A tax on a tax: U.S. customs demands bigger bonds as trade tariffs rise – Reuters

CHICAGO (Reuters) – Stephen Wang is counting the costs of President Donald Trump’s trade war. He had to put down 12 times more cash as a guarantee to U.S. customs that he would pay the bill for tariffs on the Chinese-made pumps, valves and motors he imports.

FILE PHOTO: Shipping containers are pictured at Yusen Terminals (YTI) on Terminal Island at the Port of Los Angeles in Los Angeles, California, U.S., January 30, 2019. REUTERS/Mike Blake/File Photo

The cost of the guarantee – a U.S. customs bond – has shot up, an additional hit to importers already facing steep customs bills adding up to tens of billions of dollars for tariffs imposed by the Trump administration on incoming Chinese goods, as well as steel and aluminum imports.

Since coming into effect last year, the tariffs have pushed up manufacturing costs, upended decades-old global supply chains and inflated prices for consumers, resulting in lower sales and forcing companies to defer investments. This, in turn, has dimmed global growth outlook, roiling financial markets.

Other ripple effects are less obvious, among them the rising expense of U.S. customs bonds. But for small companies that can ill afford the added cost, the impact can be crippling.

Given the extra duties associated with Trump’s tariffs, importers have been forced to post bonds that are worth much more to guarantee they can cover the added cost of bringing Chinese imports, and foreign steel and aluminum, into the United States.

In some cases, customs bond requirements have increased 500-fold, according to Reuters interviews with a dozen importers, underwriters and customs brokers.

“Managing the cash flow has become tough,” said Wang. If the tariff war drags on, he warns, companies operating with thin profit margins and a weak capital base could go bust.

Wang is the chief executive of Hengli America, which procures supplies from China for customers such as CNH Industrial’s construction and farm equipment units.

After duties on its merchandise surged from zero to $6 million a year, U.S. Customs required Hengli to post a $600,000 bond. Its previous bond was $50,000.

Other importers reported similarly sharp increases.

Lisa Gelsomino, chief executive officer at underwriting firm Avalon Risk Management, said one client recently had to replace a $50,000 bond with one worth $26 million.

The rise in tariffs means that U.S. Customs and Border Protection (CBP) has issued thousands of importers with notices that their bonds are inadequate.

The CBP has issued about 3,500 insufficiency notices since January, it said. That compares to an average of 2,070 notices a year for the period between 2006 and 2017, according to data compiled by Roanoke Insurance Group.

(Graphic on bond insufficiency notices tmsnrt.rs/2HwR2IM)

If importers fail to post a new bond within a month of receiving an insufficiency notice, customs officials can hold the cargo and charge additional fees. The CBP has around 224,000 active bonds on file.

No importer can ship goods into the country without posting a customs bond. The bonds are set at 10 percent of the importer’s total estimated annual duties, fees and taxes.

The Trump administration’s 25 percent import tariff on $50 billion of Chinese imported goods, and another 10 percent on $200 billion of imports, has added up. The annual tariff bill on Chinese goods alone stands at $32.5 billion – requiring $3.25 billion in additional customs bonds.

Separately, Washington has levied a 25 percent duty on imports of steel and a 10 percent duty on those of aluminum.

“You are talking millions of dollars that is going out,” said David Meyer, head of customs brokerage and freight logistics company DJS International Services Inc.

“But you don’t have a million dollar tree that you are shaking in your backyard to make sure that you have got that money…it has definitely become a burden for importers.”

More than half of Meyer’s clients have seen at least a tenfold increase in their bond amounts.

SURGING BOND REQUIREMENTS

What is proving painful for some importers has been a bonanza for the firms that underwrite the bonds.

More costly bonds mean higher underwriting fees. They also mean higher collateral requirements. Since underwriters are on the hook if importers fail to pay duties, they want collateral that matches the value of the bond; underwriters usually require 1-1.5 percent of the bond amount to guarantee the bond.

At Roanoke Insurance Group, the workload has increased so much that staff are working on weekends to handle it, said Colleen Clarke, vice president at Roanoke.

In one example, she said, Roanoke required $9 million in collateral from a steel importer that was asked to post a $9 million bond after duties on its imports surged from zero to $90 million a year.

The steel importer also paid $90,000 in premium for the bond. The end result: the importer needed to come up with just over $99 million a year to continue to import $360 million of steel.

That is complicating finances for importers. The trade war has also driven up some raw material, freight and warehousing costs, raising the risks that some importers might default on payment obligations.

“Most of the importers are not used to paying these duties,” said Roanoke’s Clarke. “The risk is – do they have cash infusion from somewhere else to pay these duties?”

Amy Magnus, who heads the National Customs Brokers & Forwarders Association of America, whose members work with over 250,000 importers and exporters, said a client who used to import Canadian steel went bankrupt after his shipments were subjected to a 25 percent tariff. She declined to share more details.

EXPENSIVE LOANS, DELAYED PAYMENTS

Four customs brokers told Reuters that some of their small-size clients had stopped importing goods altogether.

Hengli’s Wang says his cash flow needs have risen fourfold since July, forcing him to delay payments to his Chinese suppliers. In addition to higher costs, he is losing customers – some have switched to cheaper non-Chinese goods suppliers.

Precision Components, whose customers include Fortune 500 companies, imports bearings from China. Since July 6, when U.S. tariffs on bearings imports rose 25 percent, the cost of each container it receives from China has risen by $15,000, said Dave Hull, the firm’s president. The company imports around 40 containers a year.

It has been borrowing on average $200,000 a month since last July to meet its working capital requirements, Hull said, up from around $50,000 prior to that.

What’s more, custom brokers, who sometimes pay duties on behalf of their clients, are demanding quicker repayment, said Jane Sorensen, president of the Chicago Customs Brokers & Forwarders Association.

Slideshow (2 Images)

They are asking importers to repay in 7-10 days, she said, compared with the more typical 30-day time frame.

Bill Sharpe, a customs broker in Chicago, says he has halved his collection time to 15 days. Even so, he worries about the risks of clients defaulting.

“We are having to keep a close eye on all our clients to make sure they don’t turn into a credit risk,” Sharpe said.

Reporting by Rajesh Kumar Singh; Editing by Simon Webb and Paul Thomasch

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Oil set for biggest quarterly rise since 2009 amid OPEC cuts, U.S. sanctions – CNBC

A worker walks through an oil production facility owned by Parsley Energy in the Permian Basin near Midland, Texas, August 23, 2018. 










Nick Oxford | Reuters 

A worker walks through an oil production facility owned by Parsley Energy in the Permian Basin near Midland, Texas, August 23, 2018. 

Oil prices rose on Friday amid the ongoing OPEC-led supply cuts and U.S. sanctions against Iran and Venezuela, putting crude markets on track for their biggest quarterly rise since 2009.

The rebound comes after a swift and punishing collapse in oil prices during the final quarter of 2018.

U.S. West Texas Intermediate crude futures were up $1.15, or 1.9 percent, at $60.45 per barrel around 8:45 a.m. ET (1245 GMT).

WTI futures were set to rise for a fourth straight week and were on track to rise 33 percent in the first three months of the year.

Brent crude futures, the international benchmark for oil prices, rose 85 cents, or 1.3 percent, at $68.67 per barrel. Brent futures were set to rise about 2.5 percent for the week and by more than 27 percent in the first quarter.

For both futures contracts, the first quarter 2019 is the best performing quarter since the second quarter of 2009 when both gained about 40 percent.

Oil prices have been supported for much of 2019 by the efforts of OPEC and non-affiliated allies like Russia, together known as OPEC+. The alliance has pledged to withhold around 1.2 million barrels per day of supply this year to prop up markets.

“Production cuts from the OPEC+ group of producers have been the main reason for the dramatic recovery since the 38 percent price slump seen during the final quarter of last year,” said Ole Hansen, head of commodity strategy at Saxo Bank.

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Sliced bagel controversy makes its way to Long Island – News 12 Long Island

OCEANSIDE –

A St. Louis man’s photo of bagels sliced like bread has gone viral on social media – and now the debate has made its way to Long Island.

Alex Krautmann tweeted the photo March 25. It shows two boxes of bagels with each bagel sliced vertically into multiple pieces.

However, people on the East Coast were in shock over the style of bagel cutting.

Jessica Levine, of Oceanside, say slicing a bagel like that is wrong.

“You can’t slice a bagel like that,” says Levine. “That’s completely not Kosher.”

Sen. Charles Schumer wasn’t buying it either. Schumer tweeted, “On behalf of the New York Delegation: St. Louis Fuhgeddaboudit.”

While many New Yorkers disagree with the midwesterner’s bagel slicing method, they say in the end a bagel is a bagel and no matter how you slice it, it’s still delicious bread.

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Wall Street set for muted open, trade talks in focus – Investing.com

© Reuters. Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York© Reuters. Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York

(Reuters) – U.S. stocks opened higher on Thursday, helped by gains in technology and consumer discretionary companies, while investors awaited more details on the progress in U.S.-China trade talks.

The rose 67.73 points, or 0.26 percent, at the open to 25,693.32.

The opened higher by 4.03 points, or 0.14 percent, at 2,809.40. The gained 16.69 points, or 0.22 percent, to 7,660.07 at the opening bell.

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