Glossary of Business Credit Terms

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Freight Broker Bond

What is a Freight Broker Bond?

A freight broker bond, also known as a BMC-84, is a legally binding contract between a freight broker, a Surety and a government agency that ensures that freight brokers will adhere to FMCSA (federal motor carrier administration) rules. This bond protects shippers and motor carriers from fraudulent activities or failures of freight brokers. Freight broker bonds are a legal requirement for the obtainment of a brokerage authority.

With this bond, the freight broker is the principal, the FMCSA and by extension the carriers and shippers are the obligee, and the Surety is a bond company or other financial institution that offers bonds.

How Does A Freight Broker Bond Work?

Freight brokers are a sort of middlemen that connect shippers and carriers, liaising with businesses who wish to get bulky products to a destination and those who have the means to get the products there. These brokers foster deals between the two parties for the pickup and transportation of freights. They are also the middlemen in the financial transactions associated with such deals, and fraudulent activity or negligence on the part of the broker could result in a loss of money, goods etc.

To avoid this, the Federal Motor Carrier Administration require that freight brokers take out a freight broker bond that protects carriers and shippers from negative repercussions of wrongful actions or inactions of brokers. These actions on the part of the broker could include fraud, non-payment of carriers, misconduct, negligence, and not keeping to industry rules, standards and procedures.

The bond is obtained by a broker before being awarded brokerage authority. If the broker defaults on his/her duties, a claim can be filed against his bond and he/she will be legally required to pay financial damages. If the broker cannot pay immediately, the Surety steps in to pay on behalf of the broker. The broker is then legally obligated to reimburse the Surety. The bond only covers fraudulent actions on the part of the broker; it does not cover loss or damage of goods.

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