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How The Freight Broker Business is Evolving

Posted on January 03, 2018 in Transportation

The freight broker business is evolving into an industry that has experienced tremendous growth. With this growth, has developed the need to train new agents and prospect new accounts. More loads are being moved and more money is being made in this industry. There have developed more liabilities, as a result of this industry growth. These new liabilities have created a greater commission for the agent. New surety bond requirements are, also, necessary. There may be situations with a bond, for example, that could include a collection on the bond surety.


A freight broker is an agent who is licensed independently. The broker status, also, needs a bond, that says that the work will be completed satisfactorily. Other requirements for a freight broker may include a registration and a registered agent for the business. This license allows the agent to take on freight for the business.

One additional source of revenue for a broker may be the excess freight that may come with an order. A shipper may call with a load, but there may not be a truck available to fulfill this order. A broker can send this business to another truck that is able to move this order.


A freight broker may send out the excess freight to another truck in order to save that business and provide the needed service. New freight orders can be filled when they come in. A freight broker and a freight broker agent may perform similar tasks. However, the agent is a subcontractor works under the supervision of the broker. The broker is responsible for the financial aspects of the company, including invoicing shippers and paying agents.

A freight broker agent is paid on commission. The average commission paid to a broker agent is sixty percent of load net. Load net is the difference between what the shipper agreed to pay and the costs for the truck. For example, the shipper has agreed to pay an amount to move a load from point a to point b. The broker agent would have a commission of a certain percentage.

An average broker agent should be producing an amount in load nets per week. A sixty- percent contract is an example of what is paid.

Working as a freight broker agent does not require a license. The agent works under the supervision of the freight broker. To work as an agent, the worker needs a freight broker to contract with them. There is not a requirement for a school nor is there a requirement for a certificate.

Procuring a contract will allow the agent to work for the broker and be paid on commission. There are several liabilities for an agent that should be studied, and there are liabilities for the freight broker. There is a bond requirement for the freight broker that says that the work will be done as expected. The broker has an authority or license and a registration. The broker has a registered agent or processing agent for any court documents that may be relevant.


As an alternative to lines of credit from a bank, a freight broker may use a finance company the specializes in funding freight brokers called "Freight Broker Factoring Companies" to help with their cash flow needs and make sure carriers are paid on time.

Freight Factoring Companies specialize in mostly trucking carriers. There are some factoring companies that will fund freight brokers but may require to pay the carrier from the factored proceeds.


Obtaining a freight broker's license is a process that can be completed, after securing the following:

1) FMCSA requires a broker to either have a $75,000 surety bond or a $75,000 trust fund.

2) a unified carrier registration, and

3) an affiliation and arrangement with a processing agent.


The latest legislation in bonds includes the surety bond. This type of bond is a three-party agreement that assures that the project will be completed as expected. This bond says that the contractor will perform as the contract states and in accordance with the contract documents. Subcontractors may be required to obtain a bond. Under this subcontractor arrangement, the contractor is the obligee and the subcontractor is the principal.

Most surety bond companies are subsidiaries or divisions of insurance companies. Both surety bonds and traditional insurance policies are risk-transfer instruments that are regulated by the state's insurance departments. Surety is created to prevent a loss. The surety qualifies the contractor based on financial strength and construction factors.
The bond is underwritten with little expectation of loss. The premium is usually a fee for the qualification services.


With a surety bond, each party has a responsibility. The principal has the duty to perform its contract. The obligee has a duty to the principal to uphold its end of the contract. Payment is expected in accordance with the contract terms.

The surety has a duty to the obligee to take action under the expectations of the bond, if the principal defaults under the contract. Each party has a duty to fulfill its obligations under the contract. The payment of any sums due under the contract are expectations for the surety that the contract will be performed.

The surety and the principal have duties to each other. The surety must decide if the principal is in default. The surety must abide by the terms of the bond and any agreement of indemnity. Each party must cooperate with any questions about default. Collection or reimbursement may be appropriate for any losses incurred due to any default of the broker or agent.


The Miller Act of 1935, or the Heard Act of 1893, says that a performance and payment of bonds is mandated for all federal public works in excess of $100,000.00. In most jurisdictions, a bond is required on public works over a certain amount. Many general contractors require their subcontractors to have bonds. These bonds protect them from contractor default. Most states do not require bonds on private construction projects. Some owners, however, require these surety bonds to protect their project and assets.

Most surety companies distribute surety bonds through an independent agency system. When a contractor or subcontractor needs a bond, the first step is to contact a surety bond agent. The agent receives power of attorney, and the agent can sign bonds on behalf of the surety company. Projects that fall within acceptable ranges can be signed for. The attorney-in-fact is the holder of the power of attorney.


When a claim is made on a bond, the surety must look into these questions of contractor default. The principal must cooperate with the surety and provide the information necessary for the surety to make a decision. The surety will begin by looking into the validity of the bond and whether the legal procedures have begun properly. The contract will be examined to determine if there were any material changes in the application of the contract. Gross over payments will be noted. If the obligations have not become invalid, the surety will identify its procedures:

1) providing assistance to the contractor,

2) arranging for the contractor to be replaced,

3) re-bidding the project in order for it to be completed, and

4) paying the fine set for the bond.


Enforcing a party's rights is one commission of an insurance company. The surety must have made a payment to a third party in order to exercise its rights. If the party declares that the contractor is in default, then the surety completes the contract. The surety has rights to any excess funds. The principal must reimburse the surety for any losses incurred due to the principal's default.

If the surety determines that the allegation of default is wrong, the insurance company and policy owner will oppose these claims. In addition to its legal rights, the insurance company has a protection against any loss through the general agreement.

When an insurance company guarantees the performance of the policy owner to the other party, the policy owner remains legally bound. If the insurance company remains obligated regarding the original duties, the policy owner remains legally obligated for the contract performance.

Most insurance companies will require an agreement that will legally bind the policy owner, and this agreement needs to be signed by the purchasing company. This indemnity agreement will, also, be signed by individuals willing to support the purchasing group. These individuals may be the owners, the spouse of the owner, a parent or umbrella corporation, or other persons that can confirm the information written in the original insurance contract. Under the bonding agreement for the company's workers, the business company and all other entities that sign may be asked to back up the payments for default on the owner company's behalf.


There may be three basic bonds on a project:

1) the bid bond,

2) the performance bond, and

3) the payment bond.

The bid bond says that the contractor will enter into a working contract and supply any additional contracts that are necessary for the company to be a working company. The performance bond says that the contractor will carry out the duties of any contract entered into, and that these duties will be performed at an industry standard of performance. The payment bond indicates that a direct claim for subcontractors is possible, after the subcontractor has placed in an invoice for services performed. Each of these bonds has legal claims that can be collected on by its subcontractors.


Being paid as a freight broker may involve a bond claim. In situations of non payment, a shipper may be able to collect on the bond agreement, for example. A carrier may collect on a freight broker bond, if there has not been a payment.

Any subcontractor who submits a bill to the contractor may use this arrangement, in order to assure that the agreed upon payment is made. The subcontractor may, also, want to be sure that the contractor or freight broker has entered into the contract, if awarded. A bid bond will assure the subcontractor that the work will be there, if the bid is accepted. The performance bond ensures that the contractor will not default and just walk away from any obligations that have been agreed upon. Someone else will be there to perform the work and should reaffirm the subcontracts. There should not be a need to rebid the work under the public bidding laws.

The payment bond has an obvious legal value to subcontractors or freight broker agents and brokers. If a contractor fails to pay for work performed by subcontractors, those subcontractors have a direct claim against the bond for any monies that are due. The subcontractor does not have to obtain its money from the policy owner, but can work directly with the insurance company. This direct right of claim is especially valuable on a public project where a subcontractor cannot file a lien against the work.


The rights of subcontractors and freight broker agents are critical in order to assure that the company will meet all of its obligations. If the liabilities are not addressed beforehand, then the company may not be able to quickly resolve any problems that may arise during the course of a delivery.


The freight broker is a part of an industry that is evolving and growing. Transportation is needed on an even greater scale today, as new products and services are being delivered at an even faster pace. Finding a way to broker these goods and services with skill and thoroughness is the unending task of the freight broker. There are many obligations that may arise during the course of any transportation. Finding the right subcontractors to deliver these goods and services is critical. Dependability is often the main quality needed for a subcontractor or freight broker agent.

There are several areas of liability that must be addressed. Making sure that a job is honestly bid on is important. Performing the tasks needed is expected. Paying the subcontractors is essential for the business to continue. If an issue does arise, then there are measures that can be taken to collect on any payments due.