So you have an interest in becoming a freight broker but are not sure about the requirements. One of those requirements is securing a surety bond. Before you can start operating legally, this is one of major requirements you’ll need to meet.
What is a Freight Broker Bond?
A freight broker bond, also known as a BMC-84, is a legally binding contract that protects carriers and shippers.
There are three parties involved in the agreement:
- The freight broker
- The party requiring the bond (FMCSA)
- The surety company
A BMC-84 is required if you want to obtain your brokerage authority. It was formerly known as an ICC bond and is sometimes referred to as a property broker or transportation broker bond.
The purpose of a bond is simple: If you break the FMCSA’s rules, a claim will be made against your bond.
You’ll be responsible for paying those claims. Claims can be made against your bond for a variety of reasons, including late payments to motor carriers.
The new transportation law Moving Ahead for Progress in the 21st Century (MAP-21) increased the surety bond requirements for brokers and forwarders from $10,000 to $75,000 in 2013.
Federal regulations require that all freight brokers now have $75,000 available to cover potential claims.
Freight broker bonds can be electronically filed with the FMCSA, so there’s no need to worry about tedious paperwork. Once the bond is approved, you’ll receive a confirmation and should be able to view your bond coverage on the FMCSA website within 24 hours.
Many surety companies, including JW Surety Bonds, also offer a BMC-85, which is a trust fund.
With a trust fund, you’re required to place the full $75,000 into the trust and will be unable to touch that money. A bank fee will also be required.
Generally, BMC-85s are chosen by large carriers and brokers. Due to the high upfront cost, new brokers generally avoid BMC-85s.
What Happens if There’s a Claim Against Your Bond?
Bond claims should be taken seriously, as they can affect your ability to be bonded. It’s important to contact your bond agent if you’re made aware of a potential claim. If a claim has already been made, your agent will be able to provide you with information on who placed the claim and what it was for.
Brokers should do everything in their power to prevent claims from being filed. Contacting the claimant directly and seeing if you can come to any kind of resolution can save you from having a claim on your bond.
In many cases, claims are the result of a misunderstanding between parties.
False claims are a big problem in the freight broker industry. In many cases, these claims are the result of delayed payments to shippers and motor carriers. These parties believe they are being ripped off, but in reality, their payments are simply delayed.
Reputable surety companies will dispute these types of false claims, which ultimately saves the broker hundreds of dollars.
How Much Does a Freight Broker Bond Cost?
The cost of a freight broker bond is based on a percentage of the $75,000 bond. Typically, the percentage is between 1% and 12%, depending on your personal credit.
If you have bad credit, you can expect to pay more for your bond.
Surety companies, like any other creditor, view bad credit applicants as high-risk. Some sureties will only work with people who have good credit, but many have special programs for those with less-than-stellar credit.
If you have poor credit, taking steps to improve your score can help lower your renewal rate. A better score doesn’t necessarily guarantee a lower rate, but it may help reduce costs.
Freight broker bond premiums are typically based on the following factors:
- FICO score
- Collections and public records on your credit
- Updated surety guidelines
How to Get a BMC-84
New freight brokerages must register with the FMCSA to obtain their freight broker authority (we’ll talk more about license requirements shortly).
After registering, you’ll need to obtain a BMC-84 and file that bond with the FMCSA.
Freight Broker License Requirements
In order to start your own brokerage, you’ll need to complete several steps and meet several requirements.
#1 – Obtain Your MC Authority
The first step is to obtain your MC authority, or MC (motor carrier) number. This process will take several weeks, so you’ll want to get started as soon as possible.
To obtain your MC authority, you’ll need to get a PIN from the FMCSA. To apply for a pin, you’ll need a valid credit card (no charges will be made). It takes 4-7 days for your number to be shipped to your business address.
Once you have your PIN, you can submit the OP-1 application for your MC authority. The filing fee is $300 and non-refundable. If you plan on obtaining multiple licenses, you’ll need to pay $300 for each one.
#2 – Obtain Freight Broker Insurance
The FMCSA requires all freight carriers and forwarders to carry liability insurance. However, if you’re operating solely as a freight broker, insurance is not required.
If insurance is required, you’ll need to submit proof of coverage to the FMCSA.
#3 – Obtain Processing Agents
A processing agent will be required for each state in which you’ll be operating. If you’re working solely as a broker, the word “operating” refers to your office and where you make contracts. Motor Carriers will need processing agents in all states through which their freight will pass.
The processing agent is the person who will be served papers if a claim is filed against your bond in that state. There are many firms that offer processing agents, but you’ll need to pay a fee to use their services.
Once you have your processing agents, you’ll need to file a BOC-3 with the FMCSA and each state in which you will be operating.
#4 – Get Your BMC-84
The next step is to secure your BMC-84 through a reliable and reputable surety company. Do your research to ensure that the company has a strong financial backing. Otherwise, you run the risk that the company won’t have the funds to cover the cost of claims.
#5 – Obtain Your Unified Carrier Registration
Once you’ve obtained your freight broker bond, the final step is to obtain your Unified Carrier Registration, or UCR. The cost is just $76 for freight brokers.
Once you’ve obtained your bond, completed the licensing process and met all other requirements, you can start operating legally as a freight broker.