OTI Bonds

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about OTI bonds.  If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

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What Are OTI Bonds?

“OTI” stands for Ocean Transportation Intermediary, which is the maritime version of a freight forwarder. While a freight forwarder accepts cargo from a shipper and makes arrangements for it to be transported by a trucking company, an OTI accepts cargo from a shipper and arranges for it to be transported to or from the United States by sea. OTIs fall under the jurisdiction of the Federal Maritime Commission.

There are two types of OTIs: Ocean Freight Forwarders (OFFs) and Non-Vessel Operating Common Carriers (NVOCCs). The two terms often are used interchangeably, though there are some differences in the roles they play in America’s maritime supply chain.  So when someone speaks of an OTI bond, they could be talking about the surety bond an OFF needs or the one an NVOCC must purchase.

In either case, an OTI bond guarantees that the ocean transportation intermediary purchasing it will be legally responsible for damage to or loss of cargo resulting from the negligence or unlawful actions of the OFF or NVOCC who purchased the bond. The Federal Maritime Commission (FMC) can also file claims to recover fees or fines owed by the OFF or NVOCC.

Who Needs Them?

Purchasing an OTI bond is mandated by the Federal Maritime Commission (the bond’s “obligee”) as a prerequisite for licensing as an OFF or NVOCC. The bond is a guarantee by the OTI (the bond’s “principal”) to comply with the Ocean Shipping Reform Act and all applicable FMC regulations.

Licensed OFFs and NVOCCs, whether licensed in the U.S. or in another country, are required to purchase an OTI bond in the amount of $75,000. Not all countries issue licenses to NVOCCs, but unlicensed, non-U.S. NVOCCs must also purchase an OTI bond, though in the amount of $150,000.

How Do They Work?

The third party to the legally binding OTI surety bond agreement, in addition to the obligee and the principal, is the “surety–the company guaranteeing that the principal will pay any valid claims.

The surety investigates all claims to ensure that only valid one are approved for payment.   The legal obligation to pay valid claims belongs entirely to the principal.  However, the surety typically pays claims initially, on behalf of the principal, to ensure a swift resolution. That initial payment creates a debt that the principal must subsequently pay back to the surety.

What Do They Cost?

The annual premium for an OTI bond is calculated by multiplying the required bond amount by the premium rate set by the surety on a case-by-case basis. The main underwriting concern is the possibility that the principal will not readily repay the surety for claims paid on the principal’s behalf. The best measure of creditworthiness is the principal’s personal credit score, with a high credit score indicating a low risk of non-repayment.

With good credit, the principal typically pays a premium rate in the range of one to three percent. A lower credit score suggests higher risk, so the premium rate will be higher as well.

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about OTI bonds.  If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

CONTACT US FOR A

FREE OTI BOND QUOTE

What Are OTI Bonds?

“OTI” stands for Ocean Transportation Intermediary, which is the maritime version of a freight forwarder. While a freight forwarder accepts cargo from a shipper and makes arrangements for it to be transported by a trucking company, an OTI accepts cargo from a shipper and arranges for it to be transported to or from the United States by sea. OTIs fall under the jurisdiction of the Federal Maritime Commission.

There are two types of OTIs: Ocean Freight Forwarders (OFFs) and Non-Vessel Operating Common Carriers (NVOCCs). The two terms often are used interchangeably, though there are some differences in the roles they play in America’s maritime supply chain.  So when someone speaks of an OTI bond, they could be talking about the surety bond an OFF needs or the one an NVOCC must purchase.

In either case, an OTI bond guarantees that the ocean transportation intermediary purchasing it will be legally responsible for damage to or loss of cargo resulting from the negligence or unlawful actions of the OFF or NVOCC who purchased the bond. The Federal Maritime Commission (FMC) can also file claims to recover fees or fines owed by the OFF or NVOCC.

Purchasing an OTI bond is mandated by the Federal Maritime Commission (the bond’s “obligee”) as a prerequisite for licensing as an OFF or NVOCC. The bond is a guarantee by the OTI (the bond’s “principal”) to comply with the Ocean Shipping Reform Act and all applicable FMC regulations.

Licensed OFFs and NVOCCs, whether licensed in the U.S. or in another country, are required to purchase an OTI bond in the amount of $75,000. Not all countries issue licenses to NVOCCs, but unlicensed, non-U.S. NVOCCs must also purchase an OTI bond, though in the amount of $150,000.

The third party to the legally binding OTI surety bond agreement, in addition to the obligee and the principal, is the “surety–the company guaranteeing that the principal will pay any valid claims.

The surety investigates all claims to ensure that only valid one are approved for payment.   The legal obligation to pay valid claims belongs entirely to the principal.  However, the surety typically pays claims initially, on behalf of the principal, to ensure a swift resolution. That initial payment creates a debt that the principal must subsequently pay back to the surety.

The annual premium for an OTI bond is calculated by multiplying the required bond amount by the premium rate set by the surety on a case-by-case basis. The main underwriting concern is the possibility that the principal will not readily repay the surety for claims paid on the principal’s behalf. The best measure of creditworthiness is the principal’s personal credit score, with a high credit score indicating a low risk of non-repayment.

With good credit, the principal typically pays a premium rate in the range of one to three percent. A lower credit score suggests higher risk, so the premium rate will be higher as well.

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