Separation of Brokerage and Motor Carrier Operations

By Robert Fuentes

Recent changes in the law have limited the scope of motor carrier authority and increased the legal exposure to trucking companies that broker freight. Because of these changes, there are many issues that may arise where a trucking company fails to distinguish its motor carrier operations from its brokerage operations.

There are 4 key areas of importance when it comes to separation of brokerage and motor carrier operations:

  • Compliance with legal and regulatory requirements enacted under Map-21
  • Compliance with customer contractual requirements.
  • Compliance with insurance requirements.
  • Protecting against increased legal exposure in the event of loss.

 

New legislation entitled Moving Ahead for Progress in the 21st Century (MAP-21) was enacted in July 2012, which resulted in several changes to the scope of motor carrier authority and broker authority. Previously, motor carrier authority granted trucking companies authority to perform “transportation services.” There were no restrictions to prohibit motor carriers from brokering. However, an overhaul of the regulations now restricts the scope of motor carrier authority.

In that regard, motor carrier authority now limits motor carriers to performing transportation services using vehicles the motor carrier rents, owns, or leases. For a motor carrier to provide transportation services using other motor carriers, a separate brokerage authority is required.

To further emphasize the importance of the distinction, the regulations now specifically require all motor carriers with affiliated freight brokers to make clear to their customers which authority they are operating under. Failure to make the proper distinction subjects your motor carrier operations – including officers of the company – to legal liability and exposure outside of insurance coverage and fines reaching $10,000 per violation.

Certain customers have contractual requirements that specifically prohibit brokering or subcontracting (which is the same as brokering). Further, the auto liability, public liability, and cargo insurance plans obtained by trucking companies are intended to cover the trucking company’s equipment and drivers, not the equipment and drivers of third party motor carriers.

As such, if the trucking company unlawfully arranges for transportation or fails to disclose to its customer that a load is being brokered through another entity’s authority (i.e., a freight broker), it faces liability as a motor carrier without insurance to cover the acts of that third party motor carrier.

It is critical that each of your agents, independent contractors, and employees utilize a disciplined approach to maintain your compliance with the law and ensure that there is no confusion caused as to which authority your respective affiliates are operating under. The attorneys at The Fuentes Firm can help protect your trucking company from these kinds of exposure.