The Fight to Clean Up the Truck Broker Industry
Traditionally, every second year during a few days in mid-April, the trucking community of Ontario gathers for the Truck World exhibition...
In 32 years as a truck driver and seven years as a transportation broker, DuWayne Marshall has seen it all: brokers who pay late or not at all; brokers who go bankrupt; brokers who run outright scams.
The Fight to Clean Up the Truck Broker Industry
"You've got a pile of somebody else's money and there's great temptation to use it for yourself, since you're always paying backwards," says Marshall, the owner of Watertown Refrigerated Logistics, based in Watertown, Wis. And the victims are, more often than not, small business owners.
That's because, despite the large, highly visible trucking fleets that dominate American highways, the vast majority of trucking companies are small businesses. Of the estimated 500,000 trucking companies nationwide, the average fleet size is five to six trucks, says Kenny Lund, a board member of the Transportation Intermediaries Association (TIA). He's also vice president of Allen Lundtransportation brokers, founded by his father nearly 40 years ago in La Canada Flintridge, Calif.
In the complex industry known as third-party logistics, or 3PL, brokers are middlemen between the companies that need stuff moved and the people who have trucks to move it. "In just about every industry there's a bad element, but in transport there was a higher percentage," Lund says. "My father, when he was selling, wouldn't even tell people he was a truck broker. He used phrasing like 'freight forwarder' to get away from that notorious image."
Unscrupulous brokers will take payment from the shippers but withhold payment from truckers for months, leaving them scrambling to cover fuel and maintenance costs with high-interest merchant cash advances. Others offer quick payment terms, but only if the trucker will agree to take 3 percent to 4 percent less than what he's owed.
"A normal business would turn around and pay the guy, but instead they float the money," says Joe Rajkovacz, director of governmental affairs for the California Construction Trucking Association, a trade group. That means brokers use money collected from one shipment to pay truckers who delivered goods in earlier months—or for their own personal use. In that respect, he says, "brokering is not much different from what took down [Bernie] Madoff."
Those suffering the most are the smallest operators—the 97.2 percent of trucking companies with 20 or fewer vehicles, according to the TIA—many of them owned by immigrants and first-generation Americans. They depend on brokers for business, Rajkovacz says, because "they're just too small to contract directly. They get squeezed from every angle."
Jim Kienbaum, whose Stepping West trucking company takes produce from the agricultural fields in California to the Midwest, has horror stories about brokers. One owed him $1,500 but filed for bankruptcy before he could collect. Another broker's checks bounced when he owed Kienbaum $40,000. "I got really nervous because I have a truck and a family. I had hauled for him forever but he got a divorce and started drinking and gambling, and things just went downhill," he says. After weeks of hounding, Kienbaum finally got paid, but many other truckers did not. "One guy got burned for $18,000," he recalls.
Since 1980, when the transportation industry was deregulated, small truckers have had little recourse in such situations. The law made it easy to become a broker and required only a $10,000 bond—insurance to make sure a broker could pay. In the event a broker didn't pay, the truckers owed small amounts could file claims and expect to get paid, but those stiffed for more than a few hundred dollars would often have to eat their losses if the bond was exhausted, Rajkovacz says. "Truckers don't even think of turning something over to collections," he says. "Most of them are like Timex—they take their licks and keep on ticking."
The situation may be getting better for truckers. A new provision of federal transportation law that went into effect in December tightens restrictions for brokers and their bonding companies, and increases the bond requirement to $75,000 annually. That means that someone owed $20,000 at least has a chance of collecting it from the bonding company.
The legislation was contentious, although the TIA and other industry groups wound up supporting it. When brokers had to re-register and post the higher bond, Lund says about 7,000 of the 24,000 licensed brokers disappeared overnight, though many may have been inactive companies. Critics blamed the regulation for killing businesses, but Marshall says he's not sorry to see some brokers go. "There was an uproar from small brokers about it. But honestly, if you can't get a bank or bonding company to trust you for $75,000, why should anyone else trust you?" Marshall says.
Kienbaum hopes the new law will help. And he lives by lessons he's learned from getting burned, like always checking brokers' online ratings, and calling recent references even for highly rated brokers. "Things change fast," he notes. He avoids brokers vague on details and those who sound desperate. "Someone who's putting a lot of pressure on you is having trouble getting trucks," he says. "That tells you something right there."
Lund and other industry insiders want to hold land shipping to the same high standards that apply to other areas of transportation. He recalls his father, Allen, chastising foul-mouthed truckers on his CB radio in the 1970s. "He'd get on the radio and say, 'Can you imagine airline pilots talking that way?' He expected more and would push them all to be professional."