Customs Bonds 2021: What to Look Out For

Written by Marek Zbyszewski
Find me on:
3 minute read

What is a Customs Bond

 

If you are involved in supply chain, it’s no secret that trade volumes are at an all-time high. The United States continues to import more goods from Asia each year, with 2021 on pace to be even higher. This, coupled with increased duty rates on most of those goods, has caused the overall duty spend for US importers to rise nearly 130% since 2017. Furthermore, the first five months of 2021 suggest that this year will be drastically higher than 2020. While the economic impact of these increased duties is a common theme of discussion among economists and business people across the country, one area that has certainly felt the effect of these duty surges is Customs bonds. Below are three critical topics to consider related to bonds:

Bond Stacking

Bond stacking most commonly occurs when a Customs bond must be increased before its 12-month renewal period is up. For example, if a $50K bond is issued on January 1, and must be increased to $100K on July 1, the total stacking exposure for that importer is now at $150K for that annual period. This is concerning because, as the exposure adds up, there is substantially more risk on the line for the surety. This, in turn, makes subsequent bond approvals more challenging for the importer in the form of additional premiums, additional requirements, and additional time spent on setting up new bonds. A common reason that a bond must be increased prior to completing its 12-month renewal period is when Customs issues an insufficiency notice. This requires that the importer place an increased bond within 30 days of the notice. According to the International Trade Surety Association, Customs rendered an average of 1,800 bonds insufficient annually between 2004 and 2017. Over the last three years, that number has skyrocketed to 9,600 annually, with 2021 on pace to reach 12,000. While sometimes breaching a bond limit is unavoidable, doing a thorough analysis of volumes and forecasts is critical to ensure a bond limit will last a full 12 months. Download our whitepaper to read more about stacking exposure.

Anti-Dumping & Countervailing Duty (ADD/CVD)

ADD and CVD enforcement continues to be a priority trade issue for Customs & Border Protection. Companies who import goods subject to ADD/CVD face additional levels of scrutiny when applying for a Customs bond. This is because entries for goods subject to ADD/CVD remain unliquidated much longer than standard consumption entries, sometimes even several years after the initial shipment clearance. Oftentimes, the Department of Commerce will continue to increase the rate on ADD/CVD cases, and Customs will then retroactively bill the importer for the additional duty owed. This spells major risk for the surety issuing the bond, as those additional duty bills often go unpaid by the importer, who at that point may be out of business or be restructured into a different organization. Those duty bills would then end up being the responsibility of the surety, who has no choice but pay the bill. Hence, importers who bring in goods subject to ADD/CVD should be prepared for discussions about providing their surety collateral in the form of cash or letters of credit.

Activity Codes

With the increased duties introduced in 2017 and 2018 on most goods from China, importers began paying significantly more to clear their imported goods through Customs. While some simply shouldered the additional expense, others began taking advantage of existing duty mitigation techniques that previously may not have served them, such as setting up a Foreign Trade Zone (FTZ), or applying for accelerated duty drawback. Both of these activities require the importer to obtain an additional bond. In this case, the surety is going to consider the total aggregation, or sum of, the various bonds an importer has on file when approving new bonds or renewals. For example, if an importer has a $500K importer bond, and is looking to obtain a $500K FTZ bond, that will push their total aggregation to $1M.

bond may seem intimidating, proper planning and review will go a long way in terms of saving headaches, time, and money. Expeditors’ network of experts is here to help our clients obtain and manage a Customs bond, with the most seamless and comfortable experience possible. Reach out today to learn more

 

Blog was originally posted on September 14, 2021 7 AM

Topics: Customs

Marek Zbyszewski

Written by Marek Zbyszewski

Marek has been with Expeditors since 2007, and currently manages sales operations and development for Expeditors’ Corporate Risk Management & Insurance group based in Seattle. Previously, Marek managed the Customs bond program for the US and Canada, and held various operational and leadership roles in the Customs brokerage department at Expeditors’ Seattle branch office.

3 minute read