Who gets paid if a truck broker goes bankrupt?

I made some statements in an earlier blog that truckers will probably get stiffed if Greatwide Logistics goes out of business. Later, I thought it best to research the regs.

Things haven't changed much in 30 years. Here's the important stuff from the CFR 49, the bible of the trucking industry. The broker is required to maintain a surety bond or trust fund, but it doesn't say in what amount. Whatever the amount, it won't be enough to cover everyone if they go bankrupt.

OBTAINING PAYMENT FROM BROKERS FOR SHIPMENTS TRANSPORTED IN INTERSTATE COMMERCE
Applicable statutes under Title 49, U.S. Code:

The Federal Motor Carrier Safety Administration does not have the authority to order payment of monies owed on brokered loads. The law does require that brokers be licensed and maintain surety bonds or trust fund agreements for the protection of shippers and carriers when disputes arise. If a broker is licensed, information may be obtained on the identity of its surety or trustee from the Federal Motor Carrier Safety Administration at 202-358-7000. A claim with supporting documentation then may be filed with the surety or trustee for monies owed by the broker.

A broker may be requested by a carrier or shipper to state in writing whether it is acting as an agent of the carrier or shipper. However, there are no federal regulations containing specific guidelines relative to the legality of an agency relationship between carriers and brokers or shippers and brokers. Therefore, courts generally look to State laws of agency relationships to establish when payments to a third party should be considered. A motor carrier may pursue payment from a shipper when a broker fails to remit compensation to the carrier or the carrier may take the matter to court to determine liability.

click here for complete CFR 49 text

3rd largest U.S. non-asset based trucking company files Chapter 11

According to an article in American Shipper, Greatwide Logistics will allow itself to be sold to the original lien holders. Apparently some hedge funds have bought into this trucking broker.

This part of the article is interesting:

"Dallas-based Greatwide is the third-largest, non-asset-based trucking company in the United States, with annual revenue of about $1.2 billion and major customers such as Wal-Mart, Target and IBM. Its business model relies on using independent agents rather than owning its own trucks to move freight.
The move essentially means that two hedge funds holding Greatwide’s primary debt, Centerbridge Capital Partners and D.E. Shaw, forced out private owner Investcorp and will now have the first opportunity to own the company."

First off, a non-asset-based trucking company is a truck broker. They just match loads with trucks, bill the customer, pay the trucker, and take some money for themselves. The problem is there isn't much margin. When times are good they can do really well, but if they don't watch the pennies, things can turn ugly fast (which apparently is what happened).

I love this quote from the company.

"Chief Executive Raymond B. Greer said in a statement. “Greatwide’s fundamentals are solid. We believe the proposed transaction is a prudent and necessary step to significantly reduce our debt and interest burden in order to enhance our flexibility to continue to invest and grow.”

I hope the companies using Greatwide know they will responsible to pay the truckers if Greatwide doesn't. Probably not. It's been some time since bankruptcies like this, which forces everyone to read the rule book. Only us old folks know from experience how this goes. But then, all of these truckers are small independents, and unless someone is helping them go after their money, they will probably be the ones who get stiffed.