The federal government has signed into law the transportation bill Moving Ahead for Progress in the 21st Century Act (MAP-21). Also known as the Highway Bill, this legislation was designed in part to help the Federal Motor Carrier Safety Administration (FMCSA) with its goal of boosting highway safety and reorganizing highway project funding. Provisions also target fraud in the trucking industry through an increase in both the level of financial responsibility of freight brokers as well as new minimum training standards to enter the industry.
While there is much in MAP-21 that concerns freight brokers, for purposes of this article we will focus solely on the freight broker bond increase from $10,000 to $75,000 set to take place on October 1, 2013.
Visit our $75K bond guide to learn everything you must know.
Freight brokers are required to obtain and file a surety bond or trust fund agreement with the FMCSA to get a freight broker’s license. The appropriate forms, BMC-84 and BMC-85 respectively, are filed electronically as proof of financial responsibility. Until October 1, 2013, the minimum amount required for either option stands at $10,000 and is in place to guarantee payment to shippers and motor carriers should the freight broker fail to follow the contract terms and/or federal rules and guidelines.
To determine which form you need, please take a look at our freight broker bond and trust fund comparison. Typically a BMC-84 freight broker bond is the better choice if your bond does not require collateral. With a surety bond, freight brokers do not pay the full bond amount, but rather a percentage annually to the surety company. Alternatively, in a trust fund agreement, the entire amount of $75,000 is held by a trustee such as a bank for the duration of the active license, and although no annual premium is paid, fees will most likely be assessed on the account.
Proponents of MAP-21 predict occurrences of fraud in the industry will decrease under the new law. The freight broker bond increase to $75,000 is expected to discourage fly-by-nights from entering the freight broker arena and hopefully protect both shippers and motor carriers from non-payment or delayed payment. In addition, the level of professionalism of smaller freight brokers should increase as those who are experienced and committed to this line of work will want to continue operating legally by meeting the new requirements.
On the negative side, many good small brokers will be handed an unwelcome financial hardship to stay in business with the bond increase. Even if they can pay the larger annual premium, the underwriting process will be tougher with the $75,000 bond. Personal and business financials, experience in the industry and other background information could all be required to qualify for these bonds in the future. Those who can’t stay in business may be forced to consider working as an agent for a larger brokerage, taking away their independent status and losing a percentage of their fee to the broker.
UPDATED: JW Surety Bonds is now able to write the $75K freight broker bond regardless of the applicants credit strength, and will never require collateral.
Apply on our website to get an instant approval.
What about the large brokers? Not only will the cost of doing business be higher with the increased bond minimum, but the laws of supply and demand tell us rates will be adversely affected through the above changes as well. If the small brokers are forced out, a concern is that large brokers will decrease freight rates to owner/operators. This will likely point toward increased charges to shippers to make up the difference. Higher costs all around will ultimately fall on the consumer.
Through an exclusive program with a major surety, JW Surety Bonds is the largest supplier of bad credit freight broker bonds in the country. Although underwriting could understandably become more complex with the higher bond requirement, our relationships and experience in the industry will help to streamline the process. And due to the volume of freight broker bonds we write, we offer the best rates in the industry.
Freight broker bonds are a unique bond type, not written by many surety companies in the U.S. The trucking industry sees an excessive number of claims and therefore few sureties are willing to back these bonds. The markets that do exist have programs for good, medium or bad credit with premiums that reflect the surety’s risk in guaranteeing performance of the freight broker.
Surety approval and rates for freight broker bonds are currently based on personal credit, among other factors, depending on the underwriting guidelines of the surety company backing the bond. Sureties look at credit history to see how obligations have been handled in the past and gauge the financial stability of the freight broker.