Tag: bonds

Explaining the Most Important Trucking Bonds

Bob Holtzman

As a trucking company, depending on your state and the type of trucking business you operate, you may be required to be issued one of a variety of bonds, also known as a “surety” bond. Four of the most common trucking bonds are C.O.D. bonds, motor vehicle registration bonds, U.S. Customs bonds, and freight broker bonds. The following information will give you a basic overview of those types of bonds and when they would be necessary for your operation.

COD Bond

COD bonds are also known as Collect on Delivery bonds. With a COD bond, a surety company will provide the obligee a guarantee that clients, vendors, customers and employees will provide payment for financial damages in the event that a licensed business violates licensing laws. The purpose of these bonds is to allow the trucker to deliver freight and collect the shipers payment for the goods being delivered from the consignee (also known as the receiver).

Here’s how these bonds work. The bond will pay up to the bond amount stipulated on the bond form. The surety company reviews claims from the public to determine the validity of their claim, however, the licensed business owner is still responsible for their actions and must reimburse the bond company for payments made of face license suspension. The bond company also directly receives claims from the public and determines the validity of claims.

Ultimately, the licensed business owners are responsible for their actions and required by law to reimburse the surety company for any payments made under the bond or face indefinite license suspension.

Motor Vehicle Registration Bond

Motor Vehicle Registration bonds, also called service bonds, must be issued by an insurance carrier admitted by your specific state. The insurance company issuing any surety bond is referred to as the “bond company” or “surety company”. The trucking company business is called the Principal, the bond company is known as the Obligor and the State Department of Motor Vehicles is the Obligee.

In the event that the Principal violates licensing law, the bond pays the vendors, employees, and customers financial damages up to the amount stated on the surety form. The purpose of this bond is providing the shippers with a guarantee of them receiving their payment from the trucking company.

U.S. Customs Bond

U.S. Customs bond is a financial guaranty between 3 parties: the Principal filing the bond, the Insurance company issuing the bond, and Customs & Border Protection (CBP). The bond is a guarantee to Customs & Border Protection that they can seek financial compensation up to the bond amount in the event that they aren’t able to collect money due from the Principal. The bond indemnifies the surety company, which allows them to collect from the Principal any money that was paid to CBP on the Principal’s behalf, using any legal means.

Freight Broker Bond

The Federal Motor Carrier Safety Administration (FMCSA) has a requirement that forwarders and freight brokers secure a freight broker bond as part of their freight brokerage licensing process. The bond is meant to protect motor carriers and shippers and the contractual obligations they have with freight brokers.  For example, if a freight broker refuses or delays payment unreasonably, the freight broker bond ensures that shippers and carriers receive compensation.

If you have questions about trucking bonds or any other truck insurance needs, we have the answers. Give us a call today for more information about these forms of coverage.

About Western Truck Insurance Services

Western Truck Insurance Services is much more than a commercial truck insurance agency. Since 1954, we have provided our clients with unparalleled service for truck insurance quotes, customer service, coverage charges, insurance certificates, and more. We are committed to providing our clients with the service to keep their costs to the minimum and their opportunities to the maximum. For more information about our products and services, give us a call at (800) 937-8785 to speak with one of our experts.

Will the Changes to Freight Broker Requirements Impact You?

Bob Holtzman

Brokers and freight forwarders play a valuable role in the transportation industry often acting as the go between for carriers and consumers. They match willing trucks with loads that need hauling and help get goods from one end of the country to the other. Since those doing the shipping are often unaware of the intricacies and difficulties involved in transportation, brokers and freight forwarders save carriers a lot of trouble by helping ensure everything is ready to go. As any busy trucker knows you don’t have time to spend hours on the phone; brokers and freight forwarders deal with the customer so you can focus on driving (and getting there safely).

The FMCSA recently made changes to the requirements for freight brokers. Will these changes have any impact on you?

Freight Brokers Must Hold $75,000 Surety Bond

Beginning Oct. 1, 2013 the amount of bond a freight broker must hold increases to $75,000, up from $10,000. This is a big increase and will primarily impact small and new brokers. Group surety bonds are not currently allowed, but the FMCSA may revise this after evaluation.

Definition of Broker Changed

Another big change is a change in wording redefining broker as a person that arranges the moving of freight for a fee. The new law specifically prohibits motor carriers from brokering loads unless they are registered brokers. If you arrange for loads to be moved, you must register as a broker, even if it’s just a few loads on the side. Enforcement for this provision might take time to develop as it is difficult to determine how many motor carriers also broker loads.

Motor carriers that want to register as brokers should file an OP-1 Form with the FMCSA. Include your US DOT number, but leave the MC number blank. The FMCSA issues a separate MC number for brokering authority.

Actionable Changes You Can Make

The new laws mean changes for the transportation industry. Here are a few changes you might want to make in accordance with the new laws:

  •  Avoid accepting loads from unregistered brokers.
  •  Register with the FMCSA as a broker if you currently broker loads.
  •  Increase your bond amount if you are a registered broker.

How Will These Changes Affect You?

The full results of this change are yet unknown. It may result in less brokering fraud since it will be more difficult to start up a new operation. Bond premiums will be higher and more difficult to obtain. Freight rates may also increase since the new bond requirements will be more expensive, thus pushing up the cost of transportation. This may also lead to less competition and fewer brokers, especially small brokers. With fewer small brokers large brokers may increase profits and decrease payouts to owner operators. Larger bonds will provide more protection for non-payment. Only time will reveal the full impact of these changes on those across the transportation industry. The one thing we do know however is that these changes will make an impact.

While the FMCSA’s recent changes primarily deal with freight brokers, they will have an effect on all involved in transportation. How do you see these changes impacting you?