Trust Fund Requirements
As of November, 2012
Here is a paragraph taken from a reliable source regarding the status of the new legislation that increases the bond limit to $75K from $10K.
"Even though Congress set a date of 2013 for the new regulation, we probably won't see it until sometime in 2014 of even 2015. It first has to be written, then announced for public comment, then provide a 90 to 180 day comment period then reevaluated and possible rewritten based on this. With a possible second comment period, not to mention the multitude of legal and court challenges it's sure to face we have a couple of years before it is an enforceable regulation" - Timothy Brady: Business Editor at American Trucker Magazine
As of July, 2012
The new highway bill, recently signed into law, has increased the freight broker bond requirement from $10,000 to $75,000. This increase will not take effect until July, 2013. How will this affect freight brokers?
There is still a lot of uncertainty as to exactly how this increase will "unfold". This is because, in part, it will take some time before bond providers understand how their guidelines or requirements will unfold for them.
This new legislation known as the Highway Bill, or MAP 21, is approximately 600 pages long and deals with far more than just the bond increase. In fact, the bond increase proposal was "obscurely tucked" inside this bill because it had been rejected in 2010. Proponents of the bill were three "big company" entities, namely the Transportation Intermediaries Assoc (TIA), the American Trucking Association (ATA) and the Owner Operators Independent Drivers Association (OOIDA).
Ironically, the TIA is a professional association for freight brokers but many feel that TIA is really trying to push the small, "mom and pop" brokers out of business in favor of the "mega-giant" brokerages. Some say that this bond increase will end up with the brokerage industry composed of nothing but these mega-giant brokerages. This is a possibility but I don't see this happening for several reasons. Number One, the trucking, freight, logistics, supply chain and freight broker industries are a GIGANTIC amalgam, involving billions and billions of dollars and tens of thousands if not hundreds of thousands of workers.
If the smaller broker loses some viability and clout for now, they will eventually come roaring back. Small business is the backbone of free markets and the American economy.
There is no such thing as a purely "free" market but the dynamics and forces that shape these industries will pose constraints on each participant, large and small. I'm no economic expert but believe me, volumes of books have been written regarding "free markets in a democratic society". Google it, if you like, and you may find good, historic evidence of the power of small business.
This bond increase was promoted as the solution to lessen the fraud that exists when brokers don't pay truckers. Fraud has occurred, does occur, and always will occur but legislation with higher bond rates aimed at reducing or eliminating fraud is as feeble as it is fallacious.
This increase WILL prevent some from entering the freight brokerage industry. Some of those who are "eliminated" will be honest, hard-working indivuals. And some will be those who have a "well let's give it a try" mentality. The second type should not be entering this business in the first place.
Remember this, no matter WHAT the cost is to enter this industry (or any business) there will be always be those who cannot afford to get into the "game". Right now at the current $10K level, there are many who cannot enter into this business because of the cost.
But, without a doubt, those who ARE able to enter are those who always seem to find a way when confronted with obstacles. Many new, smaller brokers will continue to enter this industry regardless of the obstacles. And, not all of the participants will end up being the mega-giant types.
Look at the current trucking situation with higher fuel prices. The higher prices sent many truckers packing. This has created low capacity and simply means that there are more loads than trucks to move the loads.
Will there be a shortage of freight brokers? Will this drive shipping rates even higher? How will all this affect profit margins for shippers, truckers and brokers? How will this affect the consumer? Higher commodity prices? I wish I were smart enough to dissect all this but there are some facts that are true.
There are many, many smaller trucking firms that are thriving. How do I know this? I speak to a number of them all the time. They know how to overcome obstacles. It will be the same for smaller freight brokers. For the smaller freight broker, they don't need 50 or 100 customers. They need 5 to 10 good-paying shippers who pay their bills on time. It's that simple. This does NOT mean that I support such an increase in the bond limit. I think it's absurd.
I have been opposed to such a large increase and, evidently, it's too complicated to regulate different levels of bond requirements, one level for large companies, one for smaller ones, e.g.
There is a lot of rule-making that needs to be completed before sufficient clarification is evident. Here is what you might want to consider for now:
Don't make any snap decisions until you know what the entire story is even though that won't be next week, or next month or even longer. If a more costly scenario is in the horizon and you can deal with it, NOW is the time to become a freight broker.
Many business owners work, and succeed, with far more uncertainty in other obstacles than what the bond increase presents.
If it were me, I'd be more concerned about the low truck capacity. Then I would create strategies to overcome this obstacle.
Stay tuned for more updates. However, I won't be able to answer individual emails or discuss this in more detail until more information is revealed to me.
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