From Regulation to Deregulation: The Evolution of Freight Brokers and Transparency Laws

Introduction

The freight brokerage and transportation industry has a rich history navigating periods of strict regulation, sweeping deregulation, and still continues to this day with ongoing debates over fraud and transparency. As the Federal Motor Carrier Safety Administration (FMCSA) revisits transparency regulations, it’s critical to examine whether these efforts address the industry’s core challenges. Transparency has a role, but combating fraud and enforcing existing regulations are far more pressing priorities.

As Gord Magill stated in his recent article picked up by The Blaze

“The FMCSA, which is nominally tasked to properly regulate the trucking industry and which has an annual budget of nearly a billion dollars a year, could use some direction in prioritizing its resources and being far more efficient in cleaning up bad actors in the trucking industry than it currently is.”

Fraud is increasing in the industry due to a combination of low barriers to entry paired with the lack of robust enforcement of existing regulations by the FMCSA. A market environment has evolved that is ripe for bad actors and criminals to take advantage of our domestic supply chain. The FMCSA would serve the industry better by looking into existing violations in regards to Principal Place of Business to prevent fraud, but they believe that responding to calls for targeting transparency will help combat fraud. Even though according to the Transportation Intermediaries Association (TIA) the FMCSA has received eighty thousand complaints involving fraud reported to the National Consumer Complaint Database managed by the FMCSA. The FMCSA instead have chosen a regulation which they state received thirty-two complaints between 2018 and 2022. Makes sense so what are the transparency laws?

Transparency laws, originally designed to protect brokers, have been reinterpreted the further we get from the Motor Carrier Act of 1980. The current regulation, 49 CFR 371.3 “Records to be kept by brokers.” comes from 45 FR 68942 published Oct. 17 1980 as 49 CFR part 1045. The FMCSA’s new proposal is to provide all parties with the details of the transaction electronically within 48 hours of delivery. I argue that the most recent communication is a misinterpretation of the original intent in 1980. I also contend that the FMCSA hinges their argument for transparency on an asymmetry of information that is no longer relevant, with numerous rating tools and platforms available to all parties. But, should the FMCSA continue to run full steam ahead into transparency, I believe that brokerages would have a firm argument in protecting their linehaul rates with shippers, though the laws ought to refocus on disclosing accessorial charges or fraudulent claims to protect carriers from unethical practices. Standardizing accessorial charges within the industry will not only protect carriers from fraud and abuse but hold the shippers accountable for egregious amounts of wasted time in docks as Gord pointed out in his article. Perhaps a history lesson in freight markets and how they are regulated would be useful before diving into the good stuff.

So how did we get here?

The History of Freight Brokerages

The Early Days (Pre-1935)

Freight brokers emerged as intermediaries between shippers and carriers, managing logistics in an unregulated market. These brokers played a critical role in connecting shippers to transportation capacity but operated without federal oversight, often leading to abuses like price manipulation and unreliable services. The Motor Carrier Act of 1935 brought brokers under the Interstate Commerce Commission’s (ICC) strict regulation, requiring licensing and adherence to approved rates. Railroads losing significant business to the trucking industry lead to successful lobbying for the government to pull them into regulation. The intent was to stabilize the industry, reduce unfair practices, and protect carriers and shippers alike..

Regulation and the Motor Carrier Act (1935-1980)

During regulation as many as seventy licensed property brokers were in existence. Of these holding licenses, as few as five were active in the brokerage industry. Rates were determined by the ICC and carriers had to petition the ICC for rate changes. Effects of regulation caused significant delays in transportation because the motor carrier authorities at the time applied to geographical areas and while restricting access to hauling certain commodities.

This strict regulatory period created difficulties for brokers to operate and required them to have a clear understanding of the geographical regions, rates, commodities, and carriers permitted to arrange traffic for those carriers. During this time brokerages were compensated by the carriers not the shippers in the form of commission on the transport.

Transparency regulations post deregulation were designed to ensure brokers received fair commissions and the records kept by the brokers would maintain transparency between the parties. These measures protected brokers from being exploited by carriers while fostering trust in a controlled market .

Deregulation and Its Impact

The Motor Carrier Act of 1980 dismantled the ICC’s oversight, allowing market-driven competition. While this led to an influx of new brokers and lower freight costs, it also introduced instability:

• Many undercapitalized brokers entered the market, contributing to fraud and financial disputes .
• The lack of enforcement mechanisms led to exploiting carriers through non-payment and deceptive practices.
• The influx of new entrants of carriers and brokers created much needed efficiencies in the domestic supply chain and reduced costs significantly. This also opened the door for the Just In Time model of freight movement that we deal with today.

Transparency Laws: Intent and Evolution

Transparency laws under ICC regulation were designed to protect brokers by keeping records of transactions so that the commissions paid would be fair and prevent carriers from benefitting from a free source of sales and traffic. This ensured brokers could resolve disputes, fostering fair dealings in a controlled market. This can be seen in the original summary of 49 CFR 1045 where the Property Brokers Association was pushing for the regulation and carriers like Yellow Freight were adamantly against it. The federal government would ultimately side with the Property Brokers Association.

Modern Context

Today, FMCSA regulations require brokers to disclose transaction records upon carrier request. However, debates about whether transparency combats fraud or exposes proprietary information have emerged, with industry stakeholders divided on its necessity. In today’s proposed ruling the Transportation Intermediaries Association (TIA) argues that the current interpretation of 49 CFR 371.3 (This is the current designation of the law as of 1996) is not congruent with the original intent and is being misrepresented as a way for carriers to obtain rates that brokers have with the shippers.

The Owner-Operator Independent Drivers Association (OOIDA) and the Small Business in Transportation Coalition (SBTC) also argue that contracts between brokers and carriers often contain waivers removing this right to review from the carrier but the FMCSA has not included that language as part of the new proposal. The context in which OOIDA and the SBTC are requesting that these waivers be removed is an attempt to address an asymmetry of information that they believe brokers have in marketplace rates. With companies like DAT, Truckstop, Greenscreens.AI, SONAR, and other SaaS companies providing rate data on the industry to brokers, carriers, and shippers with a paid subscription.I find this argument to be very disingenuous.

It is also worthy to note that the FMCSA stated in the release on the topic of removing waivers that they believe it would take an act of congress to force brokers to remove this language from their contracts. Indicating that they believe they do not have the enforcement mechanisms available to enforce the right to review should the broker include this in the terms of the contract.

The Current Debate: Transparency vs. Fraud Prev​ention

The Small Business in Transportation Coalition (SBTC) and the Owner-Operator Independent Drivers Association (OOIDA) argue that transparency combats fraud by exposing hidden fees and ensuring carriers are paid fairly. They claim that requiring brokers to share transaction records would deter unethical practices like unjustified deductions and double brokering.

Counterpoint

In the case of fraud, this regulation has little to no impact because not only is the information requested going to be delayed forty eight hours post transaction, but this would imply that a party already acting illegally would be then compelled to act legally? This is a rearguard action that puts the cart in front of the horse.

Requiring brokers to disclose all rate information will not have an effective impact on a carrier’s ability to negotiate for better rates. In fact, this could have the opposite effect as seen post-deregulation when rates tanked and bankruptcies were being filed en masse. Exposing the rates of brokers will cause more parties to undercut shipper rates to secure freight. To think in an open marketplace exposing rates from shipper to broker would cause an increase in rates to carriers goes against these lessons learned in past events.

However, if the FMCSA is to continue down the path I would suggest a re-interpretation of transparency and exclude linehaul rate but make clear distinctions for brokers to provide transactional data on charges, accessorial fees, and claims.

Why Transparency Should Focus on Accessorial Charges

Protecting Information

Linehaul rates reflect broker-shipper negotiations and proprietary strategies. Disclosing these rates jeopardizes broker competitiveness and shipper relationships. Instead, transparency should focus on:

• Accessorial Charges: Clear disclosure of fees like detention, layovers, and penalties ensures carriers are not unfairly penalized. Creating a standardized set of accessorial charges in transportation would hold shippers accountable for the unethical treatment of drivers and prevent brokers from falsifying records surrounding these charges.
• Claims Handling: Mandating transparency around claims would fall in line with the same argument for accessorial charges, protecting carriers from mistreatment by brokers and shippers attempting to save money on transportation costs.

The Real Issue: FMCSA’s Inability to Enforce Current Regulations

Current issue

• Double Brokering: The industry has fell victim to fraudulent brokers taking advantage of the FMCSA’s lack of enforcement to steal from the industry. They will apply for multiple MC authorities to gain access to industry load boards and trick brokers and carriers alike to steal payments for transported goods. Sometimes they will even reroute shipments to steal the goods. This problem has caused millions of dollars in damages and has sparked a wave of SaaS companies Like Highway and My Carrier Portal that are profiting off the FMCSA’s inability to enforce its own laws.
• Non-Payment: Along with fraud, the low bar of entry does not prevent financially inept brokers from participating and exposing carriers to risk of non-payment for work performed.

Proposed Solutions

• Stronger Enforcement: FMCSA must prioritize fraud investigations and increase bond requirements to prevent bad actors and financially unstable participants in the brokerage industry.
• Technological Innovations: The FMCSA database is long overdue for an overhaul in record keeping and updating. Updates to the FMCSA database to provide real time information on active authorities and their standings would be significantly more impactful to the industry and reduce fraud.
• Collaboration: Industry tech companies that offer load board services or vetting tools should work in tandem to help report these bad actors to regulatory bodies. While they have a duty to protect the interest of their clients, the reporting process for bad actors in the industry is well past due for an overhaul. Utilizing these companies to help report these incidents to the FMCSA would help eliminate bad actors.

Conclusion

Transparency laws were initially intended to protect brokers, not carriers. Revisiting these laws to disclose rates risks undermining broker competitiveness and opening the door to market destabilization. The real priority should be enforcing existing regulations, combating fraud, and focusing transparency on accessorial charges to protect carriers from bad actors. To address anything else besides fraud in the current state of the industry is not only dismissive of the voiced concerns of stakeholders but is a concerning misuse of taxpayer money.

The FMCSA must address its enforcement challenges and foster collaboration among stakeholders to build a fair and trustworthy transportation industry. Transparency, while valuable, must be carefully balanced with the industry’s need for competitive integrity and innovation.