By James Lee, V.P. Legal Affairs, Choptank Transport
Shippers Need to Ask ...
Many of you probably remember the Capital One credit card commercials featuring Alec Baldwin, the rowdy group of Vikings, and others where the tagline of the ad is, “What’s in your wallet?” With the recent passing of MAP-21, effective December 1, 2013, Brokers are now required to have in place a surety bond equal to or more than the amount of $75,000. With that date already surpassed, shippers and receivers should be asking themselves, “What amount does my broker have?”
Going forward from that date, any broker that does not have the surety bond for at least that amount will have their Brokerage Authority revoked by the Federal Motor Carrier Safety Administration (FMCSA). While no one has the exact figures, a recent article stated that the FMCSA has already revoked the authority of some 8,180 brokers since December 2. The article went on to say that this figure represented 38 percent of the 21,700 brokers that had operating authority at the end of November. Not all of these are due to the increase of the bond amount, however. Some of these revocations are the result of attrition or the legitimate exiting of brokers who no longer wish to remain in business, while some are the result of those who only occasionally brokered freight and who now wishes to concentrate on their core business, which is operating as a motor carrier, rather than a Broker.
The $75,000 surety bond requirement can be satisfied in different ways. One way is for the broker to deposit the full $75,000 amount in a bank trust account or with a credible trust administrator (key word being “credible. In recent years, there have actually been companies who provided these trusts, but did not maintain the balance sufficient to pay claims filed against the trust). The trust is then administered by someone who is a neutral party to the transactions, and pays legitimate and proven claims to shippers or carriers for the broker’s nonperformance.
The other method is for a broker to satisfy coverage through the purchase of a financial instrument similar to that of an insurance policy. The broker pays a premium (just like an insurance policy), and this instrument would provide for the payment of the claim, if one ever occurred. The cost of the premium, itself, varies dependent upon the actual amount purchased and other certain criteria met by the broker.
Regardless of the actual amount or which way the obligation is satisfied, shippers and receivers alike need to verify that the broker(s) they are using to cover their transportation needs now have the correct amount of coverage in place. If not, then it is just a matter of time before the authority of the non-complying broker is revoked, and the broker is out of business leaving the shipper or receiver at a loss.
Choptank Transport goes above and beyond the current $75,000 bond requirement by holding a $250,000 surety bond, demonstrating a true commitment to our customers and our business.