Learn about Broker Bonds
A freight broker bond is a type of surety bond used by intermediaries who act between a person or company needing freight transported and the company which physically transports it. The basis of the bond is that a bond issuer guarantees the freight broker will carry out their responsibilities to both the owner of the freight and the shipping company. The issuer charges a fee, usually in the range of 0.5-2% of the amount which has been guaranteed. A freight broker must carry such a bond to legally operate in the United States.
A surety bond is used when somebody is required to give an extra level of assurance that a potential debt will be paid. The organization issuing the bond guarantees to pay the money if the principal, the person scheduled to pay the money, does not do so. If this happens, the bond issuer, known as the surety, will then go after the principal to recover the money. Although this may appear to be a form of insurance, there is an important difference. With a surety bond, the surety has the same rights to chase up the debt as if they were a lender or creditor; an insurer has more limited rights to recover their money.
In the case of a freight broker bond, the principal is not the customer who is paying for the shipping services. Instead, the principal is the freight broker. They will pay the issuer for the bond, though of course they may build the cost of the bond into the fees they charge to the freight owner, the shipping company, or both.
The freight broker bond was previously titled the Interstate Commerce Commission bond, or simple the ICC bond. Today it is also referred to as the BMC 84 bond. Another name for it is the property broker bond. This is because “property broker” is the legal term used by the Federal Motor Carrier Safety Administration to refer to freight brokers.
Because of high levels of claims in recent years, the criteria for obtaining a freight broker bond have become stricter. Some brokers will not have sufficiently strong credit records to qualify for a standard freight broker bond. One option is to go for a high risk surety bond, which has higher rates. Another option is the BMC-85, or broker trust fund. This is where money paid by freight brokers goes into a central fund which is used to pay out if a broker fails to meet their obligations.
A freight broker bond is required by the Federal Motor Carrier Safety Administration (FMCSA) in order to legally operate as a transportation broker. Other names for this bond are BMC-84, ICC Bond (this bond was previously a required of the ICC), and a Property Brokers Surety Bond. The FMCSA also allows brokers to submit the BMC-85 trust fund in lieu of a bond. However, our agency only recommends brokers make use of the BMC-85 trust fund if they do not qualify for the bond.
A large amount of bond claims over the years has caused bonding companies to consider Freight Broker Bonds extremely risky. Most sureties require 100% collateral in order to consider this bond.