The increases in tariffs being charged to US imported goods will significantly increase the financial demand on the bonds importers must have. We’re sharing more information about bonds here to help keep you informed, covered, and not financially exposed.
What’s the purpose of a bond?
The Bond is security to the government that all entry (financial) obligations will be met per 19 CFR 113.62. It secures:
• Agreement to pay duties and taxes timely
• Agreement to make or complete entry
• To produce documents and evidence
• To Redeliver merchandise if demanded
• To rectify any non-compliance
• Agreement to examination of merchandise
• Agreement to comply with CBP Security at Airports
• Agreement to comply with Advance Cargo Information Filing
• Agreement to Air Cargo Screening
• Agreement to Softwood Lumber permits and fees
• To reimburse and exonerate the USA
CBP requires security for entries over $2500 or Type 11 if paid on statement.
Carnets serve as both entry and bond.
In-bond moves are not customs entries, and an entry bond is not needed.
What are the alternatives to a bond?
Cash or other security deposit by IOR with CBP in lieu of a bond (19 CFR 113.40).
What are the types of customs bond?
Customs Bond Types:
• Activity Code 1 -Import Bond
• Activity Code 1a -Drawback Payment Refunds Bond
• Activity Code 2 -Custodian of Bonded Merchandise Bond
• Activity Code 3 -International Carrier Bond
• Activity Code 3a -Instruments of International Traffic
• Activity Code 4 -Foreign Trade Zone Bond
• Activity Code 11 -Airport Security Bond
• Activity Code 16 -Importer Security Filing Bond
There are two types of the most used bond by Importers of Record (IOR) – Customs Import Bonds (Activity Code 1):
• Continuous (CTB) – Valid for all imports for IOR until terminated or deemed insufficient by CBP. Annual premium payment. Required for IOR to be on PMS
• Single Transaction (STB) –For one entry. This type is rarely used since an ISF on Ocean imports needs a bond as well. Also, Sureties limit the number of STBs per IOR due to increased liability versus a CTB
More details on Customs Bonds
A Customs Bond Is a Legal Contract Between:
• Importer of Record – also called Principal
• Surety Company – via the Surety Agent
• Customs and Border Protection
If the IOR defaults, Customs will collect from the Surety – the bond serves as insurance for CBP. The Surety will then pursue the IOR.
A Bond Application and IOR Signature are required to establish the contract. Customs Bond Fees are non-refundable, even if there are no defaults.
Surety liability covers the full value of the bond for the bond period. A bond is considered ‘open’ if all underlying entries aren’t Final Liquidated and 90 days have passed.
Setting Bond Amounts
Continuous Bonds
• Generally, the bond must cover 10% of duties in the prior 12-month period
• CBP has new bond formula here: A Guide for the Public: How CBP Sets Bond Amounts | U.S. Customs and Border Protection
• Duties under Protest and bills less than 210 days old are counted at 10%
• Bills over 210 days and not protested are counted at 100%
• Old Debit Vouchers and bills paid by Surety are counted at 100%
• The minimum Bond value is $50,000
• Then you purchase coverage in Increments of $10,000 over $50,000 until $100,000
• The next increment is $100,000, and $100,000 after that
Single Entry Bond
• The lowest bond amount is $100, above that, the amount is rounded up to next $100, except for SEBs. For TIBs double the duties to the penny.
• Generally – the Bond cost is the value of the goods plus duty and taxes
• If ADD/CVD, CBP may set a higher bond amount
• If the commodity is governed by a participating government agency – the bond is three times the value of the merchandise
• If the goods are unconditionally Duty Free – the Bond is 10% of value
CBP reserves the right to request a higher bond amount at any time
CBPs NEW Bond Formula includes:
• Total estimated duties, taxes and fees over the prior 12 months
• Any unpaid bills, delinquent bills, debit vouchers or bills paid by the surety for ANY PRIOR time
Any entries with ADD or CVD require an additional Bond Questionnaire and APPROVAL from the Surety before entry transmission. For bonds exceeding $100,000, the client’s financials are also reviewed.
Bond Sufficiency
When a bond shows 70% or more as ‘used’ the Surety will issue a Courtesy Insufficiency Notice – the Bond is considered saturated. Our bond agents provide sufficiency reports to us weekly, helping us help our clients more proactively
The Surety may not use the exact formula that CBP uses. CBP monitors sufficiency for CTBs monthly & will send a Notice to the IOR when the bond is saturated and must be replaced within 30 days. CBP looks at the trailing 12-month period.
Notice goes to IOR address on file with CBP.
Once a bond is saturated, CBP will “terminate” the bond after 30 days have passed from the Notice. Insufficiency or saturation becomes a major issue if the importer had a previous bond with unliquidated entries. Keep in mind that a bond remains open until all entries filed against the bond show Final Liquidation.
Final Liquidation occurs 90 days following the date of Liquidation.
A more challenging issue is if the IOR also had collateral on the previous bond, or other open bonds. Anytime a previous bond is still open, and a new bond is placed will have STACKING
What is Bond Stacking?
Bond Stacking occurs when a surety has open exposure over multiple bond periods for an IOR. The bond period is 365 days from the bond effective date, or earlier if a bond is terminated. If
Bond stacking also occurs when multiple bonds are placed within the same 365 days (12 months trailing) OR – where all underling entries are not Final Liquidated – this is also called stacked liability.
Examples of Bond Stacking
1. Jan 1, 2023: First Bond $100,000
a. Mar 1, 2023: CBP states insufficient.
2. Apr 1, 2023: IOR Files 2nd Bond $200,000
a. Sept 1, 2023: Insufficient.
3. Oct 1,2023: IOR Files 3rd Bond $400,000
The Surety demands collateral as IORs financials don’t support $700,000 liability.
• IOR entries aren’t liquidating timely
• Open liability to Surety is: $700,000
By understanding your expected Bond commitments during the lifetime of your bond, you can determine the level of saturation you have as your duties become due. You’ll leverage your bond most cost-effectively. Plan to acquire a new bond as you approach 90% saturation to give time for the new bond to become effective.
Bond challenges & tips
Challenges:
• Importer attempts to keep bond cost low and under declares their volume and/or duties
• To avoid production of financials, or collateral, the Importer under declares their volume or duties
• Importer switches sureties due to unfavorable condition with their current surety
• Importer may not indicate goods subject to ADD/CVD on the application
General Q&A
Why do importers need customs surety bonds?
Importers use customs surety bonds to get their goods released before they actually pay the estimated import duties, fees, and taxes. The bond acts like a financial guarantee to US CBP that the importer will pay up. If they don’t, the bond surety – the insurance company backing the bond – is on the hook up to the bond limit.
How is the bond limit calculated?
In general. the bond limit is typically set at 10% of the estimated import duties, fees, and taxes the importer expects to owe over a 12-month period. There may be circumstances that alter this calculation.
What happens when tariff rates go up quickly?
When tariffs spike, especially if they spike quickly, it puts pressure on the bond limit, since importers are now liable for much higher duties without a matching bond increase. This can stress the bond’s limits.
What’s an “Insufficiency Notice”?
It’s the reminder importers get when their duty liability is creeping too close to their bond limit. If the liability goes beyond the limit, your ability to import can be shut down until the bond is increased.
How do importers fix an insufficient bond?
They often have to “stack” a supplemental bond on top of their existing one. But doing that triggers more financial scrutiny.
What form might the additional scrutiny take?
The bond surety may want to see audited financials. If your company doesn’t look financially strong—low cash, high debt, shaky cash flow—they’re going to ask for collateral, which might be substantial.
What kind of collateral is required?
Usually, a letter of credit for up to 110% of the bond limit.
How long is that collateral tied up?
At minimum, it’s locked down until all entries on the bond are liquidated and 90 days have passed, which can take at least 314 days after the bond expires.
If you have more questions or would like to talk with us about your current bond arrangement, please contact us.
