Q: IN YEARS PAST, the definition of a transportation broker was “one who arranged for transportation.” The definition of a freight forwarder was one who could behave as a transportation broker, but whose mainstay was to arrange for and consolidate freight.
The third- and fourth-party logistics provider has now come along. I have not been able to find a definition from the Department of Transportation for this type of business, perhaps because they are not regulated.
Here is the scenario for my question: A rather large global shipper believes its transportation rates and industry contacts are among the elite. This organization has begun to market its logistics services worldwide. It doesn’t own or operate any equipment; it is non-asset-based from a transport perspective.
I believe that if a shipper or company makes this undertaking, it needs to hold the appropriate authority to do so. Internationally, from one country to another, I would think the company should hold international freight forwarder authority, issued by, I believe, the Federal Maritime Commission. Regarding shipments within the U.S., I think the company should have broker authority.
What is your opinion? Do 3PLs and 4PLs need authority and, if not, why?
cess, whereas a broker serves merely as an intermediary in transactions between shippers and carriers.
In addition, a significant part of a forwarder’s services must be in the assembly and consolidation of freight at origin and breakbulk and distribution at the destination; see, e.g., Travelers Indemnity v. Alliance Shippers, 654 F. Supp. 840 ( N.D.Cal., 1986), and Sabena Belgian World Airlines v. United Airlines Inc., 773 F. Supp. 1117 (N.D. Ill., 1991).
In the maritime sector the international freight forwarder is, notwithstanding its designation, the equivalent of a domestic surface broker and not a forwarder. That is, it merely arranges for transportation without ever actually handling the goods, acting strictly as an intermediary.
The maritime equivalent of a domestic forwarder, however, is the descriptively named non-vessel-operating common carrier. And international forwarders and NVOCCs are indeed subject to FMC regulation, albeit very loose.
So the shipper-turned-logistics company of your question may or may not be required to register as such (obtain “authority”) with the appropriate federal agency, depending on whether it engages in the activities that define a broker or forwarder or their maritime equivalents.
But it’s immaterial under what designation the company markets its services — as a 3PL, 4PL, even (to continue the progression) 5PL. It’s what the company does that matters, not what it calls itself. JOC
A: YOU HAVE A FE W THINGS wrong, but let’s go first to the meat of your question about 3PLs and 4PLs.
Both are no more than terms of art for marketing purposes. A 3PL is short for a “third-party logistics company,” while a 4PL is simply a designation of one-upmanship (sort of like 7-Up is presumably better than 6-Up and Formula 409 cleaner beats Formula 408).
In sum, the terms are mainly the creation of advertising and salespeople and have variable meanings depending on the activities in which the bearers of these names choose to participate — primarily, as relates to transportation (some go beyond the industry into related areas such as warehousing, etc.), brokers and forwarders.
And to the extent they involve themselves in these activities, they’re regulated just as are those who more mundanely (in a marketplace that often prizes image over substance) style themselves by the traditional nomenclature.
But let’s be a little clearer about what brokers and forwarders are and do.
You’ve got brokerage defined about right, per 49 U.S.C. Section 13102( 2), except you forget a key point. While undoubtedly there are few providers who “arrange” for rail transportation, brokers are only subject to federal oversight to the extent that their arrangements are for transportation by motor carrier.
As for domestic surface freight forwarders, you’re off base. A forwarder in no way “behave(s) as a transportation broker.” Rather, it acts as a carrier in relation to its shippers in all but one regard: It doesn’t itself haul the goods, but instead contracts the line-haul out to actual carriers (rail or motor) that provide the service; 49 U.S.C. 13102( 8).
That is, the for warder issues a bill of lading to the shipper and accepts liability for in-transit loss or damage, just as would a carrier. The forwarder is hands-on in the transportation pro-
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