Managing Customs Bond Sufficiency in a Chaotic Trade Climate is Absolutely Paramount for Importers

Trade remedy tariffs are no longer headline news, but they are still relevant and pose a unique set of delay and disruption concerns for importers. High among these concerns are insufficient Customs Bonds. With no end in sight for any relief from these tariffs, importers and their customs brokers should continue to monitor their import bonds for sufficiency closely.

Since the initial enforcement of trade tariffs began under the Trump administration in 2018, the number of insufficiency demand letters that U.S. Customs and Border Protection (CBP) sent to importers has steadily increased, reaching an unprecedented high point in 2019 of 13,477. As a result of the increased tariffs, in 2021, CBP collected almost three times the duty, taxes and fees as it did in 2017.

These tariff increases also impact surety companies, having resulted in over $1 billion in additional liability for the surety industry. According to CBP statistics, there are less than ten surety companies in the United States that file CBP bonds and they are responsible for 243,000+ continuous import bonds currently on file. The liability for these bonds is approximately $25 billion.

The surety is part of the 3-party contact of a Customs Bond, which is a type of surety bond. The Customs bond is posted for CBP’s benefit (the obligee). The bond principal – or importer – must post the bond to assure the importer’s compliance with all laws and regulations governing the importer’s transactions while also guaranteeing payment to CBP. The third- party on the contract is the surety company, a U.S. Treasury-approved company that guarantees the bond principal will meet its obligations and if the principal does not, the bond states the surety company must do so. The bond also allows the surety to demand reimbursement from the bond principal on any claims it may pay in order to make itself whole again.

Surety companies monitor each importer’s importing activities, financial strength, and overall risk individually. Should the importer need to increase its bond multiple times throughout one year, it can have serious negative ramifications, including:

• The importer will likely experience underwriting scrutiny from the surety. The surety may require additional information such as financial statements, statement of indemnity and collateral – and this collateral could be more than a one-time requirement. Should collateral be required, the importer will incur costs with its bank to open the line of credit.
  
• The insufficiency demand letter from CBP has a short deadline for compliance. Suppose underwriting information is required by the surety company to consider writing the increased bond amount. In that case, there are increased chances of running out of time to get the bond processed within CBP’s demanded timeframe. Then the importer may incur even more additional costs and liability for single transaction bonds to avoid any delays in clearing its goods.
• It is unlikely that an importer will receive credit on a saturated bond, so there will be extra costs for additional bonds issued.
• Having multiple bonds issued subjects both the importer and the surety to liquidated damages in the amount of each bond. For example, if the importer increases its bond three times in one year in the amounts of $50,000, $100,000 and $200,000, they are subject to potentially $350,000 in liquidated damages should CBP issue a claim on each bond. If the importer had projected its bond properly when CBP required the bond be increased from $50,000 to $100,000 and obtained a bond for $200,000 instead, they would have limited the total exposure for liquidated damages to $250,000 for both the importer and the surety.

The best way to avoid these extra costs, burdens, and unnecessary liability is to obtain a bond in the proper amount, especially since maintaining a sufficient Customs Bond is within the importer’s control. Remember, the standard continuous Customs Import Bond amount calculation is 10% of duties, taxes, and fees paid in a rolling 12 month period, subject to a $50,000 minimum bond amount. Look back 12 months, look ahead to the next 12 months, and use whichever number is larger. Always seek guidance from a licensed customs broker when selecting the proper bond amount. Customs brokers who work with the right Customs Bond provider can provide tools to help the importer remain proactive with this process. Avoid delay and disruption in your business by vigilantly monitoring your import bond sufficiency.

Disclaimer: This article is provided for informational purposes only and does not constitute legal advice. It should not be construed as an offer to represent you, nor is it intended to create, nor shall the receipt of such information constitute, an attorney-client relationship. Readers are urged to seek professional or legal advice from appropriate parties on all matters mentioned herein.

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About Roanoke:

Roanoke Insurance Group Inc., a Munich Re company, is a specialty insurance broker focused on surety bond and insurance solutions for logistics service providers, customs brokers and companies managing supply chains. Founded in 1935, Roanoke was the first provider of customs import bonds as well as the first appointed ATA Carnet provider in the United States. Roanoke has decades of partnership with the trade community as a trusted provider of insurance, surety bonds, ATA Carnet products and specialty services