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What Is a Transportation Bond?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 04 September 2016
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A transportation bond is a type of bond issue that is connected with the transportation industry in some manner. The term is actually used in more than one manner, sometimes referring to the bonds that transportation companies and agencies take out as a means of helping to insure the payment on goods shipped using the services provided by those entities. In this application, the bond serves the purpose of protecting the interests of both the shipper and the client. A transportation bond can also be a bond issue created by a transportation company to fund the costs of an expansion project.

As a type of insurance plan, a transportation bond may be a maintenance bond issue that is acquired by a shipping company in order to cover the potential costs of damage to goods shipped by customers. In this application, the purpose of the bond is to provide security for both the shipping company and the customer, since any losses that may occur are offset from the proceeds from the bond. This particular application is often used by airlines as well as land-based freight companies to protect the business from losses due to accidents or other events that are beyond the control of the shipper.

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As a means of generating revenue for a project, a transportation company or even a municipality may choose to issue a transportation bond instead of using other methods to fund that project. For example, a municipality may choose to issue the bond in order to develop or expand a city bus system or enhance an existing subway system. As with most municipal bond issues, the goal is to generate enough funds to launch the project with the expectation that revenues generated by the project can eventually be used to return the principle with interest to investors. In like manner, a freight line may release a bond issue as the means of financing the establishment of new hubs and terminals, allowing the business to expand into new areas and increase business volume. Over time, the increased revenue can be used to retire the transportation bond issue, settling with investors on the date that the bond reaches full maturity.

With either approach, the transportation bond functions to generate some sort of returns for everyone involved. As a means of insuring goods in transit, the bond protects buyer, seller and even the transport company from possible losses. When structured as an investment opportunity, investors can generate an equitable return on the bond issues, while the issuer is able to collect money in advance to fund a project that ultimately benefits the community or allows a business to expand.

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