In this post, we’ll cover what it takes to become a freight forwarder. Here’s everything you need to know about freight forwarder license requirements.
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What Is a Freight Forwarder License?
Freight forwarders (like freight brokers) are licensed at the federal level by the Federal Motor Carrier Safety Administration (FMCSA), though technically it’s a registration, not a license.
Registering as a freight forwarder allows an individual or company to provide services as an intermediary between companies that need to have goods transported and the final customers awaiting delivery. That can involve choosing the most appropriate transportation methods and routes, arranging warehousing for goods, negotiating shipping rates with carriers, handling customs paperwork, and a wide range of other services.
What Are the Steps in the Registration Process?
Most applicants for a new freight forwarder registration must apply through the Unified Registration System to obtain an interstate Operating Authority (MC number). The operating authority determines what services a freight forwarder can provide.
Before authorities will be issued, you must provide proof of insurance, if required, and designate a process agent in each state where you will operate as a freight forwarder.
You must also purchase a $75,000 freight forwarder bond, commonly referred to as a BMC-84 bond. (You have the option of depositing $75,000 into a BMC-85 trust or providing an irrevocable letter of credit, but most freight forwarders prefer not to tie up that much of their operating capital or credit.)
You must complete the Unified Registration System application in its entirety and pay the registration fee before submitting it.
There may be additional state-level registration requirements as well, depending on which states the freight forwarder will operate in.
Why is a Freight Forwarder Bond Required?
Freight forwarder bonds protect shippers and carriers against financial loss resulting from nonpayment of fees owed to them by a freight forwarder. The bond must remain in force continuously to avoid suspension or revocation of the freight forwarder’s operating authority.
Failure to remit fees owed to a shipper or carrier can result in a claim being filed against the freight forwarder’s BMC-84 bond.
How Are Freight Forwarder Bond Claims Paid?
There are three parties to every freight forwarder bond, which is a legally binding contract involving thee parties—the “obligee,” the “principal,” and the “surety.”
- FMCSA, an agency within the U.S. Department of Transportation, is the obligee requiring the bond.
- The freight forwarder is the principal, who is legally obligated to pay all valid claims against the bond.
- The surety is the company that authorizes the bond.
FMCSA has established $75,000 as the required bond amount, or “penal sum,” which is the maximum that will be paid out on a single claim. The surety investigates each claim to determine whether it is valid and should be paid.
Although the principal is legally obligated to pay valid claims, most often the surety will try to expedite matters by paying the claim initially and then being repaid by the principal. That, of course, carries some degree of risk that the surety will have to take legal action against the principal in order to collect repayment.
How Much Does a Freight Forwarder Bond Cost?
As is the case with most surety bonds, the annual premium for a freight forwarder bond is a small percentage of the bond’s penal sum. The surety sets the premium rate for each bond applicant based largely on an assessment of the individual’s creditworthiness.
A high personal credit score earns the principal a low interest rate because the risk of non-repayment is low. For a well-qualified principal, the premium rate could be as low as 1%, for an annual premium of only $750 per year for $75,000 in coverage.
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Our surety bond agents will get you a competitive rate on the freight forwarder bond you will need in order to become a registered freight forwarder or to renew your freight forwarder registration.