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MAP-21 Are you ready to be in compliance by October 1?

Kathy Schricker Regional Vice President Tel: (978) 740-5677 [email protected]

Mike Brown Executive Vice President Tel: (978) 740-5677 [email protected]

Background of MAP-21

• “Moving Ahead for Progress in the 21st Century Act”

• Signed into law July 6, 2012

• Provides two years for highway funding

• first L-T highway authorization enacted since 2005

Background of MAP-21

• Transportation bill addresses challenges facing the U.S. Transportation system

– Addresses many topics over almost 600 pages

– Improving safety

– Maintaining infrastructure condition

– Reducing traffic congestion

– Improving efficiency of freight movement

• How does this bill impact 3PLs and Motor Carriers?

Highlights -Registration Numbers

• Requires separate and distinct registration numbers for each authority

– Number will include an indicator specifying the service connected with the registration number

– Required to specify in writing the authority type in which the entity will be providing service

• Questions surrounding what constitutes notification in writing (one time contract for future performance or confirmation each load)

• Applies to “…each agreement to provide transportation or service…”

Highlights –Unified Registration System

• On 8/22/13 FMCSA Issued Final Rule on the Unified Registration System (URS) – amends the FMCSA’s regulations to require interstate MCs,

freight forwarders & property brokers (among others) to submit registration and biennial update details via a new electronic online URS.

– URS will streamline the registration process and act as a clearinghouse and depository of information

– This final rule requires all regulated entities to update registration information every 24 months.

– Beginning on November 1, 2013, the Agency will begin issuing warning letters 30 days in advance of the biennial update deadline

Highlights –Unified Registration System

– several provisions in MAP-21 impact the implementation of the URS. Many of these statutory provisions will require notice-and-comment rulemakings as they are not self-executing

– FMCSA will use the USDOT number as its sole unique identifier for MCs, brokers, and freight forwarders. The URS will discontinue issuance of MC, MX, and FF #s for entities registering with FMCSA.

– In 2015 the remaining provisions of the URS final rule are planned to take effect (If FMCSA has had enough time to launch the new URS website)

– Expect more news to be forthcoming

Highlights – Separation of authority

• Separate and distinct registration will lead to separation of authority

• Currently obstacles exist if authority (i.e. broker, carrier) is not separated

– Attorneys strongly suggest separation

• J.R. Simplot Co, Inc. v. H&H Transportation Inc.

– Insurers often will refuse to quote

– pushback from shippers who want to utilize “asset based” brokers

Impact on Motor Carriers

• Need for licensing

– Many currently accept loads not intended for movement on their own vehicles

• Will need to be licensed as Property Broker or Freight Forwarder to avoid penalties

• Will need to disclose they will be brokering freight and must have proper authority and bond

Impact on Motor Carriers

• Interlining exemption

– Interlining: transferring the load between two or more carriers before reaching destination

– Still allowed, but narrowly defined

– Must “physically transport the cargo at some point AND retain liability for the cargo and for payment of interchanged carriers”

Importance of Liability Considerations for 3PLs

• Cargo theft and damage a big concern

• According to FreightWatch International, 185 cargo thefts in US from May-July 2013 at an average value of $147,260

– See following slides for details

• Understanding liabilities associated with your activities allows you to effectively limit liability and protect your business

Cargo theft in US

Definitions – Property Broker

• Property Broker – individual or entity that sells, negotiates or arranges for the interstate transportation of goods with a licensed motor carrier for compensation

– A.K.A. Truck Broker, Transportation Broker, Freight Broker

– No statutory liability

– Does not physically handle goods

Definitions – Property Broker

– Prior to MAP-21, bonding requirement of $10,000 (brokers of HHG require $25,000)

– Currently Has MC# with FMCSA

Definitions – Domestic Freight Forwarder

• Domestic Freight Forwarder – individual or entity that holds itself out as providing transportation of goods in exchange for compensation – A.K.A. Surface Freight Forwarder

– Does assume liability

– Often handles and consolidates goods

– Prior to MAP-21, no bonding requirement

– Currently Has FF# with FMCSA

– Public liability filing necessary if have trucks

3PL Highlights – Bond Requirements on Oct. 1, 2013

• Financial Responsibility Requirements

– Bond or trust in place to pay potential claims arising from failure to pay freight charges

– BMC-84

• Bonds must be written by US Treasury approved surety (Circular 570)

– BMC-85

• Trust must be fully funded ($75K per principal). Assets readily available without resorting to personal guarantees or collection of pledged of receivables


• Increases surety bond requirement for brokers on Oct. 1 from $10,000 to $75,000

• Now requires freight forwarders to obtain $75,000 surety bond

– FMCSA has amended BMC-84 bond form and BMC-85 trust form – awaiting OMB approval

– Expectation of release 9/1/2013


– Once released, all existing bonds may need to be re-written to reflect revised wording

– FMCSA expected to update system with new bond amount /forwarder bond option after Oct. 1

– 30 day grace period may be offered for electronic evidence only – does not delay need to comply by Oct.1

3PL Highlights – Bond Requirements – ACT NOW

– Don’t wait for Oct. 1 to increase/apply for your bond – Act Now!

– For those with current authority – verify contact information on file with FMCSA BEFORE the new bond is filed.

• Updating the information can take several days

• Surety cannot update this information on your behalf

• Advise your surety when the update has occurred – FMCSA will not!

3PL Highlights – Licensing requirements

• Effective Periods of Registration

– Registrations not permanent

– First renewal no later than four years after provisions take effect

– Subsequent renewals every five year period thereafter

– Renewal process to be promulgated

3PL Highlights – Licensing requirements

• Established Experience – Similar to FMC whereby OTIs have a QI on staff

– Entity must have “sufficient experience to qualify the person to act as FF/Broker for transportation”

– Officer must have at least 3 years of relevant experience; or

– Provides “satisfactory evidence of the individual’s knowledge of related rules, regulations and industry practices”

– Terms “relevant”, “knowledge” to be promulgated

3PL HIGHLIGHTS - EXEMPTIONS

• Law exempts NVOCCs, Customs Brokers and Indirect Air Carriers from broker/forwarder licensing requirements to the extent domestic transit is arranged as part of a greater international move

• Difference of opinions regarding scope of exemption

– Through B/L? Must goods move In-bond? Portion prior or subsequent to international transit?


• Do I need to obtain a license?

– Pick and pack

– Returns

– International moves placed in storage

– Purely domestic moves


• Rulemaking and possibly case law will clarify

• Irrespective of interpretation of exemptions scope, most 3PLs will engage in at least some licensable activity

• License can define role and limit liability

– Value in identifying yourself as entity that does not have liability for direct physical loss/damage to cargo

3PL HIGHLIGHTS – CLAIM EXAMPLE

• Example – Customs Broker is not licensed with FMCSA. Arranges transport of goods with a Motor Carrier for a domestic shipment. An accident ensues and goods are damaged. Claimant alleges broker acted as an unlicensed Domestic Freight Forwarder and seeks recovery for full value under Carmack.

3PL HIGHLIGHTS – CLAIM EXAMPLE

– MAP 21 Fine for non-compliance with licensing $10,000

– Potentially liable for full value of goods

– Vicarious liability possibilities for death/BI

– Insurance exclusions for non-scheduled, non-licensed activity

Penalties for Non-Compliance

• Penalties for Illegal Brokerage and Forwarding

– MAP-21 provides for significant penalties

– Civil penalties up to $10,000 per violation

– Private cause of action against any person who knowingly operates as an unlicensed broker

• Individual Officers, Directors and Principals

How to become licensed?

STEP 6

May only

operate after

receiving License

from FMCSA

STEP 1

Submit OP-1

OP-1(FF)

STEP 2

Receive Authority Number/

Grant Letter

STEP 3

10 Day Protest Period

STEP 4

Surety Files Form With

FMCSA

STEP 5

Applicant Or

Process Agent Files

BOC-3 With

FMCSA


• STEP 1: Submit OP-1 or OP-1 (FF) – Online filing reduces processing time by 2-3 weeks

– http://www.fmcsa.dot.gov/online-registration

– Get authority # immediately online, grant letter mailed

• STEP 2: Grant Letter and Authority Number – Although authority number assigned, does not represent

Operating Authority. Cannot operate until complete Step 6

• STEP 3: 10-day Protest Period – Published in FMCSA Register. Public may file protest

stating why entity should not be granted authority

http://www.fmcsa.dot.gov/online-registration



How to become licensed? • STEP 4: Surety files form with FMCSA

– Must be done within 90 days from published date, BMC-84 or BMC-85. Don’t wait for Step 3.

• STEP 5: Process Agent – Each applicant must designate a Process Agent in every

state where they have an office or establish contracts

– Can act as own if maintain physical office in that State

– For a fee, companies offer blanket agents in every state http://www.fmcsa.dot.gov/process-agent

– Process Agent is a rep upon whom court papers may be served in any legal proceeding brought against them

– File form BOC-3 within 90 days of date of application

http://www.fmcsa.dot.gov/process-agent




• STEP 6: Certificate, Permit or License of Operating Authority – After steps 1-5 are approved by FMCSA, Operating

Authority is granted via permit (for Freight Forwarders) or license (for Property Brokers)

– Only after this official record is received by mail may entity begin operations

Planning to obtain authority – Now what?

• What are my next steps in deciding which authority to apply for?

• What do I need to be aware of when making my decision?

• How do I protect the business once licensed?

How to protect your business when opting for DFF authority

• Carmack Amendment applies for interstate

• Held responsible for full value unless liability limited correctly

– Among other requirements, must maintain rules tariff, issue B/L reflecting agreement and give shipper reasonable opportunity to choose level of liability

– Work with an attorney to discuss implementation

How to protect your business when opting for DFF authority

• Insurance coverage options – Cargo Legal Liability: provides coverage for the liability

for loss or damage to cargo that you assume under your Domestic Bill of Lading

– E&O: provides coverage for financial loss suffered by your clients as a result of your negligence

– Contingent Auto Legal Liability: provides auto liability on a contingent basis for damages resulting from death/BI/PD while in custody of MC whom you have entrusted shipment (more on slides to come)

How to protect your business when opting for PB authority

• Property Broker not liable under Carmack

• No need to develop tariff, B/L like DFF

• Best to execute standard Shipper/Broker and Broker/Carrier contracts to outline roles

– Make sure these standard contracts are approved by insurer for ongoing use


• Important to run special contracts past your insurer

– Determine if you are increasing your liability

– Make sure your limits are adequate

– Some policies may void coverage if contract not presented for review even if liability not increased


• Potential for liability increased by:

– Allegations of negligent selection of MC

• Establish solid carrier qualification and vetting process, review periodically, train staff

• review SAFER (http://www.safersys.org) for accident history, safety rating, etc.

• Review insurance status

– Increased oversight and control of MC or drivers

• Do not request named drivers to your loads or plan routes. Don’t instruct driver to contact broker first if accident occurs

http://www.safersys.org/


– Website/Marketing

• Do not make “guarantees” or indicate “partnering” with carriers. Don’t assert “control over all aspects”

– Do not take on carrier liability via contract

• Do not allow the contract to be altered by simply crossing out and replacing select words – contract wording has essentially not changed (i.e. responsible for equipment maintenance, driver hiring process, etc)

• You may opt to agree to primary liability, but contract should still be written as a broker and must be sent to insurer for approval and pricing


• Insurance coverage options

– E&O

– Contingent Cargo Legal Liability: Provides coverage on a contingent basis for physical loss/damage to cargo in transit & while in custody of licensed MC

• Non-following form

• Benefits of combined form

• Dishonest acts of motor carrier

• Deceptive pickup/Impersonation


• Continuing claims for 3PLs – Negligent hiring and Vicarious liability for actions of motor carrier – Schramm v. Foster

– Sperl v. Henry et al

– Linhart v. Heyl

– Hoffman v. Crane

• Need for Contingent Auto Liability – Protects brokers when they are held liable for death/BI/PD

as a result of MC negligence

Summary - Plan of Action

• Don’t wait – if you need to become licensed – begin this process now.

• Verify accuracy of contact details with FMCSA

• Apply for/increase your bond immediately even if you wish for the effective date to be 10/1/13

• Talk with your insurance broker about necessary policy/coverage changes to include the new authority

Questions?

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Thank you for being with us today!

For more information please contact our presenters:

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Kathy Schricker Regional Vice President Tel: (978) 740-5677 [email protected]

Mike Brown Executive Vice President Tel: (978) 740-5677 [email protected]

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