April 27, 2022 | Ivana Gavroski Manager, U.S. Customs Compliance
By now, your company is likely all too aware of the Section 301 China Tariffs and the impact they can have on your business. What you might not be aware of is the impact the tariffs, and other factors, can have on the sufficiency of your customs bond.
An insufficient customs bond can prevent your company from importing into the United States, create significant delays in your supply chain, and result in a negative financial impact to your business. To better understand the impact it can have, we need to start with the basics.
A customs bond, at first glance, is not complicated—it is required for nearly all imports into the United States. It guarantees to U.S Customs and Border Protection (CBP) that the duties, taxes, and fees an importer owes will be paid, including any penalties or other obligations. Therefore, it is to the benefit of CBP. There are two types of customs bonds:
The customs bond is typically filed with your forwarder, or customs broker, who then works with a bond surety company. It is the surety company that writes the bond and ultimately guarantees that the bond principal, or importer, will meet its obligations. Any obligations not met would need to be met by the surety.
It is for this reason that the surety bears the risk exposure of any obligations not met, which may include an importer’s inability to pay the duties owed to CBP. The bond, in effect, allows the surety to demand reimbursement from the importer if the obligations under the bond are not met.
Determining the appropriate bond amount for your company is a crucial step in filing the customs bond. The bond amount is calculated by taking 10% of your total duties, taxes, and fees owed in a 12-month period. The minimum continuous bond amount is $50,000, which would allow you to import up to $500,000 in total duties, taxes, and fees.
Determining the potential duty owed for your products requires knowledge of the Harmonized Tariff Schedule (HTS) classifications for your products. Ensure you have the current duty rates by referencing the U.S. International Trade Commission’s HTS database.
Once the total duties, taxes, and fees exceed more than the current bond’s capacity, the bond is deemed insufficient. CBP then issues a letter to your company requiring a new bond to be filed at a higher amount. Your current customs bond would need to be terminated for the next one to be put on file.
While this might seem like an easy fix, this is where complications often arise.
One of the biggest risks associated with a customs bond insufficiency is the potential for the bond to be terminated. Once a termination has been filed, CBP requires the bond to be terminated within 15 calendar days, after which time a new customs bond would need to be filed.
However, immediately filing another bond is not always possible because of the numerous factors the bond surety considers, plus any potential requirements they may have before they agree to write a new bond. Some factors and requirements may include:
One major factor that can have significant negative impact during the surety’s review is bond stacking, which occurs when a previous customs bond remains on file, or “open.” The duties owed on every customs entry filed under a bond are estimated until they liquidate with CBP, which typically occurs within 314 days, at which time the duties owed become final.
However, liquidation can take many years depending on the entry type. For this reason, a customs bond can remain open, and a liability, until every entry liquidates. Therefore, every bond your company holds that remains open then “stacks” on top of the other open bonds—creating multiple open liabilities for the surety.
Without a customs bond, your company would not be able to import, unless you started using single-entry bonds—a costly option that is unrealistic for most importers. If collateral were to be required by the surety, consider the impact to your company’s cashflow.
These are only some of the potential negative ramifications that can result from a bond insufficiency. Fortunately, these risks are often easily preventable.
Simply put, the best way to avoid a bond insufficiency is to determine the appropriate bond amount for your imports. While this can be difficult in today’s chaotic supply chain industry, there are steps you can take to be proactive and mitigate risk.
Consider the following preventative measures to avoid an insufficiency:
If you have already received an insufficiency letter from CBP, and your customs bond has not yet been terminated, talk to your customs broker to determine next steps.
Whether you have received an insufficiency letter, need to determine your bond’s sufficiency, or simply need a customs bond filed—C.H. Robinson can help. Reviewing your bond sufficiency doesn’t take long and may prevent severe shipments delays along with negative long-term financial impact to your business. Connect with one of our trade policy experts to learn more.
Our information is compiled from a number of sources that to the best of our knowledge are accurate and correct. It is always the intent of our company to present accurate information. C.H. Robinson accepts no liability or responsibility for the information published herein.