Are you the owner of the cargo and don`t know how to securely make a deal with the shipping company? In this case, a freight broker bond and the services of the specialist himself are a must-have. But what is the meaning of this document? And how must it be formatted? Let’s understand it together!
What Is a Freight Broker Bond?
So simply put, a freight broker bond is an agreement that is serves to prevent fraudulent activities on the part of a freight broker. The importance of this paper is that the issuer of the bond guarantees that he will shoulder all his responsibilities without further delay.
Thus the bond protects cargo owner from losses and gives a guarantee to the carrier that he will be paid in a timely manner.
In the event that a broker refuses pay a carrier for work performed, the carrier can initiate proceedings with a view to receive the monies that the broker owes to them. In a result, if the surety reviews the case and it will valid they will pay out the value of the claim (estimated cost a bond) to the carrier. Then the broker would be responsible for the payment reimbursing the surety for the cost of the claim.
How Much Does a Freight Broker Bond Cost?
In general, the price of a freight broker bond (named as the bond premium) is a percentage of the $75,000 bond amount. However, this percent isn`t permanent and it will vary depending on the experience and level of expertise of the freight broker.
So freight broker bond cost depends on the following main factors:
- experience and skills in this area;
- fixed and liquid asset;
- current or previous bond requirements;
- business financials.
A company with good financial standing may offer a freight broker a bond worth $1,500 per year. Thus, it will be an advantage for the broker if he lowers the value of his bond and demonstrates his assets and liquidity and by improving his credit.
What Are the Types of Freight Broker Bond?
Before applying for a freight broker bond, a broker should understand what option of it he will choose. Today the most popular way is the BMC-84 bond. However, there is one more method to fulfill that requirement, and that is the BMC-85 trust fund.
The main difference between the two types is that the BMC-84 Bond is managed by surety defined company and the BMC-85 is created with the help of the government.
What Is Necessary to Obtain a Freight Broker Bond?
And now that you know what a freight broker bond is and when it is used in business, it is important to understand the process for getting a bond.
Obtaining a freight broker bond is possible in any insurance agency or firm associated with this industry. Having chosen a firm, the broker provides information related to the contract:
- the name of the owner of the cargo;
- the clear value of the bond in dollars;
- business address and other financial data.
Then the broker must pay a percentage of the freight broker bond up front before the firm will process it. As a rule, payment occurs with a credit card or a check. And its processing will be not more than 24 hours.
The bond needs to be renewed.
It`s important to know that any bond is valid for only 1 year from the issue date. So, timely renewal is required to prevent revocation of the band.
Can a Broker Get a Freight Broker Bond with Poor Credit?
Bad credit history does not prevent you from getting a bond. However, it must be taken into account and in this case the cost will be higher.
In general, brokers with a credit score below 650 and they haven`t got any credit history are considered high-risk candidates. Thus, this is the reason for the variation of the rate with a bad credit history from 5% to 12%.