Like everything else in 2021, blame Corvid. Due to increased loss experience, there has been a customs bond rate increase effective May 1, 2021. The increase is losses is not just because of Covid, however it had a major impact. Because of the covid 19 pandemic, the overall retail environment became very challenging.
- Businesses forced to close or change their business model
- Loss of jobs
- Record number of bankruptcies in the retail sector
This lead to importers supplying retailers with excess product and no way to pay the import duties. Riot’s and civil unrest further complicated an already tenuous retail environment. The activity 1 customs bond is a 3rd party guarantee of the customs duties. When a bond principal (importer) cannot pay the customs duties, the surety is forced to make the payments. While the surety will look to the principal (importer) to be made whole, with the economic uncertainty of the last year, customs bond principals were unable to pay the surety back for the claims.
On Going Trade War
The seemingly endless trade war the U.S. has participated in has lead to a significant increase in the required bond amounts which in turn lead to a significant increase in customs bond loss severity. Covid 19 resulted in increased loss frequency and the increased bond amounts lead to increased loss severity so it only makes sense that there would be customs bond rate increases. Also imported products were subject to the anti dumping duties which greatly increases the risk of loss to the surety.
Customs Bond Rate Increases & Increased Underwriting Requirements
Underwriting requirements have also been impacted. The customs bond surety markets cannot lose money and the rate increases alone cannot make up for the significant loss activity of 2020. The over all rate is small, much less than 1% of the bond amount. The only way to really influence the loss frequency issue is to apply tougher underwriting standards to the bonds that are written. The credit of the importer is now an underwriting consideration and in the case of small, or individual importers, personal indemnity will be a requirement of the bond.
While we were forced to increase our prices, Bonds4customs.com is still the low cost provider of customs bonds. Click here to apply now.