Freight Broker Bonds, Explained

What is a Freight Broker and What Do They Do?

A freight broker assumes the role of the middlemen between buyers and sellers. Freight brokers can be either a company or an individual that pairs shippers with the appropriate transportation services in order to effectively move goods.  Freight brokers are the responsible party for finding someone to transport the goods for the seller, so they never are in possession of the goods.  They play an essential role in the movement of cargo by connecting shippers with carriers. However, they never actually own or have the goods, on hand.  Simply, they ensure the goods move from one place to another.  Because freight brokers never need to have the goods on hand, they can work from a small office space, or remotely if they prefer.  

What are the Differences Between Freight Brokers and Freight Forwarders?

While freight brokers are responsible for arranging the transportation of goods, freight forwarders execute the transportation of goods. Freight forwarders have the physical goods and move them from location to location.  Freight forwarders must meet additional legal standards including registering with the Federal Highway Administration.  The registration process includes requirements for cargo carrying capacity and liability insurance coverage.  This insurance must cover the minimum amount required by the carrier. To read more about the differences between the two, you can click here.

What is the BMC-84 Freight Broker Surety Bond?

Both freight brokers and freight forwarders need to post the Freight and Forward Broker Surety Bond. It is a bond federal law requires to help regulate freight brokers and forwarders.  Its most important purpose however, is to provide a financial guarantee that the freight broker or forwarder will faithfully, fully and ethically perform all duties.  The Federal Motor Carrier Safety Administration (FMCSA) requires the BMC-84 Freight Broker Surety Bond to be in the amount of $75,000 for the one year term.

The BMC-84 Freight Broker and Forwarder Surety Bond is not the same as insurance.  If someone files a claim on a surety bond and the surety company has to pay out a loss, the freight broker must fully reimburse the surety company. The document that insures this is an indemnity agreement and it basically states that you and your partners will pay back the surety company if they have to pay out any losses. Neither the surety bond nor the indemnity agreement protect the freight broker or forwarder.  They are not insurance.  

Why is the Freight Broker Bond Necessary?

The US has required bonds for freight brokers since 1930. Though it wasn’t until 2012 when Congress passed the Moving Ahead for Progress in the 21st Century Act that the current freight broker bond took form.  This piece of legislation made the surety bond amount for the freight broker bond $75,000.  It also increased the bond amount by $65,000, forcing all freight brokers to get new surety bonds.  The Moving Ahead for Progress in the 21st Century Act also requires that freight forwarders post a surety bond, making it so that both freight brokers and forwarders had to post $75,000 bonds. Freight brokers and forwarders needed to post this $75,000 starting on October 1, 2013, so if you currently are a freight broker or forwarder, you will likely need to renew your bond soon.

In terms of what the bond protects, it protects the public, your customers, and the government from harm on behalf of your company. If you have poor business practices, there is a greater likelihood people will file claims on your bond.  However, if you as a freight broker or freight forwarder have ethical and good business practices, you should never have to worry about paying out a claim.