While there isn't a unified Federal Motor Carrier Safety Administration bond renewal deadline for all brokers, the legislative changes from 2013 have made fall the freight broker bond shopping season for the bigger part of the brokering community.
To meet the October 2013 legal deadline for obtaining the new bonds or its extension to December 2013, most brokers had to either get new bonds or upgrade their bond limit to the higher bonding requirement introduced then. Since most bonds are written for annual terms, the renewal process for plenty of people in the industry falls exactly around this period of the year. When it comes to the renewal period, there are a few best practices.
Besides looking at the renewal period, which is in full swing now, it’s worth reviewing the freight brokerage business and its general current dynamics. The industry has been going through interesting changes in the last years, and new opportunities emerge for fresh brokers to join the brokering business.
Bouncing back from the bond increase
2013 was a decisive year for the industry. The MAP-21 bill, signed by President Obama in 2012, introduced a game-changing new rule which brought the required BMC-84 freight broker bond amount from $10,000, set in the 1970s, to a shattering $75,000. The repercussions of the new law can still be felt today.
One of the changes was that – since brokers had to obtain the new bond in the fall of 2013 in order to stay in business – this moved their renewal deadline in the fourth quarter of the year.
That’s why freight brokers are currently on a hunt for the best bonding rates, and since thousands of them will be renewing their bonds, delays in the bonding process are possible. Anywhere between 7,000 and 13,000 brokers – between 45 percent and 83 percent – are expected to renew their bonds in the coming months.
The new brokering environment
The introduction of the new legislation also meant that brokers would have to pay much higher bonding premiums if they wanted to keep their license with the FMCSA. This had a profound effect on the industry because it drove thousands of brokers out of business in 2013. The ones who could not afford to pay for the increased bond – or did not agree with the changes – had their brokering licenses revoked. By March 2014, 7,500 brokers had stopped working in the field.
While the process was definitely a painful one, industry experts believe it ultimately had a positive effect on the overall status of freight brokerage. Some brokers, who did not uphold the best practices in the field simply left, providing more opportunities for diligent ones.
This also led to decreased competition, which opened new doors for fresh brokers to enter the business. In general, now is a good time to start brokering, as the industry is in good shape and offers good options for a strong start.
Freight expert Michael Curry, from the publication My Carrier Resources, reports that in January 2014, there were 13,565 active brokers. The number has been steadily growing since, and in June 2015 there were 15,633 brokers, which shows a 15 percent increase. While this is a positive sign, there is still a shortage of brokers and there are plenty of opportunities for newcomers.
The brokering business is changing
According to freight brokering training experts like Dennis Brown and David G. Dwinell, today the standards in brokerage are higher than before the bond increase. This means a more stable and trustworthy industry – a basis for good future development, and for improved relationships to shippers and carriers.
Most brokers have a better credit score and stronger finances, which are needed in order to reduce the freight broker bond price they need to pay to stay compliant. Newcomers naturally have to meet these higher standards and follow the improved practices in the field, so that they can fit in the new setting.
In general, a large portion of brokers today strive to improve their finances and avoid getting bonded with bad credit, as the premium then can reach as high as $9,000. When a broker applies for a bond, the surety needs to run a thorough examination of the business. This includes the personal credit score, as well as an array of other factors such as the overall personal and business finances, the solidity of management and the prospects for development. Taking care of these aspects brings brokers stability and guarantees decreased bonding prices.
Every bond renewal gives an opportunity to brokers to showcase strong financials and business stats and thus lower their bond costs. As industry expert Dwinell says, a perfect credit score is the key to saving on the bond renewal.
Positive perspectives ahead
Some people in the industry are worried that the stricter rules are also placing brokerages at risk of being driven out of business because of lower credit scores or worsened finances. However, the current situation shows that all in all, these new conditions are actually beneficial for the rejuvenation and solidification of the freight broker industry.
With such a positive trend, it’s likely that more and more knowledgeable and trustworthy brokers will join this important and lucrative business. According to the experienced broker Chester Starling Jr., we should see more and more brokers with solid education and good experience entering the field. The financial gain is certainly an attractive force that will bring new faces in the industry, as the average broker salary in 2014 was $43,960, with experienced brokers earning up to $90,000 or more.
Freight brokering has certainly gone through a few tough years, but the industry is back on its feet with fresh new brokers, higher standards and improved quality and security of the services. It’s definitely a good time to start your path in brokerage or if you’re already in the business, to make sure you get the best from the new broker bond renewal period.
Source: Lance Surety Bond Associates
Timely, incisive articles delivered directly to your inbox.