A freight broker license is necessary for anyone who’s planning to get into the business of hauling and transporting products.
5 Challenges of Getting Freight Brokers License
As a licensed freight broker, you’d be tasked to act as a middle person connecting shippers with various carriers.
Shippers hire freight brokers to haul their goods from one point to another, but the latter doesn’t do the hauling by themselves.
As a regulated practice, getting a freight broker’s license can become complicated and confusing, but they come with immeasurable benefits.
Understand how freight brokers work and find out the challenges you’re likely to face if you’re planning to get a freight broker license. Read on.
What Does a Freight Broker Do?
Almost every business organization requires freight forwarders in order to grow and move their business. And freight brokers are tapped by these businesses to address their needs.
As the link between organizations with shipping needs and the authorized shippers themselves, licensed freight brokers can start working even if they don’t have a capital-intensive logistics or carrier business.
What Challenges May Freight Brokers Face When Getting a License?
The freight brokerage industry is a high-value sector. In the United States, the market is estimated to be at USD$1.164 billion in 2020, with a projected compound annual growth rate of 36.2% from 2021 to 2028.
The freight brokerage sector is regulated by the federal government through the Federal Motor Carrier Safety Administration (FMCSA).
Getting a license as a freight broker may not be that easy. Same with a prime broker account, but once you got it, you can make big progress. There are potential challenges you may need to face, including the following.
1. Misleading ‘No-Training’ Requirement
Formal education isn’t one of the requirements for getting a freight broker’s license.
Thus, anyone who wants to get authorization to practice freight brokerage may get the wrong impression it’s just an easy job, only to find out later on that such isn’t the case.
While some things can be learned by gaining actual experience, it’s better for an aspiring freight broker to gain basic knowledge of how the sector works.
A training program is beneficial for those who have no prior experience in the sector.
Lectures on the requirements of the freight industry, especially when it comes to licenses, operations, and regulations, are often discussed.
So are the essential components, such as marketing your services and growing your business. Training also includes other freight-company-specific information.
Each program aims to provide an enrollee with enough knowledge to operate their own brokerage firm.
Without these critical sets of information, a freight broker planning to obtain a license may find the undertaking an uphill battle.
Wait for at least one year to develop an understanding of the sector instead of filing an application right away.
2. USD$75,000 Surety Bond and Other Fees
Most applicants are unaware that they need to raise a surety bond worth USD$75,000, as part of the application process. This is perhaps the most challenging part of obtaining a license.
Unlike other types of bonds, a federal freight broker bond can be difficult to pass with flying colors.
Because of the risks attached to freight brokerage, approval for this bond will hinge on the results of the individual background check performed on an applicant.
Surety bonds are used in many industries, mainly to ensure professionalism. The following are the key players:
- The principal or the subject of the bond: This pertains to the freight broker license applicant.
- Obligee or the party requiring the bond: It refers to the claimant, who claims the bond in case the principal fails to comply with the set rules.
- A surety or the bond issuer: The principal pays a premium to the surety or bond issuer, who assures to pay the obligee in the event of a claim.
Apart from the surety bond, which you don’t necessarily have to raise yourself, an applicant will have to pay for the training costs and actual application fees.
In sum, this can cost you USD$300 for one category or double that amount, or USD$600, for two categories.
3. Determining the Best Business Structure
One of the steps in getting a license is to find out how to structure the brokerage company. To find out the best setup, you’d need to talk with a lawyer or accountant.
As with other businesses, you can choose from among the following: sole proprietorship, partnership, and corporation.
Each business type has its own advantages and downsides, and discussing it with an expert can help you make an informed decision. This may also add to the delay in applying for a broker’s license.
4. The 10-Day ‘Protest’ Period
After deciding the business structure for your brokerage company, a license applicant must get a motor carrier number from the FMCSA by submitting a form.
Called the OP-1 form, it’s the first actual form that’s submitted and includes information on the business structure and operating authority, along with the USD$300 filing cost.
A motor carrier number must also be secured prior to getting the broker license since it gives any brokerage firm the official recognition to operate.
An online applicant can receive the motor carrier number almost immediately, while those who applied through the mail will have to wait for a few weeks.
After issuance, however, the applicant would be subjected to a 10-day protest. During this time, another organization may question the application.
Anyone who thinks you shouldn’t be allowed to practice can file a protest by keeping in touch with the FMCSA.
5. Choosing a Process Agent
A licensed freight broker is required to have a process agent in every jurisdiction where it writes a contract or in places where it has an office.
A process agent is a person who receives court documents in case a complaint is filed against a motor carrier, broker, or freight forwarder.
If it’s your first time and you don’t have adequate experience, it may be quite hard to look for a reputable process agent.
A company has a choice whether to appoint an agent for each branch or one agent for multiple states.
Final Thoughts
There are two major challenges in getting a freight broker’s license: costs and lack of proper knowledge of the sector.
Before lodging your application, consider working for a freight brokerage or any closely related firms to build up your knowledge on how the sector works as well as gain important contacts.
Once you’re confident enough to run your own firm, it’s time to take it further by applying for a license.
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