QuestionI would like to become a freight broker and I understand I need insurance/surety bond. Do I need to purchase insurance or post the $10,000 surety bond before I can get my operating authority or apply for any licensing/permits? Please advise. Thank you in advance for your response.
AnswerHi Liza,
First you will need to be licensed with FMCSA (Federal Motor Carriers Safety Administration).
Yes, you will need to get a Surety Bond. Each company or entity must prove they are capable of paying the various truck lines, airlines, railroads, or any other entity being used by the broker.
An individual's credit, and/or financial strength, is investigated with extreme thoroughness. Only then is a "bond" issued. Costs vary depending on your personal credit history. For as little as $550 per year to as high as a one-time fee of $10,000.
Accordingly, if for some reason the broker fails to pay the transportation company, the bonding company must pay. As you can imagine, the bonding company is very careful about who they insure.
Most brokers carry contingent cargo insurance to pay shipper loss or damage claims if the carrier and its insurance company refuse to pay. Contingent cargo coverage provides shippers a second level of protection, as long as a claim is valid. You should be carrying liability insurance as well as 'errors and omissions' insurance.
Licensed property brokers who belong to the industry trade group Transportation Intermediaries Association (TIA) are required to abide by a strict code of ethics when dealing with shippers and carriers. You should look into this, www.tianet.org. Also look into www.nitl.org.
Good luck!
Bob Stephens
