5 Things You Should Know About Freight Broker Bonds

A freight broker bond is something freight brokers and freight forwarders in the United States must obtain in order to get or renew their license, meaning freight broker bonds are required for freight business. These bonds protect motor carriers and shippers according to the FMCSA (Federal Motor Carrier Safety Administration) rules and regulations. If you want to start a freight business or just better understand the complex world of freight broker bonds, read on for information on what a freight broker bond is, how to apply for one, who is protected, how much the bond costs, and how to reduce this cost.

What Is A Freight Broker Bond?

Essentially, you, as the freight broker, have an arrangement with the government and a bond agency that if you are unable to fulfill your end of a deal and do not deliver freight or pay your truckers, the bond agency will pay the customers and workers what they are owed, and then you must settle with the bond company. This is an excellent way of ensuring the safety of the goods being delivered and the satisfaction of your clients. Moreover, freight broker bonds give your freight business a good reputation and credibility. 

How To Apply For A Freight Broker Bond

Applying for a freight broker bond is very easy. You can fill in an online form on a trusted bonds website and you should hear back from them promptly with a free quote. If your bond is approved, you should then be contacted regarding your bond premium. Once you pay the annual bond premium, your coverage will begin as soon as the bond has been registered.

Who Is Protected?

The governmental requirement for brokers to be bonded is in place to protect the companies that depend on them. If for whatever reason, you are unable to haul a client’s freight or you don’t pay your truckers, they can file a claim against your bond. When a company or driver does this, the bond agency pays what is owed, and you subsequently repay the bond company.

The three parties involved in a freight broker bond are the principal, the obligee, and the surety. The principal is the freight broker seeking the bond to secure or maintain its operating authority license. The obligee is the governmental agency requiring the bond, which is the FMCSA. Finally, the surety is the company issuing the bond. Surety bonds for freight brokers protect the parties with which the brokers contract instead of the brokers themselves

How Much Does A Bond Cost?

The cost of your freight broker bond cost will depend on several factors. First, the bond company will want to understand your business and its workings. A larger, more established business will generally have better practices in place to avoid mistakes, and so the bond may cost less.

Second, the bond company will inquire about the financial health of your freight business. Finally, the personal credit history and financial strength of the owner will be considered. The more you can demonstrate financial strength and experience from your company and ownership, the better for your freight broker bond price.

How To Reduce This Cost

The cost of the bond is based on a combination of good credit and experience and whether you pay a lower bond cost of around $900 per year or a much steeper $2,000 annual fee depends on your personal credit history.

There are several things you can do to reduce your freight broker bond cost. This process can take time, but if you take action you will reduce expenditure in the long run. You can work to increase your personal credit score by paying bills on time, for instance. On top of this, you can provide strong business statements and financials, build up your cash position, and contact a broker and work with them to come to an agreement that suits you.

This brief guide to better understanding freight broker bonds has detailed what a freight broker bond is, how to apply for one, who is protected by these bonds, which factors can determine the cost of the bond, and what you, as the freight broker, can do to reduce this cost. For instance, by paying your bills on time to improve your credit score. 

If you are looking to dive into the world of freight brokering, remember that this is an essential aspect of the business. Make sure you get a quote you are happy with from a good bonds company.