QuestionWe are a small trucking company based in Canada, with Operating authority as a Motor Carrier to operate in the U.S. and in Canada. We are looking at expanding our Operating Authority to either a Freight Forwarder or Property Broker. Which operating authority should we file for OP-1(FF) or OP-1(P)? Should we file our new Operating Authority under a new company name to keep it separate from our current business name?
AnswerHello Ken... Thanks for the question. Please keep in mind my comments are based solely on US statutes and regulations, so there may be additional Canadian or Provincial requirements. Also, not knowing your present resources available and your current operations, my comments must be of a general nature.
Freight Forwarder & Freight Broker.....Although there are many similarities between the two, there are also many differences. First of all, let's start with the general definitions and a discussion of the functions, responsibilities, and liabilities of each.
The FMCSA definition of Freight Forwarder: A company that arranges for the truck transportation of cargo belonging to others, utilizing for-hire carriers to provide the actual truck transportation. The Forwarder does assume responsibility for the cargo from origin to destination and usually does take possession of the cargo at some point during the transportation. Forwarders typically assemble and consolidate less-than-truckload (LTL) shipments into truckload shipments at origin and disassemble and deliver LTL shipments at destination. Forwarders must register with FMCSA by filing a Form OP-1 (FF).
General definition of Freight Forwarders... are companies specializing in arranging storage and shipping of merchandise on behalf of its shippers. It may provide a full range of services including: tracking inland transportation, preparation of shipping and export documents, warehousing, booking cargo space, negotiating freight charges, freight consolidation, cargo insurance, and filing of insurance claims. Freight forwarders usually ship under their own bills of lading, called “house bill of lading” and their agents or associates at the destination (overseas freight forwarders) provide document delivery, deconsolidation, and freight collection services.
FMCSA definition of Broker: Also a company that arranges for the truck transportation of cargo belonging to others, utilizing for-hire carriers to provide the actual truck transportation. However, the Broker does not assume responsibility for the cargo and usually does not take possession of the cargo. Brokers must register with FMCSA by filing a Form OP-1.
By contrast from a Freight Forwarder...A Broker was and is "a person or company other than a motor carrier that as a principal or agent sells or holds itself out as selling, providing, or arranging for, transportation by motor carrier".
One significant difference is found in the responsibility and liability of each. Generally unless there happens to be some unique circumstances, a broker has no liability for damages because they never take physical possession of the shipment. Another difference is the requirement for financial responsibility. Since a broker has no liability for damages (in most situations), they are not required to maintain cargo insurance. A broker is only required to post a bond and file......
BMC-84 or BMC-85 Surety Bond--$10,000
Trust Fund Agreement--$10,000
A Freight forwarder would be required to meet the same insurance minimums as a common carrier including BIPD and cargo and file....
BMC-91 or BMC-91X Public liability insurance (bodily injury/property damage/environmental restoration) Motor Contract Carrier and Common Carrier
Freight Forwarder (Note: Non-vehicle operating freight forwarders may seek waiver of this requirement.)
Freight:--$750,000 - $5,000,000, depending on commodities transported;
I would suggest that you would need to analyze the market to determine which one or if both align with your business plan and growth objectives. As closely related as either is to your present carrier business, I would tend to file under the current company name or as a separate division of your company, depending how you're structured now. You may want to consider filing for both authorities as you can file for as many authorities as your business needs. You'll need to consider the resources within your present company in terms of skills and abilities, and what additional ones you'd need to obtain. The knowledge and skills necessary to operate a motor carrier company may not directly translate to those needed for a broker or freight forwarder operation, so there may costs incurred for training and/or the addition of employees. One other consideration may be the potential requirement for capital investment in additional facilities and equipment.
There are a lot of variables involved. You'll need to do the research and analyses to gain the knowledge necessary to make an intelligent business decision to opt for one or the other or both. That decision should be based on the market available to you; your present capabilities and resources; your growth objectives; and the amount of additional responsibility and liability you're willing and capable of assuming.
Thanks again for the question and I wish you the best of success whatever decision you make.
...Don
