If you are a carrier in the transportation industry, there may come a time when you have more orders than you have trucks. While it is great to have the excess business, what are your options for fulfilling your orders? Some people may choose to hire trucks from a third party to fulfill their orders, but does this mean you are now a broker? When is the line crossed from carrier into broker and when is a broker’s license necessary?
If you find yourself in this situation as a carrier, you have four choices to ensure you have enough trucks to fulfill all your orders:
- Obtain a freight broker’s license and arrange shipment through another carrier
- Lease trucks from another trucking company
- Apply for freight forwarding authority
- Purchase more trucks
While there are pros and cons to every option, you should carefully consider the legal implications of each option as well. For example, if you are arranging freight for an interstate haul (across state lines) with a truck that is not owned by you, you would need a broker’s license. However, if you are arranging freight for an intrastate haul (within state lines), you would not need a broker’s license.
You could also choose to lease trucks onto your authority instead of choosing to obtain a broker’s license. These trucks and drivers would be considered your employee and be under your authority and insurance policy. This would negate the need to obtain a broker’s license regardless of where the freight is traveling.
While these are all viable options, how do you know which option is right for your business? Do you really need a broker’s license or a freight forwarding authority or would leasing or purchasing trucks be sufficient?
How Would I Know If Leasing Trucks is the Right Option?
If you are a transportation company who needs to hire more trucks to fulfill the excess shipping orders you are receiving, you need to correctly identify your needs in order to choose the appropriate resolution.
So, when would the appropriate resolution be leasing trucks? If you meet the following criteria, leasing trucks would not be the best option for you:
- If your need for outside trucks pertains to freight that is moving across state borders AND
- Your need is intermittent AND
- You only need them for single trips but may not have a use for them after that
In this case, your needs would be better served as a broker and the appropriate license and bond would be needed.
However, if the overflow of shipping orders is great enough to keep outside trucks busy all of the time, then you, the transportation company, may enter into lease agreements with the owners of the additional trucks needed.
In this scenario there is no broker’s license required. The leased trucks become part of the transportation company’s fleet and operate under their authority and insurance.
How Would I Know if Choosing a Broker’s License is the Right Option?
Truck brokers operate as agents both for companies that need their freight moved and for trucking companies that are in search of freight to move. A broker’s duties are to make all of the arrangements between the carrier and the shipper.
Once the shipment has been completed, the broker will bill the shipper for the freight movement and in turn pay the carrier. The profit the broker makes is not a set figure and will vary based on the principles of supply and demand.
If the broker’s business involves movement of freight that crosses state borders then the broker must obtain an interstate broker’s license, which includes obtaining a $75,000 surety bond.
Additionally, they are under the obligation to only use trucks that have interstate authority as contract carriers or common carriers.
Carriers may also obtain an interstate broker’s license but they almost always do it under a separate company and a different name. The reason for this is that most shippers want to know if they are dealing with a broker or a carrier and they can’t make that distinction if both authorities exist under the same name. It's also is beneficial to keep each business separate for financial and legal matters.
If you are a carrier who needs additional trucks to fulfill your orders, you must consider the above requirements before choosing to obtain a broker’s license. If you only need extra trucks occasionally or for single trips, it may be worth it to go through the process of becoming a broker because leasing trucks for a whole year would not make sense.
However, if you plan on using the trucks for multiple loads or trips, it may be a better choice to lease trucks under your authority and avoid the extra steps it might take to obtain a broker’s license.
What Other Options Do I Have?
Another option would be to apply for freight forwarding authority. A freight forwarder, also known as a forwarding agent, is very similar to a freight broker.
Freight forwarding authorities also arrange and organize shipments or hauls for shippers to move goods from one place to another. The forwarder will arrange trucks from carriers or owner/operators to haul goods for a shipper.
The difference between becoming a freight forwarding authority and a broker is the responsibility each carries. A freight forwarding authority, unlike a broker, becomes the carrier of record on the shipment.
Freight carriers are required to hold a bond just like a freight broker, but because they are the carrier on record, the actual carrier who is hauling the load for the shipper cannot seek payment from the shipper in case of a non-payment.
The final option you would have would be to purchase additional trucks. While this may seem like an easy solution, many companies may not have the cash flow or the bandwidth to handle this extra expense. Because it is typically financially difficult, it is not often utilized as a solution in this scenario.
While each case is unique to the company and their situation, we always recommend that you look at and consult outside council to determine the legal implications of how and where you haul your loads.
If you find yourself needing to cross state lines with your freight and do not have the means to transport it yourself, you should take the appropriate action to ensure that you follow the regulations set forth in the trucking industry.
From there, you can decide if the best course of action is to go through the steps to obtain your broker’s license, apply for freight forwarding authority, purchase additional vehicles, or lease trucks onto your authority. While all actions are valid, you should make your decision based on what is best for your business and your current freight needs.
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