No, you don’t need a broker’s license to start and run a hotshot business in the United States. You only require a broker’s license if you intend to work as both a broker and as a hotshot carrier. Hotshot companies or drivers are known to make money from hauling loads. They provide shippers with more efficient point-to-point shipping, and they source their loads through various means.
Most drivers tend to have direct contact with potential clients, e.g., auto dealers, equipment manufacturers, etc. Some source loads by staying stay in touch with load providers on a constant and regional—even national—basis. Hotshot “Load Boards” are also a consistent source of load opportunities for these drivers, but a good number also make use of brokerage agencies that make a business of connecting shippers of hotshot loads with drivers.
These agencies that source loads for hotshot drivers and other trucking companies are those legally required to carry broker’s license. This license is granted by the Federal Motor Carrier Safety Association and comes at a cost of $300.
If you register as both a broker and a motor carrier, the fee is assessed twice. Coupled with the licensing fee, brokers are also expected to carry an appropriate surety bond which works to protect your customers from unlawful business practices.
This surety bond does not work the same way insurance for your business does, however, it is a requirement in order to create and maintain your freight brokerage business. Have it in mind that bonding costs vary from broker to broker, primarily because surety agencies offering bonds evaluate the financial track record of each individual.
If you have a poor credit history or significant debts, including tax liens or court judgments, your broker bond is likely to cost more. Also, if you have a claim against your bond, securing a new bond will be more costly in the future. Nonetheless, if you intend to work as both a broker and also as a carrier, then it is imperative that you understand how brokerage bond pricing works, and the steps you can take to reduce these costs over time.
As a broker and as a hotshot carrier, you are operating a business, and as such, you need to acquire a business license in your state. Business licenses and business structures vary in terms of cost from state to state, but you can utilize the Small Business Administration’s website to get an idea of the total out-of-pocket expense.
Even if you are a hotshot driver or own a hotshot company, now might actually be the prime time to become a licensed load broker, particularly if you have experience in freight or logistics and an understanding of where the industry is headed.
However, before you decide brokerage is the right move for you, consider the costs to get started. From licensing and bonding, to business requirements and technology tools, be prepared to cover these expenses before launching your brokerage business.
Steps to Acquire a Broker’s License and Become a Licensed Load Broker
The United States brokerage business continues to gain momentum even as shifts take place in the transportation and logistics industry. A recent report highlights this growth, citing an estimated 4.19% market increase through 2022.
Part of this year over year improvement can be linked to the more than $500 billion in revenue generated from licensed freight brokers throughout the United States. To acquire a broker’s license and become a licensed load broker in the United States, there are some steps you are expected to take, and they include;
Create a Business Structure
Note that first step to becoming licensed is for an applicant to determine how they want their company to be structured. It is imperative to consult an attorney or accountant when making this decision, as they have the expertise to weigh the positives and negatives of different business structures.
Submit an OP-1 Form
After you must have created your business structure, you’ll need to obtain a motor carrier number by providing the FMCSA with a completed OP-1 form. Note that this is the initial application form that applicants submit to the FMCSA, which includes general business information (company type, name, address, type of operating authority, etc.)
Under Section III for Type of Operating Authority on the OP-1 form, applicants should select either “Broker of Household Goods” or “Broker of Property (except Household Goods).” Applicants will also need to submit a $300 filing fee per each type of license they are applying for.
Howbeit, if you are applying online for a motor carrier number, you can receive it immediately while those who choose to mail in their application may have to wait up to four weeks. The motor carrier number is needed to proceed with the broker licensing process and grants the business official authority to operate.
Note that after the motor carrier number has been issued, it is subject to a 10-day protest period. Within this period, the application may be contested by another company. The applicant may continue the process of obtaining their freight broker license during the protest period.
Get a Surety Bond (BMC-84)
This stage of the process is perhaps the most difficult. Many applicants are unfamiliar with surety bonds before learning they need one. Also, the federal freight broker bond is also harder to obtain than other bond types. Approval for the bond is based on the individual applicant’s background among other factors since there is a higher degree of risk in the brokerage industry.
However, even with all the confusion commonly associated with surety bonds, they are relatively straight-forward contracts used in many industries to ensure the entity that obtains the bond— the principal—conducts business in such a manner that they are in alignment with all relevant rules and regulations.
Before July 2012, those applying for freight broker licenses were only mandated to obtain a surety bond in the amount of $10,000. However, the passage of The Moving Ahead for Progress in the 21st Century Act (MAP-21) increased the bond amount needed for brokers to $75,000.
Note that this increase was a result of the large number of claims made against these bonds due to misconduct by principals, and its aim was to create stricter requirement ensuring that only qualified applicants received a freight broker license.
Select a Process Agent
The FMCSA confirms that a process agent is “a representative upon whom the court papers may be served in any proceeding brought against a motor carrier, broker, or freight forwarder.”
To comply with 49 CFR 366, every licensed broker is expected to designate a process agent in each state in which it has an office and writes contracts. After you must have received your motor carrier number, freight brokers may appoint multiple process agents or they may choose to work with a company offering blanket coverage.
Have it in mind that this coverage allows one person to act as a process agent in multiple states. But irrespective of how many process agents are appointed, the freight broker or designated process agent—on behalf of the freight broker—must complete Form BOC-3 and submit it to the FMCSA.
Register the Brokerage
The last step in the licensing process mandates all brokers to take part in the Unified Carrier Registration. Note that this is the agreement developed under the Unified Carrier Registration Plan governing the collection and distribution of registration and financial responsibility information provided and fees paid by brokers.
It creates rules and regulations for all brokers, including fees that are expected to be paid to the freight broker’s base-state, or the state where their main office is located. Coupled with taking part in the Unified Carrier Registration, brokers are expected to also familiarize themselves with local regulations regarding interstate companies for every state in which they will be conducting business by contacting the state’s transportation regulatory agency.
Just like it was stated above, a hotshot driver or carrier does not necessarily need a broker’s license to start and run a hotshot business, unless they intend to broker loads for themselves or for others. You will be expected to pay the $300 dollar application fee to the Federal Motor Carrier Safety Administration and apply for a broker’s license and a USDOT number. After applying, your information is public for 10 days. During that time, anyone who does not believe that you are qualified can protest the application. Although this is rare, it can happen.