Freight brokers make sure that carriers deliver the goods to where they’re supposed to go. Because of this enormous responsibility and the potential for great economic loss should freight brokers fail to do their duty, the industry is regulated by the federal government.
Every freight broker wanting to enter the business has to satisfy three legal requirements to become a licensed property broker—the DOT official designation for freight brokers.
Freight Broker Authority
It’s the Federal Motor Carrier Safety Administration (FMCSA), an agency of the Department of Transportation, that receives and facilitates the application for and grants freight brokers the authority to operate. You’ll have to fill out the OP-1 form with the “broker of property” checked. Some of the information you’ll be providing includes your business name, contact information and a USDOT number. The USDOT number is not mandatory to being a freight broker but you need one so you can file an application with the FMCSA for a property broker license.
Once your freight broker application has entered the FMCSA system, you’ll be assigned a motor carrier (MC) number. The MC number will be instrumental in acquiring a surety bond, which is the second part of the whole process of granting you the license.
There are instances when FMCSA may dismiss your application for an operating authority. You may have stalled at some point and failed to complete the whole licensing process, surety bond information was missing, or some other information was lacking. Be mindful of these factors so you won’t have any headaches later on.
Freight Broker Surety Bond
You must submit proof of a surety bond before the FMCSA can issue an operating authority to you, filing a BMC-84 or BMC-85 form along with it. Usually, the surety bond is for $10,000 but depending on a credit and background check on you by the bonding company, this amount could increase.
Why the need for a surety bond? Although it’s not insurance per se, the freight broker’s surety bond guarantees that carriers are compensated for moving loads. If and when shippers default on this obligation, freight brokers will have to pay carriers out of pocket for services rendered. Freight brokers usually don’t have the available cash to settle this obligation so the bonding company will take on the role of creditor and settle the carrier’s costs up to the amount of the bond.
Legal Process Agent for Freight Brokers
Freight brokers have the one license granted by the federal government to operate across the nation but like any business, they need a point of contact to operate in individual states. This is where process agents come in.
Simply, process agents act as legal representatives for freight brokers in the states where the brokerage plans to operate. Should claims or other legal actions arise against the freight broker in a state, the process agent will be the legal point of contact or representation in the area. Instead of a single individual in each state, you might want to consider engaging the services of a law firm with branches in the states where you’ll be operating.
A freight broker will have to register these process agents for each state where the freight brokerage firm will do business. You’ll use the BOC-3 form (Designation for Process Agent) to list your legal representatives. Once the fee has been paid, FMCSA deems the application complete. Your operating authority should be issued within four to six weeks of submitting this final form.