FMCSA to release guidance on what makes a broker vs dispatch

There seems to be some confusion as to what makes a broker and what they can do compared to a dispatcher or bona fide agent.  At end of last year, the FMCSA released some clarification on what constitutes each service.

These services are often confused as all three can be used to find cargo to fill loads, but each differ in their capabilities.

Differences between load broker and dispatch

Let’s dive in to what each service entails so then we can compare this to the Federal Motor Carrier Safety Administration (FMCSA) guidance.

What is a Load Broker?

Load broker, also known as a freight broker, connect shippers with carriers. The broker is a third party that provides a single point of communication between the shippers and carriers.

For the shipper the broker will assist with negotiating prices, plan the route of the shipment, and track it. The freight broker will invoice the shipper for their services. So, it is in the brokers best interest to negotiate low rates from the carrier as the broker earns their commission between what the shipper pays them and what has to be paid out to the carrier.

For the carrier the broker helps to make the best route, and help the carrier boost their profits by minimizing deadhead miles.

The broker never comes into contact nor takes possession of the shipment at any time. Brokers do not employ drivers, or own motor vehicles, they simply act as the middle person between shipper and motor carriers.

What is a freight forwarder?

Freight forwarders organize shipments for individuals or corporations. Freight forwarders can consolidate shipments or provide arrangements for break-bulk and distribution of shipments. In this Freight forwarder differ from Load brokers as they will assume responsibility for the transportation of the goods and may even transport the goods themselves.

Freight forwarders need to carry a surety bond of $75,000 to protect carriers in the event of non-payment and are regulated by the Federal Motor Carrier Safety Administration (FMCSA).

What is a dispatcher?

While Freight brokers do assist the carrier, dispatchers are really in it to help the carriers, not the shippers as they invoice the carrier for services. Dispatchers negotiate the best prices for the carrier, and help the carrier find loads. The dispatcher can be employed or contracted to a carrier.

A dispatcher will direct movements to ensure efficient delivery of shipments and are truly part of the logistics of the movement of the shipment. Dispatchers are not licensed, nor do they carry surety bonds.

So as described above dispatchers are awfully similar to brokers, which has brought into question how much dispatch can do before needed to acquire their broker authority under the FMCSA.

What is a bona fide agent?

And what about bona fide agents? How do they fit into this mix?

Bona fide agents by most are considered to be an agent who only represents one carrier, however the FMCSA does not agree with that definition. Bona fide agents are where carriers can outsource the role of looking for freight, rather than doing it inhouse. Basically, a bona fide agent looks for freight for the carrier, rather than looking for a carrier for a shipper.

FMCSA Guidelines to tell differences between dispatchers and freight brokers.

To help everyone make the distinction the FMCSA has released some information to help dispatchers know if they need to get their authorities.

Dispatchers need their authority if they:

  • negotiate directly with the shipper or shippers’ rep,
  • take money or is part of any monetary transactions between the carrier or shipper,
  • arrange a shipment for a carrier but have no legal contract with carrier that meets the requirements of the above,
  • accepts a shipment without having a truck or carrier ready to accept the shipment,
  • have their name on the shipping contract,
  • are actively searching the market of carriers for the purposes of transporting freight.

The biggest (but not only) takeaway is who is handling responsibility for either money or goods between shippers and carriers. If a broker takes possession of either between the two parties then they need to carry their surety bond and get their broker authorities.

Really it just makes sense. If you are party either taking responsibility for goods from a shipper while a carrier is being found, you need to be insured for that. Same if you are responsible for taking money that is owed to another party. Who wants to hire a party when there is the chance that their money may just disappear?

It is important to not get caught bending the lines between a freight forwarder and a bona fide agent or dispatch as it comes with a hefty $10,000 fine.

The FMCSA opened a commenting period that has just wrapped up, so we should be expecting a further guidance based on comments submitted. We will update you when they are released.

Becoming a Freight Forwarder or Broker

Interested in becoming a freight forwarder and want to get your business set up? We can help you today. We can get you a free quote as well an outline of what you need to do be a fully licensed freight forwarder.  Get your free quote now!