At the time of this writing, there is less than a week until the new US federal $75,000 financial security requirement for freight brokers and forwarders goes into effect. By now, most everyone has the deadline of October 1st committed to memory, but many still do not understand the options available to meet the FMCSA requirement.
October 1st Deadline Stands
According to the FMCSA (Federal Motor Safety Administration), all brokers and forwarders must file new BMC-84 and BMC-85 forms confirming $75,000 financial security as of October 1, 2013. Although the FMCSA has allowed for a “phase-in” period which has created confusion, the agency’s guidance released September 5th indicated the extension was provided solely to allow the industry to complete all necessary filings.
If proof of the $75,000 bond or trust is not filed on time, freight brokers and forwarders will receive notification from the FMCSA giving 30 days to get the bond or trust in place before revoking the broker or forwarder authority. The fact remains that brokers and forwarders must have the $75,000 financial security in place in order to operate legally. Even though a broker may not be penalized by the FMCSA until December 1st, their clients will not be guaranteed payment until the $75,000 financial security is in place, likely affecting their ability to continue operations.
Map-21
MAP-21, the Moving Ahead for Progress in the 21st Century Act (P.L. 112-141), was signed into law by President Obama on July 6, 2012. Funding surface transportation programs at over $105 billion for fiscal years (FY) 2013 and 2014, MAP-21 is the first long-term highway authorization enacted since 2005.
MAP-21 is a milestone for the U.S. economy and the Nation’s surface transportation program. By transforming the policy and programmatic framework for investments to guide the system’s growth and development, MAP-21 creates a streamlined and performance-based surface transportation program and builds on many of the highway, transit, bike, and pedestrian programs and policies established in 1991.
Two Options for $75K Financial Security Remain
The $75,000 financial security mandated by MAP-21 may be met by either a surety bond or trust fund agreement. Both are filed electronically with the FMCSA as proof of meeting the $75,000 freight broker security requirement. MAP-21 allowed for a third alternative known as a group surety trust fund; however the FMCSA will not accept this option at this time.
Freight broker bonds must be issued by a Treasury-listed surety company. These surety bonds serve as a guarantee to both shipper and carrier that brokers and forwarders will follow federal regulations. The surety company will pay claims, but if a claim is found to be legitimate, the surety provider will seek reimbursement from the principal.
Freight broker bonds provide financial security up the full amount of $75,000. Premiums are a percentage of the bond amount and must be paid annually.
Trust funds are fully funded with $75,000 cash or a loan. A freight broker’s money is readily available in the event of a claim as funds are deposited with an insured financial institution. The trust company or bank will hold these funds for the duration of of the license and assess annual fees.
For many, meeting the financial security requirement comes down to the choice of posting 100% collateral or being backed by assets of a surety provider for a fraction of the cost. However, a thorough investigation of providers should be conducted, as hidden costs could exist. Brokers need to be mindful with either choice to work with only those who specialize in these instruments for confidence the broker’s bond or trust will be in place by October 1st.
Thank you to Eric Weisbrot and Sandy Miller at JW Surety Bonds (http://www.jwsuretybonds.com/surety-bonds/commercial-bonds/freight_broker_bond.htm?utm_source=dantranscon.com&utm_medium=Guest+Post&utm_campaign=$75K+Freight+Broker+Bond) for this informative and helpful post. To stay up to date on the latest transportation news, free subscriptions are available to Dan’s Transportation Newspaper (http://paper.li/DanGoodwill/1342211466 )
