The transportation bill, Moving Ahead for Progress in the 21st Century (MAP-21) became law in July of 2012 yet provisions concerning bonding requirements for freight brokers and forwarders are still being questioned throughout the industry. Whether you have been a broker for many years or are entering the industry for the first time, this article will give options to meet the $75,000 requirement and also take a look at the FMCSA’s enforcement of the law.
The Breakdown of the $75,000 Freight Broker Bond
What is the $75,000 Requirement?
Proof of financial responsibility in the form of a bond or trust fund has been a prerequisite for licensing as a freight broker for decades. In an industry known for its high claim volume, this security guarantees brokers will comply with FMCSA regulations and make timely payment to shippers and carriers.
The FMCSA will not issue a freight broker or forwarder license until a bond or trust fund is in effect and requires proof be filed electronically on the agency’s website. Forms used for this purpose are the BMC-84 and BMC-85 respectively.
Prior to October of this year, the financial security minimum was $10,000 for registered freight brokers; freight forwarders were not previously subject to the requirement. Effective October 1, 2013, the security amount rose to $75,000 and was extended to include freight forwarders.
FMCSA Enforces Bond Increase
According to the FMCSA, there are over 20,000 registered freight brokers and 2,200 freight forwarders in the country. This is a large number of businesses to oversee; however, the agency is already fulfilling its plans to enforce the new $75,000 requirement.
Realizing the massive number of form submissions that must be filed, the FMCSA has announced they will phase in enforcement. In guidance published September 5, the agency stated clearly that freight brokers and forwarders are required to obtain operating authority and satisfy the new $75,000 financial security by October 1st. Brokers and forwarders who are found to be out of compliance will receive 30 days’ notice of authority revocation. Although the FMCSA previously indicated letters would not go out until November 1st, brokers and forwarders have already begun to receive these notifications.
Consider All Options
The only way to protect operating authority and avoid fines is to have financial security in place effective October 1st. MAP-21 offers the options of either a freight broker surety bond or a trust fund to satisfy the $75,000 security requirement.
A trust fund agreement is fully funded by the broker or forwarder’s cash with an approved financial institution for the duration of licensing. In the event of a claim, the funds will be used to pay all claims.
Freight broker bonds are obtained through a surety agency, with premium calculated as a percentage of the bond amount. The bond is backed by the financial strength of a surety company, who guarantees to pay claims to the full amount of the bond. In the event the claim is found to be legitimate, the surety will look to the principal for reimbursement.
Initially there was concern about the availability of surety bonds and whether or not brokers/forwarders could qualify, however in recent weeks, excellent bond programs have been rolled out. Agencies that specialize in freight broker bonds are the best place to start for competitive terms and pricing.