The Quest
Inside this issue:

Help us with our Hurricane Sandy relief efforts; Risk management tips to help your business

What you need to know about the 2012 Transportation Bill

NVOCC China rider increase effective Nov. 23

New provisions regarding legal disputes for freight forwarders in China

New Jersey seeks to ban companies classifying truck drivers as independent contractors

Customs brokers face increased liability risks under food safety act

CARB Update: Clarification of regulations applicability to customs brokers, freight forwarders and NVOCCs nationwide; new SmartWay regulations

CBP updates ACEopedia
(click here to access)


What you need to know about the 2012 Transportation Bill

This summer, significant legislation passed on Capitol Hill that not only provides approximately two years of highway funding, but also permanently changes federal law regarding freight transportation. Truckers, transportation brokers and domestic forwarders will experience considerable changes in the way they conduct business.

Increased Surety Bond
Perhaps the most reported-on provision of the new Transportation Bill is the requirement for freight brokers to post a $75,000 surety bond, a boost from the current $10,000 limit. Forwarders, who were never previously subject to a bond requirement, now must post a $75,000 bond as well. All freight brokers and forwarders will need a new bond, and have until October 2013 to comply. Customs brokers and air freight forwarders are exempt from the changes when arranging transportation as part of a greater international move.

Surety providers, and in particular trust funds, will also face increased oversight from the Federal Motor Carrier Safety Administration. Any financial security amount must consist of assets readily available to pay claims, without resorting to personal guarantees or collection of pledged accounts receivable.

Re-Brokering Freight
It is now illegal for motor carriers to accept freight as a carrier, and then broker the load out (unbeknownst to the shipper or broker that tendered the freight) to another carrier, unless the first carrier discloses this fact and also has the proper broker or forwarder authority and corresponding bond. Interlining, however, is allowed, but the carrier must physically transport the cargo itself, at some point in transit.

Severe penalties will now apply for re-brokering freight without a license, including civil penalties up to $10,000 per violation and unlimited liability for payments to “injured parties.” Payment liability is not just borne by the legal entity, but also applies to individual officers, directors and principals.

Registration Numbers and Authority
Because motor carriers are now forbidden from re-brokering freight without the proper authority and bond, many motor carriers may also seek broker authority in the coming months. Confusion regarding which authority a company with multiple authorities is operating under could still lead to unintentional assumption of liability and result in legal action for failing to make a proper disclosure as to the nature of the company’s role.

The fact that a company acts as a motor carrier and a broker under the same name, at the same address, with the same employees answering the same phones and using the same email accounts easily exacerbates the possibility that the company’s role could be misunderstood. For instance, a company with both broker and motor carrier authority under the same legal entity could intend to move a load as a broker, but be accused by an injured claimant of actually operating under their motor carrier authority. Motor carriers have primary liability for bodily injury claims.

To assist with these problems, the Department of Transportation will issue distinctive registration numbers that indicate the type of activity a company operates under (e.g., motor carrier, broker, freight forwarder). The authority given to a particular entity will govern the transaction. By placing all of these provisions into law, they can be enforced through the courts by the private sector, without resort to action by the FMCSA.

To obtain a license to operate as a broker or forwarder, companies must employ an officer with at least three years of industry experience or who has met certified training requirement. All broker and forwarder licenses must be renewed every five years. There is no grandfathering caveat in this legislation; all brokers and forwarders must comply.

While customs brokers and air freight forwarders are except from the bonding and licensing requirement, these entities, however, should consider whether being licensed as a transportation broker defines their role. Being licensed has the potential to limit their liability for loss and damage to cargo, thus making it beneficial to become licensed, even though it may not be necessary to do so.

Electronic On-Board Recorders (EOBRs)
The new law also contains a provision to require electronic on-board recorders for heavy trucks engaged in interstate commerce, but this provision continues to be debated. The House of Representatives recently passed a bill to prohibit FMCSA from spending money to implement a mandate for EOBRs.

Reincarnated Carriers
The FMCSA now has more power to investigate companies who disobey regulations, only to close and then re-open under a new name. The law expands upon the reasons why motor carriers can be shut down, and the FMCSA can revoke a company’s authority if its officers show a pattern of avoiding compliance. To this end, on Nov. 13, 2012, the FMCSA issued a Notice of Proposed Rulemaking that would allow the agency to suspend or revoke a motor carrier’s operating authority in the event of an egregious disregard for safety compliance. Egregious behavior includes attempts to avoid regulatory compliance by forming new companies or operating under affiliated companies.

It’s important to note that the above highlights are only a portion of the new 600-page law. Please continue to monitor upcoming developments and new regulations from the FMCSA in implementing these new requirements.

Avalon remains committed to providing the highest level of service to our clients and keeping you apprised of governmental changes affecting your business. We are the leading provider of insurance and surety products for logistics providers. Avalon also offers the only Errors & Omissions policy endorsed by the Transportation Intermediaries Association.

For more information, please contact your local Avalon office or Andriana Davis at (847) 700-8087 or at adavis@avalonrisk.com. A list of our offices may be found at www.avalonrisk.com/contact.html

Avalon Risk Management


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