April 8 2014

Driven Out of Business

National Review

Jillian Kay Melchior

John Benning painstakingly saved for 15 years to launch his business, a small Reno-based firm that connected manufacturers with truckers who could move their goods. But a big change to an obscure bonding requirement, tucked into Congress’s 2012 transportation bill, “just completely drove me out of business,” Benning says. “I’m back at a job, and my American dream got squashed. I just don’t know what else to say. It’s just really, really, really disappointing.”

Benning isn’t alone; in the past six months, the new bonding requirement has forced the closure of more than 8,000 similar small-scale independent freight brokers and forwarders, according to the Association of Independent Property Brokers and Agents (AIPBA), a trade group that represents small and midsized brokers.

Before Congress rushed through the Moving Ahead for Progress in the 21st Century Act (MAP-21), independent freight brokers and forwarders were required to have available at least $10,000, money that was used as a guarantee for both the manufacturers and truckers. The new legislation raised that bonding requirement to a steep $75,000 — more than many businesses could possibly raise. But without that capital available, they lost their licenses beginning December 1.

James Lamb, president of AIPBA, estimates 38 percent of small-scale brokers and 73 percent of small-scale freight forwarders “were knocked out.” Furthermore, he says, “We believe there was collusion by the other trade groups to eliminate competition,” adding that trade groups representing bigger companies performing the same services lobbied hard to raise the bonding requirement.

“The Transportation Intermediaries Association (TIA) purports this would fight fraud, but in essence, this was an attempt to remove the small players from the industry,” Lamb says. “And they’ve accomplished what we believe they set out to do.”

Robert A. Voltmann, the president of TIA, tells National Review Online by e-mail that his trade group “pushed for a comprehensive set of reforms designed to combat fraud,” working alongside the American Trucking Associations (ATA) and the Owner-Operator Independent Drivers Association (OOIDA).

“The only entities being harmed are would-be scammers and those too undercapitalized to qualify for the bond,” Voltmann says. “An entrepreneur needs to be properly capitalized to start any business, but one that handles other people’s money needs to be even more prepared for the [rigors] of the market.”

By AIPBA’s estimates, as many as 17,000 small businesses could end up going under because of the new bonding requirement. A December 2013 news release claimed that “consumer prices will likely rise as competition is diminished and a few large companies dictate the cost of moving goods.”

AIPBA has applied to the Department of Transportation for an exemption, which would allow some small businesses to keep their licenses despite failure to meet the $75,000 bond.

The group has also filed suit, claiming that although Congress required the Department of Transportation to set a minimum bond at $75,000, the agency failed to follow proper rulemaking procedures. If the correct process had been followed, Lamb says, the agency could have explicitly stated that the $75,000 minimum was sufficient. “That’s important to us because we’ve heard there are future attempts to increase the bond amount,” Lamb says.

For former entrepreneurs like Benning, such efforts come too late, though.

“You can’t be a small-business man anymore and do brokerage,” Benning says. “The economy was already tanked, and it was really, really, really difficult. [The new requirement] just put the knife all the way in.”

— Jillian Kay Melchior writes for National Review as a Thomas L. Rhodes Fellow for the Franklin Center. She is also a senior fellow at the Independent Women’s Forum.

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