Joe: Alright! Hello, and welcome back to "Very Importing People." This is a podcast about importing, customs, and trade. It is presented by USA Customs Clearance, and powered by AFC International. My name is Joe Weaver, and I am a customs compliance writer here at USA Customs Clearance. And I am joined by our licensed customs broker, Anthony Ambrosino. And, if you are an importer, he'd like a word with you about what is keeping him awake at night.
Anthony: Thanks, Joe. There's a lot of different things that keep us awake at night. The... pace of this change is unprecedented between
IEEPA, which is gone already. It was here a year, and it's gone already. 232's been around.
301's probably been around the longest, now with 301 expansions.
Section 338 coming into this. I'd like to have a word about that a little later on, as well, in this podcast. Compliance rules basically changing faster than these software companies can even program them. To be honest with you, myself and Donna DeBrango, another licensed broker here at AFCI, we were up at the end of September on Capitol Hill lobbying for some of these changes to actually slow down with the Congress staff and the Senate staff. We spent a full day... we had two position papers that we were talking about. One was the tariff changes. You can be, on a Friday afternoon, get a CSMS message, and, on Monday morning, the tariff, you have to have it implemented. That's not enough time for the programmers to program the system changes with all these reciprocal tariffs coming on board. That was one of the two position papers. The other position paper was the June 3rd executive order. And we did a whole series on that...
Joe: Do check out our last set of episodes on the Strengthening Customs Enforcement, if you haven't. We go into length about that.
Anthony: We do, and we go into great detail about it. And one of the things that we didn't mention that we did lobby for is... if you did watch that podcast, I did mention that it was about ten years ago. It was
exactly ten years ago. There was a change... TFTEA. It was the executive legislation that came out. It was about certain things, about anti-dumping, forced labor, a few other things. One of them was... a lot of information that was in the June 3rd executive order revolving around validations of power of attorneys and importers, etc., etc. All the things that we've implemented that is in
this executive order. We want Congress to say, "CBP, you have legislation on the books from ten years ago. Please go back to that legislation, revisit it, and don't reinvent the wheel." So that's where we were. A lot of the things we did talk about up on Capitol Hill. And I'm sorry, I don't mean to divert, Joe. A lot of the things that we did— I just wanted to mention this as well. A lot of the things that we did talk about were wrapped around that June 3rd executive order, and where Customs, or CBP, is going with that. So, getting back to... these are the things... keeping us up at night, we're struggling with these changes, right? CBP is... okay, yes, it's not always them. There are a lot of preventable mistakes that importers are making that should be caught. We're catching them that they should be catching, as well. Most of the Customs problems don't begin when the cargo gets at the port. It starts months before that. And there's a cost. There's a real cost to getting these things wrong. Overpaying duty, which, yes, you can get it back. But somebody has to work on that, and there's labor involved to get that stuff back. The consequences of liquidated damages, PSCs, protests, they're all increasing. CBP Forms 28, which is a request for information; 29, which is an increase in duty. "Rate advances," we used to call it. And there's always the risk of increased audits. All of this leads to uncertainty, and importers don't like uncertainty, Joe. They like predictability. And compliance has become significantly less predictable.
Joe: And I would think that it's probably fair to say that customs brokers like nice, predictable importers, too. Perhaps that will be one of the things we accomplish with what we're doing here today is to turn your importing strategies into predictable importing strategies that your customs broker will thank you for. So, for these next several episodes, we're going to focus on some of these customs pain points. Some of them are old, some of them new. We're going to start with every importer's
two favorite words:
customs bonds. So, on customs bonds, this is our first topic up here today. Talk to us briefly in a general sense about customs bonds right now in the current state of things, Anthony, if you would.
Anthony: I want to say importers and brokers alike have, I guess, for the past... let's just say, for as long as I'm in this business, 36 years, have taken customs bonds for granted. Right? Nobody's really paid attention to them. You send in your bond application or your bond renewal, you tell Customs how much you're importing, you give them a few different— this is how you're calculating the bond, you give them a few different tariff numbers, you get a general sense of what your duty is and then you take 10% of that, and then you come out with your bond calculation. Right? For most customs brokers, it's a no brainer, right? For a surety company, it's a no brainer. With all the increase in tariffs, I don't want to say that bonds have become a nightmare, but bonds have come to the forefront because a lot of bonds have been rendered insufficient. They've... there's another term for it, we call it "saturation." Bonds have saturated, and when a bond saturates, Customs, CBP, will send you a letter, or even the surety will... if you have a good surety company, they will know that your bond is about to saturate, and they will tell you, "Hey, the importer needs to increase their bond amount." Now, you have to go back to the importer, and he has to forecast what he's going to import, you've got to add in, now, all the duties and the reciprocal tariffs— two years ago, three years ago. You can't use what you were calculating for your bond because now you have all the different elevated tariffs. So it's really made it a little more challenging for our industry, not just the brokers but the surety companies, as well. So with these bond increases, now you have a $50,000 bond that you've been using for all these years. All of a sudden, it doesn't even go to $100,000, Joe. It can go to $200,000, $300,000, $400,000. And these are the real-life situations that we're facing with our customers. And the surety is, basically... they're looking for companies that aren't going to forfeit on their bond. When they look at you, they're looking at your financials. They're going a little deeper, they're, basically, looking debt-to-equity on their bonds. Okay? And if you don't have good debt-to-equity, and you can't provide your previous year financials, a lot of times, the surety company's going to ask you for collateral in the full amount of the bond. So, if you have a $300,000 bond, a $400,000 bond, you have to put up full collateral on that bond. That's very challenging for a company these days, and you don't get that collateral back until after that final file liquidates. Usually, they would only ask collateral for anti-dumping or countervailing duty...
Joe: Yeah, in the past, that has been pretty standard for ADC...
Anthony: That was standard. So the challenge today is, you know, the duty liability has increased significantly. So, yeah... the bond has... brought itself to the forefront, and, honestly... like I said, I'm in this business for 36 years, and I've learned more about bonds since I joined R+L Global Logistics and AFCI because we kind of specialize in bonds, so we offer a service where we just will sell you a customs bond at a very good price, as well.
Joe: I do want to get into some details of bond insufficiency because that is one of the larger issues plaguing importers these days. So, like we established a little bit earlier— and this is still the rule for now. The absolute minimum coverage that... a continuous customs bond can have— and this is according to CBP guidelines, it's not arbitrary— is $50,000. Now that means that, if you project that... 10% of your duties over the course of a 12-month period are going to be $50,000 or less, then
that bond will work for you. But that is not going to be sufficient for every importer, especially nowadays, is it, Anthony?
Anthony: It's not even sufficient for customers that had $50,000 bonds for 20, 30, 40 years. And it's, basically, due to the tariffs because you're not just including the Most Favored Nations, Column 1 rate of duty any longer. Right? So, your merchandise that you import is always 3.9% duty. Now you have to factor in
Section 232, Section 301, Section 338... and we're going to touch on all of this later on. But all of this factors in the
bond calculation now, and the 10% of duties that you're going to anticipate and pay. The biggest issue is what we're seeing is companies using historical data and duty levels, like I just mentioned, 2-3 years ago, and they're falling way short on these bond renewals. And they're saturating really quickly. And just so you know, if you use... let's, for argument's sake, say you have a $50,000 bond. You're at $48,000 of that bond. And now you need a new bond because you have six months left on that bond. That $48,000 doesn't go away when you get a new bond for— let's, for argument's sake, say— $100,000. You're already starting at $48,000 saturation. So... my message is, when you are recalculating, factor that into your calculations. That's very important, okay? And it's just... I hate to say this, but it's more common that importers are receiving insufficient bond notices on a regular basis. We've had customers where we increased their bond from $50,000 to $300,000 to $400,000 to $500,000 in less than a 12— yes, I know, Joe, it's... you're shaking your head— but these are real-life scenarios. And we just recently got a customer who we sold him a $50,000 bond. I guess they forecasted incorrectly when they filled out the bond application because... we just reached six months with that customer. Great customer. And, two months ago, their bond was rendered insufficient. It was already being saturated. And they went from a $50,000-a-year bond to a $400,000-a-year bond. Fortunately, for us, we still had their customs clearance. But, unfortunately, we couldn't give them the bond service without them putting up collateral because they couldn't put up their previous year's financials. If they would have been able to do that, they wouldn't have had to do the collateral because they are a well-funded company. So, with these increased enforcement activities and higher duty collections, importers really need to expect CBP
and the sureties to really be scrutinizing and paying close attention to bond adequacies.
Joe: This is a little tangential, but, with the customer that you mentioned, if that bond saturated a couple of months ago, that timing kind of lines up with two things. It lines up a little bit with the more recent invocation of the Section 301 tariffs across 60 countries; that, we'll talk about a little on a later episode. It also sounds like it could line up with the initial Section 338 impositions, as well. So that could have been something that they calculated at the beginning of the year, or even a little way into the beginning of the year, and it could have been fine at that time. But it just goes to show the pace at which things are changing.
Anthony: The pace is... exactly that. It's incredible. And Section 122 played into that, as well. Even though it was only 10%, that was 10% that they didn't account for.
Joe: Exactly. And, even though Section 122 was— I believe Section 122 was...
Anthony: 150 days.
Joe: Yeah. And there was a certain class... there was a small lawsuit that was brought into effect, I remember, for that one that... some importers were given some amount of immunity from 122, but, for the large part, it wasn't something that was, basically, given to everyone. It was only the people who had sued the government specifically. And I'm going to bring that point back up a little bit later when we talk about Section 338 because we had some
recent news about Section 338, Anthony, about a lawsuit from a relatively large company. I don't know if you've even had a chance to look at, but that's something that we're going to talk about a little bit later, maybe a glimmer of hope on the horizon for those who like to import from our neighbor to the north.
Anthony: And, you know what, I don't think I've heard about it. And this is why... this is a very... interesting business, and this is why I really enjoy it because you learn something new. Like I just said, I learned more about bonds in the last 6-7 months than I have in 36 years.
Joe: Working in customs in any respect in the current administration is never boring.
Anthony: No. No.
Joe: So we talked a little bit about some insufficiency issues, but, like any other document that needs to be filled out for the government, there are very strict
documentation requirements, and not all of the information that needs to be filled out is instinctual. Part of my job involves reviewing customer phone calls, and a pattern I see kind of consistently with purchasing bonds is individuals who have some confusion who, according to their business structure, actually needs to sign off on the bond application or power of attorney. I was reviewing a call yesterday where I can remember their initial call where they said, "Hey, is it cool if this person signs off?" And the way they described it, it was fine. But then it came back, like "Hey, somebody else has to sign this." I saw the follow-up call for that, so... Documentation errors. Would you say the one I described is fairly common, and what are some other ones that you see on a regular basis?
Anthony: No, that's very common. Signatures... it's probably one of the biggest... Regarding the power of attorney, when you're submitting a bond through a surety to CBP or, technically, transacting business with CBP, so we require a power of attorney to do that. And that's where most of your common errors are, related to the power of attorney. Not only that, but we also see frequent application errors. Customers not using the proper address. The wrong EIN number. That's something that has... we have really, really been... I don't want to use the word "cracking down," but... enforcing our customers... not only do we want the correct EIN number, we want IRS documents backing that EIN number up. And there are certain tax documents that you can provide, and certain tax documents that you can't. There's a lot more that you can provide. A 147C, the list goes on and on. I'm not going to list them, Joe. I'll just tell you a couple: 147C, 1040... What we
won't accept— we'll accept a SS-4, but not the SS-4 application. We'll accept the SS-4 that you receive back from the IRS.
Joe: I think the key there is documentation has to be
from IRS that shows the number, not that you filled out a document that happens to contain that piece of information.
Anthony: And people do that. They'll send us that. They'll drop that in our link, and they'll say, "Here." And it's like, "Nope, we can't accept this. This is the application. Where's the letter that you received back from Customs?" So missing EIN verification documents, delays, the setup of the account. A lot of times, importers put "DBA" as their legal name, or they put it in the wrong spot on the power of attorney, or they put it in the wrong spot on the
5106. It's... it's a problem. These are all different... and if they put it wrong on the 5106, that translates wrong on the bond application. It's just a... we spend a lot of time going back and forth with our importers validating this information. And, to be quite honest, we were doing this prior to the June 3rd executive order. Like I said, this dates back ten years. This is all tied up into the proper... documentation errors is all tied up into proper validation. All the things that we just mentioned: inconsistent addresses, phone numbers, contact information, all of that is common mistakes that importers make. You would think... you know, we provide them instructions on how to fill out the power of attorney. That's getting a little bit better, but, you know, the 5106 and the bond application ask for more information. And there's documentation errors, for sure.
Joe: And just a greater opportunity for them, now that CBP is under a mandate to be, you know, that much more... investigative with all of the documentation that they receive.
Anthony: Absolutely.
Joe: So we are going to talk a little bit now about choosing between
single-entry or continuous customs bond, Anthony. This seems like a pretty good place to visit this topic because... this could just be a matter of perception on my end. I'm kind of getting the idea that, in some cases, we're going to see individual importers— in fact, I've seen at least one instance of this, myself, where importers, rather than going to a larger continuous bond, in some cases, are purchasing single-entry bonds to kind of cover a gap in their coverage. So, for importers who bring in multiple shipments a year, usually, it seems like choosing a continuous bond over a single bond would be a simple choice since the continuous bond could be used over and over again in multiple ports, and it makes it more convenient. But when we take the qualifying factors we had talked about into account earlier like financial stability and applicant business history, do we see circumstances where the customer's going to potentially have an easier time, especially under new regulations getting, probably, maybe, a single-entry bond over expanding their continuous customs bond, or, in general, what would you say are, maybe, the primary points where you would apply a single-entry over continuous because I think most importers know that, when you can use continuous, you would.
Anthony: This is an interesting one because... most sureties work very similar as far as collecting collateral, as far as single-entry bonds are concerned, where they'll stop issuing single-entry bonds and demand for a continuous bond. But some of them are a little more strict, right? And they do look at all those financial histories of the customer. I would say your low value shipments, single-entry bond is probably better, and if you're not importing... let's put it this way. If you're not importing where your single-entry bond is going to cost you more than an annual bond, that means a couple of times a year, then that's when it makes sense to use a single-entry bond. Once you start to import more, I don't care what the value of your shipment is because there is... a minimum cost to issue a single-entry bond. Once that cost exceeds— and you can forecast that— once that cost exceeds the amount of a continuous bond, then... that is when you should say, "Hey..." or your broker should turn around and say, "Hey, your cost for your single-entry bond is going to be more than your continuous bond. So you should buy a bond from us, or you should get a continuous bond." Now, you know, I can tell you this. The surety companies that we use are pretty good, and their underwriters look, and once they see a single-entry bond two times, they're going to say, even if... especially if the value is there, they're going to say, "Hey, this customer is... two single-entry bonds, they need to purchase a continuous bond." They'll do that recommendation for us, so the decision doesn't simply just lie, and it's not really just based on the shipment volume like... the underwriters at the sureties, like I said, all of them work similar, not exactly the same. You could have a surety that will just keep continuing issuing single-entry bonds. But they'll review the compliance history, the commodity type, the country of origin, especially the financial debt-to-equity. That's what they're really looking for. Debt-to-equity. Their payment history... they're really looking at their payment history to us because we pay the surety. We never stiff the surety. They're also going to look at higher risk commodities, too. And once you get into larger duty exposures, they're going to say, "Hey, wait a minute, let's do a continuous bond for this." I had a customer come to me for one shipment, and the underwriter would not write a single-entry bond. And the customer had to purchase a continuous bond. So, in some cases, you know, they'll do it. But in a lot of cases, they won't. So the importer's structure and the ability to document their business process to the underwriters factors in a lot to the decision about a single-entry versus a continuous. ... a little long-winded, but...
Joe: No, you know, you kind of have to say the same thing over and over again throughout the years since people keep on doing it wrong, don't you?
Anthony: Well, you see, when I first joined this company, Joe, I didn't realize it... I questioned it. We have a customs bond manager. And then, after a few weeks here, I'm learning that we do sell a lot of bonds. Now I understand why, and our bond manager is pretty well-versed. And I will say she taught me a few different things, as well. I mean I knew the basics of a bond, now I'm pretty good at it.
Joe: Excellent. So, now that you are pretty good at it, you can answer this question. So we've talked about the common errors and some of these caveats that the underwriters have in mind. What answers should an importer be able to answer accurately before they apply for a customs bond? What kind of expectations should they have for underwriting approval? I think the way that I articulated this originally would be like "What does your perfect applicant look like?" Kind of like the way a perfect customer would look like from a sales guy perspective.
Anthony: So... my perfect applicant would look something like... They know their projected annual import volume. That's first and foremost. They understand the expected duty and the tariff exposure, and they have some sense of the duty rates that they're going to be paying because that all factors into calculating the bond. They... not "have" to, but I would like them to have a clear, defined business structure, be able to provide, not only their EIN, but their EIN verification, the tax... the IRS documentation. And then have consistent documentation across all records. Understand the...
HTS classifications. Again, I know... that's a big part of it. That's a really big part of it. And I'm not just talking about the Most Favored Nation, Column 1 rate of duty. I'm talking about the reciprocal tariffs, as well. So that's why I mentioned that two times. Hopefully, they have good compliance records, and, you know, when the underwriter asks a question, be on it. Be responsive. Be on that, and that's a great applicant. When we have these bond customers, we try to initiate some of this to them. Obviously, we're not going to tell them to have a clearly defined business structure, but we're going to tell them... be prepared for the import— We tell the customer this— be prepared for the import volume. Make sure you know your tariff numbers. Make sure you estimate your duties. Because it's going to be on the bond application anyway. You know, one thing to know: the smoother the documentation, the better the importer understands their obligations, the easier it is for the underwriter to process. That's it. Most bond issues aren't caused by bad intentions. They're caused by... I almost said "incompetence." They're caused by incomplete, inaccurate assumptions and lack of planning. That's the bottom line.
Joe: "Incompetence" is a strong word, but government forms are dense. So, sometimes, it can apply even to the best of us. So... I think that's fair. I'd like to add on just a little bit to your point about consistency of information across documentation. This is so key, not just for the customs side of things, but also for the logistics, delivery, warehousing side of things, as well, in order to make sure that your stuff gets to where it's going in case any of the federal regulators need to access just your shipping information rather than reviewing compliance and things of that nature. Consistency of information, making sure that address on one form is the same as that address on another form, is going to do you a world of good when you're struggling through some of the parts of the business that can be complicated enough on their own without having that level of preparation.
Anthony: Joe, before we move on, can I just... you're so spot on, and I'm going to tell you why. Because, when we get that EIN number, the tax ID number, the first thing that we do is we do a bond query to see if the customer does have a bond or not. And if they don't have a bond, they could still be registered with CBP. Then we'll tell them, "Do you want a bond?" But if they're registered with CBP, sometimes... not all the time, we verify the address that's in CBP's system versus what they're giving us on the IRS document, the power of attorney, the 5106, and the bond application. Like you just said, it all matches. And I will say, sometimes it doesn't match. Now what we have to do is dig deeper with the customer and find out what their actual address really is, and then, maybe, we need to do a 5106 update, and update their address in Customs because the address that Customs had is from twelve years ago, and they've moved. So things like that. So you are spot on with exactly what you were saying. But these are the things that... okay, every broker should be doing, but these are the things that we are doing here.
Joe: Absolutely. Alright, well, thank you for validating my opinion there. I feel 10 times smarter than I did walking in the door today. That is going to wrap it up for talking about the customs bond portion today, so we appreciate you taking the time to listen to the "Very Importing People" podcast today. And, to keep up with new episodes every Thursday, please visit our website at USACustomsClearance.com/podcast. We are here to get you accustomed to customs.
Voiceover: The information shared on "Very Importing People" is for general educational and informational purposes only. Customs regulations and requirements can vary based on the specific circumstances of an import, and may change over time. This podcast is not legal advice, and should not be relied upon as guidance for a specific transaction. Importers remain responsible for exercising reasonable care and complying with applicable laws and regulations. For questions about your specific shipment or importing situation, consult a qualified customs professional or legal counsel.
