The Kowalski Act and Broker Transparency Rules: A Tectonic Shift for Freight Brokerage Margins

The freight brokerage sector, long characterized by its agility and responsiveness to market fluctuations, now faces a seismic regulatory overhaul. The Kowalski Act 2025 and the Federal Motor Carrier Safety Administration's (FMCSA) Broker Transparency Rules represent a fundamental reordering of accountability, compliance, and financial responsibility. These measures, while aimed at enhancing safety and transparency, are poised to reshape the industry's competitive landscape, compress margins, and amplify strategic investment risks. For investors, the implications are clear: a sector once defined by its flexibility is now navigating a terrain where regulatory gravity and operational complexity converge.

Regulatory Foundations and Immediate Impacts

The Kowalski Act, formally the Patrick and Barbara Kowalski Freight Brokers Safety Act, introduces a 10% surcharge on contracts with carriers having three or more Department of Transportation (DOT) violations over five years. This provision shifts accountability from carriers to brokers, effectively penalizing those who partner with non-compliant operators. Smaller brokers, in particular, face administrative burdens in tracking carrier violation histories, a task that could strain their operational capacity and increase costs according to Freightwaves. Complementing this, the FMCSA's transparency rules mandate electronic record-keeping, eliminate contractual waivers for transparency, and require brokers to provide transaction details within 48 hours of a carrier's request according to TruckStop. These rules, expected to take effect by late 2025 or early 2026, aim to close loopholes that allowed brokers to obscure payment terms, empowering carriers to negotiate better rates and detect fraud according to TruckStop.

Strategic Investment Risks and Margin Compression

The combined effect of these regulations is a significant pressure on freight brokerage margins. The Kowalski Act's surcharge mechanism could inflate operating costs for brokers reliant on high-risk carriers, while the transparency rules force brokers to justify their pricing structures more rigorously. According to a report by Freightwaves, brokers may struggle to pass these costs onto shippers, particularly in a market where freight volumes remain subdued and spot rates are volatile according to Freightwaves. This dynamic is exacerbated by the FMCSA's stricter financial responsibility rules, which require brokers to maintain a $75,000 surety bond-a sharp increase from the previous $10,000-effective January 2026 according to FMCSA. For mid-market brokers with high leverage, these requirements could trigger liquidity crises, especially if they fail to secure long-term carrier relationships or diversify into niche markets less sensitive to macroeconomic swings according to SPI3PL.

The investment risks are further compounded by broader economic headwinds. The freight brokerage market, valued at $17.5 billion in 2024, is projected to grow to $35.1 billion by 2033, but this growth hinges on brokers' ability to navigate capacity constraints, geopolitical disruptions, and rising input costs according to SPI3PL. A report by Yahoo Finance warns of a "perfect storm" in 2026, where a wave of brokerage failures-particularly among mid-market players with over-leveraged balance sheets-could destabilize the sector according to Yahoo Finance. Asset-based carriers, with greater control over capacity and compliance, are better positioned to weather this downturn, potentially capturing market share from struggling brokers according to Yahoo Finance.

Sector Disruption and Long-Term Restructuring

The Kowalski Act and transparency rules are not merely regulatory hurdles but catalysts for long-term industry restructuring. In the U.S., the economic outlook remains cautiously optimistic, with inflation cooling and the technology sector anchoring growth. However, structural weaknesses in sectors like commercial real estate and healthcare, coupled with political uncertainty, persist as risks according to MWE. The UK and Germany face similar challenges, with France recording a record number of insolvencies in 2025, particularly in construction, hospitality, and retail according to MWE. These trends underscore a broader transatlantic pattern of economic fragility, where private credit and liability management exercises (LMEs) are becoming critical tools for managing debt burdens according to MWE.

For freight brokerage firms, the path forward lies in leveraging technology for real-time market intelligence, securing long-term carrier partnerships, and adopting niche strategies. However, the transition will be uneven. Smaller brokers lacking the capital to invest in compliance infrastructure may be forced to exit the market, while larger firms with scale and financial resilience could consolidate their dominance. This bifurcation is already evident in the valuation shifts observed in 2025–2026, where brokers unable to meet regulatory and financial thresholds have seen their debt exceed their worth, rendering them effectively insolvent according to Yahoo Finance.

Conclusion: Navigating the New Normal

The Kowalski Act and Broker Transparency Rules mark a pivotal shift in the freight brokerage landscape, prioritizing accountability and transparency at the expense of operational flexibility. For investors, the key takeaway is the heightened risk of margin compression, liquidity constraints, and sector consolidation. While these regulations aim to reduce fraud and promote fairer market practices, their implementation will disproportionately impact mid-market brokers and smaller players. The coming years will test the sector's adaptability, with only those firms capable of balancing regulatory compliance, technological innovation, and strategic diversification emerging unscathed. In this new normal, the freight brokerage industry's survival hinges not on agility alone, but on its ability to withstand the gravitational pull of regulatory and economic forces.