Legal Requirements for Becoming an Authorized Freight Broker

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Obtaining Your AuthorityIn order to be a Licensed Freight Broker there are several things that need to be done. Don’t be intimidated by this list, it is a relatively simple process. There are services that charge hundreds of dollars to do this list of things for you. If you read through this and still don’t know what you’re doing that’s okay, thankfully that’s what we’re here for!

These are the things that need to get done before you can even think about brokering a load.

Obtain Your General Business License

In order to get your freight brokerage started you will have to register your business with the state you live in and choose a legal structure that suits your needs.

Each state has a slightly different way of issuing new business licenses, start by visiting your state’s website to apply. You may be able to register with the SOS online, through a local county clerk’s office, or by contacting your city’s licensing and inspections department.

Get a Federal Tax-ID Number (FEIN)

We recommend doing this right away to help protect your Social Security Number since you will be sending a W-9 to your new customers, don’t run the risk of having your identity stolen.

Also, you’ll need this Federal Employer Identification Number in order to start taking on employees in your brokerage! Your SSN or Tax-ID number is going to be on any 1099’s that you send out at the end of the year.

Apply for your Authority with the FMCSA

Brokers must register with the FMCSA by submitting an application, Form OP-1: Application for Motor Property Carrier and Broker Authority. There is a non-refundable fee for submitting your application so make sure that you fill it out correctly the first time.

We walk students through the online application (and everything else) in our Freight Broker Training Course. You can register online, by mail, or by requesting the form by phone. The applications take approximately 4-6 weeks to process.

Get Your Surety BondYou need a bond for your freight brokerage so that the shippers and carriers that you work with are protected in case you fail to pay any invoices from a motor carrier.

Freight Brokers are required to hold a Bond in their name for the amount of $75,000. Don’t freak out; that is not necessarily the price tag!

There are two options for obtaining a $75,000 Freight Broker Surety Bond; formerly known as an ICC bond, a transportation broker bond, a truck broker bond, and/or a property broker bond.

Surety Bond Option 1: BMC-85

The first option is a BMC-85, which is a trust fund account that you deposit $75,000 into. The money is not a liquid asset for your business, although you do get to take the money back out if you stop brokering freight.

Surety Bond Option 2: BMC-84

The second available option is a BMC-84, this surety bond is a form of surety credit to you which only costs a small fraction of the total bond amount (annual payments of 1.5% to 3%). The exact rate that you pay is determined by your personal credit and financial experience. The BMC-84 is a great option for most people because there is no need to post any collateral, freeing up working capital and improving your liquidity.

Remember to turn in a personal financial statement with your application to get a better rate!

Contingent Cargo InsuranceFreight Brokers carry contingent cargo insurance (a common amount of insurance covers $100,000 in loss or damage of cargo) to insure them against claims made by shippers for damage to cargo. Contingent cargo insurance comes into play when the carrier refuses or is unable to honor a claim. Shop around, get quotes, and compare policies before committing to an insurance company for your business.

Form BOC-3Form is to be filed with the FMCSA by either a Process Agent or the applicant. Just one form may be completed and on file. A designated Process Agent is a representative upon whom court papers may be served in any proceeding brought against a motor carrier, broker, or freight forwarder. The form includes ALL states for which agency designations are required. Brokers must also keep their own copy on file.

United Carrier Registration (UCR) Agreement

A United Carrier Registration Agreement (UCR) must be on file for all individuals or companies (private and for-hire) who use commercial motor vehicles to provide commerce across state lines and/or internationally.

Brokers pay this fee too, fortunately the annual fee is based upon fleet size (non-asset based brokers pay the minimum amount). You can register with your state UCR online.

Standard Carrier Alpha Code (SCAC)

This is optional but strongly suggested.

Often referred to as a “SCAC Code”, it is a unique code used to identify transportation companies. Typically a two to four letter code, it was developed by the National Motor Freight Traffic Association to help compute transportation industry data and records.

We recommend having your own unique code because in order to work with some shippers/customers a SCAC is required. Customers including, but not limited to, commercial shippers in automobile, petroleum, forest products, and chemical industries as well as retail businesses. The big money accounts.

There’s MORENow would also be a good time to open a business checking account with your bank, check with your bank to make sure that you will be able to send and receive ACH payments.

It is important that you understand how to be a freight broker on a day-to-day bases before you start setting up your own Freight Brokerage. You can visit LogisticsAcademy.org if you have any questions!

These are just a few of things that you need to do “on paper”