-carrier contracts frequently contain provisions authorizing deductions, offsets, penalties or chargebacks under specified circumstances.
Whether a particular provision is legally enforceable depends on the contract, the facts, applicable state and federal law, and other circumstances.
But as a policy matter, we reject the idea that a pre-written contract provision should automatically permit a broker to become:
- the complaining party;
- the investigator;
- the evaluator of the evidence;
- the negotiator with the customer;
- the decision maker;
- the collector; and
- the party physically withholding the carrier's money.
Those functions should not all reside with one party without meaningful transparency and an opportunity for the carrier to review and dispute the claimed loss.
The Statutory Purpose Matters Too
Congress has expressly directed that federal broker regulations provide for the protection of both motor carriers and shippers.
We believe that policy is difficult to reconcile with a system in which carriers can face substantial unilateral deductions without receiving documentation establishing an actual loss.
Where We Believe FMCSA Should Create a Hard Rule
Federal regulations should establish a specific procedure governing broker deductions from an agreed motor-carrier transportation charge.
Our Proposed Rule
A broker should not be permitted to deduct, offset or withhold money from an agreed carrier transportation charge based upon an alleged shipper or receiver loss unless:
- The broker identifies the specific incident giving rise to the proposed deduction.
- The carrier receives written notice and a reasonable opportunity to respond.
- The broker provides documentation of the actual financial loss, including any customer chargeback, invoice, claim or reduction in payment.
- The carrier is permitted to communicate concerning the claim with the relevant shipper, consignee or other party when necessary to investigate responsibility.
- The broker discloses whether it actually paid or absorbed the claimed loss.
- The amount deducted cannot exceed the documented loss attributable to the carrier unless a separately enforceable liquidated-damages provision applies.
- A disputed claim does not automatically authorize withholding the undisputed portion of the carrier's freight charges.
- The broker must preserve the complete transaction and claim record for regulatory review.
Why We Believe a Rule Is Necessary
Without a clear procedure, the deduction mechanism can create an opportunity for abuse.
A relatively small deduction may be expensive for an individual carrier to litigate. The broker already controls the payment and may control much of the documentation.
That economic imbalance can make challenging even a questionable $100, $300 or $500 deduction commercially impractical.
Repeated across thousands of transactions, small deductions can become significant revenue.
We therefore believe FMCSA should treat unsupported carrier deductions as a transparency and carrier-protection issue rather than merely leaving every incident to private contract litigation.
Applying That Principle to This $600 Load
The transportation price was approximately $600.
The proposed deduction was $300.
The carrier completed the transportation.
The receiver accepted the shipment.
Based on the records presently available to us, we have not seen documentation demonstrating that the receiver charged 917Smith $300, reduced 917Smith's payment by $300, or otherwise caused 917Smith a documented $300 financial loss because Maxx completed the delivery without the requested final authorization.
Our Position
Brokers perform an important function in arranging transportation.
But arranging transportation should not give an intermediary unlimited authority to unilaterally determine carrier liability and remove money from an agreed transportation charge without substantiating the loss.
If a carrier causes damage, delay, expense or another measurable loss, address it openly.
Document it. Investigate it. Allow the carrier to participate. Determine responsibility. Use insurance when appropriate. Resolve the claim.
What should not be acceptable is: “We decided you owe $300, so we took $300.”
We believe FMCSA should establish a clear national rule requiring documentation, transparency, carrier participation and proof of actual financial loss before a broker can unilaterally reduce an agreed carrier transportation charge.
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