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Essentially, a surety bond guarantees completion of a contracted service in the event that the contractor does not hold up their end of the bargain. What this does is assure the auto transporter of compensation if they are not fully paid for the service they provide, or the terms or the contract are not upheld by the broker.
A surety bond, which may also be called a performance bond, is a form of consumer protection in that it serves as “insurance” against the job not being finished or a broker that doesn’t play by the rules. It also protects drivers from shady business practices by questionable auto transport brokers. A new law called the Moving Ahead for Progress in the 21st Century (or MAP-21) has significantly increased the minimum surety bond requirements, as well as the penalty against brokers that aren’t operating in line with the new regulations.
New Surety Bond Requirements & MAP-21
As of Oct. 1, 2013, auto transport brokers must carry a surety bond of $75,000, rather than the $10,000 amount that had previously been required. These changes are part of the MAP-21 legislation passed in 2012 that aims to improve safety and accountability within the transportation industry. Here are the main points of the new law as the state by the Federal Motor Carrier Safety Administration:
- A higher barrier to entry into the business
- Maintain the highest safety standards for carriers and drivers
- Monitor and remove drivers, carriers, and vehicles that are unsafe
For those who have not made the change to be compliant with the new law, there is a grace period of 60 days (ending Dec. 1) in which you may still qualify. If qualification is not met during this 60 day phase-in period, brokers run the risk of having their licenses revoked by the FMCSA.
If the $75,000 surety bond is not meet by the Dec. 1 deadline, brokers and freight forwarders must then use a trust to meet the requirement, in which case the actual cash amount is needed, rather than just collateral as in the case of the surety bond.
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What Do These Changes Mean For the Auto Shipping Industry?
The idea behind the new requirements are that the higher barrier to entry will eliminate some of the more questionable auto transport brokers from joining the business. Additionally, the new law creates more oversight in the transportation industry as it inches toward firmer standards of regulations.
At least, in theory, the changes created by the new surety bond requirements would help protect auto carriers from unscrupulous brokers that take advantage of the lack of regulation within the auto transport industry. This should help combat the practice of brokers not paying carriers the full amount they are owed, or even worse, disappearing completely and leaving the carrier with no course of action to receive payment.
The new law doesn’t just apply to brokers, however. Carriers will also have to make some adjustments to stay compliant with the new regulations. Here’s a breakdown of the main points of MAP-21:
- Carriers that subcontract work to other companies will need to acquire a broker’s license
- A database will be kept that maintains records of drug and alcohol abuse by drivers
- An electronic logging device will be required for all interstate carriers
- New restrictions on time worked and breaks taken
- Only companies with operating authority can provide brokerage services
- Brokers and freight forwarders must obtain the $75,000 surety bond or face having their license revoked
Both brokers and carriers face stiff financial penalties if they are found to be noncompliant with the new regulations.
Rules and Regulations – Transport industry rules, regulations and resources from the FMCSA.
National Transportation Safety Board – The NTSB conducts transportation investigations and studies.
Surety Bonds – Information and resources about surety bonds from the U.S. Small Business Association.