The 2024 Freight Broker Market is almost unrecognizable from just a few years prior. While 2020 and 2021 graced the market with unprecedented demand, 2024 is plagued by the consequences of those lucrative years.
- With the wave of new freight brokers in the early pandemic years also came an influx of inexperience and fraud. This, paired with the large number of bonds being issued, created the perfect storm for a surge of costly bond claims.
- Due to the rise in claims, many surety companies and insurers are bowing out of offering freight broker bonds altogether — the risk-to-reward ratio is no longer worth it to many. Those still in the market are raising their premiums and being more selective with whom they bond.
- The Federal Motor Carrier Safety Administration (FMCSA) has changed the rules regarding freight broker licensing collateral. The alternative to the freight broker bond, the BMC-85 Trust, is no longer as desirable. This increases demand in a shrinking market.
Summary: We are sitting on the other side of the peak in the market caused by the pandemic — and the view from here is jarring. Rising premiums, limited capacity, and an overall hardening of the market are surfacing on the horizon.
What's Causing the Hardening of the Market?
The once soft market is now increasingly difficult to navigate for surety bond providers, as well as freight brokers seeking to get bonded. Many factors are playing into the hardening of the market, including:
Covid-19 Aftermath
With Covid-19 came a surge in online shopping. In the US, this resulted in around 3 billion more parcels than were projected to be delivered in both 2020 and 2021.
| Year | Actual Parcel Volume (Billions) | Pre-Pandemic Forecast (Billions) |
|---|---|---|
| 2019 | 15.4 | 15.4 |
| 2020 | 19.5 | 17.3 |
| 2021 | 21.7 | 18.7 |
| 2022 | 21.5 | 20.1 |
| 2023 | 21.7 | 21.3 |
Source: Pitney Bowes Inc.
As parcel and shipment volume skyrocketed, many took advantage of the increased need for logistic experts—seeking out their brokerage license (and the required Freight Broker Bond: BMC-84 Bond). This demand peaked in 2021 with approximately 17,500 new licenses issued (a 60% increase from 2019).
While this demand was initially very lucrative for bond providers, in the long run, it has proven to be problematic and costly.
- Oversupply. The industry now has a surplus of freight brokers and is fiercely competitive. In particular, the less-than-truckload (LTL) segment is facing heavy competitive rivalry. As shipment levels have leveled off, there isn't enough work to go around, resulting in more carriers putting in bond claims for non-payment.
- Inexperience. Many freight brokers entering the market in the early pandemic years were not experienced and/or had financial instability. This has resulted in failed loads and business closures, triggering client and carrier bond claims.
Insurers Leaving the Freight Broker Bond Market
The profitability of the Freight Broker Bond Market has dramatically declined due to bond claims. In 2023, this resulted in two of the top five surety carriers exiting the market.
While we personally have no plans for striking freight bonds from our offerings, we can certainly understand why many companies have.
- Example: Recently, one of our surety experts had two freight broker bond claims come in at the same time. If these claims are valid and we pay out the max amount for each bond ($75,000), we will pay a total of $150,000. And this figure doesn't include the cost of labor to process and investigate these claims.
We are seeing not only an increase in freight broker bond claims but also an increase in clients ghosting us when it comes to the bill.
Trusts Under Regulatory Scrutiny
Those getting a freight broker license need to post collateral in the form of either a :
- Freight Broker Bond (BMC-84)
- BMC-85 Trust
However, in 2024, the BMC-85 Trust rules are becoming more stringent.
This change to legislation mainly targets those with unfunded trusts—requiring them to transfer $75,000 into said trust. It is estimated that 4,500 freight brokers currently use a BMC-85, and predicted that many will switch over to bonding. As they make the swap throughout 2024, this will put more pressure on the market.
More information on this change can be found in the Code of Federal Regulations, Title 49 Volume 5 §387.307.
Identity Theft & Fraud
Criminal activity in the freight broker market is rampant, particularly double brokering and identity theft. Both are key players in the influx of bond claims and tightening of rules in the industry.
What is double brokering? A freight broker (Broker A) books a load with a carrier. However, that "carrier" is actually another broker (Broker B). Broker B will then hire an actual carrier and then do one of two things:
- Pay the carrier a cheaper rate and keep the rest.
- Take off with the money and not pay the carrier.
Many criminals will take this step further and use someone else's identity to get a freight broker license and bond. That way, when a bond claim is triggered due to their non-payment, it isn't attached to their name.
What to Expect in the Near Future?
Higher Bond Premiums
Higher bond premiums are necessary to offset the rise in broker bond claim costs.
As the freight market sits in a recession, the increase in bond premiums affects both new and old freight brokers. However, new and struggling freight brokers will be hit hardest. In contrast, established brokers may see a marginal bond cost increase.
Less Competition
Established freight brokers with good financials may soon face less competition. It is estimated that less freight brokers will enter the market due to the increased bond cost and more stringent underwriting process.
Longer Delivery Times
The combination of the new laws for BMC-85 Trusts and insurers dropping out of the market means an influx of bond applicants for active sureties. This may lead to longer delivery times.
As a larger surety, we have not personally experienced a slowdown in bond processing times. However, we know that the extra load on smaller sureties and insurers has caused some delays.
How to Prepare for What's to Come
The bond market is cyclical and the same factors currently making it difficult may even it out in the long run. Understanding the current market, upcoming law changes, and working with an established surety is key to navigating the future. While I have extensively covered the current market above, you should also consider:
- 2025 Law Changes: January 2025 marks the implementation of new bond claim laws. Particularly, accelerating how fast a freight broker license is suspended if the licensee doesn't respond to a bond claim. The hope is that this eventually translates to fewer unpaid claims — which would help premiums decrease.
- Established Surety: JW Surety Bonds remains ready to bond freight brokerage businesses across the US. We still offer the BMC-84 bond at some of the lowest prices in the industry and are consistently working with new applicants to get them bonded. We even offer a Bad Credit Bonding Program for those with low credit.
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