From our Friends at Broussard Logistics:
When I first started in the 3rd party brokerage industry, I heard stories from my co-workers of how it “used to be”. They would tell me how all you needed was a computer, a phone, a customer with a load, and a driver who could move the load. Your reputation was your guarantee. By the time I started in this industry in the early 2000’s, however, the government had instituted a few regulations to protect customers from the abuse that occurred in the early days. The broker’s reputation was still your guarantee, but the government provided some basic minimum protections for customers. In the last five years, I have witnessed some sweeping changes in the industry as a whole. Finally, there are protections being granted to the shippers. The government is now granting shippers an payment guarantee increase from a $10,000 to $75,000, but only if they perform due diligence to ensure the brokers are compliant with the new MAP-21 law.
So what is a $75k Broker Bond?
In the most basic terms, this is money paid forward by a Broker to guarantee that they will pay contracted carriers who move freight for their shippers. This protects carriers from a broker going out of business and not paying their freight bills. If the broker closes down and has payment due to a carrier, the carrier can then file against the brokers bond for payment. This also protects shippers and receivers from being doubled billed for the same shipment, because there is a larger safety net to ensure carriers have an avenue to get paid.
The $75k broker bond requirement has been structured into the MAP-21 law. This went into immediate effect on 10/1/2013. All Brokers, Freight Forwarders, and Carriers who contract out freight to trucking companies will be subject to a 60-day “phase in” period to show proof of compliance to the FMCSA. After December 1st, the Department of Transportation will begin to revoke the operational authorities of non-compliant Brokers, Freight Forwarders and Carriers. These companies will no longer be allowed to legally operate as a Broker.
Additional changes that the MAP-21 law will implement:
- Increased Standards to Obtain a Brokerage Authority.
- Must have an officer with 3 years brokerage expertise.
- Pass a written proficiency exam.
- Understanding of rules/regulations and industry practices.
- Penalties and Civil Liability for Unlawful Brokering.
- Any person who knowingly authorizes, consents to, or permits, directly or indirectly, either alone or in conjunction with any other person the brokerage of freight without proper licensing.
- Up to $10k fine for each violation
- Motor Carrier Registration Requirements.
- A motor carrier cannot act as a broker unless it has registered as a broker.
- Each must act independently of the other.