If you have applied for a freight broker license from the Federal Motor Carrier Safety Administration (FMCSA), you should recall being required to obtain a freight broker bond. This article will help you understand what a freight broker bond is, why it is essential to acquire, and what parties are involved in the bond. This article will also provide helpful insight if you're looking to start a freight brokerage business and are unsure what steps to take.
Freight brokers are the intermediaries between shippers(individuals or businesses that need to transport goods) and freight service providers. They specialize in certain types of freight, such as equipment hauling on lowboys, oversize, bulk tanker, auto, or other types of freight transportation. They do not own the transportation equipment but instead, connect shippers with suitable carriers to handle the shipment. Freight brokers typically work on behalf of the shipper to negotiate rates, coordinate transportation services, and ensure the efficient movement of goods. They play a vital role in matching shippers' requirements with carriers' capabilities and optimizing logistics. In the United States, freight brokers must be licensed by the Federal Motor Carrier Safety Administration (FMCSA) and are required to get a BMC-84 surety bond.
On the other hand, a freight forwarder is a person or a company that works with carriers(individuals/parties that transport goods) to organize shipments for the shipper. They are responsible for arranging and coordinating various aspects of international or domestic shipments. Freight forwarders often provide a wide range of services, including but not limited to documentation, customs clearance, packaging, warehousing, insurance, and transportation. They may work with multiple carriers and other service providers to ensure the smooth movement of goods from the point of origin to the final destination. The FMCSA also requires them to get a BMC-84 surety bond.
The Federal Motor Carrier Safety Administration(FMCSA) is the federal government agency responsible for regulating and providing safety and oversight of commercial motor vehicles. They develop and enforce data-driven regulations to balance motor carrier safety with streamlined processes. It also controls safety systems that enforce regulations to protect drivers, targets educational messages to drivers and the public, and partners with stakeholders to reduce large freight crashes.
A Freight Broker Bond is a surety bond that protects shippers (motor carriers) against freight brokers or freight forwarders who do not meet their contractual obligations, act in good faith, or fail to pay their trucking companies according to the agreement. The bonding company ensures the customers suffer no losses. If the freight broker or forwarder doesn't comply with their obligations or commits fraud, the FMCSA can file a claim against the bond. The surety company will then investigate the claim, and then repay the customer if the claim is found to be valid. An important thing to note here is that the maximum amount repayable is the bond amount of the BMC-84 freight broker bond. This amount is currently set at $75,000 by the FMCSA. The freight broker or forwarder will then be responsible for reimbursing the surety company for the amount paid to claims.
Freight Broker Bonds are only valid for one year from the issue date, and the freight broker or forwarder will be responsible for renewing the bond each year to prevent losing their license with the FMCSA.
Freight Broker Bonds are also known as BMC-84 surety bonds, trucking surety bonds, transportation broker surety bonds, or property broker bonds. FMCSA uses the term "property broker" instead of a freight broker. The FMCSA requires freight brokers and freight forwarders in the U.S. to provide a $75,000 Freight Broker Bond. A surety company must issue the bond. However, since surety companies rarely sell directly to customers, brokers like SuretyNow can help you get the bond.
Freight broker bonds are agreements between three parties. These parties are
Freight Broker Bonds are a requirement for individuals or entities that want to operate as freight brokers or freight forwarders in the United States. Therefore, if you intend to become a freight broker or freight forwarder and want to obtain your operating authority from the FMCSA, you must obtain a Freight Broker Bond.
Obtaining a Freight Broker Bond is helpful to all the parties involved in a freight broker or freight forwarder business, and here are a few reasons why:
The requirements to get a Freight Broker Bond may differ from broker to broker. But here is a general list of things that the surety brokers will require in your application.
Getting a Freight Broker Bond is a quick process that involves a few simple steps.
The cost of the Freight Broker Bond is determined by the surety bond company, typically as a percentage of the $75,000 bond amount known as the premium. This percentage is primarily influenced by the freight broker or freight forwarder's credit score, although providing additional information demonstrating financial strength and industry experience can help reduce the cost. The surety bond company evaluates all the risks associated with bonding and formulates a quote based on the provided information. A variety of factors impact the freight broker bond cost, including but not limited to the following:
The rates for Freight Broker Bonds can range from as low as 1.25% ($938) for experienced brokers with exceptional credit scores and financial records to approximately 3% to 5% for applicants with average credit scores and financials.
Even freight brokers and freight forwarders with poor credit scores can obtain bonding. However, they should anticipate a slightly higher bond premium. Applicants with credit scores of 650 or lower, or those without any credit history, are classified as high-risk. As a result, bond rates for individuals with bad credit generally begin at 5% of the bond amount and can increase up to 12%.
To become a registered freight broker in the United States, you need to follow these general steps:
Attending a freight broker training school is an excellent first step to gaining work experience and learning the skills required to be a good freight broker. Sharpening your communication skills is also pivotal to becoming a successful freight broker.
To operate legally as a freight broker in the United States, you will need to choose a company name and register the business. Setting up a framework of operation will inform your business's ventures and will be useful in setting up a direct line of credit with banks. It will also build the confidence of your clients.
Getting good carriers will ensure your business runs smoothly. They can be found through a Google search, networking events, or references.
Before you begin to operate, you are required by the FMCSA to acquire a Motor Carrier Operating Authority or (MC Authority). This application is straightforward and will just take a couple of simple steps:
Once you have received your MC Authority, you must obtain a freight broker bond and insurance. Please note, your insurance company must file the appropriate forms on your behalf within 90 days of your Operating Authority being published in the FMCSA Register.
The form BOC-3(Designation of Agents for Service of Process) allows you to choose your process agents for each state you do business in. This can be filled in and submitted to the FMCSA.
Once you have figured out your logistics, such as capital, you can now start operating your freight broker business!
Once you have applied for a Freight Broker Bond, you can check the status of your freight broker bond and license online by using the following easy steps:
So far we have looked at the BMC-84 as a way for freight brokers and freight forwarders to satisfy the bonding requirements of the FMCSA. However, another alternative, the BMC-85 trust fund, exists. First, let us discuss what the BMC-85 trust fund is.
A BMC-85 is a trust fund type utilized in the freight industry. It is a financial instrument that a freight broker or freight forwarder can use to meet the surety bond requirement set by the FMCSA. Instead of obtaining a surety bond from a bonding company, the freight broker establishes a trust fund in the form of a BMC-85 trust agreement. Brokers are required to deposit the entire $75,000 into this trust fund, which becomes inaccessible to them once the deposit has been made. This option is suitable for large companies with the capital to take on the bond.
These are the differences between BMC-84 and BMC-85.
For numerous freight brokers and freight forwarders, opting for a BMC-84 bond is often a more favorable choice. This option reduces the entry barrier, offers enhanced flexibility, and eliminates the risk of losing their investment to an insolvent trust company. If you’re uncertain about which option to select, considering the BMC-84 first is recommended, as it generally provides greater flexibility and lower costs.
While a BMC-85 can still be viable, many brokers or forwarders may find it excessively expensive. With significant upfront collateral requirements, bank fees, and the potential for insolvency, a BMC-85 often presents too much risk, making it mainly suitable for larger brokers with the available capital.
While most claims against a freight broker or freight forwarder are due to unfulfilled contractual obligations, we understand that there are instances where the freight broker or freight forwarder is unable to fulfill these obligations because of reasons beyond their control. Therefore, we have compiled a list of ways we feel can help to be in a situation where a claim is filed against a freight broker
You may be unsure how to handle a situation like a freight broker or freight forwarder not paying you on time, or not fulfilling their contractual obligations for example if they fail to secure a carrier transport shipment within the agreed-upon timeframe. In the case when a freight broker falls short of their contractual expectations, doesn’t act in good faith, or violates FMCSA regulations, you are able to file a claim against the freight broker or freight forwarder and receive compensation for any losses incurred due to the actions of the freight broker or forwarder. We will take you through how to get started in the process of filing a claim.
Make sure you have the necessary documentation:
You will then need to find the principal’s surety provider from the FMCSA website by doing the following:
In general, it is recommended to make the payment for the bond premium at least 30 days prior to the expiration of your bond. This earlier deadline is set due to the cancellation policy implemented by the FMCSA. According to this policy, surety companies are required to submit a written notice to the FMCSA 30 days in advance if a bond is at risk of being canceled.
Once the renewal has been accepted by the FMCSA, it becomes visible to everyone in the FMCSA’s Licensing and Insurance Database.
Getting a Freight Broker Bond might seem like a complicated process, but trust us, it’s not! We hope this article has shed some light on the process of getting the bond, informed you on how to become a licensed freight broker or freight forwarder, and answered any other questions that you may have had along the way.