What is a third-party dispatch service?
A third-party dispatch service is an outside company that finds loads, negotiates rates and schedules pickups for a carrier that does not want to do it in house. For a small carrier it replaces a dispatcher on payroll. Whatever the service calls itself, the legal question is whose freight it is arranging and under whose authority.
Federal rules draw the line in the definition of a broker. In 49 CFR 371.2, a broker is “a person who, for compensation, arranges, or offers to arrange, the transportation of property by an authorized motor carrier.”
Do dispatchers need broker authority?
Only if what they do fits that definition and no exemption covers it. The same section says motor carriers, “or persons who are employees or bona fide agents of carriers,” are not brokers when they arrange shipments “which they are authorized to transport and which they have accepted and legally bound themselves to transport.”
It then defines a bona fide agent narrowly: a person who is “part of the normal organization of a motor carrier,” performs duties “under the carrier’s directions pursuant to a preexisting agreement which provides for a continuing relationship,” and has no discretion “in allocating traffic between the carrier and others.”
A dispatcher who is part of your organization, works under your direction on loads you have accepted, and acts under a standing agreement with no discretion to allocate freight between you and others, fits the bona fide agent definition. A dispatcher who also places freight with other carriers, or who arranges loads for shippers and is paid for it, is on the broker side. Whether an outside dispatch company meets the “part of the normal organization” element, or which side a specific service falls on, is a question for your own counsel; this post is not legal advice.
How do you tell an agent from a broker?
Ask what the service does with a load before you say yes to it.
| Question | Agent for your authority | Activity of a broker |
|---|---|---|
| Whose loads does it book? | Loads you accept and haul | Loads it places with other carriers too |
| Who is the carrier of record? | You, under your own authority | Whichever carrier it selects |
| Who pays the service? | You, for work done for you | A shipper or carrier for arranging freight |
| Who decides which load goes where? | You, after it presents options | The service, allocating traffic |
| What must it hold? | No broker registration, if it meets the bona fide agent definition | Broker registration and financial security |
If a service answers in the right-hand column for some of your loads, ask to see its broker registration before you sign.
What does a broker have to hold that a dispatcher does not?
A broker must have a surety bond or trust fund of $75,000 in effect, and per 49 CFR 387.307, FMCSA will not register a broker until it is. The bond or trust fund exists to pay shippers or motor carriers if the broker fails to carry out its contracts for supplying transportation. That is the protection you lose if you assume a dispatcher has it.
The statute is stricter on who may broker. Under 49 U.S.C. 14916, a person may provide interstate brokerage services only if registered and in compliance with section 13904 and satisfying the financial security requirements. A person who knowingly authorizes, consents to or permits a violation is liable for a civil penalty of up to $10,000 per violation and to the injured party for valid claims. For you, the practical risk is a freight arrangement with an unregistered intermediary that nobody can pay out of a bond.
Brokers must also keep a transaction record for three years, and under 49 CFR 371.3 each party to a brokered transaction has the right to review it. Among other items the record shows the compensation the broker received and the name of the payer. That is useful for you: a legitimate broker can show who paid it.
How do dispatchers charge?
Fees vary by contract, and no federal rule sets a dispatcher’s fee. Here is an illustrative case, not market data: a load pays $1,800 and the fee is 5%, so the dispatcher earns $90. A flat weekly fee for a set number of loads would earn the same whether the load pays $1,400 or $2,200.
| Fee type | Who it favors | Watch for |
|---|---|---|
| Percent of the rate | Dispatcher, when rates rise | Is it on the gross rate or after fuel and fees? |
| Flat per load | Predictable for you | Does it apply to loads you find yourself? |
| Weekly or monthly retainer | Predictable for both | A minimum term and an exit clause |
The red flag in every row is a fee that is also paid by the other side. A dispatcher compensated by a shipper or another carrier for the same load has a conflict, and it is also what the broker definition describes. The earlier post on how fuel brokers get paid covers spread versus fee on the broker side of the same freight.
Who signs the rate confirmation?
In most contracts, the party named as carrier on the rate confirmation is the party bound to haul and be paid, so for an agent arrangement that should be your company, with your authority number. Ask that the dispatcher sign only with written authority from you, or send the confirmation to you to sign. If your dispatcher’s company name appears as the carrier, or payment is directed to the dispatcher instead of you, the arrangement is no longer you using an agent. This is contract practice rather than a federal requirement, so have it written into your agreement.
A load board is where a dispatcher usually finds the load, but the contract is the rate confirmation.
What contract red flags should you look for?
| Red flag | Why it matters |
|---|---|
| Payment is routed through the dispatcher | The shipper’s payment reaches the dispatcher before it reaches you |
| The dispatcher’s name is on the rate confirmation as carrier | It looks like it is brokering, not acting for you |
| Authority to sign anything, sub-contract or re-tender loads | You become exposed to carriers you never vetted |
| Exclusivity with no end date or a long minimum term | You cannot leave if service is poor |
| Fee is also collected from the shipper or another carrier | A conflict, and the broker definition |
| No copy of bids or quotes made in your name | On a blind bid board you only see your own number, so you need the record from them |
| It refuses to show broker registration when it books for others | You cannot confirm the bond exists |
How Energy Connect handles it
Energy Connect is a load board and marketplace, not a dispatch service. We do not dispatch for you. On Energy Connect, carriers can bid on a posted load, and the poster can accept or decline each bid. A bid quoted as a freight rate can also be countered; a bid priced off an index or terminal can only be accepted or declined.