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Freight Broker Surety Bond Increase is Bad Legislation

Feb
29,
2012
2

Professional truck drivers are no strangers to fraudulent business practices within the trucking industry.  From the industry self-made driver shortage to the trucking company lease purchase deception, America’s long-haul truck drivers have very few true advocates on their side.  With that said, motor carriers can also fall prey to the many scams that exist within this industry, with one of the largest being from fly-by-night freight brokers.

Freight brokers have long been a point of sore discussion within trucking due to many motor carriers and owner operators failing to receive payment for their services.  In order to operate as a freight broker, a bond is required by the FMCSA in order to legally operate as a transportation broker.  Freight brokers match shippers with trucking companies which in turn, transport the goods.  Once completed, the motor carrier receives payment for their services from the broker.  The only problem is, that many times, the carrier is never paid due to the broker having actually been a fraudulent business.  A very large number of trucking companies and owner operators have gone out of business due to uncollected payments from brokered loads.

A surety bond is a “promise” to pay the company or owner operator a certain amount of monies for their services.  If the broker fails to pay, the hauler can then file a claim against the broker’s surety bond in order to receive compensation.  Currently brokers are required to have a $10,000 surety bond but when the broker turns out to be a fraudulent or fly-by-night scam business, the hauler is left empty-handed.

Because of this serious problem among trucking freight brokers, a new bill was introduced in June, 2011 known as the Fighting Fraud in Transportation Act of 2011.  The bill proposes to raise the amount of the surety bond from $10,000 to $100,000 with the reasoning being that the increase would combat against fraudulent broker businesses such as shady freight brokers and on-line load board scams.  The “thinking” behind the bill is if a want-to-be transportation broker can not afford the $100,000 surety bond, then they must be a scam.  This reasoning would prove to be the foundation for many smaller, good, honest and legitimate freight brokers to close their doors and go out of business.

Although the $100,000 surety bond would not have to be secured in full, normally 10% would be and the rest would be financed through monthly payments.  Currently, to finance the $10,000 surety bond would cost the broker about $250 per month in payments.  Should the bond be raised to $100,000 then the would-be-broker would have to come up with $10,000 down and finance the remainder at approximately $2,500 per month.  For a smaller broker who’s average carrier pay is $750, the financial strain becomes enormous.

There are already governmental laws in place to fight against such fraudulent business scams within the trucking industry, but the problem is that the laws are not being enforced.  Their solution to this problem is to create more government regulation for an industry that is already over-regulated.  There is no doubt that these scam freight brokers cost the industry billions of dollars per year, but placing further financial hardships on those brokers who do operate a trustworthy business is simply bad legislation.

Dan Metully of Transport Watch

Dan Metully of Transport Watch

Dan Metully, founder of Transport Watch, a company fighting fraud in the transportation industry as well as promoting legitimate trucking businesses, and owner of Truck Freight, Inc., believes that the $100,000 surety bond requirement could possibly put some bad brokers out of business, but depending on how the proposed bond is implemented, would put a “great many more good ones out of business as well.”

He explains:

“We are a small brokerage, currently employing the services of seven independent agents. These agents depend on the relationships that have been established over time between our brokerage and their customers and carriers. All this having been said, if someone told me tomorrow that I’d have to come up with an additional $90,000.00 to satisfy a bonding requirement, I believe you could imagine how this could potentially present me with an acutely insurmountable problem. Would it be proper to possibly put me out of business based simply on the fact that my brokerage is not large? By whose measure does my organization hold less value in the industry? Should carriers be required to run a certain number of trucks in order to be allowed to be considered viable?”

Bigger is not always better and in the case of adding more regulations to an all-ready over-regulated industry, the smaller brokerage firm which is operating in an ethical and moral standard, stands to lose their business because of other defrauders within the trucking industry.

Mr. Metully adds: 

“At the end of the day, I believe that good communication can solve most things, but again, we all need to be willing to stand and be counted. We all need to be a part of the solution. Most of all, we all need to understand that if we do what we can to protect each other as participants, we’ll also protect ourselves. The government will do as it pleases in regards to bonding requirements, but please be willing to see the damage that this legislation might cause. Be mindful of those honest people that will be effected by an overly aggressive approach.”

© 2012, Allen Smith. All rights reserved.

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By: Allen Smith

Allen Smith is a 34 year veteran ( started at an early age in family moving business) of the trucking industry, many of those years spent over the road. He has been an owner operator, company driver, operations manager, and has owned and operated a moving company, taking many of the long haul moves himself when needed. One thing though that most will say is that the reason and motivation behind the author, Allen Smith, is the fact he is driven by the desire to help others succeed within an industry where injustice, unrewarded sacrifice, and lack of respect and recognition exists. As you read many of the blog posts you’ll discover that he is opinionated and speaks openly about the ongoing issues of the trucking industry. He supports other fellow advocates who are also stepping up to the plate to help those who are in need of honesty, guidance and direction. The list of supporters and like minded people grows daily and their ability to network together and share their thoughts and ideas for the betterment of others within trucking, has allowed the forward movement of... "Raising the standards of the trucking industry"

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2 Responses to Freight Broker Surety Bond Increase is Bad Legislation. - Post a Comment

  1. Gerald Drain

    Its getting close to having to pay for the bond. I use truck stop.com and they are offering the bond at $7000 a year as my credit with them is good . Im a grade A and pay in 21days to the trucks I use . Have you heard of any cheaper prices for the bond.
    I was going to close my business but some income is better then none. Im on Social Security now and can make $14,160 a year before it affects my S.S. Real hard to fork out $7000 so I can make $14,160. I had a great Janurary and Feburary so I have the Bond money.

  2. Lamon Warnock

    Gerald, If the credit is good we can do the bond at $1,838. We have a preferred rate of $938 but that would require stronger company financials. However, the rate of $1,838 is based on personal credit and experience only. We do not need any financials for the rate of $1,838. http://www.bmc84bonds.com or call me at 866-546-4605

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