08/19/2011

Increased Surety Bond to Fight Fraud In Transportation

US Congress SealA bill introduced in congress, HR 2357, is an attempt to bring order and increase effectiveness of  the Federal Government in overseeing the transportation industry.  The bill addresses several pressing issues that will change the way shipments of cargo like automobiles, produce and general freight are transported. This bill is primary targeted toward freight brokers and freight forwarders, with the intent to protect shippers and carriers. While the bill reaffirms the important role brokers serve in the transportation business, it makes drastic changes to the status quo.

The first provision will restrict motor carriers (owners and lessor’s of actual tractors) from being to able to broker loads unless they are registered as a broker.

The second provision changes the eligibility requirements for brokers by requiring the following prior to obtaining a license:

  • 3 years of relevant experience
  • Mandatory certified training
  • Minimum surety bond of $100,000, an increase from today’s $10,000 provision
  • License renewal every 5 years
The most significant addition to the bill is the $100,000 bond and provisions that change the way claims are handled. Currently a broker is required to furnish a $10,000 to protect carriers in case of insolvency. This amount is far too small in most cases and provides practically no protection. In 2008, when a large amount of brokerage firms went bankrupt, carriers were left with almost nothing because of such small bond requirements. The surety, or bond company, will also be required to publicly advertise and solicit claims for 60 days after the declared insolvency as well as make it harder for surety companies to deny claims.  The last provision will increase enforcement by assessing penalties. A penalty in the amount of $10,000 will be charged for each violation and unlimited liability to all principals involved to compensate injured parties.

This bill has bipartisan support and is currently in a house subcommittee. A similar bill was introduced last year but was not brought up for a vote.

Opponents of  the bill claim that it will raise the costs of doing business for small brokerage that will have a hard time obtaining $100,000 bonds, as well as lead to increased shipping costs. This bill has the support of Transportation Intermediaries Association (TIA) and the American Tracking Association.

Author: Alex Marinov

Alex Marinov is the president of RCG Logistics LLC, with years experience in the shipping and freight industry. His main interest include sustainable building design, video production and automobiles.