Because they are federally regulated by the Federal Motor Carrier Safety Administration (FMCSA), the process of obtaining a freight broker license can, at times, seem overly complicated, if not downright overwhelming. However, this guide is intended to break the process down into 5 steps that should provide applicants with the necessary information to successfully start their freight broker business!
Defining Freight and ICC Brokers
Before beginning the registration process to become a freight broker, it is important for applicants to be aware of what a freight broker actually is. In short, a freight broker acts as the link between a company requiring the shipment of goods and an authorized motor carrier. Although they do not actually transport goods, freight brokers take information regarding the need of the company requiring the goods and get them in touch with a carrier that will provide transportation of those goods at a reasonable price. To gain a better understanding of what a freight broker is, some applicants even opt to take part in broker training programs before applying for their license.
5 Steps to Become a Licensed Freight Broker
1) Establish a Business Structure
The first step to becoming licensed is for an applicant to determine how they want their company to be structured. It is highly advisable to consult with an attorney or accountant when making this decision, as they have the ability to weigh the positives and negatives of different business structures with the licensee. Whether or not an applicant decides a consultation is necessary, they will ultimately need to decide on one of the following three structures for their freight broker license:
- Individual/Sole Proprietor
2) Submit an OP-1 Form
Once your business structure has been established, you’ll need to obtain a motor carrier number by providing the FMCSA with a completed OP-1 form. This is the initial application form that applicants submit to the FMCSA, which includes general business information (company type, name, address, type of operating authority, etc.) Under Section III for Type of Operating Authority on the OP-1 form, applicants should select either “Broker of Household Goods” or “Broker of Property (except Household Goods).” Applicants will also need to submit a $300 filing fee per each type of license they are applying for.
If you are applying online for a motor carrier number, you can receive it immediately while those who opt to mail in their application may have to wait up to four weeks. The motor carrier number is required to proceed with the freight broker licensing process and grants the business official authority to operate. Once the motor carrier number has been issued, it is subject to a 10-day protest period. During this time, the application may be contested by another company. The applicant may continue the process of obtaining their freight broker license during the protest period.
3) Get a Surety Bond (BMC-84)
Of all the steps involved for getting licensed, the surety bond requirement is oftentimes the most difficult. Many applicants are unfamiliar with surety bonds before learning they need one in order to become licensed. Additionally, the federal freight broker bond is also harder to obtain than other bond types. Approval for the bond is based on the individual applicant’s background among other factors since there is a higher degree of risk associated with the freight brokerage industry.
Despite the confusion commonly associated with surety bonds, they are relatively straight-forward contracts used in many industries to ensure the entity that obtains the bond— the principal—conducts business in such a manner that they are compliant with all relevant rules and regulations. The obligee is the party requiring the bond and is able to make a claim should the principal fail to act in accordance with the terms and conditions established by the bond. The third party in the agreement is the surety, that issues the bond after receipt of a premium has been paid to them by the principal. The premium paid is a percentage of the total bond amount, which the surety guarantees to pay the obligee in the event of a claim. However, if a claim is filed and the surety pays any money to settle the claim, it is the responsibility of the principal—or freight broker in this case—to reimburse the surety for the money paid to satisfy the claim.
Prior to July 2012, those applying for freight broker licenses were only required to obtain a surety bond in the amount of $10,000. However, the passage of The Moving Ahead for Progress in the 21st Century Act (MAP-21) increased the bond amount required of freight brokers to $75,000 by October 2013. The increase was a result of the large number of claims made against these bonds due to misconduct by principals, and its goal was to establish stricter requirement ensuring that only qualified applicants received a freight broker license.
Since freight broker bonds are credit-based and subject to underwriting, applicants will need to provide financials when applying for their bond. For additional information regarding the BMC-84 freight broker surety bond, please visit our dedicated bond page, which covers the freight broker bond exclusively, how costs are calculated and what you can expect to pay.
**Please note that, unlike motor carriers and freight forwarders, insurance beyond procuring a surety bond is not required for freight brokers by the FMCSA, although some clients may wish to see proof of insurance before conducting business with a broker. More information on insurance for freight brokers may be found here.
4) Select a Process Agent
The FMCSA defines a process agent as “a representative upon whom the court papers may be served in any proceeding brought against a motor carrier, broker, or freight forwarder.”
In order to comply with 49 CFR 366, every licensed freight broker is required to designate a process agent in each state in which it has an office and writes contracts. Once you have received your motor carrier number, freight brokers may appoint multiple process agents or they may opt to work with a company offering blanket coverage. This coverage allows one person to act as a process agent in multiple states. Regardless of how many process agents are appointed, the freight broker or designated process agent—on behalf of the freight broker—must complete Form BOC-3 and submit it to the FMCSA.
5) Register the Brokerage
The final step in the licensing process requires all freight brokers to take part in the Unified Carrier Registration. This is the agreement developed under the Unified Carrier Registration Plan governing the collection and distribution of registration and financial responsibility information provided and fees paid by brokers. It establishes rules and regulations for all freight brokers, including fees that must be paid to the freight broker’s base-state, or the state where their main office is located.
As well as taking part in the Unified Carrier Registration, brokers must also familiarize themselves with local regulations regarding interstate companies for every state in which they will be conducting business by contacting the state’s transportation regulatory agency.
What To Do Once a License is Granted
Once the license is granted by the FMCSA and the registration is completed, the licensee is now able to begin conducting business as a freight broker. However, they may find themselves wondering how to get started. For licensees that are unsure of how to begin attracting new customers and succeed as a freight broker, these 8 tips from current freight brokers may offer some helpful insight.
More Questions About Freight Broker Bonds?
The SuretyBonds.com team is here to answer any questions you may have about meeting the $75,000 bond requirement as part of the licensing process. Give them a call today at 1-800-308-4358 to speak with an experienced, licensed agent or get a free quote online now. We’ve issued hundreds of these bonds and rates start as low as $938 for qualified applicants.
Check out more insider resources on freight broker bonds below: