In 2012, President Obama signed the Moving Ahead for Progress in the 21st Century (MAP-21) Act into law, introducing many new regulations for the transportation industry. Among those was a $75,000 surety bond requirement for freight brokers, a huge increase from the previously required $10,000 bond. Keep reading for a crash course on these surety bonds.
What is a freight broker?
Freight brokers arrange the transport of goods between shippers providing the goods and carriers who can move them. They don’t take on any responsibility for the freight, solely facilitating arrangements between shippers and carriers.
Freight forwarders are often mentioned in conjunction with brokers, but they are not the same thing. Freight forwarders provide transportation for goods and take responsibility for the goods while they are being transported. Freight forwarders also need a $75,000 surety bond and register in much the same way as brokers.
What does MAP-21 mean for brokers?
The biggest impact on freight brokers following MAP-21’s passage was the surety bond increase from $10,000 to $75,000. The Federal Motor Carrier Safety Administration (FMCSA) increased the bond amount to make it more difficult for unqualified brokers to enter the industry, concurrently raising freight broker standards.
A big factor in increasing the freight broker surety bond was the fact that claims were often filed on these bonds, making them high-risk. A larger bond amount allows for more claims to be paid out and puts more liability on the broker, encouraging them not to commit fraud or any take any unethical action that might cause a claim to be filed. An example of when claims are often filed on freight broker bonds are when the broker fails to pay the freight carrier.
The higher bond amount both encourages freight brokers to conduct business lawfully and makes it harder for an inexperienced broker to become one in the first place.
How to become a registered freight broker
Freight brokers register with the FMCSA to begin legally conducting business operations. Before applying, brokers need to obtain a motor carrier (MC) number by filling out Form OP-1. New freight broker registrants use the Unified Registration System (URS) to get started. Brokers can specify if they want to be licensed as a broker of property or a broker of household goods or both—a $300 filing fee is attached to each type.
Freight brokers do not have legal insurance or security requirements beyond the surety bond, also called a BMC-84 bond. After brokers receive their MC number and obtain the surety bond, the FMCSA asks for more information:
- Form BOC-3—Designation of process agent for each state in which the broker operates
- Nonrefundable $300 application processing fee
Applications take four to six weeks to process. Surety bonds must be renewed annually. The surety bond increase went into effect in October 2013, with a full compliance delay into December 2013, meaning a majority of freight broker bonds expire each year during that period.
Be sure to apply for your freight broker bond renewal with plenty of time to spare! Single Source Insurance can help you get the best rate for your bond—call and request a quote today!