If you're importing merchandise valued over $2,500 into the U.S. for commercial purposes, or a commodity subject to other federal agency requirements, you are required to post a U.S. Customs bond. In addition to ensuring compliance with all government rules and regulations, the bond is a guarantee of payment of duties and taxes. A bond can be purchased for each shipment or for a 12-month period, known as a continuous or annual bond.
Before delving into the merits of a continuous bond, we need to address a common misconception concerning bond rates. Historically, the market rate for a continuous bond carrying the minimum $50,000 liability limit was $500 to $600. We'll talk about bond limits in this post, but you need to know that the market has shifted. Subject to underwriter approval, our rate for a continuous bond is $249. This is the exact same bond you would buy from any of our competitors, underwritten and backed by the same financial institutions. If you're a subscriber, we'll discount that rate even further. In fact, we might just give it to you for free. At $500 per year, a continuous bond may not be attractive to an infrequent importer, but at $249 or less, it's often far more cost-effective than purchasing single transaction bonds. There are other reasons to consider a continuous bond, here's a brief overview of how the rates are calculated and what you need to know to make an educated decision.
Let's start with the limit of liability and the associated costs. A continuous bond is calculated at 10% of estimated duties, taxes, and fees over a 12-month period with a $50,000 minimum. For example, if you expect to import $500,000 of clothespins, dutiable at 4.2%, in the next 12 months, you would incur $21,000 in duties, plus another $2,000 or so in Merchandise Processing Fees. Calculated at 10% of that $23,000, your limit of liability needs to be $2,300, far below the $50,000 minimum. Generally speaking, you would need to incur $500,000 in duties and fees annually to exceed the minimum.
Conversely, a single transaction bond covers both the value of the imported goods, plus all duties, taxes, and fees, rounded to the next $1,000. For example, if you're importing $50,000 of those clothespins, you will incur about $2,273 in duties and fees, meaning you will need a $53,000 single transaction bond (this amount is tripled if the product being imported is subject to FDA, DOT, EPA, or any other government agency). Charged at the rate of $4.50 per $1,000, with a $45 minimum, that bond will cost you $238.50 (53 x $4.50).
Other things to consider...
- A single transaction bond does not cover Importer Security Filing (ISF). If you're shipment is arriving by ocean, you need to file an ISF 24 hours prior to departure. The ISF is an independent transaction, carrying different risks, and must be secured by a separate bond. The cost of an ISF bond is $45 per ISF.
- If the goods being imported are regulated by any other government agency, such as FDA, DOT, or CPSC, the limit of liability is tripled for single transaction bond calculation purposes. For example, a shipment of plastic bowls valued at $30,000 and dutiable at 6.5% would require a $96,000 bond ($31,950 x 3).
- Goods imported using a single transaction bond are not eligible for Periodic Monthly Statement (PMS) processing. We talk about this in more detail in another post, but PMS is an extended payment term offered by U.S. Customs. In turn, we're able to extend more generous payment terms when goods are imported using a continuous bond.
There are countless other factors to consider, but these ranked highly based on the conversations we've had with importers and forwarders. If you have any questions or would like to review your import activity to ensure you have the right coverage, do not hesitate to contact us at email@example.com.