How to Become a Freight Forwarder in 5 Clear Steps
The prospects for the freight industry are certainly positive, with growing income and increasing demand for skilled specialists. If you’re considering opportunities in freight forwarding, now is definitely a good time to get started.
Launching your trucking freight forwarding business is not a complicated process. Still, it does require a number of steps and procedures, including obtaining a freight forwarder license and a freight broker bond. Before we delve into the details of how to become a freight forwarder, it’s let’s take a look at what the job entails.
1. What does a freight forwarder do?
People often confuse freight forwarders with freight brokers, but these two roles are quite different, yet both crucial for the industry. Freight brokers are the middlemen – they act as the link between shippers of goods and cargo and carriers, the transportation service providers. In contrast with brokers, freight forwarders take over another part of the freight process. If you embark on the journey of becoming a freight forwarder, you’ll be working on the side of importers and exporters, so your focus will be on securing freight. That’s why freight forwarders are often referred to as cargo agents or freight agents.
As a freight forwarder, you’ll have to be an expert on the most appropriate transportation methods for moving different kinds of cargo, as well as on booking the transport itself. You’ll also need to gain knowledge in the whole array of freight costs: the actual moving, handling, insurance, necessary documents and all possible charges involved in freight forwarding. This also includes export papers and international coordination, if needed. In most cases, you’ll need more financial resources, and credit, on hand than freight brokers.
There are different types of freight forwarders: ocean transportation, airfreight, intermodal and trucking. Here we’ll focus on trucking freight forwarders, since trucking represents a large part of U.S. transportation of cargo. With a clear idea of the duties and perks of the job, let’s get into the details of how to become a freight forwarder.
2. Getting started with your freight forwarder license
All trucking freight forwarders need to be registered with the Federal Motor Carrier Safety Administration (FMCSA) in order to operate legally in the U.S. That’s why your first step in the process of becoming a freight broker is to get acquainted with the FMCSA registration procedure.
The application form for freight forwarders is OP-1 (FF). This is how you obtain your operating authority number, which is called an FF number in the case of forwarders. This authority gives you the right to work across states.
You can select between two possibilities for freight forwarding: property or household goods. The application fee is $300. If you want authority to cover both, you will have to pay a $300 filing fee for each of the two options.
An important part of your legal operation includes also getting a USDOT number. In principle it isn’t required. However, if you want to function as an interstate motor carrier, you’ll need a USDOT number.
The requirements for getting your FF number include obtaining different types of insurance, a $75,000 freight broker bond or trust fund, and– in case you operate across states–designating a process agent for each state in which you work. The best way to submit your application is online.
3. Receiving your FF number
When your application gets approval from the FMCSA, you will be issued your FF number in a grant letter. It will also be posted in the FMCSA Register. Within 10 days, anybody who disagrees with your registration can file a protest against it. After that, your registration is secure.
Even though you already possess the FF number, you’re not ready to start business yet. Your FF number enables you to purchase the appropriate insurance, obtain your $75,000 freight broker bond or trust fund, and designate your process agents, if any.
Freight forwarders are required to have certain minimums of cargo insurance. Your insurance company submits your insurance form to the FMCSA Register, namely Form BMC-34, within 90 days after you’ve submitted your application.
You need to get $5,000 insurance for loss of or damage to property carried on a motor vehicle and $10,000 insurance for loss of or damage to property. If you’re planning to have your own fleet of commercial motor vehicles (CMV), you also have to get bodily injury, property damage, and environmental restoration insurance. This means submitting form BMC-91 or BMC-91X, or clearing the need for such coverage, by including a waiver in the application. You can find all the information on insurance requirements on FMCSA website.
After you’ve settled your insurance needs, you have to use Form BOC-3 to designate the process agents that will represent you in all the states you are working in.
4. Your freight broker bond
Besides getting the appropriate types of insurance, freight forwarders are also required to post a security of $75,000, which guarantees their legal compliance. It can be in the form of a freight broker bond or a trust fund. As trust funds are much more expensive, and create more complications for forwarders, freight broker bonds are usually a better option for fulfilling this FMCSA requirement.
To give you a quick idea what a freight broker bond is, it’s handy to think about it as a three-party contract. Your freight forwarding business is the principal, the obligee is the FMCSA, and the surety is the one doing the actual bonding. The bond, thus, is like an extra line of credit for your business. Its purpose is to safeguard the interests of the public, by guaranteeing your compliance with all applicable rules and regulations.
If obtaining a $75,000 freight broker bond sounds tough, remember, you don’t have to pay the whole amount to get bonded. Instead, your surety bond cost will be only a small percentage of it, called the bond premium. For the standard bonding market, this would be between 1.25% and 5% of the bond amount. For bad credit applicants the percentage can go up to 13%.
5. Ready to do business
Once you’ve fully completed the application process by obtaining your FF number and submitting all the necessary documents, you’ll be granted your operating authority as a freight forwarder. Then you’re ready to explore freight forwarder jobs, and start your successful path in the freight business.
If you need help with your freight broker bond, one of the crucial requirements for obtaining your operating authority, Lance Surety Bond Associates are here to help. Give us a call at 877.514.5146 and our bonding experts will be happy to assist you in the process.