IS YOUR CONTINUOUS BOND INSUFFICIENT?
While importers have been focused on rising costs associated with additional tariffs most have not recognized another area that will impact their operations—increase premiums for continuous bonds.
Filings of import declarations, such as Entries and Importer Security Filings, require a bond to be posted. The most common method is for the importer to obtain a continuous bond with an annual premium. The value of the bond, and therefore the premiums, are based on a percentage of the projected taxes, fees and duties an importer in expected to pay. The additional duties will impact this premium.
Importers that are subject to the increased tariffs under the Section 301 (Chinese goods) and Section 232 (steel and aluminum imports) actions should recalculate their projected duties. Customs and Border Protection (CBP) can hold shipments without sufficient bonds, causing importers to incur delays and additional costs.
The additional tariffs under section 301 and section 232 increases the amount of duties payable. This can affect importers bonds because the bonds are based on the duties and taxes payable and not the value of the goods. Higher bond amounts mean higher continuous bond premiums.
The Journal of Commerce reported that, “the increases in premiums are not necessarily linear with the increase in bond requirements, so a bond requirement that rises 20-fold wouldn’t translate to a 20-fold increase in premiums. Sometimes the premium rate goes down relative to the size of the bond, sometimes it goes higher – it’s largely dependent on the surety’s assessment of the importer’s ability to pay, a risk calculation. That goes back to whether the importer has a strong enough balance sheet or the cash balance to back the increase bond.”
If an importer does not meet the underwriting criteria they may be required to provide collateral or personal guarantees. Not only will this lengthen the underwriting process, but it may increase a company’s exposure to their bank, which may also impact a company’s line of credit, etc.
If you have any questions, please feel free to contact your Norman Krieger Representative for more information.