Trucking community buzzing with the new freight broker bond requirements

The freight brokerage business faced a deadline that made many people uncertain about the future. In July 2013, a new transportation bill known as Moving Ahead for Progress in the 21th Century (MAP-21), was signed into law. It stipulated that starting from October 1, the freight broker surety bond required for operating all aspects of the business will increase from $10,000 to $75,000.

There is a 60-day grace period for final arrangements, if needed, but if you are part of the business, do not delay. The main reasoning behind the drastic hike is that the higher amount will prevent fraud. Supposedly, it will protect motor carriers from delayed payment, or non-payment, as well as other unfair practices.

Behind this consideration, however, there are some important questions that remain unanswered. Will the amendment close down many honest and hard-working small brokerages? The full impact of the new bond requirement will become clear only months after it has come into effect.

Highways Agency / Foter / CC BY

A scroll through blogs and forums revealed quite mixed feelings about the increase. One general fear permeates them, though – the belief that many small and mid-size enterprises could be forced out of business.

Some people argue that the Bill was backed by lobbyists who want to push out small businesses viewed as needless competition, rather than to curtail fraud. Some pointed out that, for big players with hundreds of offices and billions in annual revenue, $75K will be small change. Whereas, for those intending to enter the freight brokerage now, it could be virtually impossible to scrape up the money.

On the other side, the Bill was supported by the Owner-Operator Independent Drivers Association (OOIDA) and the Transportation Intermediaries Association (TIA) – entities that usually act in the interest of small business truckers and third-party logistics professionals.

How will the new freight requirements resonate within the trucker community? It remains to be seen. The trucker forums, however, where small operators discuss the issue, buzz with disappointment and disbelief. Their disappointment is directed mainly at OOIDA because the organization had been pressing for the bond increase over the past few years, encouraged by some of its members with a wider scope of operations.

One forum writer involved in the trucking business says that he contacted OOIDA about its support for the legislation. They responded that the organization was trying to look after the many members who haven’t been paid by brokers. Furthermore, he claims that in his close to 30 years in the business, he had been cheated only once. Word of the wise: if you are using a new broker, check them out first, ask for your money up front, when in doubt.
Some operators in the trucker community tell of having received, for example, $5K checks that bounced, or payments being made for years, $50 a month, long after the services had been delivered. However, no major collection problems would occur if you know who are you dealing with.

The consensus? Increasing the freight broker bond was a bad idea. “I really don’t understand why some would invite more government intervention into their business,” one business owner remarked. The feeling seems to be that the new bond requirement will limit competition and raise entry requirements to the point that only large brokers will stay in business. If common sense and caution is applied more often, there would be less room for fraudulent practices, according to some truckers. That in itself negates the need for a higher bond because everyone should be responsible for protecting their own business.

Some seasoned participants of the forum discussion say that many will take any loan offered by any broker without checking their credit or references. When you do business with a shipper or broker, you bill them for the services provided and in a way extending them credit. Wouldn’t you bother to check their background? “When they don’t get paid, then they cry to the government to come in and save them,” commented one business owner.

Room for Optimism  

Despite the fact that the future prospects for some in the business look bleak, others are optimistic that the higher freight bond would actually eradicate bad practices.  For sure, it would discourage fly-by-nights from entering the world of freight brokerage. Also, the new requirements could be stimulating for small operators to display higher professionalism and truly commit to this line of work.

Furthering the fear of the “Mom & Pop” Brokerage was that when the legislation passed it appeared most sureties would be unwilling to write this new higher risk due to the claim levels at the $10K amount, and those that would write it required collateral. But as the 10/1 deadline approached the surety market softened and now almost every freight broker has a collateral free option.