Surety bond for freight brokers
Surety bond for freight brokers
A freight broker is in the business of bringing together shippers and carriers and helping them enter into transactions for transfer of goods in return for a fee. A freight broker meets the transportation needs without actually owning any of transportation carriers of his own. In addition to this primary purpose, they also provide additional services. There are estimated to be around 4000 freight brokers in the United States. Freight brokerage business needs low start up capital and has low recurring monthly expenses; hence it is an easy business to start. Surety bond for freight brokers is a mandatory legal requirement in order to operate as a freight broker. It is primarily meant to be a safety mechanism to ensure that the freight broker does not default on its payments to the other parties it will be dealing with while in business, airlines, truck lines, rails to name a few. If the freight broker fails on its payments to any of the parties it is in business with, then it is the responsibility of the company who issued the surety bond for freight brokers to pay the claim amount. To be in the freight brokering business, you need to get a license of operation from the Federal Motor Carrier’s Safety Administration. This has a fee of $300. Apart from this one also needs to get a surety bond for freight brokers. A lot of factors are considered while issuing a surety bond for freight brokers. The most important factor is the financial strength of the individual who is applying for the bond and also his/her credit rating. Only after very strict scrutiny will a bond is issued. The personal credit history plays a major role in determining the cost of the bond. The costs are usually around $1500 per year, however it can go very high, up to $10,000 as a one time payment cost. However, the bond amount is $10,000 as per legal requirements. As an additional mode of safety, apart from a surety bond for freight brokers, freight brokers also prefer to have a cargo insurance policy to pay for any loss to the shipper due to damage if the carrier refuses to pay for them. Like in most other surety bonds, surety bond for freight brokers also have an aggregate clause attached to it. This means that there is an upper limit on the surety bond for freight brokers up to which compensation on claims made against the principal will be paid. In case the claims against the principal on the surety bond exceed the upper limit, then the payment would be done on a pro-rata basis to all the claimants. There is also a clause wherein the surety may cancel the surety bond with a thirty day notice to the principal. Thus we see that surety bond for freight brokers are not the easiest to get, however people with good credit history may get one quite easily. Freight brokering can be a very profitable business and the profit potentials are huge.