Freight Broker Bond
How much does a Freight Broker Bond cost?
The Federal Motor Carrier Safety Administration (FMCSA) requires freight brokers and freight forwarders to purchase a $75,000 Freight Broker Bond before receiving a freight broker license. Freight broker bonds are also referred to as the BMC 84 bond or the ICC broker bond.
The cost of your freight broker bond is a percentage of the $75,000 bond amount as determined by a surety company. Freight broker bond rates vary by state and applicant. SuretyBonds.com can issue these bonds for as low as $938 (1.25% rate) in many states for applicants with very good to excellent credit. Freight brokers wanting to renew their surety bond may qualify for a lower rate after a year or two of conducting business without having any claims filed against the bond.
Since freight broker bonds are inherently risky, underwriters must review all applicants’ credit and financials to determine an appropriate premium (cost to you) required to write the bond. Don’t overpay for your bond. Find out the best possible freight broker bond rate available to you by requesting a free quote online now.
What is a Freight Broker Bond and why do I need one?
In order to issue a freight broker license, the FMCSA requires all freight brokers and freight forwarders to file either a surety bond (BMC-84) or a trust fund agreement (BMC-85). This requirement exists to ensure that licensed freight brokers and forwarders are held to certain standards as well as to prevent fraud or failure to pay motor carriers or shippers in a timely manner. If freight brokers or forwarders fail to comply with any terms of the surety bond, parties that suffer damages as a result may file a claim against the bond. If the claim is determined to be valid, the surety company will pay to settle the claim up to the full amount of the bond— $75,000. Once the claim has been resolved, it is the responsibility of the license holder to reimburse the surety the equivalent amount of money.
Should an applicant opt not to obtain a surety bond, another security option is to place the $75,000 into a trust fund by filing Form BMC-85. However, this option requires full collateral up front, so it is typically large brokers with established financial stability that choose this option. Newer freight brokers are encouraged to file a surety bond since it only requires an annual premium (typically 2-4% of the bond amount), rather than collateral.
Terms of the BMC-84 Freight Broker Bond
Freight broker license bonds are valid for one year from the date it is issued. If either the broker or surety wishes to terminate the bond during that year, a 30-day notice of cancellation must be sent to the FMCSA. During the 30 days prior to cancellation, the surety remains liable for any claims filed against the bond.
How to become a licensed freight broker
The Federal Motor Carrier Safety Administration (FMCSA) is the regulatory authority for freight brokers and forwarders. According to Title 49, U.S.C. 13904, freight brokers and forwarders must register with the FMCSA before beginning business operations and arranging for the transportation of any goods. Freight brokers must have either three years of relevant experience or satisfactory evidence of their knowledge in the freight industry to be approved for a license. In order to become a licensed freight broker, applicants must take several additional steps required by the 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, the FMCSA requires additional insurance, to be submitted on 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
Applicants may submit the OP-1 form to the FMCSA online or through mail. However, if an applicant does choose to mail the form, it may take up to four weeks to receive their operating authority. In order to expedite the process, applicants are encouraged to ensure that all information provided is correct. Applications with incomplete or missing information are likely to be rejected.
Understanding surety bonds
Surety bonds hold business professionals responsible for acting ethically and lawfully while on the job. When it comes to freight broker bonds, the obligee requiring the bond is the U.S. government, the principal required to purchase the bond is the freight broker, and the surety responsible for producing the bond is the underwriting company.