When importing commercial goods valued at over $2500 into the US, you need a customs bond. As a requirement, that is simple to understand.

But how come your shipment requires a customs bond yet its value is less than $2500?

And why do you keep getting a Customs Bond Insufficiency Notice when the last time you checked, you had barely used 40% of your premium?

These are questions you need answers to even before you start planning your next shipment to the US.

Not to worry,  Blackthorne IT developed a detailed guide to share everything you need to know about customs bonds before initiating your next shipment.

Let’s head straight to the details!

What is a Customs Bond?

A customs bond is a legally binding agreement that guarantees that you will pay applicable duties, taxes, and fees. 

It’s a requirement by the US Customs and Border Protection  (CBP) to protect the US government in case you are unable to meet the financial obligations of your shipment. 

Without it, your goods may be delayed, denied entry, or held at the port till you meet all import requirements.

Types of Customs Bonds

There are five main types of customs bonds in the global supply chain, including:

Single Entry Bond

Covers one specific import transaction for a specific port of entry. It expires once the shipment clears customs and meets all import obligations. A single entry bond is best suited for occasional or one-time transactions.

Continuous Bond

A renewable bond that covers multiple import transactions over 12 months. It’s the most cost-effective option for regular importers and covers the Importer Security Filing (ISF) requirement for ocean freight.

A standard Continuous Bond covers duties and taxes worth $50,000, which costs between $250 and $600 annually, depending on the surety agency you partner with.

International Carrier Bond

Carriers (shipping lines, airlines, trucking companies) transporting goods to the US are required to provide an international carrier bond to guarantee compliance with customs regulations. 

Custodian Bond

A custodian bond is designed for businesses that handle and store imported goods before customs clearance, such as warehouse operators, freight forwarders, and carriers.

The bond guarantees that the business will handle, store, and account for the goods under customs control until customs release them.

Foreign Trade Zone (FTZ) Bond

Foreign Trade Zone operators require an FTZ bond to ensure that their activities (storage, manufacturing, processing, or re-export) comply with CBP regulations.

Of the five types of bonds, only the Single Entry and Continuous Bond are relevant to you as an importer.

Customs Bond Requirements 

Various factors determine whether your shipment needs a customs bond. These factors include:

Shipment Value

Commercial goods valued at $2,500 or more are processed as formal entries and must be supported by a customs bond.

Nature of the Goods

Your shipment may be valued less than $2,500. But if it’s regulated by other government agencies such as FCC, FDA, or USDA, it may require a bond.

Import Frequency

The number of times you ship to the US determines whether you need a single entry or continuous bond.

So the next time you wonder why your less-than-$2,500 value shipment requires a bond, consider the type of goods you are importing.

Parties Involved in a Customs Bond 

There are three main parties in every customs bond transaction:

• Importer (you, the Principal): You’re the one bringing goods into the US and responsible for paying duties and ensuring import compliance.
• Surety (the Guarantor): The insurance company that issues the bond. The Guarantor pays duties and taxes on your behalf (in case you are unable to pay), so you reimburse them later.
• Customs Authority (the Obligee): The bond beneficiary (such as CBP) who collects due revenue and ensures customs clearance instructions are met.

Step-by-Step Guide to Obtaining a Customs Bond

Once you have established that your shipment requires a customs bond, you can apply for the bond via this five-step guide:

Step 1: Establish your Shipping Frequency

Start by understanding how often you will ship goods into the US for the next twelve months. That way, you can choose between the single entry and continuous bond cost-effectively.

Step 2: Choose a Bond Provider

You can obtain a customs bond via a surety company or a customs broker acting on behalf of a surety company. 

A surety company is the best option if you have an established internal customs compliance process. But if you have a customs broker handling your documentation, entrusting them with the bond application can be time-saving and cost-efficient.

You can also check with your freight forwarder, as some international freight forwarders sell bonds and can facilitate the bond application process.

Step 3: Have your Business Information Ready

Key information you will need to provide includes:

• Importer of Record (IOR) details
• Business name and address
• Employer Identification Number (EIN) or Tax Identification Number
• Description of the imported goods
• Country of origin 
• Port of entry
• Estimated shipment value
• Shipping and customs documentation

Step 4: Submit an Application

Your bond provider guides you through the application process and provides the required documentation.

You are required to:

• Provide the business details you prepared in Step 3
• Submit a filled and signed Power of Attorney form authorising your issuer to represent you
• Complete and submit the official customs bond form (CBP Form 301)
• Provide any other information that your bond provider may need

Step 5: Filing and Approval

Your bond provider underwrites your request and issues the bond upon approval. Your documentation, including the signed customs bond, is filed with CBP for approval. It takes up to two weeks for CBP to approve a continuous bond filing.

Upon approval, CBP issues a unique bond identifier tied to your Customs Assigned Importer Number (CAIN).

Common Customs Bond Mistakes 

Here are the five common mistakes to avoid when applying for a customs bond:

• Choosing the wrong bond type: Opting for a Single Entry bond when a Continuous Bond would save you time and money for regular shipments
• Assuming bond responsibilities: Believing your freight forwarder or customs broker is the importer of record and liable for the bond when it’s your ultimate responsibility.
• Underestimating bond amount: Failing to adjust your continuous bond amount as your import volume or duty liabilities grow. This leads to insufficient funds and may put your shipment on hold during customs clearance.
• Choosing cheap over business needs: When evaluating the partners, consider experience, processing time, responsiveness, and familiarity with your type of shipment.
• Ignoring small claims: Dismissing minor customs notices or penalties, which can escalate into major issues and impact your importer risk profile.

Best Practices to Avoid Customs Bond Noncompliance

Here are seven best practices you can adopt to avoid the abovementioned mistakes and lower the risk of noncompliance: 

• Review bond sufficiency regularly: Periodically assess your import volume and duty liabilities to ensure adequacy of your bond amount.
• Verify business information accuracy:  Ensure business information, including the customs-assigned importer number, EIN, and customs documentation, is accurate and consistent.
• Automate bond renewals: Ensure timely renewal of continuous bonds with an automated system.
• Work with international trade experts: Reputable customs brokers and importers of record can guide you through bond selection, application, and compliance.
• Develop clear Incoterms: Clearly define and understand the terms of shipment, including roles and responsibilities for each party, who acts as the importer of record, and who handles the customs bond.
• Record-keeping: Record all import transactions, bond applications, and duty payments for future audits and compliance verifications with customs.
• Stay ahead of regulatory changes: Regularly monitor updates from CBP and other relevant government agencies to ensure ongoing compliance.

Navigating Customs Bond Requirements with Experts

The bond application process is straightforward. And with the best practices we discussed, you significantly lower the risk of customs bond noncompliance, avoiding unnecessary delays and costs.

But the insufficiency of customs bonds continues to catch most importers by surprise. And having only fifteen days to adjust your budget and fix the required amount can be challenging and inconvenient.

So how does this happen?

Seven key factors affect your bond sufficiency:

• Sudden spike in import volume: Once you start importing more frequently or in larger amounts, your total Duties, Taxes, and Fees (DTF) increase, significantly outpacing your bond limit.
• Rising tariffs: With an increase in taxes, the extra tariffs are factored into your bond sufficiency calculation. That means a policy change can make your bond insufficient overnight.
• Anti-dumping and Countervailing duties (AD/CVD): Goods falling under AD/CVD increase duty liabilities significantly and can quickly exhaust your bond capacity.
• HS Code reclassification: If customs audit your shipments and determine you should be using a different HS code with higher duty rates, they recalculate your historical DTF upwards, potentially triggering bond insufficiency.
• Bond stacking effect: When you replace an insufficient bond, liabilities from the previous bond can stay active for up to twelve months. This forces you into an even higher bond amount to cover the accumulating fees.
• Invalid address: If CBP cannot reach you at the address on file, they will invalidate your bond. 

Waiting until CBP sends that bond insufficiency notice can be costly. And it is worse when your shipment is held at customs because you never learned about the insufficiency in time to fix it.

Hence, it is important to work closely with your customs broker, freight forwarder, or importer of record to revise your import volume and frequency and accurately forecast import costs for the next 12 months.

That way, you can determine if you need to raise your bond amount above the customs-required amount.

Manage Customs Bonds with Blackthorne IOR

If you are importing as your own importer of record or a foreign importer of record (FOIR), you need a local agent or customs broker for customs. The broker handles documentation, including customs bond application on your behalf.

Alternatively, you can partner with a locally established third-party IOR to act on your behalf and handle compliance, documentation, and customs bond application.

Here are the benefits you get when you choose Blackthorne IOR for your IT equipment shipment:

• 360-degree compliance: We are always prepared for customs audits, policy changes, and tariff adjustments so you can stay compliant.
• Accurate HS classification: Our tech experts review HS codes to ensure they are accurate and up-to-date, so you don’t experience HS reclassifications.
• Customs bond application and management: We review your import frequency and quantities so you don’t exhaust your bond amount.
• Coordinated freight forwarding with door-to-door delivery: No storage or demurrage fees as you await final delivery, which deducts from your bond amount/
• Import cost optimisation and efficiency: No unnecessary costs. Only the relevant fees are deducted from your bond.

That way, you worry less about bond insufficiency and noncompliance at any stage of the international supply chain.

That said, if you are planning to scale unlimited with a cost-efficient customs bond, we are only a call away. You can also email us at sales@blackthorneit.com so we can start planning your IT equipment shipments together.

FAQs

Here are quick answers to the frequently asked questions about customs bonds: