A conversation with Karia Herrera, Compliance Manager for R.L. Jones Customhouse Brokers, a CPI Strategic Partner.

With an increase in companies leaving China for Mexico, the question, “What is an in-bond shipment?” has become more popular. Manufacturers often utilize moving cargo in-bond from other countries to Mexico to avoid being subject U.S. tariffs while transporting raw materials or parts through the U.S.

The in-bond process is also used for importing from China to companies manufacturing in Mexico. We sat down with Karia Herrera to get all your questions answered about in-bond shipments, related customs regulations, customs bonds, logistics, and supply chain tips for in-bond shipments.

1. What is an in-bond shipment? An in-bond shipment is defined as cargo that is temporarily stored in a bonded warehouse or transported by a bonded carrier through the USA. The in-bond cargo can be transported without the payment of duties, taxes, and tariffs, provided all regulations are met and as long as they are not destined to be commercialized in the United States.
   Manufacturers in Mexico often use the in-bond process to ship raw materials and parts from countries like China that might be subject to Section 301 tariffs, through the United States, and ultimately to their Mexico manufacturing facility (or maquiladora) for processing, assembly, or transformation. In-bond shipment laws allow for cargo to be transported via air, sea, or land.
   Further reading: What is a maquiladora?
   
   
2. Do in-bond shipments work just between the United States, Canada, and Mexico? Or do they apply to shipments outside of North America? In-bond shipments can be used whenever there is a need of move cargo through the USA. In our region, in-bond shipments are mostly used to move raw materials from other countries to Mexico manufacturing facilities. We also use in-bond shipments for cargo coming from Mexico as a Finished Good and the final destination are countries other than the USA, for example Europe.
   
   
3. What is a customs bond? The Customs Bond is a contract between Customs and the principal. The Bond is issued by the surety and it serves as an insurance to CBP that the duties and taxes owed to the US government will be paid.
   
   
4. What is a bonded carrier? A bonded carrier is an operator of a conveyance that has a bond with CBP. This bond will ensure that the bonded carrier complies with customs regulations and bonded cargo procedures for the movement of in-bond shipments.
   
   
5. Does RL Jones have custom bonded warehouses? We have a dedicated team of individuals that specialize in moving in-bond cargo being transported via air, sea, or land. We have a custom bonded warehouse in Otay Mesa that allows us to receive cargo and perform certain manipulation activities prior to the export of the goods for manufacturing in Mexico.
   
   
6. Can a manufacturer in Mexico use in-bond shipments to avoid U.S. tariffs on Chinese imports? Moving cargo in-bond from other countries to Mexico does allow you to avoid paying duties while transporting cargo through the USA. Each finished good has its own set of rules and must be studied independently, often using the Harmonized Tariff Schedule (HTS) to determine what duties or tariffs raw materials and parts may be subject to. If it is determined that a product does qualify for the USMCA, then upon importation to the USA it could be exempt from duties and Merchandise Processing Fee (MPF, a CBP fee based on the value of the merchandise being imported, not including duty, freight, and insurance charges.)
   
   Another example that is more common these days has to do with Section 301 U.S. tariffs on Chinese imports. If a company ships raw materials from China to Mexico via the United States that are deemed subject to U.S. tariffs, they may pass in-bond through the U.S. and are imported into Mexico tariff-free. Once at the manufacturing facility in Mexico the raw materials must suffer substantial transformation into a final product before the final product may be exported to the United States to avoid being subject to Section 301 tariffs.
   
   
7. Are there any restrictions or things manufacturers should watch out when shipping in-bond? In-bond shipments do have time restrictions if you are shipping between the U.S. and Mexico. If cargo is moving in-bond the merchandise must be exported within 30 days from the date the in-bond is created. If additional time is needed for the exportation, then other actions will need to take place such as placing the goods in a bonded warehouse for long term storage.
   
   Be aware that purely labelling, cleaning of the material, polishing, and the elaboration of sets do not substantiate a “substantial transformation” and would be subject to Section 301 tariffs upon export to the United States and do not qualify for in-bond shipments to Mexico.
   
   
8. How do CPI and RL Jones work together to determine if a manufacturer’s raw materials can take advantage of in-bond shipping? CPI will ask manufacturers looking to reshore or expand production to Mexico to provide a list of raw materials and their corresponding HTS code that they expect to import to Mexico for manufacturing. CPI works with its internal compliance managers and RL Jones to determine which materials may qualify for duty and tariff-free import/export under free trade agreements and Section 301 tariffs.
   
   Both CPI and RL Jones also maintain communication with manufacturers working under CPI’s Shelter Company program to any in-bond regulatory changes that may affect them while manufacturing in Mexico.

Further Reading:

• What is Reshoring in Manufacturing?
• Reshoring Trend Continues: U.S. Manufacturing Companies Leaving China
• The Undeniable Advantages of Manufacturing in Mexico vs China