Transportation bonds refer to bonds issued by companies that operate in the transport sector, including airlines, railroads and trucking companies. State governments also issue transportation bonds in order to fund statewide projects. The ability of transportation issuers is to service their bonds depends on a number of factors including competition from other modes of transport and the extent of government subsidization. Your clients involved in the transportation industry must secure bonds as a way of legally moving freight in and out of the US.
There are different types of specialty bonds available depending on a particular carrier’s needs. Carnets are international customs documents that simplify customs procedures for the temporary importation of various types of goods. With the issuance of an ATA Carnet, the holder must provide security to the guaranteeing association in the US, the United States Council for International Business (USCIB). The USCIB requires security from all Carnet holders in the event of a default. Generally, the required amount is 40% of the total value of the General List, but there are some exceptions.
Ocean Transportation Intermediary (OTI)
Companies operating as ocean freight forwarders and Non-Vessel Operating Common Carriers (NVOCCs) in the US are required to be licensed and bonded as Ocean Transportation Intermediaries. The bond guarantees that contractual agreements with shippers and carriers are to be fulfilled. The bond responds to claims filed by the shipping public to ensure compliance with Federal Maritime Commission regulations.
Your client may also be required to carry a bond for their freight brokerage to protect shippers and motor carriers. By not following Federal Motor Carrier Safety Administration (FMCSA) rules, claims can be filed against the bond that your client will be responsible to pay. For example, if they don’t pay motor carriers in a timely manner, a claim can be made to recover monies owed. The freight broker bond is sometimes referred to as a transportation broker bond or property broker bond.
Surface Deployment and Distribution Command (SDDC) Bond
The SDDC Bond secures performance and fulfillment of carrier obligations to deliver Department of Defense (DOD) freight. It will cover any instance where a carrier, for whatever reason, is unable to deliver DOD freight tendered to them. This includes default, abandoned shipments, and bankruptcy by the carrier. Transportation bonds are vital to this industry and ensure that all parties will bear their responsibility to tender cargo and properly deliver goods to their destination.