Earlier this year, the FMCSA published a proposed rule that would expand the financial security requirements for freight brokers and forwarders, as well as increase penalties if those parties fail to comply with provisions. The rule impacts bonds or trusts that are required to provide financial security to trucking carriers and shippers. This rule would fall under the Moving Ahead for Progress in the 21st Century Act (MAP-21), a 2012 law that increased the financial security requirement for freight brokers and established a financial security requirement for freight forwarders for the first time.
Under existing rules, freight brokers and forwarders must provide evidence of financial responsibility before they can get operating licenses. They must either post a $75,000 BMC-84 bond or deposit $75,000 in a BMC-85 trust. Since this is a condition of licensing, prospective brokers and forwarders can’t obtain licenses without first either posting a bond or opening a BMC-85 trust. Brokers and forwarders must also maintain their surety bonds or trusts and renew them every year.
Most freight brokers and forwarders opt to post $75,000 BMC-84 bonds instead of opening trusts. This is because depositing $75,000 in a trust means that the broker or forwarder won’t be able to access the funds to use for other operating needs. With a bond, they can instead post a small percentage of the required amount based on their credit standing and financial stability. If brokers or forwarders allow their bonds to lapse, their operating licenses will be suspended. The bond or trust is required to provide financial security to the shippers and carriers that do business with the brokers and forwarders. If a forwarder or broker violates the law or engages in misconduct, a carrier that suffers losses can file a claim against the broker’s or forwarder’s BMC-85 trust or BMC-84 bond to recover compensation up to the maximum amount of $75,000.
Bond claims are investigated and validated before they are paid. If a surety determines a claim is valid, they will pay it. However, the bondholder will be required to repay the surety in full for a validated bond claim because of an indemnity agreement. If they fail to pay a bond claim, the surety can pursue legal action against them and recover both the claim amount and any legal fees incurred. Brokers and forwarders are supposed to reimburse BMC-85 trusts to bring them back up to $75,000 following valid claims. While reimbursing a surety company or a trust for paid claims is required, some brokers and forwarders fail to do so on a timely basis.
The existing rules also cover how claims against brokers that exceed $75,000 are handled. In those situations, the surety typically files an interpleader action in court to have the funds from the bond allocated between the claimants. This process can be time-consuming and costly for trucking carriers. The proposed rule would make changes to address these problems. The new rule would require brokers and forwarders to repay surety companies or replenish the funds in their BMC-85 trusts immediately following valid bond claims and payments. Any broker or forwarder that fails to maintain $75,000 in financial security would have their operating licenses suspended if they don’t bring their security levels back up to $75,000 within seven days following any type of account drawdown.
The proposed rule could also eliminate the need for the interpleader process when multiple claims are filed by different parties against a single broker. Since the broker would have to immediately replenish the funds for the surety bond or trust account, these newly deposited funds could then be used to cover additional claims when they total more than $75,000 in aggregate. As each claim is paid, the broker would then have to deposit additional amounts or re-up their bonds to cover other valid claims. The proposed rule is currently going through the rulemaking process based on an analysis of comments from stakeholders on the proposal, and it could be modified before becoming a final rule. If the rule as outlined in the proposal is made permanent, it will incentivize freight brokers and forwarders to avoid bond claims by ensuring they comply with the laws, regulations, and contractual obligations that apply to them.
Moving on to another topic, global logistics company C.H. Robinson has automated the process for motor carriers requesting cash advances, making it more efficient and effective for them to get paid while on the road. This used to be a manual process. Now, carriers are able to instantly request 60% of their payment 24/7 with the tap of a button through the Navisphere Carrier App. Carriers are paid instantly after they’ve confirmed their load has been picked up.
In today’s market of declining rates, high diesel prices, and overall cash flow being squeezed, motor carriers are increasingly looking for convenient and quick access to payments and advances. By automating the cash advance process, C.H. Robinson not only provides quick cash flow, but has created a more user-friendly experience, ultimately saving carriers time. Carriers that request a cash advance get a code immediately delivered to their mobile phone or device, enabling them to receive digital payment within seconds.
C.H. Robinson has also automated the process for signing up for Quick Pay, which used to require filling out a PDF form. “We are always looking for new ways to leverage technology to better the carrier experience,” said Cody Griggs, director of enterprise product management. “We all know that the last few years have been really challenging due to market conditions. By making it easier and faster for our carrier partners to access their money, we are adding another layer of efficiency and convenience for the trucking community. We listen to the needs of our carriers so we can continually innovate and introduce new ways to support the valuable work they do.”
I encourage you to keep reading my columns, and all of 10-4 Magazine, to keep up to date on what’s going on in the transportation world. If you have questions or want information about becoming a member of NTA, call me at (800) 805-0040 or visit www.ntassoc.com today. As they say, membership has its privileges, and you will not regret joining our association. As always, “Drive Safe – Drive Smart!”