How NVOCC Bonds Work

Having a NVOCC bond can help marine vessel businesses participating in commerce between the United States and foreign countries (also known as ocean transportation intermediaries) look much more legitimate and is a legal requirement to conduct business. This legitimacy stems from the fact that NVOCC bonds can help protect the businesses that work with the bond holders. 

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A NVOCC bond is a type of surety bond that certain businesses associated with the Federal Maritime Commission (FMC) can get a lot of value out of. When a business has a NVOCC bond, this provides security that operations are more likely to go smoothly.

Keep reading to learn more about how NVOCC bonds work, what their purpose is, and what type your business may need in order to operate successfully. 

What are NVOCC Bonds?

A NVOCC bond is a specific type of surety bond that is designed to help protect the business partners of marine vessels that conduct commerce with foreign countries. If a marine vessel intends to transport goods from the United States to a foreign country, they need to have an OTI license. In order to secure an OTI license, they need a NVOCC bond.

There are three parties involved in a NVOCC bond:

  • Obligee. This is the party that requires the surety bond and in the case of a NVOCC bond, this is the FMC.

  • Surety. The surety is the company that issues and backs the surety bond. The surety will initially pay out any claims they approve, but the principal will need to pay them back.

  • Principal. The principal is the business that requires the bond—aka the marine vessel business participating in commerce between the United States and foreign countries.

Why are NVOCC Bonds Required?

A NVOCC works similarly to any type of surety bond and is required by the FMC. A NVOCC bond serves a few purposes.

  • Protects shippers and carriers partnering with an OTI in the event the OTI doesn’t adhere to FMC regulations

  • Protects against OTIs that operate dishonestly

The business that holds the NVOCC bond must maintain their NVOCC bond to keep their OTI license. If for any reason the OTI bond is canceled, their license will be revoked. As briefly noted earlier, alongside being required NVOCC bonds serve another purpose that greatly benefits the bond holder. A NVOCC bond offers legitimacy to the business that holds it which can make it easier for them to attract business partners and customers. 

Different Types of NVOCC Bonds

There are few different types of NVOCC bonds available and the type a business needs will depend on the specific type of OTI license they’re applying for. The type of bond they require can also impact that necessary bond amount and how much they’ll spend on it. The bond amount is the highest amount someone can claim against a NVOCC bond and the most a principal will need to pay back for a claim (although the surety may choose to charge them additional fees or interest when a claim is filed). 

  • OFFs need to a $50,000 bond (additional fees apply for additional unincorporated U.S. branch offices)

  • NVOCCs (U.S.-based and licensed and non-U.S.-based and licensed) must obtain a $75,000 bond (additional fees apply for additional unincorporated U.S. branch offices)

  • NVOCCs serving in the China-U.S. trade are required to obtain a $96,000 bond (made up of a $75,000 bond and an additional $21,000 for an optional rider to cover financial responsibility requirements of the Chinese government)

  • Non-licensed, non-U.S.-based NVOCCs need a $150,000 bond or some other type of financial guarantee

There are a few different factors that can influence the cost of NVOCC bonds, but two of the most important factors are the bond amount and the applicant’s personal credit score. Usually, the cost of a NVOCC bond is based on a certain percentage of the bond amount. That percentage is determined by factors like the personal credit score of the applicant. The higher someone’s credit score is, the less they’ll need to spend to secure a NVOCC bond. 

You can usually submit an application online to different surety bond companies to apply for a NVOCC bond and these applications are usually fairly quick and painless.

The Takeaway

It’s important to remember that all of this work and expense is worth it as having a NVOCC bond for your business provides you with legitimacy and makes it possible to obtain your OTI license which is required to do business in the field of marine shipping if you desire to ship goods to foreign countries.