In fiscal year 2018, the US Customs and Border Protection Agency (CPB) collected more than $40 billion worth of duties on more than $2 trillion worth of imported goods. Duties are an important source of revenue for the federal government, which helps to answer the question of why do importers need customs bonds? But if you are one of those importers, you probably want to learn more about why this bond is needed and how much it costs to maintain — or not have. Read on to get the answers.
What Is a Customs Bond?
A customs bond (also known as an importers and customs bond) is a way to ensure that importers pay all the taxes, duties, and fees owed to various federal agencies upon bringing goods into the country. As with all types of surety bonds, there are three parties involved in the agreement:
- The importer is the principal, which is a term assigned to whoever is responsible for obtaining the bond. As the bondholder, the principal is also responsible for paying any claims filed against the bond. The surety guarantees payment, but the financial obligation is ultimately on the principal.
- CPB is the obligee because they are the party that requires principals to have bonds. The obligee is allowed to set the terms of the bond, and if those terms are not met, they can file a claim for compensation against the bond. Typically, the claim is equal to whatever taxes or duties the importer failed to pay.
- The surety company issues the bond to the principal and guarantees payment to the obligee. If an obligee files a valid claim and the principal refuses to pay, the surety will always step in to provide compensation up to the amount of the bond. After paying, however, the surety will do whatever is in their power to collect the debt from the principal (the importer).
Why Do Importers Need Customs Bonds?
Ensuring that goods flow freely and fairly in and out of American cities takes a lot of resources – customs agents, ports, etc. – that require financial support. Taxing goods coming into the country is also an important mechanism for managing the economy. For both those reasons, it’s vital that importers pay their fair share. Only a small minority of importers want to break the rules, but because they do, almost all importers need an importers and customs bond.
The CPB requires these bonds to protect themselves against the risk of unpaid duties. Instead of taking an importer’s word that he or she will pay, the CPB makes them get a bond backed by a surety that will guarantee payment. These bonds are an important safeguard against uncertainty that helps the entire import/export process run smoother as a result.
That explains why bonds are required. The reason importers actually need one is because they can’t bring goods into the country without one. Shipping delays can throw supply chains and sales strategies into turmoil, which is why most importers do everything possible to pass through customs without incident. Securing a bond in advance makes the import process a lot more seamless for those invested in the outcome.
When Is a Customs Bond Required?
Importers must have a bond when bringing more than $2,500 worth of commercial goods into the country. Bonds may also be required by certain agencies for shipments worth less than $2,500 that contain certain types of goods. For example, imports containing food or firearms always require a bond.
How Do Customs Bonds Work?
The process for getting an importers and customs bond is fairly simple, but it can take some time to complete. First, you need to determine what kind of bond you require. There are two options:
- Single Transaction Bonds – These bonds apply to one-time imports and are usually the same amount as the value of the goods being shipped plus the cost of taxes and duties.
- Continuous Bonds – These bonds apply to ongoing imports and the total is a percentage of the combined duties of the imports over a 12-month period.
Importers need to obtain a bond before their goods are allowed into the country. That involves finding a surety company like Viking Bond Service to work with, then filling out an application with basic information about your finances. The surety will then produce a quote for the bond premium, and once the premium is paid, the surety provides proof to the CPB that the importer has an active bond. Beginning to end, this process can take about 10 days, so it’s worth it to pursue a bond sooner rather than later.
What Much Does a Customs Bond Cost?
The value of a customs bond can be quite large depending on the size of the shipment, but the actual cost is only a small percentage of that total, often in the range of 3-5% depending on your credit worthiness. It’s also worth considering the cost of NOT having a customs bond. Imports not covered by a bond cannot clear customs and are subject to storage and administrative fees, as well as potentially lengthy inspections by customs officials. If the importer does not acquire a bond within 30 days, the custodian of the goods has the right to sell them. Therefore, the cost of having a customs bond is always lower than the cost of not having one.
Get Your Shipment Through Customs With Viking Bond Service
Regardless of whether you import regularly, occasionally, or just once, it helps to work with a great surety company. Viking Bond Service has all the resources you require, including a helpful team of bond experts, an easy application process, and fast quotes. Instead of worrying about your bond, focus on your shipment. Fill out our online application at your convenience, or call us at 888-278-7389 with any questions you might have. For a complete overview of how the bond process works, please consult our free resource all about surety bonds.