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Understanding Customs Bonds

customs bonds

Understanding Customs Bonds

When you’re constantly plagued by bureaucracy and inventory management in the world of shipping, there’s one moment that makes it all worth it: importing the goods. However, that process has one extra step before it’s finalized — obtaining a customs bond. But what does this actually entail? Why must you even have a customs bond? And which one should you get? Don’t worry — we’ll help you with understanding customs bonds right here!

Bonds, Customs Bonds

First of all, we should note that all information found here is valid for the ocean ports and other import points in the United States. The notion of a customs bond originated here. To define it in the simplest possible terms, a customs bond is something like an insurance policy during the import process. But not for you — for the government of the United States. It’s a guarantee that all import taxes and duties will be paid. In the professional world of shipping between leading ports, this is simply called a “bond”.

But why must importers have one in the first place? To paraphrase Benjamin Franklin’s famous quote, the only two things that are sure in the world of importing and exporting are taxes and duties. If you have a customs bond, the government has a solid guarantee that it will receive its taxes and duties; even in a force majeure event that leaves your logistics company helpless to pay.

In other words, if an import company goes bankrupt, this bond will cover the air and/or ocean shipments in terms of duties and taxes. This is something that you’ll simply be required to have if you want to import anything into the United States; it’s all within the price of doing business. And bear in mind that these bonds expire as well, so don’t expect to hold onto the same one forever.

Bond Requirements

So, when do you need a customs bond? Mainly, when you’re trying to import goods for commercial purposes with an estimated value of more than $2,500. Apart from this, there may be other requirements for particular goods posed by different agencies of the United States government.

As an example — if you’re importing food items, you will be required to obtain a customs bond regardless of the amount or value of the items. You will also need to comply with other FDA regulations.

When it comes to the different types of bonds that you can have as an importer, there are two primary ones. There are continuous bonds and single-entry bonds. Their names are pretty self-explanatory — the latter only covers a single import shipment, while the former is valid for multiple shipments in a certain time period. Usually, we’re talking about twelve months.

So, which one should you get? This largely depends on the nature of your business. If you’re someone who only imports goods on a rare occasion, like a couple of times a year, you may not need anything more than a single-entry bond.

Obviously, a continuous bond represents a far better option if you’re going to be shipping regularly. And this type of bond has another benefit; when you’re completing the Importer Security Filing information, you won’t have to buy additional bonds. This is data that you need to submit in advance before you load any goods on a ship in a country of origin that’s headed for the United States. Having this information allows the CBP enough time to judge if your cargo poses any security or safety risks.

Bond Expenses

Now that we’ve explained the nature of customs bonds, the question that must be on your minds is — how much do they actually cost? Well, you need to look at customs bonds like any other kind of insurance policy. In the sense that, when you purchase a bond, it’s valid for a specific level of coverage. And naturally, the cost of continuous and single-entry bonds differs.

Single-entry ones can be quite tricky. The minimum amount that you’ll pay for the bond can’t be lower than the estimated monetary worth of the goods plus the taxes that you’d have to pay for their import.

And if these goods have to comply with other agency regulations as well, the initial value is raised to three times their estimated value; that would be the case with the above-mentioned food items, for instance.

When it comes to continuous bonds, the situation is far simpler. The minimal amount is $50,000 — alternatively, it can be ten percent of all the fees and taxes for imports that you’ve paid during the previous fiscal year. That means that the expenses for the bonds can vary, but they’re still far more cost-effective if you’re someone who regularly ships things between ports.

And finally — how do you actually obtain a bond in practice? The easiest method is going through a freight forwarder or a customs broker, that will deal with all of the assorted paperwork. On the other hand, if you’re going to do so yourself — the Treasury Department issues licenses to sureties that will sell you a bond.

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Samwell Stein is a freelance author and logistics advisor. He frequently cooperates with professional shipping and moving companies like Transparent International and advises them on the best industry practices.

Goods

Is Your Supply Chain Prepared for Potential U.S. Tariffs on EU Goods?

Transatlantic tariffs came closer to reality in recent months after the United States Trade Representative (USTR) proposed tariffs on a list of products from the European Union (EU). 

Unfortunately, even if you’ve already gone through something similar with goods imported from China, the same strategy may not be effective for the tariffs on EU goods. This is due in large part to the types of proposed commodities from the EU.

The good news is there are things you can do today to adjust your import strategy to maintain compliance while insulating your company from the proposed tariffs.

Up to $25 billion worth of EU goods at stake

The USTR announcements in April and July proposed tariffs targeting up to $25 billion worth of goods. This includes items such as new aircraft and aircraft parts, foods ranging from seafood and meat to cheese and pasta, wine and whiskey, and even ceramics and cleaning chemicals. 

To date, the USTR has only provided a preliminary commodity list for the proposed U.S. tariffs on EU goods. No percentages have been announced, leaving many to wonder if the tariffs will be manageable—in the 5-10% range—or more substantial, like the 25% tariffs applied to China imports. 

On top of the tariffs, when the French Senate announced a 3% tax on revenue from digital services earned in France, President Trump threatened a counter-tax on French wine. But it’s unclear if this tax will come to fruition or fizzle out—especially since the USTR’s tariff list already includes many types of wine. 

5 key questions to insulate your supply chain

Looking for the best way to prepare your business from the potential tariff increases? Answering these key questions may help you adapt and insulate your company. 

-Do you have a plan to cover the costs? 

You may not be able to avoid paying the tariffs, but there are various strategies you may consider to help cover their costs. 

While not ideal, you could increase prices to end consumers. It may not be feasible to recover the entire cost of an added tariff, but you can at least offset a small portion of the tariff this way.

You can also adjust the cost of the goods with suppliers and manufacturers to cover a portion of the tariff. Just remember: pricing changes still need to meet the valuation regulations with U.S. Customs and Border Protection (CBP). 

-Will you need to increase your customs bond? 

The smallest customs bond an importer can hold is $50,000. That used to be enough for many importers to cover generally 10% of the duties and taxes you expect to pay CBP. 

Unfortunately, as many importers from China are learning, a 25% tariff on products can quickly exceed your bond amount. And bond insufficiency can shut down all your imports while resulting in delays and added expenses. 

To help avoid bond insufficiency, consider any increased duty amounts in advance of your next bond renewal period. And don’t wait to do this until the last minute, because raising your customs bond with your surety company can take up to four weeks. 

-Do you re-export goods brought into the U.S.? 

Duty drawback programs can’t be used by every importer. But if you can take advantage of them, they can result in big savings for your company.

In fact, you can get back 99% of certain import duties, taxes, and fees on imported goods that you re-export out of the U.S. Just be aware that you still need to pay the duties up front. And you might need to wait up to two years to get your refund. 

-Are your product classifications current and accurate?

With potential tariffs looming, consider reviewing your product classifications and make sure they’re accurate. If you find an issue, discuss it with your broker or customs counsel to discuss how you can properly rectify the issue, and avoid penalties from doing it incorrectly.

And while we’re on the topic of product classifications, never change them to evade tariffs. CBP will be on the lookout for this kind of activity, and the penalties for noncompliance can be steep.

-Do you have the support you need?

Changing your customs brokers may not sound appealing, but ensuring they provide all the services you need to stay compliant should be your top priority when working with them.

Your provider should help make sure you pay the appropriate duty rates for your products. And they should have people and services available globally to support your freight wherever it is located throughout the world. 

Also, consider simplifying your support by working with one provider that offers not only customs brokerage and trade compliance services but also global ocean and air freight logistics services. 

If you only employ one strategy…

Discuss your import strategy with your customs attorney or customs compliance expert. Bringing in specialized expertise is the most effective way to analyze how these tariffs could affect your products, your supply chain, and your business. 

If you don’t yet have a customs broker who can meet all your needs in today’s changing environment, consider C.H. Robinson’s customs compliance services. With over 100 licensed customs brokers in North America, and a Trusted Advisor® approach, our experts are ready to help.

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Ben Bidwell serves as the Director of U.S. Customs at  C.H. Robinson