In the arena of international trade, there are two basic classes of bonds, required by two different agencies of the U.S. government: the Federal Maritime Commission and U.S. Customs. All ocean freight forwarders and Non-Vessel Operating Common Carriers (NVOCC's) handling cargo originating from or destined for the United States must now be licensed and bonded as Ocean Transportation Intermediaries (OTI's).
The OTI Bond
Those who have been in the international trade business for awhile will know that the predecessors to these bonds were known as FMC and NVOCC Bonds. The OTI bond is intended to guarantee that contracts with shippers and carriers will be carried out and to protect the shipping public by ensuring the forwarder or NVOCC complies with Federal Maritime Commission regulations.
There are set bond amounts required for both classes of Ocean Transportation Intermediary:
Freight Forwarders - required to obtain and carry a bond of $50,000.
NVOCC's - required to obtain and carry a bond of $75,000.
For those operating outside the U.S. the minimum bond amount is $150,000.
Importers in the United States are also required to post a bond (or its cash equivalent) with the U.S. Customs Service to guarantee that they (the importer) will obey and follow all laws and regulations pertaining to bringing goods into the country for commercial purposes.
This type of bond is not designed to protect the importer or their clients. It is intended to protect the interests of U.S. commerce. The surety, or bonding company, takes on the same responsibilities as the importer and provides the required money to assure that no financial harm is done to the U.S. or its economy by the failure of the importer to pay duties, taxes and other charges in a timely manner, to make or complete entry and to produce documents and evidence, to redeliver merchandise or otherwise comply with any pertinent law, regulation or instruction required by U.S. Customs. Unlike an insurance company, the surety has the right to come after the importer for full recovery of any loss the surety may sustain.
The most common type of customs bond is the Activity Code 1 Importer or Broker Entry Bond. Within this category there are two forms:- The Single Entry Bond which covers only one import entry; and the
The second most common customs bond is the Activity Code 2 – Custodian of Bonded Merchandise. This type of bond secures obligations related to custodial activities (the holding) of all classes of merchandise under customs supervision or being transported within the same customs port, or until released by customs. It includes several types to cover the custodial operations of bonded warehouses, domestic common carriers, cartmen, lightermen, centralized examination stations and container freight stations. Only continuous bonds are permitted as an Activity Code 2 bond.
Activity Code 3: International Carrier Bonds are the third most commonly used bonds related to the import of merchandise into the United States. Activities related to the entry or clearance of vessels, vehicles or aircraft from outside the U.S. are secured by this type of instrument, which may be written as either a single transaction or continuous bond. There is a bond under sub-code 3a: Instruments of International Traffic, that secures compliance with laws and regulations on the introduction of international traffic and other shipping containers without entry.
There are actually 11 Activity Codes for U.S. Customs Bonds that cover a range of activities.
The Remainder of these are:
A.C. 4 - Foreign Trade Zone Operator
A.C. 5 - Public Gauger Bond
A.C. 6 - Wool and Fur Products Labeling Act and Fiber Products Identification Act
A.C. 7 - Bill of Lading Bond
A.C. 8 - Detention of Copyrighted Material
A.C. 9 - Neutrality Bond
A.C. 10 - Court Costs for Condemned Goods
A.C. 16 - Importer Security Filings