When doing business, bonding is a way for a company to show credibility in its operations as well as provide protections for those who do business with the company. There are a wide range of bonds available that are used for different purposes, different types of companies, and in different industries. The NVOCC bond is associated with the Federal Maritime Commission (FMC) and deals with the transportation of cargo. What the bond is and why it is used highlights its importance in this area of business. While business can be completed without it, the bond provides security that everything is more likely to go smoothly.
The NVOCC bond is a unique type of bond used by businesses who transport goods between the United States and foreign countries. In order to understand why the bond is necessary, it is important to first understand exactly what it is. This section provides an overview of the NVOCC bond and its purpose in business.
What is the NVOCC Bond?
NVOCC bonds, also known as an OTI bonds or the FMC-84 bonds, is a surety bond used specifically for marine vessels participating in commerce between the United States and foreign countries. The vessels that must secure OTI bonds are those that transport goods from the United States to a foreign country. The bond is part of obtaining the OTI license in order to do business. Foreign vessels are not required to obtain the license but must post a bond.
Theese bonds have three parties: the principal (the OFF or NVOCC), the obligee (FMC – Federal Maritime Commission), and the surety bond company. The bonding company gives its financial backing and guarantee that the OTI will operate according to FMC regulations. If this does not occur, a claim against the bond can be made by anyone who works with the bonded OTI. If the investigation shows the claim to be true, the surety company pays the claimant a compensation for what occurred, according to the bond terms.
Who Needs the FMC Bond?
Not every vessel that transports goods between the US and other countries needs the OTI bond. The following three parties need to obtain this type of bond:
- United States-based and licensed ocean freight forwarders (OFFs) and non-vessel-operating common carriers (NVOCCs)
- Non-United States-based and licensed NVOCCs
- Non-United States-based and unlicensed NVOCCs
Why are OTI Bonds Needed?
As with other surety bonds, the OTI bond is a protection measure. Specifically, the bond protects shippers and carriers partnering with OTIs in case OTIs do not adhere to regulations set by the FMC. It also protects against OTIs that operate dishonestly. An OTI with a license must maintain an OTI bond. If the OTI bond is cancelled for any reason, the license is revoked, as well.
As a protection measure, bonds are useful not only to fulfill licensing requirements but to provide credibility to the OTI, as well. When partnering companies see that the OTI is fully bonded and licensed, there is a peace-of-mind associated with doing business with the OTI. This may be beneficial in providing the best opportunities for the OTI in achieving its goals.
The Application Process
The application process includes the actual application for the bond as well as the NVOCC bond cost. The cost and application process associated with the FMC bond depends on the type of bond and other factors. This section provides an overview of the application process.
Types of OTI Bonds
There are different types of (84) FMC bond available. The type of bond secured depends on the type of license the OTI is applying for. The types of OTI bonds are:
- OFFs obtain a $50,000 bond, with additional fees for additional unincorporated U.S. branch offices
- NVOCCs (U.S.-based and licensed and non-U.S.-based and licensed) obtain a $75,000 bond, with additional fees for additional unincorporated U.S. branch offices
- NVOCCs serving in the China-U.S. trade obtain a $96,000 bond, which includes a $75,000 bond and an additional $21,000 for Optional Rider to cover financial responsibility requirements of the Chinese government
- Non-licensed, non-U.S.-based NVOCCs obtain a $150,000 bond or other financial guarantee
NVOCC Bond Cost
The NVOCC bond cost is dependent on your personal credit score. The cost of the premium is higher when your credit score is lower. The costs are as follows:
- Score below 599: $2,500-$5,000
- 600-649 score: $1,250-$2,500
- 650-699 score: $500-$1,250
- Score over 700: $375-$500
- Score below 599: $3,750-$7,500
- 600-649 score: $1,875-$3,750
- 650-699 score: $750-$1,875
- Score over 700: $563-$750
- Score below 599: $4,800-$9,600
- 600-649 score: $2,400-$4,800
- 650-699 score: $960-$2,400
- Score over 700: $720-$1,440
In addition to these base costs, there are likely to be fees associated with obtaining bonding from a surety bond company. The amount of these fees varies based on the surety bond company and how it operates.
If you have bad credit, you are not necessarily ineligible for a bond. Some companies (such as Surety by NFP) offer programs specifically for bad credit to help you get properly bonded.
Most bond surety companies have made the application process easy. Applications can be filled out online and, once the information has been collected and analyzed, the company either approves or denies it. Processing time is usually quick, especially with online applications.
Like other bonds, the FMC bond is an important part of doing business between the US and foreign countries. Since it is necessary for OTIs to follow FMC regulations, bonds provides a guarantee that if that doesn’t happen, those working with the OTI will be appropriately compensated. In addition, the bond is tied to licensing for OTIs, which is another important component of doing business successfully. With the security of OTI bonds, OTIs will have the credibility needed for successful business and can be held accountable to the FMC regulations. In this way, business that takes place on the water will be safer and more profitable for all involved.