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Surety bonds are essential when it comes to the freight broker business. For anyone that wants to be a legitimate freight broker, a bond is needed because they guarantee the rules will be respected. One problem with freight broker bonds is the rather small bond amount and the high frequency of claims. Since such a small bond amount is required despite the high claim volume, various representatives think raising the bond amount is a good idea; but their plan seems to be overkill and could put many small companies out of business.
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Representative Guinta (R-NH) is the sponsor of H.R. 2357, the Fighting Fraud in Transportation Act of 2011. If enacted, the bill would increase the freight broker bond from $10,000 to $100,000 and would also require freight forwarders to be bonded. This bill is meant to deter fraudulent brokers that accept money from shippers but neglect to pay the motor carriers the fees gathered from the shippers. In numerous cases, the arranging of millions worth of freight is only covered by the $10,000 bond with many of these brokers operating with as little as a cell phone and not to mention a small amount of working capital. When claims go out on one of these fraudulent companies, they often close up shop; then the motor carrier’s only option is to file a claim on the surety bond. The main issue here is that the bond amount is too small to cover most carrier claims.
The Transportation Intermediaries Association (TIA) and the Owner-Operators Independent Drivers Association (OOIDA) endorse the freight broker bond increase. The TIA and OOIDA don’t believe that there will be a big cost difference between a $10,000 and $100,000 bond especially when comparing it to the boost of protection the bond increase will provide. The real issue isn’t so much the bond premium but whether small freight brokers will be able to qualify for the $100,000 bond.
With the larger bond amount, there’s greater bond liability, which makes sureties stricter and will raise the bar for freight brokers and their financial condition; this will prevent many small brokers who don’t necessarily qualify for bigger bonds from getting bonded. While the current $10,000 freight broker bond seems a little modest, a $100,000 bond requirement is like trying to swat a fly with a baseball bat. The proposed increase is excessive and will most likely drive small, financially sound brokers out of the industry. A compromise would be a smaller increase in the bond amount or a tiered amount calculated by the size of the brokers’ business instead of having a one size fits all bond; this would help new and existing freight brokers to continue to get bonded and operate legally.
Although changes may be needed with the freight broker requirements, the Fighting Fraud in Transportation Act of 2011 comes on a bit too strong. It’s a righteous effort to try to rid the industry of dishonest individuals with this bill but not at the cost of honest small business owners.