What does a freight forwarder do?
Freight forwarders provide various supply chain services to help shippers arrange and transport their cargo. This includes:
- Preparing documents
- Warehousing and storage
- Booking cargo space
- Setting up cargo insurance
- Filing insurance claims
- Land, ocean, and air freight transportation
- Delivery of documents
- Consolidation and deconsolidation services
What’s the difference between a freight forwarder and a freight broker?
While sometimes confused, there are some key distinctions between freight forwarders and freight brokers. Freight brokers serve as an intermediary between carriers and shippers of goods. Their work primarily involves negotiating rates for shippers. Freight brokers do not take possession or responsibility for the condition of freight. As such, they are not liable if cargo is damaged.
Freight forwarding involves many of the same services but with additional responsibilities. Forwarders take possession of cargo and will store freight on behalf of customers. They arrange the transportation of shipments and are responsible for any issues that arise.
While there are notable differences in the type of work, freight brokers and freight forwarders share many licensing requirements. You can check out our guide on how to become a freight broker for more on how to get your license.
How to get your freight forwarder license
Step 1: Determine your mode of transportation
The first step to becoming a licensed freight forwarder is to determine what mode of transportation you will use.
If you want to work as a trucking or freight forwarder, you must receive Operating Authority from the Federal Motor Carrier Safety Administration (FMCSA).
To operate by sea as an ocean freight forwarder, you must get a freight forwarder license from the Federal Maritime Commission (FMC).
If you plan to carry goods by both land and sea, you will need to get both licenses from the FMCSA and the FMC.
Step 2: Get a freight forwarder surety bond
Freight forwarders must provide the FMCSA or FMC a form of financial assurance before receiving a freight forwarder license. Doing so helps ensure that forwarders comply with all professional standards and regulations. It also ensures that any parties damaged during the freight forwarder’s course of business can be financially compensated.
There are two options for meeting this requirement: posting a surety bond or paying a trust fund agreement. Both methods require $75,000 of coverage. The main difference between the two is how much of this amount you need to cover yourself.
If you enter into a trust fund agreement, you must pay the entire $75,000 up front in full. Once you pay into the fund, you are unable to access the capital as long as your freight forwarder license remains active.
The alternative is to post a freight forwarder bond (BMC-84 bond). This is a more economical choice, especially for new forwarders. With a surety bond, you only have to pay a small percentage of the total bond amount as a premium. The surety company determines your premium by evaluating your industry experience, financial standing, and other factors.
Regardless of your qualifications, the capital needed to secure a surety bond is substantially less than having to furnish $75,000 up front. EZ Surety Bonds has issued premiums for freight forwarder bonds as low as $938 (1.25% of the total bond value).
If you want to become an ocean freight forwarder, the bonding requirement is slightly different. Instead of the BMC-84 bond, ocean freight forwarders must post an Ocean Transportation Intermediary (OTI) bond. The required bond amount starts at $50,000 and increases depending on the size of the business.
Step 3: Register for a freight forwarder license
Once you determine what type of license you need, you can begin registering with the appropriate regulatory authority. Below we will outline what you need based on the license type:
To become a licensed truck forwarder, you must complete the initial registration using the FMCSA’s Unified Registration System. You will be prompted to complete Form OP-1 and provide the following information:
- Employee identification number (EIN) or social security number (SSN)
- Company information
- Carriers must provide US Department of Transportation Number (USDOT number)
There are two types of freight authority you can register for: one for household goods and one for property. Each requires a $300 licensing fee and you can apply for both with the same application.
To become a licensed ocean forwarder, you must register with the FMC. During the registration process, you will need to complete the following steps:
- Appoint a qualifying individual with three years of ocean freight experience
- Provide background and criminal information for the business’ owners
- Provide proof of surety bond
- Complete the OTI license application (Form FMC-18)
- Pay the $250 application fee
Step 4: Get insurance
There are several different insurance requirements for licensed freight forwarders. To start, household good forwarders must maintain $5,000 cargo insurance coverage per vehicle and $10,000 for insurance. Proof of the coverage (Form BMC-34) must be provided to the FMCSA within 90 days of submitting a freight forwarder license.
If you operate any commercial motor vehicles, you must get insurance coverage for bodily injury and property damage as well as insurance for environmental restoration. If you do not plan to operate any CMVs, you can waive this requirement when submitting your application.
Like most businesses, if you employ more than two people, you will also need to get workers’ compensation insurance.
Get your bond online with EZ Surety Bonds
These are the steps needed to become a licensed freight forwarder. When you’re ready to get your freight forwarding business up and running, EZ Surety Bonds can offer you a competitive premium for your freight forwarder surety bond.
We provide quick turnarounds and a convenient online application process. Apply today or get in touch to learn more.