We’ve been on a bit of a roll discussing hard topics like double brokering and insurance lately. In essence, I’ve been focusing a lot of time on parts of our industry that need attention with the hope that passing knowledge to shippers, brokers, and carriers will help improve it. I recognize this content can be negative, and it may seem like we’re pointing out flaw after flaw, and we are.
Thankfully, there are more great people and companies in our industry than not. The positive feedback I’ve had in regard to covering these topics is proof to me that this industry is proactive and motivated to help find solutions!
With that motivation for solutions in mind, we’ve got another tricky topic this week: illegal dispatch offices.
As originally (and legally) intended, a dispatch office works with only one carrier managing the dispatching, load tenders, and billing on behalf of that one carrier.
The problem? The Transportation Intermediaries Association (TIA) has reported an increase in dispatch offices that are brokering freight.
Brokers, 3PLs, 4PLs, and carriers who are operating a brokerage office are far more regulated than a dispatch office. For just one example, they require a Motor Carrier Number (MC#) and have to submit a $75,000 USD surety bond to get up and running. This is not the case for a ‘dispatch office’.
If a dispatch office has several carriers and is operating on load boards seeking freight and carriers, are they not actually a broker using a loophole to enter the transportation industry cheaply and without regulation?
Industry leaders think so. In 2021, the TIA filed a petition with the FMCSA to eliminate illegal dispatching. The TIA later moved on to petition Congress as this matter became more of a challenge through covid.
Why did illegal dispatch offices pop up during Covid?
In November 2022, the FMCSA was supposed to release full guidelines and definitions of a broker, bona fide agents, and the role of a dispatch service. This was to follow the mandate and infrastructure of the jobs act (IILA) which was signed into law in 2021. For whatever reason, this work was never completed, and a loophole that was already being taken advantage of was left open.
Covid created a highly favourable market that incentivized these dispatch offices. With rates high, they could quickly score profits by brokering and acting outside of their already unclear definition as a ‘dispatch’ office. The potential profits of acting as a broker far outweighed the risks of being called out for acting as a broker without following the normal regulatory process.
The ‘dispatch office’ double broker
We’re adding a layer of complexity now. Ask, what recourse is in place if a dispatch office does double broker freight? – Because this is what many are doing as they move beyond the one carrier they are supposed to be dispatching. And as a double broker, they are not going to be covering any cargo loss or claim. If the FMCSA is looking to slow or stop double brokering, ‘dispatch’ offices should be high on the list of things to crack down on.
The path to a solution:
- Close the loophole and clarify the definition of a dispatch office and brokerage like FMCSA originally intended to in 2022.
- The TIA has already advocated to members of the House and Senate on the basis that these cases are straightforward. If a dispatch service;
- handles the exchange of money, and/or
- they are doing business with more than one carrier entity,
- The TIA has already advocated to members of the House and Senate on the basis that these cases are straightforward. If a dispatch service;
... then they are a broker and should be regulated like a broker.
- Remove any incentives to set up a brokerage outside regulatory defenses.
- If dispatch offices are permitted to continue to operate under the current process for the same results, then it is only fair that all other brokers are able to operate in the same manner. Right?
- This question serves to deductively reason that legitimate brokerages are operating with a preventable disadvantage to criminal activity. It points out the obvious, we don’t want unregulated brokers or dispatch offices – regulations are good! We all want the regulations and bonds to stay in place. Let’s make the playing field level, and more importantly, ensure shippers' freight is properly managed and fully protected.
- If dispatch offices are permitted to continue to operate under the current process for the same results, then it is only fair that all other brokers are able to operate in the same manner. Right?
This doesn’t have to be a war on dispatch offices. FMCSA and other industry regulators can advise on the clarification of definitions and changes. ‘Dispatch’ offices that fall into the definition of ‘brokerage’ may apply to become a legitimate brokerage and will now be formally regulated, be surety bonded, follow all relevant acts, and provide insurance for errors and omissions. These would be positive first steps, and with the increase of unlawful brokerage activities, increase in illicit dispatch services skirting registration, and regulatory requirements this cannot be the only or last step.
As always, thank you for reading and we will see you next week for another article.
Bill Robinson
