Do you know who you are doing business with?
Have you ever tried to find out if your broker has authority? Does this broker have the required $10,000 surety bond or trust fund on file with the Federal Highway Administration? If you are dealing with a freight forwarder, does he have the proper credentials? What's the difference between a freight forwarder and a broker? Why does it matter?

by Rex Evilsizor, Transportation consultant

Prior to the Interstate Commerce Commission Termination Act of 1995, freight forwarders of property were exempted by the ICC from having any authority. Since the elimination of the ICC, freight forwarders now have to obtain authority.

Individuals performing the functions of freight forwarder and the functions of a broker can have both authorities. If the same individual is actually performing the transportation by vehicle, then the individual will have carrier authority also.Each authority available from FHWA is distinct and separate from each other. Each authority available is with a different purpose. Having carrier authority does not permit one to broker freight or to be a freight forwarder and vice versa.Freight forwarders are issued an FF number while brokers and carriers are issued MC numbers. Freight forwarders cannot transport freight from one state to another, as there is no provision for freight forwarders to obtain single state registration, which is registering the authority in the states.

There is a distinct difference between freight forwarders and brokers and those who perform any of the services of each of the authorities.

Freight forwarder defined

FHWA defines freight forwarder as a company that arranges for the transportation of cargo belonging to others, utilizing for-hire carriers to provide the actual truck transportation. The forwarder does assume responsibility for the cargo from origin to destination and usually does take possession of the cargo at some point during the transportation. Forwarders typically assemble and consolidate less-than-truckload (LTL) shipments into truckload shipments at origin and disassemble and deliver LTL shipments at destination. Forwarders must register with FHWA by filing Form OP-1 FF.

Prelicensing requirements for freight forwarders

The following information is taken from FHWA's application for authority (OP-1 FF):"Freight forwarders that perform transfer, collection and delivery service must have on file evidence of appropriate levels of bodily injury and property damage (BI&PD) (BMC91 or BMC-91X) insurance and environmental restoration coverage." If the freight forwarder will operate vehicles that have gross vehicle weight ratings (GVWR) of 10,000 pounds or more they must have $750,000 to $5,000,000 worth of coverage depending on commodities transported; $300,000 for non-hazardous freight moved only in vehicles weighing under 10,000 pounds. Cargo insurance (BMC-34) must be on file at FHWA with a minimum of $10,000.

Freight forwarders may apply for a waiver of liability (BIPD) insurance requirements. To obtain this exemption, they must certify that in their forwarding operations they: (1) will not own or operate any motor vehicles upon the highways in the transportation of property; (2) will not perform transfer, collection, or delivery services; and (3) will not have motor vehicles operated under their direction and control in the performance of transfer collection, or deliver services.

Broker defined

A broker is a company that arranges for the truck transportation of cargo belonging to others, utilizing for-hire carriers to provide the actual truck transportation. However, the broker does not assume responsibility for the cargo and usually does not take possession of the cargo. Brokers must register with FHWA by filing form OP-1.

Prelicensing requirements for brokers

A surety bond (BMC-84) or Trust Fund Agreement (BMC-85) in the amount of $10,000 must be on file at FHWA.

BOC-3 - Process agents

Every motor carrier authorized to operate nationwide must list the name and address of an agent for each state. Freight forwarders and brokers are also required to list process agents in each state in which they have an office and in every state in which they write contracts. A process agent is a representative upon whom court papers may be served in any proceeding brought against a carrier or broker.

So, freight forwarder or broker?

Now you know the difference, and you can protect your trucking business and increase your annual revenues by taking a little time to find out who's who. And then, take time to verify this information.

This article is provided to readers courtesy of OOIDA Business Services Department.

Rex Evilsizor is a licensed ICC practitioner and certified transportation consultant in Fort Worth, TX. He retired in 1990 as a Special Agent from the Interstate Commerce Commission.