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Notice

Registration of Brokers and Freight Forwarders of Non-Household Goods

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Information about this document as published in the Federal Register.

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AGENCY:

Federal Motor Carrier Safety Administration (FMCSA), United States Department of Transportation (DOT).

ACTION:

Notice of determination.

SUMMARY:

Section 4142 of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), which was enacted into law August 10, 2005, authorizes the Secretary of Transportation (Secretary) to register brokers and freight forwarders of non-household goods (otherwise known as general commodities brokers and freight forwarders) if the Secretary finds that such registration is needed for the protection of shippers. FMCSA, which has been delegated authority to exercise the Secretary's functions and activities regarding broker and freight forwarder registration, is making a finding that registration of brokers and freight forwarders of non-household goods is needed for the protection of shippers. Accordingly, the Agency will continue to register all general commodities brokers and freight forwarders subject to its jurisdiction.

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FOR FURTHER INFORMATION CONTACT:

Mr. Michael J. Falk, Office of Chief Counsel, 202-366-0834; Federal Motor Carrier Safety Administration, U.S. Department of Transportation, 400 Seventh Street, SW., Washington, DC 20590-0001.

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SUPPLEMENTARY INFORMATION:

Background

FMCSA's jurisdiction over interstate property brokers is conferred by 49 U.S.C. 13501, which gives the Secretary jurisdiction “over transportation by motor carrier and the procurement of that transportation” to the extent the transportation is in interstate or foreign commerce. FMCSA's jurisdiction over interstate freight forwarders is conferred by 49 U.S.C. 13531, which gives the Secretary jurisdiction “over service that a freight forwarder undertakes to provide, or is authorized or required under [Part B of subtitile IV of title 49, United States Code] to provide” to the extent the transportation involved is in interstate commerce.

Brokers and freight forwarders are transportation intermediaries who procure the services of motor carriers to transport property. Brokers generally do not handle the freight and do not assume legal liability for cargo loss and damage. On behalf of shippers, they arrange for motor carriers to transport individual shipments from origin to destination. Freight forwarders assemble small shipments into larger shipments, tender them to motor carriers and ensure that the larger shipment is disassembled into smaller shipments upon delivery. Freight forwarders may take physical possession of the shipment in carrying out these functions.[1] Freight forwarders issue bills of lading and assume liability for cargo loss and damage.

Brokers arranging for transportation of property in interstate commerce were first regulated by the Interstate Commerce Commission (ICC) in 1935; interstate freight forwarders were regulated beginning in 1942. These Start Printed Page 50116entities were required to obtain operating authority from the ICC and meet financial responsibility and other regulatory requirements. The Surface Freight Forwarder Deregulation Act of 1986, Pub. L. 99-521, deregulated general commodities freight forwarders by removing them from ICC licensing jurisdiction. The 1986 Act was intended to “enable freight forwarders which deal with general commodities to compete more effectively with other transportation services and to improve the financial health of the freight forwarding industry”.[2] The 1986 Act retained ICC jurisdiction over household goods freight forwarders.

The ICC Termination Act (ICCTA) of 1995, Pub. L. 104-88, reinstated Federal jurisdiction over general commodities freight forwarders and required all freight forwarders to register with DOT. The Senate report accompanying the legislation noted that since the 1986 Act, freight forwarders of shipments other than household goods were not required to obtain a license from the ICC, but were required to maintain a minimum level of cargo liability insurance. The Senate report also stated that the “insurance requirement has been difficult to monitor and enforce without a Federal licensing requirement. By extending the registration requirement to all freight forwarders, the bill would fill an inappropriate regulatory gap.” [3]

The ICCTA continued the licensing (registration) and bond requirements for general commodities brokers, which, according to the Senate report, were “needed to protect the public from unscrupulous brokers.” [4] The Motor Carrier Safety Improvement Act of 1999 (MCSIA), Pub. L. 106-159, created FMCSA and, among other things, conferred on it jurisdiction over brokers and freight forwarders.

Prior to SAFETEA-LU, 49 U.S.C. 13903 and 13904 required FMCSA to register all freight forwarders and brokers, provided the prospective registrant was “fit, willing and able” to provide service and comply with applicable regulatory requirements. Section 4142 of SAFETEA-LU continued this registration requirement for freight forwarders and brokers of household goods. However, section 4142(b) amended § 13903 by providing that the Secretary may register a person as a freight forwarder of non-household goods to provide service subject to FMCSA jurisdiction if the Secretary finds that such registration is needed for the protection of shippers and that the person is fit, willing, and able to provide the service and to comply with applicable regulations of the Secretary and Surface Transportation Board.

Section 4142(c) of SAFETEA-LU made a similar amendment to 49 U.S.C. 13904 by providing that the Secretary may register a person to be a broker of non-household goods to provide service subject to FMCSA jurisdiction if the Secretary finds that such registration is needed for the protection of shippers and that the person is fit, willing, and able to provide the service and to comply with applicable regulations of the Secretary and Surface Transportation Board.

Significance of Brokers and Freight Forwarders

General commodities brokers and freight forwarders offer valuable services to the business community. They work with motor carriers to find less expensive transportation alternatives for commercial shippers and provide additional services to assist shippers, such as shipment tracing, warehousing and storage (freight forwarders) and filing loss and damage claims with the motor carrier responsible for the transportation. Without these transportation intermediaries, shippers would have to devote additional resources to locating and negotiating with motor carriers and would likely have to pay higher transportation costs. Smaller businesses in particular would be disadvantaged by not being able to rely on the services provided by brokers and freight forwarders. Available statistics also indicate a growing reliance on these entities in the shipment of goods.

Brokers

FMCSA's Motor Carrier Management Information System (MCMIS) indicates that approximately 16,930 active general commodities brokers are registered with the Agency as of April 17, 2006. The number of property broker applications filed annually with FMCSA has increased by 30 percent since 2003.[5] These figures indicate that property brokers represent an expanding segment of the transportation industry and are being utilized to help meet the transportation needs of a large number of commercial shippers.

Freight Forwarders

MCMIS indicates that approximately 1,040 active general commodities freight forwarders are registered with FMCSA. The number of freight forwarder applications filed with FMCSA annually has increased by approximately 80 percent since 2003.[6] As with brokers, these figures indicate that freight forwarders represent a growing segment of the transportation industry whose services are relied upon by many commercial shippers to meet their transportation needs.

U.S. Census Bureau statistics indicate there were 15,782 establishments involved in the business of freight transportation arrangement in 1997. This industry group includes freight forwarders, marine shipping agents, and brokers. These businesses generated revenues of over $16 billion and employed over 140,000 employees with a cumulative annual payroll of approximately $5 billion. While not all these entities provided services subject to FMCSA jurisdiction, the more current MCMIS data indicate that the number of general commodities brokers and freight forwarders registered with FMCSA exceeds the size of the entire freight transportation arrangement industry reported in 1997. Although FMCSA does not have figures on cumulative revenues and employment for regulated general commodities freight forwarders and brokers, the Census data provide a rough estimate of the potential impact on the regulated freight transportation arrangement industry and the national economy if general commodities freight forwarders and brokers are unable to be relied upon by shippers due to lack of confidence in their activities and financial responsibilities.

Registration of Non-Household Goods Brokers and Freight Forwarders Is Needed for the Protection of Shippers

Pursuant to section 4142 of SAFETEA-LU, if the Agency determines that registration of non-household goods brokers and freight forwarders is needed for the protection of shippers, the Agency may require these entities to register.

Under 49 U.S.C. 13906(b), brokers must maintain and file with FMCSA a bond, insurance policy or other type of approved security to ensure that the transportation which the broker arranges is provided. Currently, FMCSA regulations require general commodities brokers to file a surety bond or trust fund in the amount of $10,000 (49 CFR 387.307(a)). This requirement is designed to protect shippers who pay brokers who renege on their obligations to arrange for the transportation or to pay the motor carrier. In the latter case, Start Printed Page 50117the motor carrier may attempt to bill the shipper, who has already paid the broker for the shipment. It is also designed to protect motor carriers who are not paid for their services but are unwilling or unable to seek payment from the shipper. Section 13906(b) financial responsibility requirements are expressly linked to broker registration by the statute. In other words, without a registration requirement, FMCSA has no statutory authority to impose a bonding requirement to protect shippers and carriers against unscrupulous or financially irresponsible general commodities brokers.

As is the case with brokers, the financial responsibility requirements applicable to freight forwarders are expressly linked to the registration requirement. Under 49 U.S.C. 13906(c)(1), FMCSA may register a person as a freight forwarder only if the person files with the agency evidence of public liability insurance to cover negligent operation, maintenance or use of motor vehicles by or under direction and control of the freight forwarder when providing transfer, collection or delivery services. Section 13906(c)(2) permits FMCSA to also require registered freight forwarders to file freight forwarder insurance to cover loss or damage to cargo for which the freight forwarder provides service. There are no independent financial responsibility requirements for the protection of shippers that would apply if general commodities freight forwarders are no longer being registered.

Based on the foregoing, FMCSA finds that continued registration of non-household goods freight forwarders under 49 U.S.C. 13903 and non-household goods brokers under 49 U.S.C. 13904 is needed for the protection of shippers. We also note that brokers and freight forwarders must register pursuant to 49 U.S.C. 13901 to engage in interstate transportation. Finally, based on FMCSA's determination above regarding the protection of shippers, any registration appropriately filed between August 10, 2005 (the date of enactment of SAFETEA-LU) and the date of this Notice shall be effective on the date the registration was approved by FMCSA.

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Issued on: August 16, 2006.

John H. Hill,

Administrator.

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Footnotes

1.  The statutory definitions of broker and freight forwarder are codified at 49 U.S.C. 13102(2) and 13102(8), respectively.

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2.  S. Rep. 99-120, p. 2 (July 31, 1985).

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3.  S. Rep. 104-176, p. 12 (Nov. 21, 1995).

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5.  In calendar year 2005, 3,274 applications were filed, compared to 2,518 in 2003 and 2,816 in 2004.

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6.  In calendar year 2005, 442 applications were filed, compared to 244 in 2003 and 205 in 2004.

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[FR Doc. E6-14064 Filed 8-23-06; 8:45 am]

BILLING CODE 4910-EX-P