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FMCSA proposes to strengthen requirements that brokers maintain and provide information about brokered transactions to shippers and carriers.

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This transparency could impact broker pricing, fundamentally alter commercial relationships between brokers, carriers, and shippers, and reveal proprietary information without confidentiality protections.

Comments on the proposed rule are due January 21.

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On November 20, 2024, the <a>Federal Motor Carrier Safety Administration </a>(FMCSA) published a <a href="https://www.federalregister.gov/documents/2024/11/20/2024-27115/transparency-in-property-broker-transactions">Notice of Proposed Rulemaking</a> aimed at enhancing transparency in brokered motor-carriage transactions (NPRM). The NPRM would strengthen arcane and seldom used regulatory obligations of truck freight brokers to disclose information to shippers and carriers about brokered transactions, including the pricing between the broker, shipper, and carrier. This information could impact broker pricing, alter commercial relationships between brokers, carriers, and shippers in brokered transactions, and lead to disclosure of a shipper’s proprietary pricing. Comments are due January 21.

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The NPRM proposes several key amendments to the broker records regulation under 49 C.F.R. § 371.3, which mandates that brokers maintain records of their transactions with shippers and motor carriers while granting the transacting parties the right to review these records. The primary changes include:

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Electronic Recordkeeping: Brokers will be required to maintain transaction records in an electronic format. This is intended to facilitate easier access and compliance with the broker transparency requirements.

Revised Record Contents: The proposed rule revises the required contents of brokers' records, so they include the dates of payments from both the shipper to the broker and from the broker to the carrier, an itemized list of all charges related to the brokerage service, and any shipper claims for damage or delay. These revisions intend to ensure that the records more fully capture information important to carriers.

Provision of Records Upon Request: Brokers will have a regulatory obligation to provide transaction records to the transacting parties upon request. This reframes the current "right to review" as a duty for brokers to supply the records.

Timely Provision of Records: Brokers must provide the requested records within 48 hours, ensuring that the requesting party receives the records in a timely manner to support the resolution of service or payment issues.

This proposed rule responds to petitions from trade associations representing small truckers seeking to require that brokers provide motor carriers with greater access to information about the amounts brokers charge shippers and pay carriers for freight transactions. The rule also reflects FMCSA’s assessment of comments filed in response to an FMCSA request for comments related to the petitions.

The FMCSA argues that access to information about a brokered transaction is necessary to address the “asymmetry of information” between the transaction’s parties, where the brokers typically possess more information about the transaction than the motor carrier or shipper. The agency further claims that this imbalance can limit the parties’ ability to negotiate effectively, resolve disputes efficiently and avoid unfair practices.

Although the broker records rule at 49 C.F.R. § 371.3 requires brokers to keep records of each transaction and gives the transaction parties a right to review the records, the FMCSA identified four key concerns about the rule’s effectiveness:

Waivers of transparency rights. FMCSA contends that brokers often include clauses in their contracts with motor carriers requiring the carriers to waive their ability to review the broker’s records.

Practical Hurdles in Accessing Records. FMCSA contends that, even without waiver clauses in their broker contracts, motor carriers and shippers often face practical difficulties in accessing broker records. For example, brokers may make records available only at their principal place of business.

Timely Production of Records. FMCSA contends that some brokers delay providing transaction records.

Inadequate Content. FMCSA contends that records are not appropriately tailored to the needs of carriers for payment information and visibility into specific charges, which impairs the efficient resolution of payment issues and disputes.

The proposed rule could fundamentally reshape the relationships among shippers, carriers, and brokers in brokered transactions, altering their interactions and key contractual terms at the heart of their relationships. By requiring the disclosure of transaction information, the proposed rule risks impacting broker and carrier pricing and exposing shippers’ proprietary transportation rates without any safeguards regarding the use of disclosed confidential contract information. Brokers are particularly concerned that carriers might exploit this information to gain a competitive marketplace advantage.

The broker industry and other stakeholders are likely to strongly oppose the rule as unnecessary and contrary to the robustly competitive and largely deregulated trucking industry. In 2020, a leading trade association for the broker industry petitioned FMCSA to eliminate the clause in the broker records rule that gives parties to a brokered transaction the right to review the broker’s transaction records<a>. </a>The petition explained that the clause originated over 40 years ago, during the early stages of extensive deregulation in the trucking industry. It also noted that the clause emerged in a bygone era when motor carriers paid broker commissions, and the parties involved in a brokered transaction needed to verify that these commissions were paid.

At least one shipper group expressed concerns with the petitions leading to the NPRM, contending that disclosure of shipper-broker transaction information to carriers could interfere with the fluidity of the freight market and reveal proprietary pricing information.

<a>FMCSA seeks comment from stakeholders on the NPRM</a>. The agency is particularly interested in feedback on the following:

Impact on Freight Rates: What impact, if any, would the proposed rule have on freight rates?

Electronic Recordkeeping Among Household Goods Brokers: How common is electronic recordkeeping among household goods brokers? What burden, if any, would be imposed if electronic recordkeeping was required?

Time and Cost for Creating Electronic Records: How much time would a broker spend creating an electronic record from paper documents for the record mandated by § 371.3? What would be the costs for a broker to create an electronic record per transaction?

48-Hour Timeframe for Providing Records: Do you believe that the 48-hour timeframe proposed for § 371.3(c) would create a substantial burden for brokers? Why or why not? If you disagree with the proposed 48-hour timeframe, what timeframe would best balance the objectives of transparency while minimizing the burden on brokers?

Impact on Illegal Brokering: If this proposal effectively reduced instances of illegal brokering, through carrier policing with transparency information, would the brokers engaged in illegal practices exit the market, resulting in the transfer of illicit profits to legally operating motor carriers and/or brokers?

Recordkeeping Requirements for Different Types of Brokers: Should freight brokers and household goods brokers be subject to the same recordkeeping requirements under § 371.3? If your answer is ‘‘no,’’ why should they be subject to different requirements?

Format for Submitting Requests for Records: Should parties requesting records under § 371.3(c) be required to submit their request in writing? Should parties requesting records under § 371.3(c) be required to submit their request electronically? Would requiring a specific format for submitted requests impose a cost on the parties or otherwise deter requests for transparency? Please provide support for your position.

Method of Providing Records: Would the proposal that records be provided electronically under § 371.3(c) make broker transparency more likely, as compared to not specifying a method of provided the records? Should the Agency be more specific in requiring a particular format for records provided under § 371.3(c), and if so, what method and/or format is preferable? Please provide support for your position.

We encourage all stakeholders to review the proposed rule and consider submitting comments to the FMCSA. For assistance with comments, please contact the authors if this Transportation Update.

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

https://admin.thompsonhine.com/wp-content/uploads/2024/12/FMCSA-Seeks-Comments-on-Freight-Broker-Transparency-Proposed-Rule.pdf

FMCSA Seeks Comments on Freight Broker Transparency Proposed Rule

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