Increased Tariffs & Customs Bond: Potential Double Impact on Importers Financials, Credit, and Borrowing Ability. A MUST READ FOR CFO’S INVOLVED WITH IMPORTS FROM CHINA!
It’s obvious the increased China tariffs have had an impact on importers financial results and ability to borrow. Many importers are not aware that the China tariffs could have a double negative impact on their financials because of a possible requirement to have a mandated increase in Customs bond amounts go into effect.
Current Tariff Example:
An entity importing $50 million of first cost from China is paying duty of $5 million a year. The bond required for this transaction is 10 percent of the duty paid the previous 12 months (on a rolling basis). Assuming there were no increases in duties paid – the importer would need to secure a $500K bond for 12 months. Most insurance companies require collateral over $200K if the importer’s financial statements do not support the amount of financial exposure.
New Tariff Example:
Now let’s assume the entity is paying additional tariff rates of 15 percent. The annual duties paid would now be $12.5 million dollars. By law the new bond required by Customs will be $1.3 million dollars. The importer will receive a notice from Customs informing them they have about 30 days to increase the amount.
The Importer is faced with a serious issue in this scenario. It is likely they will need additional collateral for this new bond while at the same time being required to maintain the old collateral on the $500K bond until all the entries cleared under it liquidate.
It could be very likely that an $800K bond increase may require an importer to secure $1.3 million in collateral.
To further add to the issue, Sureties may require additional information (such as financial statements and collateral) on bonds with higher limits or when importing commodities covered by these new tariffs. There may be additional time needed to the filing of the new bond.
As these new tariffs go into effect now is the time to make sure your bond is sufficient. Alba can help determine your possible increases if we are holding your Customs bond.
Some things to consider:
- For those importers that may be subject to a tariff increase now is the time to start gathering underwriting requirements that may be needed. (Such as a Bond Application and Indemnity and Financial Statements).
- When applying for a new bond you are encouraged to consider – the duties, taxes, and fees anticipated for the next 12 months. This will help to avoid receiving a Bond Sufficiency letter from Customs and potential disruption to your import supply chain.
We cannot stress how serious this matter is. It can have detrimental effects on credit facilities and the ability to import product. We encourage you to share this vital information with friends, colleagues, and suppliers who import from China. If you have any questions about your bond and the potential new requirements please contact us at email@example.com
- Posted by Joe DeSilvetri
- On September 26, 2019
- 0 Comments