Looking for a quick guide for how to register as a freight broker and comply with federal rules and regulations? This article explores the procedures for broker registration, options for security requirements and noteworthy details of the freight broker surety bond.
What is a freight broker?
A freight broker serves as an intermediary between a shipper and a carrier of goods. Brokers determine a shipper’s needs for a particular shipment and use that information to find an optimal carrier for an acceptable price. In short, brokers help coordinate the movement of goods across the country. They can be confused with freight forwarders, who also play a role in the movement of goods. However, freight forwarders actually possess the shipper’s items, then consolidate smaller shipments and coordinate their transportation.
How do freight brokers/forwarders become registered?
The Federal Motor Carrier Safety Administration (FMCSA) is the primary authority for freight brokers and forwarders. According to Title 49, U.S.C. 13904, freight brokers must register with FMCSA before commencing business operations or arranging for the transportation of any goods. Brokers must either have three years of relevant experience or provide satisfactory evidence of their knowledge in the industry to be approved for registration. Brokers must take several steps to successfully register with FMCSA:
- file OP-1 Application for Motor Property Carrier and Broker Authority
- provide proof of insurance coverage: $75,000 surety bond (BMC-84) or trust fund agreement (BMC-85)
- submit BOC-3 (Designation of Process Agent)
- include non-refundable filing fee of $300
For freight forwarders, FMCSA requires a couple extra insurance documents. They include the following forms:
- liability insurance: BMC-91 or BMC-91x (if insurance is provided by multiple companies)
- freight: $750,000 – $5,000,000 minimum insurance (depends on cargo)
- vehicles weighing less than 10,001 lbs. transporting non-hazardous freight: $300,000
- passenger vehicles: $5,000,000
- passenger vehicles with capacity of 15 people or fewer: $1,500,000
- proof of cargo insurance (if you are a household goods freight forwarder): BMC-34 or BMC-83
- minimum $5,000 per vehicle
- minimum $10,000 per occurrence
Processing time for application materials typically takes between four and six weeks. Applicants can submit the OP-1 form to FMCSA online or through mail. Online applications usually take less time to process. Operating authority documents will be shipped typically three to four business days after your application is approved. Applicants are encouraged to ensure that all information on forms to be submitted is correct, or else the application is likely to be rejected.
What is a freight broker surety bond?
FMCSA requires freight brokers and freight forwarders to file either a surety bond (BMC-84) or a trust fund agreement (BMC-85). This requirement exists to help establish credibility for freight brokers and prevent fraud or failure to pay motor carriers or shippers in a timely manner. Should brokers or forwarders fail to adhere to the terms of the bond, they can be subject to valid claims filed against the bond. In the event of a valid claim, the surety company will pay for the coverage of the bond (up to the full amount of the bond – $75,000), but the broker or forwarder must reimburse the surety the equivalent amount of money. These bonds are valid for one year from the issue date. If the broker or surety wishes to terminate the bond for any reason, a 30-day notice of cancellation must be sent to the FMCSA.
The other security option is to place the $75,000 into a trust fund by filing Form BMC-85. However, this option requires a full upfront payment, so only large brokers with established financial stability typically choose this option. Newer brokers are encouraged to file for a surety bond since it only requires an annual premium (which is typically 2-4% of the $75,000 bond amount).
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