Obtaining a Freight Broker License
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What Do Freight Brokers Do?
Freight brokers play a crucial role in getting cargo from where it is to where it needs to be. They are intermediaries between shippers with cargo to move and carriers moving goods within the U.S. and between the U.S. and other countries.
Those carriers may be trucking companies, ocean-going vessels, air freight carriers, or railroads. The cargo could be the household goods of a family moving across the country, items imported from another country or being exported to another country, inventory on its way from a distribution center to retail stores, or raw materials being shipped to a factory, to name a few examples. There’s a very good chance that somewhere along the line, a freight broker played a role in transporting just about everything you now own, from the car you drive to the groceries in your refrigerator.
Freight brokers are logistical experts who make the arrangements to move cargo. Unlike freight forwarders, freight brokers neither take responsibility for the goods being moved nor physical possession of those goods. They use a network of regional, national, and international carriers to pick up cargo from shippers and move it from point to point until it reaches its destination. As you can imagine, the logistics can be quite complicated.
Freight brokers perform a wide range of tasks, such as:
- Vetting potential carriers for reliability and integrity
- Matching up shippers with cargo to be moved and qualified carriers with the capacity to move it
- Negotiating freight transportation rates
- Scheduling shipments with carriers
- Tracking shipments and answering questions from shippers regarding their cargo’s location and status
- Advising importers and exporters on the legal requirements for moving goods across international borders
- Rerouting shipments on short notice when unexpected problems arise
- Arranging warehousing of freight en route, if necessary
- Ensuring regulatory compliance, and much more.
What Training Does a Freight Broker Need?
Candidates for a freight broker license are not required to meet any specific educational requirements. However, given the complexity of the job, it’s common for those contemplating a career as a freight broker to work in the industry in some capacity or to seek formal training before applying for licensure.
There is no substitute for practical experience. Many freight brokers start out as truckers, logistics managers, or dispatchers, all of which can be good ways to learn about the logistics of moving freight. Working as an entry-level broker in a busy freight brokerage firm is an ideal way to gain firsthand knowledge of the industry and build relationships with shippers and carriers that will give you a head start on building the network that you will rely on when operating your own freight brokerage.
If you prefer a more formal learning experience, there are quite a few highly regarded freight broker training programs and schools. You should have no trouble finding a suitable classroom or online program that will help you acquire the skills and knowledge that support success as a freight broker.
Who Needs a Freight Broker License?
If you plan to operate as a freight broker in any state in the country, you will need to be licensed at the federal level. Depending on where you are located, you may also need to meet some licensing or registration requirements that are specific to your state.
What Does the Licensing Process Involve?
Although it’s commonly referred to as “licensing,” freight brokers actually go through a registration process. Freight brokers are regulated by the Federal Motor Carrier Safety Administration (FMCSA), which issues a freight broker authority, evidenced by an MC (motor carrier) number. First-time applicants must apply online through the Unified Registration System. But there are a few things that must be accomplished first.
- Decide whether you want to apply for a freight broker authority as a “Broker of Household Goods” or as a “Broker of Property (except Household Goods)” or as both.
- Both Brokers of Household Goods and Brokers of Property must provide either a freight broker bond (Form BMC-84) or a Trust Fund Agreement (Form BMC-85) in the amount of $75,000.
Because it is a traditional surety bond, obtaining a BMC-84 freight broker bond requires only annual premium payments. BMC-85, on the other hand, is a trust fund that requires a freight broker to post $75,000 in collateral to be held by the government. The BMC-84 freight broker bond is by far the more popular option, as it does not tie up a broker’s capital or credit.
- All freight brokers must name either a process agent in every state where they maintain an office and each state in which they write contracts. Alternatively, freight brokers can designate a company that serves as process agent in all states. A process agent is an individual or company that has agreed to accept any court papers served on the broker.
Interestingly, brokers can name themselves as their own process agents in states where they write contracts. In any case, a completed Form BOC-3, Designation of Process Agent Form, must be submitted as part of the registration process.
The Unified Registration System provides all the necessary forms in a single online application form. After completing it and paying the registration fee (currently $300 apiece for a Broker of Household Goods or a Broker of Property or $600 for both together), you’ll receive an MC number immediately. Your operating authority documents will arrive in the mail within about 10 business days. You will need to re-register every year to keep your authority current.
Freight Broker License by State
Bear in mind that there may be additional licensing or registration requirements at the state level in the states in which you will be operating. See the following for your state rules.
Why Is a Freight Broker Surety Bond Required?
In purchasing a freight broker bond you are pledging to operate in compliance with all FMCSA regulations and to compensate any party that experiences a financial loss due to your noncompliance. The surety bond agreement indemnifies FMCSA against liability for any damages caused by a registered freight broker’s unlawful or unethical business conduct.
The bonding requirement also helps maintain public confidence in the safety and integrity of the freight transportation industry. It reassures shippers and carriers that they will be treated fairly in their dealings with freight brokers.
How Does It Work?
Because a freight broker surety bond is a requirement for obtaining a freight broker authority, it’s classified as a type of license bond.
A BMC-84 bond creates a legally binding contract among three parties—an “obligee,” a “principal,” and a “surety.” The obligee, the party requiring the bond, is FMCSA. The principal, the party purchasing the bond and legally obligated to pay all valid claims, is the freight broker. The surety is the party guaranteeing the payment of claims.
Any shipper, carrier, or other party that is harmed financially by the principal’s failure to comply with FMCSA regulations can file a claim against the bond and perhaps be compensated for the monetary loss. The surety will investigate each claim and may try to negotiate a settlement that is acceptable to both the claimant and the principal. If no settlement can be reached, any claim the surety deems legitimate must be paid.
Because the principal bears the full legal obligation to pay valid claims, it may seem a bit odd that the surety typically will pay a claim on the principal’s behalf. That’s because the surety has guaranteed the payment of valid claims and has a responsibility to ensure timely compensation of the injured party.
But the fact that the surety writes the check to the claimant does not let the principal off the hook. The surety merely pays a claim initially, extending credit to the principal and creating a debt that the principal is legally obligated to repay to the surety. If the principal fails to repay that debt, the surety can take legal action against the principal to recover the funds.
What Does It Cost?
The annual premium for a freight broker bond is a small percentage of the $75,000 required bond amount. That percentage is the premium rate, which is set by the surety through an underwriting process.
The greatest underwriting concerns are 1) that the principal will incur claims against the bond, and 2) that the principal might not repay the surety for claims paid on the principal’s behalf. While the surety will look at the principal’s industry experience, prior history of claims, and overall financial stability, the primary underwriting factor is the principal’s creditworthiness, as indicated by the individual’s personal credit score.
Someone who has a high credit score has handled credit responsibly in the past and can reasonably be expected to continue doing so. Consequently, a high credit score suggests a low risk to the surety and is deserving of a low premium rate. The average broker, with a good personal credit score, will most likely be assigned a premium rate of between one and four percent. Extremely creditworthy principals may be on the lower end of this range, and those with poor credit could pay a premium rate at the high end, or even higher than this range.