If you’ve been in the freight brokering business for a while, you probably remember the autumn of 2013. Back then, the Federal Motor Carrier Safety Administration (FMCSA) introduced a new freight broker bond requirement, which increased the bond amount from $10,000 to $75,000 and meant big changes for the industry.
Because of this change in bond amount, many freight brokers had to either upgrade their bond limit or get a completely new bond altogether around October 2013. Since most bonds are written for annual terms, a majority of the industry undergoes the freight broker bond renewal process around October each year in order to remain in compliance with the FMCSA.
This means that, in the months to come, thousands of brokers will be renewing their bond policies to meet their licensing requirements. You can count on a few months of bond shopping fever!
To give active freight brokers a better idea of what to expect this fall, let’s look at the upcoming renewal period—plus some tips on how to lower your bond costs this season.
The Freight Broker Bond Renewal Period in 2015
As explained earlier, because of the FMCSA freight broker bond change two years ago, many brokers had to get the new $75,000 bond around October 2013. For those who met the new bond requirement by the original deadline, this automatically moved the bond renewal period for them to autumn of each year.
According to freight expert Michael Curry from My Carrier Resources, in January 2014, there were 13,565 operating brokers. It would be a good guess that many of them renewed their bonds in the autumn of 2013 in order to stay in business, while others joined after the bond increase.
As of June 2015, there are 15,633 active brokers and it can be expected that a part of the newly joined ones also need to renew their freight broker bond in autumn.
On the basis of these numbers, it can be expected that anywhere between 7,000 and 13,000 freight brokers will be renewing their bond in the next few months. This will be a legitimate broker bond shopping spree!
The Changes in the Industry since the Autumn of 2013
To place things into perspective, let’s rewind back to 2013. With the signing of the MAP-21 bill, freight brokers and forwarders were required to post a much higher BMC-84 bond than before. The increase was from $10,000 to $75,000, which was a significant change—and the first one since the last bond amount change in the 1970s.
Some of the brokers who were active back then couldn’t meet the new requirement, so their authority was revoked by the FMCSA. According to industry experts like David Dwinell and Dennis Brown, this had a strong effect on the business. From a positive point of view, the change increased the standards in the industry, making it safer for shippers to do business with brokers, as the unethical ones quit the field.
Two years later, the results of the FMCSA bond increase are considered as rather positive. The overall financial stability in the industry improved, as freight brokers are held to higher financial standards. The average credit score of new brokers is higher, as the requirements are stricter. The market is less competitive, so it’s also a good opportunity for new brokers to join the business.
How to Lower your Freight Broker Bond Renewal Costs this Season
The tried and true way to lower your bond costs during this surety bond renewal period is to take good care of the financial statistics of your brokerage. According to industry expert David Dwinell, the best trick for a cheaper bond is maintaining a perfect credit score—and we have to agree.
As noted earlier, the trend in the industry is that new brokers are boasting higher credit scores, so the industry financial averages are rising. When you apply for a bond, the surety looks at a set of business and financial stats, including your credit score and professional experience. In this way, it assesses the risk of bonding your business and guaranteeing for your brokerage in front of the FMCSA.
The higher your credit score is, the easier and cheaper it is to get bonded, as you are not seen as a high-risk applicant. You can also work on removing any liens, judgments or other negative items in your credit history. When applying for your bond renewal, make sure to clearly showcase your finances and business successes, so that your business’ image is as positive as possible.
With this freight broker bond renewal overview, hopefully you have a clearer picture of the upcoming renewal season—and an easier time getting your bond. As always, it’s a good tip to start your renewal as early as possible in order to avoid any potential delays because of the thousands of brokers undergoing the same process.
If your freight brokerage stayed in business after the freight broker bond increase in 2013, did it affect your financial stability? If yes, how did you manage to overcome it? We’d love to hear your thoughts in the comments below!
Vic Lance is the founder and president of Lance Surety Bond Associates. He is a surety bond expert who helps freight brokers get licensed and bonded. Lance graduated from Villanova University with a degree in business administration and holds a Masters in business administration (MBA) from the University of Michigan’s Ross School of Business.