Learn how to become licensed as a freight broker, and speak with an Single Source Insurance agent today about purchasing the BMC-84 bond you�ll need to operate as a freight broker.
What Do Freight Brokers Do?
Pretty much everything you own most likely came from somewhere else�another state, the other side of the country, or perhaps overseas, and a freight broker probably had a hand in getting it to you. That goes for the car in your driveway, the clothes in your closet, the television in your family room, and the food in your refrigerator and kitchen cabinets.
Freight brokers play an important role in the movement of cargo within the United States and between the United States and other countries. They don�t do the moving, but they make the transportation arrangements. They never take physical possession of cargo, and don�t normally ship under their own bills of lading. Freight brokers function entirely as intermediaries between shippers who have goods that need to be moved and the carriers who get those goods where they need to go.
Typically, a shipper will contact a freight broker about moving goods from one place to another. It could be a moving company that needs to transport a family�s household goods across country to their new home, a manufacturer shipping parts or raw materials to a factory, an importer shipping goods to a retail distribution center, or just about anything else. The freight broker will match up the shipper�s request to the network of carriers the broker works with or has vetted for reliability, negotiate the transportation rate, schedule the shipment, track the shipment while it is in transit, and make sure it reaches its destination.
How Do Freight Brokers and Freight Forwarders Differ?
Many people get confused about the differences between freight brokers and freight forwarders, and the two roles do have a lot in common. Both freight brokers and freight carriers make shipping arrangements and oversee the movement of freight. Both can manage the logistics of transporting cargo across international borders for importers and exporters, although freight brokers tend to operate primarily domestically, within the United States.
Freight forwarders play a more active role in preparing and shipping cargo. They may take physical possession of and responsibility for goods, warehouse them, and perhaps consolidate them with goods from other shippers to get better shipping rates, which freight brokers do not do. In fact, freight brokers rely on freight forwarders to do those things, although some freight brokers also operate as freight forwarders. It�s not uncommon for freight forwarders to own their own fleet of shipping containers that can be loaded with a shipper�s cargo or loaded onto trucks, cargo ships, or trains.
What Training Do Freight Brokers Need?
There are no specific educational or training requirements for becoming a freight broker, but the transportation industry and the movement of cargo across state lines and international borders are highly regulated. Consequently, most people seeking licensure as a freight broker will voluntarily seek formal training or take a job with a freight brokerage firm to learn through hands-on experience. There are freight broker training schools in every state, and many of them operate entirely online.
Who Issues Freight Broker Licenses?
Technically, freight brokers are registered, not licensed. They must register with the Federal Motor Carrier Safety Administration (FMCSA) to receive a “freight broker authority.” The proof of that authority is the MC (motor carrier) number issued by FMCSA. Those who have never applied before must do so through the Unified Registration System.
In addition to meeting the federal registration requirements that apply to all freight brokers operating in the U.S., there may be some state-specific requirements to meet as well. You�ll need to consult the appropriate state office or agency that regulates interstate transportation and freight brokers in the state where your business is domiciled and learn what, if any, registration or licensing requirements may apply. You can access state-level contact information here.
What Are the Steps in the Registration Process?
Applying online actually is the final step in the registration process. There are a few things you�ll need to accomplish first.
Key Decisions
You�ll need to make a couple of key decisions before you begin the process of applying for a freight broker authority. The first decision is what legal structure you will establish for your business: individual or sole proprietor, partnership, or corporation. If you�re not familiar with the advantages and disadvantages of these options, it would be wise to talk to a legal or tax expert before choosing one.
The second decision is whether you want to operate as a �Broker of Household Goods,� a �Broker of Property (except Household Goods),� or both.� The registration process is the same regardless of the type of operating authority you�re seeking, but you�ll pay a filing fee for each if you opt for both.
Process Agent(s)
Every applicant for a freight broker operating authority must choose a process agent in every state where they have an office or write contracts. FMCSA defines a process agent as �a representative upon whom court papers may be served in any proceeding brought against a motor carrier, broker, or freight forwarder.� You have the option of designating any blanket company on the FMCSA process agent list. Each blanket company has a process agent that works with the company in every state. This makes this the usual choice, as freight brokers commonly operate nationwide. Most would prefer not to deal with dozens of process agents themselves.
Once you�ve chosen a blanket company as your process agent, you can have them file Form BOC-3�(Designation of Process Agents) with the FMCSA, or you can complete and file the form yourself. Only one completed form can be on file, so if you are using multiple process agents, they must all be listed on the same Form BOC-3. It must include all states for which agency designations are required. You are required to keep one copy on file in your primary office location.
Surety Bond or Trust Fund
Whether you will be applying for registration as a Broker of Household Goods or a Broker of Property, you will need to furnish either a freight broker bond (Form BMC-84) or a Trust Fund Agreement (Form BMC-85) in the amount of $75,000. Most freight brokers choose to purchase a BMC-84 surety bond because, unlike a BMC-85 Trust Fund Agreement, a bond does not tie up their cash or credit. A surety bond can be purchased for an annual premium that is only a small percentage of the required $75,000 bond amount.
The Unified Registration System provides all the necessary forms in a single online application form. After completing it and paying the registration fee (currently $300 a piece for a Broker of Household Goods or a Broker of Property or $600 for both together) you�ll receive an MC number immediately. Your operating authority documents will arrive in the mail within about 10 business days. You will need to re-register every year to keep your authority current.
Bear in mind that there may be additional licensing or registration requirements at the state level in the states in which you will be operating.
Why is a Freight Broker (BMC-84) Bond Required?
The transportation of freight within the United States is highly regulated, and a freight broker bond plays an important role in ensuring regulatory compliance by freight brokers. Categorized as a “license and permit” surety bond because purchasing one is a prerequisite for receiving an operating authority, a BMC-84 bond serves as a freight broker’s guarantee to do business in accordance with all applicable regulatory requirements. Any violation of that guarantee that causes financial harm to FMCSA, a shipper, or carrier gives the injured party the right to file a claim against the bond. The most common cause for claims is nonpayment of fees owed to carriers.
Thus, a BMC-84 bond serves a dual purpose: 1) to maintain the integrity of the freight brokerage industry and the confidence of shippers and carriers, and 2) to provide financial protection for FMCSA, shippers, and carriers against loss resulting from a freight broker�s unlawful and unethical business practices. The terms of the BMC-84 bond agreement indemnify FMCSA against any legal liability for damages stemming from a freight broker�s noncompliance.
How Does a Freight Broker Bond Work?
Like all mandatory surety bonds, a freight broker bond is a legally binding contract among three parties: the �obligee� requiring the bond, the �principal� purchasing the bond, and the �surety� guaranteeing the payment of claims. In the case of a freight broker bond, the obligee is FMCSA, the principal is the freight broker, and the surety is the bond�s guarantor. Of these three parties, only the principal is legally obligated to pay valid claims against the bond.
When a claim is submitted, the surety will investigate to determine whether it is legitimate and needs to be paid. �The surety may even attempt to negotiate a settlement. But if that�s not possible, the claim must be paid. It may seem a little odd given the principal�s legal obligation to pay valid claims, but typically, it�s the surety that writes the check to a claimant. That�s because the surety has guaranteed that the principal will pay all valid claims. The best way to make that happens is to pay the claim initially and then collect repayment from the principal.
So, what happens if the principal fails to repay the surety? Many have learned that the hard way when they found themselves in court and ended up paying court costs and legal fees, as well as reimbursing the surety for claims paid out on their behalf. The surety may give the principal a certain amount of time in which to gather the funds needed to repay the debt created by the surety�s initial payment of a claim. But if repayment is not forthcoming, the surety has the right to take legal action to obtain it.
How Much Does a Freight Broker Bond Cost?
As noted earlier, the annual premium for a freight broker bond is a small percentage of the $75,000 bond amount. That percentage is the premium rate, which the surety establishes for each bond applicant on a case-by-case basis. The reason for there being no one-size-fits-all premium rate is that the main underwriting concern is the risk of the surety not being repaid readily for claims paid on behalf of the principal. And that risk level can vary widely from one bond applicant to the next. There is also, of course, the risk of claims being incurred in the first place.
When underwriting a freight broker BMC-84 bond, the best predictor of the likelihood of claims is the principal�s freight brokerage training and experience. The more knowledge a principal has, the less likely he or she is to commit a regulatory violation that could result in a claim against the bond. The risk of non-repayment is measured by the principal�s personal credit history and financial standing. Someone who has been responsible about paying debts in the past and has the financial resources to pay a claim is likely to do so.
In general, a high personal credit score is indicative of low risk to the surety, which is rewarded with a low premium rate. On the other hand, a low personal credit score is associated with a higher risk to the surety, which generally warrants a higher premium rate.
The average bond applicant with very good to excellent credit usually will pay a premium rate in the range of two to four percent, which makes the annual premium between $938.00 and $6,000. Those with lesser credit will pay a higher premium rate, usually between six and ten percent. The range of premium rates also varies by state, despite the fact that the bond is required by a federal agency, FMCSA.
Request a convenient online quote today, or call and speak with one of our surety bond experts who can answer your questions about freight broker BMC-84 surety bonds.