Analysis of TIA Broker-Carrier Agreement

The TIA agreement is slanted heavily in favor of brokers, and consequently contains many  provisions that should be objectionable to those carriers and their drivers actually providing the transportation services.  In our estimation, the first six issues listed below are the most problematic for carriers.

1.         Broker identified on BOL-TIA allows the shipper to identify the broker as the carrier on the bill of lading (¶ 1.D).  This practice appears to give the broker a role, interest, and responsibility in the transaction that it does not have.  A bill of lading (BOL) is a contract between the carrier and shipper. The broker is only an intermediary arranging for this contract, not a party to it. Even though the agreement states that insertion of the broker's name as carrier does not change the broker or carrier's legal status, the practice might violate 49 C.F.R. § 371.7(b), which precludes a broker from presenting itself as a carrier, and it could create problems for an unidentified carrier trying to collect payment for services provided.  The use of the broker's name could also create insurance liability problems in the case of an insurance claim: A shipper might have difficulty identifying the participating carrier and an insurer might refuse to pay where its insured carrier is not identified on the BOL.

Solution-The agreement should require carriers to be named on the BOL as the carrier of record, brokers should be shown only as the third-party payer to carrier of freight charges.

2.         No Recourse to Shipper/Consignor for Payment-TIA bills shippers (¶¶ 1.J, 2.B) and assumes "sole responsibility" to pay the carrier (¶ 2.D.i). While the agreement gives the carrier the right to seek payment from the shipper when a carrier's freight charges are not paid by the broker in a timely manner, the agreement prohibits carriers from seeking payment from shippers where the shipper has paid the broker (¶ 2.D.i).  This, of course, is precisely the situation when the carrier would turn to a shipper for payment.  Accordingly, this provisions deprives the carrier of its most effective tool for collecting unpaid compensation.  Recourse to the shipper in such a case is essential.

Solution-eliminate provision prohibiting contact with shipper, or modify provision to agree not to contact shipper unless broker fails to pay in a timely manner.

3.         Shortened time period for cargo claims-TIA allows brokers to shorten the 120-day (plus certain allowed extensions) time frame currently allowed by statute for resolving claims, and makes the carrier fully liable if the claim is not resolved in the shorter time period (¶ 3.C.v).  TIA also makes carriers liable for special damages, particularly legal fees incurred in resolving claims (¶ 3.C.iii).

Solution-If possible, carrier should negotiate liability limited to that required by the Carmack Amendment, without special damages.  Since imposition of liability for fees is commonly imposed where a carrier's negligence caused the loss or damage, and the broker might therefore insist on this extension of liability to the broker, the carrier should insist upon the full time allowed by statute for resolving those claims.  The presumption of liability if prompt settlement does not occur should be eliminated as the failure to resolve claims quickly may be the shipper's fault. 

4.         Credit to broker-TIA requires the carrier to grant credit terms to the broker (¶1.K).  Such a provision is unnecessary and only adds another obstacle preventing the carrier from collecting from the shipper in the case of non-payment by the broker.  Credit terms only allow the broker to delay payment and are not required. 

Solution-A broker should be required to pay a carrier within a stated time period, with a service charge if payment is not made within that time period.  The credit provision should be eliminated in its entirety.  If some type of credit is to be extended, the specific terms need to be stated.  Although 49 C.F.R. Part 377, extension of credit to shippers, does not apply to credit to brokers, it would be reasonable to apply the same credit terms as are stated in that section; e.g., standard credit period is 15 days, but shall not be longer than 30 calendar days.  

5.         Confidentiality-it is reasonable for brokers to try to protect their customer and financial information.  However, this provision is so broadly worded that it could be used to deny carriers and their drivers who actually moved the freight the right afforded by 49 C.F.R. § 371.3(c) to review the retained records for freight moved to determine the accuracy of their compensation.

Solution-modify the provision to state that "This provision may not be used to deny a carrier or other party providing transportation services the rights afforded by 49 C.F.R. § 371.3 to review the records maintained by the broker, including the record showing the amount of freight charges collected by the broker, and the right to use such information to dispute the amount of compensation paid to the carrier."

6.         Resolution of disputes by arbitration-TIA subjects disputes arising out of this agreement to binding arbitration, and makes the losing party responsible for costs, expenses and reasonable attorney fees incurred in the action (¶ 4.D).  In a related provision, TIA requires carrier to waive statutory rights and remedies provided by 49 U.S.C. § 14101(b) (¶ 4.C.ii), which is the right to proceed in a state or federal court to remedy an alleged breach of contract with a shipper.  Arbitration is, in some ways, preferable to litigation.  It is generally less costly and quicker.

Nevertheless, it would be preferable to have this as an alternative to other available remedies,  instead of the only option available to a carrier.  Also, to the extent that the agreement provides for waiver by the carrier of statutory rights under 49 U.S.C. § 14101(b), it is improper.  That provision deals exclusively with disputes between carriers and shippers, and the court remedy provided by that provision may only be waived by those parties.  Shippers are not a party to the carrier-broker agreement .

Solution-provide for binding arbitration before the selected forum as an alternative to litigation, available when mutually agreed to by the broker and carrier, as a means of resolving those disputes that arise between the broker and carrier.  It should not be read to apply to disputes involving the non-party shipper.

The non-party status of the shipper creates problems for ¶ 3.B., which states that BOL terms are superceded by the terms of this agreement.  The shipper is entitled to rely on the terms of the BOL.  Thus, this provision should be eliminated.

7.         Rebrokering, assignment, and interlining of loads restricted-TIA imposes consequential damages for rebrokering, assignment, or interlining of loads without prior written approval (¶ 1.E) even though such a restriction should not be imposed under ordinary circumstances (assuming broker authority in the case of rebrokering).  Under the Uniform BOL (§ 2.a), a carrier is only required to make a delivery with reasonable dispatch and may, in cases of physical necessity, use another carrier.

Solution-eliminate provision entirely or require carrier to advise broker when another authorized carrier is involved in movement.  

8.         Compliance with law-TIA reasonably requires carriers to comply with all applicable federal, state and local laws (¶ 1.F), but fails to impose any similar obligation on the broker.  The only obligation imposed on the broker is to get the surety bond required by law.

Solution-Add provision similar to ¶ 1.F to Section 2 of the agreement, specifically requiring broker compliance with applicable federal, state, and local laws including FMCSA broker registration requirements, requirements for appointment of an agent for service of process, bond requirements, recordkeeping and carrier access requirements in Part 371, and federal hours of service regulations at Part 395 (see ¶ 3.A--can't require agreement to quicker delivery).

9.         Insurance-TIA requires carriers to provide proof of workers' compensation as well as PL/PD and cargo insurance coverage (¶ 3.D) even though workers' compensation coverage may not be required in all instances.

Solution--Should state only that carrier must assume full responsibility for payment of workers' compensation insurance or other similar coverage for persons engaged by the carrier to the extent such coverage is required by applicable law.

10.       Relationship of Parties-TIA states that the broker and carrier have an independent contractor relationship and that no employer/employee relationship is created by the agreement (¶ 4.A).  This is an accurate, but incomplete, statement of the relationship.

Solution-add statement that broker is an agent for shippers/consignors for whom the broker  negotiates and arranges transportation, and that this agreement does not make the broker an agent for the carriers.

11.       Broker to provide specified number of loads-TIA requires the broker to provide at least 3 loads/shipments to the carrier annually, without any consequences for failure to do so (¶ 2.A).

Solution-Although a minimum stated amount of freight is no longer required by statute, it is desirable.  However, the number of loads or pounds of freight promised by the agreement should be left to the parties to negotiate.  Second, there should be some stated financial consequences to the broker, in the form of liquidated damages, if the loads are not offered.  An additional provision requiring some level of compensation if a load is offered then taken back (truck ordered not used) might also be included.

12.       Specified Rates-TIA has allowed for verbal as well as written agreements as to rates, and the verbal agreement is deemed confirmed in writing when the carrier bills and broker pays those rates  (¶ 2.C).  Verbal rate agreements should not be permitted because they create problems if the broker disputes the rate charged by the carrier at the time of billing.

Solution--A separate writing confirming the rates and charges should be required before the freight is moved, as stated in ¶ 2.B.  In addition, when rates are being negotiated, a carrier should negotiate a 100 percent pass through of any fuel surcharges.

13.       Contract termination-TIA provides a one-year term for the agreement which is automatically renewed unless terminated, with or without cause, upon thirty days prior written notice (¶ 4.J).  Because the consequences of failure to give the requisite notice are not stated, this raises concerns that the notice requirement could be used by brokers as a basis for non-payment for services provided prior to termination. 

Solution-no advance notice should be required where termination is with cause.  For example, a carrier should not be required to continue moving freight for a broker for thirty days if it is terminating the relationship because of the broker's failure to pay for prior loads.  With respect to terminations without cause, the consequences of termination without notice should be stated.  We recommend that the consequences be the payment of any actual losses incurred by the broker as a result of the failure to give the required notice.