Learn in detail about what is going on with Bonds for Brokers of Freight, Map 21 and Much More
Classic Truck Insurance now offers a variety of trucking Bonds through Great American:
Freight Forwarders Cargo
Mileage Tax Bonds
Transportation of Alcohol
FAQ on Map 21 and Bonds
On July 6, 2012, President Obama signed into law the Moving Ahead for Progress in the 21st Century (Map-21). In August of 2012, we issued a memo summarizing what we then knew about the law and also addressed issues that were unresolved. Having recently received guidance from the Federal Motor Carrier Safety Administration (FMCSA) on how they intend to enforce the law, Great West has established the following procedure to ensure that bonds can be issued in a timely manner to those brokers who intend to apply for and obtain a bond from Great West.
As stated in the August 2012 memo, beginning October 1, 2012, brokers were required to separately register their brokerage operation with the FMCSA which means that motor carriers are not allowed to broker loads on the side unless they are a registered broker. Failure to comply with either the registration or financial security requirement of MAP-21 may result in a penalty to the broker and penalties for others that authorize, consent to, or permit a violation of either requirement.
The law also imposes an increased minimum financial security requirement on registered brokers from $10,000 to $75,000. The FMCSA has recently issued a statement clarifying that enforcement of this requirement will begin on October 1, 2013. This means that beginning October 1, 2013, all brokerage operations must, without exception, increase their federally-mandated minimum financial requirement to $75,000.
To allow Great West to efficiently process the increased bond amount, we need to receive, by August 1, 2013, confirmation of whether or not a broker intends to have the bond continued and increased in accordance with the new requirement. If a broker indicates that it will not fulfill the registration and financial requirements, or if no indication of its intent to fulfill the noted obligations is provided, Great West will send a notice cancelling its bond with an effective date no later than October 1, 2013.
If confirmation is received indicating the broker’s intent to fulfill the registration and financial requirements, Great West must receive acceptable collateral in the amount of $75,000 no later than September 1, 2013. Failure to provide the collateral by September 1 will result in Great West issuing a notice cancelling the existing broker bond.
Due to the increased financial requirements and the resultant increase in the amount of the bond, the premium associated with a Great West broker bond will increase. The bond will continue in its current form except for the increased financial requirement. Additionally, the current anniversary date of the bond will continue to be used and the initial premium will be prorated based upon the anniversary date. Attached is a notice that the bondholders will receive and a bond confirmation form.
For more information on Map 21 Check out the Q and A created by the FMCA: http://www.fmcsa.dot.gov/about/what-we-do/MAP-21
Other Bonds Available
MAP-21 and the Freight Broker – Now at a Theatre Near You !
Over a four month period in 2009 an internet “freight broker” in Biloxi scammed its paying customers and its motor carriers alike. The principals were recently sentenced, but as we so often hear, rogue brokers are everywhere…
“According to court documents, the Griswolds would find businesses online that were seeking shipping or transportation services. Then they would contract as a freight
broker would with several very large and reputable trucking companies to transport the goods. The Griswolds would be paid by the shipper, then pocket the money, failing to pay the third-party carriers for their services…”
Ever since the dawn of deregulation and the demise of the ICC the title “Freight Broker” has had some unfortunate connotations. Worse, a lot of shippers and cargo owners still don’t fully understand the parameters of broker operations.
The reputation and duties of brokers have been sullied and confused even further with the onset of internet brokers, “pretend” ocean freight forwarders and “international” internet NVOCCs.
Shippers, contractors, motor carriers have been challenged by rogues who double-broker
freight (not in the true sense of the term, which is legal), fail to pay freight charges, commit fraud by Comcheck or cargo theft, or perhaps inflict the ultimate insult on us by the literal disappearance of “asset light” brokers who operate out of their mom’s basement, leaving a complicated and misunderstood mode of recourse to recover earned freight charges.
Despite these problems, shippers and other BCOs have come to rely on brokers on an
exponential basis in the last 10 years. Everyone is suddenly in the broker business, but prefer to be called logistics partners, 3PLs or anything but a freight broker.
The FMCSA reports there are more than 20,000 freight brokers licensed.
Licensed, that is, at least they have an MC number.
Of course, the majority of brokers (we know) are financially sound and honest. It’s unfortunate that they must operate in an atmosphere that’s clouded by these rogues (my word of the week). Until now these honest brokers have enjoyed being mostly outside the regulatory spotlight.
That is, until Congress came to rescue the citizenry.
“Moving Ahead for Progress in the 21st Century “(or MAP-21) has several important new regulations for brokers among its 584 pages.
(please note: I did not really ever get the chance to read The Sport Fish Restoration and Recreational Boating Safety Act of 2012 – I was washing my dog for his birthday party).
Yet to come eventually are the promised regulations that the FMCSA is to enforce.
Needless to say, the large established brokers and the TIA, ATA and OOIDA are thrilled
they were able to encourage lawmakers to enact legislation to “end fraud as we know it.” But I think I am, too
If it does reduce fraud, great. If not, at least it’s mostly business as usual but with some belief that the Agency admits it has a problem. It does mean a bit more red tape and regulation for legitimate intermediaries. Here are the pertinent broker provisions that apply now:
Registration requirements. Whether motor carrier, freight forwarder, or broker, the DOT requires separate and distinct registration numbers for each authority. The number will indicate the type of transportation service offered.
Brokers who are also motor carriers (or freight forwarders) who have existing contracts
with BCOs and motor carriers must use the broker number exclusively when broking a load, including on the load sheets, invoices and payment records. So, if this needs correcting, you should do so. There’s a relatively simple solution.
While the regs weren’t changed to prohibit single entities from providing all three types of service and holding three distinct registration numbers, most everyone (lawyers and insurers included) think it’s very important to separate the authority and use a stand-alone broker. There’s a need (but no requirement) for contingent cargo insurance (generally inexpensive still, but please review the policy for significant limitations and exclusions to coverage).
Transparency. Information will be available through SAFER providing the identity, including names and business addresses of the principals of each entity holding the registration. This is supposed to help combat fraud, since the BCOs or carriers will be able to see who it is that backs the brokerage, plus there will be an email address you can write to that won’t answer you. Sincerely, though, you can use the safer system information to your advantage in ruling out interactions with rogue motor carriers and brokers.
Registration of Brokers. Under the former “fitness, willingness and ability” standard, which was eliminated by deregulation but never ceases to entertain, as does the term “airworthiness,” the issuance of broker authority will not simply be based upon a finding that the entity is fit, but now the broker must demonstrate its ability to operate the freight broker business.
In the words of the statute, each broker must have “sufficient experience to qualify the person to act as a broker for transportation.” Each broker is required to employ - and not simply as an employee, but rather as an officer - an individual who has at least three (3) years of “relevant experience” or provides “…satisfactory evidence of the individual’s knowledge of related rules, regulations and industry practices.”
That’s about as onerous as the requirement for licensing as an NVOCC by the Maritime Commission, and should be just as tough to enforce.
Demonstrating “relevant experience” or knowledge has yet to be defined under MAP-21. There’s already “Freight Brokering for Dummies” in bookstores, but reading that while you’re browsing in Barnes & Noble might not be sufficient for the Agency’s approval.
Effective Periods of Registration. One of the more controversial aspects of this statute is the fact that the registrations are not permanent but instead subject to regulations (to be
published someday by the DOT), which will require renewal in no event later than four (4) years after the effective date of the law, and each five years thereafter. We also still don’t know the format that license renewals will take.
The $75,000 Bond. The most widely known change is the $75,000 bond, imposed for the first time upon freight forwarders and increased from the previous $10,000 imposed upon brokers who fail to pay freight charges (depending on the surety issuer, there can be a requirement to obtain a judgment first against the broker).
The 75K amount is effective October 1 2013, as you know. It is the financial obligation of the broker regardless of size, sophistication, or number of employees or sales agents.
This will come at a modest increased cost – and perhaps cause consolidation or dissolution among those working from mom’s basement. But it’s probably the best part of the law pertaining to intermediaries.
The Association of Independent Property Brokers & Agents disagrees, calling the new cost severe and detrimental to the small broker, predicting it will restrict competition. I think this is a positive effort to address abuses. The surety market is ridiculously small at present and the premium will be costly relative to the face amount of the bond, but nonetheless it is a positive.
There Will Be Blood….but not a lot.
Prohibited Brokerage Activities; Penalties; and a private cause of action.
There will be civil penalties not to exceed $10,000 imposed by the DOT Secretary, and also, importantly, a private cause of action may be brought against any person who
knowingly operates as a broker without the appropriate registration and requirements.
This is designed to permit civil lawsuits against any business entity involved and against individual officers, directors, and principals of such entities (hmm…class action anyone?). As if the federal courts weren’t already swamped and as if a solo independent contractor will afford the time and effort to sue in federal court for not being paid on a load.
This can only get more complicated, but there are practical ways of compliance and staying informed. There Will Be a Price…but not a lot.
for more information...