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Trust Funds or Bonds? Carriers and Brokers Quibble…

TORONTO, Ont. - To put money in trust or to post a bond? That is the question ...In the wake of Bill 179 revisions in Ontario, industry players are quibbling over which would be the best way to protec...

TORONTO, Ont. – To put money in trust or to post a bond? That is the question …

In the wake of Bill 179 revisions in Ontario, industry players are quibbling over which would be the best way to protect carriers and O/Os when brokers go broke.

The Canadian Freight Forwarders Association recently waded into the fray, when Executive Director George Kuhn posted a letter to Transport Minister Frank Klees questioning the ministry’s decision to retain the trust account requirement for load brokers.

Thanks to pressure from the Ontario Trucking Association, The Government Efficiency Act – Bill 179, was revised prior to second reading to amend the Highway Traffic Act by adding a clause that states: “A person who arranges with an operator to carry the goods of another person, for compensation and by commercial motor vehicle, shall hold any money received from the consignor or consignee of the goods in respect of the compensation owed to the operator in a trust account in trust for the operator until the money is paid to the operator.”

Current rules state a load broker must post a $10,000 surety bond and open a trust account to be allowed to operate.

But Kuhn didn’t like the fact the ministry decided to retain the trust account requirement.

And he made that clear in his letter to the minister.

In his letter, he called the trust account provisions “a major intrusion on our free enterprise system.”

According to Kuhn, the trust account system, if enforced (read more on that further down) would interfere with private business-to-business transactions; add administrative costs to businesses in Ontario; add exposure to personal liabilities and potential criminal proceedings for owners, directors and officers of Ontario-based companies; conflict with existing legal precedence on secured claims in bankruptcies; promote serious credit downgrading by financial institutions; and promote a “laissez-faire” attitude toward proper credit management by motor carriers.

In the letter, Kuhn proposes intermediaries post a bond instead, thereby freeing up cash flow while providing a modicum of assurance to end users.

“Why not just require intermediaries to post a bond for $10,000?” he suggested. “That would require the company to meet with certain minimum requirements for operational stability. It would also get rid of the bad apples.”

To say Kuhn’s proposal was not greeted with overt enthusiasm by the OTA would be an understatement.

“We’re not closed to a reasonable counter proposal,” was David Bradley’s not-so-subtle-when-you-think-about-it remark when asked if the CTA was willing to consider Kuhn’s counter proposal.

Still other industry insiders say the bond proposal would require a heftier investment or stricter enforcement to really work.

“I like the bond idea, but I think it should be for a larger amount, like $250,000,” said Bob Garroni, president of Garroni International Logistics Corporation, a third party logistics provider headquartered in Winnipeg.

“Ten thousand doesn’t really offer any protection for the carriers. This company gets enough calls on its answering machines prior to opening every day that amount to more than that.”

Garroni agrees that carriers and O/Os should be protected in the event of a bankruptcy, but he doesn’t agree with the idea of putting money in trust.

“I could easily do it and have the money to keep operating, but it would be an accounting nightmare,” he said.

“I’d have to hire someone just to split the cheques I get and deposit them in the right accounts. Or I’d have to ask my client for two cheques – one for the carriers and one for my cut.”

Trust accounts are preferable to bonds, according to Truckers’ Voice lobbyist Pete Turner, but neither will have any teeth until they become enforced uniformly and nationwide.

“Load brokers are mobile, and if they don’t want to post a bond or put money in trust they’ll just move their headquarters to another province,” said Turner, pointing out the Internet has made moving business headquarters as easy as the click of your mouse.

“As long as the law isn’t national it’s not worth as much as the paper it’s printed on.”

Garroni agrees, pointing out how the laws are different in the U.S.

“There, you have to post a $10,000 bond just to be able to operate,” he says. “If you don’t have one, enforcement officers will shut you down.”

Be that as it may, national enforcement of trust account or bond provisions for third party companies is far from becoming a reality, even though Bill 179, having already passed third reading, is well on its way to becoming law (although it hasn’t been proclaimed yet).

When asked what the government intends to do about the controversy, Ontario Ministry of Transport communications officer, Emna Dhahak, returned the following non-committal response:

“We had concerns expressed about maintaining the trust account requirement while others support retention of other provisions.

“We are currently examining the views brought forward and will pursue the issue further in close consultation with concerned parties …”

In other words, only time will tell.

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