4 Things Shipping Companies Don't Know about Surety Bonds

The more you know about surety bonds, the more value they can bring to your shipping company

Todd Bryant
Todd Bryant

Are surety bonds becoming a chore for your shipping company? With all the tasks on a manager’s to-do list, it may feel like bonding requirements are just one more thing to take care of.

However, the more you know about surety bonds, the more value they can bring to your shipping company. Even though you are legally required to have them, most shipping companies are still in the dark about surety bonds: how they work, how to reduce costs and how to make them work for you.

So what are the biggest mysteries of surety bonds for shipping companies? Read on to find out and stay ahead of the curve.

1. Protection from Freight Broker Default

One of the major ways in which bonds protect shippers is the bonding required for freight brokers. The freight broker bond is actually a safety net that guarantees shipping companies and motor carriers’ are not be hurt by brokers’ mistakes.

It’s a little-known fact that, if the freight broker defaults, it’s not going to be he or she covering the expenses, but the surety provider who underwrote the freight broker’s bond. How does it work? If the freight broker with whom you work is properly bonded as required by law, you can file a claim. If the claim is successful, your company is reimbursed by the surety bond provider. Then, in turn, the provider deals with covering the costs from the freight broker.

2. Safety when Importing

In the case above, the freight broker bond protects the shipper. There are other cases when you actually need to get bonded, too. But did you know that besides being a legal requirement, the bond protects you as well?

If you are importing merchandise for commercial purposes over $2,500 within the U.S., you have to obtain a customs bond. It provides a guarantee that all taxes, fees and duties that are due to the federal government in relation to your import are paid. In case you do not or cannot pay them, the surety company covers the expenses, so you’re not liable in front of authorities. Nevertheless, after that you have to reimburse the surety.

3. Surety Bonds Don’t Have to Be Expensive

Shipping companies often presume that getting bonded is a tedious—and more importantly—costly process. The reason is that often you may not be aware how the bonding amount is calculated.

Customs bonds, for instance, come in two varieties: continuous and single-entry bonds. The single-entry bond consists of an amount equal to or bigger than the entered value of the items, and any relevant duties, taxes and fees, with a minimum of $100. For continuous bonds, the minimum amount is $50,000 or 10 percent of all duties, taxes and fees paid for a period of one year. While this may sound like a big deal, it’s actually much cheaper than the single-entry bonds. It covers all import transactions over a period of one year and can be used at any port.

4. Did You Check the Surety Provider?

When you need to obtain a bond, you may be quick to judge which surety provider to choose. Often, the motivation is to finalize the bonding procedure as fast as possible, based on the idea that all providers must have the same service.

This means you may not be aware that not all surety bond companies are on the same level. To make sure you choose a verified bond provider, it’s a good idea to follow the National Association of Surety Bond Producers’ two-step verification. It includes checking the authority of the company to issue the bond, as well as whether it’s listed in the U.S. Department of the Treasury Listing of Approved Sureties. It’s best to use the services of sureties that cover both conditions.

Do you know of any other useful tips beyond the four we uncovered here? We’d love to hear from you in the comments section.