Let’s Talk About CFR 371.3(c) and Why It’s Time for a Refresh

Let’s Talk About CFR 371.3(c) and Why It’s Time for a Refresh

Freight 360 By Freight 360

For freight brokers, there’s a regulation that’s been around for a while, stirring up mixed feelings among those in the know. It’s called CFR 371.3(c), and it’s all about making sure everyone’s on the same page when it comes to the deals being made between shippers, carriers, and brokers. The idea behind it is pretty straightforward: keep things transparent by letting the involved parties know the financial details of their transactions. Sounds fair, right? Well, it’s a bit more complicated than that, and some folks are starting to wonder if this rule is still fitting in today’s fast-paced logistics scene.

The Gist of CFR 371.3(c)

So, here’s the deal with CFR 371.3(c): it’s like a rate transparency appeal for the freight brokering world. It mandates that brokers keep a record of the rates negotiated in their deals and share these details with the carriers and shippers if they ask. The goal? To ensure everyone feels good about the deal, knowing they were treated fairly.

Why Some Think CFR 371.3(c) is Outdated

While the intention behind CFR 371.3(c) made sense when it was written over 40 years ago, the way we do business in logistics has changed a ton. Here are a few reasons why some people are giving this rule a second thought:

1. Changes to Broker Pay: Originally, brokers used to be paid a commission by trucking companies in return for finding them loads. It made sense to disclose the rates to calculate the commission correctly. That’s changed – now, brokers charge shippers directly and pay carriers themselves. The difference in the two rates is their profit margin. No need to calculate an agreed-up percentage like it used to be.

2. Comparing Apples to Cars: Let’s think about how this plays out in other industries. Take car dealerships, for instance. When you go buy a car, the dealer doesn’t have to tell you what they paid for it. That’s their business, and it’s the buyer’s job to do their research and make sure they are getting a fair deal. Car buyers have access to Kelly Blue Book, and motor carriers have rating tools as well. Even with that, the market fluctuates and a load for one carrier might be more appealing than the same load for another, which can lead to normal healthy competition and one offering to take the load for a better rate than the other. This happens on a large scale with shipper bids the same way it happens on a small scale in the spot market. That’s capitalism.

3. The Competitive Edge: Being forced to disclose rates can put brokers in a tight spot, showing their hand to competitors. It’s like asking a magician to reveal their tricks. Plus, it doesn’t really account for the value brokers add beyond just the numbers. Further, some shipper contracts would prohibit releasing their pricing as a matter of protecting their trade secrets and encouraging competition from both freight brokers and motor carriers. Additionally, if a broker has a contracted rate for an extended period of time for a shipper, chances are that their margin will change throughout that timeframe. They might have average margins for some time, above average margin for other times, and possibly even lose money for part of the contract. The value add is in offering consistent freight spend which is absorbed by the broker’s cashflow operations.

Time for a Tune-Up?

The conversation isn’t about tossing rate transparency out the window. Far from it. It’s about recognizing that the way we achieve transparency has evolved. Maybe it’s time for the rules to catch up with how business is done today, embracing the tech and tools that make fairness and clarity part of the package without the extra hassle. Good relationships are what will make this industry succeed, not demanding to open someone’s books and peek inside of their financials.

Wrapping up CFR 371.3(c)

As we move into the future of freight brokering, revisiting rules like CFR 371.3(c) and rate transparency could be key to keeping things rolling smoothly. It’s not about cutting corners or ripping anyone off; it’s about streamlining the process in a way that makes sense for everyone involved while protecting the business interest of all parties. So, maybe it’s time to give CFR 371.3(c) a little makeover, making sure it fits just right in the modern logistics world. To read CFR 371.3(c) in full click here

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