10 for 10: How The US Freight Broker Surety Bond Changed The 3PL Industry

This year, Mactrans is celebrating our 10th anniversary. While we’ve experienced a lot of changes internally, we’ve also seen a lot of disruption to the Freight Brokerage industry as a whole during that time. Over the course of the year, I will be writing a few blogs following our 10 for 10 series. Within this series of blogs, I will be outlining 10 major things that have changed in the transportation industry over the last ten years.

On July 6, 2012, President Obama signed the Moving Ahead for Progress in the 21st Century Act (MAP-21) From highway safety to pedestrian transportation, this multifaceted bill provided over $105 billion in surface transportation funding. Within this 600-page bill there was something that changed the freight brokerage industry significantly. The bill raised the surety bond that freight brokers must have from $10,000 to $75,000. It has been reported that when this law went into effect on October 1, 2013 over 10% of Freight Brokers in the US closed their doors, most Freight Brokers that closed their doors, said that “they just couldn’t afford the increase”.

There are two ways for a freight broker to obtain the bond. The first way is, they can post the $75,000 USD in cash. The second way is, they can pay an annual fee for that bond. More details are available in this post from DAT.  

So, what does that mean for Canadian Freight Brokers? While it’s not mandatory for them have the bond for Canadian Domestic freight, the bond is mandatory for them to manage US Cross Border Freight.

The major question on Canadian Freight Brokers’ minds is whether or not paying this surety bond is required. Throughout the Canadian Brokers, there is a bit of uncertainty when it comes to answering this question. There are some Canadian Brokers who say that, “These are the U.S. laws and they don’t apply to Canadian 3PL’s”. According to the Canadian Trucking Alliance (CTA) and FMSCA, these brokers are wrong. The leading Freight Brokerage organizations agree. Both the Transportation Intermediaries Association (TIA) in the US and the National Transportation Brokers Association (NTBA) in Canada will only allow companies who possess this bond and an MC # to become members.  Their members are the top Freight Brokerage companies in North America and stand behind these standards. While to my knowledge, no one has ever been subject to a penalty by not possessing the bond, in The US carriers refuse to accept freight from brokers that don’t have it. Many cross-border Canadian carriers are following suit. 

From the multi-billion dollar mega brokers to the smaller guys working out of their basement, there are advantages and disadvantages for shippers that choose to work with 3PL’s of all sizes.  With that being said, finding a broker that possesses the proper licenses to manage your cross-border freight should be one of the top determining factors on whether you choose to work with them.

To find out if your Freight Broker is licensed, you can visit the FMSCA website.

A complete list of the Mactrans’ licenses are available on our website.

This US Freight broker surety bond has been one of the major changes 3PL’s have faced over the last decade. Stay tuned for more of our 10 for 10 series about the changes that have affected the Transportation Industry.

No Freight Broker is an Island

Freight Broker IslandWe have recently added the groups and associations to our website so I thought it would be a great time to outline why we are part of these groups in this blog.

The non-transportation groups that we’re suppliers to and member of include; United Grocers Inc. (UGI), Independent Pool Group of Canada (IPG) and the Retail Council of Canada (RCC). These groups are all leaders in their field and we’re honoured to work with both them and the member companies. We find it is a great way to network and learn more the current trends in our customers’ industries.

Transportation Intermediaries Association

In the 3PL industry we are a member of the Transportation Intermediaries Association (TIA) www.tianet.org .With over 1400 members the TIA is the largest association for Freight Brokers in North America. On their website the TIA explains they provide 3PL’s with the “resources, education, information, advocacy and connections to establish, maintain and expand ethical, profitable and growing businesses in service to their customers.”

I’ve been very impressed with this group so far especially with their code of ethics that all broker members must adhere to. I also like their thorough screening process. They made sure we had the required licenses/surety bond to broker loads and they also ran a credit check on Mactrans. I’m proud to say Mactrans is one of only 50 Canadian freight brokers that are part of the group. They are the most expensive of all the associations we belong to but I believe it’s worth the price because when a carrier sees that a broker is a TIA member they know they have passed all of their strict standards. They have amazing content on their website and I’m also looking forward to attending my first TIA conference in San Antonio in April 2016.

National Transportation Brokers Association

We have also recently become a member of the National Transportation Brokers Association (NTBA) www.ntba-brokers.com. The NTBA is similar to the TIA but with a Canadian focus. They have some of Canada’s oldest and well established freight brokerage companies as members and on their board. It’s great to hear that over the last couple of years the NTBA only started allowing brokers who have their MC # and carry a $75,000 surety bond to join the group. I’m only a couple months into this group and looking forward to learning more about the association.

Toronto Transportation Club

For a good time call the Toronto Transportation Club (TTC) www.torontotransportationclub.com. This group is mostly social in nature and probably the best club for networking in the GTA. They are also one of the oldest in Canada dating back to 1913. They put on some very entertaining events including golf tournaments, skiing days and a night at the races. Their best event of the year is the annual dinner at the Royal York Hotel. It’s the one time of year you can relax and have a drink with some of your biggest competitors in the trucking industry.

Delta Nu Alpha

Last but not least is the Delta Nu Alpha (DNA) www.deltanualpha.ca. It is both an educational and social club and they put on intimate events once a month in Mississauga. I’ve got to give a shout out to their hard working board. Like the other non-profits listed above the board gives up so much of their time for their members. I’ve had the opportunity to take part in two of their panels. The first one was last year as a panelist on Power Brokers: the Next Generation and most recently as the moderator on a panel about Changes in Technology in the Canadian 3PL Industry.

These are just some of the associations in our industry. There are a number of other great ones like the OTA and TTA that a geared more for asset based trucking companies. If you are new to the industry or just looking to expand your network check out to one of these industry events or clubs. If it’s the TTC annual dinner make sure to get your ticket early. I waited too long and the tickets sold out quickly this year. I’ll get on it earlier next time.

Changes in Transportation for Retailers

My first job in transportation logistics was fifteen years ago selling Ontario and Quebec LTL for a “retail specialist” carrier. This trucking company concentrated on selling prepaid freight to vendors of major Canadian retailers such as Eaton’s, Zellers, Bargain Harold’s, SAAN Stores and BiWay. This industry was booming and as a result, the transportation service sold itself.

US Retailers entering Canada was good for the Canadian transportation industry

changes_in_transportation_for_canadian_retailersWhile the next decade was not a good time for most of the Canadian retailers listed above it was a busy time for Canadian carriers moving retail freight. The American retail invasion was well on its way with new players entering the market every year. For a complete list of when some of the largest American retailers entered the Canadian market please read this article International Retail Expansion in Canada: New Frontier or Next Wave? With all the new stores opening up in Canada, transportation providers that managed freight for American retailers were growing at a rapid rate. Then 2008 hit and everything changed. There were more carriers and less retail freight to split amongst them. Many of the US retailers stopped opening up new stores in Canada. Any companies that thrived and survived during that time found ways to reduce costs and compete against the American powerhouses.

How can Canadian retailers reduce freight transportation costs?

One of the ways Canadian retailers can reduce costs today is through vendor consolidation programs. This is especially true for retailers located in Atlantic and Western Canada that are hundreds and even thousands of miles away from the large vendors in Ontario and Quebec. If you are a retailer and not controlling your own freight and not using consolidation programs you may be leaving a lot of money on the table. In the past retailers received much of their freight on a prepaid basis from the vendors. Now the terms have switched to collect and the LTL shipments from various suppliers consolidate and move as a full load. This program will reduce the amount of trucks delivering to their facilities and reduce overall transportation and administration costs. Under the terms of this program vendors usually pay the retailers a freight allowance.

What the future holds in Canadian retail transportation

There have been many changes in retail transportation in the last fifteen years and I’m sure the next fifteen year will have even more surprises in store as home delivery and retail e-commerce continue to grow at an ever increasing rate. These programs need to be supported by logistics service providers. Transportation Management Systems (TMS) should provide for full transparency on all shipments and even allow such features as tracking by buyer, GL code and splitting invoices by purchase orders.

Toronto Eaton Centre image courtesy of ValeStock / Shutterstock.com.